Rising Living Standards in the New Nation Lesson 10

Why Did the Economy Grow after the Revolution?  From the end of the American Revolution to the beginning of the Civil War, the population of the United States grew from approximately 4 million people to 32 million.  It is not surprising that, with more people able to work at making more things, the economy would grow.  The puzzling thing is that the output of goods grew faster during this time than the population did.  The standard of living of the average American in 1860 was double what it had been at the end of the Revolution.  How can an economy grow faster than the population of the society in which it develops?

Scarcity  How do market economies cope with the problem of scarcity?

PRODUCTION POSSIBILITIES CURVE

GDP Per Capita [in 1992 dollars] T he Poorest Nation s Nation Per Capita 1.Congo, Rep. of$300 2.Zimbabwe$500 3.Liberia$500 4.Somalia$600 5.Ethiopia$700 6.Niger$700 7.Cen. African Rep.$700 8.Gambia, The$800 9.Sierra Leone$ Malawi$800 Djibouti $1,000 Djibouti $1,000 5 b illion are in the Third There are 6.6 billion people on our planet; 5 b illion are in the Third World2.5 billionless than $2 a daydirest poverty World. 2.5 billion live on less than $2 a day. The direst poverty Africaworld’s 10poorest countries½ is in Africa, home of the world’s 10 poorest countries. Over ½ the people of Sub-Sahara Africaless than $2 a day the people of Sub-Sahara Africa live on less than $2 a day. 8 million people die each year because they are too poor to stay alive. $6, $15, $25, $46, ½ of the world’s population have yet to make their first phone call.

Annual growth GROWTH RATE (percent per year) Long-term average growth (3%) Recessions Zero growth The Business Cycle in U.S. History [11 Recessions since WWII, from 6 months to 16 months] 2005

Visual 10.1 Things Changed for Americans after the Revolutionary War  Between 1789 and the 1830s... the number of wooden chairs per household almost doubled. most of the upper-middle class had upholstered sofas and chairs. most people in cities and villages had replaced open fireplaces with cook stoves and parlor stoves. many houses had larger windows because window glass was cheaper. farm families owned more candlesticks, and oil lamps were becoming common in cities and villages. one household in four or five owned a carpet, and houses in most cities and villages had window curtains. most households owned at least one clock.  Source: Jack Larkin, The Reshaping of Everyday Life, 1790 – 1840 (New York: Harper & Row, 1989), pp. 139 – 143.

Visual 10.2 Productivity and Productive Resources  Productivity is the amount of a good or service that can be produced with a given amount of productive resources over a certain period of time.  Productive resources include natural, capital and human resources.  Productive resources are scarce.  Productivity increases when: 1. more goods or services are produced with the same amount of productive resources. 2. the same amount of goods or services is produced with fewer productive resources.

PRODUCTIVITY GAME INSTRUCTIONS  ACTIVITY: These game instructions should be put on an overhead and reviewed with the class.  The twelve workers should have their desktops cleared.  Each worker has a set of cards numbered 0-9. Display them on top of your desk, numbers up, in the same pattern as a touch-tone phone.  At this point, there should be no talking in the room.   The workers are members of a three person labor force who will attempt to produce a product consistently every time they are asked with the cards in front of them.   Throughout the activity, focus on nothing but the cards and do not communicate to anyone else until told to do so.   The teacher is going to read off a random sequence of ten numbers, from Activity One, between 0 and 27 inclusive.   When a number is called, each worker should grab a card from the group in front of them while their co- workers do the same with their cards. All three will hold their numbers up simultaneously so that the class can read them and the numbers should add up to the number called.   Once the number has been registered with the scorekeeper, each worker should place the card quickly in its original place.   Even if the number called is zero (0), each worker must hold up a card.   Do this without talking, looking at, signaling, or in any way communicating with the person next to them.   Each group’s scorekeeper will tally up the number correct out of ten on a scrap piece of paper and report it to the class at the end of each round.   In between rounds, the managers will approach the workers they’ve been assigned to and help develop a system to improve productivity.

ELI WHITNEY’S COTTON GIN

18 th CENTURY BRITISH TEXTILE INDUSTRY

COST REDUCTIONS HAD POWERFUL EFFECTS ON AMERICAN SOCIETY

How Do Market Systems Solve the Scarcity Problem?  Market systems provide incentives to increase productivity.