Trend and Cycles in US Trade With Spain and the Spanish Empire

8/12/2019 Trend and Cycles in US Trade With Spain and the Spanish Empire

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Economic History ssociation

Trends and Cycles in U.S. Trade with Spain and the Spanish Empire, 1790-1819Author(s): Javier Cuenca EstebanSource: The Journal of Economic History, Vol. 44, No. 2, The Tasks of Economic History(Jun., 1984), pp. 521-543Published by: Cambridge University Press on behalf of the Economic History Association

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Trends and Cycles in U.S. Tradewith Spain and the Spanish Empire,

1790-1819JAVIER CUENCA ESTEBAN

Analysis of balance-of-payments omponents with Spain and Spanish Americahelps account for spectacular conomic gains to the United States in the neutralityyears and for the subsequent urn to net deficit positions during he 1810s. Excessexport values at constant prices with Spain and favorable terms of trade withSpanish America decisively contributed o large surpluses on commodity account

through 1795-1813. Most cycles in merchandise rade are consistent with greaterdemand elasticities for exports than for imports. Net earnings on freight,insurance, and mercantile profits boosted overall returns rom the Spanish Empireat the very times when they were most needed to finance the re-export rade andto settle deficits elsewhere.

THE neutrality years 1793-1808 were less bountiful perhaps thanDouglass North once contended, but farmers and merchants in

northeastern United States did draw unprecedented prosperity rom thecountry's double role as supplier and middleman o European nations atwar and their colonies.' This double role required precious metals aswell as staples and ships, and large inflows of silver from SpanishAmerica were deemed essential at the time to finance the carrying radeand to settle deficits with Britain and with the Far East.2 The impor-

The Journal of Economic History, Vol. XLIV, No. 2 (June 1984). C The Economic HistoryAssociation. All rights reserved. ISSN 0022-0507.

The author s Associate Professor of Economics at the University of Waterloo, Ontario, Canada,

N2L 3G1. He is indebted to Lyman L. Johnson for generously providing new price series forBuenos Aires, and to John J. TePaske or kindly helping ocate price sources for Mexico City in theArchivo General de Indias (Seville). The Social Sciences and Humanities Research Council ofCanada helped finance two research trips to Seville and to Havana n 1983.

This article builds and expands upon results and methodology presented in Javier CuencaEsteban, The United States Balance of Payments with Spanish America and the PhilippineIslands, 1790-1819: Estimates and Analysis of Principal Components, n The North-AmericanRole in the Spanish Imperial Economy, 1760-1819,J. A. Barbier and A. Kuethe, eds. (Manchester,1984), pp. 28-70 and 198-209. Unless otherwise mentioned n the notes, all estimates of U.S.balance-of-payments omponents with Spain, and the series of Philadelphia prices and importduties and customs revenue on trade with Spain, have been derived rom the same sources and withsimilar methodology.

It is hoped that the present analysis will stimulate further research on the U.S. balance ofpayments and its impact on the domestic economy in this period. The author s currently atheringdata for two projects on the British and French balances of payments with Spanish America n thesame years.

l Recent re-assessments of North's well known thesis include Donald R. Adams, Jr., AmericanNeutrality and Prosperity, 1793-1808:A Reconsideration, his JOURNAL, 40 (Dec. 1980), 713-37,and Claudia D. Goldin and Frank D. Lewis, The Role of Exports n American Economic Growthduring he Napoleonic Wars, 1793 to 1807, Explorations n Economic History, 17 (1980), 6-25.

2 Timothy Pitkin, A Statistical View of the Commerce of the United States of America , 1sted. (Hartford, 1816),p. 192.

521

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522 Cuenca Esteban

tance of commodity exchange with the Spanish Indies in the years1790-1819, and that of the carrying earnings and profits t brought, havebeen stressed and analyzed elsewhere as far as official trade throughUnited States ports is concerned. Similar estimates of balance-of-payments components with Spain suggest that, while trade flows withthis area were far smaller than those with the Indies, the financialcredits they turned were four times as large and a vital palliative for thecountry's debtor position.3

The undeniable importance of this trade, and the large overallbalances against the Spanish Empire in most years, call for furtheranalysis beyond the more obvious components of net earnings. This

paper will focus on a number of structural and economic factors thathelp account for spectacular gains during the neutrality years and forsubsequent turns to net deficit positions during he 1810s. Some of thesefactors are linked to climatic and geographical circumstances thatshaped the direction and composition of trade under the drive of profitmaximization. Others relate to differential patterns of consumer behav-ior, as measured by price and income elasticities of demand n the threesets of markets involved. Still others concern trends and cycles inrelative prices, freight and insurance rates, and profit opportunitiesimposed and created by international economic chaos during theNapoleonic wars. It will be argued that economic conditions exception-ally favorable to the United States temporarily boosted the financialreturns of an important branch of trade, the larger component of whichwas in structural deficit.

Commodity rade with the Indies was in structural deficit in the sensethat total export values at constant prices fell short of those of importsat ports of departure n all but three years.4 The determinants of theseconstant values may be grouped, for analytical comparison ndependentof the units employed, into log-ratios of export over import tonnage andlog-ratios of export over import values per cargo ton at constant prices(see Figure 1, lower panel). Judging from stowage factors used in 1771to reckon loading capacity, the average tonnage of outgoing cargoesonly moderately exceeded that in return voyages: in this physicaldimension, the southward rade would have been largely bilateral.' One

3 See estimates in Table 3.4 Estimates n Cuenca Esteban, United States Balance of Payments, Table 2.5 To be sure, ships sailing south at times proceeded o the Far East by Cape Horn (evidence cited

in Cuenca Esteban, United States Balance of Payments, p. 56); others often stopped, as will benoted, at several ports n the Spanish and foreign West Indies or headed east for European harbors.On the whole, however, evidence on hundreds of actual voyages in 1797-1804 points topredominantly double risk insurance, hus supporting he present balance-of-tonnage stimatesas far as trade through U.S. ports is concerned: nsurance policies and

subscription accounts inAmerican Philosophical Society, Stephen Girard Collection, Series 2, Reels 362-364.



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U.S. Trade with Spain 523

TABLE 1U.S. TRADE WITH THE SPANISH EMPIRE, 1790-1819, CONSTANT VALUES PER

CARGO TON AT UNITED STATES PORTS(values in dollars at constant wholesale prices of 1791)

To/From Spanish America To/From Spain

Exports 111 Exports 91Flour 69 Flour 69Rice 64 Wheat 41Codfish 77 Rice 64Tobacco 115 Codfish 77Cotton 212 Tobacco 115Wines and sherrya 131 Cotton 212Spiritsa 252 Sugara 229

Coffeea 350Cocoaa 394

Importsa 196Sugar 229Molasses 82 Importsa 98Coffee 350 Wines and sherry 131Cocoa 394 Brandy 252Indigo 2784 Salt 5

a Values at constant import prices of 1791 (i.e., wholesale prices minus specific import duties).Sources and procedures: See introductory remarks.

reason for such near balance was the strong complementarity betweenthe northern economy and its tropical and semi-tropical partners;another was the motive of profit maximization hat drove merchants andshippers to use cargo space efficiently in an age of high freight costs.Though vessels not sold abroad returned nearly as full as they had left,the tropical commodities they brought were worth much more thandeparting cargoes of bulky domestic staples, wines and spirits, and

other exports and re-exports (see again, lower panel). Sugar, coffee, andcocoa in particular were exceptionally valuable relative to bulk, certain-ly more than wines and spirits, and even a ton of molasses was worthmore than the cubic equivalent of codfish, flour, or rice (see Table 1).Such was the size of gaps in relative values that excess export tonnageseldom sufficed to offset persistent deficits in the ratios of export overimport values per ton (see balance of log-ratios, middle panel of Figure1).

It will be wondered, then, why merchandise balances at ports ofdeparture upper panel) remained nearly neutral through he short-termcycles for the greater part of the Napoleonic wars. The reason lies interms of trade favorable to the United States (see middle panel), astemporary conditions of relative scarcity in the western hemisphereheld export prices high above those of imports. In the years of navalwarfare between England and Spain, North American staples andmanufactures held up in price, whereas tropical goods no longerexported to Spain became relatively abundant. These conditions re-versed during the truce of Amiens (1802-1804), but the trend remained



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524 Cuenca Esteban

SPANISHWAROF

Ist NAVAL 2 ad INDEPENDENCEWAR UK NAVAL WARSPAIN WAR US-UK

+2m 11796 1801 1804 1807 18 1815

-2 m$ -Exports FOB Imports FOB(values of current prices)

trode righ scaleI ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~~;e-lr-emso

* Joint balance of tonnage and constant 50 %values per ton (frOm ower panel ) I I

2 1Eexport argo ons/Import cargo ons

Constant xport Vols toni Constantimport values, per ton 1791 prices) _1790 1795 1800 1805 1810 1815 1820

FIGURE IU.S. TRADE WITH THE INDIES, FISCAL YEARS 1790-1819: BALANCE OF TRADE AT

PORTS OF DEPARTURE AND PRINCIPAL DETERMINANTS

Sources and procedures: See introductory emarks.

increasingly avorable to the United States through 1798-1811. Predict-ably, war with England (1812-1815) drove import prices far above thoseof domestic exports while re-export values collapsed, and the peace thatfollowed held import prices high relative to those of the neutrality years.From 1812 onward, therefore, mildly favorable terms of trade no longersufficed to offset structural deficits in the balance of trade volumes.

The structural weakness of the total balances with the Indies appearsin a different light if the carrying trade is separated from the less

unstable flows of directly exchanged goods. The upper panel of Figure 2displays, on the one hand, the balances of re-exports and importscarried to the rest of the world; and on the other, the balances of homeexports and imports for domestic consumption.6 The striking discrepan-cies between the two balances in years of naval war and in the last

6 The reader is warned that these two sub-balances had to be estimated, very roughly, fromratios of drawbacks returned upon re-export) over gross customs revenue: see, for details, CuencaEsteban, United States Balance of Payments, Appendix, Section F, note 99, and Table 1. Thegaps between the two sub-balances eem wide enough to warrant he present analysis.



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SPANISH WAR OFINDEPENDENCE

Ist NAVAL 2 ndWAR UK- NAVAL WARSPAIN WAR US- UK

1796 1801 1804 1807 1811 1815

Re-exports - Imports l

+4m$ -carried to the restof the world

+ 2m$-

Homeexports- 2 m$ imports for domestic

consumption

2 ~~~~~~Onhe carrying rade

JOINT

BALACS--FCARGO0.5 -TNNAGE NDCONSMVALUES PER TON

1790 1795 1800 1805 1810 1815 1820FIGURE 2

U.S. TRADE WITH THE INDIES, FISCAL YEARS 1795-1819: BALANCES AT PORTS OFDEPARTURE ON THE CARRYING AND DIRECT TRADE, AND PRINCIPAL DETERMI-

NANTS

a Extremely avorable oint balance on the carrying rade in 1808 not displayed.Sources and procedures: See introductory emarks and note 6.

decade respond, once more, to structural features of the componenttrades: The foreign balances were strongly favorable because bothexport tonnage and export values per ton at constant prices tended toexceed their import counterparts, and the reverse held true for thedomestic balances (see lower panel).7 As long as the carrying rade was

by far the larger in periods when the terms of trade were rising (seeFigures 3 and 1), the overall balance could turn temporarily n favor ofthe United States as late as the post-embargo years 1809-1810. After1808, however, much of this profitable business was taken over byBritain, now an ally of Spain against Napoleon, and the terms of tradepredictably weakened after 1812 as imports from the Indies, more

7 The terms of trade can be safely ignored at this stage because prices of domestic exports atPhiladelphia eldom differ significantly rom those of re-exports see ibid., Table 2, columns 9 and10).



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526 Cuenca Esteban

SPANISH WAR OFINDEPENDENCE

lIt NAVAL 2ndWARUK- NAVAL WARSPAIN WAR US-UK

1796 1801 1804 1807 1811 181S

_~m I

0~~~~1 An 1

lo .S. TRADE WITH THE INDIESANWIHSANFSCLYRS19-8:

Imports

U.S.CTRADEITH TEINDPANS

(total commodity values at Philadelphia rices of 1791)


widely shared with other nations, rose inl prlce.8 h eutn oa

losses in the 1810s reveal the true deficitary nature of trade with theIndies in the absence of international economic dislocation due towarfare.

By contrast, the merchandise balances with Spain never turnedagainst the United States in years of peace and held virtually neutral nthe late 1810s (see Figure 4, upper panel). Part of the explanation ies,once again, in structural actors that shaped the balances of tonnage andconstant values per ton. It will be recalled that climatic and geographicalcircumstances peculiar to trade with the Indies allowed for efficient useof cargo space within a largely bilateral exchange of domestic staplesand foreign manufactures or tropical products. Not so in the trade withSpain, for such North American staples as flour, codfish, and rice alsowere produced in northern and southern Europe, and Spanish wines andspirits had close substitutes both at home and in other Mediterranean

8 On the timing of Britain's takeover of Spanish American rade, see Javier Cuenca Esteban,Statistics of Spain's Colonial Trade, 1792-1820: Consular Duties, Cargo Inventories, and

Balances of Trade, Hispanic American Historical Review, 61 (Aug. 1981), 419 and Chart 3.



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SPANISH WAR OF

I st NAVAL 2 nd INDEPENDENCEWAR UK- NAVAL WARSPAIN WAR US-UK

1796 1801 1804 1807 1811 1815+6m$

+4m$ Exports FOB Imports FOB(values at current prices)

0?- 4 _ _ _

Joint bolonce of tonnage a constantU2o11ues er on ~u go (f Om ower p160 %

2 - - 130%

L .. 1 8 Net orterms oftrade

2 t%

0.5 Constant xport values er ton/ ConstantI 'impgorlv dt s er ton 1|791prices} i1790 1795 1800 1805 1810 1815 1820

FIGURE 4U.S. TRADE WITH SPAIN, FISCAL YEARS 1790-1891:BALANCE OF TRADE AT PORTS

OF DEPARTURE AND PRINCIPAL DETERMINANTS

a Extremely avorable balances in 1790and 1810-1813 not displayed.Sources and procedures: See introductory emarks.

regions. Some of the ships bound for peninsular ports may havereturned home fully loaded with Spanish merchandise, but the rule wasone of multilateral exchange. Profit-maximizing aptains sailing eastwere wise to unload where prices were the highest, and to gather returncargoes or to sell their ships in reasonably close markets at the lowestpossible cost or for the greatest possible return. Some of the merchantvessels that crossed the Gibraltar trait, often under warship protectionfrom Barbary pirates,9 traded sugar and cocoa in Barcelona for paper

and spirits to be delivered at Veracruz.'0 Many others ventured toMarseilles or as far as Italy, and roughly a third of the 814 U.S. shipsthat arrived at Leghorn in 1798-1820 eft for southern European ports to

9 Convoys of merchant hips of various nationalities, scorted by U.S. frigates, often stopped atMdlaga or Alicante: see the relevant correspondence n Archivo Hist6rico Nacional (Madrid),Estado, leg. 5537, Exped. 23, nos. 18 and 21-23.

10 Jose Maria Delgado Ribas, El impacto de las crisis coloniales en la economia catalana 1787-1807), in La economia espafiola alfinal del Antiguo RWgimen. III. Comercio y Colonias, ed. andintrod. by Josep Fontana Ldzaro (Madrid, 1982), p. 165.



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528 Cuenca Esteban

complete their return cargoes. The odds are, then, that ships sailingback to U.S. ports would carry small shares of Spanish merchandise,thus lending credibility to the frequently positive estimates of exportminus import tonnage displayed in the lower panel of Figure 4. Hadexport values per ton fallen short of those of imports in most years, asthey did in trade with the Indies, the gaps between export and importvalues at constant prices would have narrowed against the UnitedStates; as it was, sizeable re-exports to Spain of sugar, coffee, andmanufactures perhaps during warfare, ensured positive joint balances oftonnage and constant values per ton at all times after 1796 (see middlepanel). So favorable to exports were both determinants of constant

values in most years that only in 1814did weak or adverse terms of tradebring down the merchandise balance at current prices into the red (seemiddle and upper panels). While, in trade with the Indies, excess importvalues per ton made for permanent deficits in the absence of stronglyfavorable terms of trade, in commerce with Spain weighty structuralfactors on the side of exports almost always offset adverse patterns ofrelative prices.

II

The foregoing analysis has identified a number of structural patternsin commodity flows and composition that help account, together withinduced variations in relative prices, for observed trends in the mer-chandise balances with the Indies and with Spain. But cycles in thecommodity values themselves must in turn be explained, and on thispoint quasi-descriptive explanations do not suffice and can be mislead-

ing. The series of current rade values at ports of departure onvey, withfew significant exceptions, a clear and recurrent pattern: In periods ofwar, greater proportional growth in export values made for largesurpluses against the Spanish empire, and as trade values shrank withthe close of hostilities the balances with the Indies turned negative andthose with Spain virtually neutral. Mounting re-exports during warfareby themselves hardly account for positive balances, for imports alsoincreased dramatically o feed the carrying rade; and mere comparisonsof export and import values through the cycles would yield little morethan a tautology.

The differential rates of change in commodity values that shapedcycles in the trade balances are best understood in economic terms.Though supply shifts played significant roles, most cycles are explainedlargely by price and income elasticities of demand in the three sets ofmarkets involved. If an export drive is to succeed, it must be met by

Charles A. Keene, American Shipping and Trade, 1798-1810:The Evidence from Leghorn,this JOURNAL, 38 (Sept. 1978),692 and 685.



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consumers able and willing to cover the costs of production anddelivery. It was an unusual feature of the trades under study that mostrelevant prices, particularly n the U.S. and in Spain, fell with swellingimport volumes during warfare and rose again as volumes dwindled withthe return of peace. A more elastic demand abroad for United Statesexports than for its own imports at home would largely account for bothupswings and downswings in the trade balances: Falling prices duringwarfare would have caused greater proportional growth in export thanin import quantities, and subsequent price increases would have re-duced export volumes to a greater extent than imports. The directimpact of falling prices on quantity demanded during warfare probably

was modified by indirect effects on incomes: Rising purchasing power inthe Indies due to cheaper imports-and to export growth-would havecaused greater shifts in demand for income-elastic manufactures sup-plied through he northern neighbor han in that for agricultural ecessi-ties; and falling real incomes in beleaguered Spain would have lowereddemand or manufactures, at any given price, more than proportionally.Although price and income effects both made for positive balancesagainst the Indies in years of war, the favorable impact of falling priceson Spain's imports may have been dampened by low purchasing powerin the peninsula, and the reverse holds true on all counts for periods ofpeace. In addition to making observed cycles in the trade balancesintelligible, this model helps account for greater re-exports to the Indiesduring warfare see Figure 3), and for much wider swings in the balanceswith this area than in those with Spain in the neutrality years (cf. scalesin Figures 5 and 6, middle panels).

The economic forces at work in trade with the Indies can only bepartially ascertained n the present state of research. The model requiresthat the official trade volumes be compared with current prices at bothSpanish American and U.S. markets; yet price data for the former areaare few and far from representative, particularly or war years of soaringre-exports of manufactures o the Indies.'2 For experimental purposes,a weighted index for the key period 1797-1807 has been constructed

12 Recent works on prices in colonial Spanish America represent a promising rend towardsophistication n this area, but the series made available so far seldom refer explicitly to importedgoods: see Enrique Florescano, Precios del maiz y crisis agricolas en Mexico, 1708-1810 (MexicoD.C., 1969); Jose Manuel Larrain Melo, Movimiento de precios en Santiago de Chile, 1749-1808.Una interpretaci6n metodol6gica, Jahrbuch fur Geschichte von Staat, Wirtschaft und Gesell-schaft Lateinamerikas, 17 (1980), 199-259; and Enrique Tandeter and Nathan Wachtel, Precios yproducci6n agraria. Potosf y Charcas en el siglo XVIII, Desarrollo Econ6mico, 23, no. 90 (July-Sept. 1983), 197-232 actual price series to be printed n a subsequent book not yet available o theauthor). See also the reference o Lyman Johnson's work n the following note. Attempts o locateevidence of current prices in the Archivo Nacional de Cuba did not turn useable series for thepresent purpose, but largely quotations of official prices showing ittle or no variation hrough ime.Even if relevant price series for all major colonial cities could be retrieved, hey would have to becombined nto very rough ndices for lack of sufficiently detailed breakdowns by destinations n theU.S. official rade statistics.



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530 Cuenca Esteban

SPANISHWAROF

NAAL2nd INDEPENDENCEIso NAVAL 2AWAR UK NAVAL WARSPAIN WARl US- UK

1796 1801 1804 1807 1811 1815

200% -SPANISH AMERICANMARKETS Constont 100%

100% / volues of (is.500/ 0 exports

-750/

0/ ] Very rough ndex of10% current mport prices 50%

(right scale)

-2 m$ Exports FOB- Imports FOB (values at current prices scle1U.S.MARKETS 150%

Constant olues of imports l1251300% -

100 % - 100%30%

Current ortprices (right scale)-7%

1790 1795 1800 1805 1810 1815 1820FIGURE 5

U.S. TRADE WITH THE INDIES, FISCAL YEARS 1790-1819: BALANCE OF TRADE ATPORTS OF DEPARTURE AND ROUGH COMPARISONS OF PRICE AND QUANTITY

CHANGES

Sources and procedures: See introductory emarks and note 13.

with new price series of twelve textiles in New Spain and wheat and riceat Buenos Aires.13 The price index fluctuates nversely with total exportvolumes to the Indies through much of the period (see Figure 5, upperpanel). In order to measure the average responsiveness of percentagechanges in export volumes to those in prices and real income in the

13 The textile prices have been selected from a large sample of quotations for over 100manufacturers, ompiled from monthly reports widely scattered in Archivo General de Indias,Audiencia de M6jico, legs. 2922 (Veracruz: 1796-1798), 1448, 1455, 1457, 1462, 1467, 1468, 1469,1470, 1471, 1473,2515, and 1475 Mexico City: 1799-1810).The series entered nto the textile ndexare among those that convey relative abundance or scarcity in years of large or small U.S. re-exports to the Indies, respectively. Triple weight was assigned o the largest single import n valueterms into Veracruz in documented years (platillas reales: import breakdowns by Spanish andforeign goods in Miguel Lerdo de Tejada, Comercio exterior de Mexico desde la conquista hastahoy, Mexico City, 1853, nos. 19-23: 1806-1810). Other textiles known to have figured n U.S.shipments to the Indies were given double weights ( German linens itemized in AmericanPhilosophical Society, Stephen Girard Collection, Series 2, Reel 46, frame 145, Iriarte y Lasa toStephen Girard, Havana, 21 Feb. 1810).New Spain was seldom allowed to admit neutral hips, andits markets were unusually well protected against smugglers see Arthur P. Whitaker, The UnitedStates and the Independence of Latin America, 1800-1830, Baltimore, 1941, p. 136); but largequantities of manufactures were re-exported rom Havana o Veracruz n the neutrality years (seedetailed returns of overseas trade in Archivo Nacional de Cuba, Real Consulado y Junta de



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SPANISH WAR OF

I t NAVAL 2 ndINDEPENDENCE

WAR UK- NAVAL WARSPAIN WAR US-UK

1796 1801 1804 1807 1811 1815*700 %_| ,I IConstant values of 5 major U.S.export 5

100% ~~~~~~~~~~Current prices of Codiz and Mloga of | | 50 %

SPANISH 5mojor sloples imnported rom the U.S.,\MlARK(ETS colendor yeors (a ) l( riohl scofle) \

+ 6m$ v | ~Exports OB Imports FOB| i \T+ 4m$ (values at current prices)

__ _ _ ___ _ _ _ __ _1__ _ 75 %.S.R K E T S ; -/50%

Constant values ofimporf -.125%

250% L- 700% - A - ~~~~~~~~~

25% ~~~~~~~~~~~Currentmp rt prices (right SCale)

1790 1795 1800 1805 1810 1815 1820FIGURE 6

U.S. TRADE WITH SPAIN, FISCAL YEARS 1790-1819: BALANCE OF TRADE AT PORTSOF DEPARTURE AND ROUGH COMPARISONS OF PRICE AND QUANTITY CHANGES

a Extremely high Spanish prices in 1814 not displayed.Sources and procedures: See introductory remarks and note 16.

Indies, a log-linear demand function has been fitted through multipleregression of constant values on current prices and on rough proxies forpurchasing power.'4 The regression coefficients are consistent with thetheoretical prediction that demandfor U.S. exports-largely manufac-

Comercio, egs. 72 and 73: 1798and 1803-1805; ee also Javier Ortiz de la Tabla, Comercio xteriorde Veracruz 1778-1821. Crisis de dependencia, Seville, 1978, Chapter V). The staple prices atBuenos Aires are those recently compiled by Lyman L. Johnson from records of local religiousinstitutions: aken with the author's permission from Wages, Prices, and the Organization fWork in Late Colonial Buenos Aires, Table 3 (unpublished draft delivered at the 44thInternational Congress of Americanists, Manchester, Sept. 1982).A one-year gap in the rice serieswas interpolated with parallel prices at Philadelphia, nd the resulting ndex was used in turn toextrapolate hree missing quotations n the wheat series. The staple index was weighted with theshares of each commodity n the total values of U.S. exports of rice and flour to the Indies. Theaggregate index was weighted with the shares of U.S. re-exports (textile prices) and domesticexports (staple prices) to the Indies in each year's total.

14 Purchasing power was roughly estimated by simple aggregation t fixed rates of exchange ofBritish, Spanish, and U.S. import values at constant prices from the Indies. British officialdata inB. R. Mitchell and P. Deane, Abstract of British Historical Statistics (Cambridge, 1971), p. 311.Estimates rom Spanish evidence, rates of exchange, and remarks n the weaknesses of the Britishofficial rade figures n Cuenca Esteban, Statistics of Spain's Colonial Trade, 1792-1820, TableIII, Appendix III, and notes 99 and 37.



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532 Cuenca Esteban

TABLE 2PRICE AND INCOME ELASTICITIES OF DEMAND

(coefficients of log-linear regressions of quantities or constant values on current prices, tariffs,and real GNP)a

Time Price IncomeTrade Category Period Elasticity Elasticity R2

SPANISH AMERICA-Imports From the United StatesAll commodities 1797-1807 -1.48 0.71 0.96UNITED STATES-Imports From Spanish AmericaMost commodities 1795-1819 -1.23 1.04 0.75Sugar 1795-1819 -0.98 1.12 0.84Sugarb 1795-1819 -0.65 0.32 0.78Molasses 1795-1819 -0.50 1.46 0.82Molassesb 1795-1819 -0.82 0.95 0.77

Coffeeb 1795-1819 -0.61 0.79Cocoab 1795-1819 -0.87 0.76

* * * *

SPAIN-Imports From the United StatesFive major domestic staples 1790-1816 -1.72 0.62Flour 1790-1816 -1.69 0.54Tobacco 1806-1814 -1.16 0.80UNITED STATES-Imports From SpainMost commodities 1795-1819 -1.22 0.72Wines, sherry, and spiritsb 1795-1819 -1.04 0.66

Spiritsb 1795-1819 -1.32 0.56a Tariffs and real GNP not included when unavailable or statistically insignificant. Dummy

variables ntered n most regressions. Four equations had to be corrected or multicollinearity iththe Cochrane-Orcutt procedure. All R2's and coefficients of price and GNP are statisticallysignificant t the 95 percent level of probability.

b Total imports rom all areas of the world including Spanish America and Spain.Sources and procedures: See introductory emarks and footnotes 13-17.

tures in years of war-was elastic to price changes and varied directlywith real incomes (see Table 2). The model also requires that demandfor Spanish American products in U.S. markets be less elastic than thatfor U.S. exports in the Indies. The lower panel of Figure 5 displaysfalling prices at Philadelphia in periods of soaring or high importquantities, and rising prices in most years when volumes fell orstagnated. Multiple regressions for the period 1795-1819 confirm thatimport volumes varied inversely with Philadelphia prices and specificduties and directly with gross national product in real terms.15 Asexpected, demand for individual tropical crops was found as a ruleprice-inelastic, and that for total imports of such key commodities assugar and molasses also inelastic to real income changes; significantly,demand for total imports from the Indies turned only moderately price-elastic. Unlike exports, therefore, individual imports into the UnitedStates often increased and decreased, in war and peace years respec-

15 GNP data taken from Thomas Senior Berry, Revised Annual Estimates of American GrossNational Product. Preliminary Annual Estimates of Four Major Components of Demand 1789-1889(Richmond, Bostwick Paper No. 3, 1978), Table 6B. Frequent shifts in supply and relativelystable incomes help account for the apparent absence of serious identification problems n theseand in most subsequent regressions.



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tively, to a lesser extent than either domestic prices fell and rose or realincomes grew and shrank. With due qualifications or the weakness ofthe price data at Spanish American markets, it follows that the widerexport fluctuations underlying cycles in the trade balances with theIndies (see middle panel) are largely consistent with greater demandelasticities for exports than for imports.

The foregoing analysis also applies in general to the less importantcommodity flows with Spain; however, anomalous changes in importquantities and in Philadelphia prices preclude full explanation byelasticities alone for two war periods. Current prices at Cadiz andMalaga of five major domestic staples exported to Spain have been

compiled and processed into a weighted index from records of Corre-dores de Lonja and other sources; quarterly quotations were averagedby calendar rather than (U.S.) fiscal years commencing October 1st, toallow for time lags between entries at home customs and the sales ofcargoes in Spain.16 The upper panel of Figure 6 displays, once more,frequently inverse fluctuations in price and quantity that convey, at areasonable level of statistical significance, very elastic demand or thehome exports of the United States to Spain in the period 1795-1819 seeTable 2, lower panel). 17 On the import side, demand for Spanish goodsin U.S. markets in 1795-1819 was found less elastic as expected than

16 The five staples chosen for this purpose account, respectively, or 76.4 and 54.2 percent of thecurrent value of U.S. domestic and total exports to Spain in the period 1790-1816. Price data forflour (often quoted as Filadelfia or harina superfina de America Septentrional), rice (Carolina),codfish (Terranova del grande or de primera suerte), and tobacco (Virginia) were compiled andprocessed in most cases from quarterly quotations in Correo Mercantil de Espania y sus Indias(Madrid, 1792-1808),passim (mostly at CAdiz and Mdlaga, occasionally at Alicante, Santander,and Barcelona: 1792-1804)and in Archivo General de Indias, Consulados, ibros 1131, 1133and1134 Cddiz: 1804-1821;annual averages of often weekly quotations or such a key commodity asflour seldom differ by more than 5 percent from those derived from the quarterly eries). Wheatprices were taken from Jose Morilla Critz, Introducci6n al estudio de las fluctuaciones de preciosen Mdlaga (1787-1829) Mdlaga, 1972),p. 237 (Mdlaga: 1790-181 ).Missing data or wheat n 1812-1816were extrapolated rom prices of the same commodity at Cddiz Sicilia duro superior n mostinstances), and those for the other four commodities n 1790-1791 rom parallel series given inMorilla Critz (ibid., pp. 237, 240) and in Earl J. Hamilton, War and Prices in Spain 1651-1800(Cambridge, Massachusetts, 1947),p. 267: fish index. On board quotations were converted nto

on land prices by simple addition of 1peso per unit (roughly stimated rates implicit n separatequotations given in Archivo General de Indias, Consulados, libro 1134,passim). The few pricesquoted in reales de vell6n (less frequently de plata [antigua] or de ardite) were converted intopesos de plata o de cambio de 128quartos (relevant nformation nd rates given in Tomds Antoniode Maridn y Arr6spide, Tratado general de monedas, pesas, medidas y cambios de todas lasnaciones, reducidas a las que se usan en Espafia, 2 vols., Madrid, 1789, I, 2-3). Conversions ofweights and measures are based on the preceding source and on Almanak Mercantil o Guia deComerciantes .. (Madrid, 1795-1807),passim. The component eries of the aggregate ndex wereweighted by the quantities of the respective commodities exported rom the United States to Spainin the period 1790-1816.

17 The regression coefficients or individual xport goods other than tobacco are less reliable, buthigh demand elasticities for staples with close substitutes across the Atlantic are fully consistentwith both standard heory and usual empirical results. Had it been possible to include Spanishprices of manufactures with available re-export volumes in the sample, the explanatory power ofelastic demand regarding mounting total exports to Spain during warfare might have beenstrengthened ven further.



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534 Cuenca Esteban

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17/24

536 Cuenca Esteban

Spanish demand or exports, and home prices and quantities predictablymoved in opposite directions during the peace of Amiens, in the earlyyears of the Spanish War of Independence, and at the height of theAnglo-American conflict of 1812-1815 (see lower panel). Strikingly,however, import prices rose mildly rather than falling with soaringvolumes at the end of the first naval war (1796-1801), and fluctuated atlow levels withfalling rather han rising import quantities hrough muchof the second war (1804-1808). For these war years, therefore, therelative impact of export and import elasticities on the trade balancescannot be compared, so that factors external to the model must becalled forth: Nearly stable import prices in 1799-1801 owed much to

large re-exports of Spanish wines and spirits to the Indies in the first twoyears at least,18 and falling import volumes in 1805-1807 are consistentwith a probable surge in direct trade from Spain to the Indies in thisdecade.19 Though greater demand elasticities for exports than forimports explain most cycles in the merchandise balances with Spain, theburden of proof for six years of naval warfare hus seems to rest, in part,on the large demand elasticities found on the export side, and in part onstructural eatures of the rise and evolution of the re-export trade.

III

The merchandise balances at ports of departure only partly conveytotal financial returns or losses to each of the three parties involved, forsizeable earnings of foreign exchange from freight, insurance, andmercantile profits are not included in the underlying eries of export andimport values. Since most traded commodities were carried in U.S.

ships in all years but 1813-1814,2o arge and generally stable shares ofcargo tonnage predominantly account, together with freight rates, fortrends and cycles in net carrying earnings o the young nation.21 Returnson risk coverage accruing to U.S. citizens likewise fluctuated with tradevalues and insurance rates, but only insofar as the shares of British andSpanish underwriters may have remained relatively small, at leastduring the 1800s.22 The importance of mercantile profits cannot be

18 See Cuenca Esteban, United States Balance of Payments, Table 9, column 6.'9 Such is the impression conveyed by Delgado Ribas's findings n Catalan archives (see, again,

El impacto de las crisis coloniales, 165). Significantly, perhaps, departures f U.S. ships fromLeghorn or southern European ports were over twice as numerous n 1798-1808as in 1815-1820:data in Keene, American Shipping and Trade, 693, Table 4.

20 Breakdowns of cargo tonnage by U.S. and foreign ships in Cuenca Esteban, United StatesBalance of Payments, Table 7, columns 2 and 7. Similar stimates or trade with Spain point to thesame conclusion.

21 Net carrying arnings are here defined as gross freight costs in U.S. ships minus net foreign-port charges. The latter item turned deficits against the United States in most years. See ibid.,Appendix, Section E, and Table 3.

22 Provisional analysis n ibid., p. 66. It has since been ascertained hat 75 of the 87 registrationsofjoint-stock nsurance companies at the consulate of Cddiz n 1790-1819 xpired prior o 1804; he



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SPANISHWAROF

Ist NAVAL 2 nd INDEPENDENCEWARUK- NAVAL WARSPAIN WAR US-UK

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1790 1795 1800 1805 1810 1815 1820

FIGURE 7U.S. TRADE WITH THE INDIES, FISCAL YEARS 1790-1819: NET BALANCES ON

CURRENT ACCOUNT AND PRINCIPAL DETERMINANTS


ascertained in the present state of research; but, judging from knowneconomic trends on both sides of the Atlantic and from rough estimatesof returns on the export trade to Spain, cycles in profit rates oftencompounded he impact of their freight and insurance counterparts, andthat of the trade balances themselves, on the distribution of financialearnings.

Figure 7 partly illustrates the contributions of major earnings compo-

nents to the net balances on current account with the Indies. The supplyand demand determinants of freight and insurance rates, in a period ofprolonged inflation followed by sharp falls in costs and prices, havebeen discussed elsewhere; so have the weak foundations of some of theestimates displayed in the lower panel. The relevant conjecture for the

capital subscribed by the 75 companies accounted for roughly 93 per cent of the total. Compiledand calculated rom a complete registry of joint-stock companies in Archivo General de Indias,Consulados, eg. 78.



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538 Cuenca Esteban

present argument is that freight rates generally, and the better docu-mented premiums of insurance in the first decade at least, often mayhave soared and dived with both the merchandise balances and theirexport and import components (in upper panel and in Figure 3,respectively). Cycles in profit rates probably followed a similar course:In the early years of naval warfare between England and Spain,importable goods must have become scarce and exportable commod-ities abundant n the Indies, thus enhancing the profit opportunities ofU.S. merchants; with the return of peace, competition from Spain andeventually from Britain often produced the opposite effect.23 The netbalances on current account displayed in the upper panel incorporate,

pending sound estimation when new price series become available,minimum conceivable profit shares roughly adjusted for likely cyclesthrough the ebb and flow of warfare. To the extent that the underlyingseries may be reasonably accurate, gaps between the net balances andthose on commodity account (upper panel) would convey the totalfinancial flows from the Indies to the United States on major current-account items other than merchandise trade. Significantly, these flowssharply widen in years of naval warfare and grow again with importvolumes in 1809-1811, whereas freight rates hovered, perhaps, at peaklevels. The overall picture is one of maximum financial earnings inperiods of large trade volumes and high or rising rates, in strikingcoincidence with favorable balances on commodity account.

Earnings on trade with Spain also grew and shrank with war andpeace, but the non-merchandise component did not peak until themiddle years of the Peninsular War of Independence (see the verticalgaps in Figure 8, upper panel). Though freight rates on the longervoyages across the Atlantic presumably were higher and moved togeth-er with carrying charges through most cycles, the decisive force thatprolonged the upward trend in earnings was the tonnage component oftransport costs. To be sure, freight rates appear to have peaked duringthe peninsular war-the period of largest returns perhaps on carryingservices (see lower and upper panels).24 The rates of 1808-1813,however, are not much higher than those of the preceding decade, andinsurance premiums on routes to Spain-a major nfluence on earningsin years of high trade values-dived after 1808and remained relatively

low through 1813. By contrast, export volumes soared in 1810-1813 to23 One of many examples is given and documented n Cuenca Esteban, United States Balance

of Payments, p. 67.24 The evidence for soaring reight rates on U.S. trade routes in 1808-1813 s thin, and North's

estimates particularly weak for these years: see Douglass C. North, The United States Balance ofPayments, 1790-1860, in Trends in the American Economy in the Nineteenth Century, Studies inIncome and Wealth, National Bureau of Economic Research, vol. 24 (Princeton, 1960),p. 596. Thepresent estimates are based on North's well known index times a documented rate adjusted ornautical mileage on all routes covered by the official breakdowns of commodity lows to and from

the Indies and Spain.



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540 Cuenca Esteban

resulting series is that widening gaps in prices across the Atlantic couldturn osses as well as profits-though cautious merchants at home stoodto benefit, later in the year, from the bad news of unfortunate cap-tains.26 Indeed, widespread fear of potential losses might help explainfalling export volumes in 1811, a year of actual and impending war when

animal spirits were not unfettered, as they would be in 1813 and in1816, by the natural exhilaration of returning peace. To retrace thecentral argument of this section, cycles in profit rates appear to havecompounded, with few significant exceptions, those in their freight andinsurance counterparts and in the trade balances. As in commerce withthe Indies, the non-merchandise omponents of net earnings rom Spain

boosted overall returns at the very times when they were most neededto finance the re-export trade or to settle deficits elsewhere.

IV

For the United States, trade with the Spanish world was a timelywindfall and a vital redress in a period when, in Douglass North'sestimation, international indebtedness would grow to the point ofdefault. To be sure, actual benefits fell short of potential gains. Thecarrying rade appears to have played a residual role, the boundaries ofwhich would have been set by recurrent revivals in Spanish colonialtrade and, in the last decade, by British competition.27 Growth n homeexports may have been dampened, in the mid-1790s, by lagging re-sponse in the supply of foodstuffs resulting from both long gestationperiods and high costs of domestic transport; and, in subsequentdecades, by saturated demand in the largely self-sufficient markets of

Mexico and South America.28 Merchandise balances with the Indieswere lessened or worsened by high import values per cargo ton, andsurpluses with Spain were trimmed by falling terms of trade; down-swings were deepened at times by relatively elastic demand for smaller

26 The annual averages used here to estimate profit rates obviously are poor indicators of theprices at which cargoes were actually sold. At Cadiz, prices of imported taples often fluctuated byover 20 percent from early January o late December; North American lour cheapened by morethan half through 1805 and appreciated by almost as much through 1810: calculated from oftenweekly quotations or 1804-1821 n Archivo General de Indias, Consulados, ibros 1131, 1133, and1134. At Havana, where foreign commodities are known to have been frequently stored inexpectation of improving business conditions, prices of imported oods at times fluctuated by 20 to25 percent rom morning o evening: American Philosophical Society, Stephen Girard Collection,Series 2, Reel 49, frame 484, Iriarte y Lasa to Stephen Girard, Havana, 12 Nov. 1811.Unfortunately, he apparent absence of monthly returns by destinations n the U.S. official radestatistics precludes sharper comparisons of total costs and revenue at those points of arrival orwhich detailed price quotations are available (Cadiz and Veracruz-Mexico City).

27 Estimates and analysis of trends and cycles in Spanish colonial trade in Cuenca Esteban,Statistics of Spain's Colonial Trade, 1792-1820, Section IV.28 Analysis n John H. Coatsworth, American Trade with European Colonies n the Carribbean

and South America, 1790-1812, The William and Mary Quarterly, 3rd series, 24 (1967), 259-61.



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and the Indies may have approached a fifth of the total in 1797-1801andagain n 1808-1815.32 The benefits to the United States thus ranged romcontributions to domestic income and employment, in farming andshipbuilding as well as in carrying services, to the buttressing ofinternational solvency and a strong government so vital to a youngeconomy on its journey to maturity.

32 See introductory remarks. Net customs revenue is here defined as gross proceeds fromspecific and ad-valorem duties minus very rough estimates of drawbacks eturned upon re-exportto the rest of the world.

Trend and Cycles in US Trade With Spain and the Spanish Empire

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