GOLD INFLATION AND THE CIVIL WAR PERIOD
DIAGRAM 2 on page 14 covers the 20-year period from 1847 through 1866. The data shown are the index of business activity, bond prices, stock prices, and interest rates, just as in the first diagram. The first four years of this diagram are repetitions of the last four years of the former diagram, and they are repeated in order to facilitate the study of the curves. The diagram covers the four cycles designated as E, F, G, and H, and part of the following one.
Business recovery began at the end of 1848, and except for a dip in 1851 the advance continued to the spring of 1854, or for a period of more than five years. During most of that time both bond and stock prices were advancing. In the previous chapter the argument was made that such periods of advancing security prices must have created market conditions that were favorable for attracting increased flows of new capital into business enterprises. We have no direct data with which to measure the increases in such flows in those early years, but nevertheless there are some figures which indicate that they must have taken place.
Federal reports show that in the year 1848, just before the recovery began, there were 398 miles of new railroads put into operation. Railroad construction required new capital, and the advancing security markets created conditions which were favorable for attracting it. The new capital must have flowed in abundantly, for the miles of new railroad increased steadily until in 1853 there were 2,452 miles put into operation, or more than six times as much as in 1848. During 1853 security prices were moving downward again and creating unfavorable conditions for attracting new capital, and railroad construction dropped from 2,452 miles in 1853 to only