Economics 175 American Economic History

Contact Information Phone: Office: JH 3125 Office Hours: Tuesday and Thursday 1-2, Thursday 6-7 and by appointment

Contact My website can be found through the Econ Dept website under faculty. It has class syllabus, readings and other course materials I will post any powerpoints of lectures used I will contact you by University

Class rules DO NOT DISRUPT THE CLASS IN ANY WAY –No Talking –No Cell Phones – Computers may be used only to look at class material –No Reading of Other Material

Suggestions for Success Read the syllabus, have it available at home and school Attend class both physically and mentally Have a regular study schedule Do not take this class if you cannot come every week.

Course Requirements Two Midterms –Multiple choice and problems – worth 100 points Paper –Worth 25 points Comprehensive final –Will be given only on date scheduled which is December 9 at 8 pm –Worth 200 points

Course Goals At the end of the class students will : know significant events from US history from the colonial period to World War II Understand their effect on US economic growth. –Understand necessary economic concepts understand how political, social and geographic factors contributed to these events the record of US economic growth

What Is Economic History? “An attempt to explain the structure and performance of an economy over time.” (North, Structure and Change in Economic History, p.3) –Must be able to measure economic performance over time –Must be able to explain why it changes

Measurement Issues How do we decide whether the economy is doing well or poorly? How big is the economy? –Before WWII there were no statistics to measure the size of the whole economy How well off are people? –Income –Health –Happiness

Measurement Issues To judge whether the economy is doing well or poorly, must have a measure of size. Must discuss these issues of measurement before trying to explain growth.

Gross Domestic Product is the most commonly used measure Gross domestic product (GDP) is a measure of the income and expenditures of an economy. It is the total market value of all final goods and services produced within a country in a given period of time. It is also a measure the total income of the economy.

GDP GDP is the Market Value...” –Output is valued at market prices. –Cannot add eggs to cars to oranges directly –We add Pe*Qe + Pc*Qc+Po*Qo GDP is a weighted average –When prices are determined in markets they reflect the value people place on them.

Measurement of GDP Of All Final...” –It records only the value of final goods, not intermediate goods (the value is counted only once). If a baker buys flour, it is not part of GDP, the bread produced from it is. If you buy flour in the supermarket it is part of GDP. –It is somewhat arbitrary Cars are classified as final goods even though most use them to go to work

Measurement of GDP Goods and Services... “ –It includes both goods (food, clothing, cars) and services (haircuts, doctor visits). Includes only those goods and services produced in market –Not those produced at home A women marries her gardener and GDP falls –Not illegal Prostitution is part of GDP in Nevada, not CA

Measurement of GDP Produced...” –It includes goods and services currently produced, not transactions involving goods produced in the past. Selling a used car does not change GNP

Measurement of GDP “... Within a Country...” –It measures the value of production within the geographic confines of a country. GNP is a similar measure –total value of all final goods and services produced by a country’s citizens regardless of where produced.

GDP Problems What would happen to GDP if number of women in workforce increased? –GDP would increase because jobs done outside the home are counted as part of GDP while jobs done in the home are not Would all the measured increase be real? –No, jobs were done before, but done outside the market This is important in many historical periods

GDP Problems What would happen to GDP, if marijuana use was legalized? –GDP would increase. Would all the measured increase be real? –No, some marijuana was grown before but not counted as part of GDP because it was illegal Can you think of a similar historical episode when this would be important?

Data Problems Before WWII there were no statistics to measure the size of the whole economy Now government collects data to calculate it Past estimates are based on what ever data was available

Standard of living How well off are individuals? Average income is hard to get data on Wages may be available for some workers, not for those working on farms or self employed No income tax until 1900s

GDP per Capita GDP per Capita is GDP per person –GDP/population –Measure of standard of living GDP and GDP per capita can be different –China vs. Switzerland Data problems

Growth Rate of GDP How do you calculate growth rate? ((GDP2- GDP1)/ GDP1)*100 Can you tell growth rate by looking at the slope of the line on the previous graphs? –No slope is the change in gdp, not the percentage change –If you graph the log of GDP, then the slope gives the growth rate

The slope of the graph is constant. Growth rate of GDP is average of about 3%. The exception is period of Great Depression.

Looks similar to GDP. Average growth of per capita income is about 1.5% per year.

Data Problems National Income Accounting does not exist before 1930, so where do these numbers come from? Estimated in various ways Earlier in time the worse the data is For the earlier period we will look at other measures, like height by age, mortality rates.

Figure 1.1 Univ. of Wisconsin Starting Football Players’ Avg. Weight

Figure 1.3 University of Wisconsin Basketball Players’ Heights

Table 1.1 Life Expectancy by Age in the United States

These slides are consistent with the increase in GDP per capita which we looked at earlier.

What do the GDP, GDP per capita statistics for the US tell us? US does not have a very high growth rate or either GDP or GDP per capita With exception of the Great Depression, US growth has been very constant. We will see when we discuss the colonial period that US standard of living was comparable to European standard of living from the beginning. The result is high GDP per capita relative to the rest of the world.

GDP, Life Expectancy, and Literacy Copyright©2004 South-Western

Why did US Economy grow? Lots of possible reasons We will use economics to answer the questions

Economic thinking Five propositions –Individual choices cause social outcomes –Choices impose costs –Incentives matter –Institutions (the rules of the game) matter. – Model based, not narrative based Theories evaluated on evidence

Property Rights Property rights refer to the ability of people to exercise authority over the resources they own. –An economy-wide respect for property rights is an important prerequisite for the price system to work. –It is necessary for investors to feel that their investments are secure.

Big question Why does US economy have the set of institutions that seem to promote growth? Why do these institutions change over time and continue to promote growth?