Z: **Archived from Fall 2007**: American Economic History: Economics 113

Industrializing America: American Economic History: Econ 113

From 1865 to 1929: Finance, Capital, Labor, Technology

September 24 Large Audio File. Streaming Audio File.

September 26 Large Audio File.

Growth, Industrialization, Wages, and Profits

Labor: Education and Immigration:

• Immigration

  • Gains to immigrants
  • Gains to native-born consumers
  • Gains to native-born capital owners
  • Losses to native-born unskilled
  • Francis Walker counterfactual...

• Education

  • Technical education
  • Elementary education
  • High-school education
  • Homesteading the information frontier after 1890...

Capital, Finance, and Technology Intermixed:

• John D. Rockefeller and company
• Standard Oil
• Capital and finance
• Winner-take-all--or winner-take-much--economies
• Technology and capital
• Dilemmas of corporate control
• J.P. Morgan and company...

From Shafts to Wires:

• Newcomen and Watt
• Edison and Tesla
• Shafts
• Wires
• Mass production
• "Fordism"
• IWW

Mock Midterm: Econ 113: American Economic History: Fall 2007

(A) One-Sentence Identifications: Briefly state the importance of each of the following people/places/things/concepts for American economic history:

Henry Hudson; Christopher Columbus; Mississippi River; cotton gin; Sutter's Mill; tobacco; corn; smallpox; Boston; Philadelphia; Alexander Hamilton; Andrew Jackson; Erie Canal; New York Central Railroad; Central Pacific Railroad; Ohio River; beaver fur; interchangable parts; tariff; New Orleans.

(B) One-Paragraph Discussions: Write one paragraph (three to six sentences) answering each of the following questions:

Why does Jared Diamond believe that inventing agricuture was a very bad thing? Why couldn't the Aztecs and the Incas repel the Spanish invasions? How would the U.S. economy have been different in 1860 if the U.S. government had followed a zero-tariff policy? How would the U.S. economy have been different in 1860 if the cotton gin had never been invented? Were there important economic reasons for the American Revolution?

(C) Essay: Write an essay on one of the two following topics:

1. What, in your view, are the main important themes of pre-1865 American economic history? What is the most important theme? And why?
2. As of the middle of the nineteenth century, the American economy was almost universally regarded as successful. What were the major aspects of this economic success? Why did they come to pass--why did so much go so right for the American economy?

The Post-Civil War United States

PLACEHOLDER

Audio: http://www.j-bradford-delong.net/2007_audio/113_9_19_07.m4a

Streaming Audio

U.S. and Canada vs. Latin America Lecture

What Has Happened in the New World?

Four areas:

• U.S.-Canada
• Mexico-Brazil
• Caribbean + slave Brazil
• southern cone

U.S.-Canada very rich: rest not so. Why?

• $80K per worker per year in the U.S. $10K-$20K more common in Latin America..
• All have (or had) favorable land-labor ratios after conquest and plagues...
• All had abundant natural resources...
• Southern cone keeping up with North America until the 1930s--I will not deal with that today...
• Two lines of explanation: problems of slavery and ex-slavery; problems of mainland Latin America

The Puzzle: We Explain United States Growth as Markets + Resources = Accumulation + Technology

• But what happens when we go to Latin America?
• From the perspective of 1700, the United States is a marginal new-world economic area
• Yet Latin America today lags far behind the United States and Canada
• To explain U.S. vs. Latin America, you need "institutions"
  • What are institutions?
  • Where do institutions come from?

Three Theories:

• "Legal origins" (Shleifer et al.)
• "Tropical diseases and grab and run" (Acemoglu et al.)
• Engerman and Sokoloff
  • A historians' story--which means, "it's complicated"
  • Legal origins is broadly wrong--or at least overemphasized
  • Grab-and-run due to tropical diseases also greatly overemphasized
  • Factor endowments
    • Indigenous population oppression
    • Resource curse--slavery
    • Key paragraph: "The British colonies in the New World evolve quite distinct societies and sets of institutions.... The majority that failed shared certain salient features with Latin America.... [These features] allowed for average standards of living that were high at that time... [but] less well suited for the realization of sustained economic growth..."

The Details

The Poverty of Riches:

• All "began" with an abundance of land relative to labor
• European migrant standards of living 2x or more those in Europe throughout the colonial period--$1000 of today's dollars per capita per year
• European standards of living 4x those in Europe in slave-staple-hacienda colonies--$2000 of today's dollars per capita per year
• Staple crops: sugar, coffee, rice, tobacco, cotton easily produced by slave labor in the Caribbean and Brazil. Haiti 3x as rich as United States in 1790?
• Extensive indigenous populations in Mexico and Peru
• Less than 20% of Mexican, Peruvian population "white" as of 1800
• Family farms on the North American mainland. Why?
  • Swann River
  • Slavery in the Connecticut River valley
  • Slavery in New York City *80% of American population "white" as of 1800
• "Non-white" a proxy for savage economic (and political!) inequality
• Economic and political equality a very good thing

Advantages of Equality:

• Land policy
• Immigration policy
• (Mercantilist) trade policy
• Commerce

• Middle-class demand for manufactures: "American system"

• Timing of industrialization

• Education
• Other human capital: familiarity with technology or markets

Paper Topic 1: Bellamy's Looking Backward

Edward Bellamy is a Boston social reformer writing at the very end of the ninteenth century. Even though the America of his day is much richer than the America in which he was born, he sees major flaws in American society. He also, however, sees a great deal of hope.

React to Edward Bellamy's Looking Backward in 500 words (i.e., papers of less than 450 words or more than 800 words will received grouchy readings). Consider some of the following:

• What are the major flaws that Bellamy sees in America of his day?
• What does Bellamy think of markets?
• What does Bellamy think of immigration?
• What does Bellamy think of technology?
• What does Bellamy hope the future will hold in the way of technology?
• What does Bellamy hope the future will hold in the way of social organization?
• What does Bellamy hope the future will hold in the way of economic institutions?
• What are Bellamy's major fears?
• Which of his hopes and fears have been realized over the course of the past century?

Due at the midterm on October 1.

General Lecture and Other Audio File Archives

For those wanting an easy download of mp3 and m4a files, general Berkeley lecture and other recorded audio archive files for this fall will be at:

http://www.j-bradford-delong.net/2007_audio/

And the [Civil] War Came...

Lecture Notes for September 12

Main Headings:

• Cleanup from last lecture

  • Abraham Lincoln
  • The march south and the radicalization of northern opinion

• Who were the real slavelords? http://delong.typepad.com/113_F07/20070910_cuibono.pdf

• Notes on problem set 2: http://delong.typepad.com/113_F07/20070910_ps2.pdf
• From the War for the Union to the War Against Slavery
• Reconstruction: the terrorists win in the end
• Effect on American politics:
  • Since Andrew Jackson, two great parties--the party of property and opportunity; the party of solidarity and safety nets.
  • Both useful (usually); tension healthy (usually)
  • After 1865, for 50 years lots of white northerners who vote Republican because Lincoln freed the slaves
  • After 1865, for 130 years lots of white southerners who vote Democratic because Lincoln freed the slaves
  • Now over, but a strange wild ride while it was going on

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Big Quotes:

• Abraham Lincoln, 1858: I am not, nor ever have been, in favor of bringing about in any way the social and political equality of the white and black races, that I am not nor ever have been in favor of making voters or jurors of negroes, nor of qualifying them to hold office, nor to intermarry with white people ... I as much as any other man am in favor of having the superior position assigned to the white race. I say upon this occasion I do not perceive that because the white man is to have the superior position the negro should be denied every thing. I do not understand that because I do not want a negro woman for a slave I must necessarily want her for a wife. My understanding is that I can just let her alone...

• Abraham Lincoln, 1858: I agree with Judge [Stephen] Douglas [that the Negro] is not my equal in many respects-certainly not in color, perhaps not in moral or intellectual endowment. But in the right to eat the bread, without the leave of anybody else, which his own hand earns, he is my equal and the equal of Judge Douglas, and the equal of every living man... http://en.wikipedia.org/wiki/Lincoln-Douglas_debates_of_1858

• Frederick Douglass, 1876: We are here to express, as best we may, by appropriate forms and ceremonies, our grateful sense of the vast, high, and preeminent services rendered to ourselves, to our race, to our country, and to the whole world by Abraham Lincoln.... He was preeminently the white man’s President, entirely devoted to the welfare of white men. He was ready and willing at any time during the first years of his administration to deny, postpone, and sacrifice the rights of humanity in the colored people to promote the welfare of the white people of this country.... I concede to you, my white fellow-citizens, a pre-eminence in this worship at once full and supreme. First, midst, and last, you and yours were the objects of his deepest affection and his most earnest solicitude. You are the children of Abraham Lincoln. We are at best only his step-children; children by adoption, children by forces of circumstances and necessity.... His great mission was to accomplish two things: first, to save his country from dismemberment and ruin; and, second, to free his country from the great crime of slavery. To do one or the other, or both, he must have the earnest sympathy and the powerful cooperation of his loyal fellow-countrymen. Without this primary and essential condition to success his efforts must have been vain and utterly fruitless. Had he put the abolition of slavery before the salvation of the Union, he would have inevitably driven from him a powerful class of the American people and rendered resistance to rebellion impossible. Viewed from the genuine abolition ground, Mr. Lincoln seemed tardy, cold, dull, and indifferent; but measuring him by the sentiment of his country, a sentiment he was bound as a statesman to consult, he was swift, zealous, radical, and determined... http://www.teachingamericanhistory.org/library/index.asp?documentprint=39

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Lincoln First Inaugural; Lincoln Second Inaugural

Northern Industry/Slavery Lecture Notes: Econ 113: American Economic History: Fall 2007

Industry

Alexander Hamilton: Debt, Banks, and Manufactures.

U.S. Revolutionary War hyperinflation: $241 million continental dollars worth $1 million gold dollars by the end of the war.

Value of Revolutionary War debt tripled as debt assumption was discussed and debated.

• Alexander Hamilton believed that an America which owed lots of rich merchants lots of money--an America that "assumed" the debts the states had run up during the Revolutionary War and were not likely to pay--would be a stronger and better America. Why did he believe this?

Megasthenes: the coming of cotton to the Mediterranean...

David Ricardo: Why didn't the U.S. become one big unindustralized Canada?

• Answer: the tariff

Could the tariff have been good for the country?

• Answer--yes, if the infant industry argument holds.

What is the infant industry argument?

• There has to be some benefit--external to the firm and to the worker--from production.
• Future productivity has to be positively influenced by past production in order to make it beneficial in the long run to upset the Ricardian pattern of comparative advantage.
• The infant industry argument is plausible, but not certain, for the case of U.S. textile manufacture.
• Even so, it's not good for the cotton-exporting tariff-paying south.

The history of the cotton textile business: Samuel Slater, Francis Cabot Lowell, Lowell Massachusetts, et cetera...

Peter Temin's article: the American system:

• The Crystal Palace exhibition
• What is special about American industry
• Eli Whitney
• Interchangeable parts
• The "American System"
• Resource-using technological style.

Consequences for post-Civil War industrialization...

Slavery

The Slave Trade: Guns. Slaves. Sugar/molasses/tobacco/cotton. Very profitable. Extraordinarily inhumane

Adam Smith expected slavery to come to a rapid end after 1776.

• Inefficient--slave has no incentive
• An incentive-compatible system produces a larger economic pie
• And people can decide on a system better for everyone--a system that's still unequal, but not as brutal and vicious

Adam Smith was wrong. Why?

What maintains slavery?

• Extreme cheapness of slaves--makes vicious discipline credible
• Extreme control--slaves cannot run away
• Extreme monitoring--easy to see if slaves are working hard
• Caesar; classical Roman slavery; Arabic slavery; mamelukes

The American South

• Quick end of indentured servitude
• The assumption that everyone black was a slave makes control easy
• Plantation staple crops make monitoring easy?
• Cheapness? That became a problem after 1807

Still slavery persisted; Domar's argument; free land made it impossible to strike the emancipatory bargain--hence the coming of the Civil War...

The Persistence of Southern Slavery the Result of:

• Free land (which makes emancipatory bargains unworkable) (Marx: Swann River Colony)
• Cotton gin (which gives you another staple crop you can grow for which monitoring is easy)
• Geographical distribution of slavery:
  • Plantation south--slavery
  • Mountain south--not much slavery
  • North--no slavery
  • Border state antislavery--Cassius Clay--get rid of the "Peculiar Institution"--no desire to free African Americans
  • The northern desire to see slavery set on the "course of ultimate extinction"

Ulpian: Roman jurist: Cui Bono? Who Benefits? Who benefitted from the crime of American slavery?

Do comparative statics with a counterfactual world in which cotton was grown using free labor rather than with slaves...

That is the "cotton is king" problem set that will be handed out on Wednesday, and will be due on the 19th

My Eyes Are Bigger than My Stomach

Or my mouth is smaller than my eyes. Or something.

The canonical course on American economic history spends:

• one week on the Spanish conquest
• one week on Amerindians
• one week on colonial settlement
• one week on the American Revolution
• one week on Alexander Hamilton
• one week on agriculture in the Old Northwest
• one week on New England manufactures
• one week on slavery
• one week on the Civil War
• one week on the Gilded Age
• one week on Populism
• one week on Progressivism
• one week on immigration
• one week on the Roaring Twenties
• one week on the Great Crash and the Great Depression
• one week on the New Deal

And we have overshot the end of the semester by three weeks.

I have students who have never lived under any president not named "Clinton" or "Bush," students who graduated from elementary school in 1998.

So I am going to try to greatly compress the first half of the course so as to make space for post-WWII economic history: 1865 by week four!

Northern Agriculture Lecture: Econ 113: American Economic History: Fall 2007

Notes: Northern Agriculture Lecture: Econ 113: American Economic History: Fall 2007

Trying to do something different: a very quick rush through pre-Civil War U.S. economic history to create space in the syllabus to cover post-WWII history.

This week and next week spent trying to do four things:

• Northern agrarian westward expansion
• Early industrialization as a result of the tariff
• Why did slavery--which people like Adam Smith thought was bad even for the slaveholder and was on the way out--grow and strengthen in pre-Civil War America
• The Civil War--600K dead, 600K maimed; could there have been a better way?

Smithian Growth

The United States--at least the northern United States--as Adam Smith's Utopia:

• Literate and entrepreneurial population
• Good legal infrastructure
• Market exchange
• Abundant land (means high output per worker)
• Free land (means high wages)

Constrast with Engerman and Sokoloff's picture of Latin America: populations to exploit and ways to exploit them create extreme inequality... which has poisonous consequences....

And the colonial economy prospers...

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Population

1600	1,000
1640	24,000
1680	150,000
1700	260,000
1730	650,000
1780	2,700,000

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Output...

How to even claim to measure output? Nevertheless, we have heroic guesses...

Year	Y/Pop in 2004$
1710	$800
1775	$1,100
1840	$1,800
1929	$8,300
2004	$40,000

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Accumulation

Alice Hanson Jones... data from estates...

Top 20% of households have about 60% of wealth...

Median Wealth Estimates as of 1774:

Region	Land	Slaves	Other
New England	$2800	--	$1200
Middle States	$4800	--	$3200
South	$4000	$1600	$2400

Note that slaves were fully a third of southern wealth, according to AHJ... Big skew in slave ownership...

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Politics

Year	Settlement/Event
1607	Jamestown
1608	Quebec
1620	Plymouth
1624	New Amsterdam
1630	Massachusetts Bay Company
1643	Swedesboro, Pennsylvania
1640-1660	English Revolution
1689	"Glorious Revolution" in England
1754-1763	French and Indian War

Mercantile System...

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American Revolution...

National Population:

1790: 3.9M people, $1100 1840 17.1M people, $1800 1860 31.4M people, $2000

% urban: 5% 1790, 11% 1840, 20% 1860.

"Urban" means "2500 or more"...

City sizes: 1790: NY 33, PH 29, BO 18; 1840: NY 313, Balt 102, NO 102, PH 93; 1860 NY+Brooklyn 1081, PH 565, Balt 212.

Why this pattern? Transport: Erie Canal, C&O Canal, Mississippi-Missouri-Ohio river system. The coming of the railroad to keep NO from surpassing NY... New York Central RR, Pennsylvania RR...

SF in 1860: 15th among American cities with 57K people...

Conquest: Northwest territories, inland southeast and War of 1812, Louisiana Purchase, Florida, Texas, Mexican Cession, Oregon Territory, Alaska "Seward's Folly", Hawaii. Conquest keeps land abundant, hence keeps wages high.

Relatively fast increase in output per capita in the U.S. before 1860. A puzzle that growth was so fast. The puzzle set out for your inspection... Implication: an enormous increase in effective land and natural resources per worker from 1790 to 1860. Population grows. Accessible natural resources grow significantly faster... A handout on growth accounting, resources, and the pre-Civil War U.S.

Alexander Hamilton: Debt, Banks, and Manufactures.

U.S. Revolutionary War hyperinflation: $241 million continental dollars worth $1 million gold dollars by the end of the war.

Value of Revolutionary War debt tripled as debt assumption was discussed and debated.

• Alexander Hamilton believed that an America which owed lots of rich merchants lots of money--an America that "assumed" the debts the states had run up during the Revolutionary War and were not likely to pay--would be a stronger and better America. Why did he believe this?

Megasthenes: the coming of cotton to the Mediterranean...

Format of the first midterm exam...

David Ricardo: Why didn't the U.S. become one big unindustralized Canada?

Answer: the tariff

Could the tariff have been good for the country?

Answer--yes, if the infant industry argument holds.

What is the infant industry argument? There has to be some benefit--external to the firm and to the worker--from production. Future productivity has to be positively influenced by past production in order to make it beneficial in the long run to upset the Ricardian pattern of comparative advantage.

The infant industry argument is plausible, but not certain, for the case of U.S. textile manufacture.

Even so, it's not good for the cotton-exporting tariff-paying south.

The history of the cotton textile business: Samuel Slater, Francis Cabot Lowell, Lowell Massachusetts, et cetera...

Peter Temin's article: the American system

The Crystal Palace exhibition What is special about American industry Eli Whitney Interchangeable parts The "American System" Resource-using technological style.

Consequences for post-Civil War industrialization...

(Large) Audio File