American Economic History (The rest)

Theory of the Firm, Coase

Buying/selling in the market involves external transactions costs like writing enforceable contracts with suppliers. Buying/selling within the firm involves internal transaction costs like bureaucratic costs associated with managerial communication.

Compromise of 1850

California was admitted as free state, territorial status of Utah and New Mexico, slave trade abolished in DC, and new fugitive slave laws.

Coinage Act of 1792

Hamilton's bimetallic standard (gold and silver). There was a fixed ratio of 15:1 for silver to gold, (available at the US Mint) and the thought process was that this allowed for a larger money supply than just one or the other.

Case Study: Meatpacking

Gustavus Swift's distribution network: millions of cattle per year by the 1880s. From farm cattle to plant in Chicago for slaughter to refrigerated warehouses via ice-cooled cars. With sufficient volume, by-products became economical to process (Bones for glue and fertilizer).

Beard-Hacker: stimulating the economy

Leading industrialists got their start during the civil war. E.g. Carnegie Steel and JP Morgan

Beard-Hacker: transferring power

Legislation like the national banking system, increases in tariffs, land grant colleges, and the homestead act. These were power transfers but none of these really benefitted northern industry too much.

Price of a slave in 1860

$1800 in 1860 Today... CPI: $46,000 Unskilled wages: $135,000 Per-capita GDP: $600,000

Earliest railroads

1830: Baltimore and Ohio, was the response to Eerie Canals' diversion of trade from Baltimore to NY. It was privately organized and financed. The early ones had little government support, were private investments, and relied on British imports and technology.

Sherman Anti-Trust Act

1890. First United States law to limit trusts and big business. Said that any trust that was purposefully restraining interstate trade was illegal. It didn't slow down merger activity much as the law was vague and its enforcement weak. Solution was the watershed: 1911 Supreme Court case that dissolved Standard Oil into constituent companies.

What is a bubble?

A bubble (speculative mania) is when the price of an asset exceeds the intrinsic value of that asset. It comes in two phases: boom, people bid up the price of an asset in the hopes of further price appreciation, positive feedback loop; burst, everyone realizes prices aren't rational, seek to exit market (causing prices to crash), negative feedback loop.

The Populists

A group that called for free coinage of silver, the abolition of national banks, plenty of paper money, government ownership of all forms of transportation and communication, election of Senators by direct vote, and an 8 hour working day.

Contestable markets

A market in which firms can enter and leave so easily that firms in the market face competition from potential entrants

The railroad as a natural monopoly

A natural monopoly is an enterprise for which marginal costs are less than average costs for all output (where fixed costs are large relative to marginal costs). The outcome of a profit-maximizing firm is not socially optimal, and it raises possibility of social gains from public intervention

Abramitzky reading

Abramitzky, Boustan, and Eriksson assert the claim that on average, long-term immigrants from sending countries above the European median actually held significantly higher wages than US natives upon first arrival, while immigrants from sending countries with below-median wages started out in equal or lower-paid occupations. In other words, immigrants experienced occupational upgrading similar to natives, regardless of their starting point. This gap persisted across generations, so certain second-generation immigrants outperformed their American peers. The notion that immigrants faced a large occupational penalty during the historical age of Mass Migration is proved to be overstated. When US borders were open, the average immigrant who settled in the US long-term held occupations that commanded pay similar to that of US natives upon arrival. Simultaneously, the concept that European immigrants converged with natives after spending 10-15 years in the US is also exaggerated, as initial immigrant-native wage gaps remained over time and even across generations. Thus, doubt is cast upon the conventional view that immigrants who arrived in the US with little skills were able to invest in themselves and find success within a generation. The convergence in immigrant-native wages over the period is attributed to a substantial decline in the quality of immigrants over the period as well as a change in the composition of the migrant pool as negatively selective return migrants left the US over time. Overall, the average long-term immigrants in this era and experienced identical rates of occupational upgrading over the lifetime. This conclusion is juxtaposed with the other conclusion that migrants who arrived with low skill levels did not manage to close their skill gaps with natives over time.

Homestead Act of 1862

Act that allowed a settler to acquire as much as 160 acres of land by living on it for 5 years, improving it, and paying a nominal fee of about $30. The land given to the settlers usually had terrible soil and the weather included little precipitation. 'Free' land still had an opportunity cost.

Response of State Banks

After 1870, state banks begin to grow again, but are much smaller than the national banks. Branching was restricted, so lots of demand for banking services could only be met by small banks, and state chartered banks had much lower minimums than federal. State banks could loan money in the form of demand deposits (checks), that served all the functions of money without being bank-notes.

Gold Standard Act of 1900

An act that guaranteed that paper currency would be redeemed freely in gold, putting an end to the already dying "free silver" campaign. Hard money advocates won, and the dollar defined as a fixed amount of gold (0.053 oz).

Rockoff reading

Baum's The Wonderful Wizard of Oz serves as a political allegory for the free silver movement that occurred in the 1890s. Prior to the book's publishing, from 1860-1890, deflation fell steadily until the US returned to the gold standard in 1879 where deflation quickly resumed. Deflation negatively impacted the price of farm goods, as they reached an all-time low in 1896. The phenomenon happened due to the slow growth in money supply. The 1880s demonstrated a strong demand for additional money balances, which can be attributed partially to falling interest rates and institutional developments such as the banking structure. In 1890, Congress passed the Sherman Silver Purchase Act, which provided for the regular purchasing and coining of silver in limited quantities. This act precipitated a bank run as a fear that US would totally leave the gold standard emerged. In addition, a stock market crash and banking failures lead to a subsequent depression. When the Democrats gathered at their political conference of 1896, they nominated William Jennings Bryan, who advocated for a complete switch to free and unlimited coinage of silver. Although Bryan lost to the Republican William McKinley, the two men competed again in the 1900 election. At that time, the economy had largely recovered from its previous recession. In regards to the story, Dorothy lives in Kansas, a detail that gains significance as the populist movement arose in the West. The Wicked Witch of the East, a character who instantly perishes, represents eastern business and financial interests, in particular those of Grover Cleveland. Unable to return home, Dorothy follows the yellow brick road (the gold standard) to reach the emerald city (Washington DC). Dorothy encounters the Scarecrow (a Western farmer lacking brains), Woodman (an unemployed factory worker who doesn't comprehend the movement), and the cowardly lion (William Jennings Bryan himself). Together the adventurers overcome challenges that demonstrate that in reality they do possess the traits they erroneously believe they lack.

Mass migration

Between 1850-1920, 50 million people leave Europe for the New World and the majority (30 million) arrive in the US. This was large in two senses: absolute magnitude, and relative to US population. Culturally more different; poorer, lower-skilled

Chandler reading

Chandler asserts that four traits define the structure known as a firm 1) the firm functions through signing contracts with other parties; 2) it is an administrative entity, such that teams of managers must cooperate to solve different tasks; 3) they are a pool of physical facilities, learned skills, and liquid capital; $4) they are the primary instruments in capitalist economies for the production and distribution of current goods and services. Industrial enterprises appeared in the late 19th century due to their ability to exploit the potential economies of scale and depend upon capital intensive methods. The entrepreneurs who organized the companies created national, and later international, marketing and distributing organizations. They then needed to recruit groups of middle and lower managers to coordinate the flow of products through the processes of production and distribution, and to monitor future developments. The first firms to invest in manufacturing, marketing, and management essential to exploit economies of scale rose to power within their industries. As is typical in oligopolistic markets, firms competed directly through functional and strategic efficiency. This ecosystem provided firms with the opportunity to hone their organizational capabilities that allowed them to thrive. Organizational capabilities resulted from solving problems of scaling up the processes of production, from acquiring knowledge of customers' needs and altering product and process to services needs, coming to know the availabilities of supplies and the reliability of suppliers, and in becoming knowledgeable in the ways of recruiting and training workers and managers. The specific skills and knowledge were developed through a continual cycle of trial and error, learning where firms succeeded and failed.

Economics of emancipation

Congress appropriated funds to compensate slave-owners in DC and (non-seceding) border states. But Lincoln's 1863 Emancipation Proclamation (and 1865 Thirteenth Amendment) simply outlawed slavery.

Electrification at home

Connecting households to electrical grids (and the rise of electrical appliances at home) was a household revolution that freed women and girls from housework to focus on work/education. Same with the automobile revolution wherein falling costs and rise in credit (borrowed money) made cars more common.

The curse of bigness

Consumers are the major beneficiaries of cost reductions from economies of scale, and large corporations are more productive But there are also fears about anti-competitive conduct, political power, power over workers, and inequality.

Legal Tender Act of 1862 (north)

Created non-interest-bearing treasury notes that were legal tender (but not redeemable for gold). An example of fiat money - made legal tender by government. Primarily used to pay government bills and salaries.

The anatomy of a banking run

Depositors show up to withdraw more money than bank currently has on hand. It is each individual's dominant strategy to be first in line to withdraw their money, whether or not the bank is insolvent. It is a self-fulfilling prophecy wherein fear of insolvency can create actual insolvency, by forcing banks to call in loans early and sell assets at discounted values.

Sherman Silver Purchase Act of 1890

Despite purchasing silver under the Bland-Allison Act, silver prices fell. This was another compromise act that doubled the monthly Treasury purchases of silver.

Financing the war in the North

Direct taxation (income taxes), or indirect (debt with bonds or inflation by printing money). Federal gov't expenditures in 1865 were 20x what they were in 1860. Revenues increased 6-fold Income tax Increased tariffs

The Coinage Act of 1873 (a.k.a. "the Crime of 1873")

Drops silver dollar from coinage. This wasn't controversial as silver wasn't circulating anyway. But in the 1870s, new silver discoveries in the west caused output to soar and prices to fall. Plus European countries were shifting to the gold standard and selling off silver reserves. Silver producers now desperately wanted the old mint price back.

The nature of Southern agriculture

Family farming was not entirely displaced by plantations, and as many as 50% of all cotton Belt farms had no slaves at all in 1860. Generally they were diversified and focused on local markets, and less integrated into national and international markets than northern farms. Smaller cotton plantations had <10 slaves while a few large ones had >50. They were nearly self-sufficient in corn, beans, pork, and sweet potatoes.

Olmstead and Rhode reading

Experts assumed that labor savings and increased population were responsible for the dramatic increase in US wheat production in the late 19th-early 20th centuries. However, Olmstead and Rhode argue that this period featured an abundance of biological innovations that were just as significant as the mechanical developments. Farmers discovered and developed new wheat varieties and cultural methods that resulted in the Western Frontier expanding into other regions. Additionally, researchers and wheat farmers made great strides in combating the growing threat of insects and diseases that decimated crop yields. Data reveals that wheat production migrated to less productive fields, yet still produced the same output. Overall, the industry moved into the Midwest region, and as a result of this migration, farmers now had to adapt to new climates that were unsuitable for wheat production. New breeds of wheat, such as the Red Fife, were able to thrive under such less suitable conditions. Hardy new varieties of wheat replaced previous breeds that struggled in the harsh climates. Unfortunately, new diseases that negatively impacted wheat, such as rusts, also emerged. Thus, farmers and experts systematically developed and bred new strains to counter such diseases. Insects, such as the fly, were also an enemy to crop yields. Once again, farmers mitigated any losses through incorporating new techniques. Weeds also emerged as a threat to wheat development. All of these examples demonstrate how biological development was necessary for the US to not only keep its crop production constant, but succeed in the practice.

Farm Protest Movement?

Farmers' prices were not falling in relative terms; relative to consumer prices, they rose until the 1890s. Railroad prices were pretty competitive too (except in Chicago) The risk of foreclosure was actually quite small; banks tried hard to avoid it as farms had the highest value with the original farmer. The Populists disappeared by the 1940s but maybe they were just ahead of their time.

Federal Land Grants

Federal government granted land to railroad companies to help them finance new routes. Illinois Central, 1851: 10 square miles of land was given to companies and in exchange US troops were transported for free, and US mailat Congressionally-fixed rates. In absolute terms, these grants were very large.

The impossible trinity

Fixed exchange rate, free capital flow, and sovereign monetary policy. Free capital flow + sovereign monetary policy = NO fixed exchange rates. Fixed exchange rates + sovereign monetary policy = NO free capital flow

The National Banking Act(s)

Floated in 1861 by Treasury Secretetary Salmon Chase to solve two problems simultaneously: a uniform national currency for the emerging integrated national market, and the creation of a Treasury bond market. The 1863 National Banking Act (amended 1864) made charters more restrictive than those of the states'. Anybody could obtain one, but they were subjected to minimum capital requirements ($200,000 for a city of 50K and above; $50,000 for a city of 6K and below). Banks had to purchase US Treasury bonds equalling 1/3 of total capital, and in exchange they received bank-notes equal to 90% of face-value.

Fogel and the Social Savings model

Fogel attempts to quantify how much railroads contributed to economic growth by considering the counterfactual. In the absence of railroads, freight transportation by rivers and canals would have been only moderately more expensive along most common routes. Fogel concluded that the difference in cost (social savings) attributable to railroads was negligible - about 2.7% of GNP. This counterfactual history view was vastly different from views proffered by railroad historians and made a controversial name for cliometrics.

Incentives for work

Free labor relies on an incentive mechanism to work, oftentimes this means wages. For slave-owners, they had to find the right mix of force (whippings, and physical coercion) and material incentives (better food, clothing, leisure, promotion within slave hierarchy). Average whippings was only 0.7 per year, but those not whipped were just as motivated as the ones who were.

How to make greenbacks and gold equal each other

Freeze greenback issuance and limit the ability of banks to issue notes (National Bank reserve requirements). A consequence of this is deflation, and from the 1870s through the 1890s, there is a continuous fall in prices

Compromises on slavery

From the US' earliest days, there were federal compromises over slavery; in the Constitution (3/5's compromise, delayed ban on slave trade), in federal legislation (Fugitive Slave Acts of 1793 and 1850), and in judicial practice (Dred Scott 1857).

Antebellum to now, Agriculture

In 1860, 80% of the population was rural with 50% as farmers. Agriculture accounted for more of GDP than industry. Today, 15% of the population is rural and 2% of total employment is agriculture.

Restoration of the gold standard

In 1875 congress restores the US to the gold standard. Any greenback dollars brought to Treasury from 1879 onwards could be redeemed for gold. One consequence is that if you had lent in (inflated) greenbacks, there would be a substantial improvement in return because of the real interest rate. There emerged two opposing camps: hard money advocates wanted stable money supply, no inflation, and high interest rates; soft money advocates wanted increased money supply, inflation, and low interest rates.

The Law of One Price

In competitive markets free of transportation costs and barriers to trade, identical products sold in different countries must sell for the same price when their price is expressed in the same currency

Wright Reading

In the South slave labor was a major component of the crops grown. The end result of scale economies ended up stifling the progress of manufacturing. Due to the significance of slavery, decisions regarding location, choice of crops, and family labor participation were largely determined on the basis of profitability. The three factors that determined the geographic distribution of slaves in North America were richness of the farmland, the climate, and access to markets. Wright argues that although a correlation between slave population and land value existed during the colonial era, in later periods the causation is reversed. Likewise, the farmland potential actually created economic justification for slave labor. Three areas are relevant to the discussion of this topic: The bluegrass region of Kentucky, in which hemp was grown, Little Dixie, in which a diverse group of crops, including tobacco, corn, oats, wheat, and hemp, were grown, and the valley of Virginia, in which wheat was the primary focus, with pastures of corn, oats, hay, and numerous livestock. In each of the examples, slave populations grew in the 1850s despite the access to markets in the lower South. In addition, slavery prospered even as nearby regions began to outlaw the practice. Therefore, it can be concluded that slavery and geographic institutions cannot be correlated. Although Kentucky slaveholders made up a small percentage of the state's population, they were overrepresented within the state's government. Thus, slavery continued to be legal despite the argument that it was incompatible with the state. Northwest territories, such as Illinois, argued in favor of slavery because it facilitated rapid economic development and settlement. The state's status as free was incongruous with the desire for slave ownership. But by 1815, free-state population growth and settlement surpassed those of their slave owning counterparts. The rapid growth in northern land values is attributed to the economic development present in the region. When comparing output of farms, wheat share can be correlated with higher numbers of slaves while the opposite is true for tobacco. Slavery allowed superior efficiency to accomplish farming wheat. Greater numbers of slaves were generally correlated with higher land prices. However, the later introduction of the reaper increased efficiency on farms without slaves. Hence, property rights in terms of machines trumped property rights in terms of labor, isolating slave markets.

Midwestern manufacturing belt

In the antebellum period, Northeastern cities constituted the industrial centers, but Chicago overtook Boston by 1880 as an industrial city. Cincinnati, St. Louis, and Milwaukee all become a part of the heartland of industrial America by 1920. This is because relative insulation from competition with eastern manufacturers, proximity to agricultural breadbasket regions, and development of related processing industries, and proximity to coal and iron resources, and the development of heavy industry.

Key implications from slavery

It contributed greatly to American wealth, it led to the development of distinct economic regions, and its elimination further separated the US into rich North and poor South.

Case Study: Standard Oil

Largest oil refiner in the country with an efficient use of by-products. In the 1870s there were corrupt side-deals with railroad companies that guaranteed lower distribution costs. Russian oil discoveries threatened the already struggling industry. They needed to shut down some of their refineries for good. The solution was the 1882 Standard Oil Trust which cut the number of refineries from 53 to 22. But in 1892 the Ohio Supreme Court finds that Standard Oil was in violation of state laws by placing affairs in hands of non-resident trustees and the trust is dissolved and stock transferred to a single constituent company.

Confederate war deaths by county

Larsen found that counties with more than 10% higher war deaths saw 24-33% fewer lynchings and 4-6% higher turnout over 1866-1900. But he also finds that these same counties had the worst racial discrimination a century later in the Civil Rights era.

Advantages of gradual emancipation

Limited taxpayer expenses, time for economic adjustment, the costs primary borne by slaves, and the north had less to lose.

Sources of Productivity Advancements

Mechanization: McCormick's horse-drawn reaper was made in 1833, but not widely adopted until the 1850s-70s. It was immensely labor-saving and could cut 11 acres of wheat per day (vs 2 by hand). Large fixed cost of buying a reaper and only profitable on sufficiently large farms. Biological productivity growth (Olmstead/Rhode): New varieties like "hard" wheats were adapted to climactic conditions of the frontier (Turkey, Red Fife, Marquis etc.). Also fending off new pathogens and pests like rusts, the Hessian fly, midges, and Russian thistle.

Why migrate? (push vs pull)

Migration is more likely with lower transport costs (faster, cheaper, safer steamships), higher wages abroad (pull), and lower wages home (push, including famine, war, and persecution). Ends with wage convergence and post-WW1 cultural hostility.

From workshop to factory

Most firms had little capital and were sole proprietorships or partnerships (no legal identity separate from owners). Only the largest firms were incorporated and even then, shares weren't widely held. Few employees, water-power driven, and seasonally-linked with agriculture (rarely year-round production).

Market integration

Most railroad growth took place after the Civil War, and it tied the East Coast to the Midwest permanently. They also tied the Midwest to world markets; grain was produced more cheaply in the Midwest than nearly anywhere else-(if only it could be shipped there cheaply!)

Case Study: Duke Cigarettes

Most tobacco smoked in pipes, cigars, or chewed. Pre-rolled cigarettes became a luxury produced by just 4 companies, rolled by hand like cigars by young women. ~200 cigarettes per hour for a skilled worker, so Allen and Ginter Co. offer $75K for the invention of an automatic rolling machine. One invented by Bonsack in 1880, who dropped out of school to work on this problem, could produce 120,000 cigarettes per day. In 1884 James B. Duke gains exclusive right to use the Bonsack machine and by 1889, it could produce >800 million cigarettes per year. This lead to marketing organization and a national advertising campaign.

Railroads after the civil war

Much more rapid expansion; 8k miles per year in early 1880s. Their creation was closely tied to the business cycle. By 1900, almost 200K miles in use; 75% of all RRs that would ever be built in the US were built then.

Case Study: Flour Milling

New technology for harder spring wheats of the northern plains. Introduction of reduction milling: steel rollers instead of millstones with water turbines for power. Finally year-round operation necessary to cover fixed costs. By 1880, a Pillsbury mill in Minneapolis was using as much power as a steel mill (processing 3 million bushels of wheat a year). Quaker turned from bulk rolled oats to a consumer-packaged breakfast cereal.

Did the North have economic interest in abolishing slavery?

Nope! Slavery gave northern industry cheap cotton, gave northern consumers cheap textiles, and gave northern taxpayers tariff benefits on exports. There was less industrial competition from an underdeveloped South, and slavery kept black workers from competing with northerners for urban/rural jobs. Anti-slavery sentiment gathered steam in spite of these benefits!

Estimating cost of civil war

North: Gov't expenditures, no loss to physical capital, loss of life. South: Data issues and poor record-keeping make it hard, but way more physical capital lost. Total cost: $6.6 billion in 1861 (about 2 times GNP)-this amount could have bought all the slaves and given each family a 40 acre farm and a mule.

Allegory of The Wizard of Oz

Not understanding the magic of her silver shoes, Dorothy and her friends travel along the dangerous path of the yellow brick road (gold)

40 acres and a mule

One group got the promised 40 acres and a mule to move west. In 1880 68% of descended groups owned farms, relative to 12% for other ex-slaves. By 1900 their literacy was 54% against regular ex-slaves' 36%. Home ownership was 77% vs 24%. They were much better off.

Financing the war in the South

Only 10% was by taxation. War was raging in the southern states and there were blockades on southern ports. They raised debt domestically and sold bonds abroad (London, Amsterdam). Lot of printing money, hyper-inflation rapidly set in.

Why the Westward shift in slave population?

Partially pushed by declining fertility in the east, especially for tobacco land, but mostly pulled to frontier by high yields and cheap land. Most agricultural wealth (60%) in the South was held in slaves, so it made sense to shift your entire operation to a more cost effective location.

The Panic of 1907

Possible causes included the San Francisco earthquake of 1906 and the pull of capital westwards, and the European financial panic triggered by the Russo-Japanese war. European banks responded to persistent gold outflow by raising interest rates. Bank of England raises discount rate from 3.5 to 6% which reverses flow of gold to the US, and British banks recall American loans. In October there are 8 bank runs, and Knickerbocker Trust Company fails. But member banks pool resources to jointly guarantee payment of each member's claims. The overarching lesson is that you need to have a lender of last resort to step in when financial panics begin.

Causes of the war

Primarily about slavery. Specifically, about protecting slave-owners' property-rights over their "human capital" ($2.7 billion in 1860, about half of total Southern wealth. Also about its preservation in the South and its extension in the emerging Western territories/states. Other sources of conflict included tariffs and states' rights.

Rostow Railroad hypothesis

Railroads were one of the things that allowed the American economy to take off, and that they lead to the modern coal, iron, and engineering boom.

Industrialization accelerates

Shift of workforce out of agriculture/rural areas into growing industry/cities. There's growth in old sectors: iron, steel, etc., and emergence of new sectors (the "Second Industrial Revolution") by late 19th C. (chemicals, plastics, electrical, automobiles)

Slave living standards

Slave infants were tiny with an avg. birthweight around 5lbs. There was high risk of neonatal mortality. Mothers still worked hard during pregnancy. Sometimes economic rationality served to protect slaves from even worse treatment, and other times economic rationality worked to make life much worse. But it was always rare for planters to treat slaves well when there was no economic incentive on the line. In some ways black living standards declined in the postbellum era. It would be nice to blame morally degenerate and long-dead slave-owners for social issues today as it would excuse us from confronting many difficult issues in institutionalized racism-but that's not very good history or very good social science.

Slavery and the family

Slavery is blamed for many of the ills that beset black families today including child-bearing at young ages, absent fathers, and involuntary separations. Fogel and Engerman say the family itself was a tool exploited by slave-owners. Family hierarchy was used to discipline the young, care for the sick and old, and discourage runaways. Planters had economic incentives to encourage marriage, discourage adultery and avoid family break-ups

Gradual emancipation

Slaves then were generally not freed. Instead, all children born after a certain date were to be "apprenticed" until adulthood. (also, the international slave trade was abolished in 1807)

Antebellum banking

State governments chartered banks that were licensed to issue bank-notes; there is divergence in financial systems across the North and South. The rise of free banking between 1830s-1850s increasing competition, but still no unified federal framework. There are as many as 10,000 different kinds of bank-notes in circulation.

Margo Steckel reading

Steckel uses slave height data to analyze their nutrition levels in the antebellum South. The data reveals that slave children in comparison to modern children were significantly smaller, but did exhibit growth-spurts during their adolescence. Overall adult slaves were in the 28th percentile for modern height, which is impressive considering their small stature as children. The living conditions that defined slaves' lives cannot be compared to poverty within modern underdeveloped countries due to the aforementioned growth-spurt that occurs for adolescence. In comparison to other 18th and 19th century populations, including Caribbean slaves and Stuttgart aristocrats, American slaves were smaller as children but exceeded their adult counterparts in terms of height. The phenomenon is medically possible as studies have indicated that infants or children that have endured prolonged periods of malnutrition can recover to comparable heights. The small height of slave children is attributed to their poor diet that was devoid of proper nutrition. Although infant mortality was rampant on plantations, after a certain age, the mortality rate nosedived. The justification for improperly feeding their child slaves is planters understood that slaves couldn't cover their maintenance costs until the age of 10. However, owners rationed out a diet of corn, pork, and other staple food, to adult, working slaves. Through costs of food, Steckel proves that an investment in slaves' long-term health through childhood nutrition was unprofitable. The result of poor childhood nutrition on slaves is that they were mentally underdeveloped, displaying worse cognitive skills. The conclusion is that slaves were poorly fed as children, but remarkably well fed as adults.

Sylla reading

Sylla's study deals with the origins of US banking development and the analysis of its potential effects of capital movement. The two effects of banking reform post-civil war were to restrain the growth of banking over large areas of the US for several decades and to link the country's banks together through a reserve system that provided a formal mechanism for transferring funds. As the trend toward free banking intensified, it became a major factor in the decline of barriers to bank entry. The Federal banking laws of 1863 and 1864 provided an extension to the free banking system. However, banks were still required to contain a set amount of capital to guarantee a certain capital-deposit ratio. Unfortunately, laws that prevented banks from holding real estate limited the development of banks in rural areas where land constituted the primary resource. Another reason for the slow growth in national banking was that further bank notes were only profitable to the banks when they were no longer possible, and became possible when they were no longer probable. The Federal policies regarding bank notes further stifled the banking system's expansion into rural areas. Country banks actually did not operate in a monopolistic system, but did provide far fewer loans. Overall, interregional and city-country interest rate differentials persisted because of variations in the degree of monopoly power possessed by bankers in different areas. When barriers to entry were destroyed, competition became more uniform and bank interest rate differentials narrowed. In addition, the large amounts of net bankers' balances that country banks in high interest areas held on deposit in banks in the cities where interest rates were lower, were shown to be related to variations in banking competition as well as to the transfer mechanism established by the national bank reserve system.

Why are so many farmers tenanting (as opposed to buying?)

Tenancy is a part of the "agricultural ladder". Without much capital you can farm as a tenant, allowing you to save till you can buy your own farm. Or are tenants yeomen farmers that have fallen on hard times? Optimistic evidence is that half of all new tenant farmers in the Midwest had once been farm-laborers. Wisconsin farm-owners on average spent 6 years as laborers and 6 as tenants.

Beard-Hacker Hypothesis

The Civil war spurred American industry and transferred power from Southern agrarians to Northern industrial capitalists. The war stimulated economy and increased investment

William Jennings Bryan

The Democratic candidate, against the Republican McKinley whose platform was free and unlimited coinage of silver. Bitterly-fought election - Bryan loses

Bank solutions

The National Bank system forced major banks to stay liquid. NYC banks had to hold their (25%) reserves in cash. But this means that these same banks had to derive their income on the remaining 75% of assets. This pushes up the need to earn high returns on remaining portfolio. This links the stability of the entire banking system to financial system (dangerous).

Wright reading II

The Southern region is initially defined through regionalism in the unskilled market and lack of net immigration. Overall, a large wage gap existed between Southern wages and their midwestern counterparts. Likewise, Southern agriculture moved independently of outside adjustments; moving towards smaller farm size and fewer acres per person. The region experienced reconstruction in the same period that other areas developed labor markets and received immigrants. Southern factor prices could not converge with the national average due to its unique factor endowment and the fact that southern resource allocation was determined by international demand. Southern industries largely produced cheap, low-skill goods that contributed little to the region's raw material. The resource base of the South required technological evolution, but the region lacked engineers and mechanics who could foster change. Regional wages were lower for those who performed skilled labor, and they were more likely to migrate to other parts of the nation. However, the "American model" that emerged was incompatible with the South's labor force, leaving the region isolated. Thus, a major factor in the South's backwardness was attributed to its absence of labor-saving approaches and advanced technology. The South's inability to educated its own people for fear of its population migrating stifled the region's growth.

Goldin-Lewis Reading

The cost of the American Civil War is difficult to determine, but estimates about the war's cost and its impact on the US economy are possible. The direct method of calculating the cost of the war is by adding war expenditures by both parties and the lost human and physical capital. Through these calculations, the North is estimated to have lost 3.4 billion 1860 dollars and the South lost 2.9 billion 1860 dollars. However, the calculations are downwards biased due to the seizure of goods and the South's inability to pay its troops. When attempting to remove the bias, the estimated cost for the South is 3.3 billion dollars. The North's indirect cost of the war can be calculated by summarizing the decrease in consumption post-war. The overall cost is estimated to be 4.3 billion for Native residents and 4.5 billion for Americans. The method is then executed for the South, except in the example the South did not experience a catching-up to the North. Another method of calculation is to assume that the economies in both regions would grow at the same rates they previously did. The cost can also be expressed as the amount of consumption that was foregone. The analysis demonstrates the South experienced a comparatively worse decline in consumption. Historians frequently assert that the Civil War is responsible for the industrialization that occurred in its aftermath. But data proves that the US remained on its previous path for industrialization, which did not suddenly gain momentum. Overall, the war did not benefit either the North or the South.

Why does slavery persist in the south?

The cotton boom after Whitneys cotton gin increases demand for exports to Europe (England) and sale to New England textile firms.

Recession pre-roaring 20s

The fall in GDP between 1920-21 is easy to explain; the withdrawal of federal gov't expenditures, fall in foreign demand for US exports, fed raising of interest rates, and contraction of money supply. GDP declines 3% 1919-1921, and unemployment surges from 3 to 9%. Recovery comes quickly, and induces complacency for the next major recession.

Problem with Fogel analysis

The marginal cost of transportation by water is increasing while the marginal cost of transportation by railroads is constant. Also, we don't know what the price of water transport would have been if there was the same amount of freight being transported.

The Money Supply and its determinants

The money supply is determined by gov'ts' choice of legal tender, banks' reserve ratios, and individuals' desire to hold cash. A growing economy requires increasing money supply to avoid deflation.

Managing slave fertility

The production of new slaves is very valuable, so why not breed slaves by encouraging sexual promiscuity to maximize fertility? Slave women did not begin having children until ~21, a bit younger than antebellum white farm women but older than their early maturity would suggest. The growth rate of slave population was not much higher than that of free whites, and Fogel and Engerman see this as evidence of slave-owners trading off between the return from more slaves (for production or sale) and the potential breakdown in morale and discipline of tight family structures. Gutman and Sutch state that Breeding slaves was not a myth. Evidence includes how net slaves from Old South to New South were large; the ratio of children/adults is higher in selling states than in buying states; and the ratio of children/adults was highest where ratio of men/woman was lowest.

The WW1 boom

There was demand for "neutral" US' foodstuffs and raw materials by all parties. This results in surging prices and gold in-flows. Federal gov't expenditure had never exceeded ~$750m a year before 1915, but monthly expenditures exceeded that level from 1917-1919. The financing solution was partly new taxes (personal, corporate), and mostly new debt.

Why did the south decline?

There was lots of physical destruction (way more than in the north); cotton industry changes since new entrants in Brazil, India, and Egypt threatened southern economy; and labor supply was drastically changed following emancipation-freedmen drastically cut their hours and labor effort fell by 28-37%.

Slavery in the north

There was slavery for awhile, but between 1777-1804 the northern states end slavery through gradual slavery reduction laws. One of which was encouraging people to sell slaves to the south.

Technical issues with railroads

There were 5 different gauges in major use, so transshipment costs were higher than needed. After the civil war there was competition and pricing issues for monopolies.

Greenbacks

These were US notes unbacked by gold. They were used to finance a bunch of the war.

Wilmot Proviso of 1846

This attempt to ban slavery in all territory acquired in the Mexican-American War. It failed in the senate repeatedly.

Kansas-Nebraska Act of 1854

This created Nebraska and Kansas as states and gave the people in those territories the right to chose to be a free or slave state through popular sovereignty.

Federal reserve act 1913

This creates a central Board of Governors in DC that supervise a network of 12 district banks; each with 9 directors, and all national banks had to become members. State banks that met federal requirements could join. Each district issues its own Federal Reserve notes, secured by 40% gold reserves. Some problems were that as long as the US remained on the gold standard, it was impossible to completely control the money supply. Another is that only 1/3 of banks were members of the Fed in 1920 as most fell outside the scope of Fed rules/regulations.

Fogel Reading

This reading focused on the influence of the railroad on American economic development. A small aggregate social saving in the interregional transportation of agricultural products would not prove that the railroad was unimportant in American development. Conclusions regarding the over-all impact of the railroad require a thorough examination of all the avenues through which it may have exercised a strategic influence on economic growth. In this connection it is important to re-emphasize that the linear programming models referred to earlier will do more than refine the crude estimate of the aggregate social saving. They will provide information on efficient patterns of agricultural distribution both in the rail and nonrail situations, as well as breakdowns of the interregional social saving by regions and commodities. This type of information, supplemented by similar data on intraregional transportation, will facilitate a re-evaluation of such questions as the developmental significance of various commercial rivalries (for example, the triumph of Chicago over St. Louis and Cincinnati), the determinants of the geographic pattern of urbanization, and the extent to which the railroad promoted a more efficient utilization of certain productive resources.

Northwest Ordinance of 1787

This stated that no slavery north of the Ohio River

The Bland-Allison Act of 1878

This was a compromise, also called "the limping standard". The treasury authorized to purchase $2-4m of silver a month at the current market price. But this wasn't enough for the miners or the emerging group known as the Populists. They hoped that raising the price of silver would raise the price of wheat, hogs, cotton, etc..

Sharecropping

This was a system used on southern farms after the Civil War in which farmers worked land owned by someone else in return for a small portion of the crops; usually freed slaves in which the landowner would provide seeds, mule, and simple farm tools. This was a compromise between ex-slaves' desire for ownership and landlords' desire to monitor planting decisions.

Missouri Compromise of 1820

This was about the issue of slavery in Missouri. It was decided Missouri entered as a slave state and Maine entered as a free state and all states North of the 36th parallel were free states and all South were slave states.

Crittenden Compromise of 1860

This was an attempt to prevent Civil War by Senator Crittenden. He offered a Constitutional amendment recognizing slavery in the territories south of the 36º30' line, noninterference by Congress with existing slavery, and compensation to the owners of fugitive slaves. Failed in the House and Senate repeatedly.

The Farm Protest Movement

This was made up of many groups but was generally a mass movement against the rich and against corruption in government. This included falling commodity prices (and hence farm incomes). They blamed low prices on overproduction. Another issue was shortage of credit and money, which led to rising tenancy and foreclosure. They blamed deflationary monetary policy and wanted to increase the money supply (silver). They also hated the monopolistic power of railroads, banks and land-speculators.

Who benefits from slavery?

With competitive markets, producers make no profits, so the gains of slavery only flow to consumers and owners of inelastic factors. Slave-holders only gained before unanticipated price rises. Taxpayers also benefit as taxes were lower because of stronger export.

Ransom/Sutch vs Wright

Wright argued demand importance, R&S argued supply importance. Immediately after the war, quantity fell and price rose, so it must be more than a simple demand shift (or else P would be lower).

Was slavery efficient?

Yes-total factor productivity actually grew with more slaves; because of economies of scale, slavery was extremely profitable (Fogel Engerman)

Rate of return on a slave

about 8-10% when viewed as a production asset