Transcript An Empire of Wealth

“An economic look at American History”
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 “They
must come into, and go through a
vast and roaring Wilderness, where they
must be bruised with many pressures,
humbled under many overbearing
difficulties…before they could possess
the good Land which abounded with all
prosperity, flowed with milk and honey.”
 –Reverend Thomas Hooker, 1659.
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Jamestown was founded by a profit-seeking corporation
(joint stock company). When gold was not found, other
ventures (tobacco in Virginia) began.
Spanish had sent conquistadores & padres for gold, glory,
gospel (Mexico). France had sent fur trader to build trading
posts (Canada). England had sent men to work for the joint
stock companies, or later, families looking for religious
freedom (Pilgrims) or a new financial start (James
Oglethorpe in Georgia).
Slavery was seen as a “station in life” rather than the
abomination it is seen as today. Slavery, via the “Middle
Passage” increases greatly after the indentured servants
reduce in number after European economy improve and
people could afford their own passage over.
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The Puritans & Pilgrims (or Separatists) come to the New
World for religious freedom and to build a “city on a hill”
where man could worship without interference from Europe.
Puritans saw economic success as given by God’s grace, and
did business “in the name of God and profit.” Because of the
belief in believers being able to read the Bible, the New
England colonies had the highest literacy rate.
Lumber, fishing were big industries in New England. Large
plantations for cash crops (tobacco, rice, indigo and latercotton) were in the Chesapeake and Southern colonies.
Triangular trade between England, Africa (Middle Passage)
and North America dominated the colonial economy.
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Though the English secured the safety of the 13 colonies
through the War of Jenkin’s Ear (Spain) and the French &
Indian War (Seven Years War), the colonists had begun to
feel independent due to salutary neglect.
To pay for the war, King George III wanted to tax the
colonists. The colonists felt this “taxation without
representation” was unfair. They also did not like the king’s
Declaration of 1763 that used the Appalachian Mountains as
a barrier between the colonies and the Indian tribes.
As the American Revolution began, William Pitt (who had
won the French & Indian War) told Parliament “You cannot
conquer America.”
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The Dutch settle in the New Netherlands (New York) area
and were the most market-oriented economy in Europe.
They were also the most tolerant in religious matters. They
settled on the Hudson River for 40 years before they were
driven out by the English.
William Penn (Quakers) and Roger Williams (Rhode Island)
were examples of other societies that were set up primarily
for religious reasons.
Mercantilism held that gold, silver, & natural resources were
the key to riches. Controlling trade through the Navigation
Acts allowed the riches to collect in England. The colonies
saw themselves as “Englishmen living overseas”.
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Money could only be made in England, and all banks had to be
established there. Money is a medium of exchange, a unit of
account (or relative value of goods to each other), and a way to
hold wealth that’s been accumulated in business.
Inflation is when prices go up while money supplies stay constant.
In the New World trade (furs, wampum, iron tools, guns, horses,
etc.) became the units of exchange.
Slavery provided the cheapest labor force for these growing
farming areas.
Founding Fathers such as Ben Franklin, George Washington, and
Thomas Jefferson all grew to view slavery as a divisive issue for
America (Franklin started an abolitionist society, while Washington
& Jefferson considered freeing their slaves during their lifetimes).
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In the American Revolution, England had the advantage of
finances. They had great wealth, the best army, the best
navy and money to hire mercenaries (Hessians). The
Americans had no national government to help secure
money by taxes or loans from Europe. After the Continental
Congress was established, the printing press was used to
create the “Continental Dollars” for a currency. Individual
colonies also printed their own money, and this sudden
increase in money supply led to great inflation.
The disadvantage to England was fighting a faraway war (3
months by boat) on unfamiliar soil to its military leaders.
Assistance from Tories would be crucial to the war effort.
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General Washington, even with limited resources to pay and
equip his troops, knew the key to victory was not an outright
military struggle; rather, the colonies had to outwait the
English- make it too costly to continue. In essence, make the
war too costly to England over time.
“The United States won by not losing.”--John Steel Gordon
The colonies were devastated by the war, especially in its
cities. To reduce costs, the American navy was disbanded
and the army was greatly reduced. Soldiers returning from
the war found their farms in ruin from the war.
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The economy slowly began to recover, but the new
nation’s finances did not.
The new government, under the Articles of
Confederation did not allow taxation by the national
Congress, nor a regulation of trade between the states.
The government seemed more like a “United Nations”
than a strong national entity.
In 1787, the Articles of Confederation was dropped
after Daniel Shay’s rebellion over debts by returning
soldiers that were owed on their farms.
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The U.S. Constitution would strengthen the powers of Congress
and create a Presidency and a Supreme Court. Congress would
also become a bicameral house
Adam Smith wrote The Wealth of Nations (1776) that shifted
economic thought from the mercantile system to that of capitalism.
With unfettered trade, both internally (states) and externally
(international) trade could benefit the economy. Competition in
the marketplace led to greater prosperity for all and a stronger
country as a whole.
Long-standing monopolies (British East India Company) would no
longer be the norm for American business. While it was not
perfect (slave issue: 3/5 Compromise), it was the closest any
country would get to Adam Smith’s capitalism. Individual selfinterest in a marketplace economy would keep the economy
strong.
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President Washington’s 1st State Department had 5 employees;
the 1st Treasure Department had 40 employees!
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Taxes, tariffs on imports, the ability to get loans from other nations, and a
monetary system were some of the first challenges of the new
government and its newly elected President.
Thomas Jefferson, who would later oppose many of Alexander
Hamiliton’s financial plans, did propose the use of coins of smaller
denominations that now are central to any nation’s currency. (He
would work to kill the bank after his presidency.) Jefferson also
proposed a tariff on England that greatly hurt the infant American
economy during its 15 months; its unpopularity with the public was
the main reason Jefferson did not consider a 3rd term.
Alexander Hamilton, (the main writer (2/3)of The Federalist Papers),
wanted an economic system that would both channel the individual
pursuit of self-interest and protect the interests of the nation of the
whole at the same time.
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Hamilton understood that there was power in managing a
country’s national debt, if properly funded and serviced, it
could actually add to a nation’s prosperity.
Hamilton argued that old debts had to be paid (and not
forgotten or ignored) to keep future investors interested in
making loans later. (James Madison argued that speculators
would get wealthy from collecting IOU’s from soldiers who
sold them cheaply for instant money).
The French Revolution helped to “jump-start” the American
economy with trade as exports jumped from $19 million
(1790) to $78 million (1807).
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The National Bank was Hamilton’s other contribution. It
would be a depository for government funds and
transfer from one nation to another. It would also be a
source of loans for the national government or other
banks. It would also regulate the money supply, as gold
or silver (specie) were in short supply.
Thomas Jefferson saw America as a utopia of selfsufficient yeoman farmers did not want such strong
national powers; he argued for a “strict interpretation”
of the Constitution. Hamilton argued that in a “loose
interpretation that Congress could do what it saw as
“necessary and proper.”
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“I have…heard much said of the extreme difficulty of ginning
cotton…There were a number of respectable gentlemen at Mrs. Katy
Greene’s who all agree that if a machine could be invented which
would clean the cotton with expedition, it would be a great thing both
to the country and the inventor…I involuntarily happened to be
thinking on the subject and struck out a plan for a machine in my
mind.”—Eli Whitney (1793).
Cotton becomes the leading cash crop of the U.S. and greatly
increased the demand for slaves in the South. Steamboats and
railroads would also be a result of this industrial revolution in the
1830’s.
Samuel Slater’s factory on the Pawtucket River in Rhode Island turned
the cotton into thread & cloth. During the loss of goods from England
in the War of 1812, industries in the North did very well. After the war,
they wanted a protective tariff to limit goods coming again from
England (“Tariff of Abominations” to the South in 1828).
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This “Tariff of Abominations” would lead to the
Nullification Crisis (1832) in which South Carolina, led
by John C. Calhoun, would call for a state’s right to
“nullify” any national law that it disagreed with.
President Andrew Jackson quickly squashed that idea.
Henry Clay (along with Daniel Webster) pushed “The
American System” that pushed for any improvements
in different regions (North, South, West) because it
would improve the nation as a whole. Wilderness Road
into Kentucky and the Erie Canal in New York were two
examples of local improvements that would give
national benefits.
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Under President Madison, the Bank of the U.S. did not have its
charter renewed. (Ironically, Madison disagreed with his friend,
Thomas Jefferson, and wanted to keep the bank, but his ineffective
leadership allowed it to die in the Senate).
The War of 1812 starts over the impressment of American sailors
by the British navy. The collapse of the national bank the year
before greatly hurts the war effort.
After Andrew Jackson’s stunning victory in New Orleans sealed the
American victory, President Madison has the bank re-established
in 1815. (Henry Clay & John C. Calhoun also now wanted the bank,
while Daniel Webster turned against it).
The New President, General Andrew Jackson, did not share in
seeing the values of this 2nd National Bank.
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“My vow shall be to play the national debt, to prevent a monied
aristocracy from growing up around our administration that must bend
its views, and ultimately destroy the liberty of our country.”
(--Andrew Jackson, after being elected in 1828).
Andrew Jackson took on the president of the 2nd National Bank,
Nicolas Biddle, in his bid to kill the national bank. Henry Clay tried to
get the charter renewed, but Jackson vetoed it, saying it was a
monopoly that favored the rich and that it was unconstitutional. (The
U.S. Supreme Court disagreed, but Jackson rarely agreed with John
Marshall’s court anyway).
To stop land speculation, Jackson declared that he would only take
gold or silver (Specie Circular) for land- this after Congress had
adjourned for the session. This stopped the economy and led to a
deep depression. “The immense fortunes which we have heard so
much about in the days of speculation, have melted like the snows
before an April sun.” – Philip Hone, former mayor of New York.
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The U.S. government had great debt from the
Depression after President Jackson: $64,844,000
Governments can raise money 3 ways: tax, borrow, or
print. During the Civil War, both the North & South
would revert to all three.
Sec. of the Treasury, Salmon P. Chase & Jay Cooke
(Philadelphia banker) came up with the idea of selling
war bonds (loans by citizens to its government).
The saving of the Union, (Lincoln’s main objective) truly
made us a “united nation” with a truly national focus.
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In the re-building of the nation, a new independence and a variety
of resources became the American focus. The “New South” of
Henry Grady saw industry coming to the South.
“No society in history had ever needed to govern a highly dynamic
industrially based economy in a nation that was constitutionally a
federal republic of limited powers. The United States learned how to
do so, using, largely unconsciously the great insights of the Founding
Fathers: that men are not angels, that they are driven by self-interest,
and that that self-interest can be exploited for the general good by
an interlocking system of divided powers.” --John Gordon.
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Reconstruction ended with the South using “Jim Crow” laws to
keep the newly freedmen from achieving their rights in the 13, 14,
and 25 amendments to the U.S. Constitution.
Robber barons such as Cornelius Vanderbilt (RR), Andrew
Carnegie (steel), John D. Rockefeller (oil), and J.P. Morgan
(finance), gained great wealth during this Industrial Revolution.
With weak presidents, Congress allowed these men to build
horizontal and vertical monopolies.
Carnegie’s “Gospel of Wealth” argued that the rich should be
trusted to use their wealth as a way to improve society.
Great inventors like Thomas Edison, Henry Ford, Orville & Wilbur
Wright, Henry Bessemer, and Alexander Graham Bell bring great
changes to American society.
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Workers felt victimized and unionized as a way to combat the rich
business owners. Samuel Gompers was a leading union organizer.
Socialism and anarchists became movements around Europe (and
later to the U.S. during the great immigration waves that came to
America to escape the economic depressions.
The Populist movement started to help the economic plight of the
Western farmers. Led by William Jennings Bryan (a 4 time
presidential candidate), the Populists wanted to change our money
to the silver standard. These standards are what gives a nation’s
paper money its value: theoretically, you could turn in a dollar bill
for a dollar’s worth of gold/silver. By changing to the cheaper
silver, inflation occurs, and debts are more easily paid off with
money of “inflated value”. So the South & West wanted this change,
while the monopolists in the North did not.
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Progressives, who followed the Populists, were the first to propose
the income tax, the direct election of U.S. Senators, rural mail
service, and the government’s role in protecting consumers.
Under President Teddy Roosevelt, the Progressives responded to
Upton Sinclair’s The Jungle by passing the Food & Drug Act and in
attempting to break up the trusts (in fact, Taft was a “trust-buster”
even more than Teddy).
This push of greater government controls would last until the
outbreak of World War I. (Ironically, after WWI, the government
would become much less involved EXCEPT for the passage of the
Prohibtion Act. This act did not end social drinking, but gave great
supplies of money to gangsters like Al Capone & the
speakeasies.)
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As late as WWI, the U.S. was the world’s largest debtor nation, with
$3.5 billion investments abroad and $7.2 billion European investments
in the U.S.
President Woodrow Wilson got the Federal Reserve System passed in
1913 (to finally “fill the gap” left by no national banking system). After
WWI, it made its first mistake: it raised the discount rate (the interest
rate for loans to banks), which raised the interest rate from 4% to 7%
in 8 months. This let a sluggish post-war economy into a recession.
(The Federal Reserve basically over-corrected to fight wartime
inflation).
The Roaring Twenties and its economic policy of “laissez-faire”
allowed the economy to recover quickly, only to see it spiral out of
control by the Stock Market Crash of 1929.
America returned to a feeling of isolationism in terms of world affairs.
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The Smoot-Hartley Tariff Act was passed by President Herbert Hoover,
which was the highest tariff in American history (by far).
Higher taxes always cause a strain on the economy. It also brings
about retaliatory tariffs by foreign nations. This helped lead to the
Great Depression, as stock market began to lose profits, speculators
began to sell rather than buy, and banks had to close when
speculators could not pay their loans.
Government leaders in the 1920’s wanted to keep a balanced budget,
rather than do deficit spending to provide economic stimulation. (John
Maynard Keynes had this economic theory that became the backbone
to FDR’s New Deal).
The Bonus Army, WWI veterans, went to Washington D.C. to demand
early payment of their war pension. President Hoover refused, and
order Douglass MacArthur to clear out the protestors. When he heard
about this, FDR this event would allow him to defeat Hoover.
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“So, first of all, let me assert my firm belief that the only thing we
have to fear is fear itself.” –FDR (March 4, 1932 radio broadcast)
FDR achieves much in his 1st 100 days in office, including a Bank
Holiday which would “keep your money safer in a re-opened bank
than under your mattress.” The people believed him and the
money and gold returned back into the banking system.
FDR passed the Economy Act, the CCC, the Beer-Wine Act, ending
the gold standard, the AAA, the TVA, the SSA, and the NIRA.
The president’s personality, swift moves, and unquenchable
optimism helped Wall Street have won of its best years in 1933.
The GNP grew from $55.6 billion (1933) to $90.5 billion (1937)
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With the outbreak of WWII, the resources needed by Europe helped
to energize our national economy from the Great Depression. The U.S.
was the “great arsenal for democracy”, said FDR. America would give
over $50 billion to Europe in Lend-Lease Aid. Once Japan bombed
Pearl Harbor, all thoughts of isolationism died away.
In 1940, the GNP was $99.7 billion. By 1945, it was $211.9 billion.
Unemployment became non-existent, as men went to fight and women
became “Rosie the Riveters”.
A 2nd Great Migration of African-Americans to the North occurred to
cities and increased economic gains for the workers.
In 1944, FDR passed the G.I. Bill of Rights to allow them to go to school;
this slowed the number of men returning directly to the work force
(which would cause unemployment). This opened up high-level jobs
to more people and diversified the elite of America.
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Great population push “Baby Boomers” led to a growth of the suburbs
(William Levitt & Levitown) as well as the interstate highway system
under President Eisenhower.
Eisenhower warned of the “military-industrial complex”, which is
when a nation’s economy can grow during wartime, if a nation is a
supplier in a war it’s winning, and it’s fault overseas.
In 1946, the Taft-harley Act was passed. Unlike the Wagner Act, it
allowed employers to fully inform their workers on the company’s
position regarding the issues in an election to certify a union. It also
forbade unions into forcing workers to support its causes.
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The Marshall Plan would give $150 billion of economic aid to Europe
(1/3), and the rest to Asia, Latin America, etc.
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LBJ’s Great Society took on Civil Rights, War on Poverty, and the
Vietnam War. This combination strained the economy.
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With the fall of China to communism in 1948, the idea of containment
grew: Berlin Airlift, NATO, Korean War, U-2 Incident, Sputnik & NASA,
Bay of Pigs, Cuban Missile Crisis, Vietnam, LBJ’s claim that we could
afford “guns and butter”, Détente with China & USSR, Nuclear
weapons, The “Evil Empire”, “Star Wars” and the collapse of the USSR:
these all showed that it was an economic struggle as well as a political
one.
1970’s had stagflation (stagnant economy & inflation) due to costs of
Cold War and increased prices/ limited supply of oil by OPEC. This
led to slow changes by the U.S. auto industry in fuel-efficient cars like
the Asian models. Many factories laid off workers or closed, as jobs
went overseas in cost-cutting moves.
Republicans, promising small government and taxes while continuing
the Cold War led to President Reagan’s “supply-side economics”.
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After the collapse of the Soviet Union, America’s economy
rebounded with less money needed for defense. Under President
Clinton, a balanced budget was reached again.
After 9/11, spending increased for Homeland Security. Economic
struggles in the 21 century and a decrease in world standing, led
to President Barack Obama and his commitment to “change” as
the choice of the American people in 2008.
The 2012 election will probably hinge on the state of the economy
at the time of the vote. If things are going well in “money matters”,
President Obama will probably get a 2nd term. If it’s not, he may be
denied that 2nd term for economic reasons like Carter (1980) and
Bush, Sr. (1992) found out.
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