20080917 Econ 113 Lecture: Government, Manufacturing, Other Topics
Slavery Cleanup:
Reconstruction:
- 40 acres and a mule
- The terrorists win in the end
- Jim Crow and one kind of freedom
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 65 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
- Since Andrew Jackson, two great parties
Claudia D. Goldin and Frank D. Lewis (1975), "The Economic Cost of the American Civil War: Estimates and Implications," Journal of Economic History, Vol. 35, No. 2. (Jun., 1975), pp. 299-326
The Role of Government Back Before the Civil War
- Indian removal
Transportation improvements
Public finance
- Industrial policy
- Tariff
- Financial regulation
Public finance:
- 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.
- Thereafter: federal government finances small: tariffs and land sales...internal immprovements and military...
Industrial policy and tariff:
Megasthenes: the coming of cotton to the Mediterranean...
David Ricardo: Why didn't the U.S. become one big unindustralized Canada?
Hamilton's "Report on Manufactures." 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...
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...
Financial regulation:
- First and Second Banks of the United States
- Andrew Jackson
- Free banking
- Bank note reporter
- First financial crisis: 1859
c. 1800-1860 Five hundred fold depreciation of the cowrie in Uganda: When cowrie shells are first introduced to Uganda at the end of the eighteenth century two are sufficient to purchase a slave. Thereafter the wholesale importation of cowries causes inflation with the result that by 1860 one thousand cowries are needed for such a purchase...
1780 Bank of Pennsylvania founded: This is the first American bank to be established since the declaration of independence from Britain. It is basically a temporary means of raising funds for the American army which is in a desperate financial situation
1782 Bank of North America begins operations: It was granted a charter by Congress the previous year. It fulfils a wide range of banking functions and is a great commercial success
1783 Unpaid soldiers prevented from looting the Bank of North America: This stimulates opposition to the bank, as much of the public sympathises with the soldiers, and the legality of the bank is later challenged by Pennsylvania's representatives
1784 Bank of New York and Bank of Massachusetts both open
1785 Bank of America's Congressional charter is revoked: However the bank subsequently acquires a new charter from the state government of Delaware
1786-1787 Shay's Rebellion in Massachusetts
Captain Shay leads a rebel force of debtors, disaffected farmers and ex-soldiers to try and secure debt relief, issues of paper money, and other reforms. The rebellion is put down
1789 US Constitution gives Congress power over money creation: The States are not allowed to coin money, issue bills of credit or make anything except gold and silver legal tender
1791 Bank of the United States receives a 21 year charter
1792 US Coinage Act: The Dollar is adopted as the unit of account, based on a bimetallic standard, subdivided into 100 cents. Foreign coins are supposed to lose their status as legal tender within 3 years of the US coins coming into circulation
1794 US Mint Starts Operations: The Mint in Philadelphia is the first purpose-built structure authorized by the United States
1800 Number of banks in the US reaches 29: Their number has increased from just 4 in 1790, despite fears that the Bank of the United States would enjoy monopoly powers preventing the rise of new banks
1802 Barings buys 2,220 shares in the Bank of the United States: The number of British shareholders grows in the years leading up to the date when the bank's charter is due for renewal
1803 The Louisiana Purchase doubles the size of the United States: Napoleon, being short of cash, offers to sell Louisiana to the United States for 15 million dollars. Two British banks, Barings and Hopes, agree to lend the money to the US government and, despite the wars, transfer it to Napoleon
1811 Bank of the United States' charter is not renewed: Public opposition to British shareholders, suspicion that the bank is exceeding its constitutional powers, and opposition from those who believe that banking should be controlled by the states not the Federal government, are responsible for the demise of the bank
1812-1814 War between the United States and Britain: Inflation takes off in the United States. This is only partly because of the war. Without the restraining hand of the Bank of the United States there is a huge increase in the number of banks issuing notes with very little specie backing. This experience swings opinion in favour of creating a new national bank
1816 Second Bank of the United States founded: The bank begins the task of restoring the convertibility of paper notes. It also restrains other banks from making excessive issues of notes
1818-1819 Various US states levy taxes on the branches of the Second Bank: The Second Bank of the United States refuses to pay these taxes and wins its case in the Supreme Court
1824 Illinois declares all branches of the Second Bank illegal: This decision is overturned by the US Supreme Court
1824 Clearing system developed by Boston banks: The Suffolk Bank of Boston, in co-operation with 6 other local banks, begins the development of a system of clearing inter-bank accounts
1828 Andrew Jackson elected President of the USA: Jackson has been suspicious of banks ever since he read the history of the South Sea Bubble
1829 New York State passes Safety Fund Act: This tightens up conditions for chartering banks and contains provisions foreshadowing later developments in deposit insurance
1832 President Jackson vetoes early renewal of the Second Bank's charter
1833 Jackson removes US government deposits from the Second Bank: the deposits are placed in selected State Banks which come to be known as pet banks
1834 US Coinage Act: This makes a slight reduction in the value of silver relative to gold in order to encourage more gold to be brought to the mint. However, it hastens the disappearance of much of the remaining silver in circulation.
1836 President Jackson issues his Specie Circular: The circular lays down that future purchases of government land must be paid in gold or silver, or their strict equivalent, rather than in local notes or promises to pay. This has the effect of swelling the US government's coffers with specie
1837 US States acquire legal power to issue paper money: This reverses attempts to uphold the constitutional denial of the power of the states to emit bills
1837 Free Banking movement triumphs in Massachusetts: The free banking movement claims that citizens have a right to set up banks rather than being dependent on a privilege granted by the state. The State of Massachusetts passes an act in accordance with these principles
1837 US banking crisis: The uncontrolled, chaotic expansion of banking in the US is slowed, then partly reversed by a financial crisis in which every bank is forced to suspend specie payment of notes. The crisis leads to a depression in the economy which lasts until 1843
1841 The Second Bank of the United States crashes: By this time it is simply a private bank and no longer a national institution. When it ran into difficulties during the 1837 crisis it was still the largest bank in the world, but it finally crashes in 1841
1848 Gold Rush in California: The discovery of gold in California leads in the following decade to a massive increase in the production of gold coins by the mint with the result that in practice the US moves away from bimetallism towards a gold standard
1853 US Subsidiary Coinage Act: The silver content of half-dollars, quarters and dimes is reduced by about 7% making it no longer worthwhile to sell them to silver metal dealers. Therefore the new coins remain in circulation
1857 World-wide banking crisis starts in the US: In the month of October 1,415 US banks are forced to suspend specie payments. Because of huge European, especially British, investment in the US the effects are felt on the other side of the Atlantic. In Germany many of the new idustrial banks founded in the early 1850s fail. However recovery from the crisis is rapid
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