Economics 111B

American Economic History from the Civil War to the Present

First Summer Session, 2012: University of California at Davis

Overheads that Students can download from my personal website www.carlmosk.com

All Material Prepared by Carl MoskCopyright (2012): Carl Mosk *

* All rights reserved; none of this material is to be used without the written consent of the author.

1

Themes for the Course

I General Themes

Political Economy

Domestic

Importance of institutions (Constitution, system of federation government, separation of powers)

Interest groups (income distribution issues – the Kuznets curve and the size and factor distribution of income); ideology (Eugenics and racism)

Politics and policies: the problem of corruption and transparency, the neo-liberal theory of economic development

International

Theory of hegemony and geopolitics

Diversity of Economic Models

Microeconomic

Relative price effects and income effects

Theory of fertility

Theory of biased technological change

Theory of monopoly: Southern debt peonage; railroads as local monopolists

Factor price equalization in international trade/migration

Aggregate Economic

Aggregate Demand: Theory of the Stock Market and the Great Depression

2

Growth models: Convergence and Divergence; sources of growth accounting

Theory of social savings (Fogel on the problem of necessary and sufficient conditions, pattern of substitutes

Rostow’s theory of the Take Off into Sustained Growth and the Leading sector

Gravity models of international trade

Evolutionary

Schumpeterian and Veblen type models: technological change and innovation (dynamic theory of long run cycles)

Path dependence theory

History: Causation and Comparison

Necessary and sufficient conditions

Stage theories

Comparative history

3

I The Impact of the Civil War and Post-1865 Southern Retardation

I.A The Beard-Hacker view and Marxist stage theory

I.B The Political Economy of the Civil War

Issues dividing North and South

States Rights – Nullification

Banking – the First and Second Bank of the United States

Infrastructure – Creation of a transcontinental railroad system

Tariffs and Trade: comparative advantage versus infant industry

SlaveryHomestead and land settlement policy: expansion of slavery into the West; immigration

Just Compensation or continuation of slavery

I.C The Political Economy of Compromise

Missouri Compromise (1820): Missouri to be a slave state, Maine a free state; define the territories in the Louisiana Purchase, henceforth to be either free or slave

Compromise of 1850: California free; establish boundaries for Texas; divide the area secured from Mexico into “Utah” and “New Mexico” territories; new and more stringent Fugitive Slave Act; abolish slave trade in District of Columbia

I.D The Relative Advantages of North and South in the Civil War (1861--1865)

North: population and income; nascent industrial base; capital not tied up in slaves; currency and gold; federal system of government; railroads and infrastructure; use of African- American troops

South: Generals (Lee, etc); defensive campaign; the “British” card and cotton (threat of a two-front war.)

4

Slavery: The Policy Options and the Politics

I Policies

I.A Abolition

By amending the constitution

By buying out the slave owners (just compensation)

I.B Limiting the Spread

Trusting in market forces to eventually eliminate slavery, bottling up in one region (politically and economically)

Working out political compromises when required

I.C Not limiting the spread

II The politics

II.A Congress – the problem of keeping a balance with the shifts in population

II.B The Executive Branch – its importance

II.C The Supreme Court – interpreting the Constitution

II.D The political parties: fragmentation or “Big Tent”

5

Slave Prices and Farm Prices, 1850-1860, Free and Slave States of the United States

Nominal Prices

Item Approximate Nominal PriceSlaves

Male slave, age 10 (1850) $300Male slave, age 25 (1850) $800Male slave, age 40 (1850) $500Male slave, age 60 (1850) $200

FarmsTypical slave-state farm (1860) $7,101Typical Cotton South slave-state

farm (1860)$8,786

Typical free-state farm (1860) $3,311Value of farm implements per worker in the free states (1860)

$66

6

I. E Going Dysfunctional: Southern Retardation After the Civil War

I.E.1 Retardation is a general problem

Before Civil War Southern per capita income was comparable to that in the North; after the Civil War regional divergence took place, divergence that lasted until the post-1950 period

Nations - Latin America after 1920, especially Argentina

Regional retardation - Southern Italy, Atlantic Canada, Eastern Germany

I.E.2 Explanations for Southern Retardation

War devastation (but Japan and Germany after World War II)

Climate and Geography

Air conditioning facilitates industrialization and the development of service sector activity

Political Economy Explanations

I.F The Political Economy of Emancipation

I.F.1 Voice and Exit

Racism and Racial Profiling

The growing evidence from genetics that “race” is not a useful analytical concept: plasticity of anthropometric characteristics, common origin of all “races” The Eugenics movement in Great Britain and the United States

7

Radical Reconstruction and the Redemption Movement

Radical reconstruction [1865-1877]: (i) Seceded states had forfeited their rights; (ii) New state governments had to prohibit slavery, repudiate the Confederate debt, prohibit voting by former Confederate officials; (iii) Thaddeus Stevens – redistribute land “Forty acres …. And a hut would be more valuable … than the … right to vote” (iv) Civil rights: Fourteenth and Fifteenth Amendments to the Constitution tried to force states to grant right to vote to African-Americans; (v) transitional military districts established over nine Confederate states before state governments readmitted to Union. Redeemer Movement: Attack on government intervention characteristic of Reconstruction – laissez faire, tax reduction and minimal support for government spending (on education), implicit tax breaks for railroads, utilities and factories.

Jim Crow Legislation Suppresses African-American Voice

Separate railroad cars; segregation in railway stations and streetcars, extended to schools, public parks and hospitals and prisons – Plessy v. Ferguson (1896), Supreme Court justified “separate but equal” Poll tax, literacy tests and residence requirements used to disenfranchise African-Americans.

Immigration and the African-American Exodus from the South

World War I, Immigration Law of 1924, World War II.

I.F.2 Sharecropping, Debt Peonage and Southern Economic Retardation

The Changing International and Domestic Cotton Market

World cotton supply expands; production in the South increases

From plantation economy to sharecropping economy

Breakup of the plantations; the debt peonage argument and criticism of the thesis.

I.G Eugenics, Racism and the Ideology Justifying Jim Crow Laws

8

I.G.1 Scientific Racism

Darwinism and Genetics

Inherited characteristics and random variation;Mendelian genetics and the creation of hybrids; Social Darwinism (Herbert Spencer)

Biometrics

Regression to the mean; F. Boas criticizes the theory of fixed racial characteristics: studies of immigrants and their children

I.G.2 The Policies Promoted by Eugenicists

The International Agenda: Imperialism and Racism

Europe and the colonization of Africa; The UK and France in Northern Africa: Cotton and the Suez Canal; The Berlin Conference and the Division of Africa;“The White Man’s Burden”

The United States Emerges as a Global Power: Theodore Roosevelt and the United States as a New Imperial Power

The Spanish-American War (1898) – the US gains the Philippines and Hawaii, temporarily controls Cuba; The Great White Fleet: Naval expansion;The Panama Canal and American meddling in the Caribbean and Latin America – the Monroe Doctrine with a vengeance

The Domestic Agenda

The North abandons Reconstruction, accepts Redeemer Governments in the South: Paternalism and the legacy of slave-holding; Southern Populism abandons African-Americans.Eugenics Legislation: Compulsory sterilization and laws restricting intermarriage

9

The Trend towards the Dominance of Popular CultureAnd the merging of High Art with Folk Art

I Small wealthy elite, large mass of relatively impoverished lower classes, relatively poor technology for preserving and perpetuating art

High art: created largely through patronage (e.g: the European churches and the aristocracy) – written documents (literature, musical scores) or art objects have been preserved

Folk art: largely maintained through oral tradition or otherwise preserved in a small number of rare cases (oral traditions in the case of music and literary works, archeological finds, some preservation largely through passing down of family heirlooms in families, some houses remain though typically renovated)

II Technological change

In music: player piano, phonograph, vinyl records, tape recording, etc.; in art: relatively cheap mass produced paints; in literature: mass printing and mass marketing of books and magazines.

III The rise in income per capita and the creation of a middle class

Income elasticity of demand; scale economies in distribution and Production;

IV Integration of folk traditions with high art traditions

Folk themes comment on social and political issues; working from a body of folk art brings the past into the present; importance of “nationalist” folk themes gains force in both high art and in the

10

burgeoning market for folk art. High art and folk art converge on the one hand; on the other folk art can drive out high art.I.H The Musical Legacy of Slavery and Jim Crow: The Blues

The forms

Call-and answer Blues notes The riff: a short line repeated over a chord progression

The Artists

Leadbelly [Woody Guthrie] (“Stewball”) Robert Johnson (“Sweet Home Chicago,” “Love in Vain,” “Preaching Blues,”

“Me and the Devil Blues,” “Hellhound on my Trail,” “Rambling on my Mind”) The King of the Delta Blues

Lightni’ Hopkins (“Mojo Hand,” “Cotton”) Ma Rainey (“Slave to the Blues,” “Chain Gang Blues”) Bessie Smith (“Need a Little Sugar in my Bowl,” “A Sweet Jelly Roll like

Mine”) Big Mama Thornton (“Houn’ Dog”) Blind Willie McTell Blind Lemon Jefferson (“Corinna Blues,” “See that my Grave is Kept Clean”) Muddy Waters (“Got my Mojo Working”) Memphis Slim (“Raining the Blues,” “Lucille,” “Standing on the Corner,”

“Careless Love,” “Kansas City”) Billie Holiday (“Strange Fruit,” “God Bless the Child”) Memphis Minnie (“Chickasaw Train Blues,” “Moaning the Blues”) Howlin’ Wolf, Jimmy Cotton, Junior Wells, Otis Spann, Big Walter Horton,

Buddy Guy (“Money, That’s What I Want”), B.B. King

Heirs to the Legacy

Chuck Berry, Elvis Presley The Beatles, The Rolling Stones Butterfield Blues Band Eric Clapton Grateful Dead Bob Dylan The Band (Robertson, Danko, Manuel, Hudson, and Helm)

11

Blind Willie McTellSeen the arrow on the doorpostSaying, “This land is condemnedAll the way from New OrleansTo Jerusalem.”I traveled through East TexasWhere many martyrs fellAnd I know no one can sing the bluesLike Blind Willie McTell

Well, I heard the hoot owl singingAs they were taking down the tentsThe stars above the barren treesWere his only audienceThem charcoal gypsy maidensCan strut their feathers wellBut nobody can sing the bluesLike Blind Willie McTell

See them big plantations burningHear the cracking of the whipsSmell that sweet magnolia blooming(And) see the ghosts of slavery shipsI can hear them tribes a-moaning(I can) hear the undertaker’s bell(Yeah), nobody can sing the bluesLike Blind Willie McTell

There’s a woman by the riverWith some fine young handsome manHe’s dressed up like a squireBootlegged whiskey in his handThere’s a chain gang on the highwayI can hear them rebels yellAnd I know no one can sing the bluesLike Blind Willie McTell

Well, God is in heavenAnd we all want what’s hisBut power and greed and corruptible seedSeem to be all that there isI’m gazing out the windowOf the St. James HotelAnd I know no one can sing the bluesLike Blind Willie McTell

12

Bob Dylan (http://bobdylan.com/songs/mctell.html)II Transportation: The Railroads and Beyond

II.A Transportation Systems: General Considerations

Infrastructure and Transport Vehicles

Infrastructure as a common-pool resource, not a pure public good: crowding. Examples: roads, canals, railway track, telephone and telegraph cables, fiber-optic cable, Internet bandwidth

Public versus private ownership: regulation

Fixed costs versus variable costs: the problem of pricing at marginal cost; price discrimination as a profit maximizing strategy; types of monopoly and the price discriminating monopoly pricing strategy

Standardization, Dividing the Market and Cartels: Forces driving government regulation

Transportation Modes: Complements or Substitutes? Competing or Creating Mutually Enhancing Externalities

Externalities and regional scale economies; backward and forward linkages

Examples: railroads and canals, trucks and trains, the container revolution that links ocean shipping to shipping over the land

II.B Dynamic Aspects of Transportation Systems

Schumpeter’s Entrepreneurial Theory

Entrepreneurs and profit: risk versus uncertainty

Theory of the Kondratieff wave: invention, innovation, imitation and creative destruction

The American railroad “robber barons” – William Astor, Cornelius Vanderbilt, Jay Gould, Pierpont Morgan, Leland Stanford, James Hill – as Schumpeterian entrepreneurs

A new plutocracy?: land grants, politics and robber barons

13

Rostow’s Theory of the Take-off into Sustained Growth

Stages: Preconditions for take-off, take-off, drive to technological maturity, high mass consumption

The Take-off: Rise in savings rate (under 5% to over 10% as percentage of national output); leading sector with backward and forward linkages; creation of favorable political, social and institutional framework; relationship to Beard-Hacker thesis

Examples: the Industrial Revolution in England and Wales; the “railroadization” of North America

Chandler’s theory of the Visible Hand

Demand for managers trained in engineering; managerial specialization in large corporations – divisions; tracking company-wide revenue; cost centers in divisions of railroads

II.C The New Economic History and the Critique of Schumpeter and Rostow

The Use of the counter-factual in the New Economic History

Fogel’s theory of social savings and the rejection of the doctrine of indispensability

Estimating how much it would cost the US economy to generate its 1890 output in the absence of the railroads – from 3% of national output to 10%, the lower estimate likely

Issues: cost of time? Importance of steam transportation on both water and land? Is this the right question to address?

Fishlow: Railroads were not built ahead of demand – Schumpeter exaggerated “uncertainty” in the case of the railroads

II.D The Declining Costs of Transportation

Costs declining relative to other goodsCIF (cost, insurance, and freight) declining relative to product pricePrices converging on a global scale: price convergenceGreater speed and convenience for travelingExpansion of tourism

14

II.E Deregulation in Historical Perspective

Contemporary approaches to deregulating and privatizing railroads: international comparisons.

Vertical and horizontal separation, various ownership formulas, some regulation continues in certain cases

15

Table 1

Domestic Transportation Infrastructure in the United Kingdom and the Western

Offshoots and International Transportation Costs

Panels A.1 - A.9: From Railroads to Motor Vehicles and Aircraft. The

Transformation of Domestic Transportation

Panel A.1: Railroads and Motor Vehicles in the United Kingdom, 1848-1979

Railroad Miles per Capita (per 10,000 Population)

Motor Vehicles per Capita (per 1,000 Population) and per Road Mile, Gt. Britain

Year United Kingdom

BritishIsles

Year Per Capita

Per RoadMile

1848-1859 2.8 2.8 1910-1921 9.2 n.e.1860-1879 4.7 4.7 1922-1938 46.4 11.71880-1899 5.3 5.3 1946-1959 111.5 29.41900-1913 5.3 5.3 1960-1979 273.0 72.61922-1939 4.5 4.71940-1959 4.0 4.21960-1979 2.5 2.6

Panel A.2: Intercity Passenger and Freight Traffic in the United States, 1950-1970

YearsPassenger Traffic Freight Traffic

Milesper

Capita

Percentage (Passenger Miles) by:

TonMilesper

Capita

Percentage (Freight Miles) by:

MotorVehicles

(%)

Aircraft

(%)

Railroads

(%)

Railroads

(%)

MotorVehicles

(%)

InlandWater

(%)

OilPipe-Lines(%)

1950-1959

4,082 92.1% 3.1% 4.6% 7,610 51.2% 18.1% 15.6% 15.1%

1960-1970

4,915 90.9 6.9 1.9 8,425 42.9 22.0 16.1 19.1

16

Table 1 [Continued]

Panel A.3: Railroad Track, Roads and Telephones in the United States, 1890-1970 (a)

Years

Index forRailroad

Track Operated per

Capita(1900 = 100)

Roads Telephones

Mileage per Capita

Surfaced Mileage per

Capita

Telephonesper 1,000Persons

% of Households

with a Telephone

1890-1899 97.2 n.e. n.e. n.e. n.e.1900-1919 110.1 n.e. n.e. 74.5 n.e.1920-1939 102.4 101.6 113.6 144.6 36.3%1940-1959 78.1 85.0 229.3 272.1 59.21960-1970 56.8 71.7 253.9 486.1 84.7

Panel A.4: Railroad, Trams, Telephone and Aircraft Service in Australia, 1902-1980 (b)

Year(s)Government Railroads

PassengerKilometers

on DomesticAircraft

per Capita

Tele-phones

inService

per Capita(per

1,000Persons)

PassengerJourneys

onTram

Trolley-Buses

per Capita

MotorVehicles

perCapita

(per 1,000

Persons)

Index ofRoute

Kilometers(1932=100)

PassengerJourneys

per Capita

Index ofFreightTons

Carried(1932=100)

1902 47.4 29.7 59.2 n.e. n.e. n.e. n.e.1912 62.1 47.9 97.7 n.e. 24.8 75.7 n.e.1922 86.7 59.5 120.8 n.e. 46.0 101.0 35.91932 100.0 45.9 100.0 0.8 73.4 89.2 123.61942 100.7 66.0 149.1 16.9 102.6 148.2 133.31952 99.1 58.0 169.8 134.5 150.6 118.0 268.01960-1969

93.9 40.8 239.4 223.1 244.3 60.0 485.6

1970-1980

92.5 27.8 381.6 494.2 385.7 38.5 670.4

17

Table 1 [Continued]

Panel A.5: Government Railroads in New Zealand, 1889-1979

Years

Index forRailroad

Train Mileage

(1900 = 100)

Railroad Passengers per Capita (Excluding Ticket

Holders)

Goods and Livestock Shipped per Capita, Tons

Level Index (1900 = 100)

Level Index (1900 = 100)

1889-1899 92.0 5.3 79.9 3.1 92.01900-1919 124.4 10.0 148.8 4.9 124.41920-1939 152.4 7.0 103.9 4.6 152.41940-1959 179.6 n.e. n.e. 5.0 179.61960-1979 160.2 n.e. n.e. 4.2 160.2

Panel A.6: The Price of Transport Relative to the Consumer Price Index, United

States, 1926-1970

Years

Consumer Price Indices and Air Fare Revenue Index (1967 = 100)

Total

(1)

Transportation

(2)

Relative Cost of

Transportation(2)/(1)

(3)

Index for Revenue per

Passenger on Domestic

Aircraft(4)

Relative Cost of

DomesticAirfare(4)/(1)

(5)1926-1934 n.e. n.e. n.e. 155.0 n.e.1935-1939 41.9 43.3 103.3 96.7 230.11940-1949 56.2 51.2 92.0 92.6 169.21950-1959 81.0 79.1 97.6 97.7 121.01960-1970 97.8 97.8 100.2 106.4 109.9

Panel A.7: The Price of Transport Relative to the Consumer Price Index, Canada

Consumer Price Indices

Total

(1)

Transportation

(2)

Relative Cost ofTransportation

(2)/(1)(3)

1950-1959 68.0 66.8 98.01960-1969 81.6 81.6 100.11970-1979 113.0 108.2 96.1

18

Table 1 [Continued]

Panel A.8: Average Speeds (Miles per Hour) for Motor Vehicles and Domestic

Airlines in the United States (c)

Years Cars and Trucks DomesticAirlinesCars Trucks

1945-1949 47.3 41.8 165.01950-1959 51.4 45.6 203.91960-1970 57.8 51.8 313.7

Panel A.9: Carrying Capacity and Speed for Railroads in the United States, 1903-

1919 (d)

Years ACFC PSSPEED FSSPEED1903-1919 36.5 n.e. n.e.1920-1929 44.4 n.e. 28.11930-1939 48.2 34.7 26.91940-1949 51.1 35.7 44.81950-1959 53.8 39.3 43.31960-1969 60.4 41.0 47.3

Panels B.1 – B.4: Secular Changes in International Transportation and

International Communication

Panel B.1: Ships of the United Kingdom, 1840-1979 (e)

YearsAverage Tonnage (Tons) % of Net and Gross

Tonnage That isSteamship Tonnage

Sailing Ships Steamships

Net Gross Net Gross Net Gross1840-1859 141.3 n.e. 164.1 n.e. 5.7% n.e.1860-1879 189.0 n.e. 361.7 n.e. 21.7 n.e.1880-1899 209.1 226.7 657.8 1,166.0 60.1 74.7%1900-1919 134.7 145.3 861.7 1,420.1 88.4 92.01920-1939 94.0 100.8 865.2 1,468.5 95.7 97.31940-1959 n.e. n.e. 789.9 2,460.1 n.e. n.e.1960-1979 n.e. n.e. n.e. 6,641.5 n.e. n.e.

19

Table 5.1 [Continued]

Panel B.2: Index of Tramp Shipping Freight Costs for the United Kingdom (1914

=100)

YearsIndex of

Tramp ShippingCosts

(1)

Cost of Living Index for the United

Kingdom(2)

Relative Cost of Tramp Shipping

(1)/(2)(3)

18801899 99.5 91.1 108.91901-1914 84.5 94.4 89.31924-1936 154.7 156.7 98.1

Panel B.3: Average Revenue per Person on International Flights, and Average Speed of

International Aircraft, United States, 1940-1969 (f)

Years

Average Revenue per Passenger Mile on International Flights

Average Speed of Aircraft

Relative to Average

Revenue per Passenger Mile

on Domestic Flights = 100

Relative to the Consumer Price

Index(1967 = 100)

Miles per HourRelative to

Average Speed of DomesticFlights = 100

1940-1949 159.0 304.9 177.2 107.01950-1959 122.8 167.5 240.8 118.21960-1969 90.7 112.7 432.6 138.5

Panel B.4: Tonnage of Overseas Vessels and Tonnage of Overseas Cargo Loaded

onto Overseas Vessels, Australia, 1912-1980

Year(s)Average Net

Tonnage of VesselsDeparting

Average Tonnage of Cargo Loaded

Per Vessel Per Capita1912 2,390.0 n.e. n.e.1922 2,914.5 3,756.5 1.01932 3,706.1 3,901.2 0.91942 4,416.4 2,287.1 0.41952 4,432.8 2,192.6 0.5

1960-1969 6,040.3 6,497.0 2.21970-1980 11,057.3 25,231.2 10.3

20

Table 1 [Continued]

Notes: (a) For the road figures, the values for 1920-1939 are actually for 1921-

1939.

(b) For the index of route kilometers and passenger journeys on tram

trolley-buses per capita, the figures for 1970-1980 are actually for 1970-

1979.

(c) For domestic airlines, the figure for 1945-1949 is actually for 1944-

1949.

(d) Acronyms are as follows: ACFC = average capacity of freight cars

(tons); PSSPEED = passenger-service train miles per train-hour;

FSSPEED = freight service car-miles per car-day. For PSSPEED, figures

for 1930-1939 are actually for 1936-1939; for FSSPEED, figures for

1920-1929 are actually for 1921-1929.

(e) For net and gross tonnage of sailing ships and the percent of net and

gross tonnage that is in sail and steam in 1920-1939, the figures are

actually for 1920-1937; for the gross tonnage of steamships in 1880-1899,

and for the percentages of gross tonnage that are in sail in steam for the

same years, the figures are actually for 1886-1899; for net tonnage of

steamships in 1940-59, the figures are actually for 1940-1948.

(f) For 1940-1949, figures on average speeds are for 1944-1949 only.

n.e. = not entered.

21

III Agriculture

Settlement on the Frontier:

Jeffersonian Republican Political Economy versus the Theory of Factor Supply (Property Rights versus Factor Proportions) – comparisons between Latin America and the United States highlights the political economy importance of homesteading/small scale farming in the U.S.

Technological Progress in Agriculture

The factor supply induced innovation theory of technological change: the Hayami-Ruttan model: comparing technological change in U.S. agriculture with that in Japan

An exception? Biological innovations in 19th and 20th century American agriculture

The American System of Manufactures and the Influence of the Frontier “Safety Valve”

The Influence of homestead and/or elastic land supply: Habakkuk’s theory of the American System of Manufactures

Agriculture and Infrastructure in the American West

The importance of developing irrigation for agriculture, especially in the American West is emphasized in this section.

Structural Change, the Relative Income and Productivity of the Farming Population, and Agricultural Policy

The political economy of agricultural policy and the changing relative incomes of the farming population; U.S. agricultural policy compared to that in other high per capita income countries.

22

Table 2

Land and Agriculture in the Western Offshoots

Panels A.1-A.3: Land and Agriculture in North America

Panel A.1: Land Use, Indices of Farm Land, Grazing Land and Forestry Land, and

Index for Farm Population for the United States (all Indices have 1900 = 100)

Year

% of Land Area in: Indices Average

FarmAcreage(Acres)

Index of Farm

Real Estate

Relative to

CPI (a)

FarmLand

FarmCrop-land

GrazingLand

FarmLand

GrazingLand

ForestryLand

FarmPopul-Ation

1850 15.6% 6.0% n.e. 35.0 n.e. n.e. n.e. 203 n.e.1870 21.4 9.9 n.e. 48.6 n.e. n.e. n.e. 153 n.e.1900 44.1 16.8 54.8% 100.0 100.0 100.0 100.0 147 n.e.1920 50.2 21.1 52.0 114.0 94.7 91.4 107.0 149 n.e.1940 55.7 21.0 50.7 126.4 92.4 116.0 102.3 175 50.01959 49.5 17.3 37.4 134.0 81.5 250.3 55.5 303 81.31969 47.0 17.0 36.6 126.8 79.3 271.4 34.5 390 102.9

Panel A.2: The Expanding Role of the West in the Agriculture of the United States (b)

Year

Indices % of US Totals WesternFarm

AverageFarm

Acreage(Acres)

Irrigated LandWestern

FarmLand

WesternFarm

Popul-ation

WesternFarmLand

WesternFarm

Popul-Ation

Indexofall

Land

Index of Land

in 17WesternStates

% of Irrigated Land in

the West

1850 4.8 n.e. 1.6% n.e. 695 n.e. n.e. n.e.1870 16.8 n.e. 4.0 n.e. 336 n.e. n.e. n.e.1900 100.0 100.0 11.5 4.0% 393 100.0 100.0 96.8%1920 182.9 185.9 18.4 6.9 364 186.9 184.1 95.91940 269.5 200.2 24.4 7.8 504 230.9 228.6 95.91959 357.5 135.3 30.7 9.7 987 425.8 407.5 92.71969 343.8 84.8 31.2 9.8 1250 502.3 461.2 88.9

Table 2 [Continued]

23

Panel A.3: The Crucial Role of Twentieth Century Development in the Praries and

the West for the Expansion of Canadian Agriculture (c)

Year

Improved Farm Land Acres per Farm Labor Force and Per Farm

Population

Percentage of Canadian Total in the Praries and

WestIndex

with 1901 = 100

% of Total Land Area

in:

Total(per Farm

Labor Force)

Praries & the West(per Farm

Population)

Improved Farm Land

FarmPopulation

1871 57.5 0.8% n.e. n.e. n.e. n.e.1901 100.0 1.2 42.0 n.e. 20.1% n.e.1911 161.6 2.0 52.2 n.e. 48.1 n.e.1921 234.6 2.9 68.4 n.e. 64.2 n.e.1931 284.2 3.6 76.0 46.6 70.6 39.5%1941 303.8 3.9 84.5 53.2 72.6 39.71951 321.1 3.9 116.6 67.3 75.4 37.21961 342.8 4.2 161.4 96.0 79.0 39.91971 358.5 4.4 224.8 131.1 82.7 45.8

Panels B.1-B.3: Land and Agriculture in Australasia

Panel B.1: Expansion of Cultivated Land Area in Australia, 1902-1981

Year

Indices for Acreage of Cropland (1902 = 100) for: Percentages

Wheat Oats Barley Maize Sugar-cane

Total% of Land

Area inCrops

% of Cropland

inWheat

1902 100.0 100.0 100.0 100.0 100.0 100.0 0.4% 60.9%1912 145.4 133.7 156.7 116.0 117.1 144.1 0.6 61.41922 189.9 158.8 403.3 104.2 148.6 182.4 0.8 63.41932 288.4 234.8 463.3 91.6 280.0 252.9 1.1 69.41942 234.8 316.0 1056.7 102.5 294.3 244.1 1.1 58.61952 202.9 511.8 1506.7 58.0 325.7 238.2 1.1 51.91962 287.9 670.1 3216.7 71.4 448.7 352.9 1.6 49.71972 344.9 661.5 8440.0 65.6 668.6 417.7 1.8 50.31981 545.4 582.9 8173.3 47.1 822.9 541.2 2.4 61.4

Table 2 [Continued]

24

Panel B.2: Meat, Wool and Butter and Cheese Produced in Australia, 1902-1981

Year

Production (tons) per 1,000 Animals: Indices of Per Capita:

Meatper

Cattle

Meatper

Sheep

MeatperPig

Wool per

Sheep

Butter &

Cheese per

Cattle

Cattle, Sheep

&Pigs

(1902 = 100)

MeatProduced(1922 =

100)

Butter & Cheese

Produced(1902 =

100)1902 n.e. n.e. n.e. 3.4 6.0 100.0 n.e. 100.01912 n.e. n.e. n.e. 3.7 8.8 n.e. n.e. n.e.1922 24.0 2.6 51.0 3.8 8.7 85.7 100.0 168.71932 28.9 2.8 60.0 4.1 15.6 90.0 102.0 218.81942 40.0 3.0 88.6 4.2 14.8 92.6 132.1 210.41952 39.7 2.4 86.0 4.2 12.0 73.8 101.7 156.01962 44.7 3.8 71.8 4.9 14.4 78.0 127.9 180.11972 42.6 5.9 60.6 5.4 10.1 70.4 161.4 159.21981 59.0 4.4 97.1 5.3 8.5 50.8 139.7 107.4

Panel B.3: Grain Acreage, Sheep and Cattle in New Zealand, 1890-1979

Years

Indices (1900 = 100) Per Capita:Grain

(Wheat & Oats)

Acreage

Grain (Wheat &

Oats)Acreage

per Person

Sheep Cattle (d) Sheep Cattle (d)

1890-1899 100.2 111.1 98.1 84.6 25.7 1.41900-1919 86.0 70.3 116.7 157.1 22.0 1.91920-1939 49.4 27.7 141.6 310.8 18.5 2.61940-1959 30.8 13.7 186.0 415.8 18.6 2.61960-1979 n.e. n.e. 291.1 664.6 19.9 2.8

25

Table 2 [Continued]

Notes: (a) CPI = consumer price index; both indices have 1967 = 100, and the

relative index given here has 1967 = 100.0.

(b) For the irrigation figures, 17 states are included in the list of Western

states. For the remainder of the table, the West is defined as the sum of the

following states: Montana, Idaho, Wyoming, Colorado, New Mexico,

Arizona, Utah, Nevada, Washington, Oregon, California, Alaska, and

Hawaii. As above, all indices have 1900 = 100.

(c) The Praries and the West consist of the four provinces Manitoba,

Saskatchewan, Alberta and British Columbia.

(d) For the index of cattle and the number of cattle per capita, the figures

for 1890-1899 are actually an average for 1891, 1894-1899, and the

figures for 1900-1919 are actually an average for 1900-1909, 1911 and

1916-1919.

n.e. = not estimated.

26

IV Immigration, the Demographic Transition, and the Biological Standard of Living

The Arithmetic of Population Growth

Birth and death rates, the natural rate of increase and the net migration rate introduced.

The Demographic Transition

The mortality transition: standard of living versus the diffusion of the germ theory of disease (technology and education); the impact of the rise in life expectancy on the demand for education.

The fertility transition: Fertility decline and the frontier in the 19th century; fertility decline in the 20th century as part of a general trend throughout the industrializing world discussed.Theories: The Becker/Mincer and Easterlin models and the David-Sanderson theory of Victorian morality – how important were relative prices? How important were the costs of fertility regulation?

The Biological Standard of Living and the Net Nutrition Hypothesis

The anthropometric measures and the biological standard of living and the net nutrition hypothesis

The Crisis in Human Development

Deterioration in the biological standard of living in the latter half of the 19th century: how important was urbanization?

Immigration and Immigration Policy, 1870-1930

Long swings and migration from the United Kingdom to the United States: the Brinley Thomas hypothesis

The growing volume and diversity of immigration and policies aimed at restricting immigration

Why immigration restriction? Factor price equalization/labor market/income distribution versus diversity (Eugenics) based arguments.

27

Table 3

Components of Population Growth in the Western Offshoots (a)

Panel A: All Four Countries

Years Birth rate

Death Rate

Natural Increase

Rate

Population Growth

Net Immigration

Rate(from VitalStatistics)

Net Immigration

Rate(from

Migration Data)

1900-1913

29.8 13.9 15.9 18.9 3.0 7.6

1914-1918

27.6 14.3 13.3 10.8 -2.5 3.2

1920-1929

24.8 11.8 13.1 15.2 2.1 3.2

1930-1938

19.4 10.9 8.5 7.3 -1.2 0.3

1939-1940

20.9 10.5 10.3 11.2 0.9 0.2

1950-1959

25.0 9.4 16.7 18.7 3.1 2.2

1960-1969

20.5 9.3 11.2 13.6 2.3 2.0

1970-1979

15.8 8.8 7.0 11.3 4.3 1.8

1980-1992

15.8 8.5 7.4 10.1 2.7 2.6

28

Table 3 [Continued]

Panel B: Three Former British Dominions (b)

Years Birth rate Death Rate

Natural Increase

Rate

Population Growth

Net Immigration

Rate(from VitalStatistics)

Net Immigration

Rate(from

Migration Data)

1900-1913

27.1 10.8 16.2 22.7 6.5 19.2

1914-1918

26.6 10.4 16.2 13.2 -3.1 10.4

1920-1929

23.6 10.5 13.1 19.1 6.1 9.4

1930-1938

19.7 9.6 10.1 9.9 -0.2 1.9

1939-1945

22.9 9.8 13.1 12.5 -0.6 -1.3

1950-1959

25.9 8.7 17.2 25.3 8.0 7.5

1960-1969

21.8 8.1 13.7 18.8 5.2 4.6

1970-1979

16.9 7.7 9.2 14.8 5.5 2.4

1980-1992

15.1 7.2 7.9 12.6 4.7 1.8

Notes: (a) For 1900-1913, based only upon figures for the United States (1908-

1913) and Australia (1904-1913); for 1914-18, based only upon figures for

the United States and Australia; for 1920-1929, figures for Canada are for

1926-1929; for 1939-1945, based only upon figures for the United States

and Canada; for 1980-1992, the figures used for Canada are for 1980-

1991, and growth rate figures are for 1980-1990.

Table 4

29

Human Development in the United Kingdom and the Western Offshoots

Panel A: The Human Development Index (HDI) for the United Kingdom (a)

Year/PeriodThe Floud-Harris Human Development Index The Crafts-

United NationsHDI

Life Expectancy at Age 0

Literacy(% literate) HDI

1801 35.9 56.5% 0.38 n.e.1806 38.7 51 0.38 n.e.1811 37.6 51.5 0.38 n.e.1816 37.9 52.5 0.39 n.e.1821 39.2 54 0.4 n.e.1826 39.9 57 0.41 n.e.1831 40.8 58 0.43 n.e.1836 40.2 57 0.42 n.e.1841 40.3 59.2 0.43 n.e.1846 39.6 59.6 0.44 n.e.1851 39.5 61.9 0.45 n.e.1856 40.4 65.5 0.47 n.e.1861 41.2 70.3 0.5 n.e.1866 40.3 74.2 0.51 n.e.1870 n.e n.e. n.e. n.e.1871 41.3 76.9 0.53 0.51871-1880 43 80.4 0.55 n.e.1881-1890 45.5 88.5 0.6 n.e.1901-1910 46 95.5 0.63 n.e.1913 n.e n.e. n.e. 0.641920-1922 57.6 100 0.71 n.e.1930-1932 60.8 100 0.73 n.e.1950 n.e n.e. n.e. 0.771950-1952 69 100 0.8 n.e.1960-1962 71.1 100 0.83 n.e.1970-1972 72.2 100 0.85 n.e.1975 n.e n.e. n.e. 0.841978-1980 73.5 100 0.87 n.e.1980 n.e n.e n.e 0.851985 n.e n.e n.e 0.851990 n.e n.e n.e 0.871998 n.e n.e n.e 0.92

30

Table 4 [Continued]

Panel B: Heights of Adult Males in the British Isles, 1810-14, and 1968 (cm)

Circa 1810-1814East India Company Army Recruits Laborers

Irish British Irish British166.1 165.3 165.7 165.6

1968Adult Steel Worker Adult Student

174.2 176.8

Panel C: Heights of Males Aged 5.5 years in Leeds and Glascow, 1909-1940 (cm)

City 1909 1920 1930 1940Leeds 102.1 103.1 105.7 108.2

Glascow n.e. 103.9 104.1 107.1

Panel D: Human Development Indices for Australia and New Zealand

Year Australia New Zealand1870 0.52 n.e.1913 0.70 0.711950 0.78 0.801975 0.84 0.841980 0.86 0.851985 0.87 0.861990 0.88 0.871998 0.93 0.90

Panel E: New Zealand. Proportion of European Population Able to Read and Write,

1861-1911

1861 1896 191168.7% 80.6% 83.7%

31

Table 4 [Continued]

Panel F: Life Expectancy at Age 0 for Males and Females in Australia and New

Zealand, 1901-1978

Australia New ZealandYear(s) Males Females Year(s) Males Females

1901-1911 55.2 58.8 1911-1915 61.0 63.51920-1922 59.2 63.3 1921-1922 62.8 65.41932-1934 63.5 67.1 1925-1927 64.0 66.61946-1948 66.1 70.6 1931 65.0 67.91953-1955 67.1 72.8 1934-1938 65.5 68.51960-1962 67.9 74.2 1950-1952 68.3 72.41965-1967 67.6 74.2 1955-1957 68.9 73.91970-1972 67.8 74.5 1960-1962 69.2 74.5

1976 69.3 76.3 1970-1972 69.1 75.21978 70.2 77.2 1975-1977 69.4 75.9

Panel G: Heights of Male Children Aged 6 and 12, Australia and New Zealand,

1901-1969 (Centimeters)

Country, Date Age 6 Age 12Australia, 1901 114.3 141.2

New Zealand, 1934 109.2 144.8New Zealand, 1954 112.3 150.4New Zealand, 1969 112.3 151.1

Panel H: Adelaide, Australia, 1914-1915. Weights (Ounces) of Male Children Aged 6

and 10 Born in Australia and Born in England

Age Australian Born English ImmigrantChildren

6 300 25210 326 270

Panel I: Western Australia Goldfield Workers, 1922: Standing Height (cm)

Australian British Italian Slav170.4 168.7 166.4 170.4

32

Table 4 [Continued]

Panel J: The Human Development Index (HDI) for the United States (b)

Year

Costa-Steckel Human Development Index

CraftsHDIIndex

(6)

United Nations

HDI

(7)

CombinedEstimated

HDI

(8)

Adult Male

Standing Heights

(cm)

(1)

Literacy(%)

(2)

HDIEstimatedby Costa

& Steckel

(3)

Indexfor

HDI with1870=100(4)

Index for

HDI with1950 = 100

(5)1800 172.9 0.72 0.58 82.6 n.e. n.e. n.e. 0.411810 173.0 0.73 0.59 83.8 n.e. n.e. n.e. 0.421820 172.9 0.74 0.60 85.9 n.e. n.e. n.e. 0.441830 173.5 0.75 0.62 88.9 n.e. n.e. n.e. 0.451840 172.2 0.76 0.62 87.9 n.e. n.e. n.e. 0.451850 171.1 0.78 0.63 90.0 n.e. n.e. n.e. 0.461860 170.6 0.80 0.67 94.2 n.e. n.e. n.e. 0.481870 171.2 0.80 0.70 100.0 n.e. 0.51 n.e. 0.511880 169.5 0.83 0.74 104.7 n.e. n.e. n.e. 0.531890 169.1 0.87 0.75 106.8 n.e. n.e. n.e. 0.541900 170.0 0.89 0.80 114.2 n.e. n.e. n.e. 0.581910 172.1 0.92 0.87 123.2 n.e. n.e. n.e. 0.621913 n.e. n.e. n.e. n.e. n.e. 0.64 n.e. n.e.1920 173.1 0.94 0.88 n.e. 93.0 n.e. n.e. 0.751930 173.4 0.96 0.89 n.e. 94.0 n.e. n.e. 0.751940 176.1 0.97 0.94 n.e. 98.4 n.e. n.e. 0.791950 177.1 0.97 0.95 n.e. 100.0 n.e. n.e. 0.801960 177.3 0.98 0.96 n.e. 100.4 n.e. n.e. 0.811970 177.5 0.99 0.96 n.e. 101.2 n.e. n.e. 0.811975 n.e. n.e. n.e. n.e. n.e. 0.80 0.84 0.841980 n.e. n.e. n.e. n.e. n.e. n.e. 0.85 0.851985 n.e. n.e. n.e. n.e. n.e. n.e. 0.85 0.851990 n.e. n.e. n.e. n.e. n.e. n.e. 0.87 0.871998 n.e. n.e. n.e. n.e. n.e. n.e. 0.92 0.92

33

Table 4 [Continued]

Panel K: Heights of Japanese Males Aged 6, 12 and 18 in Japan and in California, 1957

and 1972 (Centimeters) and Weights (Kilograms) of Japanese Adult Males in Japan and

in California, 1972 (c)

YearJapanese in Japan Japanese in California

Height (cm) at Age: AdultWeight

(kg)

Height (cm) at Age: AdultWeight

(kg)6 12 18 6 12 18

1957 110.7 140.2 165.5 n.e. 112.4 149.5 169.2 n.e.1972 115.2 147.8 168.3 58.1 115.1 144.7 168.4 68.6

Panel L: Illiteracy Rates in Four States of the United States (Adult Whites), 1840;

and in Ontario, Canada, 1861

United States, 1840North Carolina 28% Massachusetts 1%

Ohio 6 Connecticut 0.3Ontario, 1861

Irish Catholic 29.7% English Protestant 2.9%Irish Protestant 6.5 Canadian Protestant 2.5Nonwhite/Black 48 Canadian Catholic 3.7

Notes: (a) The Floud-Harris HDI is from Floud and Harris (1997); the Crafts-

United Nations HDI is from Crafts (up through 1970), and from the

United Nations (2000) for the subsequent dates.

n.e. = not estimated.

(b) The combined estimated HDI index given in column 8 is estimated as

follows: (1) I compute the index for the Costa-Steckel HDI with 1870 =

100 (column 4); I multiply this index by the Crafts HDI estimate for 1870

34

Table 4 [Continued]

to secure an estimated combined HDI series for 1800-1910; (2) I compute

the index for the Costa-Steckel HDI with 1950 = 100; I multiply this index

by the Crafts HDI estimate for 1950 to secure an estimated combined HDI

series for 1920-1970; (3) I use the United Nations HDI for the years 1975-

1998 for the estimated combined HDI.

(c) For Japanese males in California in 1976, the figures for 18 year old

standing heights are actually for ages 17 and plus.

35

Table 5

Selected Examples of Restrictions on Asian Immigration Imposed within the

Western Offshoots

Category Type of Policy Examples

Limitations onpolitical participation

and entry

Restrictions on eligibility for naturalization; Quotas on immigration; Special head taxes for residency

Exclusion from voting (British Columbia, 1896);

ineligibility for naturalization (U.S.); head taxes (Canada, 1903-1923);

Chinese Exclusion Act (Canada, 1923);

Gentleman’s Agreements with Japan (U.S. in 1907; Canada in 1909); Chinese

Exclusion Act, U.S. (1882)Limitations onproperty rights Restriction on right to own

land

California’s Anti-Alien Land Law of 1913 aimed at

Japanese

Limitations onaccess to

employmentopportunities

Regulations barring employment in certain

fields; regulations restricting subsidies to

employers of “colored “ persons; restrictions on entry of “coolie” labor

Foreign Miner’s Tax in California aimed at Chinese

(1850-70); British Columbia specified jobs;

Victoria goldfields licenses required of Chinese (1857);

Victoria act denying subsidies to sugar beet

farmers employing Asians

Limitations related tohuman development

Literacy (Natal) dictation tests;

Restrictions based on race and/or national origin

Alien Immigration Restriction Act (White Australia policy, 1901) based on literacy test;

Immigration Law of 1924 (National Origins Act in

U.S. based on race); Barred Zone Exclusion Act of 1917

in U.S. Aimed at Asians

Limitations on access totransportation

Head tax; restrictions on the number of immigrants

coming on ships relative to ship tonnage; “continuous journey” requirement for

immigrants

Limitations on number of Chinese coming per ship

tonnage (various Australian colonies from 1850s);

requirement that immigrants arrive on continuous voyage

(Canada, 1906)

36

V Banking, Trade and the Gold Standard

Stock Markets versus Bank Loans: A Comparative Perspective

Restrictions on the expansion of banks in the United States and the relatively early development of the stock/bond market compared to the emphasis on bank centered financing in Japan

The Demand and Supply for Money in the Keynesian Aggregate Demand Model and the Importance of Money Supply Growth

The basic logic of the IS/LM model with variable prices; the key concepts underlying monetary and fiscal policy; Monetarism, money supply growth; the Gold Standard versus the demand for a bimetallic standard.

The Savings/Investment Balance and the Balance of Payments: The Changing International Position of American Capital Markets

Domestic and international sources for savings, the trade balance, and the savings/investment balance; the market determinants of U.S. trade; the size of the U.S. economy and changing U.S. trade policy in an evolving international economic order, 1880-1936.

37

National Income Accounting Balance: The Aggregate Demand Side

Basic Demand Structure

Y = GDP (Gross Domestic Product)

C = Consumption

I = Investment

G = Government Spending

X = Net Exports = Exports – Imports

DA = Effective (Aggregate) Demand = C+I+G+X = Y

Share of investment demand in aggregate demand = I/ DA

Contributions to Growth in Aggregate Demand

Δ DA = ΔC + ΔI + ΔG + ΔX

Marginal contribution of investment demand growth = ΔI/ Δ DA

Marginal contribution of net export demand growth = ΔX/ Δ DA

Savings/Investment Balance

Government’s Fiscal Balance

F = government transfers to private sector

N = interest on government debt

T = taxes

Income from Abroad

V = factor income from abroad plus transfer payments from abroad

38

Savings

Sp = private savings = (Y+V+F+N-T) - C

Sg = government savings = (T-F-N)-G

Sr = rest of world savings = -(X+V)

Then

Sp + Sg +Sr = [(Y+V+F+N-T)-C] + [T-F-N-G] –(X+V) =

Y-(C+G+X) = I

Sp + Sg +Sr = I

39

Table 6

Tariff Rates and Trade Openness for Selected Countries, Circa 1880 and Circa 1913

CountryCirca 1880 [a] Circa 1913 (1900-1013 Average for Trade Openness)

Tariff Rate

TradeOpenness

ImportDuties

[b]

Indices forAll

Products [c]

Indices forManufactures

[c]

Tariff Rates for

Manufactures [d]

Trade Openness

Denmark 15-20 45.9 5.8 n.a. n.a. 14 56.2Finland n.a. n.a. 12.1 35 28 n.a. 49.5

Germany 4-6 33.1 7.9 17 13 13 34.4Netherlands 3-5 n.a. 0.4 n.a. n.a. 4 226.0

Norway 2-4 37.7 11.4 n.a. n.a. n.a. 46.6Sweden 3-5 42.4 9.0 28 25 20 39.6United

Kingdom0 54.1 5.6 0 0 0 53.4

United States

40-50 n.a. n.a. n.a. n.a. 44 10.0

Notes: [a] Tariff rate refers to average level of duties on manufactures, circa 1875. Trade openness is for 1880-1889.

[b] Import duties as a percentage of special total imports (1909/13).

[c] Liepmann’s indices for duties on all products and on manufactures, circa 1913.

[d] Tariff rate refers to average tariff rates for manufactured products, circa 1913.

n.a.= not available.

40

VI Hegemony and World War I

Geopolitics and the Drive to Hegemony

Nationalism and national security and international relations

The Classic Theory of Hegemonic Cycles

The hegemonic power provides public goods that benefit other countries; the second UK hegemonic cycle, Free Trade and the Gold Standard.

Convergence in the second UK hegemonic cycle: the U.S., Germany and Japan emerge as regional economic contenders. Regional versus global hegemony discussed.

Linking military potential to economic potential; military buildup and confrontation in the late 19th century and the first half of the 20th century. World War I as the first global war ushering in the switch from UK hegemony to American hegemony discussed.

The Domestic Impact of World War I

Shared sacrifice: social programs and taxation

Government regulation and growing interest in measuring national economic activity discussed.

The International Impact of World War I

Wilsonian multilateralism versus the balance of power: the League of Nations and the unwillingness of the United States Senate to approve American entry into the League.

The deterioration in the International Economic Order: tariff wars, the collapse of the Gold Standard, ideological divisions and the drift toward autarky.

41

International Power Equation and Regional Hegemony: Some Heuristic Considerations

Power and Regional Hegemony

The “latent power” of a country H depends upon its geographic position and its

relative “economic size.” The “actual power” of a country depends upon the size of its

military forces relative to other countries, its relative economic size, and its geographic

position. Let

Yi = national income of country i = yi * Pi

where y is per capita income and P is population

and

Mi = military force of country i (troops and war making materiel)

and

dij = distance between country i and country j (“distance” understood in terms of

the costs of moving troops and war making materiel from country i to

country j – the “stopping power of water” is important; in general

“distance” depends upon physical geography and technology)

Then the relative power of country i relative to j is a function of relative economic

size, relative military force, and distance between the countries:

RPij = f( [Yi/Yj], [Mi/Mj], dij)

A local hegemonic power is a power that has dominant power within a geographic

region (e.g.: China within the Eurasian continent, the United States in the Americas), or

within an transcontinental empire (e.g.: Spain in the Spanish empire, Holland in the

Dutch empire, Great Britain within the British empire; Japan within the Japanese empire

of the 1940s)

42

Multilateral Architecture and National Security

The security of a country i depends upon its relative power within a region and

upon multilateral architecture governing the region:

Let RPi = power of a country relative to the power that the rest of the globe can

apply to it (more isolated countries have a natural geographic advantage with respect to

security) = RPi/RPG where G is the global power that can be applied to the country.

The security of this country depends its level of RPi, upon the multilateral

architecture that it participates in, and upon its own internal political cohesiveness (RPi).

Examples of multilateral architecture are: the tribute trade system in East Asia; the

“balance of power” in Europe and the system of alliances and treaties between the

European countries; the League of Nations between 1920 and 1945; the British Empire

between 1850 and 1950; the United Nations after the early 1950s; the North Atlantic

Treaty Organization; the European Union; the Japan-U.S. Security Treaty.

43

VII The Great Depression

Theories of the Great Depression

I Aggregate Demand Driven

I.A Keynesian

Autonomous shifts in investment or consumption demand

I.B Monetarist

Money supply growth too slow; failures of the Federal Reserve System

I.C Internationalist

Decline in world trade due to tariff wars, creation of autarky policies and/or trade blocs, collapse of gold standard.

I.D Problems with Demand Driven theories:

The labor market and the Phillips curve – declining wages and prices causes M/p to increase, shifts LM curve

A solution: Efficiency wage theory.

Two interpretations: (1) Fordism “high wage” approach; (2) Sins of the New Deal: government programs, legalization of collective bargaining and unionization, creation of divided labor market with “aristocracy of labor.”

II Aggregate Supply Driven

Schumpeterian theory of Kondratieff waves

Impact of Great Depression on Economics

The impact of the Great Depression on Economics as a field: national economy focus, and Keynesian theory.

44

VIII Multilateralism, the Cold War, Convergence and the Golden Age of Economic Growth (1950-1970)

United States Support for Multilateralism, Global and Regional

Cold war competition or hegemonic power? The United States supports the United Nations, the World Bank, the International Monetary Fund, the General Agreement on Tariffs and Trade (G.A.T.T.), and underwrites the Bretton Woods system, assists Europe in rebuilding and supports the movement toward European integration

The Economics of Convergence

Sources of Growth accounting and the Swann-Solow model;Convergence within the United States and convergence for the industrial countries

The Political Economy of Convergence: Japan

Economic: internalized labor markets, the Spring Offensive and high quality labor; the keiretsu and main bank financing for industrial expansion; technological change in the automobile and consumer electronics industries – Just-in-Time (J.I.T.) inventory control and Quality Control (Q.C.) circlesPolicy and politics: Industrial policy and the Ministry of International Trade and Industry (M.I.T.I.); building social consensus with protectionism for agriculture and small business – the Liberal Democratic Party and bureaucratic insulation.The Japanese challenge to the American economy and American technological leadership discussed.

The End of the Golden Age of Convergence

The United States abandons Bretton Woods, introduces quotas on Japanese imports, moves toward negotiating Voluntary Export Restrictions (V.E.R.s); the first and second Oil Shocks of the 1970s trigger stagflation.

Population Growth: Baby Boom and Bust and Immigration

Long swings, Easterlin’s theory of the Baby Boom and Baby Bust and critiques of the theory

The political economy of immigration policy reform: domestic and international pressures discussed.

45

IX Globalization and Regionalism

Macroeconomic Balances

Savings/investment balances in the US and in Japan and growing dependence of the U.S. on capital import from Japan (and China)

Regionalism versus Globalism

Regional trade agreements and their relationship to global trade agreements; the gravity model of trade and the economic logic of regional trade blocs discussed.

Hegemony and Empire

The political economy of regional hegemony and its relationship to the international economic order after 1970 close out the course.

46

I Why did the Golden Age of Convergence Occur?

I.A Market Forces1. High rates of technological/organizational progress: Pent-up technology from the 1930s/1940s; multinational corporations and the diffusion of technology; imitation spreads amongst market oriented countries not at war with one another; Fourth Kondratieff wave (high rates of residual/total factor productivity growth.)

2. Expansion of trade and exploitation of trade related scale economies especially in manufacturing (sources of growth accounting)

3. Geographic scale economies with externalities spread with the proliferation of global cities (sources of growth accounting)

I.B Population

1. Demographic transition spreads and population growth rates fallwithin most converging countries (Swann-Solow model)

2. Baby boom is short-lived (the Easterlin model discussed.)

I.C Political Economy

1. International economic order stabilized: Cold War or U.S. hegemony interpretations possible; wars between converging countries absent due to

regional and/or global multilateralism; wars involving converging countries limited in scale and scope.

2. Domestic political economy: stabilization of economy either through central planning model or through Keynesian/welfare state/industrial policy approach (US model/third way model/East Asian model contrasted.) Infrastructure build up in converging countries.

II Why did the Golden Age of Convergence End?

II.A Market Forces

Exhausting pent-up technology; rising demand for oil due to convergence; diminishing returns to capital formation in converging economies (Swann-Solow model)

47

II.B Political Economy

1. International economic order threatened: the “British” problem and the end of Bretton Woods; trade friction and contests over technological leadership intensify (e.g.: U.S./Japan friction during 1970s and 1980s); return to multi-polar world after end of the Cold War.

2. Rising infrastructure maintenance and renewal costs threaten the Keynesian/welfare state/industrial policy model after the end of the Cold War

48

Population (P), Income per Capita (y) and Growth in Income [G(Y)], Population [G(P)], and Income per Capita [G(P)] – Postwar Period

Panel A: Growth Rates (1950-87, Annual Average %)

Group of Countries/Country

G(Y) G(P) G(y)

16 OECD Countries 3.8 0.5 3.3USSR 3.8 1.2 2.6

6 Latin AmericanCountries

4.8 2.6 2.2

Panel B: Income per Capita (1980 International Dollars, 1950, 1973, 1987)

Group of Countries/Country

1950 1973 1987

16 OECD Countries 3,553 7,852 10,205USSR 2,265 5,066 5,948China 338 774 1,748

Latin AmericanAverage

1,610 2,758 3,031

Panel C: Population (P), 1950, 1973, 1987 – 1,000s

Group of Countries/Country

1950 1973 1987

16 OECD Countries 580,163 639,903 700,749USSR 180,050 249,800 283,100China 546,815 881,940 1,069,608

USSR + China 726,865 1,131,740 1,352,708Ratio: 16 OECDCountries/USSR

+China(%)

79.82 % 56.54 % 51.80 %

Source: Angus Maddison (1989), The World Economy in the 20th Century (Paris: OECD): various tables.

49