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The Antebellum Money Market and the Economic Impact of the Bank War: A Comment

Published online by Cambridge University Press:  11 May 2010

Christopher Curran  and
Jack Johnston
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Extract

In an earlier issue of this Journal, M. E. Sushka criticized the methodology of such “revisionists” as Peter Temin in their evaluation of the impact of the Bank War on the Jacksonian economy. Sushka characterizes the work of the revisionists as the “use of descriptive statistical tools in an attempt to analyze developments empirically.” Sushka, on the other hand, applies “modern econometric techniques” to “an economic framework drawn from contemporary monetary and macroeconomic theory.”

Type
Notes and Discussion
Information
The Journal of Economic History , Volume 39 , Issue 2 , June 1979 , pp. 461 - 466
Copyright
Copyright © The Economic History Association 1979

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References

The authors are affiliated with the Department of Economics, Emory University, and the University of California, Irvine, respectively. They wish to thank Leonard Carlson, Gavin Wright, Peter Temin, and an anonymous referee for their helpful comments. Any errors remaining are the authors' responsibility.

1 Sushka, Marie Elizabeth, “The Antebellum Money Market and the Economic Impact of the Bank War,” this Journal, 36 (Dec. 1976), 809–35Google Scholar. Temin, Peter, The Jacksonian Economy (New York, 1969)Google Scholar. Another revisionist interpretation is Rockoff, Hugh, “Money, Prices, and Banks in the Jacksonian Era,” in Fogel, Robert W. and Engerman, Stanley L., eds., The Reinterpretation of American Economic History (New York, 1971), pp. 448–58Google Scholar. Also see Engerman, Stanley, “A Note on the Economic Consequences of the Second Bank of the United States,” Journal of Political Economy, 78 (July/Aug. 1970), 725–28CrossRefGoogle Scholar.

2 Sushka, “Antebellum Money Market,” p. 810.

3 Ibid.

4 See Johnston, J[ack], Econometric Methods (2nd ed.; New York, 1972), pp. 198–99.Google Scholar

5 There are two complications in applying these tests. The first is that both demand functions for the early period have been estimated by ordinary least squares and all other functions have been estimated with a Cochrane-Orcutt correction for autocorrelated error terms. This means that one is in fact testing for the homogeneity of the complete set of parameters including the autoregression coefficient. This, however, is the only, valid test that can be applied to these data since autocorrelation of the structural disturbances violates a basic assumption used in deriving the Chow test. The second is that the test procedure is based on the assumption that the disturbance variances are equal in the two subperiods. For the three functions in Table 1, the ratios of the residual variances for the two subperiods are 1.82, 2.18, and 13.90 respectively. Only the last one indicates a significant departure from equality. The note by Toyoda, Toshihisa (“Use of the Chow Test Under Heteroscedasticity,” Econometrica, 42 [May 1974], 601–08)CrossRefGoogle Scholar, however, shows that under heteroscedasticity there is a bias towards incorrectly inferring the existence of a structural shift. Our conclusion on the relevant function (Supply of Bank Liabilities) is that no structural changes occurred. Thus our conclusion is reinforced, not weakened, by any complications due to heteroscedasticity.

6 See Johnston, Econometric Methods, pp. 350–52.

7 Modigliani, Francis, Raasche, Robert, and Cooper, J. Philip, “Central Bank Policy, the Money Supply, and the Short-Term Rate of Interest,” Journal of Money, Credit and Banking, 2 (May 1970), 166–218CrossRefGoogle Scholar.

8 There are several other points of lesser importance in Sushka's analysis of the demand for money model that we found to be confusing. Throughout this footnote the equation numbers will refer to the equations as Sushka numbered them. Also, the symbols are taken directly from Sushka's article. First, Sushka's equation (2) does not follow directly from equation (1) unless the latter equation is altered to take the following form:

Taking the log of the above will yield equation (2) which was used in Sushka's Model 1. In Model 2, the above equation is combined with Sushka's equation (3) to yield:

which is the equation estimated in Tables 1 and 2 as 1.4 and 2.5 (pp. 816 and 819). Because the algebraic manipulation described above is not reported in the article, it would be easy for one at first reading to think mistakenly that Sushka had tried to estimate an equation of the following form:

In Model 3 Sushka makes a similar unreported algebraic manipulation. Also, there is further confusion about what is estimated in Sushka's Model 3. The dependent variable is In (M/Y). One of the independent variables is labeled in Tables 1 and 2 as the “Lagged Dependent Variable,” which would be In (M−1/Y−1). The actual independent variable specified by the model would be In (M−1/Y), a completely different variable. It is not clear which variable was used by Sushka. Finally, in Model 4, Sushka added the “change in the price level in logarithmic form” to each of the earlier models (p. 814). Later, in Tables 1 and 2, this variable is reported to be the “rate of change in prices.” Again, it is not clear which variable actually was used.

9 See Temin, Peter, Did Monetary Forces Cause the Great Depression? (New York, 1976), pp. 96–103Google Scholar.