History of American Economics

History of American Economics

COLONIAL ECONOMIES

Agriculture: Land acquired by European settlers had been transformed to a limited extent by American Indians who had already occupied it
During colonial period over 90% of economy was agriculturally based
Most early settlers engaged in subsistence farming

New England: A harsh climate and rocky soil made farming difficult and led to a diversified economy
Land was usually granted to a group and then towns subdivided it amongst families
Profitable fishing industry
Shipbuilding and coastal and trans Atlantic commerce was economically important
Some small scale manufacturing began despite discouragement from Great Britain

Middle Atlantic Economy: Blended economies of the other two regions.
This area became the colonial “bread basket” as its soil and climate produced large quantities of grain
River systems and ports such as Philly and NYC provided access to the back country and to overseas commerce
Merchants and artisans flourished in coastal towns

Southern Economies: With a favorable climate and abundant land, developed the plantation system
Staple export crops were often grown on large estates
Tobacco in VA, rice and indigo in SC
50 acre headrights went to settlers
Southern farms tended to be scattered – less urban development

ECONOMY UNDER THE ARTICLES OF CONFEDERATION

Congress and the states had printed “good faith” paper currency during the war. It became virtually worthless and was never redeemed
The Confederation govt sank deeper into debt
Inflation reached 200% from 1776-1783
States attempted to impose their own tariffs on domestic and foreign trade

PANIC OF 1819

Brought on three years of economic depression
Post war expansion had been fueled by over extension of credit by banks and speculation of western land
As cotton prices fell, Southern planters criticized protective tariff
Western Farmers blamed the Second Bank of the US for tightening the money supply.

PANIC OF 1837

Jackson’s policies partly to blame
Banks began to accept payment only in specie (gold and silvercoinage).
Closing the National Bank, and funding bankd
Post war expansion had been fueled by over extension of credit by banks and speculation of western land
As cotton prices fell, Southern planters criticized protective tariff
Western Farmers blamed the Second Bank of the US for tightening the money supply.

PANIC OF 1857

ECONOMY DURING CIVIL WAR

Confederate Financing of the war
Taxes were inequitable and inadequate and were resisted: funds were raised by printing national and state bonds and paper currency
Resultant inflation reached over 9000% in four years compared to 117% inflation in North
Northern Economic Activity
Graduated income tax passed to help pay for war
Congress authorized limited issuance of new paper currency (greenbacks)
Homestead Act – provided 160 acres of free land to settlers who resided on it for five years
Funding began for a transcontinental railroad
MorillLand Grant Act – encouraged the establishment of state universities

ECONOMIC IMPACT OF CIVIL WAR

Southern economy was largely in ruins
Crops, livestock, and structures had been heavily damaged or destroyed
The area’s already inadequate infrastructure was largely inoperative
Confederate money and bonds were worthless
The market for cash crops had shriveled (especially cotton)
Emancipation had freed the South’s labor supply
Capital was in very short supply
After initial shock the economies of the North and South shock were stimulated by the war
War contracts brought prosperity although real wages did not rise
Speculation, profiteering, and corruption were widespread
The South became more urbanized, more industrialized
Northern factory workers became more unionized despite employer resistance
Economic systems that gave whites ownership of most of the land, while blacks became sharecroppers and tenants were perpetuated
Crop Lien System – Central to southern agriculture, a method by which a farmer mortgaged his ungrown crop to obtain use of land and necessary supplies from local stores
Since merchants seldom had competitors, farmers had little choice to take whatever price was being offered
Farmers paid high interest rates so much that often handing over an entire harvest was not enough to be in the black
Farmers were destined to remain tenants as they would never be able to get out of debt

INDUSTRIAL DEVELOPMENT

Formation of corporations, trusts, and holding companies became a major focus of debate in the late 1800’s and early 1900’s.
Problems arising from industrialization
Rise of Social Darwinism – Applying Darwin’s theory of evolution and natural selection to society
Gospel of Wealth – philosophy of businessmen which stated wealth individuals have not only power, but also responsibilities. Use wealth to advance social programs (Andrew Carnegie)

PANIC OF 1893

The cause of this depression which was unprecedented in its severity and persistence included:
Agricultural depression
Decline of US gold reserve
Unsound railroad financing
Panic began when Philly and Reading Railroads declared bankruptcy and the gold reserve dropped significantly
Gold reserve was amount of gold held in US treasury as backing for paper currency in circulation
The effects of the panic spread rapidly as banks began to fail, railroads were in a flux,
20% of labor force was out of work (historical high up to that point)
Lasted until 1901

FEDERAL RESERVE ACT OF 1913 (AKA GLASS-OWEN ACT)

WWI & THE ECONOMY

1920’S ECONOMY

Great Depression

1970’s

Economy
Inflation primary economic issue during Carter presidency (inherited by Ford – WIN – whip inflation now.)
During 70’s economy experienced both rising inflation and slowing economic growth
Stagflation – rising unemployment + rising inflation
Causes of inflation:
Spending from Vietnam
Rising energy costs
Soaring federal budget deficits
Rising healthcare costs
Other economic issues during Carter
Increasing govt spending
Increase price of gasoline
Increase in interest rate

Reaganomics