ECON 2060 final

Postbellum Era (Civil war - WWI)

-deflation: bad for debtors and farmers -policy followed gold standard -banking panics: 1873, 1890, 1893, 1907 -interest group conflicts (silver producers, country bankers) -Federal Reserve system in 1913

wage lag

-prices rose more rapidly than wages in north: laborers disadvantaged

Urbanization

-by 1910, nearly 10% of population lived in NY/Chicago/Phily -previously just trade centers, now factories and industrial activity -growth in cities of midwest and south

the automobile

-by 1930: 60% of families owned an automobile -construction boom: suburbs, gas stations, motels -development of national highways begins in 1916

Sherman Antitrust Act (1890)

-cattleman's associations against Chicago meatpacking industry -US v Knight Company: not enforced -post 1898 merger wave: safe and legal way to cut prices

Pullman strike of 1894

-led by Eugene V. Debs, attributed to un-American ideology -rioting kills many in Chicago -served as a warning to Union leaders to not be violent

First New Deal (1933-1934)

-legislation for relief and recovery -CCC, AAA, NIRA

Road Island System

-mill and factory owners hired and housed whole families, assigned members different jobs

Phase 1: Horizontal Mergers (1879-1893)

-combine firms that produce identical/similar products -manufacturers in leather, sugar, salt, whisky, rubber boots and gloves combined -consolidate and standardize production -Standard Oil Company: John D. Rockefeller -absorbed other companies, 90% of refining in US by 1878 -dissolved in 1892 but just turned into a holding company

macroeconomic policies in 1920s

-conservative: low taxes, budget balanced (revenue stayed high) -success of Fed receive system seen in stable pries -lets rural banks close: Eugene White said problem with these was legislation that prohibited branch banking -Fed concerned with growing speculation on wall street, raised discount rate in 1929

women employment

-continued laws passed giving women rights to property/business/patents -by 1920 they are 20% of work force -typewriter/ office equipment increases employment opportunities - employment segregated by race and gender -1920: common to have max hours/ min wages for women, helped men as well

Unions after 1902

-"open shop" campaign by employers where workers are not required to join the union -Samuel Gompers and others respond with edu/propaganda to secure more public favor: National Civic Federation -by end of 19th century, unions legal but employers had right to force antiunion contracts (yellow-dog contracts) -gov always on side of employers -unions couldn't organize large fraction of labor force but did help reduce arbitrary hiring/firing, raise wages, and injury compensation -labors 19th century progress still more due to economic growth

growth of pop/ labor force

-1800-1860: 3% growth rate per year -large families, high birth rates offset declining fertility and high mortality -immigration (especially after 1845): potato famine in Ireland and political unrest in Europe -manufacturing workers grew relatively to agr. - growing firm size and more division of labor, women and children enter labor force

Demography change

-1860-1910: move from 33% to 40% of workers as percentage of total pop -one manufacturer per farmer -immigrants added to labor force -urbanization causes decline in family size, reduced fertility also in rural areas with rising land prices -death rates fell because better sanitation

Energy change

-1860-WWI: transition from animals/wind/water to steam and electricity (allowed power plant to be physically far from manu. plant) -from coal to petroleum and natural gas

New currency

-1862: gold quickly flowing out of banking system -greenbacks and national bank notes necessary to pay treasury bonds after civil war -growth of bank deposits had biggest effect on money supply post civil war

Foreign Trade

-1900: US is leading manufacturing country in the world -rapid improvements in communication/transportation (Suez canal, railroads in other countries, refrigeration on vessels) -US exported less raw materials and more manufactured goods -opposite for imports -caused be preeminence in natural resources combined with institutions for production

Federal Reserve Act

-1913: system of 12 fed reserve banks, permanent charter -membership compulsory for national banks

new middle class

-1920s: mass production/marketing, consumer durables, suburban housing -automobile becomes a necessity by end of decade -almost half of 17 year olds high school graduates by 1938

Great Depression

-1929-1933 -GDP fell 30% -unemployment reached 25%

End of Gold Standard

-1933: everyone as to turn in their gold to FED in exchange for bank notes -wanted to stop undermining banking system -allow US to devalue the dollar and make US exports attractive

John Maurice Clark: The Costs of the War to the American People

-31 billion dollars 44% of GDP during war period (1917-1920)

Northern industrialization

-Beard and Hacker: transfer of political power from southern agrarians to northern industrial capitalists, increased investments in economy -Engerman and Gallman showed that no civil war did not stimulate industrialization: loss of southern market, etc.

Federal Trade Commission

-Clayton Act (1914): made price discrimination, acquiring stock of competitor, interlocking directorates and exclusive selling illegal IF effect was to lessen comp -FTC enforced act but had little power

Eugene Lerner: Monetary/Fiscal Programs of Confederate Gov.

-Con. economy during civil war: prices/wages/stock of money all rise -revenue-raising programs cause inflation -in kind taxes: farmers/businessmen just sold/hid stuff before collection time, impressment by government lowers production -borrowing (30%), taxing(5%), and printing (60%) -Secretary Memminger: tried for $15 mil property tax request: believed strong tax program would lessen inflation, wanted to create demand for paper money -collecting agencies/bureaucracy too unestablished: only 1.7% of revenue came from this and net effect twas a rise in prices/inflation because states sold securities to banks -tried income tax: people allowed to pay with bonds so still inflation, hostility by states -tried in kind tax and it did not lower prices, unpopular -gov bonds actually made you lose money, patriotism only incentive -1864: forced to repudiate part of the currency, 1/3 of cash erased

Relief

-Federal Emergency Relief Agency directed by Harry Hopkins -Works Progress Administration for employment, employed even artists/writers -construction projects like Tennessee Valley authority to build dams -Home Owner's Loan Corporation for mortgage market

Fannie Mae

-Federal National Mortgage Association for long term -established secondary market for private lenders

Board of Governors

-Federal Reserve Board becomes BoG, allowed to buy or sell securities to open market -more active role as lender of last resort

Fuel and Food Administrations

-Herbert Hoover as food administrator to maintain adequate supply and keep prices from rising, power to license food dealers -use of less desirable substitutes -appeal to moral principles

Ponzi Scheme

-Italian immigrant charles Ponzi starts fraudulent investment plan -used payments from recent investors to pay interest rates to early investors or pay those who wanted to cash in

Unions (1860-1914)

-Knights of Labor huge in 1885, failed strike in 1886 causes decline -AFL: 1.5 million by 1905 -Samuel Gompers is first president -control job opportunities/conditions in each craft -1870 strikes broken violently by force -1877 Pittsburg railroad strikes involve state militia -"Molly Maguires" blamed for murders, 20 people hung

1886 Haymarket affair

-Knights of Labor trying general strike in Chicago -bomb thrown at police officers kills people -7 men executed

Waltham System

-Lowell and Boston associates -employed young women, housed in dormitories and supervised -women's earning rose relative to mens in NE

Recovery

-NIRA worked to raise prices and wages, spread work, and prevent price cutting -"codes" of fair practice -mostly income was just redistributed and not expanded

Economics of civil war

-North outnumbered south 3 to 1, slaves and free blacks joined union army when they could -North able to increase arms production more quickly (lack of domestic manufacturing in South)

Stock market crash

-October 1929 -record 13 million shares traded on "black thursday" -psychological trauma had largest effect: purchasing of consumer durables declines

Perverse effects of New Deal

-Schumpter and Higgs: private investment remained depressed bc New Deal discouraged it -potential profits lower because of new taxes -gov policies inhibited downward adjustments in wages

Henry C. Wallace

-Secretary of agriculture -parity: agriculture was entitled to its fair share of the national income and so ratio of the prices farmers received to the prices they paid should be equal to 1910 ratio

Trade/finance policies

-South believed king cotton would save it, remained poorly prepared by discouraging exports to bring Britain out of neutrality -northern naval blockade (1863) -decline in southern production and confidence in southern currency cause hyperinflation -tariffs and internal taxes in North, bond sales brought in 3x revenue as taxes, inflation but not like the south

Hammond: "cotton is king" speech

-South is large and plenty of natural resources, strong men who can defend it -south produces staples the North doesn't have even if their population is 50% larger -surplus productions important: no nation on earth can compete with south (more than 200 mil) -commerce breeds war: tariff exploits south -englands economy would die without cotton: saved bank of england - US government has become too strong for south

American Imperialism

-Spanish-American war (1898) -US sympathy for cuban revolutionaries -opposition by business community because cuban sugar industry and spanish securities in US banks and inflation -destruction of the maine: US gets involved and gives Cuba only kind of independence (Platt amendment) -economic motives for involvement were mostly special interest

Early labor movement

-craftsmen in Phily/NY/Boston founded craft labor societies in 1790s -regulate conditions of apprenticeships, increase real wages -separated by craft and by skilled workers -cyclical economic downturns would dissolve these, seen as conspiracies under English law -Commonwealth v. Hunt: organization was not criminal -societies made a comeback in 1850s

The War Industries Board

-created by Wilson in 1918 and headed by Baruch -negotiate prices of raw materials for bulk of maximum possible output to maintain price stability

Wholesaling and retailing

-decline in wholesaling because large-scale producers with continuous process technologies -as cities became bigger, retailing became more convenient -by 1920, even small cities had department stores and there were also grocery and drug stores -catalogue selling: Montgomery Ward and Sears

Tariff overview

-declined leading up to civil war, high during civil war, declined again at turn of the century -need for government revenue -political pressure to maintain high tariffs by american manufacturers, "infant" industries -republicans favored high tariff, democrats favored lower (especially southern) -politicians exploited however the economy was doing at the time to advocate for change or the status quo

Roosevelt Corollary

-US might have to intervene in Latin America if they were misbehaving because otherwise Europe would do it and that would violate monroe doctrine

Chandler Thesis

-Why did giant corporations replace the invisible hand of the market? -technology: factories with continuous production didn't want cost interruptions with raw materials/sale of final product -minimize costs when flow all under control -also contributed: requirement of abundant natural resources, patent system

Florida Land Boom

-a ponzi scheme -real estate boom in 1920s -people in florida making fortunes buying and selling land because of declining transportation costs and Florida's nice climate -hurricane in 1926 devastates tourism, leaves devastated banking system

Temin

-although there was a correlation between money and GDP, causation ran from fall in GDP to fall in money -collapse in consumer spending primary cause -evidence is short term interest rates falling

Bernanke

-bank failures made it difficult for firms (especially small ones to get credit they needed to remain in operation -"asymmetric info" problem where banks failed and so no more long term relationships

Immigration

-between 1880 and 1920: more than 23 million immigrants -immigration rose in economic expansions and vice versa -"new" immigration from south/east Europe by 1910 bc economic conditions in northern Europe improved and transportation was better -assimilation more difficult, unskilled labor jobs in industrial cities -supply of labor/consumers great for business but wages for unskilled workers kept low

Postwar Recession

-boom in 1919 where prices rose, Fed kept interest rates low at first but then raised it in early 1920 -agricultural prices fell as European production recovered -recession was brief (1920-1921)

Louis Bernard Schmidt "wheat vs cotton" speech: wheat

-by 1860: industrial rev has made them a manufacturing nation so they import wheat (1/4 of supply came from imports) -1860-1862 crop failures: US alone could supply deficiencies (surplus because no longer supplying to south, production increasing), most dependent on wheat when cotton famine was happening -Bright and Cobden advocated for neutrality because of wheat -conclusion is that wheat won over cotton

Workers in postbellum period

-by 1890, 10 hour work day for manufacturers -by 1920 mostly 9 hour days -wage differentials large between skilled and unskilled industries -after 1890 real wages continued to go up

Labor during WWI

-demand increased by gov contracts, supply reduced by draft and cutoff of immigration -real wages initially fell: strikes in 1917 -in 1918 money earnings went way up, Gompers worked on council of national defense so things looked optimistic -failure of industrial conference in1919 -women contributed to labor (helping them get right to vote) but dropped out of labor force after war -mass exodus of blacks from South to work in factories, race riots in St. Louis/Chicago

Charles and Mary Beard: A second american revolution

-destruction of planting aristocracy: especially with 14th amendment where no confederate officers could hold gov positions, new power to free farmers and northern industrialists -confiscation of planter's labor (slaves): $4 billion with emancipation proclamation in 1862 -gov favors industrialists by only taxing goods (not incomes), protective tariff restored -republicans/union party want immigration to match labor with capital -main economic result: new class of emancipated slaves confuses democracy because they have no economic power (skills or property), no capital to develop land if given property

Gold standard after civil war

-during civil war: greenback standard -prices needed to come down in US before they could resume prewar exchange rate: 1. run a budget surplus and burn greenbacks (mcCulloch, Contraction Act) 2. hold money supply constant while economy grows (Boutwell) -de facto gold standard from 1879-1900

Phase 2: Vertical Mergers (1898-1904)

-each stage of production process managed by different departments within a firm -Gustavus and Swift, Armour and Morris in meatpacking industry -Carnegie and US steel corporation owned 60% of steel production, also protected interests in raw materials with railroad/ ore reserves in Lake Superior region

Commitment to Gold Standard

-election of 1896: William Jennings Bryan cross of gold speech -McKinley won, new gold fields opened in South Africa so increase in supply -Gold Standard Act of 1900

buy now, pay later

-electrical appliances like vacuums, radios, and fridges (consumer durables) -mass production/technology lowered costs -development of consumer credit: could make a down payment, take item, and pay on installment plan -rapidly growing advertisement -growth of giant corporations (noninterventionist gov)

Rise of investment banking

-emerged in US to provide capital for railroads, mining, and manufacturing -intermediaries between lenders and borrowers -link with business decisions of firms because shared members

Broude: Role of State in Economic Dev. 1820-1890

-expenditures low at beginning of century but there was land tenure policy, immigration policy to condition supply of labor, intervention in banking system, tariff -gradual departure from laissez-fair -Gov's positive role: 1. direct support to industry in private sector 2. taking initial risks 3. creating favorable business climate (tariff and legal system)

Why didn't FED act as lender of last resort?

-failed to see how big crisis was -looked at (low) nominal interest rates instead of real interest rates -misread fall in stock of money -concerns about amount of "free gold"

"Crime of '73"

-failure to include silver dollar in act of 1873 -falling price of silver in international markets -silver producers joined with opponents of deflation -Bland-Allison Act as a compromise for coinage of silver in limited amounts -Sherman Act expanded this (repealed by Cleveland)

Manufacturing wages of male labor

-fastest growth 1820-1832 -same levels in NE as midAtlantic states -better off in US than in England because transportation costs and land abundance -growing inequality of income

Bank Failures of Great Depression

-first waves in early 1930s with south/midwest banks -then bank of US in Ny failed: fears that whole nations financial system was in danger -FED should have acted as lender of last resort but didn't -1931, overseas banks also start failing -final panic in 1933, banking system stops functioning -Roosevelt's "bank holiday" -FDIC established to ensure bank deposits

Cary Brown: Fiscal policy in the thirties

-fiscal contribution to demand: multiplier effects based on expenditures or tax effects on private spending -substitution effects with changes in relative prices -effects on aggregate employment demand stronger in thirties than 1929 but downward trend -fiscal action more expansionary in thirties than 1929 -failure of fiscal policy due to sharp increase in tax structures

Industry Change

-flip flop from 1869- 1899 (53% agr and 33% man to vice versa) -agr. expanded but less quickly than industry, by 1890s manufacturing output finally greater than farm output -printing, malt liquor, tobacco, and railroad cars were new to the top 10 industries list -invention and innovation spurred tech. change (especially 1870s/80s): roller mill, refrigerated cars, long-distance pipelines -mechanization of shoes (Goodyear welt process) and mens clothing

Political gains

-general elimination of property-owning requirement and tax-paying restrictions -by 1860, white men could vote -Fanny Wright and public education

labor and new deal

-gov relief programs and new rights for labor unions -union membership increased rapidly in 1930s -Wagner Act established unfair managerial practices, labor unions made legal

Other causes of depression

-growing income inequality -Hayek and Austrian School: stock market and real estate booms caused distortions -Smoot-Hawley Tariff: raised tariff on agricultural products and reduced imports

agriculture in 1920s

-hit hard by 1920-1921 recession -farmers in midwest in debt because of rising land values -high foreclosure rate -McNary-Haugen bills for subsidies: vetoed -protection for agriculture with smoot-hawley tariff Argricultural Marketing act of 1929 for stabilizing corporations owned by cooperatives\ -fed intervention at this point bc price controls of WWI worked, strong fed gov, and integration of national markets

Child employment

-in 1910, 1/5 of 10-15 year olds had jobs -dropped by 1920 because religious groups and trade unions -compulsory education levels to combat child labor

Effect of WWI

-initial panic where stock market closes for 4 months -US goes from being a debtor to a creditor -World's financial center goes from London to NY -huge increase in spending by fed gov (almost 25% of GDP in 1918)

Second New Deal (1935-1941)

-move towards political left -Social Security Act

Migration to cities after WWI

-number living in urban cities passed 50 million -southern african americans led migration: Harlem Renaissance built on industrial jobs -increased edu, reduced birthrate, clerical sector, and WWI all helped women enter the workforce -"marriage bars"

Pure Food and Drug Act and Meat Inspection Act

-passed in June of 1906 -partial result of Upton Sinclair's The Jungle

Louis Bernard Schmidt "wheat vs cotton" speech: cotton

-period of civil war: how dependent was Britain on these staples and how did this influence decision to remain neutral -Lincoln had blockade on S. ports so they needed foreign intervention: cotton famine in Britain -cotton industry employed more than 1 mil in Britain, imports rose 1776-1820, nearly 4 mil depended on it -more than 76% from US -England worried recognizing independence would be an act of war on North: overcame cotton problem by importing from other places like India (but their cotton sucked) and producing finer fabrics -Decision to remain neutral: didn't want to perpetuate slavery, break international law by interfering, risk of war with North

Cochran: did the civil war retard industrialization?

-popular view: new machines, war contracting, inflation become forces for future economic growth: these do not -pig-iron production slowed, coal unaffected, copper has only random stat. evidence -depressing affect on railroads, cotton textiles, and immigrants -farm mechanization: random stat. evidence -bank loans actually fell between 1840 and 1850, rose and fell after that -even though small group of war contractors prospered, business as a whole declined -conclusion: civil war retarded industrial growth -economic effects of emancipation very bad -more satisfactory money market (national banking act) and more security for entrepreneurs did help industrial growth

Income tax

-populist/progressive solution to revenue without tariff -declared unconstitutional in 1895 but becoming increasingly popular for purpose of army pensions and military spending -amendment passed in 1909

Reform of Agr. Sector during depression

-prices fall 56% between 1929-1932, farmers with fixed indebtedness most hard hit -agricultural marketing act of 1929 is when gov first commits to helping with price stabilization -production controls in 1930s to raise prices for farmers bad because everyone was unemployed and hungry

stock market boom

-prices more than tripled between 1928 and 1929 -rise of earning and dividends paid by corporations -people convinced themselves of "new age" of prosperity -bubble begins in march of 1928

Friedman: monetary effects

-primary cause of depression was decline in the stock of money produced by withdrawal of currency from banking system/banks holding more reserved -less spending so fall in GDP

International economy

-problems: german war reparations and reestablishment of gold standard -US policy was only centered around domestic issue: not willing to let the influx of gold from pressure on British exports increase its price level

Decline in southern output during/after war

-reversal of per capita input advantage between N and S -whole economy not stagnated, mostly deep south: southern manufacturing rebounded more quickly than agr. -railroad could be rebuilt but whole nature of agr. changed with emancipation proclamation

Reform of Financial System

-safety net for banking system: deposit insurance -Glass-Steagall Act separated commercial banking from investment banking

National Monetary Commission

-seasonal fluctuations in interests rates were aggravated by national banking system and angered farmers -"national currency associations" for emergency bank notes

Dual Banking System

-state banking system immediately withers with policies of 1860s but rises again in 1870 -by 1914, more state banks than national banks -higher interests rates in rural areas because national banking system raised barriers to entry for state banks

Trusts

-stockholders of companies formerly in competition turn over shares to trustees -trustees have voting control of operating companies -agreements were public record and created political opposition -NJ "holding companies" became legal in 1889 to get around antitrust laws

Genovese

-studied demand in southern economy: infrastructure, capital -marketplace for goods depressed because slaves don't have wages to spend and so are non-participants in the labor force-slaves tie up labor force

Concentration movement

1. Rise of mass production bc continuous-flow production 2. search for monopoly profit with new legal arrangements -two major combination phases

Financing war

1. Taxing: estate tax in 1916, War Revenue Act raises income taxes 2. Borrowing: 61% of total financing, huge bond rallies by McAdoo 3. Printing money: (in Rev war printing of continental dollars, in civil war greenbacks) -Fed Reserve now bought bonds on open market to expand money supply -increase in stock of money and price level

Mass production after civil war

1. continuous-flow production -Swift and Armour in Chicago meat-packing -Henry Ford: automobile moving assembly-line 2. scientific management -Railroads first: McCallum with Erie Railroad changed manager authority, accounting, and performance evaluations -Frederick Taylor: improved worker efficiency with analyzing in detail movements required, experiments to ermine size/weight of tools, incentives for better performance -Taylorism: exploitation?

early business combinations

1. gentlemen's agreements (set and maintain prices) 2. pooling (dividing a market by output or territory and assigning each seller a portion), or profits pool -1880s/90s, pooling in whisky/ salt/ meat -illegal in US but more popular in Europe -not durable because of other firms entering market and "cheating"

Decline in deep south

1. plantation system destroyed 2. withdrawal of women and children from fields: 30-40% decline in output 3. demand for cotton slowed because of india/brazil/Egypt

Factors that weakened debt patronage (sharecropping)

1. the boll weevil (ate the cotton) 2. improved roads and the automobile eroded monopoly power of storeowners 3. increasing urbanization/industrialization throughout US: demand for labor in north allows southern blacks to migrate

legacy of new deal

1. wide array of institutions and programs like social security 2. new liberal spirit in young people 3. people believe Washington will help them with economic difficulties 4. did not try to overthrow capitalism

Bank Panics

1873: started with Jay Cooke and Company, recession of 1870s -minor panics in 1884 and 1890 -1893: economy suffers largely -1894: "Coxey's Army" of unemployed march to Washington, nothing happens -1907: growing lack of confidence in banking system despite efforts of JP Morgan

Fiscal Policy in 1930s

Hoover: support of agricultural policies, borrowing and lending money -not enough measures to raise income/correct deflation Roosevelt: ran large deficits to finance projects, manipulated exchange rates by having FED buy gold -contractions from 1927 to 1928 when projects halted and new taxes imposed

Trustbusting

Theodore Roosevelt, campaign of 1904 -1911, SCOTUS dissolved Standard Oil and American Tobacco -replaced with oligopoly, large corporations remained safe