WORKING DRAFT: COMMENTS WELCOME
1 APRIL DRAFT
Golden Flight:
International Migration and the Gold Standard
Jonathon W. Moses
Department of Sociology and Political Science
Norwegian University of Science and Technology (NTNU)
Trondheim, Norway
[email protected]
Paper presented to the “Understanding the Gold Standard” workshop, held at the Kellogg Institute,
University of Notre Dame, 3-5 May 2002.
Since the publication of Barry Eichengreen’s (1992) magisterial study of the gold
standard, political economists have tended to think about the late 19th century in terms of
Golden Fetters. While state activities were clearly circumscribed by the constraints of
the gold standard, denizens of that era enjoyed an unparalleled freedom of mobility. For
Europe’s poor and exploited, the late 19th century offered the possibility of golden flight:
there were little or few formal restrictions on immigration, and millions of people chose
to escape poverty and persecution by emigrating across and away from Europe. This
paper examines the links between migration and the gold standard by way of a simple
inductive study of national responses to an important exogenous shock.
The inspiration for this study lies in two distinct literatures. The first is an
influential article by Charles Kindleberger (1951) that introduced a nascent version of
group theory to explain how states responded to a severe drop in world grain prices in the
1870s. In his analysis, the gold standard remained an implicit constraint, as states
responded in different ways (without recourse to exchange rate adjustments) to a
significant external economic shock. For Kindleberger, states (in particular, Italy) relied
on emigration when alternative adjustment policies were ineffective or tardy.
The second source of inspiration explicitly considers monetary regimes.
Contemporary interest in the gold standard period is in part driven by a need to better
understand the way in which rigid exchange rate agreements (or de-facto currency
unions) affect state behavior (both in economic and political terms). The literature on
Optimum Currency Areas (OCA) helps us understand the way in which states respond to
country-specific shocks in the absence of monetary policy autonomy. In this framework,
labor mobility (or migration) is one of several adjustment mechanisms available to states
1
or regions sharing a common currency. To varying degrees, both literatures would lead
us to expect that emigration should function as an important adjustment mechanism in
states bound by a rigid monetary constraint.
This paper constitutes a plausibility probe. Although there is an extensive
literature on how states managed to maintain stable exchange rates under the gold
standard, the role of emigration in this adjustment process has evaded close scrutiny.1 I
intend to fill this analytical and empirical vacuum with an exploratory study that maps the
relationship between a significant asymmetric shock (the 1870s grain price shock) and
national emigration responses.
The paper itself is divided into three sections. The first reviews the relevant
literatures in order to generate some expectations that can guide the inductive study that
follows. In the second, empirical, section I provide a very simple, first cut, examination
of emigration responses of states to the 1870s shock. To my surprise, I find little
evidence that states relied on emigration as a response to this significant shock. In the
concluding section I offer some thoughts about the parallels between historical and
contemporary developments. These thoughts concern the applicability of juxtaposing the
two periods and the significance of the findings for evaluating contemporary
developments in Europe.
1
For various approaches to understanding the gold standard in light of exchange rate stability, see the
contributions in Bayoumi et al. (1996). I am aware of only three studies (in addition to Kindleberger) that
explicitly consider the role of emigration as an adjustment mechanism under the gold standard: Green and
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migration flows to capital formation, national savings and international capital flows, while Fenoaltea
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below).
2
Inductive Framework
Kindleberger
I begin with a brief sketch of the argument that Kindleberger published over 50 years
ago. Kindleberger’s main intent was to sketch a theory of group behavior by comparing
national responses to the world decline in wheat prices after 1870. His argument, in a
nutshell, was that market-based theories of behavior would lead us to expect states to
increase their import of wheat in the face of a radical price drop. When states didn’t
behave in accordance with these expectations, Kindleberger introduces non-market
factors to explain state behavior.
His sample includes five countries, which respond in various ways to the 1870s’
crisis. His argument is summarized on page 37:
“In Britain, agriculture was permitted to be liquidated. In Germany large-scale
agriculture sought and obtained protection for itself. In France, where the
demography patterns of resources, and small scale of industrial enterprise favored
farming, agricultural as a whole successfully defended its position with tariffs. In
Italy the response was to emigrate. In Denmark, grain production was converted
to animal husbandry.”
In an effort to economize, we can say that Kindleberger traces four particular
response mechanisms, or some combination of these: 1) liberal (i.e., unemployment,
urban-migration; 2) flexible adjustment (i.e., collective adjustment within agriculture); 3)
international (i.e., encourage the emigration of poor workers);2 and 4) protectionist
(increase tariffs and protect domestic producer groups).3 Each response has its own
2
Usually we would include capital controls and/or exchange rate adjustments under this heading—but free
capital mobility and convertibility were two of the defining characteristics of the gold standard.
3
Note that Kindleberger does not mention a state’s fiscal response. This can be explained partly by the fact
that there was, as yet, little democratic pressure for active fiscal policies, and secondly, that the state’s
fiscal position was mostly used to cover the convertibility obligations of states on the gold standard. See
Bordo and Jonung (2000: 12-13):
3
distributional consequences—and the choice facing states was said to vary according to
the influence of specific interests within each country.4
I intend to extend Kindleberger’s inductive approach to provide a more systematic
study of the way in which migration might have been used as an adjustment mechanism
under gold standard conditions. This amendment extends in three directions.
First, by examining these questions in the context of this workhop, I make the
gold standard linkage explicit. In recognizing that all of the states in Kindleberger’s
study were on the gold standard in the late 1800s, we are made aware of an additional
(albeit, for Kindleberger, implicit) adjustment mechanism with which states could
respond to exogenous shocks: a beggar-thy-neighbor (devaluation/depreciation) strategy.
Seen in this light, Kindleberger’s analysis dovetails nicely with the contemporary OCA
literature, which is described in more detail below.5
My second point of departure is to look at emigration responses more
systematically across cases. Kindleberger only looks at emigration in the Italian case,
“From a stabilization policy point of view, the domestic economy was governed by a selfregulating mechanism. There were no periods of prolonged and persistent unemployment during
the classical gold standard period comparable to the interwar and post- World War II periods. Nor
did there exist the knowledge and acceptance of debt financing as part of a belief in “active” debt
financing.” (p. 13)
This is clearly shown in their figures (4 and 5) that show an almost constant central government debt and
deficit level (as percentage of GDP) across the final two decades of the 19th century.
4
I am not directly interested in Kindleberger’s group theory; as an explanation for state behavior it lacks
analytical rigor. Kindleberger uses a diffuse notion of “national unity” to explain group success. This
simply doesn’t wash outside his sample of cases. For example, this argument implies that Ireland and
Norway (two of the largest emigrant generating states in Europe) didn’t have strong feelings of national
unity. I’m not sure how to test this, but I suspect it’s not true.
5
There is one important difference to note. Kindlberger implicitly assumes that the grain invasion
generated the same shock to all the economies in his sample, and that response variations could be
explained by domestic factors. The OCA literature is concerned with how states sharing a common
currency respond to asymmetric shocks. I follow the OCA literature and implicitly assume that the grain
shock was asymmetric across Europe—that reliance on domestic grain production varied enough across
countries to require asymmetric responses. O’Rourke (1997) provides ample evidence of this.
4
and he does so on an ad hoc basis, as an explanation of last resort. Although the Italian
emigration numbers were substantial, Italians were not alone in crossing the Atlantic—
and, as we shall see—they were surprisingly tardy. By including a more systematic
account of emigration as an adjustment mechanism we can draw on the OCA literature
mentioned above, as well as the work of several economic historians who have already
noted the important role of Atlantic migration in business cycle terms.
Finally, Kindleberger relies on a rather limited set of cases to test his hypothesis.
Bemoaning the lack of secondary literature on states outside of his sample, Kindleberger
focuses on only a few of Europe’s largest states (Britain, France, Germany, Italy and
Denmark). Although I am tremendously sympathetic to the data dilemma, these states
are some of the most prosperous countries in Europe at the time, and they may not
represent very typical state responses. By broadening the sample, we may find that
emigration was a more common response mechanism than Kindleberger’s analysis
suggests.
OCA literature
The second source of inspiration for this study is the literature on Optimum Currency
Areas. 6 Although the impetus for this literature can be dated to Mundell’s seminal
(1961) article, its demand rose precipitously as states in the European Union began to
give serious consideration to a common currency. Its contemporary utility is derived
6
There is no standard theory of Optimum Currency Areas, though several related approaches have been
inspired by Mundell’s (1961) influential article. For a general introduction, see de Grauwe (2000);
Bayoumi (1994) and Ricci (1997) provide more formal approaches.
5
from the way it considers the need for asymmetric policy responses in currency areas
where the component regions are hit unevenly by economic disturbances.
Following Meade (1957), Mundell emphasized the role of inter-regional labor
mobility in smoothing regional variations within a common currency area. The logic is
disarmingly simple: if a region is hit by a shock that lowers the employment level,
workers (or employers) can respond by either lowering their real wage demands (offers),
or by moving to areas where work is more abundant (cheaper). While there are other
factor flows that might compensate for the lack of labor mobility within currency areas,7
much attention has been focused in Europe on its comparably immobile labor force.
For a number of obvious reasons, there is much less labor migration in the EU
than in the US. An early (1985) OECD report comparing interregional labor mobility
across the two areas concluded that mobility within the US was between 2 to 3 times as
high as mobility within European nations. Other, more recent studies, have tried to
capture how reliant the US economy is on migrant labor (in contrast to Europe); these
have arrived at similar conclusions.8 Despite the lack of inter-regional labor mobility in
the EU, policy-makers have vigorously pushed to establish the euro. Although many
political issues seem to have been resolved, the matter of regional adjustment
7
E.g., Ingram (1973) noted that capital mobility might substitute for imperfect labor mobility as an
adjustment mechanism. Atkeson and Bayoumi (1993) investigated whether financial capital mobility can
substitute for fixed capital mobility. Other alternatives include regional industrial specialization (Krugman,
1991), greater trade integration (Commission of the European Communities, 1990), and federal fiscal
transfers (e.g., Sala-i-Martin and Sachs, 1992; von Hagen, 1992; Bayoumi and Masson, 1995).
8
In 1990, Barry Eichengreen examined unemployment behavior across US regions to suggest that labor
migration bears a significant brunt of the adjustment costs in the US currency area. Blanchard and Katz
(1992), using a different approach and data (state-level data on unemployment, wages and unemployment),
concluded in a similar fashion. More recently, Bayoumi and Prasad (1997) use new, more refined, data to
show that interregional labor mobility is a much more important adjustment measure in the US than it is in
the EU.
6
mechanisms has not, and the threat of significant regional economic crises hangs over the
community.
It is in this context that studies of the gold standard provide some comparative
purchase.9 There are, after all, several similarities between contemporary Europe and its
counterpart under the gold standard: both lacked an orchestrated fiscal response
mechanism, individual countries seem to share common policy objectives, and people
and capital (if not always goods) were freely convertible and mobile across both Europes.
In short, European states on the gold standard were effectively bound together by a
common currency, and forced to rely on any number of alternative adjustment
mechanisms to respond to asymmetric shocks.
Of course, there are significant differences as well. Most noticeably, a veritable
revolution in political and market institutions (not to mention the explicit objectives of
policy makers) makes comparisons both difficult and unrealistic. The gold standard did
not rely on a centralized monetary authority, or explicit constraints on individual country
fiscal positions. In addition, late 19th century states in Europe were continually exposed
to the ebb and flow of international migration—they had to compete, in effect, with
attractive labor markets across Europe and in the New World. For both individuals and
states, the exit option remained a viable alternative to the late 19th century gold standard.
The European Union, in contrast, is a very different place.
More to the point, several authors have explicitly noted the role of large-scale
international labor mobility in sustaining the gold standard arrangement (e.g., Thomas
*RXOG3DQLü/DWHth century Europe was experiencing
9
Hence this workshop. See also Eichengreen (1996), PaniüDQG(LFKHQJUHHQDQG)ODQGUHDX
7
exceptionally rapid population increases that diminished returns on land and forced many
people out of agricultural production. The economic restructuring that accompanied
industrialization, new (less labor-intensive) means of agricultural production, and a
veritable revolution in transportation technologies made international migration a
particularly attractive option. All of these factors suggest that it is reasonable to expect
emigration to increase in the wake of a significant (detrimental) economic shock.
In addition to the problems inherent to comparing the two Europes, there are a
number of other—more practical—concerns. The first of which is the most obvious: the
data from this period do not inspire confidence. Early national emigration statistics are
both incomplete and wanting. In particular, there are significant differences in collection
methods across countries (and even within countries over time). As is common in
historical migration studies, I relied heavily on the statistics first collected by Imre
Ferenczi and Walter Willcox (1929) as systemized in Mitchell (1992).
In addition, there is the issue of lags. After all, the first response of workers is
probably not to run from community, friends and family. To quote form a turn of the
century Ausberg newspaper editorial: “Emigration is a form of suicide because it
separates a person from all that life gives except the material wants of simple animal
pleasure.”10 Dislocated workers will first run the gauntlet of strikes, reduced wages and
unemployment before they choose emigration. While we can be certain that emigration
will lag other crisis indicators, we lack strong theoretical expectations about the
appropriate lag, and how long the lagged effect can be expected to last.
10
Allgemeine Zeitung 9 December 1916. Cited in Hansen (1961: 3).
8
Empirical Observations
My expectations, derived from these two different literatures, are clear: emigration rates
from Europe should rise significantly in the wake of the 1870s’ grain price crisis (and the
resulting depression). Given the significance and intensity of this shock, we might expect
a uniquely strong reaction in the emigration figures. I also expect to find some variation
in emigration responses across countries, and this variance should correspond to shock
susceptibility, as well as the effectiveness (or lack thereof) of alternative policy
responses.
Drawing from Kindleberger, state responses can be categorized in terms of
“liberal”, “structural adjustment”, “protectionist”, and “international”.
My objective in
the following section is to gauge the uniqueness of the Italian “internationalist” response
to the crisis. Once the overall level of emigration is established, I turn to search for
national patterns in the emigration data. The motivating question for this second part is:
Is there a relationship between agricultural protection and emigration rates?
There are two reasons why I search for this particular relationship. First of all,
there is a tradition in political economy of explaining policy responses to the 1870s’ crisis
in terms of the protectionist/liberal dichotomy.11 More significantly, Kindleberger (1951:
34) explained the Italian (emigration) response in terms of a failed and tardy protectionist
response. It is not unreasonable to expect failed (or tardy) protectionist measures to
generate emigration, as farmers and workers find themselves at the mercy of significant
price and demand shocks.
Second, trade restrictions were the instrument of choice for states responding to
economic shocks during the gold standard. In the absence of active fiscal or monetary
11
E.g., Gerschenkron (1943), Kindleberger (1951), Rogowoski (1989), and O’Rourke et al. (1996).
9
responses, states had precious little else they could do to steer domestic economic
activity. In addition, tariffs represented a significant revenue source for states on the gold
standard. By comparison, the constraints on EU states are even greater: not only do they
lack fiscal and monetary responses; they no longer have recourse to tariffs and
international migration. For this reason, it is politically relevant to understand how states
relied on protectionist and/or emigration responses to the 1870s’ grain shock, in light of
their common currency constraint.
Even though it is reasonable (and politically relevant) to expect to find a
relationship between protectionism and emigration, there is little theoretical justification
for doing so. Indeed, it is possible to argue for causal relationships that extend in both
directions. As Kindlbereger hinted, we might expect emigration rates to increase in the
absence of domestic producer protection. In this scenario, workers are more likely to face
the sort of unattractive labor market conditions that motivate emigration. On the other
hand, if the domestic market is efficient (i.e., categorized by price and quantity
flexibility), the liberal response might produce domestic conditions that will actually
deter emigration. In short, it is policy-failure, more than a particular policy, which
generates emigration. This ambiguity haunts the empirical study that follows.
Beyond these two, very broad, potential patterns, however, it is quite difficult to
generalize. The reason for this are threefold, and have already been noted: 1) the causal
relationships are very complex; 2) theoretical development is not sufficiently refined to
help us generate concrete expectations about what sort of states would respond with
increased emigration; and 3) there are significant data constraints.
10
Internationalism
Kindleberger’s “internationalist” strategy can be captured empirically by comparing the
number of emigrants (as a percentage of the population) from a country in the wake of
the grain price crisis. It is likely that this response will come after a short lag, as we
might expect people will avoid emigration if other alternatives are available.
Unfortunately, we have little theoretical guidance to help us establish what the
appropriate lag period should be, or when emigration rates might level off. Nevertheless,
we can be certain that emigration numbers will not fall in the wake of the crisis, among
“internationalist” responses.
I begin with emigration data from 19 European states for the period 1850-1914.12
This data is rather sparse in some cases and extensive in others. The basic comparative
indicator is a rate of emigration, which is a ratio of the annual migration figures from
each country and the mid-year population estimates, both of which come from Mitchell
(1992: tables A3/A5). I begin by making two aggregate presentations of the data: one in
terms of time-descriptives, the other in terms of national patterns.
In Figure 1, I provide two box-plot summaries of the full (19 country) sample
over time. The first graph presents a summary of national means and spreads; the
second presents the aggregate sample. In the first (national) figure, we see that some
countries relied more heavily on emigration than others. In particular, Ireland, Italy, the
UK, Portugal, and the Nordic countries (minus Denmark) suffered relatively high average
migration levels for the whole sample period.
12
Austria (AUS), Belgium (BEL), Denmark (DEN), Finland (FIN), France (FRA), Germany (GER),
Hungary (HUN), Ireland (IRE), Italy (ITA), the Netherlands (NET), Norway (NOR), Portugal (POR),
Russia (RUS), Serbia (SER), Spain (SPA), Sweden (SWE), Switzerland (SWI), and the United Kingdom
(UK).
11
Figure 1: Aggregate Sample Summary
In the second (aggregate) figure, it is possible to detect two general patterns of
relevance. First, there was a slight increase in both the level and spread of emigration
over time. In other words, emigration rates appear to have reached a new, higher,
equilibrium level after 1870, around which they begin to vary. While this may be a result
of more accurate data collection techniques, this depiction is consistent with the general
historical literature on the Atlantic migration.13 Second, the aggregate pattern is clearly
cyclical, with significant troughs in 1874-1880, and again around 1886, 1897 and (less
distinctly) in 1912.
At a very general level, these observations tend to contradict my initial
expectations. From the aggregate summary, it would appear that emigration levels
increased after the grain crisis: this is consistent with my expectations. On the other
hand, there does not appear to be a particularly strong (or unique) response after 1870—
indeed, the rates tended to fluctuate in ways that resemble business cycles.14
In Figure 2, I present the aggregate data by nation, over time. Whatever patterns
were noticeable in Figure 1 become blurred and overwhelmed by the anarchy of the
national data. While our eyes may be drawn by the patterns of outliers (e.g. Ireland and
13
For an overview, see Hatton and Williamson (1998: chapters 1-4).
14
Indeed, the cyclical nature of trans-Atlantic migration flows has been long recognized by economic and
migration historians, whether the emphasis is in terms of “pull” or “push” factors, or longer Kuznets’
cycles. For example, the now classic works of Harry Jerome’s Migration and Business Cycles and Dorothy
Thomas’ Social and Economic Aspects of Swedish Population Movements provide ample evidence of the
business cycle’s pull and push influence on trans-Atlantic emigration. See Thomas (1973: chapter 7) for an
overview of “migration and the rhythm of economic growth”, from a Kuznets’ perspective. For a more
general discussion, see Hatton and Williamson (1994 and 1998); for a detailed examination of the Italian
case, see Fenoaltea (1988).
12
the UK in the early years, Italy and Portugal in the latter years), it is difficult to decipher
much of a pattern in the aggregate data—except, possibly, strong cyclical variations.
Figure 2: National Emigration Rates (full sample)
In order to get a better grasp on the data, I have broken it down into its 19
component individual national charts. This is done in Figure 3. While these figures
threaten to provide us with too much information, they are the simplest way to
summarize the data (given all of its shortcomings).
Figure 3: National Emigration Rates (country figures)
A systematic comparison of the graphs in Figure 3 reveals at least three patterns.
First of all, the instability and cyclicity noted in Figure 2 is clearly evident in most of the
national graphs. It is quite obvious that fluctuations in emigration rates are being driven
by something more complicated than a single response to an asymmetric shock (the grain
price crisis).15 In addition, we can see that some nations experience much more volatile
emigration rates than others, and this volatility appears to be related to the level of
emigration (in other words, those countries with higher levels of emigration tend to
experience greater volatility). Finally, there are several countries where there is simply
not enough information, over a long enough time span, to say anything confidently about
the motivations of emigration (e.g., FIN, BUL, HUN, SER).
Nonetheless, some national patterns are evident. To varying degrees, several
countries experienced a major trough in the mid-1870s, with a rise in emigration into the
early 1880s (e.g., DEN, GER, NET, NOR, IRE, ITA, SWE and the UK). Among these,
15
In the Appendix, I compare national data in terms of (standardized) deviations from the (linear) trend in
emigration rates (per thousand of the population). This sort of comparison allows us to compare the timing
and strength of national trends over time. References to variations in the text often rely on these figures (if
only implicitly).
13
the increases in NOR, IRE, SWE and the UK were particularly strong (though these
nations suffered from large fluctuations throughout the period). In other words, the
evidence of a post-crisis increase in these countries is consistent with my initial
expectations, but there is nothing particularly large or unique about the 1880s’ cycle.
Most of the national data is characterized by cyclical trends, suggesting that emigration is
being driven by something more permanent and complex than a response to a single
asymmetric shock.
Finally, it is possible to detect some slight regional pattern, in terms of both the
timing and level of emigration flows. Generally, we might divide the European
emigration regime from this period in two.16 The first group includes countries that
relied heavily on emigration, over a longer period of time. This group was dominated by
Ireland and the UK in the early period, Norway and Sweden in the middle period, and
Italy, Portugal and Spain at the end of the period. I should note that the Italian
experience, which was central to Kindleberger’s description, was only unique in that its
emigration was so tardy (peaking in the middle of the first decade of the 1900s).
In the second group we find countries that relied less on emigration, and where
the levels of emigration remained steady over time. These countries are AUS, BEL,
DEN, GER, NET, RUS and SWI. Of these, Russia and France had particularly low
emigration rates.
While the full 19-country sample helps us contextualize the response options
available to states in the late 19th century, its breath and variation provides too many
distractions. To learn more about how states may have responded, we need to shorten the
16
Excluding those countries that lack sufficient data to be categorized.
14
sample to those states that were most prone to use emigration as a response to the 1870s’
crisis. Once this subset is established, we can examine its components and pattern more
closely.
To do this, I divide the full sample into two time periods: pre- and post-1870. I
then take the overall mean of the latter (post-1870) sample to find out which states had
the highest emigration rates in this period.17 There were eight states (in ascending order)
whose national means were higher than that of the overall sample’s for the post-1870
period: NET (4.3139), FIN (5.0560), SWE (5.1450), POR (5.9320), NOR (6.4996), UK
(7.2925), ITA (10.1248), and IRE (10.8145). Thus, we might expect that these states—as
disparate as they are—were more likely to rely on emigration as a means of adapting to
the grain price shock.
Explanations
In examining the emigration data above we find few clear signs that emigration was
being used as an adjustment mechanism in a way that either Kindelberger and/or the
broader OCA literature would lead us to expect. There is nothing particularly evident
about the group of eight countries that experienced the largest post-crisis emigration
levels (NET, FIN, SWE, POR, NOR, UK, ITA and IRE). They were not, consistently, the
most free trade, or protectionist, they did not appear to suffer worse (or better) than the
average European country from the 1870s depression, they did not represent a particular
region or level of economic development. The sample seems truly random.
17
The mean for this post-1870 sample was 4.2576 (N=679). Recall, from Figure 1, that the overall sample
mean was 4.17783744.
15
To test the robustness of this observation, I searched for a relationship between
agricultural protectionism and emigration in three different ways. The first follows
Bairoch (1989) in using crude measures of protection to sketch out policy response types.
By using wheat tariff levels in 1913 as a surrogate for protection, I divide the full sample
into two groups: those states that tried to protect local wheat producers (protectionist
states18), and those that didn’t (liberal19).20 In this way we can compare each group’s
reliance on emigration over time.
Figure 4: Liberal vs. Protectionist (full sample)
Figure 4 makes this sort of comparison. Here we clearly see that emigration rates
tended to increase over time in states that were considered protectionist in 1913. On the
other hand, liberal states, in aggregate, experienced slightly falling emigration rates for
the period in question. Note that the direction of this relationship is opposite
Kindleberger’s (implicit) expectations: it is protectionist states (in 1913) that tended to
rely more on emigration.
In another test, I again disaggregated the data into national graphs, using the
shortened sample generated in the previous section. This sample of eight countries was
again divided into liberal and protectionist states, using the criteria described above. I
then introduced a vertical signal marker to show where there were significant increases in
18
Austria, France, Germany, Hungary, Italy, Portugal, Serbia, Spain and Sweden.
19
Belgium, Bulgaria, Denmark, Finland, Ireland, Netherlands, Norway, Switzerland and the UK.
20
Bairoch (1989, table 9, p. 76). In particular, Bairoch lists the level of duties on wheat (as a percentage of
value) for 1913. I have divided this sample into two groups, where high tariff levels are used as a surrogate
for protectionism. This division is consistent with Kindleberger’s depiction (1951, p. 35, fn 17): where
Britain, Netherlands, Belgium, Denmark and Switzerland were free traders; Austria-Hungary, Italy,
Germany, France, Sweden, Spain, and Portugal were not.
16
agricultural tariffs.21 Thus, for example, Norway—one of the weakest of the liberal
states—imposed an agricultural tariff in 1890.
Figure 5: Liberal vs. Protectionist (short sample)
Consistent with the original observation, the relationship between agricultural
protectionism and emigration is weak. The sub-sample of liberal states is experiencing
either growing rates of emigration (Netherlands) falling rates (Ireland), or little overall
change (e.g., UK, Finland and Norway—albeit with significant fluctuations). There is
more promising evidence found among the protectionist states: it would appear that both
Italy and Portugal experienced an increase in emigration rates after the implementation of
significant agricultural protection legislation. But in the Swedish case, the relationship is
just the opposite: emigration rates began to fall after the imposition of significant
agricultural duties.
In a final attempt, I used alternative (time series) indicators for agricultural
protection to check the robustness of this relationship (or lack thereof, as the case seems
to be).22 These statistics, however, are confined to a much smaller sample of states.
Using the level of corn imports as a surrogate for protectionism,23 I found no significant
stable relationship in the aggregate data between level of corn imports and emigration,
21
The signal data come from Bairoch (1989). In 1890, Norway introduced a moderate tariff on both
industrial and agricultural products (p.67); in Portugal, new restrictions were imposed on grain imports in
1889 (p. 69); in Sweden there was a significant tariff reform affecting agricultural duties in 1888 (p. 67),
and in Italy, the law of 14 July 1887 (implemented in 1888) doubled the import duties on agricultural
products (pp. 63-4).
22
In particular, I plotted the cross-correlational function (CCF) of the relevant variables to see if the
observations of one series were correlated with the observations of the other series at various lags and leads
(in particular, +/- seven years).
23
The data are from Mitchell, Table C10. The sample included: AUS, DEN, FRA, GER, ITA, NOR, SPA,
SWE, and the UK.
17
even when I allowed for lags ranging between +/- 7 years. One reason for this is that we
again find conflicting national relationships between the level of wheat imports and
emigration.24 The relationship was somewhat clearer when I searched for correlations
between the price of wheat in national markets (another surrogate for protectionism) and
levels of emigration.25 Here we find a fairly significant negative relationship between
emigration and food prices in the aggregate data—one that is driven by the strong
negative relationships in Sweden, Denmark and France. Here too, however, the
relationship is mixed, as both Germany and the UK showed positive correlations over the
same lag/lead series. While the aggregate findings would seem to support the
observation from Figure 4 (a higher price for corn, suggests a higher rate of protection,
which corresponds with a higher rate of emigration), the number of cases is quite small,
and it is problematic to generalize beyond them.
To conclude: the empirical evidence is not very satisfying, given my theoretical
priors. Despite initial findings of a general increase in emigration rates in the post-crisis
period (cf. Figure 1), there is little evidence at the national level that states were using
emigration as a means for adjusting to a significant asymmetric shock. The Italian and
Portuguese experiences come closest to meeting my expectations, but it is difficult to
explain why their emigration responses lagged so far behind the original crises (on the
order of 20-40 years).
24
E.g., In Austria, France, Italy and Norway, the correlations are largely positive; in Denmark, Germany
Spain, Sweden and the UK, the correlations are largely negative.
25
The data here come from Appendix I to O’Rourke (1997), and are limited to DEN, FRA, GER (Prussia),
SWE, and the UK, 1870-1913.
18
Neither does there seem to be any simple pattern for explaining why some states
relied more on emigration than others. In the aggregate sample it is possible to find a
weak positive relationship between protectionist states and emigration responses (cf.
Figure 4), but it is likely that this relationship is driven by the unique experiences of Italy
and Portugal. Similarly, the slightly negative relationship to liberal states is surely being
drawn by the earlier (post-crisis) experiences of Ireland and the UK. When the data is
broken down into its national components, the pattern varies significantly across states.
Lessons
European emigration rates at the turn of the last century seem to be driven by a logic of
their own: by factors much more complicated and drawn-out than the referenced
literature leads us to expect. Had I started with the general migration literature, and not
Kindleberger or the OCA literature, this would not have come as such a surprise. The
broader migration literature has long pointed to several alternative explanatory factors for
international migration (e.g., demographics, a natural emigration cycle, business cycles
generally, political and religious persecution, family unification and other more ad hoc
developments (e.g., the Irish potato famine)).
On the surface, the evidence seems consistent with “long swings” or Kuznets’
cycles interpretations, not unique responses to significant disturbances. It may be that
workers wait for a persistent deterioration in local economic conditions before they risk
emigration. This would be consistent with Eichengreen’s (1996: 369) conclusion:
“migration was probably less important as a response to fluctuations at standard business
cycle frequencies than as a correlate of long swings.” On the other hand, there may be a
19
myriad of other explanations—not directly related to economic conditions—for these
longer emigration cycles.
In short, there is very little evidence that emigration increased significantly as a
direct response to the grain price shock. I do not mean to suggest that more sophisticated
statistical analyses couldn’t uncover some deeper hidden pattern (or meaning) to the data.
However, this cursory investigation provides little incentive to investigate the matter in
more detail. I think it is fair to assume that emigration was an important “safety valve”
for European economies in the 19th Century—this assumption is common in the broader
migration literature—but it does not appear to be driven by a particular (even deep)
economic shock.
One thing is obvious, however: emigration was a much more attractive option for
European denizens of the late 19th century than it is for citizens of the European Union.
While internal mobility is not legally restricted in the EU, there are surely fewer
economic motives to move. Modern welfare states and extensive regulatory schemes
protect the modern worker from many of the market’s harshest features. Worse, there are
no realistic international options (outside Europe), and nothing like the tempting
prospects that met 19th century trans-Atlantic migrants: e.g., abundant land, scarce labor,
and governments that actually welcomed immigration.
Given my initial expectations, how can we interpret the fact that emigration
wasn’t used as a means to respond to a significant economic shock, and what are the
consequences for the contemporary European currency union? Although a number of
possible interpretations avail themselves, I will focus on three: 1) the shock was not
particularly hard (or asymmetric); 2) there was not sufficient (domestic) concern about
20
adjustment costs to warrant a response; or 3) that other adjustment options were
available.
The first interpretation seems unlikely, as there is a broad consensus about the
political and economic significances of the grain price shock. The depth of the resulting
pan-European recession provides supporting evidence (see, e.g., Bairoch 1989). Despite
Kindleberger’s (implicit) assumption about the symmetric effects of the grain price
shock, I think there is ample evidence to suggest that the grain shock had asymmetric
effects across Europe.26
The second interpretation seems more likely. The political and economic
objectives of policy-makers in the gold-standard era were detached from the interests of
workers and potential migrants. 19th century political institutions and norms provided
little incentive for policy-makers to concern themselves with the immediate plight of
workers and farmers. In addition, we can assume that relative wage and price flexibility
was quite strong in the absence of strong labor organizations and unions. Indeed, it is not
controversial to explain the eventual collapse of the gold standard in terms of an erosion
of the institutional edifice that supported the system.
The contemporary consequences of this interpretation are not encouraging.
Despite a significant democratic deficit, the European Union must remain sensitive to the
needs of its citizens. It is politically untenable for member states to ignore asymmetric
shocks that significantly affect the local economy. In the absence of alternative
26
As already noted, see O’Rourke (1997). Similarly, Eichengreen (1994) suggests that the standard
deviations of de-trended real national income were 50 percent larger under the classical gold standard
period than in the post-WWII world. One reason for this is surely that his sample focuses on nine high
income countries and includes both grain producing states in the New World and those most negatively
affected in Europe. (Bayoumi and Eichengreen (1994) do the same for EU member states since 1960 and
arrive at the same conclusion.) This work suggests that there were significant output fluctuations under the
gold standard, and that these fluctuations were country-specific.
21
mechanisms (see below), we can expect significant political pressure for liberalizing
domestic markets so that they can adjust more efficiently. When the political costs of
market liberalization become unbearable, we might expect policy makers to reintroduce
alternative response mechanisms.
This brings us to the third interpretation: the possibility of alternative adjustment
mechanisms. In response to an asymmetric shock, gold standard states could respond
with greater price flexibility (in the absence of political and institutional resistance),
protectionist legislature (in the absence of explicit international agreements that limited
this option), and emigration.27 This study suggests that the brunt of the adjustment cost
must have been borne by the first two options.
Today’s Europe enjoys even fewer degrees of freedom. Its adjustment capacity is
hindered by two historical/cultural factors that will be difficult to amend: emigration is
itself limited by significant cultural and personal restraints (accompanied by the
disincentives provided by generous welfare states), and prices (especially wages) remain
rigid because of the political and economic power of labor. The few adjustment
mechanisms that remain have been jettisoned, one by one, on the mantle of European
integration (with its accompanying Four Freedoms): national monetary policy autonomy
is eclipsed by the European Central Bank; national fiscal policy autonomy has been
eviscerated by strict rules of fiscal conduct (i.e., Europe’s “stability pact”); union-wide
fiscal transfers are constrained by EU budget ceilings (and the enormous size of its
agricultural component); and trade restraints are expressly forbidden by the Maastricht
agreement (not to mention a handful of other international agreements).
27
There is obviously some room for maneuverability in other areas (e.g., discretionary monetary policy,
even in the context of the gold standard).
22
I do not have any special insight into which options are more politically viable:
changes along any front will have significant political and economic consequences. This
study suggests that gold standard states managed to adjust to asymmetric shocks without
recourse to labor migration. This finding might provide encouragement for denizens and
advocates of the European currency area. But this optimism quickly evaporates when we
consider the EU’s lack of alternative adjustment mechanisms. Without recourse to the
sort of alternative instruments available to gold standard states (e.g., real price flexibility
and/or trade restrictions), or the sort of instruments common to other currency areas (e.g.,
“federal” fiscal transfers) the threat of regional economic crises continues to hang over
Europe.
23
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27
Figure 1
Aggregate Sample Summary
by country
30
Emigrants per 1000
20
10
0
-10
N = 35
65
FRA
10
15
BUL
RUS
64
64
AUS
HUN
43
33
SWI
GER
20
46
SER
SPA
64
65
BEL
DEN
64
15
65
29
SWE NOR
NET
FIN
65
46
64
UK
POR
IRE
ITA
by year
30
Emigrants per 1000
20
10
0
N
872
Minimum
-4.222826
Maximum
30.015773
Mean
4.17783744
1914
1910
1906
1902
1898
1894
1890
1886
1882
1878
1874
1870
1866
1862
1858
1854
1850
-10
Std. Deviation
4.50024022
28
Figure 2
National Emigration Rates (full sample)
per 1000 population
30
IRE
25
ITA
20
15
POR
UK
NOR
NOR
10
IRE
GER
5
0
SPA
-5
1910
1905
1900
1895
1890
1885
1880
1875
1870
1865
1860
1855
1850
-10
29
Figure 3
National Emigration Rates (country figures)
per 1000 population
DEN
AUS
30
30
20
20
10
10
0
0
FIN
BEL
30
30
20
20
10
10
0
0
FRA
BUL
30
30
20
20
10
10
0
1850
1860
1870
1880
1890
1900
1910
0
1850
1860
1870
1880
1890
1900
1910
31
NET
GER
30
30
20
20
10
10
0
0
HUN
NOR
30
30
20
20
10
10
0
0
POR
IRE
30
30
20
20
10
10
0
0
RUS
ITA
30
30
20
20
10
10
0
1850
0
1850
1860
1870
1880
1890
1900
1860
1870
1880
1890
1900
1910
1910
32
SWI
SER
30
30
20
20
10
10
0
0
0
UK
SPA
30
30
20
20
10
10
0
1850
0
1860
1870
1880
1890
1900
1910
SWE
30
20
10
0
1850
1860
1870
1880
1890
1900
1910
33
Figure 4:
Liberal vs. Protectionist (full sample)
Liberal States in 1913
40
Emigrants per 1000
30
20
10
0
1910
1920
1910
1920
1900
1890
1880
1870
1860
1850
1840
-10
Protectionist States in 1913
30
10
0
1900
1890
1880
1870
1860
1850
-10
1840
Emigrants per 1000
20
34
Figure 5
Liberal vs. Protectionist (short sample)
Liberal States
Netherlands
10
0
Emingrants per 1000
Emigrants per 1000
Emigrants per 1000
30
30
20
1840
20
10
1860
1870
1880
1890
1900
1910
1920
1850
1860
1870
Finland
1890
1900
1910
1920
Norway
Emigrants per 1000
Emigrants per 1000
1880
30
20
10
0
20
10
0
1850
1860
1870
1880
1890
1900
1910
1920
20
10
0
0
1850
30
1840
Ireland
United Kingdom
30
1850
1860
1870
1880
1890
1900
1910
1920
1850
1860
1870
1880
1890
1900
1910
1920
Figure 5 (cont.)
Protectionist States
Portugal
10
0
Emigrants per 1000
Emigrants per 1000
Emigrants per 1000
30
30
20
1850
Italy
Sweden
30
20
10
1870
1880
1890
1900
1910
1920
1850
10
0
0
1860
20
1860
1870
1880
1890
1900
1910
1920
1850
1860
1870
1880
1890
1900
1910
1920
36
Appendix I: Standardized deviations from (linear) trend
AUS
DEN
4
4
2
2
0
0
-2
-2
-4
-4
FIN
BEL
4
4
2
2
0
0
-2
-2
-4
-4
FRA
BUL
4
4
2
2
0
0
-2
-2
-4
-4
1850
1860
1870
1880
1890
1900
1910
1850
1860
1870
1880
1890
1900
1910
37
NET
GER
4
4
2
2
0
0
-2
-2
-4
-4
NOR
HUN
4
4
2
2
0
0
-2
-2
-4
-4
IRE
POR
4
4
2
2
0
0
-2
-2
-4
-4
ITA
RUS
4
4
2
2
0
0
-2
-2
-4
1850
-4
1860
1870
1880
1890
1900
1910
1850
1860
1870
1880
1890
1900
1910
38
SWI
SER
4
4
2
2
0
0
-2
-2
-4
-4
SPA
UK
4
4
2
2
0
0
-2
-2
-4
-4
1850
1860
1870
1880
1890
1900
1910
SWE
4
2
0
-2
-4
1850
1860
1870
1880
1890
1900
1910
39