Asset Prices in the Industrial Revolution: Evidence from the Grain Market. Liam Brunt1 & Edmund Cannon2 Abstract.3 From 1770 to 1914 the British Government closely monitored the domestic grain trade. It collected weekly price and quantity data for all types of grain for a large number of market towns and published these so-called Corn Returns in the London Gazette. We have computerised all of the published data between 1770 and 1864, totalling around 6 million data points. In this paper we describe the precise nature of data; we discuss why, when and how it was collected; we consider the accuracy and biases of the data; and we describe how we computerised the original returns. This gives a firm foundation to our own analysis of the data, and introduces the data to other potential users. 1 McIntire School of Commerce, University of Virginia. [email protected] 2 Department of Economics, University of Bristol. [email protected] 3 This project was funded by the Economic and Social Research Council under Research Grant No. R000223071. We also thank the Royal Economic Society for a Small Grant. For able research assistance we would like to thank Rob Brewer, Anna Chernova, Saranna Fordyce, Becca Fell, Ludivine Jeandupeux, Dave Lyne, Olivia Milburn, Hannah Shaw, Derick Shore, Liz Washbrook and Alun Williams. Thanks are also due to Colin Knowles for computer support and Bristol Library for exceptional service. For helpful comments and discussion we would like to thank Julia Cerutti and Lucy White. Any remaining errors are our own responsibility. 1 1. Introduction. Between 1770 and 1914 the British Government made a concerted and sustained effort to monitor the grain trade throughout England, Wales and Scotland. At its minimum, this project involved the collection and publication of weekly prices for five different grains for 44 counties or regions; at its maximum, the project was extended to cover weekly prices and quantities traded for seven grains for 290 towns. In total, the Government collected about 6 million data points over the period 1770 to 1914 and these data are generally referred to as the Corn Returns. We have computerised all of the data up to 1864 and are currently undertaking an extensive economic analysis to draw out the implications of this information for British economic development. The purpose of this paper is to discuss the Corn Returns as a data source. We wanted to consider all the peculiarities of the data prior to analysing them in order that our own research was well-founded. We also wanted to introduce the data set to a wider audience, in order that other researchers can confidently download the data from the ESRC data archive and undertake their own analyses. It is inevitable that such a broad and long data set varies in terms of the precise data collected and format adopted in different time periods. Hence there are a large number of issues to be discussed in order to make a comprehensive survey of the Corn Returns. However, given how frequently the basis and format of Government statistics are changed in the late twentieth century, it will come as a pleasant surprise to most economists how unchanging are the Corn Returns over a period of 135 years. In Section 2 we begin by considering the historical background to the Corn Returns – why, when, where and how they were collected and published. In Section 3 we consider the accuracy of the Corn Returns data set - both in terms of the underlying data, and our transcription of it. In Section 4 we consider potential biases in the data – arising from factors such as geography, grain quality and missing observations. In Section 5 we provide some simple data description - looking briefly at the levels, trends and cycles in prices and quantities. We include several appendices which contain more detailed information. Appendix 1 contains a full list of towns for every period. 2 2. Historical background of the Corn Returns. Between the 1690s and the 1840s the British Government attempted to regulate the domestic price of grain.4 They did this through a whole raft of legislation known collectively as the Corn Laws. The purpose of this regulation was two-fold. First, the Government wanted to keep up prices in order to encourage investment in agriculture and generate an increase in productive capacity.5 Second, the Government wanted to smooth domestic prices and thereby insure both farmers and consumers against excessive fluctuations. Grain was the staple food item of the population and its demand was highly inelastic; but grain harvests fluctuated wildly from year to year, so smoothing prices was a very difficult task. When grain output and prices were about average, imports were subject to a very high tariff (or sometimes simply banned) in order to keep up domestic prices and encourage agricultural investment. In years of plenty, the price fell very low and the Government compensated farmers by giving them an export bounty (i.e. they paid farmers to export grain in order to get it off the domestic market). In years of dearth, the price rose very high and there was no import tariff to pay (i.e. if the world supply was perfectly elastic then there was a de facto price ceiling). Regulating the domestic price was difficult in the absence of an official price series. Initially, importation and exportation were based on the honour system and hence widely abused. In order to import grain tariff-free, the captain of a vessel simply had to swear before a local worthy that the market price in the port was above the strike price; and in order to export grain and claim the bounty, the captain simply had to swear before a local worthy than the market price in the port was below the strike price. It was not unknown for a vessel loaded with grain to arrive one day (tariff-free) and depart the next day (having claimed the bounty). Eventually, the grain department at the Treasury went wildly into deficit because it had been paying out more in bounties than it had been collecting in tariffs. Parliament then acted to prevent further abuse of the system, and the solution from 1770 onwards was to compile an official grain prices series. Thus the Corn Returns were born. The precise details of how the system operated in the first few years are slightly unclear because most of the Parliamentary papers for that period have been 4 The classic account of this episode can be found in Barnes, Donald Grove, A History of the English Corn Laws, 1660-1846 (Routledge, London, 1930). 3 lost. However, we know the rough outlines for the early period and we have detailed information from 1791 onwards. Inspectors were appointed in all the major grain markets. The Inspectors collected information on the trades undertaken by each grain factor in the local market, and this information was written up into a Return which was forwarded to the Receiver of Corn Returns in London. The Receiver then calculated average prices for each county and each District (the Districts being groups of contiguous counties). The ports were then opened or closed to importation according these averge prices. The Corn Laws were always a matter of widespread concern. Farmers and landowners were interested in maintaining high prices; corn factors and industrialists were interested in allowing free trade (free trade implied lower grain prices and hence a lower wage bill for industrialists). The official price series was therefore a battleground because changing the way in which the average price was calculated could affect the likelihood of the ports being opened to trade. This in turn meant that the Corn Returns were subject to widespread public scrutiny and frequent consideration was given to refining them. Even after the Government ceased regulating domestic grain prices (that is, when the Corn Laws were repealed in 1846) the Corn Returns continued to play an important economic role. Traditionally, farmers had paid a ten per cent tax on output (i.e. the tithe) to the Church of England. But both sides recognised that taxes on marginal product discouraged farmers from raising output. Hence most tithes were commuted by mutual consent into a “corn rent”. That is, the farmer agreed to pay to the Church each year the money equivalent of a fixed number of bushels of each type of grain. This eliminated the disincentive effects of taxation because every extra unit of output went to the farmer; but it also meant that in high price years (i.e. when the farmer had a high income) the Church received higher tax revenues.6 The rate of tax per bushel was to be set according the official price series of the Corn Returns. Recall that the Corn Returns include only domestically produced grain in their calculations. This was ideal for setting the corn rents because both farmers and the Church wanted the corn rents to reflect the price that farmers were actually receiving for their output. 5 Farmers were indeed persuaded to undertake investments which led to a permanent increase in productive capacity. For example, land was reclaimed from marshy areas by large-scale drainage projects. 6 Evans, Eric J., The Contentious Tithe (Routledge and Kegan Paul; London, 1976), 128-132. 4 In fact, much of the analysis of the Corn Returns in the late nineteenth century (such as the Parliamentary enquiries of the 1870s) was prompted by farmers and Church leaders trying to revise the way the Corn Returns were calculated, in order to improve their economic position. We can see from the foregoing discussion that the Corn Returns were the product of a peculiar set of circumstances – the desire to regulate taxation or international trade by reference to the market price of domestically produced goods.