Multi-currency regime and markets in early nineteenth-century Finland

Abstract

Pre-industrial money supply typically consisted of multiple, often foreign currencies. Standard economic theory implies that this entails welfare loss due to transaction costs imposed by currency exchange. Through a study of novel data on Finnish nineteenth-century parish-level currency conditions, we show that individual currencies had principal areas of circulation, with extensive co-circulation restricted to the boundary regions in between. We show that trade networks, defined here through the regional co-movement of grain prices, proved crucial in determining the currency used. Market institutions and standard price mechanisms had an apparent role in the spread of different currencies and in determining the dominant currency in a given region. Our findings provide a caveat for the widely held assumption that associates multi-currency systems with negative trade externalities.

A Bayesian spatio-temporal analysis of markets during the Finnish 1860s famine

“…Our results show that the regional aspects of the early 19th century Finnish grain markets (e.g. Voutilainen et al, 2020) were still in place during the 1860s famine. The overall weak market integration provides an explanation for the emergence of persistent east-west price gaps observed by Ó Gráda (2001).…”

“…Empirically, multiple spatial equilibria are encountered in poorly integrated markets (e.g. Studer, 2008;Chilosi et al, 2013;Voutilainen et al, 2020), especially during famines (e.g. Shin, 2010) leaving market behavior under such environments greatly understudied.…”

“…The data have been previously analyzed by Ó Gráda (2001), who-in contrast to our approach-divided the data in eight provincial aggregates downgrading regional variance and leaving, among other things, the within-province heterogeneity and urban-rural division unhandled. The higher spatial resolution of this study is more in resonance with livelihood and market regions (Voutilainen et al, 2020;Maxwell et al, 2020), thereby providing more accurate measurement of the actual prices faced by the contemporary people.…”

The evolution of credit networks in pre-industrial Finland

“…Nearly 90% of the transactions in early modern England were carried out on credit because a chronic shortage of money as a medium of exchange made credit crucial in daily transactions (Muldrew, 1998). We do not have an exact estimate for the monetisation rate in nineteenth-century Finland, but the proportion might have been close or even superior to the British amount (Kuusterä & Tarkka, 2011;Voutilainen et al, 2020). Barter, trade and subsistence farming persevered throughout the nineteenth century.…”

“…In 1812, the Bank of Finland was established in the then capital of Åbo by Tsar Alexander I, before being relocated to the new capital, Helsinki, in 1819 (Kuusterä & Tarkka, 2011). From the beginning of the nineteenth century to 1860, various currencies circulated in the country (Kauko, 2018;Voutilainen et al, 2020). In 1860, Finland adopted its own currency, the Finnish Markka (abbreviated mk).…”