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33 Cards in this Set

  • Front
  • Back
By what mechanisms did the Navigation Acts impose an economic burden on the colonies?
1. All foreign had to be conducted through England.
2. All ships had to be built by British subjects and the crew had to be 3/4 British subjects.
3. Certain enumerated goods could be exported only to England
By what mechanisms did the Navigation Acts provide economic benefits on the colonies?
1. Merchants have secure market.
2. Ship builders from the North benefited because people had to use ships from colonies or England.
3. England - merchants acting as middlemen and Navy (as guards)
4. Smugglers
How great was the net economic burden imposed on the colonies by the Navigation Acts?
1. System cost was ~2.3% of per capita of colonial income.
2. British military spending added up to a net cost of ~1% of colonial income.
Burden outweighed benefits, it did not cost colonies a lot.
Why did the conflict between Britain and the colonies over The Navigation Acts and other tax measures intensify after 1763?
1. 1763 - end of the 7 years war with France and England.
2. England paid for war and thought colonies should pay more because they were defending the colonies.4. Tax Acts =>Taxation without Representation
a. Stamp Act
b. Currency Act
c. Sugar Act
d. Tea Act5. Felt exploitative, many more people were affected.
6. Colonists did not like the Quebec Act
a. Ceded land between Mississippi and Ohio Rivers
b. The colonies wanted the Western land.
c. Acts were now strictly enforced.
To what extent were canals privately unprofitable and why?
Canals weren’t necessarily needed in certain areas due to the complexity and expensiveness of the job. For instance going through rough terrain such as mountainous environments was expensive and alternative methods would be cheaper. The cost to benefit was not worth most of the canal projects.
In what precise sense were canals a “public good”.
How is it that transportation improvements such as canals that were privately unprofitable could still yield healthy social returns?
Canals were a “public good” in the sense that it drastically reduced transportation costs for everyone. It increases the market size of consumers as interregional trade increased, as well as specialization and efficiency. (Pre-canals: 20c/ton mile, post-canal: 2-3c/ton mile). It was a non-rival good, meaning that the marginal cost was very low; the cost of one more person using a canal is miniscule. Non-excludable as well; everyone allowed to use it because of little regulation.
Who made the bulk of investments in canal improvements? How were the
investments financed and who provided the financing?
State governments made bulk of investments in improving canals with some help from federal gov. ($31 million from 1815-1843, $66 million 1843-1860). The investments were financed through the sale of bonds and the British are the largest buyers.
To what extent did government support for canal-building result in
wasteful expenditure?
Government spent $66 million from 1843-1860. During this time there was not much more need for more canals because of lack of area and most routes were successful enough.
Douglas North’s “Cotton Thesis”:
North argues that exogenous demand from Britain for Southern cotton fueled US economic growth and cycles from 1815-60, especially between 1815-40
What fraction of GDP was comprised of Southern cotton?
“Not a lot” – Only 6% of GDP
given that gdp from south cotton was only 6%, how can one make the case that the cotton economy was of great import for national economic growth?
Regional Specialization & Trade Helps Fuel US Growth
There was an enormous growth in British demand for cotton -> Increase income for the South -> Increase demand for Western goods and Northern manufactures. The increase in employment and output provided a stimulus for the transportation revolution.The expansion marked afforded external economies of scale and regional specialization
What light is shed on Douglas North’s cotton thesis by the available statistics on inter-regional trade?
Douglas North argues that booms happen when cotton price is high. Then with a lag, more land is planted in cotton & greater crop leads cotton price to fall & leads to a macroeconomic downturn.
• Why did western farmers wish to monetize silver in the late 19th century?
After withstanding inflation during the Civil War, the deflation that occurred after the war proved to be very costly for western farmers. As prices fell on all market goods, farmers took the worst financial beating. As farmers were unable to pay off their government debts (which were used to purchase seeds and equipment) with the little amount of profit they were earning they turned towards the monetization of silver to help alleviate deflation and bring upon inflation to raise prices.
• Why did western silver mining interests wish to monetize silver in the late 19th century?
As silver was demonetized during the Civil War, silver mining began to exponentially grow. With more and more silver being mined in the west, the market price for silver began to drop. Western silver miners realized that without government backing, the profits made from mining would continue to decrease as supply continued to rise while demand remained steady. Thus, in order for these western silver miners to make money, silver would have to be monetized and the United States would have to return to a bimetallic standard of currency.
• What political settlement was reached over the monetization of silver?
The Bland-Allison Act of 1878. This law stated that the Secretary of the Treasury would be forced to purchase a loosely set amount of silver each month at the respective market price (for example the Secretary of the Treasury could be asked to purchase between $2 and $4 million worth of silver or $1 and $3 million worth depending on the economies need at that time).
• What movement occurred in silver prices before and after the political settlement?
Before the political settlement, silver prices on the market were already dropping. With new silver mines being found all over the western states, the supply of silver continued to grow rapidly. With a constant increase in supply combined with a somewhat stable maybe even declining demand, the market price on silver ultimately dropped to the point where the market value of the silver contained in a dollar was about 89 cents. After the political settlement, silver prices would spiral even further. With the Bland-Allison Act in place, the Secretary of the Treasury had the option of how much silver to purchase each month. Unfortunately, since the government at the time was not 100% behind the monetization of silver, the Treasury ultimately purchased the minimum amount of silver each and every month. Combining the “half-assedness” of the Bland-Allison Act and the continuing increase in silver supply, the price of silver continued to drop along with its relative dollar amount.
What is meant by the phrase “American system of manufactures”
The American system of manufactures started in 1850 and transformed into a system of mass production by 1910. The American system utilized standard (but not interchangeable parts) and an intensive use of labor resources and capital to substitute for skilled labor to produce ordinary goods for the masses of people. Through this, the American system of manufactures fundamentally changed the division of labor where larger firms were more likely to employ women and children. The American system was less efficient then the system of mass production because it solely relied on water and steam power and where the later system relied on electricity and sophisticated machinery.
. In what specific industries did the so-called American system first appear? How did it manifest itself in those particular industries?
The American system of manufactures first appeared specifically in the clocks, locks, guns, and textile industries. They were also in grain mills and hog slaughtering, which were the first disassembly lines. They were manifested through assembly lines, the specialization of tasks, and the use of unskilled labor.
What links have different historians drawn between the rise of the American system and market conditions peculiar in the United States.
Historians have drawn that English sales were directed towards their aristocracy, who wanted to fixed unique goods. American colonists preferred goods that were easy to fix, serviceable and durable. The American system had cheap materials, but lacked skilled labor which during the time was scarce and expensive. The government wanted interchangeability of parts which was a key reason they promoted the American system. Overall, this created a manufacturing system that was resource intensive but got the maximum output out of each worker.
How did westward migration affect the economic fortunes of the individual Southern planter and of the Southern cotton economy as a whole?
The westward migration helped the individual Southern planter and hurt the Southern cotton economy as a whole. This is because individual farmers benefited more by moving slaves west to land that was more fertile, by cultivating more fertile land it allowed farmers to harvest and produce more cotton. Those who didn’t move suffered due to prices of cotton dropping since; farmers were putting larger quantities of cotton into the economy. In short higher productivity => higher output => lower price of cotton, therefore hurting the southern economy but helping individual farmers.
Is it correct to say that the South had to expand geographically in order to prosper economically?
No, staying put would reduce productivity (marginal productivity of labor falls) so price of the cotton rises, yielding higher profit. Cotton demand is inelastic which means higher price = more profit. It was actually better for the South to stay small, because that boosted the price of Cotton and as a result drove up profits. Cotton demand was inelastic, so as a result having a smaller supply was very good for the Southerners who were already established.
Why did the political program of the South favor the western expansion of the slave system?
In 1808 slave importation stopped, south was the predominant supplier of slaves/slave labor, western expansion was good for the south slave owners because by allowing them to expand they would have more slave states which would ultimately give them more representation in congress. Expansion was favored due to the south wanting to control more states and having more say in congress.
How were the mergers typically financed?
Mergers were financed by bonds.
-Financial system needed
-Investment banks => wall street
Ways to finance: canals, railroads, profits, bonds, retained earnings (what you get from shareholders).
b. What distinguishes the mergers that were successful, in that they formed lasting, dominant firms, from the unsuccessful mergers?
Successful mergers were:
-able to minimize cost and capture scale economies
-held monopoly power (reasonable)
-intent was shown to be efficient
c. What legislation and court rulings helped prod companies to shift away from the sort of combination then known as a “trust”, and go so far as to fully merge?
Gentleman’s agreement (early 19th century)
-Informal contract between companies
-Used for settling & maintaining prices
Pooling (one step past gentleman’s agreement but still informal, early 19th c)
-Firms dividing market
-incentives to cheat
-not legally binding
Trust Companies
-Competing companies turn over stock to trustees
-In exchange for certificates of trust were stocks. So, trustees would have stocks, shareholders have certificates of trust.
-Trustees can vote for each firm
-Coordinate firms actions => prices, quantities
-Shareholders still obtain returns (they got dividend so it’s an incentive for shareholders)
-Creating monopoly power
-Information is publicly available. Once people saw this they didn’t like it so it was quickly outlawed.
Holding Companies
-Special charter saying that one firm can own stock in another firm
-Primarily done in New Jersey
d. What preceding competitive developments helped set the stage for the great merger wave?
-Horizontal Mergers (1879-1893, First Wave)
-combining firms that produce similar products
-incentive - price competition protection
-price wars
-transportation revolution- cut costs
-new competition => market explands
-demand increases -> production increases -> prices decreases
-prices fell below average unit cost of production
->consolidate and centralize production. Ex- standard oil
-Vertical Merger
-one firm owns all stages of production
-avoid bimonopolies and hold ups
-monopoly power
e. What preceding cyclical developments in the macro-economy helped set the stage for the great merger wave?
-vertical mergers (first waves were more about efficiency than power)
-want to capture the vertical economies
-cut costs, limit price competition
-Sherman Antitrust Act of 1890
-prohibits every contract that restrains trade
-no pooling, no monopolies
-intent of merger
-large not inherently bad
-option for firms-merge
By what mechanism(s) is the gold standard supposed to have helped start the depression in the United States?
-Fed wants to stay on gold standard
-attract gold to US
-> high interest rates
-> to protect the value of the dollar in terms of gold
-Deliberative deflation
-Fed was worried about speculation
-> restrict supply and credit
-Hyper inflation in Germany, but left gold standard
-Already a recession in Latin American countries
-running deficits
-increasing interest rates
-Deliberative deflation
-US exports to Latin America decrease
-small issue but was worse when coupled with stock market crash
b. By what mechanism(s) is the gold standard supposed to have aggravated the depression in the United States?
-UK left gold standard in 1931
-did not change policy, kept high interest rates
-Credit crunch
-banks are not going to lend $
-Fed is failing as lender of last resort
-They did not understand the indicators
-Depression workers with bank failures
-1931- US increase interest rates which put pressure on US dollar
-1931- Austrian bank failed, currency crisis in Germany & England
c. What changes were made in depression-era policy after the gold standard was abandoned? Describe specific policies pursued at specific dates.
-1933- US left gold standard
-Fed lowered interest rate
-increased money supply
-Bank Holiday
-all banks closed and only sound banks reopened
->restored public confidence
-Bank failures ended
->deposits insured
-Fiscal Policy
-New Deal public works program
-> increased output and increased employment
d. According to historians, why was the gold standard less stable in the 1920s than it was before WW1?
(Unstable after WW2)
-International cooperation broke down
-War-> countries did not trust each other
-Germany had high war debts->printed $->inflation
-France would not forgive debts
-UK willing to forgive under conditions
-US wanted money but ambivalent
-Speculation becomes destabilizing (couldn’t determine market)
-Gold supplies do not keep up with growth of global income
-Labor unions became stronger
-Start to object to central bank policies
-inflation problem
-UK no longer international leader
-US was not acting like a leader, US did not act as a lender of last resort
-Was not pursuing international cooperation, acting selfish
-France and US do not inflate
-Control interest rates
-Increasing interest rates -> to attract gold from international market
=>trade surplus
=>trade deficit in other countries
. What do historians consider to be the most important reasons why GDP/head in the South fell behind the North between 1860-80?
1. Freed Slaves
2. International competitors
3. Forced to produce cotton
4. Main source of Southern wealth changed plantation system. Ended smaller farms. No economies of scale. Less productivity = less income.
1) Freed slaves
-New work decisions
-Choose less hours to work/more leisure time
-Productivity in labor market decreases
-Although didn’t help Southern economy, it improved quality of life, had more time for household productivity
2) Men still worked in the field
3) Decrease in price of cotton
-South faced more competition (India, Brazil - main competitors)
-South limited cotton supply. England was no longer a main buyer
-Wanted English ally plan backfired
4) Demand Fell
5) South produced even more cotton
-Still have comparative advantage in cotton
-Credit system forced production
-Creditors required payment in crop
-Cotton still relatively stable price
6)-End of civil war, South losing physical capital
-Northern army destroyed capital
-Shermans March
b. What is Gavin Wright’s explanation for why the gap between Southern and Northern living standards persisted so long after 1880?
1) Separate labor markets between North and South
-South- agricultural, minimal industry -> unskilled labor
-North- industry -> skilled labor
2) Little Migration
-South -> North, Northerners did not go South.
3)-New immigrants moving North
-Leftover animosity from Civil War
-North did not want to go South
-Southerners wary of Northern investment
4) -Northerners invested in education
-Southerners wanted human capital, discouraged immigration wanted to keep wages low, keep more profits.