Test Bank for American Economic History 8th Edition By Jonathan Hughes Louis Cain by StudyGuide

Test Bank for American Economic History Eighth Edition

PART 1 THE COLONIAL PERIOD, 1607–1783

Chapter 1 Overseas Empire 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. European agricultural practices perfectly served the colonists farming in the New World. Answer:

False

2. Although most slaves came to the colonies before 1776, the majority of other types of labor came to North America voluntarily. Answer:

True

3. The children of indentured females were not the property of the master or owner of the indentured servant. This was an important difference between indentured servants and slaves. Answer:

True

4. Indentured servants were white colonists who sold themselves into slavery when their farms in America failed. Answer:

False

5. The British Crown was the only political, social, cultural and economic influence on the colonization of North America. Answer:

False

6. Taxes impose a cost on letting land remain idle. Answer:

True

7. Mercantilism followed feudalism. Unlike feudalism, mercantilism did not support any form of a strong central government or system of nation states. Answer:

False

Hughes/Cain • American Economic History, Eighth Edition

8. Adam Smith (1776) claimed that less governmental regulation, not more, would provide incentives for individuals to allocate resources efficiently, specialize and trade. Specialization and trade would generate wealth and result in economic growth and development. Answer:

True

9. Secured and enforced individual property rights provide individuals with incentive to allocate resources efficiently and effectively, advance technologically, take on strategic risks and trade domestically and internationally. Answer:

True

10. According to the quantity theory of money, an increase in the stock of precious metals or bills of exchange usually results in increased trade and rising prices. Both economic events helped merchant capitalists and the king. Answer:

True

11. According to Douglass North (1981, 1993), to knowledgeably understand our present economy or to strategically speculate about its future, it is important to “explain the structure and performance of economies through time.” Answer:

True

12. Secure rights to land provided colonists with incentive to use the land productively, conserve it and invest in it. Answer:

True

13. After 1616, Virginia shifted more and more scarce resources out of food production and into tobacco production. Hence, the economic cost of tobacco production included the sacrifice of food production. Answer:

True

14. The American colonies have a rich and deep history in international trade and immigration. Answer:

True

15. The growth of cities and population usually accompanies growth in commercial activity and vice versa. Answer:

True

16. A bill of exchange necessitated the use of coin and bullion and thus restricted the growth of commercial trade. Answer:

False

Chapter 1

Overseas Empire

17. Today’s corporate structures have very little in common with the joint-stock companies of colonial America. Answer:

False

18. Public funding is not a part of colonial history. Answer:

False

19. Alan Kulikoff (2000) maintains that the opportunity to own land privately provided many individuals with incentive to relocate to colonial America and accept the associated risks. Answer:

True

20. Both indentured servants and slaves had rights in courts of law. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Prior to and during the period of American colonization, the following occurred in Europe: (a) Feudal rulers found it easy to force peasants and urban producers to work for them as longdistance trade expanded, the costs of warfare increased, and the land/labor ratio increased as consequence of the bubonic plague. (b) Feudal lords shared profits from output with the peasantry and pumped them into investment expenditures, which accelerated agricultural growth. (c) Conflict among lords and peasants led to many peasant and urban revolts, diverting resources away from production and investment. (d) Financial stability enabled the nobility of Europe to foster growth among feudal lands and increase the riches of both rulers and peasants, producing a period of high economic growth. Answer:

(c)

2. With regard to indentured servitude, (a) indentured servants were typically slaves. (b) this institutional arrangement benefited all parties entering the contract. (c) this institutional arrangement restricted the supply of labor for the colonies. (d) all of the above answers are correct. Answer:

(b)

Hughes/Cain • American Economic History, Eighth Edition

3. What was the typical policy of the British colonies toward the practice of “squatting” or freely settling and cultivating the land without any formal transfer of ownership? (a) Squatting was encouraged by colonial officials as a way to encourage settlement of the land. (b) Squatting was discouraged by colonial officials because of the legal ownership of land by the Indians. (c) Squatting was generally discouraged by colonial officials; formal transfer of ownership to settlers was required because the British Crown and their designated officials claimed ownership to the land. (d) There was no general policy toward the practice of “squatting”; it was left to the individual settlers. Answer:

(c)

4. Important sources of conflict in colonial America include conflicts between all of the following except (a) Slaves and masters (b) Native Americans and colonists (c) Puritans, Roman Catholics, and Protestants (d) Indentured servants and masters Answer:

(d)

5. With regard to the subject matter of American economic history, Hughes and Cain (2011) suggest that (a) the presence of the highest living standards known in world history supports the claim that American history is largely a “success story.” (b) the American economy is an economy with only successes but no failures. (c) U.S. history provides a fragmented record of problem-solving and problem-producing solutions to the challenges of economic development. (d) there is no link between today’s economy and the economy of yesteryear. Answer:

(a)

6. What do the foreign leaders investing in the industrial enclaves of developing countries of today have in common with those foreign investors who helped colonize North America? (a) Both sets of leaders exploit the labor of the indigenous people. (b) Both expect to make personal and business sacrifices, take on risks and gain something of high expected value. (c) Both are driven primarily by their desires to extract materials for high profits. (d) Both strive to boost agricultural profits in international markets in the developing countries in which they invest. Answer:

(b)

Chapter 1

Overseas Empire

7. Land ownership or land tenure in colonial America was primarily acquired by settlers through (a) purchase and the legal transfer of deeds from Native Americans. (b) the King granting property to favored individuals in feudal-like fashions. (c) “squatting” or freely settling and cultivating the land to gain private ownership over land. (d) purchase or otherwise legal transfer of deeds from colonial officials who received their rights to the land from the king of England. Answer:

(d)

8. All but which of the following people supplied labor in colonial America? (a) Members of the free population in England and other parts of Northern Europe. (b) Native Americans (c) Slaves (d) Indentured servants Answer:

(b)

9. In colonial America, the average wage laborer (a) received health care benefits, over-time pay and injury compensation. They also worked in safe and healthy environments. (b) achieved a standard of living significantly higher than those standards realized throughout the world. (c) possessed few labor rights, privileges and protections, while being denied the right to vote or organize. (d) had a higher standard of living than workers in Europe but lower health standards because of the rural, isolated conditions of colonial living. Answer:

(c)

10. Which of the following was the most successful attempt to establish a colony with the longest and most sustainable future, according to Hughes and Cain (2011)? (a) Jamestown (b) Plymouth Company (c) Massachusetts Bay (d) Maryland Answer:

(c)

11. Identify which of the following motivated European expansion in America. (a) International trade and finance opportunities (b) Precious metals such as gold and silver (c) The hope of finding a northwest passage to the Orient (d) All of the above Answer:

(e)

Hughes/Cain • American Economic History, Eighth Edition

12. The European subjugation or displacement of Native Americans from their lands (a) was justified largely on the grounds that “might makes right.” (b) was justified largely on the grounds of the “divine right of kings.” (c) derived from the Christian belief of a right of conquest over non-Christian people. (d) was none of the above. Answer:

(c)

13. Developments which marked the beginning of the modern period of Western Europe around the year 1500 did not include which of the following? (a) The rise of nation states and decline in power of the feudal nobility (b) The Protestant Reformation (c) Creation of national markets, commercial growth and exploration abroad (d) The rise of Islam to centralized power in North America Answer:

(d)

14. From Elizabeth I to George III, England strongly influenced the institutional structure of colonial America. This influence is realized today on which of the following fronts? (a) Private property rights (b) The role of international trade and finance in the U.S. economy (c) Population growth through immigration (d) All of the above Answer:

(d)

15. American economic history is important because it will help you understand (a) how to change strategically the course of the future since it was shaped by the past. (b) why some armies failed and others succeeded. (c) how to change the past. (d) how to produce the exact same type of successful growth and development in other countries. Answer:

(a)

16. American economic history actually is a study of (a) stable population growth. (b) how colonial Americans worked side-by-side with the natives to produce stable economic growth and wealth for all individuals. (c) how a small, inconsequential economy grew into a giant economy through a series of successes and failures. (d) how people in other countries created problems for colonial Americans of the past as well as U.S. citizens of today. Answer:

(c)

Chapter 1

Overseas Empire

17. A study of American economic history excludes a study of which of the following? (a) Historical demography (b) The love affairs and private relationships of U.S. presidents (c) Development of market rules and regulations (d) Development of government intervention in market affairs Answer:

(b)

18. Farming in the New England colonies tended to be (a) large scale. (b) worked by slaves. (c) small scale and worked by members of the family. (d) exported to England and its trading partners for high profits. Answer:

(c)

19. Compared to the natives of Northern America, ownership of private property rights was (a) more common to the Europeans than it was to the natives (b) more common to the Indians than to the Europeans. (c) the same. (d) of no value to either group. Answer:

(a)

20. Squatters were considered pioneers or land entrepreneurs by many of the people in (a) England and the New England colonies. (b) the New England colonies and Middle Colonies. (c) the Middle Colonies and Southern Colonies. (d) all of the above. Answer:

(c)

21. Land owners with secure and protected property rights are motivated to (a) use their land productively. (b) maintain their land and its value as long as the land is owned privately and profits are realized by the land owners. (c) not hold their land idle if they face property taxes due to costs imposed by the tax system. (d) link land ownership and personal freedom. Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition



Essay Questions

1. Economic historians maintain that land, labor, product and service exchanges are influenced largely by the laws of supply and demand and by the rational decision-making processes of individuals. They also maintain that exchanges in informal markets determined by customs, traditions and nation-states are not economically desirable. Why do they make these claims? 2. Explain how increases in agricultural surplus production frequently led to increases in consumption and savings in pre-colonial households. Hold all other economic, political and social factors constant. 3. Describe the American system of private property rights and how they evolved from their English origins. Discuss the relationship between the importance of this evolution and decisions to be productive in the long and short run. 4. Compare and contrast agricultural behavior among the mass population under the systems of feudalism and secured, enforced private property rights. Identify the differences in the incentives to be productive, invest, save and advance technologically. 5. In what ways did the colonial social structure and the attitudes of the colonists stimulate economic activity and growth? 6. The North American continent was well endowed with natural resources and England was relatively poor. Explain why both countries benefited from international trade with each other. 7. Explain the similarities and differences between the attitudes, goals and constraints of the English investors in colonial America and those held by U.S. investors today. 8. Compare and contrast the different ways in which colonists could acquire land for investment, production or distribution. Explain why solid land tenure systems were important to colonists interested in helping the colonies grow and develop. 9. Many individuals came to colonial America with farming skills and knowledge acquired in their home countries. Explain why these skills and knowledge were not perfectly transferable and discuss the importance of learning-by-doing. 10. Discuss the economic roles of colonial entrepôts. 11. In 1607 the London Company invested in the settlement of Jamestown. Why did the London Company make this investment? Why did settlers accept this investment? Who was the deficit spending group? The surplus spending group? Why was this relationship between the two groups economically important and mutually advantageous? 12. Explain why the settlers of Plymouth requested that they be granted the right to work for themselves and pay taxes based on the value of that work. Specifically, comment on why the communal system did not provide incentives for all individuals to be productive, for some individuals to shirk their communal responsibilities and others to renege on agreements to work.

Chapter 1

Overseas Empire

13. Discuss the role of immigration and the growth of the new economy in Boston, Massachusetts, early in U.S. history. Identify some of the short-term challenges when immigration and the rate of settlement slowed in Boston. Describe how these challenges were addressed strategically, resulting in the long-term growth of the market economy there. 14. Explain why transaction costs in a market economy are lower in an economy where individuals speak the same language, share common laws, respect many of the same customs and follow the same accounting practices than in an economy where individuals do not. Link these lower transaction costs to increased trade and economic growth. 15. Describe the property rights held by colonists in North America and link these rights to motives for using resources productively, advancing technologically and accumulating wealth.

Chapter 2 Colonial Development 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The middle Atlantic colonies were more popular than New England as destinations for immigrants before 1770 because of their more liberal religious attitudes and the availability of land. Answer:

True

2. The legal transfer of chattels supports economic growth. Answer:

True

3. Slaves were only used in Southern agriculture. Answer:

False

4. Unlike colonial America, there are no government restrictions on business activities and practices today. Answer:

False

5. At one time, people living in the U.S. were imprisoned or fined for not having legitimate work. Answer:

True

6. The majority of people living in colonial America in 1790 were of African origins. Answer:

False

7. Economic historians have located evidence to suggest that colonists barely lived at subsistence levels. Answer:

False

8. Robert Higgs and Louis Stettler (1970) find evidence to suggest that colonial couples married at a younger age than those in Europe, thus explaining the relatively high birth rates in colonial America. Answer:

False

Chapter 2

Colonial Development

9. Over time, population growth in the different regions of colonial America was consistent and even. Answer:

False

10. The majority of blacks were shipped from West Africa, but some also came from Madagascar and Zanzibar. Answer:

True

11. On the eve of the American Revolution, the majority of colonists were naturally born in the colonies rather than immigrants from elsewhere. Answer:

True

12. Regional specialization did not emerge in the colonies due to the small size of the cities and towns. Answer:

False

13. The direction of colonial trade produced great trade deficits with England, especially in the New England Colonies. Consequently, growth and development were stifled in colonial America. Answer:

False

14. New England possessed a comparative advantage in producing cotton. Producers in this region produced cotton at the lowest possible opportunity cost in colonial America. Answer:

False

15. Private profits provided colonial producers with incentive to direct the use of their regional resources in those fashions that produced the highest yield in world markets. Answer:



True

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The largest colony in 1770 in both population and claims on hinterlands was (a) Massachusetts (b) Pennsylvania (c) Virginia (d) New York Answer:

(c)

Hughes/Cain • American Economic History, Eighth Edition

2. Which one of the following economic activities was NOT generally undertaken in New England in the colonial period? (a) Fishing (b) Farming (c) Tobacco production (d) Shipbuilding Answer:

(c)

3. The colonial region with the smallest deficit with the United Kingdom between 1768–1772 was (a) New England (b) the Middle Colonies (c) the Southern Colonies (d) the New England and Middle Colonies Answer:

(c)

4. The colonies traded internationally with regions other than the United Kingdom. They included all except (a) Africa (b) China (c) West Indies (d) Southern Europe Answer:

(b)

5. Licensing and regulation of business activities by colonial governments (a) occurred only infrequently. (b) was a common practice in early colonial times but the British eventually replaced it with a policy of laissez faire before the American Revolution. (c) was very common throughout the colonial period just as it is today. (d) is basically inconsistent with American concepts of freedom of enterprise and so has never been common practice in either colonial or modern times. Answer:

(b)

6. Most towns were initially established at locations with (a) an excellent harbor and river stretching into the hinterland. (b) an excellent harbor and flat land so roads could be easily built into the hinterlands. (c) in mountainous areas which provided better protection against Indians. (d) extensive forests to provide fuel and lumber. Answer:

(a)

Chapter 2

Colonial Development

7. With regard to the rule of caveat emptor in colonial America, which of the following does not apply? (a) “Let the buyer beware.” (b) This rule largely replaced the earlier rule of markets, market overt, by late colonial times. (c) It could be applied anywhere without the protective regulations of colonial officials. (d) It was meant to cover fraud, and aggrieved buyers could always sue sellers in civil courts for damages. Answer:

(d)

8. The economy of the northern colonies, in particular New England, was largely based on (a) small-scale farming. (b) slave trade. (c) cotton production. (d) all of the above. Answer:

(a)

9. Land inheritance in the Southern Colonies differed from inheritance in the Middle and New England Colonies in that (a) the policy of primogeniture was followed in the South, which encouraged the formation of large land-holdings, whereas primogeniture was normally not followed outside the South. (b) primogeniture was actually followed throughout the colonies but the crops grown in the South, such as tobacco, required larger land-holdings to be profitable than those outside the South. (c) in the South, the large slave plantations had to be re-granted by the colonial government after the death of the owner, usually to the eldest son, but this was not required outside the South. (d) all of the above Answer:

(a)

10. During the colonial period, individual producers (a) were never required to produce specific goods or services. (b) were, at times, required by colonial officials to produce certain staples if they wanted to produce cash crops. For example, the early governors of Virginia directed tobacco producers to also plant wheat. (c) produced only what they were directed to produce by colonial officials as part of an overall plan of colonial development. (d) received orders directly from England to produce what was viewed as most valuable to England. Answer:

(b)

11. In the New England colonies, (a) long winters, short summers, heavily forested areas, and rocky terrain contributed to a lack of productive farmland; agriculture was a difficult, marginal activity. (b) the great majority of New Englanders engaged in some type of subsistence agricultural activity. (c) most New England farmers subsidized their farm income with some other type of income from another occupation to support themselves, save and invest. (d) all of the above are true. Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition

12. When land across the mountains became available in the early nineteenth century, (a) much of New England was simply abandoned by people primarily interested in farming. (b) live-stock raising, dairying and lumbering kept rural New England from being totally abandoned. (c) very few New England farmers elected to stay in New England. (d) Manufacturing quickly replaced New England farming. Answer:

(b)

13. The comparative advantage of the South was in (a) small farms producing for the local market. (b) plantation agriculture producing for export. (c) manufacturing. (d) shipbuilding and trades related to shipbuilding. Answer:

(b)

14. The largest percent of colonial trade (both exports and imports) was with (a) the United Kingdom. (b) Southern Europe. (c) Africa. (d) the West Indies. Answer:

(a)

15. Consistent with the mercantilist theory, the colonies had (a) a trade deficit with England. (b) a trade surplus with England. (c) a balance of trade with England. (d) about an equal number of annual trade deficits and surpluses over the years. Answer:

(a)

16. When the theory of mercantilism was superseded by the theory of “classical liberalism” of Adam Smith around the time of the American Revolution, (a) the colonies had shifted toward laissez faire, governmental noninvolvement in the private economy, but the new nation rejected the philosophy of laissez faire. (b) governmental involvement in the private economy persisted in both the colonies and the new nation; the U.S. Constitution adopted the common law from England which sanctioned certain types of governmental involvement. (c) governmental involvement had already been largely abandoned in the colonies and laissez faire was officially adopted by the new nation. (d) government involvement was strong down to the time of the Revolution; it was then abandoned and laissez faire was enshrined in the Constitution and became part of the law of the land. Answer:

(b)

Chapter 2

Colonial Development

17. In England, a system of established markets, the market overt and fairs, had been established. The purpose was to (a) provide an organized means for the exchange of produced goods or movable property such as livestock. (b) allow government officials to inspect the quality of the goods and regulate business activities. (c) provide for the legal transfer of title when chattel goods changed hands between buyers and sellers. (d) apply all of the above. Answer: (d) 18. The English system of market overt and fairs (a) were initially transferred to American shores where goods and services could be bought and sold legally without an official witness (b) flourished in the late colonial economy because of their foundation of protective regulations. (c) replaced the rule of caveat emptor in colonial America because they covered fraud. (d) firmly planted themselves in colonial America and continue to guide market transactions today. Answer:

(a)

19. The “police power” of government to control business (a) was exercised during the colonial period but lapsed when the Constitution was written. (b) was exercised during the colonial period and carried over to the new nation; it still exists today. (c) was not widely exercised during the colonial period but assumed greater importance in the new nation. (d) was important in England but was never important in the Americas, either before or after the Revolution. Answer:

(b)

20. The rule of caveat emptor (a) is the supreme rule throughout our economy today. (b) still exists, but only outside of the extensive framework of government regulations of business. (c) is essentially the only rule with regard to buying and selling in our economy that is consistent with the concepts of freedom and liberty enshrined in our Constitution. (d) is of little importance in our economy today. Answer:

(b)

21. Placing restrictions on business opportunities through government licensing and other controls (a) is not allowed now and never has been in American history. (b) is not allowed now but was provided for by the Constitution and allowed until the 20th century. (c) is allowed now but was not allowed during the colonial period nor in the decades immediately following the establishment of the new nation. (d) has always been allowed in American history. Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition

22. According to Hughes and Cain (2011), all of the following have been primary motives throughout American history for government regulation except (a) the existence of monopoly power (b) quality control of products and services (c) funding of government activities through taxation (d) raising wages and improving working conditions Answer:

(a)

23. In colonial America, work (a) was required, at least for the lower classes, even for whites not bound in servitude. (b) was required of all classes, wealthy or poor, slaves or free. (c) was the decision of the individual, like it is today, except for slaves and indentured servants. (d) was thought to be for the “colored” races, with white folks exploiting their labor. Answer:

(a)

24. Which of the following statements is NOT true during the colonial years, according to Hughes and Cain (2011)? (a) Labor organizations were considered, by law, criminal conspiracies against society. (b) Colonial society provided for its aged and sick poor; others had to work. (c) Efforts to control wages and prices by governmental authority were present. (d) Compulsory labor applied only to slaves and indentured servants. (e) Idle persons were frequently jailed for the crime of having no visible means of support. Answer:

(d)

25. Scholars know the national origins of Americans at the end of the colonial period because (a) the study of surnames provides the necessary information. (b) people had to declare their country of origin when entering the colonies. (c) tax laws required this information. (d) an annual census provided this information. Answer:

(a)

26. According to the 1790 census, the majority of whites had links to (a) the British Isles, thus explaining why British institutions were selected to guide development and growth in the colonies. (b) Germany, thus explaining why German institutions were selected to guide development and growth in the colonies. (c) Spain, thus explaining why Spanish institutions were selected to guide development and growth in the colonies. (d) Madagascar and Zanzibar, thus explaining why institutions from Madagascar and Zanzibar were selected to guide development and growth in the colonies. Answer:

(a)

Chapter 2

Colonial Development

27. To understand how the colonial economy developed, Hughes and Cain (2011) claim one must understand (a) what motivated colonists to settle in different locations. (b) what colonists produced, how much they produced, for whom they produced and with whom they traded. (c) the legal system in which they operated. (d) all of the above. Answer:



(d)

Essay Questions

1. Using the 1790 census data, determine how many colonists were available to mobilize resources and produce goods and services. Identify the immigrant origin of the majority of the people living in colonial America. Why can this information help provide insight into explaining why colonists chose English institutions to guide growth and development after colonists won independence? 2. Using the concept of opportunity cost, explain why colonists who settled in New England chose to produce fish, farm, and lumber and provide maritime services over producing tobacco. 3. Explain why agriculture, lumber and fur-trapping tended to be produced by the same people living in the same region. Would you expect New England farmers also to be fishermen? Why or why not? 4. Using the data on the origins of the colonists, explain why many colonists favored modifying and utilizing many British institutions to structure various activities in Early America. 5. Using your knowledge of primary production in colonial America, explain why primary production is important to developing countries today. 6. Describe some of the economic obstacles to colonial development. What role did the British play in helping colonial America overcome these obstacles? 7. Explain the economic preference for slaves in the colonial South. 8. Explain why Eli Whitney’s cotton gin, a technological advancement, perpetuated slavery in the South. 9. Explain how each colonial region made up for any trade deficit in its balance of payments with other countries. 10. Identify the economic benefits of placing towns in areas located by breaks-in-transport during the colonial period.

Chapter 3 America on the Eve of Revolution 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Growth in real output per person occurred, on average, in colonial America. This growth translated into a great improvement in the quality of life for all citizens. Answer:

False

2. The value of output produced in colonial America equals the value of income generated by the productive resources (land, natural resources, labor, capital and entrepreneurial talent) used to produce that output. Answer:

True

3. Animal skins, livestock, tobacco, teeth and rocks have historically served as a medium of exchange, unit of account, store of value and method of deferred payment. Answer:

True

4. During the colonial period, the English permitted both silver and gold to move freely in and out of the colonies. Answer:

False

5. By restricting the amount of precious metals going into the colonies, the British significantly hindered economic growth in colonial America. Answer:

False

6. Paper money helped colonists pay soldiers for services provided when specie was not available. This money was fiat money; it did not possess specie backing. Answer:

True

Chapter 3

America on the Eve of Revolution

7. Couples marrying at younger ages in colonial America than in Europe contributed to the relatively higher birth rates. Answer:

False

8. By the end of the colonial period, the Middle Colonies’ population gained over New England but the Southern population continued to dominate. Answer:

True

9. Colonialists tried to attract precious metals and coins by raising or attempting to raise the colonial price of the foreign money. This is called devaluation. Answer:

True

10. Modern research suggests that colonial Americans experienced positive rates of economic growth but not a high quality of life. Answer:

False

11. Americans fell behind Europeans on the technology front. Answer:

False

12. The money value of all trading activity (Q) at market prices (P) is called Gross Domestic Product for a given year. Answer:

True

13. According to the quantity theory of money, a shortage of money should result in deflation (falling prices) or negative growth (decreasing quantities of output). Answer:

True

14. The value of the output produced in an economy reflects the value of the income generated by the factors of production used to produce that output. Answer:

True

15. Of the 1790 colonist population, over 80 percent was of European origin while about 20 percent was of African origin. Answer:

True

Hughes/Cain • American Economic History, Eighth Edition



Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. By the end of the colonial period in U.S. history, slaves in the colonies (a) owned land communally. (b) had status in courts. (c) helped meet a labor need. (d) were born in Europe and shipped to the colonies. Answer:

(c)

2. The majority of Americans at the end of the colonial period were of (a) French origin. (b) British origin. (c) German origin. (d) Dutch origin. Answer:

(b)

3. By 1774, the Southern colonies’ (a) share of total colonial wealth was the lowest. (b) wealth per capita was the highest. (c) land contributed very little to total wealth. (d) depended heavily on immigrant labor. Answer:

(b)

4. During the colonial period, (a) both men and women married on average during their teenage years. (b) women married on average during their teenage years and men during their early 20s. (c) both men and women married on average at ages between 20 and 25. (d) both men and women married on average during their late 20s. Answer:

(c)

5. Which of the following was the single largest component of wealth in colonial America? (a) Land (b) Stocks (c) Bonds (d) Capital Answer:

(a)

Chapter 3

America on the Eve of Revolution

6. Population grew prodigiously during the colonial period. What was/were the most important factor(s) fueling this increase? (a) Immigration (b) Relatively low mortality and high birth rates (c) Relatively high mortality combined with high birth rates (d) Immigration and high birth rates Answer:

(b)

7. To what can we attribute the relatively high population growth in colonial America, compared with growth in England? (a) The relatively advanced medicine in the colonies (b) Better climate, food and water (c) Better hygiene and preventive care (d) All of the above Answer:

(b)

8. Regarding the regional distribution of population, (a) New England as a whole continued to increase in its population base faster than the Middle Colonies throughout the colonial period. (b) Virginia had the smallest population of any colony at the time of the Revolution. (c) at the end of the colonial period, nearly half the total colonial population resided in the five Southern colonies. (d) the distribution remained firmly concentrated in what is now called the thirteen original colonies. Answer:

(c)

9. According to Hughes and Cain (2011), American economic history is the story of economic growth. Economic growth (a) necessarily means an improvement in the quality of life for all individuals. (b) does not necessarily measure an improvement in the quality of life; it merely indicates the potential for improvement. (c) as conventionally measured considers an employed person living in the pollution and congestion of modern Tokyo to be “worse off” than a sun-tanned artist watching another glorious sunset on the beach in Tahiti. (d) is measured by the increases in total output of goods and services less any environmental destruction that occurs in the process of production. Answer:

(b)

10. What is the total money value of all goods and services evaluated at market prices called? (a) Gross Domestic Product (GDP) (b) Labor productivity (c) Wealth (d) Capita Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

11. The distribution of income and wealth in colonial America was (a) relatively equal to that of modern America. (b) relatively unequal to that of modern America. (c) unequal in roughly the same degree as that in modern America. (d) unequal, but the data are not good enough to allow a comparison with modern America. Answer:

(c)

12. Factors of production include (a) a person’s physical work or labor, which can be used to provide agricultural, maritime or manufacturing services. (b) capital, such as a piece of farm equipment, a building or an industrial machine, which can be used to produce a final good or service. (c) land, minerals and other natural resources, which are extracted to manufacture capital or used to produce food and surplus crops for trade. (d) all of the above. Answer:

(d)

13. With regard to incomes at the time of the Revolution, (a) colonial incomes before taxation were high, but because of heavy taxation, after-tax incomes were lower than those of the British. (b) there is no data available that provide any information on the subject. (c) both before-tax and after-tax colonial incomes were lower than those in England. (d) incomes in the colonies were higher than in England, especially after-tax incomes, because of relatively light taxation of the colonists. Answer:

(d)

14. According to the theory of money, what is the most compelling evidence to use against those researchers or historians who believe that England was responsible for creating a shortage of money in colonial America? (a) Colonial growth in commerce and trade proceeded. (b) The colonists paid moderate rates of interest. (c) Investment in colonial America occurred. (d) Prices increased, rather than decreasing. Answer:

(d)

15. Economic historians do not believe there was a shortage of money in colonial America for which of the following reasons? (a) Interest rates were not unreasonably high. (b) Long-term prices were rising. (c) The colonial economy was growing in real terms. (d) All of the above. Answer:

(d)

Chapter 3

America on the Eve of Revolution

16. The shortage of precious metals or coins provided colonists with incentives to find alternatives. These alternatives included everything listed below except (a) Teeth (b) Country money (c) Fiat money (d) Bills of credit Answer:

(a)

17. What impact did colonial inflation have on the colonial economy? (a) An overall increase in private consumption spending in colonial America (b) A decrease in interest rates in colonial America (c) A decrease in colonial exports and a rise in colonial imports (d) An increase in the exchange rates between colonial money and specie Answer:

(c)

18. When the English pound appreciated against a colonial currency, this signaled (a) that colonists needed more colonial currency to buy an English pound. (b) that colonists needed less colonial currency to buy an English pound. (c) that colonists needed more colonial and Spanish currency to buy an English pound. (d) nothing of economic importance. Answer:

(a)

19. The perceived specie shortage led colonists to invent: (a) Country money (b) Paper money (c) Inflationary dollars (d) Conservative money Answer:

(b)

20. There is statistical evidence to suggest that under English rule, colonists experienced (a) financial chaos. (b) economic harm in terms of commerce, trade and investment. (c) growth and prosperity. (d) all of the above. Answer:

(c)

Hughes/Cain • American Economic History, Eighth Edition



Essay Questions

1. In colonial days, the British liked to think of their relationship to the American settlements as that of a mother country sending manufactured goods to its colonies in exchange for raw materials. Explain how this relationship benefited both parties. How was it linked to regional economic specialization, trade and wealth accumulation in Great Britain and the colonies? 2. Explain how each colonial region made up for any trade deficit in its balance of payments with other countries. 3. Identify the sources of natural population growth and explain how they supported colonial economic growth. 4. Define white servitude and compare it to slavery. Explain how both supported economic growth in early America. 5. Define Gross Domestic Product (GDP). Identify what it does and does not include. Explain the relationship between increases in GDP and improvements in the overall standard of living. 6. What is inflation? Was it a problem during colonial times? When does inflation negatively impact income and wealth? When does it ease problems of debtors against creditors? When does it encourage imports into a country and discourage exports out of the same country? 7. Using the economic way of thinking, explain why colonists believed a shortage of money could negatively impact their economy. Use the quantity theory of money (MV = PQ) to explain why a shortage of colonial money could either lead to negative economic growth (decrease in Q) or deflation (a decrease in P). Assume velocity (V) is stable or constant. According to the research of economic historians, did colonial America experience positive or negative growth? Did colonists experience inflation or deflation in the years leading up to the American Revolution? Does this evidence support the claim that there was a shortage of money in colonial America? 8. Throughout world history, precious metals have served as money. Describe the four functions of money and identify other items that can serve as money. In colonial America, what did colonists use as money other than English silver and gold coins? How did this form of money impact the colonial supply of money given the mercantilist policies of England? 9. How does stable money affect investment, commerce and economic growth? How does it encourage operation on the comparative advantage and what does operation on the comparative advantage mean to trade? 10. Discuss how the shortage of gold and silver coin in the colonies encouraged innovation in money. How does the innovation impact us today?

Chapter 4 Gaining Independence 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The American colonies’ estimated cost of membership in the British Empire was, according to most economic historians, fairly large. Answer:

False

2. Under British rule, colonists were considered British subjects and had most of the same rights of British citizens. Answer:

True

3. Shortly after the American Revolution, governmental involvement in market affairs was largely abandoned in the Confederate States and economic growth resulted. Answer:

False

4. During the period in which the Navigation Acts guided colonial trade, international trade was safe and many countries fairly engaged in commercial trade. Answer:

False

5. Southern plantation owners benefited from British policies on tobacco production in the United Kingdom. Answer:

True

6. The Navigation Acts (1651 and later amendments) were intended to promote shipping and international commerce. Answer:

True

7. Under English law, the rights of colonists differed from those of the English. Answer:

False

Hughes/Cain • American Economic History, Eighth Edition

8. King James of England granted the Virginia Company all land “from sea to sea.” The Proclamation Line of 1763 supported this grant. Answer:

False

9. Many colonists believed that export surpluses with England positively impacted colonial businesses through increased prices and profits. Answer:

True

10. Davis and Huttenback (1982) find evidence to support the claim that the colonists were overtaxed by England. Answer:

False

11. Under the list policies of England, primary production was encouraged while production in manufacturing was discouraged in colonial America. Answer:

True

12. Inflation burdens those individuals living on fixed incomes. Answer:

True

13. On the eve of the American Revolution, most colonials produced agricultural goods. The war boosted profits for many farmers. Answer:

True

14. English mercantilism recognized the law of comparative advantage, thus permitting individuals to specialize in producing those goods and services which they could produce at relatively low opportunity costs and trading those items for those which they could not. Answer:

False

15. Tobacco could not be grown in England. It could only be produced in the colonial South. Answer:



True

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Which of the following revenue-raising options did the “colonial” government select to secure the resources needed to revolt? (a) Printing money and borrowing from other countries (b) Printing money and confiscating property (c) Taxing and borrowing from other countries (d) Taxing and reducing non-military government spending Answer:

(b)

Chapter 4

Gaining Independence

2. Some researchers argue that the American Revolution was probably inevitable. The most important factor, of those listed below, was/were (a) prohibitions against trade with nations other than England and severe exploitation of the colonists under the Navigation Acts, which kept the standard of living low in the colonies. (b) excessive taxation which for generations kept the after-tax incomes of the colonists below those in England. (c) a series of revenue-raising measures imposed on the colonists at the end of the French and Indian War for the purpose of making the colonies more self-supporting. (d) British prohibitions against the use of slaves in the lands west of the original thirteen colonies. Answer:

(c)

3. Hughes and Cain (2011) suggest that an event or series of events occurring in 1763 doomed British policy. What happened? (a) A series of oppressive taxes (b) A tightening and more rigorous enforcement of the Navigation Acts (c) A proclamation which limited trans-Appalachian settlement to lands once granted to colonists by crown approval (d) An act that gave the Quebec province all the land west of the Ohio River Answer:

(c)

4. With regard to colonial land settlement and the land beyond the Appalachians, (a) secure land titles had to come from established authority; land typically could not be claimed simply by “squatting” on it. (b) throughout most of the colonial period, authority over the land beyond the Appalachians was not easy to establish because both the English and the French laid claim to most of the Mississippi watershed. (c) the original grants of land to colonial settlers from the crown had been “from sea to sea.” (d) all of the above are true. Answer:

(d)

5. After the American Revolution concluded, what did the English do? (a) They withdrew all investments in colonial America. (b) They continued investing in colonial America. (c) They discouraged individuals in other countries from investing in colonial America. (d) They did none of the above. Answer:

(b)

Hughes/Cain • American Economic History, Eighth Edition

6. What did the Proclamation of 1763 and the Quebec Act of 1774 represent? (a) A continuation of earlier British land policies, but these were no longer workable or acceptable to the colonists (b) A temporary change in British land policies, but the change was not workable or acceptable to the colonists (c) A permanent change of earlier British land policies that was not acceptable to the colonists, who wanted a continuation of the old policies (d) The Proclamation was more of a temporary change, but the Quebec Act represented a permanent change of earlier policy, neither of which was acceptable to the colonists Answer:

(d)

7. With regard to British trade and commercial policies, all of the following are true except (a) British trade and commercial policies had been somewhat beneficial, from the colonials’ point of view, but now (the 1770s) they had become intolerable. (b) These policies, unlike land, did not take away American rights so much as they attempted to tax the exercise of them. (c) After 1763 the English believed they were free to change their policies drastically to better accomplish the policy goals. (d) By the 1770s, like land, these policies had become insupportable after a long period of relative success. Answer:

(a)

8. The Navigation Acts (1651 and later amendments) (a) defined the British Empire within Europe and restricted shipping and trade between it and the external world. (b) had a major purpose of enlarging and protecting the King of England’s income derived from trade through shipping and trade. (c) advanced free trade across the British Empire. (d) held true for all of the above. Answer:

(b)

9. With regard to the Navigation Acts (1651 and later amendments), all of the following answers are true except (a) No commodities originating from the Empire were to be shipped in any but British (including colonial) ships. (b) No commodities imported into the Empire were to be carried in any but British ships. (c) Only British subjects were allowed to be merchants in the colonies, and only British ships were to carry commodities from one English port to another. (d) There is no “except”; all of the above answers are true. Answer:

(d)

Chapter 4

Gaining Independence

10. The Navigation Acts (1651 and later amendments) were part of the contemporary European commercial policy theory called (a) laissez-faire. (b) mercantilism. (c) commercialism. (d) classical liberalism. Answer:

(b)

11. Unlike the revolutionary colonials, England had (a) an organized army and navy. (b) an abundance of resources. (c) the means to finance the war. (d) all of the above. Answer:

(d)

12. The Articles of Confederation (1777–1781) did all of the following except (a) Tax the colonists to finance the central government (b) Provide a formal means by which the colonists communicated and interacted (c) Granted significant power to the colonial states (d) Required negotiations for funding the War between the leaders of the American Revolution and each colonial state Answer:

(a)

13. Colonists supporting the American Revolution (1775–1781) (a) were well-prepared and well-organized. (b) comprised at least two-thirds of the total colonial population. (c) faced lower transportation and communication costs than the British during the war. (d) were able to tax the colonists to finance the war. Answer:

(c)

14. Who does inflation benefit? (a) All businesses (b) The government (c) Individuals living on fixed incomes (d) Debtors Answer:

(b)

Hughes/Cain • American Economic History, Eighth Edition

15. Producers of goods and services suffered during the American War in which of the following sectors? (a) Fishing, whaling, and shipping (b) Exports and imports (c) Manufacturing and agriculture (d) All of the above Answer:

(d)

16. The type of commercial policy followed by England under the navigation laws (a) was followed throughout the 17th and 18th centuries but not by any governments today. (b) was followed throughout the 17th and 18th centuries and is still pursued, in one way or another, by all governments in the world today. (c) was followed throughout the 17th, 18th, and 19th centuries but not by most governments today. (d) was followed throughout the 17th and 18th centuries and by European governments today, but not by the United States since the founding of the nation. Answer:

(b)

17. The emphasis upon export surpluses in mercantilist theory (a) is also called the “beggar-thy-neighbor policy” and a “favorable” balance of trade. (b) was thought to be a good thing by business people because it meant that more money was circulating and more money meant higher prices and brisk trade. (c) was thought to be a good thing by governments because it created brisk trade which yielded higher tax revenues than did slack trade. (d) is characterized by all of the above. Answer:

(d)

18. One reason the colonials complained about the Navigation Acts was (a) the “shortage” of money; they believed the trade deficits of the colonies were bleeding them of coins. (b) the “surplus” of money that was causing inflation; they believed the trade deficits were flooding the colonies with coins. (c) the Acts’ not allowing foreign coins, which created a “shortage” of foreign coins relative to British coins. (d) the Acts’ requirement that only paper money would circulate in the colonies, without the backing of gold. Answer:

(a)

19. With regards to money in the colonies, (a) the colonies did not produce enough of their own precious metals to coin money. (b) the British did not allow the export of their own coins to the colonies but did not object to foreign coins flowing into the colonies. (c) the British did not allow paper money created by the colonies to be declared legal tender, but this policy did not prohibit the colonists’ use of it. (d) all of the above apply. Answer:

(d)

Chapter 4

Gaining Independence

20. In answer to the question “How did Britain affect American economic growth?” Hughes and Cain (2011) reach what conclusion? (a) The colonies were launched with English institutions, and they were allowed to modify them to meet local needs. In exchange for their investment in the colonies, the British expected the American colonies to produce and grow rapidly. (b) British policies were adverse to the colonies because they interfered with efforts to recruit a labor force and maintain employment at something close to full employment. (c) British policies prevented the colonies from going through an Industrial Revolution, as was occurring in England. (d) British policies significantly held down income growth in the colonies because they aimed at increasing the proportion of “primary” output at the expense of commercial and manufacturing output. Answer:

(a)

21. The evidence indicates that during the 1770s, the American colonists were (a) among the most heavily taxed people in the European world. (b) among the most lightly taxed people in the European world. (c) taxed at a rate that was similar to other people in the European world. (d) taxed at rates that can’t be compared to other rates due to lack of data. Answer:

(b)

22. The First Continental Congress met in September and October of 1774 and listed several complaints against the British government, including (a) an objection not to the Navigation Acts but to the taxation without consent. (b) the argument that they were entitled to all the rights of British citizenship. (c) the demand that virtually all of the laws passed by Britain on the colonies since 1763 be repealed. (d) all of the above. Answer:



(d)

Essay Questions

1. Explain how the notions of mercantilism and the classic colonial relationship of mother country providing manufactured goods to colonies for raw materials influenced British actions and laws in the areas of finance and trade with respect to the colonies. How did this cause problems for the colonies? 2. Describe the costs and benefits of the British Empire to American economic growth and development. 3. In what ways did the British social structure and its attitudes help stimulate economic activity and growth in the colonies? 4. Describe the origins of regional class conflicts in the colonies. To what extent were these conflicts eliminated by the Revolution? To what extent did the Revolution create new class conflicts?

Hughes/Cain • American Economic History, Eighth Edition

5. Comment on the following statement: “The events leading to revolution centered around a basic conflict between English mercantile policy on the one hand and the Northern colonial merchants’ need for expansion on the other.” How does one account for the substantial Southern support for the Revolution? 6. Was it in the colonists’ best economic interest to remain British in the short run? In the long run? 7. Summarize the Navigation Acts. Weigh the colonial benefits against the costs of operating under them. 8. What is full employment? Explain why unemployment is costly. Use examples from colonial times to explain why the English and colonists benefited mutually from colonial full employment. 9. Discuss the colonial benefits of the “Industrial Revolution” in England. Explain why the colonists did not necessarily have to incur the same “start up” costs and thus moved quickly into their own industrial phase of production. 10. Describe the economic rationale behind the taxes imposed on the colonists after the British incurred a long and costly war protecting the colonials from the French. 11. Discuss the role of the Navigation Acts in the list of complaints the colonists registered against the British through the First Continental Congress. 12. How could the colonists finance the War of Independence against the British? How did they? 13. Discuss the effects of the American Revolution on average prices, agricultural production and manufacturing. 14. Discuss the role of export and import trade on the eve of the American Revolution.

PART 2 THE NATIONAL PERIOD AND CONSTITUTIONAL CRISIS, 1783–1861

Chapter 5 Westward Expansion 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Federal land policy of the United States was much less generous toward squatters than some of the colonial government’s land policies before Independence. Answer:

True

2. The object of the Northwest Ordinances of 1785 and 1787 was to preserve the public domain from private exploitation. Answer:

False

3. Provision was made for squatters’ rights in the 1785 Northwest Ordinance. Answer:

False

4. Thomas Jefferson supported the Land Ordinances of 1785 and 1787. Answer:

True

5. The U.S. Constitution established the orderly sale of the western lands. Answer:

False

6. The sale of western land after 1790 was steady and strong. Answer:

False

7. Land sale booms were caused by large waves of immigration. Answer:

False

8. People have incentive to efficiently and effectively use land in the public domain or held by a communal group. Answer:

False

Hughes/Cain • American Economic History, Eighth Edition

9. The sale of western lands failed in its purpose because of corruption. Answer:

False

10. The Articles of Confederation and Perpetual Union (1781) failed because they made governmental controls too restrictive and federal taxes too high. Answer:

False

11. Fifty-five delegates from seven states convened at the first Constitutional Convention (1787) to determine whether the central government of the new, independent country should modify its rules and regulations to permit more or less state sovereignty. Answer:

True

12. The Articles of Confederation and Perpetual Union (1781) adequately addressed the free-rider problems by setting up a tax system that required all states to share the costs of providing national defense, protecting private property rights, regulating commerce with other countries and across states and upholding a system of laws. Answer:

False

13. Charles Beard (1935) argued that the economic self-interest of businessmen, merchants, manufacturers, bankers and investors led them to convene at the Constitutional Convention in the late 1770s. They believed that creating a new, or at least modified, system of laws would help them advance the projects in which they were interested at minimal cost. Answer:

True

14. Thomas Jefferson strongly influenced the passing of the Land Ordinances of 1785 and 1787. A close study of those ordinances suggests that Jefferson believed in the importance of securing the private rights of individuals to buy, sell and derive income from their land. Answer:



True

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Which of the following groups was Jefferson most trying to help in setting up the Land Ordinances? (a) His friends, the land speculators (b) The urban proletariat (c) The small farmers (d) Fellow slave owners Answer:

(c)

Chapter 5

Westward Expansion

2. The Township survey system set up by the Northwest Ordinance of 1785 established (a) a 50 square-mile township based on colonial New York. (b) an 84 square-mile township base on colonial Virginia. (c) a 36 square-mile township based on colonial Vermont. (d) an 18 square-mile township based on colonial Rhode Island. Answer:

(c)

3. The American Revolution and Constitution represented the transition to “modern liberalism,” or (a) a strong emphasis on the role of government in providing for the welfare of the people and the regulation of business activities. (b) an emphasis on free enterprise and competitive individualism and a limited role for government. (c) an emphasis on public virtue and commitment to the welfare of the community or nation as a whole, and a de-emphasis on self-interest and profit-seeking behavior. (d) an emphasis on laissez-faire and the absence of government laws. Answer:

(b)

4. The disposal and settlement of the public lands, according to Hughes and Cain (2011), (a) went pretty much, in practice, as Jefferson had envisioned. (b) had both intended and unintended consequences. (c) occurred in an orderly and efficient manner for the most part. (d) was adequately funded and well-organized in execution. Answer:

(b)

5. The Constitution helped establish a secure and well-defined system of property rights and rights of persons because it did which of the following? (a) It established that people could be deprived of property without due process of law. (b) It loosely defined which contracts would be enforced. (c) It permitted bankruptcy without just cause and required government stamp of approval. (d) It let market forces, not government, set prices on the sale of land among private citizens. Answer:

(d)

6. The American Revolution resulted in (a) a loss of British military assistance, governmental expertise, judicial assistance and public funding for wars. (b) greatly expanded rights for wage workers and indentured servants. (c) significant change with respect to market behaviors, ownership of property and individual freedom. (d) a dramatic change in laws and the ownership of property. Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

7. Regarding the issue of slavery, the Constitution (a) denounced it as being inconsistent with the rights of man and called for its eventual elimination, though it did not specify clearly how or when this was to be done. (b) gave slavery legitimacy and support. (c) made no mention of slavery, with the hope, apparently, that the individual states would deal with it if they saw it as a problem. (d) required that the slave trade be immediately banned with all slavery to be abandoned in twenty years. Answer:

(b)

8. From an economics standpoint, the Articles of Confederation did not provide for (a) levying taxes to support a central government. (b) regulating interstate commerce. (c) enforcing laws, because no federal judiciary was authorized. (d) any of the provisions mentioned above. Answer:

(d)

9. The Land Ordinances of 1785 and 1787 accomplished which of the following? (a) Established the foundation for future American capitalism by permitting land to pass into private hands (b) Allowed the practice of primogeniture or inheritance by the oldest son (c) Permitted land to be treated primarily as a “collective good” (d) Provided for a lateral expansion of American socialism Answer:

(a)

10. The Constitution created an environment conducive to economic growth and development because the federal government could constitutionally do all of the following except (a) Levy uniform taxes (b) Coin money and regulate its value (c) Regulate commerce, thus prohibiting states from erecting barriers to the interstate movement of goods (d) Set “fair” prices on the private sale of goods in the marketplace Answer:

(d)

11. Speculation in the sale of public lands (a) did not occur. (b) placed land in the hands of capitalists at a price that was not competitive. (c) proved to be a necessary evil in transferring land from public to private ownership. (d) was caused by squatters. Answer:

(c)

Chapter 5

Westward Expansion

12. Western expansion put whites on a collision course with the indigenous people of North America. The major policy of the U.S. government was to (a) basically ignore them as a separate group and allow them to be naturally assimilated into American life over time. (b) confine them to reservations where they could practice their tribal customs, they could be completely separate from white society with no interference in their affairs, and they could continue to develop and grow their customs and norms based on traditional ways. (c) enslave them as a source of labor for the plantation system. (d) “civilize” them by replacing tribal social structures and values with those more appropriate to white society, such as individual ownership of property, competitive striving for material gain, farming activities for Native American men and housekeeping for Native American women and the replacement of native languages with English among children. Answer:

(d)

13. According to historian Charles Beard’s analysis and interpretation, the Constitution was (a) divinely inspired. (b) strongly favored by the vast majority of the colonists. (c) influenced by the economic self-interest of the delegates to the Constitutional Convention. (d) of little importance to future economic growth. Answer:

(c)

14. What does an empirical analysis of the key votes at the Constitutional Convention suggest? (a) Merchants, manufacturers, capitalists, creditors, and public and private security holders supported a national system of government. (b) Delegates from larger and coastal states, as well as bankers and other private debt holders, were most likely to support the new Constitution. (c) Slaveholders were likely to stand in opposition to the Constitution, while farmers and debtors were either opposed or indifferent. (d) All of the above are correct. Answer:

(d)

15. The Constitution contains a provision that states that no laws shall be passed “impairing the obligation of contracts.” This provision (a) meant that the English common law was legislated for the new republic. (b) was an innovation by the authors of the Constitution and not found in British law. (c) was only a minor aspect of developing the new idea of government by law and not by men. (d) was a controversial provision and opposed by many delegates. Answer:

(a)

16. With regard to the Constitution and its interpretation, (a) the powers reserved for the states included the police powers—local rules, laws and ordinances, including licensing, inspection and the regulation of local business activities. (b) the “common law of England” was in effect, claimed as the right of all Americans and still enforced by England. (c) England was consulted in cases of ambiguity over interpretation of the common law policy. (d) none of the above are true. Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

17. After the American Revolution, the public domain expanded and the amount of community property held by the federal government grew considerably. If it had stayed community property, there would have been problems, according to Hughes and Cain (2011). These problems include which of the following? (a) Individuals using it would not have incentive to conserve it or use it wisely. (b) The problem of “free riders” would have been troublesome and resulted in a “free-for-all,” which could have ended in violence. (c) Each person faced incentive to overuse the communal rights of others. (d) All of the above. Answer:

(d)

18. The Land Ordinances of 1785 and 1787 established property rights in land that provided for all of the following except (a) Perpetual ownership, if desired (b) Direct inheritance (c) Complete freedom to sell as desired (d) Required inheritance through the principle of primogeniture Answer:

(d)

19. What was the official policy of the British colonies toward the practice of “squatting,” or freely settling and cultivating the land? (a) Squatting was encouraged as a way to promote settlement of the land. (b) Colonial officials discouraged squatting because the indigenous populations legally owned land. (c) There was no policy toward the practice of “squatting”; it was left to the individual settlers. (d) The official policy opposed squatting because it did not involve a formal transfer of ownership. Answer:

(d)

20. The Founding Fathers (or Founders) of the United States were (a) pragmatic reformers, eager to assault slavery whenever political realities permitted. (b) skittish abolitionists, cautiously promoting antislavery under particular circumstances. (c) anti-abolitionists, permitting slaves to be freed only when they would reap a great advantage from emancipation. (d) not concerned with slavery, because for centuries humankind failed to recognize it as a problem. Answer:

(b)

21. Many of the Founding Fathers considered the emancipation of slaves to be (a) a necessary evil in overcoming the British during the war. (b) less important than the issues of whether blacks should be prevented from coming to the United States and whether freed slaves should be deported. (c) paramount in establishing the new nation on a solid ideological foundation. (d) a states’ rights issue. Answer:

(b)

Chapter 5

Westward Expansion

22. Western expansion contributed to U.S. growth and development of the economy by (a) privately mobilizing idle natural resources and land. (b) placing land in the hands of the public, with no private rights. (c) having government officials set land prices. (d) all of the above. Answer:

(a)

23. Under the U.S. Constitution, individual states (a) have no power. (b) control laws regulating state businesses. (c) benefit from the ability to borrow from other countries to finance taxes due to the central government. (d) regulate trade with foreign countries conducted in and by the state. Answer:

(b)

24. The Federal Constitution, like the laws under English rule, permitted the U.S. government to (a) impose taxes to pay for government services and national defense. (b) regulate commerce with other countries. (c) create money and regulate its value. (d) do all of the above. Answer:

(d)

25. Before 1815, Hughes and Cain (2011) claim, westward movement was blocked by (a) disputed claims to western lands. (b) lack of government land sale surveys and offices. (c) hostile Indian tribes. (d) all of the above. Answer:



(d)

Essay Questions

1. Compare and contrast the Articles of Confederation and the U.S. Constitution. Identify what they have in common and how they differ politically and economically. How did the Articles of Confederation hinder economic growth and development in the states? How did the Constitution correct the economic and political problems created by the Articles of Confederation? How did the Constitution establish a legal and economic environment within which a strong national economy could develop? 2. List the colonists’ complaints, economic and political, against British governmental rule prior to the American Revolution. Explain why the drafters of the U.S. Constitution created a new U.S. government that allowed the central government to rule and regulate in fashions strongly opposed during the American Revolution. Explain the change in views.

Hughes/Cain • American Economic History, Eighth Edition

3. Hughes and Cain (2011) suggest that once we understand what was unleashed in 1763, it is clear that British policy was doomed and that, for economic reasons, the American Revolution was inevitable. Discuss this contention, including a discussion of British land policy, trade policy, money policy, tax policy and other policies that may have helped make revolution inevitable. 4. One of the most important factors in U.S. economic development was the orderly and secured acquisition and private ownership of land. Describe how land was acquired and secured during the period of westward expansion in U.S. history. 5. Describe the Land Ordinances of 1785 and 1787 and the Homestead Act of 1862. How did each encourage productive behaviors among landowners? How did each support economic growth and development? 6. “With respect to everything other than the terms of sale, the effects of the Land Ordinance of 1785 were permanent and helped to shape the United States as we know it today.” Discuss. 7. “It was one of the paradoxes of U.S. economic development that the very expansion of the frontier and the occupation of new land was perhaps a retarding factor in economic growth during the early period. Capital and labor were drawn off to regions not easily accessible and were not immediately translated into increased output and productivity.” Reconcile this apparent paradox. 8. Explain the upswings in land sales in 1818, 1836, 1854–1855. 9. What is a business cycle? Explain the forces behind the cyclical pattern of land sales during westward expansion in the U.S. Explain how U.S. land tenure made land a productive commodity capable of contributing to economic growth. 10. Hughes and Cain (2011) state that the Land Ordinances of 1785 and 1787 were an achievement probably as great as the Constitution itself. Explain why. Was the disposal of the public lands an efficient and just process? Discuss. 11. Compare Hughes’ view of the causes of land sales booms with that of Douglass North’s. 12. Using the Historical Statistics displayed in Table 5.1, discuss whether there is evidence to support the hypothesis that regional population trends were constant and stable between 1790 and 1860. 13. Discuss the relationship between land sales and improved transportation.

Chapter 6 Population and Labor Force 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The “Walker thesis,” that falling birth rates among native-born Americans was due to immigration, is reinforced by the view that immigrants were a direct capital transfer from Europe to America. Answer:

True

2. In the case of Commonwealth v. Hunt (1842), the Massachusetts Court held that labor unions are not necessarily illegal. They may stop work and boycott products without committing unlawful acts. Answer:

True

3. In the eighteenth century, the rise of manufacturing in New England helped the region attract more settlers than the other regions of the English colonies. Answer:

True

4. The U.S. had a low fertility rate in the early nineteenth century. Answer:

False

5. Population growth in the early nineteenth century was slow due to the lack of immigration. Answer:

False

6. Income and wealth were equally or evenly distributed by 1860 in the United States. Answer:

False

7. There is no possible economic relationship between the birth rate and the availability of arable land. Answer:

False

8. Children can be viewed as retirement insurance and thus provide individuals with incentive to create large families. Answer:

True

Hughes/Cain • American Economic History, Eighth Edition

9. The two main sources of U.S. population increase between Independence and the Civil War were natural increases in population and immigration. Answer:

True

10. Immigration significantly contributed to economic growth in the U.S. throughout the entire period between Independence and the Civil War. Answer:

False

11. Immigrants were valued as a vital source of labor and, consequently, they were greeted with open arms after the 1830s. Answer:

False

12. At the start of the Civil War, the population in the U.S. was about half that of the United Kingdom. Answer:

False

13. In order to explain the relative sizes of families in urban versus rural environments, some economists viewed children as investment or durable consumptions goods, respectively. Answer:

True

14. Rural families were larger in size, on average, than urban families during the antebellum period. Some argue that the relatively high rate of return on a child born on a farm partly explains why. Children born on farms could be considered investments goods—“goods” used to produce something else. Answer:

True

15. By the start of the Civil War, the value of woman’s labor was, on average, equal to that of an adult male due to technological advancements. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The “middle-class” ideal that developed in the early 19th century included which of the following elements? (a) Women were socially and legally equal to men and were encouraged to choose between working and staying in the home (avoiding wage-labor in the factories). (b) Men were to be the income earners providing for the family’s material needs while women were to play a greater role regarding the family’s spiritual needs. (c) Apprenticeships, rather than public schools, would better serve the need of preparing children for middle-class careers. (d) Poverty among the lower classes was due not to their moral failure but rather low wages, uncertain employment, and lack of economic opportunity. Answer:

(b)

Chapter 6

Population and Labor Force

2. What were the two main sources of population increases during the antebellum period? (a) a significant increase in the number of indentured servants and slaves (b) immigration and a natural increase in population (c) government policies providing incentive to procreate and advanced pre-natal care (d) longer life expectancies and high infant mortality rates Answer:

(b)

3. In 1820, when the nation began its westward movement in earnest, the median American was (a) less than 17 years old. (b) about 20 years old. (c) about the same age as the median American today. (d) older than the median American today. Answer:

(a)

4. Which of the following was a key factor which pushed the nation close to civil war? (a) The Missouri Compromise of 1820 (b) Dred Scott v. Sanford Supreme Court Case (c) The Tariff of Abominations of 1828 (d) The Supreme Court practice of “judicial instrumentalism,” which the South believed undermined the Constitution Answer:

(b)

5. By the 1830s, young women and children (a) were a very important portion of the industrial work force, about 40%. (b) were a minor portion of the industrial work force, about 10%. (c) were a moderate portion of the industrial work force, about 25%. (d) were not a part of the “industrial” work force because legislation forbade it in order to protect young women and children. Answer:

(a)

6. All of the following trends and characteristics of American population growth occurred from Independence to the Civil War except (a) The size of the average family was increasing. (b) Populations living in urban places increased. (c) There was extensive settlement in rural areas. (d) Growth was very rapid. Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

7. Why did high fertility of the early population occur, according to Hughes and Cain (2011)? (a) More than half of the population were at ages where fertility is high—in 1820, for example, the median American was less than 17 years old. (b) A nation composed mainly of farmers and people planning to farm had every reason to create large families. (c) Children can be considered investment goods and the rate of return on a child born to a farm family was relatively high. (d) High fertility occurred due to all of the above reasons. Answer:

(d)

8. If children can be considered durable goods, then this would help explain (a) high birth rates among farm families. (b) small family size among farm families. (c) lower birth rates in towns than in the countryside. (d) lower birth rates in the countryside than in towns. Answer:

(c)

9. The practice of parents giving their children an amount of land similar to what they received from their parents is known as a (a) targeted bequest. (b) strategic bequest. (c) life cycle bequest. (d) investment bequest. Answer:

(a)

10. Between Independence and the Civil War, American population growth was (a) steady and constant. (b) rapid but wildly unstable. (c) positive and rapid. (d) heavily concentrated in the settlement in Western lands. Answer:

(c)

11. Which of the following is true for the period from Independence to 1860? (a) The system of indentured servitude died out because it was seen to be immoral and inconsistent with the Constitution. (b) The system of slavery flourished because the relative price of slaves fell consistently. (c) The system of wage labor flourished as immigrant labor poured into the newly opened western lands. (d) European immigrants typically shunned agricultural labor as their ticket to the good life. Answer:

(b)

Chapter 6

Population and Labor Force

12. By 1860, the U.S. (a) had achieved an equal distribution of income and wealth. (b) had experienced growth in both agriculture and manufacturing, but growth in manufacturing had begun to outpace agriculture. (c) land had become the primary income-earning asset. (d) experienced a slowdown in urbanization and rapid expansion in agriculture at the expense of manufacturing. Answer:

(d)

13. Naturally born members of the U.S. population resisted immigration in the antebellum period for all of the following reasons except (a) Immigrants were prisoners and outcasts from other countries. (b) Immigrants could gain political power and possess political influence. (c) Immigrants displaced U.S. born laborers. (d) Immigrants brought their own religions and spiritual beliefs. Answer:

(a)

14. Brinley Thomas (1954) argues that immigrants were attracted to the United States between 1815 and 1914 for all of the following reasons except (a) Harvest failures in the home countries of the immigrants (b) Organized labor opportunities, health benefits, safe working conditions and healthy work environments in the U.S. (c) European population increases, contributing to problems associated with more mouths to feed in a stagnant European economy (d) Increasing job opportunities in an expanding U.S. economy Answer:

(b)

15. On the farm, which of the following people had the highest labor value? (a) A woman (b) A man (c) A child (d) A grandparent Answer:

(b)

16. The downturn in the immigration cycle beginning in the 1850s is attributable to which group? (a) Children (b) Grandparents (c) Women (d) Men Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition

17. Which of the following best describes white servitude? (a) It applied to hired labor. (b) It was more costly than slavery. (c) It bound vagrants and orphans into productive employment. (d) It was pervasive on tobacco, indigo and cotton plantations. Answer:

(d)

18. Which of the following best describes chattel slavery? (a) It provided protected property rights to the slaves. (b) It offered property rights to the slave owners. (c) It involved the establishment of a voluntary contract between slave and slave owner. (d) It created wealth for the slave and slave owner. Answer:

(b)

19. Which statement is correct? (a) Slaves were owned by the majority of Southern whites. (b) The old Southern states held the majority of slaves even as the new cotton South expanded. (c) The increase in slave ownership was most dramatic in the relatively new cotton plantations. (d) Slavery vanished in the Middle colonies but not the North by the start of the Civil War. Answer:

(c)

20. The Dred Scott v. Sanford decision of the U.S. Supreme Court in 1857 (a) made all persons born in the U.S. citizens. (b) provided U.S. citizenry to the children of U.S. born slaves. (c) permitted slaves to sue others in courts. (d) prevented slaves from being taken away from their owners without due process. Answer:



(d)

Essay Questions

1. Describe the main sources of population growth from 1789 to 1860. Identify the factors that contributed to the increase in the relative size of immigration and domestic population. 2. Discuss the different theories that explain why American fertility was relatively high in rural compared to urban areas. 3. Identify the push and pull forces leading to mass U.S. immigration after 1840. 4. Discuss the economic history of immigration in the U.S. during the antebellum period. 5. Discuss the economic benefits of immigration. In light of these benefits, explain the resistance to immigration in the late nineteenth century. Consider political and religious influences in addition to economic factors.

Chapter 6

Population and Labor Force

6. Explain why the opportunity costs of pursuing an agricultural life for new U.S. immigrants were high in the late 1840s. 7. Describe the family economy of the Northeast. Identify the economic roles of men, women and children. Compare these roles to men, women and children of the plantation South. 8. Describe the important labor activities before 1860. Discuss the importance of the outcome of the Massachusetts case Commonwealth v. Hunt (1842) in labor history. 9. Describe the economic importance of educating the labor force. 10. Americans wanted growth. Explain at what expense growth came during the antebellum period. 11. Describe the links between enhanced labor productivity and personal hygiene, sanitation, public health and proper nutrition. Link enhanced labor productivity to economic growth. 12. Discuss the role of the U.S. Supreme Court Case Dred Scott v. Sanford (1857) in fueling the Civil War. Compare the rights of the slave owners to the slaves from a property right perspective.

Chapter 7 Law and the Rise of Classical American Capitalism 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The Charles River Bridge v. Warren Bridge (1837) decision established that a state could incorporate competing franchises, effectively overturning the old idea that a corporate charter implied a grant of monopoly. Answer:

True

2. Traditionally, laws of incorporation have been predominantly privileges of the states. Answer:

True

3. Both Horwitz (1973) and Scheiber (1975) emphasize the restraining effects of judicial formalism on U.S. economic growth in the antebellum period. Answer:

False

4. The right to grant charters to incorporated firms is reserved to the federal government, according to the Constitution. Answer:

False

5. Incorporated firms first began appearing in the 1850s. Answer:

False

6. During the antebellum period, rapid economic growth was accompanied by significant changes in public economics and policy-making. Answer:

True

Chapter 7

Law and the Rise of Classical American Capitalism

7. The American Revolution changed the basic structure of private property rights inherited during the colonial period. Answer:

False

8. The fee simple form of land ownership in the United States was of English origin. Answer:

True

9. The power of the U.S. government to seize private property or exercise the right of eminent domain was an English innovation. Answer:

False

10. The equal wealth and income distribution in the U.S. during its antebellum period can be clearly linked to its system of private property rights over land and minerals. Answer:

False

11. The American Revolution was waged against the colonial governments that had emerged and had been supported by the English. Answer:

False

12. The rights of state and local government to regulate, license and control businesses were taken away after the American Revolution. Answer:

False

13. Local, state and federal government control and influence over businesses through taxes, subsidies, licensing and inspections are a firm part of U.S. history. Answer:

True

14. As an economy grows and develops, the police powers of the government with respect to controlling, regulating and inspecting businesses and their output become increasingly more costly to uphold and protect. Answer:

True

15. Prior to the Civil War (1861–1865) American capitalism was free from government influence and controls. The government only served as the protector of private property rights and the provider of national defense. Answer:

False

Hughes/Cain • American Economic History, Eighth Edition



Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. During the colonial period, regulation of business activities was the right of government and its duty—extensive regulation was done, such as licensing, inspection, price fixing, etc. Which statement best describes regulation in the decades after 1789? (a) Regulation continued at about the same level as during the colonial period. (b) As commerce and manufacturing became more complex, the old police-power controls by detailed inspection became increasingly difficult to maintain and many controls were abolished by the states. (c) Because the economy was becoming more complicated, the task of regulation shifted to the federal government. (d) Regulation was abandoned because it was inconsistent with property rights guaranteed by the Constitution. Answer:

(b)

2. Court rulings in the 19th century (a) tended to favor business and profit-making activities. (b) tended to protect traditional amenity rights of property, such as the right to clean air, clean water, scenery and quiet enjoyment of property. (c) tended to favor small business activities over big business corporate activities. (d) tended to promote worker safety and ensure that employers were fully liable for worker injuries, should they occur. Answer:

(a)

3. The appearance of “classical American capitalism” in the middle and late 19th century includes all of the following except (a) An industrial labor force concentrated in manufacturing centers (b) The commercialization of agriculture and extractive industries (c) The rise of big-time finance and giant transportation systems (d) The strengthening of small scale family farm enterprises and hand-crafted production activities Answer:

(d)

4. With regard to the American Revolution, research suggests that (a) it was not waged against the law but against a particular alien authority. (b) all contracts, respecting property, remained basically unchanged. (c) the basic ideas established in the colonial era remained untouched by the Revolution, apart from the abolition of primogeniture and perpetual entailment. (d) all of the above are true. Answer:

(d)

Chapter 7

Law and the Rise of Classical American Capitalism

5. The basic nature of the real property tenure that was transferred here from England included all of the following characteristics of ownership except (a) Ownership by purchase was perpetual as long as taxes due were met. (b) Land could descend to heirs either by will or inheritance. (c) Ownership included surface resources but not subsurface resources or mineral rights, like iron ore, whose ownership was retained by the state. (d) The right to exploit owned resources (right of waste) was complete. Answer:

(c)

6. The form of property ownership rights inherited from the colonial period was characterized by which of the following? (a) Property ownership was almost ideal as the base for a free-market economy. (b) Property ownership established property, including land, as a “commodity” that could be easily bought and sold. (c) Property ownership proved to be an excellent vehicle for economic growth. (d) All of the above. Answer:

(d)

7. Which of the following is false? (a) Constitutions are the basic framework of law. (b) The day-to-day interpretation and application of constitutions are matters for legislatures and the courts. (c) The U.S. is a “common-law” (judge-made law) country, even though we operate by positive statute law and written constitution. (d) The “police power” of government to control business activity was reduced significantly by the U.S. Constitution compared to what it had been during the colonial period. Answer:

(d)

8. The change from prescriptive rights to priority rights meant all of the following except (a) Entrepreneurial costs of economic development, such as river and lake pollution, had to be paid by those who were responsible for the costs. (b) The courts encouraged entrepreneurial activity by judicial interpretation. (c) Amenity rights to scenery, clear air and quiet enjoyment could be reduced. (d) Judges placed social weights upon property rights that favored some more than others. Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

9. The nature of contracts changed in the 19th century through judicial instrumentalism and had what effect? (a) Facilitating free-market determinations of wages and prices. (b) Allowing factory owners to contract with masses of employees for wages, hours and working conditions if the terms were made known and the laborers agreed to them. (c) Advancing the rule of caveat emptor in markets because if a seller unknowingly sold defective goods, the buyer’s opportunity to inspect the goods before purchase would ensure the seller’s innocence of overt deception. (d) All of the above were effects of the changes to the nature of contracts. Answer:

(d)

10. The nature of employer liability changed in the 19th century through judicial instrumentalism and had what effect? (a) Reducing the risks and the costs of business, making business enterprise more daring and profitable than it would have been otherwise. (b) Increasing the risks and the costs of business, making business enterprise more daring and profitable than it would otherwise have been. (c) Continuing the older doctrine that employers could be found guilty of contributory negligence, thus increasing the employer’s liability for worker injury. (d) None of the above were effects of the changes to the nature of employer liability. Answer:

(a)

11. Which of the following accurately describes condemnation by right of eminent domain? (a) It involves the redistribution of property first owned by the government to private businesses. (b) It was never exercised for such private purposes as acquiring land for canal or railroad construction during the antebellum period. (c) The benefits can be diverse and the costs can be concentrated. (d) It was never exercised by the federal government before the 1870s. Answer:

(c)

12. Regarding the privilege of incorporation (the right to organize an enterprise in the corporate form), all of the following are true except (a) It gives a business firm limited liability, perpetual life and the rights of a citizen. (b) It is not provided for directly by the Constitution because, apart from state governments, the Constitution made no provisions for groups. (c) It is provided for at all levels of government—federal, state and local. (d) There is no “except”; all of the above are true. Answer:

(d)

Chapter 7

Law and the Rise of Classical American Capitalism

13. In which case did the U.S. Supreme Court’s review powers extend to actions by the other two branches of the federal government and not merely to the laws of the states? (a) Marbury v. Madison (1803) (b) McCulloch v. Maryland (1819) (c) Gibbons v. Ogden (1824) (d) Dartmouth College v. Woodward (1819) Answer:

(a)

14. Which of the following cases was most important for ensuring the United States an internal common market? (a) Charles River Bridge v. Warren Bridge (1837) (b) McCulloch v. Maryland (1819) (c) Gibbons v. Ogden (1824) (d) Dartmouth College v. Woodward (1819) Answer:

(c)

15. Which of the following cases was most important in arguing that the “public good” was best served by competition? (a) Marbury v. Madison (1803) (b) McCulloch v. Maryland (1819) (c) Gibbons v. Ogden (1824) (d) Charles River Bridge v. Warren Bridge (1837) Answer:

(d)

16. Chief Justice John Marshall had a strong conviction that (a) slavery would only work in the South. (b) a country needs a central government with enough power to place in check state and local interests when the development and growth of the country is concerned. (c) strong state banking systems would help the nation’s commerce. (d) the Constitution should be interpreted literally. Answer:

(b)

17. The American Revolution and Constitution resulted in (a) a dramatic change in laws and the ownership of property. (b) greatly expanded rights for wage workers and indentured servants. (c) the elimination of a land-owning aristocracy. (d) very little major change with respect to laws and ownership of property, though there was a strengthening of property rights. Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition

18. Which of the following is false? (a) The right of government to maintain settled and peaceable conditions, by force if necessary, is called police power. (b) The Constitution is the basic framework of law; the day-to-day interpretation and application of it is a matter for legislatures and the courts. (c) The property rights established in the colonial era were weakened somewhat by the U.S. Constitution. (d) The freedom of courts to interpret the law or legislation is called judicial instrumentalism. Answer:

(c)

19. The police powers of the government include (a) price fixing. (b) licensing. (c) inspection. (d) all of the above. Answer:

(d)

20. Government regulation in the form of subsidies, tariffs, licensing, and inspections does which of the following? (a) Creates rents for businesses (b) Offers profits to some businesses at the expense of others (c) Encourages the inefficient use of productive resources (d) All of the above Answer:

(d)

21. Which of the following statements holds true for eminent domain? (a) The costs are diverse and the benefits concentrated to those special groups who secured it. (b) It supports rent-seeking where some individuals gain and others lose. (c) The owner of the property secured through eminent domain has no legal recourse. (d) It is well-defined and has been applied throughout U.S. history with consistency and accuracy to support economic growth and development. Answer:

(b)

22. Unlike the person or persons who formally form a sole proprietorship or partnership, a corporation has (a) a perpetual life. (b) unlimited liability for the debts accumulated by the firm. (c) the right to vote. (d) concentrated ownership. Answer:

(a)

Chapter 7

Law and the Rise of Classical American Capitalism

23. Which type of business organization is the most important part of U.S. history given its “super” economic powers? (a) Sole proprietorship (b) Partnership (c) “Mom and pop” business, which is a mix of sole proprietorships and partnerships (d) Corporation Answer:

(d)

24. Which of the following statement(s) is true? (a) All state legislatures acted to create corporations. (b) The federal government created the federal incorporated entities when it established the First (1791–1811) and Second (1816–1836) Banks of the United States. (c) All federal, state and local governments possessed the right to create corporations. (d) All of the above are true. Answer:

(b)

25. To secure a charter, the deciding bodies required which of the following from the business enterprises? (a) A statement of business purpose and location (b) A business plan (c) A description of capital and labor requirements and expectations (d) All of the above Answer:

(d)

26. During the antebellum period, the federal government assumed (a) responsibility for full employment. (b) responsibility for stable prices. (c) responsibility for the overall economy through control of the money supply. (d) little responsibility for most economic matters, leaving them to private individuals in businesses and households. Answer:



(d)

Essay Questions

1. Describe the rise of American capitalism between the American Revolution and 1860. Explain how American capitalism contributed to the growth and development of the U.S. economy. 2. In the 19th century, American capitalism appeared in its classic form: giant firms, industrial labor force, complete commercialization of agriculture and extractive industries, big banking and finance and giant transportation systems. The property laws handed down from colonial times were apparently the perfect vehicle for economic growth. Nevertheless, Hughes and Cain (2011) argue that there were several legal developments in the 19th century which further aided or facilitated entrepreneurial activity and the rise of industrial capitalism; in fact, they argue, these developments were essential to the rise of industrial capitalism. Describe the developments they cite.

Hughes/Cain • American Economic History, Eighth Edition

3. How has the American legal system generally favored economic progress over equity? Use examples of slavery, priority rights, incorporation, contract law and/or eminent domain to illustrate. Contrast this with feudal traditions that hindered economic growth. 4. There are many examples of attempts to establish an ideal society, such as the establishment of the Georgia colony and Jefferson’s idealized view of American land settlement. Explain how economic factors contributed to the failure of these attempts. 5. What is the economic significance of the police power and government regulation? How did state and local governments in the U.S. differ from similar colonial governments under British rule? In what ways did federal, state and local governments change in the years from Independence (1789) to the beginning of the Civil War (1860)? 6. What is judicial instrumentalism, and how did it contribute to the development of the U.S. economy? 7. Describe two doctrines that “relieved employers of liability from the dangers of the workplace and job.” Explain how, combined, these doctrines reduced business risks and encouraged daring, productive behavior on the parts of employers. 8. What is a corporation? Why is it an important entity in a growing and developing economy? Describe the rise of corporate America between 1789 and 1860. 9. Hughes and Cain (2011) note that constitutional problems of national scope soon arose that required solutions by the U.S. Supreme Court. Discuss the policy and rulings of the Supreme Court. Which rulings were intended to help the new nation remain a coherent political and economic entity capable of growing and developing with changes in circumstances? 10. Compare a corporation to both a sole proprietorship and partnership. Explain the role of the corporation in the development of and growth in the U.S. economy. 11. What is rent-seeking? Who does it impact? Describe the benefits and costs associated with it. 12. Describe how a federal, state or local requirement of an equal distribution of wealth would negatively impact the private incentive to invent, innovate and be productive.

Chapter 8 Transportation, Internal Improvements, and Urbanization 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The early U.S. canals and railroads were built by private enterprise without the aid of governments. Answer:

False

2. According to Fishlow’s (1972) work, the U.S. railroads before the Civil War were typically built “ahead of demand” by private capital. Answer:

False

3. Most canals were economic failures. Answer:

True

4. The percentage of the population that lived in urban areas rose from approximately 5% in 1790 to 40% in 1860. Answer:

False

5. Railroad competition was the primary cause of canal failures. Answer:

False

6. Productivity, or output per labor hour, rises as transportation costs fall. Answer:

True

7. During the antebellum period, factories grew, in part, due to internal economies of scale. Answer:

True

8. The Gallatin Plan (1808) was not passed because some individuals questioned its constitutionality. Answer:

True

9. Roads during the 1800s proved to be a preferred transportation alternative to railroads and thus competed successfully for profits. Answer:

False

Hughes/Cain • American Economic History, Eighth Edition

10. Internal improvements are important to a developing and growing economy. Answer:

True

11. As the transportation system developed in the U.S., urbanization occurred. Answer:

True

12. Commercialization, market growth and factories emerged in rural areas. Answer:

False

13. The benefits of urbanization include: crime, pollution, increased taxation and congestion. Answer:

False

14. Railroads attracted funds from foreign investors. Answer:

True

15. Contrary to many researchers’ views, Hurst (1969) claims the government needed private investors to fund internal improvements. Answer:



True

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Which transportation industry did government invest most heavily in before 1860? (a) Turnpikes (b) Canals (c) River steamboats (d) Railroads Answer:

(d)

2. Which of the following is not a valid criticism of Fogel’s (1964) methodology in his study of railroads? (a) The canal prices used for 1890 were low. (b) The impact of railroads on financial markets is ignored. (c) The nonpecuniary gains from using railroads could have been considered. (d) The amount of land cultivated would have been reduced. Answer:

(d)

Chapter 8

Transportation, Internal Improvements, and Urbanization

3. Which of the following statements is supported by the research of economic historians? (a) Canals and railroads were built with a mixture of private and public enterprise and financing. (b) Canals and railroads were built largely without U.S. government participation. (c) Canals were built with public assistance, but railroads were built with almost no government assistance. (d) Railroads were built with public assistance, but canals were built by private enterprise. Answer:

(a)

4. Private initiative and financing were most important in (a) the canal system of transportation. (b) the steamboat system. (c) the railroad system. (d) none of the transportation systems. Answer:

(b)

5. Railroads had advantages over canals in all respects except (a) year-around service. (b) speed of delivery. (c) full access to shipping points. (d) there is no “except”; all of the above were advantages of railroads. Answer:

(d)

6. During the great canal-building era, from roughly 1815 to 1843, Hughes and Cain (2011) claim that (a) most canals earned normal profits. (b) no canals earned profits. (c) all canals in the initial period of construction earned normal profits but none did in the later period because of over-construction and competition from the railroads. (d) the Erie Canal was one of the few, perhaps the only one, to earn normal profits. Answer:

(d)

7. The Gallatin Plan (1808) to provide internal land and water transport in the eastern part of the country was a plan that (a) called for the federal government to finance and build the transport system. (b) called for the eastern states to join together to finance and build the system. (c) called for private financing and building with some federal government assistance in coordinating and planning the transport system. (d) relied primarily on city and county governments to provide the bulk of the financing and building of the transport system. Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

8. The Gallatin Plan (1808) (a) was a plan by the U.S. Senate for a comprehensive system of internal land and water transport in the eastern part of the country to be built by the federal government. (b) was promoted on the basis that only the federal government could command sufficient resources to build a transportation system. (c) was partially implemented but not completed by the federal government because of concerns about the constitutionality of such federal action. (d) was characterized by all of the above. Answer:

(d)

9. The turnpikes built in the early 1800s were (a) intercity toll roads. (b) highly profitable enterprises. (c) financed entirely by private enterprise. (d) regulated by the federal government. Answer:

(a)

10. Historians are in general agreement that (a) railroads opened the country and were built at great risk ahead of demand, gambling on the future. (b) railroads sharply cut down transportation costs, linking the country together in all directions and spurring the nation’s growth far in advance of anything that might otherwise have been achieved. (c) railroads were the single innovation of the 19th century that created a great leap forward in terms of American economic growth. (d) none of the above are true. Answer:

(d)

11. Which statement best describes the railroad? (a) It is a good example of “technology transfer” (from England to the U.S.)—the first operating railroad was in England. (b) It is an American home product—the first operating railroad was in the U.S. (c) It was invented in England but first put into operation in the U.S. (d) It was invented in the U.S. but first put into operation in England. Answer:

(a)

12. Government participation in railroad construction was highest in (a) New England. (b) the South. (c) the Midwest. (d) the Great Lakes Region. Answer:

(b)

Chapter 8

Transportation, Internal Improvements, and Urbanization

13. Robert Fogel (1964) demonstrates that (a) the social saving of the railroad was large; much of the country (over 25%) could not have been settled and cultivated without the railroad. (b) the canal and river systems of transportation could very nearly have produced the same results as the railroad in terms of land cultivated. (c) the railroad was responsible for a great “take-off” in terms of economic growth in the 19th century. (d) the railroad gave a huge boost to the iron industry because for a time it consumed well over 50% of all iron produced. Answer:

(b)

14. “External economies” derive from all of the following except (a) the joint use of transportation facilities. (b) labor force concentrations in urban areas. (c) social overhead facilities such as police and fire protection. (d) economies of management associated with large firms. Answer:

(d)

15. The growth of cities was due to the existence of important scale economies, which include all of the following except (a) Central water and sewer systems (b) Education systems (c) Crime, congestion and pollution (d) Police and fire protection Answer:

(c)

16. Why do historians argue that there was a mixture of enterprise, partly private and partly governmental, in building our transportation system? (a) Private individuals took the initiative and were able to extract special privileges and financial assistance from government for the purpose of enhancing their profits. (b) Political leaders, who wanted transportation improvement for reasons of local or national ambition, took the initiative and coaxed private enterprise into building the transportation system by the offer of special financial advantages. (c) The sheer size of the investment required for a transportation system was beyond the capability of private enterprise alone. (d) All of the above ideas have been used by historians to explain the mixture of enterprise in building our transportation system. Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition

17. “Internal economies” derive from all of the following except (a) Division of labor (b) Production of standardized products (c) The use of mass production techniques (d) There is no “except”; all of the above apply Answer:

(d)

18. Historians generally agree that the railroads (a) were absolutely essential for industrial growth in the 19th century. (b) were an indispensable “leading sector.” (c) were our first “giant” enterprises. (d) provided a “social saving” of 90% or more. Answer:

(c)

19. The efficiency of steamboats was commonly measured by (a) the carrying capacity of the steamboat fleet in terms of tonnage. (b) per unit labor costs per vessel. (c) the tonnage per vessel transported upstream. (d) the actual tonnage transported up and downstream each day. Answer:

(a)

20. Which of the following contributed to the increase in steamboat productivity? (a) Improvements in ship design (b) Better docking stations (c) Increased competition by railroads (d) All of the above Answer:

(d)

21. Funding for canals came from which of the following sources? (a) Private investments and tolls (b) Taxes (c) Borrowing on government credit (d) All of the above Answer:

(d)

22. Business cycles can be described best as (a) being pervasive during the antebellum period but their effects were isolated to the private sector. (b) being pervasive during the antebellum period but their effects were isolated to the public sector. (c) being pervasive during the antebellum period and their effects were felt both in the private and public sectors. (d) uncommon during the antebellum period but their effects were felt significantly when present. Answer:

(c)

Chapter 8



Transportation, Internal Improvements, and Urbanization

Essay Questions

1. Discuss the changes in the distribution system (how goods get from the locus of production to the locus of consumption) of the antebellum American economy. 2. What advantages did the railroad have over the other means of transportation during the pre-Civil War era? Why has modern scholarship deflated the importance of the railroads’ role in U.S. history? 3. In general, when were transportation and communications costs significant barriers to developing an integrated internal market system in the U.S.? Why did these costs vary between North and South? Between East and West? What broke down these barriers? 4. Interpret the economic importance of Figures 8-1 and 8-2. Identify the advantages and disadvantages of the canal and railroad systems of transportation. Discuss the economic debate over the railroad system’s contribution to economic growth. 5. Why were immigrants attracted to urban areas? 6. Why did the U.S. transportation systems and urban areas attract many human and material resources away from agriculture? 7. Explain why productivity may rise when railroads, turnpikes, canals and roads help decrease transportation costs. Discuss the roles of specialization and operating on the basis of comparative advantage in a world of low transportation and transactions costs. 8. How was the development of the canal and railroad systems in the U.S. funded? Discuss the economic pros and cons of these funding resources. 9. Discuss the roles that improvements and investments in the different kinds of transport, specifically turnpikes, canals, riverboats, ocean transport and railroads, played in the growth of the American West’s economy. Cite the work of noted economic historians. 10. Analyze the role that improvements and investment in transportation played in the rise of interregional trade in the U.S., especially with respect to the West. Discuss specific changes in water and overland transportation methods. 11. What is a business cycle? Discuss whether business cycle swings and turning points had any link to developments in (i) canals and (ii) railroads. 12. Identify and describe the traits of U.S. urbanization during the antebellum period. 13. Compare and contrast external and internal economies. Explain the links of both to urbanization. 14. Discuss the positive and negative externalities of urbanization.

Chapter 9 Agricultural Expansion: The Conflict of Two Systems on the Land 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The proportion of Southern farms relying on slaves rose between 1840 and 1860. Plus, the scale economies of slavery aggravated the chronic shortage of good Southern farmland. Answer:

False

2. The evidence shows that the domestic and world markets for American cotton contributed to the spread of slavery into new lands. Answer:

True

3. The slave gang system increased labor productivity by encouraging members of a slave gang system to specialize in performing assigned tasks and working in rhythm. Answer:

True

4. The steel plow and horse-drawn reaper increased labor productivity on all farms, small and large. Answer:

True

5. Operation on the basis of comparative advantage led to the regional specialization of the use of slaves in the North. Answer:

False

6. During the antebellum period, two systems of land use emerged—the self-sufficient system of the North, which did not rely on specialization, and the specialized system of the South, which concentrated the use of slaves. Answer:

True

7. Between 1810 and 1850, the U.S. population living in the trans-Appalachian states increased significantly. Answer:

True

Chapter 9

Agricultural Expansion: The Conflict of Two Systems on the Land

8. Rising agricultural prices and opportunities to own land provided people with incentives to migrate to the trans-Appalachian states. Answer:

True

9. By 1860, over one-half of all Southern farms utilized slave labor. Answer:

False

10. According to Fogel and Engerman (1974), Northern farmers extensively utilized hired labor. Answer:

False

11. In 1860 government revenues exceeded the earnings of cotton exports by fourfold. Answer:

False

12. Until 1860, the domestic and international demand for cotton provided motive to expand slavery. Answer:

True

13. When transportation costs fall, consumer prices have a tendency to rise. Answer:

False

14. During the antebellum period, the majority of the family labor on farms was devoted to investment type of activities—clearing land, constructing fences and buildings, and feeding and breeding livestock. Answer:

False

15. The Kansas-Nebraska Act of 1854 did not allow popular sovereignty over the issue of slavery. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The region that was using mechanized harvesting equipment before the Civil War was (a) the Northeast. (b) the South. (c) the West. (d) the Far West. Answer:

(b)

Hughes/Cain • American Economic History, Eighth Edition

2. By 1860, (a) less than one-third of Southern farmers owned slaves. (b) most of the workers on Northern farmers were hired laborers. (c) immigrants supplied a significant amount of labor to Northern and Southern farmers. (d) all of the above. Answer:

(d)

3. The economics of slavery suggests that (a) slave labor produced efficiencies in Southern agriculture. (b) slave owners possessed economic incentives to beat and exploit their slaves. (c) Southern agriculture was less profitable than northern farming. (d) Southern agriculture was just and moral. Answer:

(a)

4. The statistical details on the U.S. balance of international payments between 1790 and 1860 help economic historians determine (a) what the U.S. sold domestically. (b) how other countries paid for their own domestic goods and services. (c) how the U.S. paid other countries for their exports. (d) changes in domestic trade patterns. Answer:

(c)

5. In 1860, earnings from cotton exports (a) were minimal. (b) accounted for a small percentage of Gross Domestic Product. (c) exceeded the total revenue of the U.S. government by four-fold. (d) were what attracted the majority of agriculturalists into cotton production. Answer:

(c)

6. Slaves were (a) unprofitable substitutes for wage labor on plantations. (b) profitable complements to capital equipment. (c) denied the use of shovels, hoes and axes. (d) all of the above. Answer:

(b)

7. When he invented the cotton gin in 1793, Eli Whitney exhibited (a) entrepreneurial behavior. (b) greedy behavior. (c) selfish behavior. (d) immoral behavior. Answer:

(d)

Chapter 9

Agricultural Expansion: The Conflict of Two Systems on the Land

8. The Civil War was a result of (a) the dispute over slave ownership in the South. (b) attempts to keep slaves out of the West. (c) attempts to protect state rights over federal control. (d) all of the above. Answer:

(d)

9. According to the research of economic historians, Southern farms (a) realized the gains from regional specialization in the production of cotton, tobacco, sugar and rice. (b) used the gang system to increase the production of slaves. (c) were far larger, on average, than farms in the North. (d) were all of the above. Answer:

(d)

10. The research of Gavin Wright (1978) on the antebellum period suggests that (a) there was no limit on the profitability of the plantation utilizing slave labor. (b) issues with management, communication and discipline limited the profitability of the slave plantation. (c) more than 75 percent of the Southern farms were plantations and utilized slave labor. (d) all of the above. Answer:

(b)

11. Which statement holds true for the period of slavery in U.S. history? (a) Slavery was a moral institution. (b) The system wasted natural resources. (c) It provided slaveholders with incentives to avoid purchasing farm implements. (d) It developed land and profitably produced agricultural goods for sale in world markets. Answer:

(d)

12. By the mid-nineteenth century, (a) indentured servitude disappeared in the U.S. (b) slavery was disappearing. (c) more and more immigrants were drawn into the production of agricultural goods on large plantations. (d) all of the above were true. Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

13. What does the study of the balance of international trade and finance between 1790 and 1860 help American economic historians do? (a) Understand what the U.S. sold to the rest of the world (b) Understand what the rest of the world sold to the U.S. (c) Determine if there is a link between these international patterns and economic growth in the U.S. (d) All of the above Answer: (d) 14. Exports from and imports to the U.S. were important to growth in the U.S. between 1790 and 1860 because (a) exports to other countries expanded the market base for U.S. manufacturing goods. (b) they supported the U.S. economy during a time in which it used more agricultural goods and crude materials than it produced. (c) they helped the U.S. and its trading partners gain wealth through international trade of those goods and services in which each produced at a comparative advantage. (d) they contributed to all of the above. Answer:

(c)

15. On the eve of the Civil War, what was the number one export in the U.S.? (a) Cotton (b) Wheat (c) Gold (d) Shipping services Answer:

(a)

16. Which of the following arguments is consistent with the claims of Robert Fogel (1989)? (a) The success of slave labor was tied closely to the number of labor hours per year. (b) Compared to the slaves, the self-sufficient farmers in the North and those in the South were more likely to not work on Sundays, face a shorter work day and experience regular rest times. (c) The productivity of slave labor increased with the use of specialization and rhythm. (d) All of the above. Answer:

(c)

17. In the antebellum economy of the South, what was not produced for subsistence consumption? (a) Corn (b) Cotton (c) Cattle (d) All of the above Answer:

(b)

Chapter 9

Agricultural Expansion: The Conflict of Two Systems on the Land

18. Profitability in cotton farming depended on which of the following factors? (a) Physical crop yields (b) World and domestic cotton prices (c) Subsistence farming during periods of low cotton prices (d) All of the above Answer:

(d)

19. The Erie Canal provided the first reliable and relatively quick east-west link in markets. This link, consequently, (a) increased profit margins and expanded markets for agriculturalists. (b) increased consumer prices in all markets. (c) increased transportation costs. (d) hindered trade and the accumulation of wealth. Answer:

(a)

20. Investment in the agricultural economy of the antebellum period of U.S. history usually entailed everything below except (a) Clearing lands (b) Purchasing stocks and bonds (c) Constructing fences and buildings (d) Purchasing farm implements Answer:

(b)

21. Technological advancements in the antebellum period were (a) constant and stable. (b) almost non-existent. (c) concentrated in manufacturing. (d) slow in coming but labor-saving—especially in agriculture—when they emerged. Answer:

(d)

22. Which of the following factors caused the Civil War? (a) Slavery (b) The conflict between the two systems of agriculture (c) A shift in political power resulting from new states entering the Union as free or slave states (d) All of the above Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition



Essay Questions

1. Explain why the slave gang system helped increase productivity on plantations. 2. Compare economic historians’ views on why the Southern economy prospered between 1815 and 1860, and why manufacturing failed to develop there. 3. Suppose the Constitutional Convention of 1787 had abolished slavery. How would this have affected the economy of the American South? Would the Civil War have been necessary? 4. Describe the Missouri Compromise of 1820, the Compromise of 1850, and the Kansas-Nebraska Act of 1854. Explain how each attempted to solve a conflict between the two agricultural systems dominating the antebellum period. 5. Describe those parts of the U.S. agricultural system dependent on slave labor. Explain why U.S. agricultural labor was partly and not wholly dependent on slavery. Use economic reasoning. 6. Identify the role the cotton gin played in perpetuating slavery. 7. By the 1850s, slave ownership became heavily concentrated. Explain and describe the political ramifications of this concentration, citing the work of economic historians. 8. Why were cotton farmers self-sufficient in producing food and cotton? Why was corn cultivation the perfect complement to cotton production? 9. Describe the western expansion of Northern agriculture. Compare this expansion to Southern expansion. Identify the conflicts that emerged and link them to the Civil War. Why did national solutions to these conflicts fail to prevent the Civil War? 10. Describe the changes in farming technology during the antebellum period of U.S. history. Discuss the role of technological advancements in agricultural growth and development. 11. Identify the two systems of land that emerged during the antebellum period. Explain why they were in conflict.

Chapter 10 The Debate over Slavery 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Fogel and Engerman (1974) argue that slavery was economically viable until 1860. Answer:

True

2. Between 1790 and 1860, Southern population growth was dominated by growth in the slave population. Answer:

False

3. Fogel and Engerman (1974) find evidence to suggest that young slave children were often sold by profit-maximizing slave owners. Answer:

False

4. Slaver owners were optimistic about the economic future of slavery on the eve of the Civil War. Answer: True 5. The demand for slaves was increasing more rapidly in cities than on plantations. Answer:

False

6. Southern slave owners were not rational people and did not strive to maximize profits through the use of the slave system of production. Answer:

False

7. Stampp (1976) finds evidence to suggest that the Southern slave owners were operating at losses, not profits. Answer:

False

8. A strong majority of economists support the proposition that the material, not psychological, conditions of the slaves compared favorably with those conditions faced by industrial workers before the Civil War. Answer:

False

Hughes/Cain • American Economic History, Eighth Edition

9. A fundamental criticism of Time on the Cross is that economics cannot be used to simply compare the welfare of the slaves to their free, white counterparts. Answer:

True

10. Rational slave owners had economic incentive to adequately clothe, feed and care for their slaves. Answer:

True

11. Slaves had incentives to remain docile, not resist their work demands and continue to depend on slavery as an institution according to Elkins (1959). Answer:

True

12. There is evidence to suggest that slaves were commonly sold and families were often separated. Answer:

True

13. Most surveyed economists support Fogel and Engerman’s (1974) position that plantation owners were largely rational and treated slaves in their best profit interest. Answer:

False

14. Contrary to Fogel and Engerman’s (1974) claim, most surveyed economists believed that slavery was on the verge of extinction on the eve of the Civil War. Answer:

True

15. On the eve of the Civil War, cotton was the major crop in the Old South. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Which of the following was NOT a major claim of Fogel and Engerman (1974) in their work on slavery? (a) Slavery was profitable for Southerners. (b) Slavery slowed the mechanization of the plantations. (c) Slaves were treated fairly well. (d) Slavery was efficient. Answer:

(b)

2. Why did the slave-labor system probably cause a lag in Southern urban and industrial development? (a) The slave system provided a weak market for goods because of the low income and consumption levels of slaves. (b) Side-effects of urbanization and industrialization, such as slave flight and greater freedom, were threatening to Southern owners. (c) The South’s slave society culture was resistant to manufacturing and urbanization. (d) All of the above apply. Answer:

(d)

Chapter 10

The Debate over Slavery

3. Fogel and Engerman (1974) are generally of the opinion that American slavery (a) was antiquated, inefficient and was on the verge of existance. (b) was thriving and profitable in the decades prior to the Civil War. (c) provided conditions for a reasonably normal family life and standard of living for the slaves with very little breakup of slave families or exploitation of slaves. (d) was inferior to the wage-labor system in the South and would have likely been replaced with time. Answer:

(b)

4. The South was characterized by all of the following except (a) large plantations and slave labor. (b) a more unequal distribution of income and wealth than in the North. (c) a lack of public education systems. (d) a strong manufacturing sector. Answer:

(d)

5. From an ethical standpoint, the plantation owners of the South typically saw the system of slavery as (a) basically superior to the wage-labor system of the North. (b) basically inferior to the wage-labor system and only likely to exist temporarily. (c) basically equal to the wage-labor system but more profitable. (d) not needing a moral justification because slavery had been accepted without question throughout most of human history. Answer:

(a)

6. The reminiscences of two famous people who were born into slavery, Frederick Douglass and Booker T. Washington, include all of the following except (a) The common custom among slave owners was to ensure that small children of slaves had the nurturing of both parents until they reached good working age. (b) Their early years were not very different from thousands of other slave children. (c) Their fathers were white men. (d) They saw their mothers infrequently, only a few times in their lives, or only sometimes in the early morning hours before their mothers went to work or late at night. Answer:

(a)

7. All of the following were true in the South except (a) Slaves had little or no status in courts of law. (b) Slave marriages (when there was a ceremony) were not legal, binding contracts. (c) Slaves’ property was legally their own. (d) Slaves’ own children were not theirs to control; slaves were property. Answer:

(c)

Hughes/Cain • American Economic History, Eighth Edition

8. Which of the following was not claimed in the book Time on the Cross, by Fogel and Engerman (1974)? (a) Slavery was growing stronger economically before the Civil War. (b) Slave agriculture in the South was more productive than was family farming in the North. (c) Slave breeding and sexual exploitation by slave owners were normal aspects of the slave system. (d) Slave field hands were harder working and more efficient than were white agricultural workers. Answer:

(c)

9. The careful historian, in studying an institution like slavery and in striving for objectivity, will give special attention to all of the following except (a) Those processes which recur over time and which continually motivated the institution (b) A theory which provides understanding of the cause-and-effect relationships involved (c) The background conditions of the period (d) All of the above statements must be given special attention Answer:

(d)

10. Historians typically disagree with which of the following contentions from Time on the Cross? (a) Slavery was profitable for Southerners and consequently resulted in wealth accumulation. (b) Slavery was on the verge of extinction on the eve of the Civil War. (c) Slave owners were moral and treated slaves with kindness and high standards. (d) Slave breeding and sexual exploitation were myths and slave sales rarely broke up slave families. Answer:

(d)

11. Land inheritance in the Southern colonies differed from inheritance in the Middle and New England colonies in that (a) primogeniture was more typical in the South. (b) economies of large scale production were more important outside the South, which discouraged the formation of large plantations. (c) ownership of land was permitted by slaves outside the South but not in the South. (d) none of the above; there were no major differences in inheritance between the Southern colonies and the Middle and New England colonies. Answer:

(a)

12. Time on the Cross views slavery as a system in which (a) the slaves were quite happy, good-hearted and content with their condition. (b) the plantations were efficient operations with incentive systems providing slaves with some rewards for productive behaviors. (c) the slaves, because of the oppression and brutal conditions they faced, had the same type of attitudes as did the inmates of Nazi concentration camps during World War II. (d) the prospects of escape or resistance were so poor that slaves made few revolts against slavery. Answer:

(b)

Chapter 10

The Debate over Slavery

13. Conrad and Meyer (1958) found evidence to support the claim that the annual rates of return to slave agriculture were (a) high enough to attract investment funds away from other alternatives in the cotton South. (b) high enough to benefit the entire Southern economy through the profits generated and the backward and forward links to other businesses. (c) relatively low in the new frontier, thus encouraging the new cotton producing areas of the South to move away from the slave system. (d) low enough that the people in the North could purchase the slaves and free them at minimal cost. Answer:

(a)

14. Which of the following would empirically support the claim that slave owners were optimistic about the future of the slave system in the 1850s? (a) Rising slave prices (b) An increasing demand for slaves (c) A positive net return to slave purchases (d) All of the above Answer:

(d)

15. Slaves were expensive factors of production in comparison to free labor. Which of the following was not a cost to slave labor? (a) Food (b) Clothing (c) Wages (d) Medical care Answer:

(c)

16. What did Steckel (1986) find when he compared the slave population to today’s white population? (a) The mortality rates of the slaves were much higher than those of modern whites. (b) Prenatal and postnatal care was the same. (c) The number of pregnancies brought to term in each group was about the same. (d) All of the above. Answer:

(d)

17. Which researcher argues that the slave system and its enforcement mechanisms prevented slave individualism from emerging within the system itself? (a) Robert Fogel (b) Stanley Engerman (c) Stanley Elkins (d) Kenneth Stampp Answer:

(c)

Hughes/Cain • American Economic History, Eighth Edition

18. If the relative market price of producing cotton is more than the opportunity cost of producing it in the South, (a) the market price of cotton will fall in the long run. (b) producers will increase the supply of cotton in the long run. (c) resources will flow away from the production of cotton, causing the supply of it to decline with the passage of time. (d) the situation will remain unchanged as long as supply and demand remain in balance. Answer:

(b)

19. Conrad and Meyer (1958) counter Fogel and Engerman’s (1974) claim that slave breeding was a myth by arguing that any profit-maximizing slave owner would consider slave breeding as long as: (a) The expected rate of return from slave sales fell below the costs of rearing the slave to the age of sale. (b) Slavery was an irrational institution. (c) The expected rate of return from slave sales exceeded the costs of rearing the slave to the age of sale. (d) Slavery was an immoral institution. Answer:

(c)

20. Which of the following is an economic argument used to explain why slavery persisted in the U.S.? (a) Slavery crushed out individualism among slaves. (b) The social structure of slavery did not permit black leaders to lead revolts. (c) Slavery was an overall moral institution. (d) Slavery was a rational institution. Answer:



(d)

Essay Questions

1. Suppose the Constitutional Convention of 1787 had abolished slavery. How would this have affected the economy of the American South? 2. White indentured servitude disappeared in the decades following the American Revolution and the founding of the nation. However, black slavery continued and expanded. What accounts for the differing fates of these two systems of labor inherited from colonial America? 3. “One of the important requisites for economic development is a free labor force in order to make free transfers of labor possible. A production organization cannot be very flexible if it has to engage in the purchase or sale of slaves every time it changes its output.” To what extent did the South’s pre-1860 economic history confirm or refute the foregoing generalizations? 4. Compare and contrast indentured servitude and slavery as solutions to the colonial and antebellum labor problems from the perspective of the entrepreneur (i.e., the merchant, farmer, plantation owner). 5. Compare and contrast the different theories explaining why slavery persisted until the Civil War.

Chapter 10

The Debate over Slavery

6. Explain why the Civil War did not end the debate over slavery. Describe how that debate still affects us today. 7. Can economic historians make definitive statements about the quality of slave life and effectively compare it to the quality of life outside the slave system? Why or why not? Use the work of economic historians to support your answers. 8. How did profits and losses contribute to economic progress in the U.S. economy during the antebellum period? How did the “pursuit of profit” influence cotton producers’ incentives to a. produce efficiently? b. provide consumers with goods and services that they value highly relative to cost? c. continue with slavery? 9. Consider the institution of slavery using economic reasoning. How is the market price of a slave determined? What determines whether slaves will continue to be supplied in a competitive market? What determines whether slaves will continue to be demanded in a competitive market? Explain why slavery continues to exist today in various forms. Discuss the limitations of using economic reasoning to study an institution like slavery. 10. The cotton sector grew and contributed greatly to the overall performance of the Southern economy. However, the distribution of wealth increasingly favored a small minority of large plantation owners. Explain how this change in the distribution of wealth helped fuel resistance against slavery.

Chapter 11 The Early Industrial Sector 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Skilled labor commanded a higher wage than unskilled labor in both the U.S. and Europe between 1789 and 1860. However, skilled wages in the U.S. were higher, on average. A higher land to labor ratio in the U.S. can explain the higher wage rates of skilled workers in the U.S. Answer:

True

2. According to Habakkuk (1962), the high price of western lands before the Homestead Act (1862) kept workmen in the eastern manufacturing cities and thus slowed down the rate of adoption of labor-saving technology. Answer:

False

3. Ames and Rosenberg (1963) argue that demand for manufactured goods in the U.S. tended to be utilitarian in nature rather than “high quality,” and this encouraged development of mass production methods. Answer:

True

4. North’s (1955) theory of economic location is that of “balanced growth”—many industries in each region must advance at about the same time in order for economic growth to occur. Answer:

False

5. Early industrialization was characterized by labor-saving technology, and this caused U.S. wages to be lower in the manufacturing industry than would otherwise have been the case. Answer:

False

6. The object of U.S. technological choices, according to Rosenberg (1963), was to conserve scarce productive factors and exploit plentiful ones. Answer:

True

7. American manufacturers rapidly dropped waterwheels when the steam engine was introduced. Answer:

False

Chapter 11

The Early Industrial Sector

8. The U.S. imposed high tariffs in the early nineteenth century in retaliation for British tariffs imposed on American goods. Answer:

False

9. The U.S. lowered tariffs in the 1850s because of a budget surplus. Answer:

True

10. Tariffs benefit the consumers of the import-competing goods. Answer:

False

11. Tariffs provide domestic producers with incentives to be inefficient and operate on the basis of comparative disadvantage. Answer:

True

12. One of the main production advantages of the steam engine was the flexibility of its location. Answer:

True

13. Mass adoption of technology, like the steam engine, was not influenced greatly by the relative benefits and costs of the new technology compared to existing technology. Answer:

False

14. Hughes and Cain (2011) effectively argue that advancements in power technology helped open new opportunities for the strategic placement of cities and big factories. Answer:

True

15. During the antebellum period, U.S. consumers increased their demand for mass-produced, standardized and simple goods. Answer:



True

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Which of the following was NOT a part of the American system of manufacturing? (a) Interchangeable and standardized parts (b) Use of indentured servants (c) Mass production (d) High capital intensities of production Answer:

(b)

Hughes/Cain • American Economic History, Eighth Edition

2. What was the crucial factor permitting cotton textile production to take off in New England between 1790 and 1815? (a) The imposition of high tariff rates (b) A lowering of import tariffs by Britain (c) The blocking of trade with England through the Embargo and the War of 1812 (d) A relaxation of regulations restricting exports of machinery by Britain Answer:

(a)

3. The energy source most often used by the earliest factories was (a) animal power. (b) wind power. (c) water power. (d) steam engines. Answer:

(a)

4. The region of the U.S. that benefited least from and fought hardest against raising tariffs in the first half of the nineteenth century was (a) New England. (b) the Middle Atlantic states. (c) the South. (d) the West. Answer:

(c)

5. The first industry to use interchangeable parts in the U.S. was (a) machine tools. (b) guns. (c) cotton textiles. (d) watches. Answer:

(b)

6. The American manufacturing system began to emerge in the years prior to the Civil War. Which of the following was not an important aspect of the system? (a) Extensive or increased use of craftsmen (b) Mass production of goods in factories (c) The production of standardized goods (d) Extensive use of machinery and equipment Answer:

(a)

Chapter 11

The Early Industrial Sector

7. For the period we are studying (1789–1860), the United States (a) was a high tariff, protectionist nation. (b) derived the vast majority of federal revenues from the tariff. (c) was divided on the question of the tariff, with the South generally in opposition to it. (d) was characterized by all of the above. Answer:

(d)

8. The idea of interchangeable parts, which was an important aspect of the American System of Manufacturing, is attributed by Hughes and Cain (2011) to (a) Henry Ford, who used it in the production of automobiles. (b) Adam Smith, who suggested it in his book The Wealth of Nations. (c) Thomas Jefferson, who used it in his “nailery” on his plantation. (d) Eli Whitney, who used it in the production of guns. Answer:

(d)

9. Important steps in the growth of the wage-labor system of the North in the early 19th century include which of the following? (a) The advancement of many of the old skilled crafts and apprenticeship systems by the factory system (b) The fall in the demand for unskilled labor created by transportation improvements (c) The complication of work tasks in the factory, which allowed the use of women and child labor (d) Large-scale migration to the U.S. of relatively unskilled workers who sought jobs in the cities and factories Answer:

(d)

10. In general, in the 19th century, America (a) was a low tariff nation because it was believed that free trade brought specialization, efficiency and more rapid economic growth. (b) was a nation that kept its tariffs at about the same levels as England so as not to give the British an advantage. (c) was a high tariff nation which believed, from the days of Alexander Hamilton, that America’s industry needed protection from the more industrially advanced England. (d) had a moderate level of tariffs, compared with England, whose main purpose was to provide the federal government with revenues. Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition

11. The U.S. used high-pressure steam engines, whereas the British favored low-pressure engines. The reason for the American preference for high-pressure steam engines was that (a) low-pressure steam engines, though more efficient, were complicated to build and operate and America lacked skilled labor compared to England. (b) the high-pressure steam engines used extravagant amounts of wood fuel. The U.S. abundance of wood compared to Europe made building high-pressure steam engines cheaper in the U.S. (c) Americans simply lagged behind technologically compared to England and continued to use the outdated high-pressure steam engines. (d) England had patents on the superior low-pressure steam engine and would not allow other nations to use the technology. Answer:

(b)

12. At the time of the American Revolution, the Industrial Revolution first launched in (a) France. (b) Germany. (c) England. (d) Spain. Answer:

(c)

13. An export industry is said to exhibit increasing returns to scale when (a) a large-scale organization has significant competitive advantages over small-scale activities. (b) labor utilization increases by 50 percent but export output production increases by only 20 percent. (c) its small-scale business activity has significant comparative advantages over large-scale productions. (d) use of capital increases by 10 percent leads to an increase in export production by 10 percent. Answer:

(a)

14. In the first years of the new nation, American producers (a) found it difficult to compete with the British in manufactured goods. (b) quickly developed agricultural technology that was more efficient than that in England. (c) did not use British manufacturing technology because England had forbidden the export of its technology. (d) began to specialize in the production of manufacturing goods, selling them to England and Europe. Answer:

(a)

15. Hughes and Cain (2011) ask: Who suffered from the tariff in the 19th century? What was their answer? (a) the government (b) producers of import-competing goods (c) consumers (d) workers in import-competing industries Answer:

(c)

Chapter 11

The Early Industrial Sector

16. In the 1800s, early agricultural activity in the U.S. used the technology of the time which was based on (a) handwork and animal power. (b) waterpower and the steam engine. (c) the internal combustion engine and electric motor. (d) large-scale enterprises using water driven machinery. Answer:

(a)

17. The Industrial Revolution was centered in Great Britain, and the British (a) tried to achieve a technological monopoly. (b) were willing to freely share industrial technology with their colonies but no other nations. (c) believed in free trade and the sale and export of technology to any nation that wanted to pay for it. (d) were willing to share their technology with other nations but not their colonies because they wished the colonies to specialize in the production of agriculture and raw materials for export to England. Answer:

(a)

18. The absence of significant scale economies in 19th century agriculture outside the cotton South produced all of the following except (a) More equal income distribution (b) Numerous family farms (c) The widespread need for schools (d) Large, corporate farms using the latest technology Answer:

(d)

19. Incentives matter and different groups of producers, consumers and politicians will support those policies that promise to advance those projects most advantageous to them. Which statement about opposition to or support for U.S. tariff policy during the antebellum period is correct? (a) “Producers in the South objected to tariffs placed on imported goods. They needed them at relatively low prices for their own production.” (b) Plantation owners supported a high tariff as protection against cheap cotton imports. (c) Politicians wanted to protect jobs abroad as well as in the U.S. Therefore, they did not support U.S. tariff policies. (d) All of the above are correct. Answer:

(a)

20. Who does not want a tariff? (a) Consumers of imported goods (b) Domestic businesses producing goods that compete with the imported goods (c) Politicians trying to garner domestic support from the import-competing domestic industries (d) The federal government Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

21. Those individuals who rejected the U.S. tariff policy of the antebellum period did so for which of the following reasons? They (a) Wanted to save domestic jobs in those industries reliant on imports. (b) Depended on imports for domestic production. (c) Wanted to protect relatively low consumer prices, advance free trade and boost economic efficiency. (d) All of the above. Answer:

(d)

22. Consumption patterns in the U.S. between 1790 and 1860 indicate a growing preference for (a) basic necessities. (b) high quality clothes and homes. (c) simple, standardized and mass-produced goods. (d) luxury items. Answer:

(c)

23. Once the problem of subsistence food growing had been solved, regional growth resulted in which of the following? (a) Balanced growth across all sectors of the economy (b) Increased import growth and decreased export growth (c) Developed export activity (d) Faltering secondary industrial growth Answer:

(c)

24. The future of any region dependent on export industrial growth is influenced by: (a) the region’s natural endowment at given technology levels. (b) the character of the export industry. (c) subsequent changes in technology and transport costs. (d) all of the above. Answer:



(d)

Essay Questions

1. Use economic reasoning to explain why the North industrialized at a faster pace than the South. 2. Once the issue of subsistence was settled, explain how the farm households’ demand for manufactured goods supported industrialization. 3. Compare and contrast antebellum industrialization in the North and South by explaining what each had in common and how they differed in terms of levels and rates of industrialization. 4. Discuss the role of comparative advantage in regional specialization in the United States in the period 1790–1860.

Chapter 11

The Early Industrial Sector

5. Compare and contrast economic historians’ views on why the Southern economy prospered between 1815 and 1860, and why manufacturing failed to develop there. 6. Discuss the factors influencing the choices of industrial locations. Highlight Douglass North’s (1955 and 1959) contributions to this discussion and emphasize the importance of exporting industrial goods to other locations. 7. Identify and describe one antebellum innovation in the U.S. Explain how it increased output per labor. 8. What are patents? Why do they encourage innovative activity? Illustrate using examples of antebellum patents and innovations. 9. Describe the evolution of industrial production in the U.S. from 1790 to 1860. Use statistics to describe changes in production levels. 10. Explain how growth in agriculture and industry can occur simultaneously. Apply this explanation to the U.S. experiences of 1790 to 1860. 11. Compare and contrast the tariff views of the South and North during the antebellum period of U.S. history. Specifically explain how the tariffs of this period transferred income from the South and non-industrial sectors of the U.S. economy to the manufacturing sector of the North. 12. Discuss the economic benefits of immigration during this period of U.S. history.

Chapter 12 The Financial System and the International Economy 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The 1819 panic was caused by the Second Bank of the United States, which called on the state banks to redeem their notes in order to acquire $4 million in specie to pay the borrowing that had been undertaken in Europe in 1803 to finance the Louisiana Purchase. Answer:

False

2. Under the Articles of Confederation, the Continental Congress permitted each state to issue paper money and borrow on their own to finance expenses related to the American Revolution. Answer:

True

3. Under the U.S. Constitution, each state gave up its right to issue money, borrow, levy taxes and regulate the value of money on behalf of national efforts. Answer:

True

4. According to the quantity theory of money, inflation results when excessive paper money is in circulation. Answer:

True

5. State banks failed to find a way to print money under the Constitution. Answer:

False

6. Monopolist fears that central banks would unfairly compete with all other profit-maximizing banks contributed to the demise of the First and Second Banks of the U.S. Answer:

True

Chapter 12

The Financial System and the International Economy

7. During the antebellum period, the U.S. used more economic output and resources than were domestically available during expansions and less during contractions. International trade assisted during these cyclical times. Answer:

True

8. The financial chaos of the antebellum period clearly impeded economic growth and development in the long run. Answer:

False

9. A trade deficit can produce inflation when a country and its trading partners are on the gold standard or a bi-metallic system. Answer:

True

10. High differentials in interest rates suggest that the financial markets of New England, the Middle Atlantic and the South were not integrated with those of New York City. Answer:

True

11. As cities grew and markets developed, life, fire and death insurance companies emerged to manage risks and help groups of individuals during disasters. Answer:

True

12. The Second Bank of the United States lost its charter, in part, because Andrew Jackson effectively argued to the voting members of Congress that the “central” bank was a monopoly and largely influenced by the corrupt and fraudulent behavior of a wealthy minority and foreign investors. Answer:

True

13. The Second Bank of the United States was deemed unconstitutional and, therefore, its charter was not renewed. Answer:

False

14. The struggles and controversies over federal and state powers led to the demise of both the First and Second Bank of the United States. Answer:

True

15. The number of private state banks decreased after the First Bank of the United States lost its charter. Answer:

False

Hughes/Cain • American Economic History, Eighth Edition



Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The Mint Act of 1792, following the ideas of Thomas Jefferson and Robert Morris, set the U.S. up as (a) a silver standard country. (b) a paper-money country. (c) a gold-standard country. (d) a bimetallic country. Answer:

(d)

2. The Mint Act of 1792 failed to provide for a stable domestic hard currency for the U.S. because (a) the supply of gold and silver was inadequate. (b) the federal government failed to make the coins legal tender. (c) gold was undervalued, while silver was exported. (d) the notes of the U.S. government were not accepted by the population because of their low value, while the government had no gold to offer. Answer:

(c)

3. Which/who of the following was NOT an opponent to rechartering either the First or the Second Banks of the United States? (a) Andrew Jackson (b) Private banks (c) Nicholas Biddle (d) Rural interests Answer:

(c)

4. Which of the following was NOT a function of the First and Second Banks of the United States? (a) Handling government finances (b) Promoting growth of state banks (c) Helping establish uniform paper currency in the U.S. (d) Keeping state banks in line by presenting their notes Answer:

(b)

5. Which of the following was NOT a reason given for opposing the renewal of the charters of the Banks of the United States? (a) The Banks of the United States made too many bad loans. (b) The Banks of the United States were unconstitutional. (c) The Banks of the United States hindered the development of private banks. (d) The Banks of the United States were owned, in part, by foreign investors. Answer:

(a)

Chapter 12

The Financial System and the International Economy

6. In the Free Banking Era (the period of no central bank), (a) anyone could form a bank if they met the requirements. (b) banks were required to offer free financial services. (c) the federal government rescinded its tax on bank notes. (d) states rescinded their taxes on bank notes. Answer:

(a)

7. Money serves the following function(s): (a) Medium of exchange (b) Store of value (c) Unit of account (d) All of the above Answer:

(d)

8. From 1789 to 1838, state banks (a) served as financial intermediations and paid out paper money to borrowers. (b) were corporations. (c) engaged in agricultural activities. (d) established demand deposits against which checks could be written by the borrower. Answer:

(a)

9. Fractional reserve banking (a) destroys money. (b) requires banks to engage in 100 percent of total banking activities. (c) allows banks to create money while requiring them only to hold a fraction of money. (d) all of the above. Answer:

(c)

10. Intermediation entities include which of the following? (a) Life and fire insurance companies (b) Stock exchanges (c) Mutual saving banks (d) All of the above Answer:

(d)

11. All of the following are true of the gold standard except (a) It requires international trading partners to strictly accept gold payments for imports and exports (b) It supported stable and fixed exchange rates throughout most of the 19th century (c) It encouraged international trade (d) It integrated the U.S. monetary system into the world market Answer:

(a)

Hughes/Cain • American Economic History, Eighth Edition

12. Business cycles are best categorized as (a) fluctuations in the production and employment levels in the business sector of the economy. (b) major upswings and downturns in most sectors of the economy. (c) variations in international trade. (d) all of the above. Answer:

(b)

13. An economy that grows in world interdependence experiences (a) growing trade on the basis of comparative advantage. (b) more vulnerability to the business cycles of trading partners. (c) wealth accumulation. (d) all of the above. Answer:

(d)

14. Between 1790 and 1860, wholesale prices charged by producers of commodities (a) grew steadily over the period. (b) declined steadily. (c) exhibited wild variations but increased, on average. (d) exhibited wild variations but declined, on average. Answer:

(d)

15. During the international crises of 1837 and 1857, (a) the U.S. and England were connected financially. (b) the British were pursuing heavy internal improvements. (c) the U.S. was in the midst of heavy industrial expansion. (d) all of the above were true. Answer:

(a)

16. International trade in the U.S. during the antebellum period (a) benefited the Northern economy more than the Southern economy. (b) benefited England significantly more than the U.S. (c) played an important part in the growth and expansion of the Southern economy. (d) occurred as described in all of the above. Answer:

(a)

17. During the antebellum period, the South exported more to England than it imported. This Southern trade surplus with England benefited whom? (a) The South (b) The North (c) England (d) All of the above Answer: (b)

Chapter 12

The Financial System and the International Economy

18. Before the Civil War (1861–1865), the U.S. credit system made capital investments possible and fueled overall economic growth and development across many sectors. This system was supported heavily by whom? (a) The British (b) The North (c) The South (d) None of the above Answer:

(a)

19. During the antebellum period, most international payments were made by (a) shipping specie. (b) bills of exchange. (c) credit extended by private banks in the U.S. (d) all of the above. Answer:

(b)

20. On the gold standard, a trade deficit in the U.S. impacted the economy by producing (a) a gain of specie. (b) a tight supply of money. (c) low interest rates. (d) deflation. Answer:

(b)

21. Inflation results (a) when the price of one good or service increases. (b) when too much money is chasing too few goods. (c) when prices, on average, decrease across the economy. (d) when banks decrease lending. Answer:

(b)

22. Under the new Constitution in 1789, the states gained the sovereign power to (a) levy taxes. (b) power and issue money. (c) “regulate” the value of money. (d) create corporations by special franchise. Answer:

(d)

Hughes/Cain • American Economic History, Eighth Edition

23. Early nineteenth century banks primarily (a) enabled small savers to buy shares in a diversified portfolio of investments. (b) accepted and managed checkable deposits. (c) provided a broad range of financial services. (d) relied on a federal safety fund in times of well spread crisis. Answer:

(a)

24. Unlike the Federal Reserve Bank of today, the First and Second Banks (a) could create corporations by special franchise. (b) were generally supported by the rest of the banking community. (c) were direct competitors with private business. (d) provided a federal safety fund in times of well banking crisis. Answer:



(c)

Essay Questions

1. Explain the pros and cons of using paper money as opposed to specie, and the different techniques used by banks and governments to ensure paper money was accepted for use. 2. Discuss the risks of using paper money to provide an adequate supply of money for the economy. Describe how a central bank, government regulation or coordinated action by banks can help reduce these risks. Describe the concerns of private citizens about paper money. How did local governments, state governments, federally-chartered banks, state-chartered banks and the Bank of England attempt to maintain the stability of paper money at different times from 1700 to 1860? 3. Discuss the role of interregional and international trade in the development of the Northern and Southern economies from 1790 to 1860. 4. Discuss the arguments made in the United States for and against having a national bank, and identify the functions of U.S. central banks for the period of 1790 to 1860. 5. What determined the supply of money and the deposit multiplier in the pre-Civil War years? 6. Discuss the movement during this period of U.S. history to regulated banking through the public sector and through the private sector. 7. Define the business cycle. Describe the impact of U.S. economic expansions and contractions on national output, income, prices, interest rates, exports, imports and balance of trade during the preCivil War years.

Chapter 12

The Financial System and the International Economy

8. Discuss the links among money, specialization and capital accumulation. 9. Describe the key changes in the financial system of the antebellum economy. 10. Define the gold standard and identify its economic roles. 11. Illustrate the “free rider” problem as it applies to fire insurance in densely populated residential areas. Explain why this problem may lead municipalities to provide fire fighting services. 12. Explain why the fractional reserve banking can be considered economic leveraging.

PART 3 THE RISE OF AN INDUSTRIAL SOCIETY, 1861–1914

Chapter 13 Economic Effects of the Civil War 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Printing money was the main method the Union government used to finance the Civil War (1861–1865), and as a result the money supply in the North rose by a factor of 4. Answer:

True

2. The Mokyr-DeCanio thesis states that real wages of Northern workers lagged behind price increases during the Civil War (1861–1865), thus shifting to the workers themselves a major part of the war’s cost. Answer:

True

3. Sharecropping after the Civil War (1861–1865) was the land tenure of black and white nonlandowning farmers in about equal proportions. Answer:

False

4. Physical destruction of property during the Civil War (1861–1865) occurred on a wide scale in both the North and the South. Answer:

False

5. By the time the Civil War (1861–1865) ended, hyperinflation was a problem in both the North and the South. Answer:

False

6. The Civil War’s (1861–1865) impact on the growth and development of the U.S. economy was negative. Answer:

True

7. Unlike previous and future wars, the United States’ federal government did not need to impose an income tax to finance the Civil War (1861–1865). Answer:

False

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8. The roots of the Civil War (1861–1865) can be traced to the colonial period of U.S. history. The ratification of the 10th amendment of the U.S. Constitution brings all issues connected to the Civil War to an end. Answer:

False

9. Sharecropping successfully replaced the slavery system. Answer:

False

10. The absence of the Southern economy’s ability to earn foreign exchange and its markets severely impacted all non-local trade in the U.S. after the Civil War. Answer:

True

11. In all areas but property, the measurable costs of the Civil War (1861–1865) were highest in the North. Answer:

False

12. The United States gained significant strength globally in manufacturing production during the Civil War (1861–1865). Answer:

False

13. There is clear evidence that the Civil War (1861–1865) aided industrialization in the U.S. Answer:

False

14. The decline of the greenback against gold made imports more expensive. Answer:

True

15. Since wages fell by more than prices, Civil War laborers were better off. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Stanley Engerman’s (1971) work on the economic impact of the Civil War (1861–1865) refuted a view sometimes called the Beard-Hacker thesis. This thesis holds that (a) the Civil War (1861–1865) held back the ongoing processes of industrialization. (b) the Civil War (1861–1865) accelerated the ongoing processes of industrialization. (c) the Civil War (1861–1865)’s demands for manufactured goods increased American long-term dependency on foreign trade. (d) the Civil War (1861–1865) was more disruptive of the “westward movement” than it was of ongoing processes of industrialization. Answer:

(b)

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Economic Effects of the Civil War

103

2. The Confederate government (a) failed to increase its external debt and thus produced domestic inflation. (b) did not make the Confederate currency legal tender. (c) failed to raise sufficient resources because of unwillingness to increase the supply of paper money. (d) did none of the above. Answer:

(b)

3. The arguments of Kessel and Alchien (1959) on the terms of trade and the question of “who paid for the Civil War (1861–1865)” conclude that 40 percent of the war’s burden fell on (a) those who exported manufactures. (b) those who purchased imports. (c) farmers alone. (d) the economy as a whole. Answer:

(b)

4. Engerman’s (1971) studies of the Civil War (1861–1865)’s impact on industrialization (a) support the previous work of Hacker and Beard. (b) showed that the War sped up the ongoing processes of industrialization. (c) showed that the War effort slowed down industrialization. (d) restricted the real cost of the War to the South. Answer:

(c)

5. As a result of emancipation, (a) black labor force participation increased by 1/3. (b) black labor force participation declined by 1/3. (c) amazingly, black labor force participation remained essentially unchanged. (d) average wages of black workers rose well above those of their immigrant counterparts. Answer:

(b)

6. Which of the following methods was NOT used to help the North finance the Civil War (1861–1865)? (a) Selling large amounts of bonds (b) Issuing fiat Federal paper money (c) Raising taxes (d) Selling confiscated property Answer:

(d)

7. Greenbacks were first issued (a) by the Federal government to help the economy out of a recession in the 1850s. (b) by the States to pay for the construction of canals. (c) by the Federal government to help pay for the Civil War (1861–1865). (d) by banks during the Free Banking Era. Answer:

(c)

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8. Even though reliable data is lacking, the Beard-Hacker Thesis maintains that the Civil War (1861–1865) (a) was more costly to the South than to the North. (b) ended Southern prosperity through the abolition of slavery. (c) increased immigration to the U.S. (d) sped up the industrialization of the U.S. Answer:

(d)

9. The South suffered from a labor shortage immediately after the Civil War (1861–1865) mostly because (a) freed slaves worked fewer hours. (b) freed slaves moved North. (c) Southern agriculture became mechanized. (d) Southern industry attracted workers away from agriculture. Answer:

(a)

10. With regard to the cost of the Civil War (1861–1865), Hughes and Cain (2011) argue all of the following except (a) It mobilized idle men and other resources on a vast scale. (b) The cost of the lives lost can be measured using the concept of “human capital.” (c) The war’s cost could have purchased all the slaves from their owners at 1860 prices, given each slave family 40 acres and a mule, and still had $3.5 billion left over for “reparations”—back wages to the freed slaves. (d) The real burden was widely felt by those individuals who owned Confederate financial assets, those whose crops and farm animals were sequestered, those whose homes and farm buildings were destroyed, and the dead. Answer:

(a)

11. In answering the question “Did the Civil War help promote economic growth and industrialization?” Hughes and Cain (2011) conclude that (a) the war, rather than being a major stimulus to industry, was actually a great drain that slowed U.S. economic development for a time. (b) the war was indeed a major stimulus to industry because it promoted the building of wartime factories and new technology, which then provided a basis for rapidly growing production levels when peace came. (c) the war was a setback for the South but a great stimulus for the North. (d) the war seemed to have had no overall impact on the economic growth of the nation. Answer:

(a)

12. Which of the following was NOT used to finance the Civil War (1861–1865)? (a) Taxation (b) Borrowing (c) Printing money (d) Large voluntary contributions from individuals opposed to slavery Answer:

(d)

Chapter 13

Economic Effects of the Civil War

105

13. With regard to the question “What were the lives of those who died in the Civil War (1861–1865) worth?” Hughes and Cain (2011) conclude that (a) there is no way to answer this question because people have infinite worth. (b) an estimate can be made by calculating the value of the loss of “human capital.” (c) the worth was close to zero because of the surplus of population that existed at the time. (d) the worth of Northern lives lost was greater because the Northerners were fighting against the evils of slavery. Answer:

(b)

14. The inflation that occurred during the Civil War (1861–1865) (a) was a means of expropriating resources to fight the war. (b) was a form of taxation to provide resources to fight the war. (c) represented a decrease in the purchasing power of money. (d) was true for all of the above. Answer:

(d)

15. During the Civil War (1861–1865), hyperinflation occurred in (a) the North. (b) the South. (c) both the North and South. (d) neither the North nor the South. Answer:

(b)

16. All of the following methods were used to raise funds to finance the Civil War (1861–1865) except (a) An income tax (b) The printing of paper money (c) Taxes on prostitution (d) Taxes on whiskey and beer Answer:

(c)

17. Which of the following groups benefited from the Civil War (1861–1865)? (a) Wage earners who suffered declining real earnings as wages lagged behind the inflation (b) Those groups issuing bonds during the war (c) Those farmers whose crops and farm animals were destroyed (d) Slave owners who parted with their property without compensation Answer:

(b)

18. By almost every measure of social and economic well-being, for how long after the Civil War (1861–1865) did the South lag behind the rest of the country? (a) For almost a century (b) For almost a decade before it adapted to life without slavery (c) For only two decades (d) Right down to the present day Answer:

(a)

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19. After the Civil War (1861–1865), the cotton South (a) continued to experience prosperity. (b) was no longer the main contributor to the agricultural sector, as wheat production elsewhere began to prosper. (c) experienced prosperity in some Southern states but not in all. (d) was no longer the major source of income for the South; Southerners quickly supplemented their cotton incomes with income generated by the manufacturing sector. Answer:

(b)

20. In the years immediately following the Civil War (1861–1865), a “unique” pattern of social and economic life formed in the South. It included: (a) High productivity (b) An increase in wealth among all groups (c) Social advancement among former slaves and whites (d) Racism Answer:

(d)

21. According to Hughes and Cain (2011), after the Civil War (1861–1865) the freed slaves were (a) left to fend for themselves without property, money or skills. (b) provided with 40 acres and a mule to get a start in life as free people. (c) provided with some monetary compensation for the centuries-long oppression and exploitation they and their ancestors had faced. (d) able to quickly become successful farmers and craftsmen. Answer:

(a)

22. With regard to education of freed slaves after the Civil War (1861–1865), (a) there was a rapid rise of literacy. (b) Southern public schools were “separate, but equal.” (c) most had received no education under slavery and were illiterate. (d) all of the above are true. Answer:

(d)

23. The system of sharecropping that emerged after the Civil War (1861–1865) (a) gave neither the owners of land nor the sharecroppers strong incentives to make improvements in agricultural production. (b) gave both the owners of land and the sharecroppers strong incentives to make improvements in agricultural production. (c) gave the owners of land but not the sharecroppers strong incentives to make improvements in agricultural production. (d) gave the sharecroppers but not the owners of land strong incentives to make improvements in agricultural production. Answer:

(a)

Chapter 13

Economic Effects of the Civil War

24. The inflation that occurred during the Civil War (1861–1865) can be described as all of the following except (a) A means of expropriating resources to fight the war (b) A form of taxation to provide resources to fight the war (c) A representation of a decrease in the purchasing power of money (d) A less expensive way of paying for the war than taxation Answer:

(d)

25. Economic developments after the Civil War (1861–1865) in the South include all of the following except (a) A decline in cotton prices with the result that poverty associated with cotton became a fixed feature of the South (b) The relatively widespread land ownership among the freed slaves (c) The widespread adoption of the sharecropping system (d) The widespread debt peonage for the freed slaves Answer:

(b)

26. The South’s post-Civil War (1861–1865) backwardness was due to all of the following, according to Hughes and Cain (2011), except (a) Extensive wartime destruction of life and wealth (b) The fiscal disaster of the Confederacy, whereby nine-tenths of the state banks of the South vanished (c) The price of cotton, which did not fall, but did fail to increase as it had prior to the Civil War (1861–1865), thus turning cotton into a less profitable crop (d) The sharecropping system’s failure to provide incentives for innovation in agriculture Answer:

(c)

27. The United States’ first income tax was imposed during (a) the American Revolutionary War (1763–1789). (b) the Civil War (1861–1865). (c) the 1930’s Great Depression. (d) World War II (1939–1945). Answer:

(b)

28. The Civil War (1861–1865) was the root of which modern-day belief(s)? (a) The Thirteenth Amendment of the Constitution, which prohibits slavery and involuntary servitude in the U.S. (b) The belief that wars can stimulate industrialization. (c) The belief that wars can effectively mobilize resources, boost employment and heighten production without inflationary consequences. (d) All of the above. Answer:

(a)

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Essay Questions

1. Describe the short- and long-run consequences of the Civil War (1861–1865). 2. Identify the sources of funding for the Civil War (1861–1865). Discuss their inflationary consequences. 3. Did the Civil War (1861–1865) promote or retard industrialization? Discuss the debate. 4. Describe the emerging patterns of the Southern economy in the post-bellum period. Which patterns largely lingered into the 1930s? On what grounds were the Southern plantation owners not compensated for their loss of slave capital? 5. During and after the Civil War (1861–1865), what changes took place in the financial system servicing the antebellum South? How did these changes hinder growth and development in the cotton economy of the post-bellum period? 6. Discuss the controversy centering on Ransom and Sutch’s (1977) claim that country storekeepers possessed monopoly power. To what do they attribute this monopoly power? How do they back their claim? Why do other economic historians disagree? 7. Identify the forces that placed downward pressures on wages in the South during the post-bellum period. 8. Discuss the economic and political impacts of the Civil War (1861–1865) on today’s economy. 9. Discuss the controversy surrounding emancipation without compensation from the perspectives of both the slaves and slave owners. 10. Discuss the growth and development of manufacturing in the South after the Civil War (1861–1865). 11. Compare and contrast the financial systems in the cotton South before and after the Civil War (1861–1865). 12. Explain why relative wages matter by highlighting the move of the Chinese immigrants from sugarcane plantations to the West Coast. 13. Discuss the labor “shortage” of the post-bellum period. Explain how the incentives linked to the system of sharecropping contributed to it. 14. What were the Jim Crow laws? How did they impact the efficient and effective flow of economic resources, final goods and final services?

Chapter 14 Railroads and Economic Development 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Charging “what the traffic will bear” was a tactic commonly pursued by American railroads before they were subjected to regulation. Answer:

True

2. Fogel’s (1964) work on railroads after the Civil War shows that they did not dominate the markets for steel, coal or wood. Answer:

True

3. The Fourteenth Amendment was applied to the railroads in the Santa Clara County v Southern Pacific Railroad (1886) decision even though the original intent of that amendment had been to protect the property of former slaves. Answer:

True

4. The Interstate Commerce Commission (ICC) (1887–1995) was the very first attempt by Congress and/or the federal government to regulate the railroads; regulation had previously come solely from the states. Answer:

True

5. The Great Northern railroad was privately managed well by James J. Hill (1889) and never went bankrupt. Answer:

True

6. North (1974) finds evidence to suggest that the iron industry was equally dependent on the railroad and iron stove industries for sales revenue at one point in time. Answer:

True

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7. Martin’s research (1971) supports the claim that the Interstate Commerce Commission (ICC) was a federal regulatory agency, The ICC was designed to capture market gains for the consumers of railroad services as well as for the railroad industrialists. Answer:

True

8. Railroads fueled the expansion of all markets in the post-bellum period of U.S. history. Answer:

False

9. The U.S. federal government embraced all of the Populists’ requests, including the nationalization of the railroad system. Answer:

False

10. All railroads were private enterprises with no government influence. Answer:

False

11. Many railroads received government subsidies and land grants and, thus, were influenced by the government. Answer:

True

12. Like the contemporary forms of transportation—airplanes, automobiles and trucks—railroads shifted from being perceived as a private luxury to a public necessity. Answer:

True

13. The pure competitor usually charges higher prices and offers more output than the monopolist or oligopolist. Answer:

False

14. As in the modern world, price-discriminating railroad industrialists of yesteryear charged the highest prices in markets with the steepest competition. Answer:

False

15. During the era from 1880 to 1920, the U.S. economy experienced a rise in big business, an expansion in industry and increased concentration in both. Answer:

True

Chapter 14



Railroads and Economic Development

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Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Modern work in economic history by people like Robert Fogel (1964) and Albert Fishlow (1965) shows (a) that railroads were the indispensable key to rapid economic growth in the 19th century. (b) that the levels of Gross National Product (GNP) reached in 1890 would have been reached in 1880 had it not been for reckless railroad speculation. (c) that less than 5% of the country’s late 19th-century economic growth was attributable to railroads. (d) none of the above. Answer:

(c)

2. The growth of total railroad mileage (a) was far greater after the Civil War than before. (b) was maximized in miles built per decade before 1860. (c) was a free-market phenomenon, not subject to government subsidies. (d) was not subject to business cycle fluctuations. Answer:

(a)

3. Fogel (1964) showed that railroad construction after the Civil War dominated the markets for which of the following? (a) Steel (b) Coal (c) Wood (d) None of the above Answer:

(d)

4. Historically, price discrimination was aggressive behavior exhibited by whom? The (a) monopolist (b) mom and pop business person (c) manager of a large group of industrial workers (d) corporation Answer:

(a)

5. Railroads (a) were among the last of the pre-1890 big businesses to be regulated. (b) were only subject to regulation by governments when the federal government stepped in with the Interstate Commerce Act of 1887. (c) were objects of regulation more than a decade before the Interstate Commerce Commission Act. (d) were never subject to government regulation before World War I and the “command economy.” Answer: (c)

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6. The perfectly discriminating monopolist will produce the (a) quantity at which average cost exceeds marginal revenue. (b) quantity at which marginal cost equals average cost. (c) quantity at which marginal revenue equals marginal cost. (d) quantity and price which is not necessarily profit-maximizing but in the best interest of society at large, even if it means loss. Answer:

(c)

7. Fogel’s work (1964) on the economic impact of railroads is mostly written in response to (a) Rostow’s takeoff theory. (b) Schumpeter’s theory of railroads building ahead of demand. (c) David’s theory of path dependency. (d) Engerman’s theory of multiroute analysis. Answer:

(a)

8. Fogel (1964) came up with two estimates of social savings (α and β). What do they represent? (a) The level of industrial productivity using railroads and the level not using railroads (b) The lowered benefit of transport for agricultural goods using railroads and the lowered benefit of transport for all goods and passengers using railroads (c) The lower output of the U.S. economy using transportation financed through domestic capital and foreign capital (d) The cost of shipping goods by railroads and the cost of shipping by waterways and wagon transport Answer:

(d)

9. Which event in business regulatory history permitted government intervention in industry affairs? (a) The case of Munn v Illinois (1877) (b) The Sherman Act of 1890 (c) The case of Nebbia v New York (1934) (d) The creation of the Interstate Commerce Commission via the Interstate Commerce Act of 1887 Answer:

(a)

10. Some economic historians argue that the Interstate Commerce Commission (ICC) was the first case of the “capture” of a federal regulatory commission. What does this mean? (a) The railroads used the ICC to solve the problems of cartel management. (b) The users of the railroads—passengers and shippers—influenced the ICC to keep railroad rates high and the quality of those services high. (c) The railroads used the Commission to keep rates high and keep potential new railroads from entering the business. (d) Foreign investors high jacked the ICC to protect their railroad investrments. Answer:

(a)

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11. Regarding the Interstate Commerce Commission (ICC), (a) historians agree that it was primarily “captured” by the industry that it was supposed to regulate. (b) historians agree that it was primarily “captured” by passengers and shippers to the disadvantage of the railroads. (c) historians generally agree that it was not “captured” by any group, but rather served the public well. (d) historians do not “agree” on any of the above. Answer:

(d)

12. Munn v Illinois (1877) was particularly important with regard to government regulation because it (a) upheld the traditional right of businesses to act freely without interference by government. (b) established the right of government to regulate any business that was deemed “clothed” in the public interest. (c) established the right of government to regulate any and all businesses wherever such regulation was deemed desirable to promote competition. (d) established the right of government at any level to regulate any business activity if such regulation was deemed desirable for any reason. Answer:

(b)

13. The “monopoly issue” is concerned with the fact that (a) monopolies will “charge what the traffic will bear” in order to maximize their profits. (b) monopolies will attempt to increase their profits by discriminating among their customers and charge prices that they are willing to pay, instead of charging one price. (c) monopolies will be able to charge higher prices and earn higher rates of return than competitive firms. (d) all of the above apply. Answer:

(d)

14. Why did railroads come under government regulation? (a) Disgruntled shippers and travelers raised an outcry about the routes of railroads. (b) Some people effectively argued that railroads were charging “unfair” rates. (c) The railroad industry was too competitive, thus driving rates below those necessary to ensure normal profits for railroad companies. (d) All of the above are correct. Answer:

(b)

15. The Granger Cases of the 1870s (a) sealed the fate of the U.S. railroad system, even though the cases were covered under a case involving a grain elevator. (b) came before the U.S. Supreme Court because state legislatures had passed laws in the 1870s to allow state agencies to control various aspects of railroad operation, including rate setting; these laws were then challenged by railroad companies. (c) established the principle that railroads were unquestionably subject to permanent regulation. (d) are true for all of the above. Answer:

(d)

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16. The Interstate Commerce Commission (ICC) (a) was the first permanent independent federal regulatory agency. (b) was established because, given the interstate nature of railroads, the regulation the public demanded from the states simply passed to the federal government. (c) initially lacked the power to set railroad rates, but its founding marked the beginning of a kind of federal government power capable of almost infinite expansion. (d) is best described by all of the above. Answer:

(d)

17. Changing conditions in transportation during the years following the Civil War (1861–1865) provided an economic explanation for which of the following? (a) Railroad amalgamation (b) A well founded fear of monopolies by agriculturalists (c) Large government funding budgets for railroads (d) All of the above Answer:

(a)

18. The Granger Cases of the 1870s (a) represented farmers’ overall support for changes in the railroad industry. (b) served to organize collectively and support legally the economic, political and social values of farmers. (c) organized the collective interests of railroads in what was known as “The Grange of the Midwest.” (d) are true for all of the above. Answer:

(b)

19. In 1886, what did the U.S. Supreme Court rule in Wabash, St. Louis, and Pacific Railway v Illinois? (a) Only the federal government could regulate commerce across states. (b) Only the states had the right to regulate commerce across states. (c) Neither the federal or state governments had the right to regulate across states. (d) Railroads were not subject to any government regulation, state or federal. Answer:

(a)

20. In 1906, the Hepburn Act (a) Required the federal government to set “fair rates” for customers regardless of geographical location. (b) Required the federal government to set rates that promised a positive rate of return to railroads. (c) Granted the power to set maximum rates in the railroad industry to the federal government. (d) Granted the power to set maximum rates in the railroad industry to the leading railroad tycoons. Answer:

(c)

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21. Which of the following illustrates the economic inefficiencies of government regulation? (a) Railroad rate increases are set by a government agency and these increases fall below increases in repair and depreciation costs but railroad passengers are satisfied. (b) Competitive railroad rates are determined by the buying and selling actions of those in the railroad industry. (c) Rate increases set by government agencies are set to match the increases in repair costs and the acceleration in depreciated capital. (d) Government protects private and individual rights to goods, service and resources. Answer:

(a)

22. Today’s railroads are: (a) Privately owned and regulated by competitive forces. (b) Private owned but managed by federal regulatory bodies. (c) Federally owned and managed by government regulatory bodies. (d) Federally owned but competitive. Answer:



(b)

Essay Questions

1. What particular complaints developed against the railroads, and by whom, that eventually led to their regulation by government? Though there is considerable uncertainty involved, what may have been some of the effects of this regulation? 2. Describe the changing legal, business and economic climate of the post-Civil War period that led to the federal regulation of business activity. Discuss the key court cases that sanctioned federal regulation of business. 3. What were the “Anti-trust Acts”? Identify the most important factors bringing about their enactment into law. How have the anti-trust acts been used with court backing to influence behavior in the railroad industry, communications industry and labor movement? 4. What influenced and supported the shift in legal opinion and tradition that changed private property from being protected from government interference early in American history to being more heavily regulated later on? Discuss both agriculture and the railroad industry, and briefly mention the effects of these changes on American economic growth. 5. Describe the impact of populist agitation and of rural anti-big business, anti-eastern establishment attitudes on government policies in agriculture, banking and industry in the period between the Civil War and World War I. In what areas did this public pressure make the most difference in U.S. economic development? 6. What is a monopoly? Why did some individuals strongly believe that the railroad industrialists possessed monopoly power? Were their beliefs substantiated? What actions were taken against the railroads? How do these actions affect us today?

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7. What is the Sherman Anti-trust Act of 1890? What is the economic history behind this act? How is this act applied today? 8. Many individuals blame government regulation for the demise of the railroad industry. Describe their economic reasoning. 9. Discuss the historical significance of the Granger Cases in the 1870s. 10. Incentives matter. Identify the main special interest group behind the Sherman Anti-trust Act of 1890 and identify why they wanted to pass this act. 11. Explain why profits and a positive rate of return on investment matter in any industry. Explain how they provide industrialists with the incentive to provide the services most valued by their customers. Illustrate using the experiences of the railroad industrialists. 12. How was the history of the railroad influenced by private ownership? Government regulation? How did (i) unfettered capitalism and (ii) government regulation influence the rise and fall of the railroad industry? 13. Some researchers argue that the railroad industry was the first industry captured by special interest groups. Identify how and why railroad industrialists as well as customers would want to do so. What are the economic consequences?

Chapter 15 Post-Civil War Agriculture 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The Desert Land Act (1877) and the Cary Act (1894) liberalized the terms for preemption that had been set originally in the 1862 Homestead Act. Answer:

True

2. The rise in output of corn and wheat was achieved more by increasing acres farmed than by raising output per acre. Answer:

False

3. Studies indicate that after the Civil War and up to the 1890s, farmers did not benefit from an improvement in their terms of trade between agriculture and manufacturing. However, they did benefit from a decline in transportation charges relative to farm prices. Answer:

False

4. As more people entered the agricultural sector between 1865 and 1913, agricultural efficiency (i.e., output per man hour) fell. Answer:

False

5. Advances in chemical and biological applications before World War I (1914–1918) increased agricultural output per acre. Answer:

True

6. During the post-bellum period, growth in demand outpaced growth in supply, causing food prices to fall. Answer:

False

7. Higgs (1971) finds evidence to suggest that railroads did take advantage of farmers before 1896. Answer:

True

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8. After the Civil War, wheat production became regionally specialized and output production in the Midwest increased consequently. Answer:

True

9. Prices, on average, increased in the food market; the demand for food had simply grown faster than supply from the end of the Civil War in 1865 to the beginning of World War I in 1913. Answer:

False

10. By comparing the market value of livestock, corn, wheat and oats in 1880 to 1900, one can see that agricultural growth in the South did not occur. Answer:

False

11. During the period of industrialization in the U.S., real income in the agricultural sector fell. Answer:

False

12. Most new settlement in the West came from homesteads. Answer:

False

13. During the period of industrialization in the U.S., real income in the agricultural sector fell. Answer:

False

14. Attitudes toward public land use have changed numerous times since the late 1800s. Answer:

True

15. The last of the public land was sold between 1881 and 1907. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Extensive agricultural cultivation from 1870 to 1910, as described by Hughes and Cain (2011), meant that (a) there could be no increase in agricultural output per man hour. (b) the percentage increase in acreage under cultivation and the percentage increase in agricultural output was roughly the same. (c) the proportion of the labor force in agriculture steadily increased. (d) all of the above were true. Answer:

(b)

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Post-Civil War Agriculture

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2. The need for government subsidies of irrigation produced (a) the Desert Land Act (1877). (b) the Interstate Commerce Commission Act (1887). (c) the Newlands Act (1902). (d) all of the above. Answer:

(a)

3. Western agriculture in the nineteenth century can be characterized by (a) a rising labor to output ratio. (b) a rising capital to output ratio. (c) the use of marginal land to increase output. (d) a shift to more efficient crops. Answer:

(c)

4. With regard to agricultural productivity (grain crops) in the post-Civil War period (1870–1910), (a) output per acre went up significantly. (b) output per man-hour went up significantly. (c) output per unit of energy input went up significantly. (d) all of the above occurred. Answer:

(b)

5. In the last three decades of the 19th century, the long-run supply track of farm prices (a) indicates a decline in farm prices due to a slowly increasing demand and a more rapidly increasing supply. (b) indicates a decline in farm prices due to a slowly increasing supply and a more rapidly increasing demand. (c) indicates an increase in farm prices due to a slowly increasing supply and a more rapidly increasing demand. (d) indicates relatively constant prices due to the fact that supply and demand were both increasing at about the same rate. Answer:

(a)

6. Farmers’ complaints during the post-Civil War period included all of the following except (a) High railroad rates (b) A worsening of the terms of trade between the prices of farm goods and the prices of manufactured articles (c) The fact that national banks were not allowed to accept farm mortgages as loan collateral (d) There is no “except”; all of the above were complaints of the farmers Answer:

(d)

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7. The farm revolt (Populism) led ultimately to all of the following changes in society except (a) Universal public education (b) Women’s suffrage (c) Secret ballots (d) The vote for working men Answer:

(d)

8. The closing of the frontier in the early 20th century led eventually to (a) exhausting the land of all fertility by overusing it. (b) a change from an “intensive” to an “extensive” use of the land. (c) an emphasis on water conservation projects and the irrigation of arid lands. (d) the sale of Bureau of Land Management and Forest Service lands to provide more land for private agriculture. Answer:

(c)

9. The South’s post-Civil War backwardness was due to all of the following except (a) extensive wartime destruction of life and property. (b) the fiscal disaster of the Confederacy, whereby nine tenths of the state banks in the South vanished. (c) the price of cotton was increasing, as it had prior to the Civil War, thus keeping cotton profitable and discouraging investors in the South from developing a modern manufacturing system. (d) the failure of the sharecropping system to provide incentives for innovation and progress in agriculture. Answer:

(c)

10. The Western railroads had been granted vast amounts of land by the government. Consequently, they (a) Held on to it tightly. (b) Produced a competitive market with homesteading. (c) Wanted to profit only from providing railroad services. (d) Hindered economic development by restricting new farms in the West. Answer:

(b)

11. During the period of rapid industrialization in the U.S. after the Civil War, (a) real farm incomes fell drastically. (b) real incomes in the agricultural sector increased at a faster pace than real incomes in manufacturing. (c) real incomes in the agricultural sector increased at relatively the same rate as real incomes in manufacturing. (d) real incomes in the agricultural sector increased but at a slower pace than real incomes in manufacturing. Answer:

(d)

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12. Historically barriers to development in the U.S., such as the dry deserts of some of the country’s western states, have been solved by (a) only government action. (b) only private action. (c) a blend of government and private actions. (d) foreign expertise. Answer:

(c)

13. The common ownership of natural resources frequently leads to (a) an efficient resource allocation. (b) an even distribution of resources. (c) an uneven distribution of resources. (d) a productive use of resources. Answer:

(c)

14. To restrict a wilderness area in the public domain to a particular group in the general public, say the motorists or snowmobilers of today, is (a) democratic. (b) consistent with Thomas Jefferson’s view on federal ownership of land. (c) undemocratic. (d) non-discriminatory. Answer:

(c)

15. Which of the following are expected consequences of common ownership of property and resources? (a) The threat of corrupt use (b) The danger of over use (c) Free riding (d) All of the above Answer:



(d)

Essay Questions

1. Describe the impact that the closing of the western frontier had on agriculture. 2. Explain why most new Western settlements were linked closely to the railroad industry. 3. Identify the sources of extensive agricultural growth during the post-bellum period of U.S. history. 4. Describe the patterns of agricultural production in the “farm belt.” 5. Provide the economic reasoning behind the farmers’ complaints about high railroad costs, unfair terms of trade, land monopolies and usurious interest rates.

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6. Describe how the complaints of farmers changed the degree to which the federal government intervened in business and consumer affairs. 7. Compare internal developmental patterns of the U.S. economy in the antebellum and post-bellum eras. Identify, describe and explain the differences. 8. Discuss why farmers faced financial difficulties in the late 19th century, and whether they were justified in their complaints and in the goals of the political movements that they supported from 1865 to 1900. Were these goals in the public interest or just in the farmers’ interest? 9. Describe the trends of farm prices from the end of the Civil War to the mid-1890s. Explain why this trend fueled agrarian discontent. 10. Identify the sources of growth in demand for and supply of agriculture. Explain why relative growth rates in demand and supply matter when explaining and forecasting price changes. 11. Explain how the public ownership of natural resources can lead to problems with the distribution of economic rents through the political system at taxpayers’ expense. Illustrate by choosing an example of a special interest group capturing the government’s attention through a natural resource policy that benefited a few at the expense of taxpayers.

Chapter 16 Population Growth and the Atlantic Migration 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The large influx of immigrant families between 1860 and 1910 caused the total population to grow at a faster rate than the work force. Answer:

False

2. The data show that the American national income grew fast enough—even when immigration rates are taken into account—to produce rising income per capita between 1860 and 1910. Answer:

True

3. During the postbellum period, per capita real output could not keep pace with population growth. Answer:

False

4. From the late 1860s until 1907 the U.S. averaged a four percent or more increase in the real value of the goods and services produced. Answer:

True

5. Between the end of the Civil War and the beginning of World War I, the U.S. economy was not able to effectively absorb the millions of immigrants it received. Answer:

False

6. The demographic trends in population growth and migration after the Civil War differed significantly from those established before the War. Answer:

False

7. The percentage of foreign-born people living in the U.S. continued to rise after the Civil War. Answer:

True

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8. The number of people living in urban areas fell after the Civil War and then increased as World War I approached. Answer:

False

9. The nonwhite percentage of the U.S. population rose after the Civil War. Answer:

False

10. Information and opportunity costs affected patterns of emigration to the U.S. Answer:

False

11. Young male adults provided the single largest group of migrants. This helped increase human capital in the U.S. Answer:

True

12. Net migration can help fuel population growth which, in turn, provides a positive incentive for businesses to expand production and employment. Answer:

True

13. Relative U.S. real wages and incomes played a role in influencing the decisions of foreign migrants. Answer:

True

14. Long information lags, bad harvests, high degrees of government intervention in private affairs and other “push-effects” often decreased net migration in the U.S. Answer:

False

15. When the U.S. economy expands, foreign investment in and immigration to the U.S. usually contracts. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. According to the Thomas (1954) analysis, American investment in industrial physical capital was (a) labor-using in upswings of immigration. (b) labor-saving in upswings of immigration. (c) “labor neutral” over the course of immigration. (d) relentlessly labor-saving no matter what. Answer:

(a)

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2. Brinley Thomas’ (1954) thesis explains (a) fluctuations in immigration. (b) fluctuations in European domestic investment. (c) fluctuations in European foreign investment. (d) all of the above. Answer:

(d)

3. In the four decades from 1860 to 1900, the U.S. population nearly tripled. Real Gross Domestic Product (GDP) (a) fell by more than the amount by which the population increased. (b) fell by the same amount by which the population increased. (c) rose at about the same rate as the population increase. (d) increased by even more than the population increase. Answer:

(d)

4. The population theory of Thomas Malthus (a) would have predicted the changes in per output in this country in the 19th century and up to 1910. (b) would lead you to expect a powerful surge in physical output as the immigration poured in. (c) would not have predicted the positive trend increase in per capita output and income in 1860–1910. (d) does not apply to any of the above. Answer:

(c)

5. The American birth rate in 1860–1910 (a) was kept high by the tendency of immigrant children to have large families. (b) increased steadily. (c) declined, on average. (d) rose dramatically after the Civil War due to the large numbers of immigrants having children in the U.S. to get U.S. citizenship. Answer:

(c)

6. The evidence shows that in 1860–1910 (a) population and annual hours worked grew more rapidly than did the employed labor force. (b) population grew more rapidly than the labor force, but annual hours worked grew less rapidly. (c) population grew less rapidly than did the employed labor force, and the work day shortened. (d) population, productivity and the work day grew less rapidly than did the employed labor force. Answer:

(c)

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7. According to Simon Kuznet’s (1958) research, the pattern of immigration in 1865–1914 (a) showed long swings but not the short-term business cycle fluctuations. (b) showed no long swings in the 1820–1860 period, but did show the business cycle. (c) showed both business cycle patterns and long swing patterns. (d) unlike 1820–1860, showed neither short cycles nor long swings, but was instead a steady surge after the Civil War ended. Answer:

(c)

8. In Brinley Thomas’ (1954) theory of the Atlantic Economy, (a) cotton exports to Europe drove the growth of the U.S. economy. (b) people and capital moved to the U.S. when U.S. economic growth was strong. (c) the peaks of the U.S. business cycle were closely aligned with that of European peaks. (d) all of the above are true. Answer:

(b)

9. In the Thomas (1954) model, (a) all nations near the Atlantic Ocean were considered one economic unit. (b) laborers, capital and other resources freely move to those users with the highest net returns. (c) the European economy moved inversely in relation to the U.S. economy and vice versa. (d) all of the above are true. Answer:

(b)

10. What does a study of immigration figures before 1921 indicate? (a) An overwhelming majority of immigrants came from the British Isles. (b) Voluntary immigrations slowed as 1921 approached. (c) The diversification of immigrants increased since the colonial period of U.S. history. (d) It is not possible to link immigration patterns and growth in the U.S. economy. Answer:

(c)

11. Which of the following is true for the period between 1860 and 1910? (a) The number of people in the labor force increased at a faster pace than the total population. (b) The workday lengthened. (c) Real national income decreased. (d) All of the above. Answer:

(a)

12. Hughes and Cain (2011) give some credit to which of the following factors for the 1860–1910 increase in the number of people employed, shorter work days and higher real incomes? (a) A decrease in the number of immigrants (b) A closed economy with no imports coming into or exports going out of the U.S. (c) Mechanical power and capital accumulation (d) All of the above Answer:

(c)

Chapter 16

Population Growth and the Atlantic Migration

13. From 1860 to 1910, U.S. statistical and qualitative evidence suggests that (a) many migrants came during the upswings in the U.S. business cycle. (b) the employment experiences and economic conditions of family and friends in the U.S. influenced the decisions of prospective immigrants. (c) economic desperation, social immobility and restricted labor opportunities “pushed” immigrants out of their homelands and into the U.S. (d) all of the above are true. Answer:

(c)

14. What does Simon Kuznet’s (1958) study on the U.S. economy show? (a) Short swings in the U.S. business cycles but steady, stable growth in Real Gross Domestic Product (b) Immigrants to the U.S. were attracted by the secular increases in U.S. real wages and incomes (c) A decrease, not increase, in net U.S. migration from 1860 to 1910 (d) No movement in capital, only humans, across the Atlantic economy from 1860 to 1910 Answer:

(b)

15. From 1860 to 1910, (a) The total population grew faster than the workforce. (b) National income grew faster than did total population. (c) The workday increased. (d) Foreign investment in the U.S. dropped continuously. Answer:

(b)

16. From 1860 to 1910, international net capital flow into the U.S. (a) was positive when the U.S. economy expanded. (b) was neutral and not influenced by the U.S. business cycle. (c) was negative when the U.S. economy grew. (d) was positively impacted by U.S. discussions about and actual restrictions on immigration. Answer:

(a)

17. From 1860 to 1910, U.S. mobility between social classes and occupations (a) distracted immigrants. (b) increased the potential migrant’s opportunity cost of staying in Europe. (c) attracted immigrants to the U.S. (d) decreased foreign investment in the U.S. Answer:

(b)

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18. According to Thomas (1954), increased immigration provided incentive to invest in capital that was (a) labor-using, resulting in capital widening. (b) labor-using, resulting in capital deepening. (c) labor-saving, resulting in capital widening. (d) labor-saving, resulting in capital widening. Answer:



(a)

Essay Questions

1. Discuss the immigration patterns in the U.S. economy between the Civil War and World War I. 2. Discuss the Thomas (1954) model of migration and economic growth in the Atlantic economy. Compare it to the Simon Kuznets (1958) model. 3. Provide a detailed description of the Malthusian thesis and discuss its economic implications. 4. Discuss the debate over discrimination against immigrants in U.S. history. Identify the economic consequences of discrimination. 5. Discuss the economic benefits and costs of the increase in the number of people living in urban areas after the Civil War. 6. Discuss the debate over why the U.S. ended immigration when it did. 7. Why did it take several Congressional attempts to pass a law requiring immigrants to take a literacy test? Discuss the debate. 8. Look at Figure 16.1. In your own words, describe the association between U.S. immigration patterns and swings in its business cycle. Provide the rationale behind this association. 9. Explain how immigrants can contribute positively to a growing and developing economy. 10. Assume there are no immigrants in the U.S. today. Describe what the economy looks like in terms of production levels, employment levels, and overall prices. 11. Holding the economic implications constant for a moment, discuss the social and political implications of unrestricted immigration. 12. Explain why the free flow of laborers and capital benefited the U.S. and European economies during the nineteenth century.

Chapter 17 Industrialization, Entrepreneurship, and Urban Growth 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. By the end of the 19th century, bituminous coal still was the largest single source of mineral energy used in this country, despite the enormous increase in oil production and refining. Answer:

True

2. By 1913, the dominant method of making basic steel was the open-hearth furnace. Answer:

True

3. One way to characterize technological change is “creative destruction,” which basically means that today’s innovation will productively destroy yesterday’s capital investment. This destruction creates new job opportunities, boosts production and offers a greater variety or more goods and services than in the past. Answer:

True

4. Schumpeter maintains that recessions provide businesspeople with incentives to advance technologically. Answer:

True

5. Entrepreneurship results in an equal distribution of wealth and income. Answer:

False

6. Internal and external economies positively contributed to U.S. industrialization. Answer:

True

7. The assembly line and interchangeable parts were first used by Henry Ford. Answer:

False (They were first applied by Eli Whitney in the production of guns.)

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8. By 1914 the American economy had transformed into an agricultural giant. Answer:

False

9. Industrialization through heavy capital investments required savings by households, businesses and/or government bodies. Answer:

True

10. Open-hearth technology quickly replaced the Bessemer converter in the steel industry. This is an example of Schumpeter’s creative destruction process. Answer:

True

11. Industrial entrepreneurs like J.P. Morgan, Henry Ford and Andrew Carnegie were driven by desires to earn profits. In the process of pursuing these profits, American consumers were made better off. Answer:

True

12. Output produced and sold always generates profits for businesses. Answer:

False

13. Mass production was made possible by mass consumption, a national market and international trade. Answer:

True

14. Industrialization and urbanization in the U.S. occurred simultaneously between 1860 and 1910. Answer:

True

15. The percentage of people living in urban areas decreased surprisingly between 1860 and 1910. Answer:

False

16. The cost of output is income to the land, labor, capital and entrepreneurial talent used to produce it. Answer:

True

17. The demand for goods and services decreases with a rise in employment and income. Answer:

True

18. Tertiary employment tended to require generalized education and/or training and, therefore, it was found primarily in rural areas. Answer:

False

19. The growth and development of the U.S. economy during its period of rapid industrialization was largely influenced by centralized economic planning. Answer:

False

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Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Which of the following did NOT contribute to “internal economies” in the industrialization process? (a) Diminishing returns to scale (b) Central power sources (c) Managerial improvements (d) Transportation networks Answer:

(a)

2. In the process described as Schumpeterian economic growth (involving Schumpeter’s ideas about growth), (a) recessions are the object of countercyclical policy designed to minimize the waste of unemployed labor and other resources. (b) expansions are considered wasteful because of the tendency for inflation to be generated near the cyclical peaks. (c) recessions are considered to be useful cleansing devices for abandoning inefficient uses of economic resources. (d) depressions are considered to be necessary to maintain greater equality of wealth and income over time. Answer:

(c)

3. If the Habakkuk thesis had been correct—unamended by Rosenberg, David and others—a long-run decline in the supply of agricultural productivity west of the Appalachians would be matched by a proportional (a) decline in the productivity growth in eastern manufacturing. (b) increase in productivity in eastern manufacturing. (c) rise in American food imports. (d) rise in American exports of manufacturing. Answer:

(a)

4. The exploitation of what resource supplied more than half of the increase in mechanical energy in 1860–1910? (a) Petroleum (b) Water power (c) Anthracite coal (d) Bituminous coal Answer:

(d)

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5. By 1913, steel making by Bessemer converter had been completely surpassed by (a) continuous casting integrated mills. (b) the Basic Oxygen furnace. (c) electric furnaces. (d) open hearth furnaces. Answer:

(d)

6. What do diseconomies of cities include? (a) Pollution (b) Crime (c) Congestion (d) All of the above Answer:

(d)

7. Cities included all of the following economies of scale except (a) Transportation (b) Sanitation (c) Crime (d) Education Answer:

(c)

8. Schumpeter asserts all of the following except (a) A strong middle class fosters growth in society’s entrepreneurial base. (b) Entrepreneurs are the leading force behind technological advancement. (c) Invention and innovation are unnecessary in a growing economy. (d) Secured property rights encourage risk-taking entrepreneurial behaviors. Answer:

(c)

9. Creative destruction includes all of the following except (a) The rise of the automobile industry at the expense of the carriage industry (b) The rise of the computer industry at the expense of the typewriter industry (c) The destruction of all capital during economic busts (d) There is no except; all of the above are examples of creative destruction Answer:

(c)

10. Internal economies in the U.S. during its period of industrialization involved the (a) production of goods in factories. (b) production in small, isolated towns spread throughout the U.S. (c) production of goods in factories grouped together in the same geographical region. (d) production of goods in isolated factories spread throughout the U.S. Answer:

(a)

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11. Profit-maximizing industrialists are concerned with both revenues and costs. Transportation and production costs are an important part of total costs. Both are impacted by (a) location and power sources. (b) the cost of managing large quantities of productive resources found anywhere along the production chain. (c) the ability to concentrate or group resources in the same place. (d) all of the above. Answer:

(d)

12. Economies of scale result as a firm increases in size and expands its use of resources. Productivity increases and fixed production costs are spread over an increased number of goods and services. Which of the following are types of economies of scale? (a) Command economies (b) External economies (c) Open economies (d) Closed economies Answer:

(b)

13. Which of the following is an example of external economies? (a) The cost of per unit produced in manufacturing goods falls as the industry size grows. (b) The cost of per unit produced falls as the firm size, not the industry size, grows. (c) The cost of per unit produced in manufacturing goods increases as the industry grows. (d) The cost of per unit produced falls as the size of the firm grows. Answer:

(a)

14. Mass production during U.S. industrialization involved using which of the following? (a) Interchangeable parts (b) Division of labor and specialization (c) The assembly line (d) All of the above Answer:

(d)

15. Between 1860 and 1914, the growth rate in industrial production (a) fell behind the growth in the overall U.S. population. (b) outpaced the growth rates in the labor force and population. (c) was less than the growth rate in agricultural production. (d) fell behind both the growth rate in agricultural production and that of the overall U.S. population. Answer:

(b)

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16. Between 1860 and 1910, the labor force in agriculture (a) dwindled to historic lows. (b) decreased at a slow steady pace. (c) increased but not at the same rate as the total labor force. (d) stayed the same. Answer:

(c)

17. According to Rosenberg (2004), the U.S. economy between the Civil War and World War II was relatively poor in which of its productive resources? (a) Land (b) Labor (c) Capital (d) Entrepreneurial talent Answer:

(b)

18. Throughout U.S. history labor and physical capital have been (a) input substitutes and complements. (b) output substitutes and complements. (c) product displacements. (d) mixed outputs. Answer:

(a)

19. By 1910 the top ten industries included printing, malt liquors, tobacco cars and railroad cars. The introduction of these new top ten industries indicated (a) a shift in consumer preferences toward luxury items. (b) an increase in real incomes in the U.S., permitting people to purchase luxury items. (c) a smaller percentage of total consumption expenditures on essential food, clothing and shelter. (d) all of the above. Answer:

(d)

20. During the industrialization of the U.S., wealth was (a) unequally divided among the population but accumulating. (b) a product of a federal plan for economic development and growth. (c) the sum of all revenue earned by U.S. households and businesses. (d) none of the above. Answer:

(a)

21. In the U.S., the most recognized entrepreneurs during industrialization were (a) clearly monopolists. (b) robber barons, who solely realized the concentrated wealth accumulated nation-wide. (c) individuals whose market power clearly originated from within the government. (d) key individuals who were famous or wealthy. Answer:

(d)

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22. As entrepreneurs find new market niches and help specific industries grow, other industries will (a) grow proportionately. (b) grow disproportionately. (c) fail. (d) grow disproportionately and fail. Answer:

(d)

23. Which sector consists of services traded for food, shelter, housing or other services? (a) tertiary (b) secondary (c) primary (d) international Answer:

(a)

24. Throughout U.S. history, entrepreneurial activity would occur when (a) centralized economic planning was involved (b) distributed rights to profits were clear and protected (c) government intervention was pervasive (d) all of the above Answer:



(b)

Essay Questions

1. What are external economies? How did they contribute to U.S. industrialization, and how did U.S. industrialization produce external economies? 2. Identify the importance of the steam engine in U.S. industrialization. 3. Discuss how the availability of labor and exploitation of relatively inexpensive raw materials contributed to the increase in industrial output after the Civil War. 4. Capital equipment can be labor-saving or labor-using. Use late-19th-century industrialization to illustrate the differences between the two types of capital and explain why and when industrialists switched between them. 5. Identify the changes in the top ten industries during the late 19th century. Discuss the importance of these changes. 6. Discuss the factors that encouraged the use of mass-production techniques in the United States. 7. How did mass production contribute to mass consumption? How did mass consumption fuel industrialization? 8. Discuss the importance of standardization in those industries using interchangeable parts.

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9. Using Schumpeter’s theory on creative destruction, describe the role of the entrepreneur in the growth and development of the U.S. economy. 10. In the 19th century, American capitalism appeared in its classic form: giant firms, industrial labor force, complete commercialization of agriculture and extractive industries, big banking and finance and giant transportation systems. The property laws handed down from colonial times were apparently the perfect vehicle for economic growth. Nevertheless, Hughes and Cain (2011) argue that there were several legal developments in the 19th century that further aided or facilitated entrepreneurial activity and the rise of industrial capitalism; in fact, these were essential to the rise of industrial capitalism. Describe them. 11. Discuss the “economics of urbanization” that gave urban areas economic advantages over rural areas and led to rapid urbanization and economic growth in the late 19th century. 12. Compare and contrast internal and external economies. Relate both to economies of scale with respect to U.S. industrialization. 13. Describe the course of industrial development from the end of the Civil War to the beginning of World War I. Use statistics on industrial production.

Chapter 18 Big Business and Government Intervention 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The three acts that form the basic machinery behind the U.S. anti-trust laws are the Sherman Act of 1890, the Federal Trade Commission Act of 1914, and the Robinson Patman Act of 1836. Answer:

False

2. The real purpose of the Webb-Pomerene Act of 1918 was to alter the terms of trade in favor of the United States. Answer:

True

3. The Webb-Pomerene Act of 1918 prohibits price fixing and other anticompetitive agreements that pertain solely to goods for export. Answer:

True

4. Fears that the Munn v Illinois (1877) doctrine would result in excessive government control over businesses were not realized, for it actually had the effect of retarding government regulation. Answer:

False

5. The Sherman Antitrust Act of 1890 was followed almost immediately in the 1890s by the largest merger movement ever known by Americans up to that point in U.S. history. Answer:

True

6. Research in history and economic history shows that before 1880, significant federal participation in the markets of the American economy occurred. Answer:

False

7. In the pivotal Supreme Court decision Munn v Illinois (1877), the court held that only natural monopolies were subject to federal government regulation. Answer:

True

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8. According to Alfred Chandler (1977), big business could be justified, at least in part, by the ability of large scale enterprises to take advantage of scale economies. Answer:

True

9. Albro Martin (1971) argues that the Interstate Commerce Commission (1887–1995) was captured by its customers, not the railroad industrialists. Other researchers like Gabriel Kolko (1965) highlight the involvement of railroad industrialists in capturing this government agency to serve a cartel role, too. Answer:

True

10. As a result of the case of Dartmouth College v Woodward (1819), the Federal Trade Commission was formed years later in 1914. Answer:

False

11. Up until the early 1880s, there was no federal control over private activities. Answer:

False

12. The organized groups of people who favor government intervention do so at the expense of other groups because even government resources are limited. Answer:

True

13. Interstate Commerce Commission (ICC) Act of 1887 gave the federal government rate-setting powers. Answer:

False

14. The U.S. experience with the rise and fall of its railroad industry illustrates that central planners are less likely than private investors to allocate investment funds into wealth-creating projects. Answer:

True

15. Even though government-operated firms do not have to make a profit, they usually operate efficiently. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. In Nebbia v New York (1934), the doctrine of Munn v Illinois (1877) (a) was held to be irrelevant. (b) was upheld for all cases. (c) was upheld for interstate commerce. (d) was overturned explicitly. Answer:

(b)

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2. Albro Martin (1971) argues that the Interstate Commerce Commission (1887–1995) was (a) never a case of “capture.” (b) “captured” by the railroads themselves. (c) “captured” by the customers of the railroads. (d) too ineffective to warrant “capture” by anyone. Answer:

(c)

3. The Sherman Antitrust Act of 1890 (a) did not specify what economic actions are legal. (b) said that only competitive economic actions were legal. (c) declared illegal every combination in restraint of trade. (d) declared none of the above. Answer:

(d)

4. The Sherman Antitrust Act of 1890 was not well understood because (a) skilled lawyers were not involved in its creation. (b) judges were mainly political hacks and therefore were unable to follow the logic of the Act. (c) vested interests had been allowed too much influence in drafting the legislation. (d) the purpose of the legislation was not sufficiently clear when it was drafted. Answer:

(d)

5. What was the Federal Trade Commission (FTC), established in 1914, created to enforce? (a) U.S. foreign trade (b) The maritime code (c) The Interstate Commerce Act (d) The antitrust laws Answer:

(d)

6. What is the function of the system of federal regulation created by Congress from 1887 until now? (a) To change the outcomes of market decisions (b) To enforce the outcomes of market decisions (c) To replace market allocations with economic planning (d) To enforce the law Answer:

(c)

7. Research in history and economic history shows that before 1880, (a) there was some government intervention in the private sector of the American economy. (b) there was substantial federal regulation of private business organization but little influence in the economy otherwise. (c) the regulation and participation that existed were usually of a background nature and were not concerned with the details of day-to-day private business. (d) laissez faire was the rule so far as the federal government was concerned. Answer:

(a)

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8. In the pivotal Supreme Court decision Munn v Illinois (1877), the court held that (a) natural monopolies were subject to government regulation. (b) business in interstate commerce was subject to regulation. (c) any business, whether or not a natural monopoly, or whether or not it was in interstate commerce, may under certain circumstances be subject to regulation. (d) only businesses chartered (licensed) by governments could be subjected to government regulation. Answer:

(c)

9. Which of the following was NOT a part of Chandler’s (1977) description of the rise of big business in the 19th century? (a) Vertical integration of firms (b) The development of mass production (c) The development of mass distribution (d) The use of central planning to improve production techniques Answer:

(d)

10. According to Chandler (1977), the major event in business development in 1895–1904 was (a) the Granger cases. (b) Munn v Illinois (1877). (c) the rise of vertically integrated firms. (d) the merger wave. Answer:

(d)

11. What was the first federal government agency established to regulate business? (a) The Federal Trade Commission (b) The Securities and Exchange Commission (c) The Federal Power Commission (d) The Interstate Commerce Commission Answer:

(d)

12. The major problem with the Sherman Antitrust Act of 1890 was that (a) it was struck down by the Supreme Court. (b) the government lacked the tools to enforce it. (c) its language was too vague to be applied the ways desired by Congress. (d) businesses found ways to use the Act clearly in their favor. Answer:

(c)

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13. The long-term impact of Munn v Illinois (1877) on regulatory efforts was (a) to hold back federal efforts to regulate business. (b) to prevent states from regulating interstate trade. (c) to provide a temporary justification for regulating business. (d) to establish government as able to regulate all businesses permanently. Answer:

(d)

14. Since colonial times, the U.S. government controlled businesses at some level by: (a) letting market actions and interactions between private consumers and producers drive decisions (b) regulating, licensing and closing them. (c) protecting private property rights. (d) providing national defense. Answer:

(b)

15. The Sherman Antitrust Act of 1890 (a) was intended by Congress to prevent monopoly actions by both business and labor organizations. (b) was intended by Congress to prevent monopoly actions by business only, but was also used by the courts as a weapon against labor unions. (c) was intended as a measure to control unions but was also used by the courts to control business. (d) was intended to prevent monopoly actions by business only and was never used by the courts against unions. Answer:

(b)

16. Why was the Munn v Illinois (1877) court case particularly important with regard to government regulation? (a) It upheld the traditional right of businesses to act freely without interference by government. (b) It established the right of government at any level to regulate any business activity if it was deemed desirable for any reason. (c) It established the right of government to regulate any and all businesses wherever it was deemed desirable to promote competition. (d) It established the right of government to regulate any business that had become “clothed in the public interest.” Answer:

(d)

17. Prior to the 1880s, federal government control over the daily operations of private economic activity (a) was important but not as important as during the 1880s and following decades. (b) was virtually nonexistent; state and local governments handled any regulation or business management. (c) was important, but in the 1880s and following decades, it became less important as it was realized that regulation was basically inconsistent with the efficient operation of free markets. (d) was virtually nonexistent and did not become important until the Great Depression and New Deal programs of the 1930s. Answer:

(b)

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18. Two court cases that applied to the regulation of business were Munn v Illinois (1877) and Nebbia v New York (1934). Regarding these two cases, which of the following is true? (a) The former case, in effect, gave the federal government more comprehensive powers to regulate business than the latter case. (b) The latter case gave the federal government more comprehensive powers to regulate business. (c) Both cases were equally important in giving the federal government powers to regulate business. (d) Neither case was very important with regard to federal regulation of business but set a precedent for later, more important court cases. Answer:

(b)

19. Between 1860 and 1914, the concentration of industrial power did increase. What did members of the general public perceive to be the result of this heavy concentration? (a) Expanded output (b) Lower prices (c) A transfer of income away from consumers toward big businesses (d) All of the above Answer:

(c)

20. Scherer (1970) provides which of the following argument(s) to explain the appearance of antitrust laws? (a) Many farmers believed that the growth of big business came at the expense of growth in agriculture. (b) Many ordinary individuals with moderate or low incomes were envious of the fame and wealth accumulated by the relatively few industrial entrepreneurs. (c) Falling costs in transportation resulted in growth of the optimal size of the firm. (d) All of the above. Answer:

(d)

21. According to Alfred Chandler (1977), big business could be justified, at least in part, by (a) a rapid rate of innovation among big firms. (b) periodic recessions in which alert big businessmen buy out bankrupt firms and expand operations. (c) a relatively low rate of bankruptcies among big firms. (d) its ability to take advantage of scale economies—big business could best take advantage of technology and economies resulting from large-scale production processes. Answer:

(d)

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22. The Sherman Act of 1890 and the Clayton Act of 1914 were Antitrust Acts whose purposes included all of the following except (a) The maintenance of a competitive economy (b) The prevention of monopolies, combinations and other conspiracies in restraint of trade (c) The prevention of price discrimination that reduces competition (d) The prevention of labor union activity that reduces competition in the labor market Answer:

(d)

23. Andrew Carnegie dominated the steel industry on the basis of the Bessemer converter. This technology permitted unskilled men to produce large quantities of steel at relatively low costs. This technology was (a) invented by Carnegie. (b) stolen from the British inventor Bessemer. (c) acquired legally from the British inventor Bessemer. (d) imported from Germany. Answer:

(c)

24. How does the federal government influence the flow of goods and services into the country and, consequently, create extra profitability or rents in domestic production that would not have been there under free market conditions? (a) tariffs (b) minimum wage laws (c) control of the public domain (d) federal income taxes Answer:

(a)

25. In which case did the U.S. Supreme Court decide the Constitution was “intended to endure for ages to come and, consequently, to be adapted to various crises of human affairs”? (a) Nebbia v New York (1934) (b) Munn v Illinois (1877) (c) McCulloch v Maryland (1819) (d) Dartmouth College v Woodward (1819) Answer:

(c)

26. In which of the following cases did the U.S. Supreme Court decide that a corporation was an “individual” but not a constitutional citizen? (a) Nebbia v New York (1934) (b) Munn v Illinois (1877) (c) McCulloch v Maryland (1819) (d) Dartmouth College v Woodward (1819) Answer:

(d)

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27. The corporation, as a form of business organization, fueled the positive trend toward federal regulation of business activities for all of the following reasons except (a) Corporations were rapidly becoming more numerous than sole proprietorships and partnerships. (b) Corporations made possible or encouraged growth in the number of giant enterprises. (c) Corporations were adept at market manipulations, including price-fixing. (d) Corporations were able to take advantage of economies of scale which made possible business organizations whose affairs overlapped local or state jurisdictions, creating the need for federal control across state lines. Answer:

(a)

28. Since colonial times, the U.S. government controlled businesses at some level by: (a) letting market actions and interactions between private consumers and producers drive decisions (b) regulating, licensing and closing them. (c) protecting private property rights. (d) providing national defense. Answer:

(b)

29. In the struggle to control the power of big business which emerged between the Civil War and World War I, the nation (a) relied heavily on the principles of government expounded by the Founding Fathers such as Thomas Jefferson. (b) slowly changed into the modern regulated economy. (c) decided ultimately that big business was here to stay and should be allowed to operate without government interference. (d) began a policy of government ownership of business in important sectors of the economy. Answer:

(b)

30. A “great merger movement,” whereby firms combined with former rivals to become large firms, began in the 1890s. Who was the first President to look to bigger government as a way to cope with the economic power of these concentrated industries? (a) Woodrow Wilson (b) Herbert Hoover (c) Theodore Roosevelt (d) Franklin Roosevelt Answer:

(c)

31. How does the federal government influence the flow of goods and services into the country and, consequently, create extra profitability or rents in domestic production that would not have been there under free market conditions? (a) tariffs (b) minimum wage laws (c) control of the public domain (d) federal income taxes Answer:

(a)

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Essay Questions

1. What are economies of scale? How are they related to giant enterprises? 2. Describe the role of the rise of giant enterprises in economic growth and development assigned by Chandler (1977). 3. Lamoreux’s (1985) research finds that between 1895 and 1904, the manufacturing market was dominated by big businesses. They accounted for over 70 percent of the output produced. Lamoreux credits three historic events for this phenomenon. Identify and describe these three events. 4. Why do some economists argue that recessions are partly responsible for a rise in the number of collusive agreements among businesses and merged firms? 5. Why do some individuals argue that federal government intervention was necessary to establish a system of checks and balances over the economic power of big businesses? 6. Discuss the economic importance of the case of Munn v Illinois (1877). 7. What is the Interstate Commerce Commission (ICC) Act of 1887? When did the ICC acquire the power to set transportation rates? Why did some individuals argue that it served as a cartel manager? Why did others claim that the ICC served the interest of customers over those of the regulated businesses? Discuss the controversy. 8. Describe the Sherman Antitrust Act of 1890 and the Clayton Act of 1914. Why was the Clayton Act necessary? 9. Describe the significance of the changes in federal government control over markets between 1887 and 1914 in U.S. 10. Compare and contrast the views of Schumpeter (1939, 1976) and Chandler (1977) on the relationship between innovation and a successful business firm. Identify what they have in common and describe their differences. 11. “Government action is based on majority rule, whereas market action is based on mutual consent. The competitive marketplace allows for proportional representation of each individual. However, minority or unorganized groups must yield to the views of the political majority when activities are undertaken through government.” Explain what this statement means and illustrate by using the events leading up to the establishment of the Interstate Commerce Commission (ICC) in 1887 and passing of the Hepburn Act of 1906. 12. Will central planners or private investors be more likely to allocate investment funds into wealthcreating projects? Explain by illustrating the rise and fall of the railroad industry.

Chapter 19 Financial Developments 1863–1914 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. All national banks were required to join the Federal Reserve Bank of their region; however, state banks could do so on a voluntary basis. Answer:

True

2. The “Crime of ‘73” did not stop the Federal Treasury from buying massive amounts of silver at above-market prices before 1900. Answer:

True

3. The Greenbackers may be characterized fairly as inflationists. Answer:

True

4. The Greenbackers’ demand to back the greenback issues with gold reserves was not practical in the late 1860s. Answer:

False

5. The panic of 1893 was caused by the Sherman Silver Act of 1890, which doubled the Treasury’s monthly purchase rates to 4.5 million ounces of silver at current market prices and was eased when President Cleveland called for the Act’s repeal on June 30, 1893. Answer:

True

6. The need to issue paper money increased with the frequent use of checks. Answer:

False

7. Until 1863, National Banking was a mix of licensing by state charters, banking done by nonchartered private bankers, and free banking. Answer:

True

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147

8. The Populists succeeded in using the federal government to limit subsidies granted to corporations. Answer:

False

9. Contrary to Populist views, the lending practices during industrialization provided ample opportunities for firms and agriculturalists to invest, grow and develop. Answer:

True

10. Financial intermediation supports economic growth and development by bringing together numerous savers and investors in growing and increasingly complex markets. Answer:

True

11. In 1912, the National Monetary Commission denounced the existing financial system of the U.S. and, in a report, detailed the levels at which it restricted domestic producers’ abilities to function globally. Answer:

True

12. During a banking crisis during the period of free banking, the unexpected surge in the demand for money in the form of specie would cause bankers to call in loans which would, in turn, squeeze credit, slow output and increase unemployment. Answer:

True

13. The Aldrich-Vreeland Act of 1908 provided for temporary emergency currency for national banks. Answer:

True

14. The Federal Reserve Bank of 1914 permitted the Fed to compete with banks for profits. Answer:

False

15. Merchant banks and land mortgage companies were the result of the expansions in the transportation and industrial systems. Answer:

False

16. Intangible assets like stocks and bonds were created by U.S. industrial firms and traded elsewhere for capital funds. This activity eventually gave rise to investment banking. Answer:

True

17. Borrowers rely on financial intermediaries to hold and find uses for their funds that promise a positive expected rate of return. Answer:

False

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Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The report of the 1911 National Monetary Commission (a) advocated a turn to bimetallism. (b) advocated unification of the state and national banking systems. (c) advocated centralized reserve associations which would coordinate commercial banking processes such as check clearing. (d) advocated a unified central bank modeled after the Bank of England. Answer:

(c)

2. The Federal Reserve System began operating in 1914, finally (a) giving the U.S. its first 100 percent gold-backed paper money. (b) creating a privately-owned system for clearing checks on a national scale. (c) giving the U.S. its first government-owned central bank. (d) giving the U.S. its first unified currency issue, the Federal Reserve Note. Answer:

(b)

3. By 1900, what did the National Banking System under the Bank Act of 1863 (and subsequent amendments) help national banks attain? (a) A majority of banking establishments (b) A majority of banking assets (c) A monopoly issue of paper money (d) All of the above Answer:

(c)

4. The National Banking System under the Bank Act of 1863 created a banking system comprised of a mixture of (a) special state charters. (b) nonchartered private banks. (c) free banks. (d) all of the above. Answer:

(d)

5. The increase in tax on state bank notes from 2 to 10 percent provided state banks incentive to (a) attract more demand deposits and increase the use of checks. (b) increase the amount of state notes and use them to extend bank credit. (c) increase the minting of coins and use them for exchange and lending purposes. (d) all of the above. Answer:

(a)

Chapter 19

Financial Developments 1863–1914

6. What are demand deposits? (a) Money held by private individuals or corporations placed in depository accounts at banks (b) Liabilities (things that are owed) to banks and assets (things of value) to depositors or bank customers (c) Checking accounts that depositors can use on demand (d) All of the above Answer:

(d)

7. Out of the various types of M1 (demand deposits, coins and bank notes), only demand deposits (a) can be used to generate loans by banks. (b) serve as a medium of exchange. (c) serve as a unit of account. (d) store value. Answer:

(a)

8. Today, financial intermediaries specialize in all of the following activities except (a) Printing money (b) Lending (c) Borrowing (d) Accepting deposits Answer:

(a)

9. Between 1865 and 1914, individuals in households could use the income they did not spend to do what? (a) Purchase stocks (b) Buy bonds (c) Place money in savings accounts (d) All of the above Answer:

(d)

10. Under the Bland-Allison Act of 1878, (a) the U.S. Treasury committed to buying silver for coins at the current market price. (b) the U.S. Treasury committed to buying gold for coins at a set price. (c) the U.S. was placed on the gold standard. (d) the National Monetary Commission was created. Answer:

(a)

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11. Under the National Banking Acts of 1863 and 1864, the U.S. monetary system (a) experienced drastic changes. (b) played a role in helping the Union finance the Civil War. (c) permitted, for the first time, the federal government to charter banks. (d) protected the rights of states to be the only entities to charter banks. Answer:

(c)

12. Banking failures result when (a) banks do not hold 100 percent of their customers’ deposits in their vaults. (b) banks make loans. (c) bank withdrawals exceed their reserves. (d) all of the above occur. Answer:

(c)

13. Davis (1963) compares U.S. and British industrialization. What does he note in each country during industrialization? (a) A rise in the number of giant banks in both countries (b) A rise in the number of small banks in the U.S. but a rise in the number of giant banks in Great Britain (c) A rise in the number of small banks in Great Britain but a rise in the number of giant banks in the U.S. (d) A decrease in capital accumulation because of a small number of free banks Answer:

(b)

14. According to Davis (1963), industrial firms need capital to expand, grow and develop. They will seek the most efficient means to finance this capital. In the U.S. during its period of industrialization, industrialists raised the resources needed to invest in capital accumulation by (a) tapping into the lending power of giant commercial banks. (b) utilizing the lending power of a large number of small banks. (c) merging. (d) engaging in all of the above. Answer:

(b)

15. How do banks and financial intermediation support economic growth and development? (a) By helping businesses secure the funds needed for capital accumulation and technology advancements (b) By assisting customers in buying durable and nondurable goods and services (c) By financing government expenditures when tax revenue falls below planned spending (d) By granting loans to foreign-born individuals to invest in countries outside of the U.S. Answer:

(a)

Chapter 19

Financial Developments 1863–1914

16. Which is considered fiat money? (a) Greenbacks (b) Gold coins (c) Silver dollars (d) Silver certificates Answer:

(a)

17. According to the Quantity Theory of Money, the excessive printing of currency (the issuance of greenbacks and national bank notes) generated the post-Civil War increases in (a) productivity. (b) prices. (c) production. (d) rising real wages and incomes for all individuals. Answer:

(b)

18. Under the bimetallic system, when did the U.S. experience a depletion in its reserve species? (a) When imports exceeded exports (b) When exports exceeded imports (c) When the U.S. closed its borders to all international trade (d) When the trading partners of the U.S. refused all U.S. imports Answer:

(a)

19. Prior to the establishment of the Federal Reserve System (1913), reserve requirements (a) limited the banks’ ability to lend. (b) did not restrict the amount of paper-money issued by banks. (c) freed banks to create as much money as the market could bear without regard for risk and withdrawal rates. (d) forced banks to place deposits in the national bank. Answer:

(a)

20. According to Hughes and Cain (2011), what did the Populists want? (a) To use the federal government to redistribute income and wealth (b) A more direct democracy that limited the powers of state legislatures (c) A secret voting ballot and public education (d) All of the above Answer:

(d)

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21. Economic institutions like the Federal Reserve System of 1914 created by legislation are designed to: (a) Only achieve economic goals (b) Garner votes (c) Satisfy the well organized interests of special groups (d) All of the above Answer:

(d)

22. The National Banking Act of 1863, did which of the following? (a) Permitted interstate branch banking (b) Created one national central bank in the U.S. (c) Created federally chartered national banks restricted to conducting businesses within a designated state. (d) Created federally chartered national banks open to conducting businesses across states. Answer:

(c)

23. The federal government can fund financially strained programs by (a) Decreasing taxes (b) Increasing funding across all programs (c) Destroying money (d) Issuing U.S. Treasury bonds Answer:

(d)

24. The National Banking Acts of 1863 and 1864 attempted to make the national banking system seem stronger than the state banking system by all of the following EXCEPT: (a) Imposing legal reserve requirements on national banks (b) Providing depository insurance (c) Linking the capital requirements of national banks to the size of the cities in which they were located (d) Making national bank notes legal tender Answer:

(b)

25. When interest rates rise, the price of bonds: (a) Increases (b) Decreases (c) Stays the same (d) can be determined. Answer:

(b)

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26. Investment banks specialize in (a) Managing borrowing and the deposits of its customers (b) Managing commercial papers (c) Facilitating the loan interactions between banks and merchants (d) Handling long-term securities such as stocks, bonds and other securities. Answer:

(d)

27. Which group opposed having lots of money in the economy after the Civil War and before World War I? (a) Those individuals with debt (businesses) (b) Those buying and selling commodities (farmers) (c) Those providing credit through deposits and other venues (wealthy and savers) (d) Those benefitting from rising wages and prices Answer:

(c)

28. Subsidies for silver, the Bland-Allison Act of 1878, and the Silver Purchase Acts of 1890 and 1933 all provide examples of government programs (a) based on careful analysis of benefits relative to costs. (b) designed to redistribute income from the rich to the poor. (c) that reflect the political attractiveness of special-interest issues. (d) that promote the general welfare. Answer:

(c)

29. Populists proved themselves to be strong “quantity theory” activists by (a) pushing the government to provide a general level of money demand that could be kept abreast of farm output. (b) advancing public education and woman suffrage efforts. (c) trying to prohibit corporate subsidies. (d) seeking to reserve land and other natural resources for farm and conservation use. Answer:



(a)

Essay Questions

1. Describe the developments in the national banking system from 1790 to 1863. 2. What is financial intermediation? Discuss how it contributes to economic growth. 3. What is the Federal Reserve System? What are its current functions? 4. Discuss the risks of using paper money to provide an adequate supply of money for the economy. Describe how a central bank, government regulation or coordinated actions by banks can help reduce these risks.

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5. Describe the concerns of private citizens over the ways in which local, state and federal governments, federally-chartered and state-chartered banks and the Bank of England attempted to maintain the stability of paper money at different times from 1700 to 1860. Chapter 12 complements Chapter 19 in providing information required to complete this essay. 6. Discuss the drive to regulated banking through the public sector and through the private sector. Chapter 12 complements Chapter 19 in providing information required to complete this essay. 7. Discuss the banking crisis management techniques of Pierpont Morgan. Integrate Davis’ (1963) thesis in identifying why Morgan, a private individual, was involved in bank management crisis. Why did the Federal Reserve System initially adopt some form of his techniques? 8. Describe the differences between the ways U.S. and British industrialists could seek capital funding. How did these differences produce different financial developments and patterns of industrialization in these countries? 9. Describe the economic and political debates over money from 1865 to 1933. 10. Revisit the Quantity Theory of Money from Chapter 3. Identify the relationship between an increase in the supply of money and inflation. 11. Describe the disadvantages that unexpected inflation places on (i) people living on fixed incomes, (ii) workers whose wages and salaries are set by contracts, and (iii) creditors. 12. Identify the entities that want inflation and explain why they want it. 13. Describe the Populist movement and explain why supporters wanted the federal government to assume responsibility for economic welfare in the form of public education, low unemployment, and abolishing a national banking system. 14. Explain why the Populists wanted the national banks to increase the stock of money by issuing greenbacks. Discuss their desire for inflation. 15. Explain how pensions for soldiers, subsidies for shipbuilders and operators, subsidies and land grants to railroads, and tariffs to protect some industries from foreign competition illustrate the power of well organized special interest groups. Discuss the secondary economic effects of these efforts on the unorganized collective majority.

Chapter 20 The Giant Economy and Its International Relations 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Despite the huge increase in American exports of manufactures and the importation of primarily luxury goods in 1880–1910, the American market for American products was still largely selfsufficient. Answer:

True

2. The McKinley Tariff of 1890 marked the beginning of the American move toward free trade. Answer:

False

3. Engel’s Law asserts that consumer expenditures on daily food in the aggregate decline as incomes rise. This explains the decreased demand for daily foods and the increased U.S. demand for exotic foods. Answer:

True

4. Between 1866 and 1914, statistical evidence suggests that many big businesses depended heavily on U.S. protectionist policies. Answer:

False

5. With the exception of the U.S., the majority of the world’s trading partners utilized the gold standard. Answer:

True

6. The U.S. and other industrializing nations depended heavily on international trade. Answer:

False (Unlike other nations, the U.S. did not.)

7. International trade was not important to the industrializing U.S. since it was relatively rich in raw materials and land. Answer:

False (The producers in the U.S. and many producers in the rest of the world relied on production operating on the basis of comparative advantage. They produced those goods and services that minimized opportunity costs around and across regions, the nation and the globe. Those items were then traded for those goods in which producers possessed a comparative disadvantage. Market size and economic conditions permitted many U.S. producers to trade with each other.)

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8. The opportunity cost of the U.S. producing tea or coffee is measured by the value of the foregone production alternative—manufacturing or staples. Answer:

True

9. Technological advancements and changes in factor proportions shift a producer’s comparative advantage. Answer:

True

10. Between 1821 and 1930, the U.S. gained a comparative advantage in the production of agricultural goods. Answer:

False (It gained a comparative advantage in producing manufacturing goods.)

11. The rise in European protectionism helped the U.S. economy by increasing foreign demand for agricultural goods. Answer:

False

12. The U.S. claimed a disproportionate share of world trade given its share of the world’s population. Answer:

True

13. Consumers of most goods usually experience diminished satisfaction in each additional unit consumed. However, when variety appears endless, this may not be the case. Consider manufactured goods between 1890 and 1910. Answer:

True

14. Tariff rates remained high after the Civil War because government revenue needs were pressing and there were protectionist sentiments. Answer:

True

15. Tariff rates make everyone better off in the country by protecting it from foreign competition. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The long-term pattern of American foreign trade policy from 1789 to 1914 was (a) protectionist at first, becoming more liberal before 1861, then more protectionist again. (b) liberal at first, becoming more protectionist before 1861, then shifting to greater liberalism as the country’s industrialization spread in the later 19th century. (c) free trade after the Civil War, but very protectionist in general before 1861. (d) none of the above. Answer:

(d)

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157

2. During the entire period of 1820–1920, there were persistent trends in the structure of American foreign trade. They exhibited (a) a decrease in imported finished manufactures and an increase in exported finished manufactures. (b) an increase in the exports of crude materials and foodstuffs and a decline in their importation. (c) increases in both imports and exports of manufactured goods and foodstuffs. (d) no exports or imports. Answer:

(a)

3. The “rules of the game,” if followed closely by central banks, would have (a) made trade fluctuations worse than they were. (b) wiped out trade fluctuations. (c) “neutralized” central bank policy. (d) forced the federal government to borrow directly from central banks. Answer:

(b)

4. Where was the largest market for the huge increase in U.S. manufacturing output in 1860–1910 located? (a) In Europe (b) In Asia (c) Within the U.S. (d) In the Third World Answer:

(a)

5. What does a successful protective tariff do? (a) It forces foreign manufacturers to pay higher wages. (b) It re-enforces competition. (c) It creates an “economic rent” that goes to the competing domestic industries producing the taxed imported goods. (d) It mandates accelerated technological advance in the domestic economy. Answer:

(c)

6. For the gold standard to achieve its maximum functioning efficiency, central banks should theoretically play the “rules of the game.” What are these rules? (a) Central bank policy should tie the flow of their gold reserves to their current accounts. (b) Central banks should “lean against the wind” and follow policies that offset gold movements. (c) Central banks should raise interest rates as gold flows in and lower them as gold flows out. (d) Central banks should sell securities as gold flows in and buy them as gold flows out. Answer:

(a)

7. Operation on the basis of comparative advantages implies which of the following? (a) Countries allocate their resources across all sectors regardless of opportunity costs. (b) Countries will specialize even if they can produce everything. (c) Countries not efficient in any production should not trade. (d) none of the above. Answer:

(b)

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8. Under the gold standard, a country experiencing a fall in its gold reserves was supposed to: (a) Expand loans (b) Buy securities (c) Lower discount rates (d) Cut loans Answer:

(d)

9. From the Civil War until 1914, what change(s) occurred in U.S. policies regarding tariffs? (a) Tariff rates were generally higher and customs receipts were higher than before the Civil War. (b) As the momentum of the westward movement increased, increased revenues from land sales allowed Congress to return tariff rates to their pre-Civil War levels. (c) Customs revenues increased because of economic growth and the lack of important changes in tariff policy. (d) All of the above Answer:

(a)

10. What does international voluntary trade do? (a) Exploits small countries (b) Benefits all trading partners (c) Places labor unions at an unfair disadvantage (d) Forces productive domestic firms to close their doors Answer:

(b)

11. From 1865 to 1910, the U.S. share of world trade was (a) nonexistent. (b) miniscule. (c) disproportionately small compared to the British. (d) disproportionately high compared to the U.S. population. Answer:

(d)

12. In the industrial period of U.S. history, the manufacturing goods consumed by U.S. households were subject to (a) high taxes. (b) Engel’s Law. (c) income effects. (d) none of the above. Answer:

(c)

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13. Imports into the U.S. increased when (a) deflation in the U.S. occurred. (b) real wages and incomes rose in the U.S. (c) the International Trade Commission was established. (d) all of the above occurred. Answer:

(b)

14. From the end of the Civil War to the start of World War I, the direction of U.S. trade (a) stayed the same. (b) was dominated by trade with Europe. (c) grew and broadened to include other countries in Asia and the Americas. (d) dwindled. Answer:

(c)

15. During the postbellum period of U.S. history, (a) the U.S. balance of payments experienced a deficit throughout the entire period. (b) manufacturing exports became the top foreign exchange earner. (c) cotton exports continued to be the top foreign exchange earner. (d) the U.S. never borrowed from foreigners. Answer:

(c)

16. What do Baack and Ray (1983) find in their survey of U.S. tariff history? (a) Tariff rates in the U.S. were low. (b) Tariff cuts were associated with the fast-growing industries. (c) The highest tariff rates in the U.S. were associated with the fastest growing industries. (d) The U.S. was a world leader in free trade policy. Answer:

(b)

17. Tariff rates remained high in the U.S. throughout the postbellum period for which of the following reasons? (a) The government needed revenues to finance its expenditures. (b) Special interest groups organized themselves to realize rents. (c) Land sales dwindled as the Western frontier closed. (d) All of the above. Answer:

(d)

18. Which of the following are arguments that have been and currently are used to justify protectionism? (a) The infant industry argument (b) Tariffs create lower profits, generate fewer jobs, and reduce wages in the U.S. (c) Countries should not operate on the basis of comparative advantage. (d) All of the above Answer:

(a)

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19. What is/are the central argument(s) against tariffs? (a) They redistribute income away from consumers who are paying higher prices because of the tariffs. These rents are given to the individual industries that are protected by the tariffs and are operating inefficiently. (b) A laissez-faire economy is the American way. (c) They protect the wealthy. (d) They benefit only fast-growing industries. Answer:

(a)

20. What is/are the advantage(s) of the gold standard? (a) The government can print money as required by cyclical fluctuations in domestic markets. (b) Floating exchange rates. (c) It requires monetary discipline. (d) All of the above. Answer:

(c)

21. For the late 19th and the first half of the 20th century, which of the following did NOT occur? (a) The demand for foreign goods declined relatively as domestic income expanded. (b) Population soared. (c) Government intervention in market affairs slowed considerably. (d) The competitive economy fueled industrialization in the U.S. Answer:

(c)

22. Trade with the United States during the late 19th and the first half of the 20th century benefited those individuals living in less developed countries by (a) Boosting their incomes. (b) Restricting markets. (c) Exploiting their resources. (d) Increasing pollution and crime. Answer:

(a)

23. A current account deficit exists when (a) Government revenue exceeds spending (b) Government spending exceeds revenue (c) Imports exceed exports (d) Exports exceed imports Answer:

(c)

24. The big current-account deficits in the late 1880s and early 1890s were financed primarily by (a) Borrowing from other nations, especially England (b) Interests earned on bonds and dividends paid on other investments (c) Taxes (d) Sale of public land Answer:

(a)

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25. A tariff is which type of tax? (a) Progressive (b) Regressive (c) Proportional (d) Neutral Answer:



(b)

Essay Questions

1. Define Engel’s Law. Explain why it applies to food consumption but not to consumption of manufactured goods. 2. Describe the international factors encouraging and hindering the rise of manufacturing in the U.S. during the mid-nineteenth century. 3. Describe the new directions of U.S. trading patterns from the Civil War throughout the early 1920s. Account for some of the new patterns of international trade. 4. What was the Morill Tarriff Act of 1861? Why was it passed, and what were the economic ramifications? 5. Discuss the types of protection from foreign competition that American industry had under the Morrill Act of 1861. What was their importance in the development of manufacturing? 6. Describe the gold standard. What are its advantages and disadvantages? 7. Explain why goals to eliminate a current account deficit require deflation and why current account surpluses encourage inflation under the gold standard. 8. Discuss the link between the U.S. balance of account and its international capital flows. 9. Explain why net economic progress is accompanied by periods of booms and busts, by financial progress and crisis, as well as by economic expansion and depressions. 10. Explain how the U.S. becomes a capital-rich net exporter of industrial goods in a relatively short period of time. 11. Explain how globalization can close the economic gap between rich and poor nations.

Chapter 21 Labor and the Law 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The organized labor movement was held back by the law of conspiracy. Answer:

True

2. Under Samuel Gompers, the highly successful American Federation of Labor (AFL) restricted its membership to craftsmen, required members to pay high dues and garnered votes and campaign contributions for politicians supporting the labor movement. Answer:

True

3. Employers resist organized labor because its activities threaten the rights of real property in business enterprise. Answer:

True

4. Unions fight primarily for higher wages and better benefits. Answer:

False

5. The value of labor is in skill, effort and knowledge. Answer:

True

6. The Clayton Act of 1914 was labeled “Labor’s Magna Carta.” This act recognized labor as property and deemed that it could not be treated as an article of commerce. Answer:

True

7. Commonwealth v Hunt was a pivotal case in labor history, since it marked the first time in which unions and some of their activities were not found illegal. Answer:

True

8. The labor movement has been largely an economic movement, not a political phenomenon. Answer:

False

9. Olson (1971) claims that unions strive for job monopoly to achieve their goals by coercion. Answer:

False

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Labor and the Law

163

10. Mechanic lien laws grant property rights to labor. They allow labor to make claims against the real property of businesses for work completed or materials supplied. Answer:

True

11. Labor unions create a rent when they succeed. This rent forces employers or management to return some of their profits to unionized workers in the form of improved working conditions, health benefits or increased wages. Answer:

True

12. World War II was the first event that provided the federal government with incentive to support labor unions and help them achieve some of their goals. Answer:

False

13. Forcing businesses to divert profits to improve job conditions, increase wages and salaries and broaden benefits fuels animosity toward labor unions. Answer:

True

14. The lag in the political rights of women can be positively associated with the lag in female wages and skill acquisition according to Goldin (1990). Answer:



True

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. What causes the property owners and non-unionized workers in this country to be hostile toward organized labor? (a) The perception that unions will strive to make gains for unskilled labor at the expense of everyone else (b) The perception that unions have traditionally championed the rights of women (c) The fear that the government will take over corporate America (d) Jealousy and fear of organized labor’s well-known ability to “deliver the votes” for candidates of its choice in national elections Answer:

(a)

2. Why is the Clayton Act of 1914 considered to have been favorable to the interests of organized labor? (a) It restricted the application of the Sherman Antitrust Act and excluded labor unions from it. (b) It legalized collective bargaining for the first time. (c) It declared labor to be an article of commerce. (d) It forbade the use of injunctions by the courts to stop strikes. Answer:

(a)

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3. State mechanic lien laws (a) required licensing of mechanics. (b) permitted laborers to make claims against the assets of an employer or business if it fell into bankruptcy. (c) assured payment for value added by labor to property of third parties. (d) gave property owners with goods held “in bailkment” a guarantee of competent repair work by mechanics. Answer:

(b)

4. By the late 1880s, the main difference between the American Federation of Labor (AFL) and the Knights of Labor was (a) the relatively low dues charged members by their AFL locals. (b) the broader membership base of AFL locals compared to the Knights. (c) the AFL’s commitment to “progressive” politics. (d) the narrow membership qualifications of AFL locals compared to the Knights. Answer:

(d)

5. When Hughes and Cain (2011) say that workers lacked an “economic identity” until the middle decades of the 19th century, they mean all of the following except (a) Earlier in U.S. history, most adults were self-employed and, therefore, did not think of themselves as having common interests with laborers possessing views that workers should position themselves against employers. (b) Earlier in U.S. history, production was carried out in shops within the guild structure. The tight relationships among apprentices, journeymen, and master encouraged workers to think of themselves as sharing interests with employers. (c) The establishment of the factory system and its large size increased the net benefits of separating the interests of the workers and employers. (d) Earlier in U.S. history, the laws forbade workers from organizing to promote their own interests and, therefore, labor could not achieve a recognized identity. Answer:

(d)

6. In connection with laborers, the law of conspiracy meant that (a) employers had every right to organize or conspire to keep wages low and prices high. (b) workers had every right to organize or conspire to keep wages high and working hours short. (c) workers could organize unions to promote their own interests as long as they did it publicly and in fair dealings with employers and did not “conspire” to do it in secret meetings not open to the public. (d) worker organizations aimed at promoting the economic interests of the members were illegal. Answer:

(d)

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7. Unions have been protected since 1935 by a federal law, the National Labor Relations Act (NLRA), which contains provisions for (a) elections by workers to choose their bargaining agents. (b) employers’ recognition of union bargaining agents in interstate commerce for union representation and collective bargaining purposes. (c) arbitration of disputes that cannot be resolved through bargaining. (d) all of the above. Answer:

(d)

8. The main source of conflict between employers and their organized workers is over the (a) disparities in the wages and benefits between organized and unorganized labor. (b) disparities in the wages and benefits between employers and organized workers. (c) proceeds of selling goods and services made jointly between hired labor and business owners. (d) working conditions. Answer:

(c)

9. By the 1840s, (a) labor had achieved political power in the franchise, i.e., the right to vote. (b) unions per se were not considered by law to be conspiracies and therefore illegal. (c) peaceful picketing of businesses during strikes was considered to be legal. (d) all of the above were true. Answer:

(d)

10. Which of the following labor organizations was limited to skilled craft workers and emphasized that unions should control the place of employment; stick to wages, hours, and working conditions in their negotiations; win strikes; and, in politics, “reward our friends and punish our enemies”? (a) The National Labor Union (b) The Knights of Labor (c) The American Federation of Labor (d) The American Labor Union Answer:

(c)

11. Between the years 1870 and 1920, what happened to the agricultural labor force? (a) It nearly doubled in numbers but declined significantly in its share of the total labor force. (b) It remained about the same in numbers and declined significantly as a percent of the total labor force. (c) It nearly doubled in numbers while remaining approximately the same percentage of the total labor force. (d) It declined both in numbers and as a percent of the total labor force. Answer:

(a)

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12. Which of the following best describes typical employer attitudes toward organized labor (unions) during the 19th century? (a) Positive—unions could promote cooperation with management to achieve more efficient operations (b) Negative—union-promoted labor gains seized profits and encouraged inefficient behavior (c) Indifferent—unions had little impact on business profitability (d) Mixed—about half of employers favored unions and half opposed them Answer:

(b)

13. Modern union leaders are (a) generally much more conservative than their predecessors in the late 19th and early 20th centuries. (b) generally more radical than their predecessors in the late 19th and early 20th centuries. (c) neither more conservative nor more radical than their predecessors. (d) more radical on issues such as wages and working conditions but more conservative than their predecessors on issues such as abortion and the environment. Answer:

(a)

14. During the late 1800s and early 1900s, (a) American society clearly recognized the value of labor in the profit process. (b) U.S. legislation and courts of law appeared hostile to the interests of organized working employees. (c) society, at large, generally favored the efforts of workers to combine into unions to negotiate with employers. (d) organized labor had a stable and respected place in politics. Answer:

(b)

15. Between 1870 and 1920, the total labor force increased by threefold while (a) the total number of people employed in agriculture increased by almost twofold and the total number of people employed in manufacturing and other non- agriculture increased fivefold. (b) the total number of people employed in agriculture increased by almost fivefold and the total number of people employed in manufacturing and other non- agriculture increased by threefold. (c) the total number of people employed in agriculture increased and the total number of people employed in manufacturing and other non- agriculture increased by threefold. (d) the total number of people employed in manufacturing and other non- agriculture increased fivefold while agriculture decreased by twofold. Answer:

(a)

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16. Hughes and Cain (2011) argue that the U.S. regards highly hardworking people and possesses a strong disdain for idle people, especially the rich. These views fuel animosity toward labor unions because unions (a) threaten the private rights of business owners to utilize profits in those fashions they deem desirable. (b) force business owners to divert profits to conduct research and develop products. (c) prevent the emergence of a leisure class in the U.S. (d) all of the above. Answer:

(a)

17. Which of the following economic and/or political rights does the labor movement work toward gaining? (a) Property rights for women (b) The right to vote for women (c) The right to vote for non-owners of property (d) All of the above Answer:

(d)

18. In a political democracy, (a) only the voting majority is protected but the minority is coerced to protect the majority. (b) the population minority is free to organize and to lobby to achieve goals. (c) there is no unequal distribution of income or wealth. (d) the minority can elect officials. Answer:

(b)

19. Who can create valuable output out of idle property? (a) labor (b) entrepreneurs (c) tenants making rental improvements (d) all of the above Answer:

(d)

20. An economic rent is created when (a) organized labor pushes its members’ wages above those of unorganized labor. (b) market forces determine prices and output. (c) businesses take market prices as given. (d) laborers accept competitive wages. Answer:

(a)

21. Unions add costs to labor. Who ultimately absorbs the costs? (a) The employer (b) The union worker (c) The unorganized laborer (d) The consumer Answer:

(d)

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Essay Questions

1. What is Labor Day, and why is it celebrated? 2. How can union activities produce public goods and services? Identify some public goods and services produced by historical union activity from which all laborers benefit today. 3. Discuss the dispute over whether a union is a monopoly. 4. Citing the work of economic historians, present the economic arguments for and against unions. 5. Briefly describe the history of unions and the labor movement in the U.S. 6. Exactly how was the Sherman Act of 1890 used against labor? Why was the Clayton Act of 1914 labeled “Labor’s Magna Carta”? 7. Describe the economic history behind voting rights. Why was property ownership so important before 1860? 8. What are mechanic lien laws? Why are they important to laborers? 9. Many employers claim that unions give laborers monopoly rights. Explain. 10. Explain why labor historians emphasize the importance of the Philadelphia Journeymen Cordwainers’ strike of 1805. 11. Why was Commonwealth v Hunt a pivotal case in labor history? How did this case place employers at a disadvantage? 12. Why did organized labor seek to achieve political legitimacy and to possess the legal right to boycott and strike after meeting certain conditions? 13. Hughes and Cain (2011) describe the “labor movement” as a broad struggle to improve the conditions of labor. Labor’s emergence into an improved status in American society was the outcome of a complex legal evolution. Discuss the main benchmarks in this evolution. 14. With regard to the development of organized labor, compare and contrast the goals and strategies of the Knights of Labor and the American Federation of Labor (AFL). Identify what they have in common. Then explain how they differ. 15. Explain why World War I provided the federal government with incentive to support labor unions and to help unions achieve some of their goals. 16. Define economic rents. Explain why organized labor has incentive to create them. What are the benefits and costs for organized labor, unorganized labor, and business enterprises?

PART 4 THE EXPANSION OF FEDERAL POWER, 1914–1945

Chapter 22 The Command Economy Emerges: World War I 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The income tax levied during the Civil War (1861–65) was declared constitutional in Springer v U.S. (1881) because it was not a direct tax. Answer:

True

2. During the 1915–1919 fiscal years, income tax revenues comprised approximately 53% of total federal revenues. Today, over 80% of total tax revenues are raised through income taxes. Answer:

False (Income taxes account for less than 50 percent in total tax revenue today. Other contemporary revenue streams include social insurance receipts, corporate income taxes, excise taxes and other taxes.)

3. Following the war-time prosperity for capital and the rich during World War I (1914–18), income distribution trended towards greater equality when peace came and market forces replaced the economy’s wartime concerns in determining income distribution. Answer:

True

4. The reason food prices rose so little in 1916–19 was the extraordinary increase in output from the nation’s farms. Answer:

False

5. For the first time since the Civil War (1861–65), laborers were forced into active military service during World War I (1914–18). Answer:

True

6. The average number of weekly hours worked in manufacturing began to decline during World War I (1914–18). Answer:

True

7. In 1921, prices surged, causing a decrease in average real wages. Answer:

False

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8. According to Hughes and Cain (2011), taxation can be a form of forcible seizure of property, under certain circumstances. Answer:

True

9. Taxes impact incentives to use resources since they distort relative prices. Answer:

True

10. Article I, Section 8, clause I of the federal Constitution requires that all “Duties, Imposts, and Excises shall be uniform throughout the United States.” Hence, the Sixteenth Amendment to the U.S. Constitution (1913) was needed to grant constitutionality to the unequal taxation of land, its products and income. Answer:

True

11. Wartime inflation occurs when war requires a country to shift resources away from efficient uses into war-related production. Answer:

True

12. A government runs a deficit when its government revenues exceed expenditures. Answer:

False (It runs a surplus.)

13. Unlike business, government can coerce individuals to paying higher prices through taxes. Answer: 14

In addition to human devastation, war influences the amount of real output, employment and prices by diverting resources away from private uses. Answer:



True

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. What was the primary reason the Income Tax Amendment of 1913 was passed? (a) To pay off the public debt accumulated during the Civil War (1861–65) (b) To pay off the public debt accumulated during World War II (1941–45) (c) To grant the federal government access to revenues beyond those from land sales, customs and excise taxes (d) To pay off the current account deficit Answer:

(c)

Chapter 22

The Command Economy Emerges: World War I

2. As the U.S. economy expanded and entered the 20th century, its federal government’s need for renewable revenue sources grew. Expenditures significantly increased for all of the following reasons except (a) Military (b) Expanding regulatory agencies (c) Public works, education and sanitation (d) Foreign interventionism Answer:

(c)

3. The American Revolution, the Civil War (1861–65) and World War I (1914–18) (a) diverted U.S. resources from peace-time, private uses and toward war-related uses. (b) encouraged the efficient allocation of resources. (c) increased long-term investment opportunities. (d) resulted in the excessive contraction of money to finance war efforts. Answer:

(a)

4. Which of the following occurred during World War I (1914–18)? (a) Private markets largely influenced resource allocation. (b) Non-market controls imposed by the government. (c) New income taxes financed 100 percent of the war. (d) Corporate America voluntarily financed 100 percent of the war efforts to protect their interests. Answer:

(b)

5. How did laborers benefit from World War I (1914–18)? (a) Their nominal take-home pay rose more than prices increased. (b) They were placed in military jobs that paid wages higher than private sector jobs. (c) High-paying jobs in the private sector were created to support the war effort. (d) Real GNP and national income fell during and shortly after the war. Answer:

(a)

6. World War I (1914–18) caused inflation because (a) war production stressed an economy already operating close to full employment. (b) fiscal policy mandated it. (c) the Federal Reserve System required it. (d) inflation always occurs in times of war. Answer:

(a)

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7. During World War I (1914–18), national debt soared, leading to (a) money creation and inflation. (b) money creation and deflation. (c) money destruction and inflation. (d) money destruction and deflation. Answer:

(a)

8. What did the Lever Food Control Act of 1917 give the U.S. federal government the power to do? (a) Take over factories during periods of war (b) Inspect meat-packing plants and control the quality of work completed (c) Buy, sell and distribute food during times of peace (d) Seize Congressional control over food-related production Answer:

(a)

9. President Woodrow Wilson (a) fostered the growth of government bureaucracy. (b) quickly returned the U.S. economy to a competitive market place. (c) remained neutral on the issue of whether the federal government should intervene in private market affairs. (d) mandated that Congress operate with a balanced budget. Answer:

(b)

10. Which of the following World War I (1914–18) institutions reappeared in various forms during the Great Depression and/or World War II (1941–45)? (a) The U.S. Grain Corporation (b) The War Industries Board (c) The United States Housing Corporation (d) All of the above Answer:

(d)

11. What do taxes do? (a) Impact the incentive to use resources efficiently (b) Transfer income from the person or entity paying taxes to other individuals or entities (c) Affect the relative prices of goods, services and resources (d) All of the above Answer:

(e)

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12. Taxes can have different effects on different income groups. Which type of tax takes a larger percentage of income from high-income groups than from low-income groups? (a) Progressive (b) Regressive (c) Proportional (d) Flat (e) Protective Answer:

(a)

13. Once wartime spending is under way and production is diverted away from household consumption items and private investment goods, (a) real Gross National Product will likely fall. (b) the money supply will automatically increase. (c) inflation will likely rear its ugly head if productivity does not advance. (d) production and employment will fall. Answer:

(c)

14. During World War I (1914–18), the government supported the cause of labor when it (a) reduced the work day to eight hours in all government jobs. (b) reduced the work day to eight hours in all private sector jobs. (c) enforced the eight-hour work day in all government jobs. (d) enforced the eight-hour work day in all private jobs. Answer:

(c)

15. During World War I (1914–18), hourly wages (a) decreased in nominal and real terms. (b) increased in nominal and real terms. (c) increased in nominal terms but decreased in real terms. (d) decreased in nominal terms but increased in real terms. Answer:

(c)

16. Which group came out of World War I (1914–18) better off? (a) Industrial and agricultural workers (b) Creditors (c) Individuals depending on investment (d) People living on fixed incomes Answer:

(a)

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17. The command economy of World War I (1914–18) possessed which of the following traits? (a) Decentralized decision-making in the markets (b) The creation of many state agencies (c) Volunteers for the armed forces (d) Centralized decision making by bureaucrats Answer:

(d)

18. Taxes provide individuals with incentive to: (a) Increase the number of working hours. (b) Increase productivity by working longer and harder. (c) Direct resources to uses where taxes are relatively low or nonexistent. (d) Buy and save more. Answer:

(c)

19. Under the Gold Standard (1880-1913) gold would flow into the U.S. when (a) U.S. exports exceeded its imports. (b) U.S. imports exceeded its exports. (c) domestic demand grew faster than domestic supply. (d) domestic supply grew faster than domestic demand. Answer:

(a)

20. During World War I (1914–18), the government did not have to rely on which one of the following reallocation devices? (a) Inflation (b) Taxes (c) Borrowing (d) Rationing Answer:



(d)

Essay Questions

1. Describe the economic and political reasoning behind the Income Tax Amendment of 1913. Why do taxes distort prices? Describe the secondary effects of taxes on private consumption and production. 2. Explain the relationship between World War I (1914–18) and post-war inflation. 3. Marxists claim that “capitalists start wars to maintain their class interests; they seem to have chosen a poor vehicle.” Explain why World War I (1914–18) experiences counter this claim. 4. Discuss the importance of the Lever Food Act of 1917 in economic history. Using economic reasoning, explain the inefficiencies associated with some of the price-setting policies of this Act.

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5. Discuss the opportunity costs of war-related labor allocation and output production during World War I (1914–18). 6. The government has used a variety of methods of financing wars. Discuss the methods used in the Revolutionary War, the Civil War (1861–65) for both sides, and World War I (1914–18), and whether they enabled the government to achieve its long-term and short-term goals. Who were the winners and losers of the government’s policies both during and after the war? 7. During World War I (1914–18), the U.S. combined the needs of defense with social reform. In addition to implementing minimum wage laws, discuss some of the other labor reforms emerging during this historical period. 8. Explain the shift in government support for unions during and immediately after World War I (1914–18). 9. Discuss the net economic benefits of World War I (1914–18). Were they positive or negative? Defend your position using the work of notable economic historians and economic data. 10. Describe some of the World War I (1914–18) (WWI) institutions that reappeared during the Great Depression and World War II (1941–45). What purposes did they serve? Did they disappear in the same fashion as their WWI predecessors?

Chapter 23 “Normalcy”: 1919–1929 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The stock market collapse of 1929 might have been averted had large corporations maintained their participation in the market for securities loans in 1925–1929. Answer:

False

2. Even in 1928, non-bank sources provided more funds for brokers’ loans in the stock market than did the nation’s banks. Answer:

False

3. In September 1929, Roger Babson predicted the collapse of the stock market. Answer:

True

4. The decline in wholesale and consumer prices in 1929–30 was not as large as had been the decline in 1920–21. Answer:

True

5. Unlike the 1920–21 episode, 1929–30 farm prices stood up fairly well when other prices fell. Answer: False 6. Income distribution moved toward greater inequality in the 1920s after World War I (1914–18) had witnessed a movement toward greater equality. Answer:

True

7. The stock market boom in 1922–1929 seems “rational” enough if you take into account the expansion of the money supply in the same period. Answer:

False

8. After 1926, a decline in total building construction occurred even though building costs remained fairly stable. Answer:

True

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9. Buying securities on the margin requires people interested in buying stocks to pay only a percentage (a margin) of the actual purchase price. The rest is borrowed from someone else, usually an investor’s broker. Answer:

True

10. Electricity and internal combustion engines are general-purpose technologies. They permit the functioning of a wide range of goods, service and production systems. Answer:

True

11. Installment-plan buying permits consumers to use the income generated from their private assets to pay for goods and services. Answer:

False

12. The Capper-Volstead Act of 1922 applied the Sherman Anti-Trust Act to farm cooperatives, preventing them from restricting output and fixing prices. Answer:

False

13. Economic prosperity returned under the New Deal programs of the 1930s. Answer:

False

14. A decrease in the demand for unskilled and skilled labor was a secondary effect of the productive use of fractional horsepower and internal combustion engines. Answer:

True

15. A federal surplus is deflationary when all else is held constant. Answer:

True

16. Wartime mobilization during World War I raised the shares of income going to labor. This increase continued through the 1920s. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Farm prices fell sharply in 1919–21. Then, until 1929, the farm “terms of trade” (the movement of farm prices relative to the movement of non-farm prices) (a) collapsed by more than half. (b) remained essentially unchanged. (c) actually rose. (d) collapsed, but only slightly. Answer:

(c)

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2. The evidence of building costs in the 1920s shows that the decline in total construction after 1926 (a) reflected the sharp increase in costs as the boom gathered strength. (b) occurred when building costs remained stable. (c) occurred in the presence of sharply falling costs that anticipated the 1929 crash. (d) was a result of the contractionary monetary policies of the Fed. Answer:

(b)

3. Regarding the stock market crash of 1929, evidence shows that (a) no one expected trouble in the stock market before the October 1929 crash. (b) there was doubt about the speculative heights of stock prices as they continued to rise and more money continued to pour into the market. (c) only active support by the New York Federal Reserve Bank during the summer and fall of 1929 enabled the bull market to last until October. (d) investment trusts and nonbanking money sources correctly anticipated the downturn. Answer:

(b)

4. During the decade of the 1920s, the distribution of income (a) became increasingly equal. (b) changed little or not at all. (c) became increasingly unequal. (d) may or may not have changed, but it is difficult to know because of lack of data. Answer:

(c)

5. During the decade of the 1920s, the U.S. economy (a) was generally healthy and gave no indication of the troubles that lay ahead regarding the Great Depression. (b) was relatively stagnant in terms of growth of total output with small declines in agriculture and housing, which suggested that difficult times might lie ahead in the 1930s. (c) experienced actual declines in overall production levels, including agriculture and housing, which suggested that even more difficult times probably lay ahead. (d) experienced relatively rapid growth in overall output but in the late 1920s nevertheless showed weaknesses in certain sectors such as agriculture, housing and the financial sector, which suggested the possibility of difficult times ahead. Answer:

(d)

6. The economist John Kenneth Galbraith (1979) lists several major sources of weakness in the economy that laid the groundwork for the collapse of the 1930s. These sources include all of the following except (a) A weak banking structure (b) Ignorance of the economy’s problems by the nation’s leaders (c) An overgrown federal bureaucracy with extensive regulation of the private economy (d) An increasingly unequal distribution of income Answer:

(c)

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7. The 1920s is sometimes described as the decade representing the emergence of “mass society.” This refers to developments in all of the following except (a) Production methods and communication systems (b) Consumption patterns and installment credit (c) Attitudes and culture (d) There is no “except”; all of the above are part of the emergence of “mass society” Answer:

(d)

8. What did the growing inequality of income during the 1920s indicate? (a) That consumption expenditures would tend to weaken even though total income continued to rise (b) That spending for goods and business incentives to produce those goods became increasingly dependent on the wealthy (c) That the economy became more vulnerable to any shock, such as a stock market crash, that reduced the willingness of the wealthy to buy goods (d) All of the above Answer:

(d)

9. The stage of industrial development during the early part of the 20th century is usually referred to as Fordism. The characteristics of this system include all of the following except (a) Moving assembly-line production (b) Mass production of relatively inexpensive consumer goods (c) The extensive use of skilled labor to produce complex consumer goods (d) Consumer durable goods purchased on installment credit Answer:

(c)

10. During the years prior to the Great Depression (the 1920s), farmers were (a) experiencing an increase in the value of farm output. (b) enjoying rising incomes and prosperity in spite of interest charges and taxes on real estate. (c) experiencing stagnant incomes. (d) experiencing declining incomes and hard times. Answer:

(d)

11. What is/are the lesson(s) learned from the stock market crash of 1929? (a) Statements and opinions of federal officials can and do impact consumer and business optimism and pessimism regarding stocks and other financial markets, leading to volatile buying and selling behaviors. (b) Portfolio diversification is important. (c) One segment of the aggregate market economy can experience events that impact the economy as a whole. (d) Reflection, analysis and evaluation are often required to understand why an event occurred and what can be done to prevent it from happening in the future. Answer:

(d) Bierman, Harold. “The 1929 Stock Market Crash”. EH.Net Encyclopedia, edited by Robert Whaples. August 11, 2004. http://eh.net/encyclopedia/article/Bierman.Crash

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12. Some researchers argue that the overall standard of living increased during the 1920s. In general, holding constant all other factors that might impact it, economists are careful about connecting an increase in the standard of living to (a) increases in the amount of labor used in production processes. (b) new inventions being made in research laboratories. (c) increases in the output of goods and services per worker. (d) the discovery of new sources of gold and silver. Answer:

(c)

13. Why was the stock market crash of 1929 a disaster for the economy? (a) Through the “wealth effect,” investors lost paper wealth and consequently reduced their spending on goods and services. This led to cutbacks in production and jobs. (b) Businessmen became pessimistic about the future and reduced spending on plants and equipment, thus causing reduced production and increased layoffs in the capital-goods sector of the economy. (c) The crash revealed a flawed structure of credit and weak system of banks and other financial institutions in the U.S. (d) All of the above are correct Answer:

(d)

14. The decade of the 1920s was characterized by which of the following? (a) Economic advancements in agriculture (b) A decrease in the inequality of income and wealth (c) Consumers dramatically shifted their household demands into purchases of durable goods on credit (d) All of the above characterized the decade of the 1920s Answer:

(c)

15. The federal government’s fiscal policy (taxing and spending policy) during the 1920s was one in which (a) the federal budget was in surplus every year. (b) the federal budget exerted a mildly deflationary impact on the economy, tending to slow overall spending in the economy. (c) Parkinson’s third law, “expenditures rise to meet income,” seemed to hold for the federal government. (d) all of the above applied. Answer:

(d)

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16. The stock market boom of the 1920s occurred in part because the demand for stocks increased. The source of this demand increase originated from whom? (a) Ordinary workers who experienced rising wages and now had incentive to invest in the stock market, thus driving up stock prices. (b) The people in the upper income strata; they received a high percentage of the increase in realized income during the 1920s and invested much of it in the stock market. (c) Farmers who, finding agriculture increasingly unprofitable, began investing in the stock market rather than in farm land and equipment. (d) Foreign investors who were optimistic about America’s future and accordingly invested in American stocks. Answer:

(b)

17. What did automobiles and government subsidized highways increase the net benefits of? (a) Investing privately in highway development (b) Rapid expansion of new cities and towns and revitalization in old cities and towns (c) Development of suburban and exurban areas (d) All of the above Answer:

(c)

18. In answer to the question, “Could they see the Great Depression coming?”, Hughes and Cain (2011) respond: (a) No—Many people firmly believed that markets would self-correct and eventually recover with no government intervention (b) No—many people seemed to believe that the prosperity of the 1920s would continue indefinitely because they believed that the economy was built to sustain high and stable rates of growth with minimal cyclical fluctuation when markets were permitted to clear themselves without government interference. (c) Yes—in the late 1920s, a majority of economists reported and publicized that the economy was becoming dangerously unbalanced and that a serious downturn was near. (d) Yes and no—by the late 1920s, the economics profession was about equally split on the possibility of a serious downturn in the near future. Answer:

(b)

19. Between 1921 and 1929, general prices as measured by wholesale or consumer prices (a) were stable overall. (b) fell dramatically. (c) increased moderately. (d) increased significantly. Answer:

(a)

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20. When the federal government makes no attempt to take corrective action, markets return a recessed economy to full employment levels of production by (a) laying off workers. (b) lowering wages. (c) dropping prices. (d) doing all of the above. Answer:

(d)

21. Between the 1921 recession and 1929, the U.S. economy was described as healthy. Which of the following changes in economic indicators is correctly stated and supports this claim? (a) Real Gross Domestic Product (RGDP) increased per capita (b) There were increases in real income but they were more unequally distributed (c) Consumer spending on credit increased dramatically (d) There was a decline in total building construction Answer:

(a)

22. A secondary effect of installment credit was the (a) development of a new market in used durables. (b) emergence of a new network of dependable supplies of electric power. (c) surge in prices. (d) increased government intervention in household activity. Answer:

(a)

23. Holding all else constant, when interest rates fall, (a) yields on common stocks rise above yields on bonds. (b) yields on common stocks fall below yields on bonds. (c) yields on common stocks and bonds rise at an equal rate. (d) yields on common stocks and bonds fall at an equal rate. Answer:

(a)

24. Which of the following entities was blamed in part for the speculative activity leading to the crash of 1929? (a) Large manufacturing enterprises (b) Brokers and their firms who extended loans to customers interested in buying stocks on the margin (c) The Federal Reserve System (d) New mom and pop businesses Answer:

(b)

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25. The legislative immigration restrictions following World War I (1914–18) contributed to which of the following in the 1920s? (a) An acceleration in the growth in the U.S. population (b) A decline in the rate of household formation in the U.S. (c) Rapid rise in U.S. prices (d) High unemployment in the U.S. Answer:



(b)

Essay Questions

1. Explain why people buy stocks. Identify the factors that influence common stock purchases. Identify the sources of the increase in demand for stock and explain the 226 percent rise in the 1929 common stock index over the 1920 index. 2. Discuss Lampman’s (1962) and Williamson and Lindert’s (1981) research on patterns of income and wealth distribution from colonial times to 1932. 3. Describe the new type of consumption spending that surfaced in the 1920s. How was some of it financed? 4. Discuss the relationships among (i) increases in real wages, (ii) installment payment plans and (iii) financial intermediation. 5. In terms of changes in real Gross National Product (GNP), prices, unemployment and income distribution, compare and contrast the 1929–1930 and 1920–1921 economic contractions. How did the 1929–1930 collapse distinguish itself from the 1920–1921 recession? 6. During the 1920s, what changes in the demand for and supply of building construction signaled that times of economic distress could be ahead? 7. According to Galbraith (1979), there were five major signs that the economy was dangerously unhealthy in the 1920s. What were they? Do other economists agree with Galbraith? Why or why not? 8. Define the business cycle. Compare the length, depth and breadth of the business cycle in an economy where people are left in control of their own resources to that business cycle where the government attempts to buffer upticks in unemployment, subdue decreases in wages and protect against the loss of production. 9. On the surface, perhaps, the decade of the 1920s appears to be one of the healthiest periods of economic growth and general prosperity in U.S. history. However, in retrospect, several weaknesses or unhealthy developments were evident. These negative developments contributed to the economic collapse of the 1930s. List and describe them. 10. Explain why some groups believed that the social benefits of national Prohibition were less than the costs. In your explanation, mention the unintended consequences of Prohibition.

Chapter 24 The Great Depression 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. If private investment had held up as well as consumption did, the economic contraction from 1929 to 1933 would have been less severe than it was. Answer:

False

2. Classical economists argue that all workers could have been employed during the Great Depression if they had been willing to accept falling wages. But President Hoover and his supporters recommended that hours be cut before wages which increased unemployment. Answer:

True

3. Unemployment in 1939, after a decade of recession and depression, still exceeded 10 percent. Answer:

True

4. As indicated by real GDP, real GDP per capita and nominal GDP figures, the Great Depression was unmoved by the social reconstruction efforts of President Franklin D. Roosevelt and his supporters. Answer:

True

5. Efforts to balance the federal government’s budget by raising taxes provided a buffer to the economic downturn of the Great Depression. Answer:

False

6. The nominal money supply fell faster in 1929–32 than did prices. Answer:

False

7. The Darby (1976) revisions of the 1930s unemployment data show that if you count public employment, then the 1930s were not especially severe by historical standards. Answer:

False

8. The Smoot-Hawley Tariff Act of 1930 is thought to have contributed to the severity of the 1930s depression because of the rise in tariff rates and the consequential drop in private consumption, savings and investment. Answer:

True

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9. The New Deal succeeded in ending the Great Depression. Answer:

False

10. There was a silver lining during the Great Depression. Compared to other periods in U.S. history, this period was one of the most technologically advanced. Answer:

True

11. The federal spending policies of the Great Depression were clearly expansionary and helped return the U.S. economy to the low levels of unemployment experienced during the 1920s. Answer:

False (Expansionary fiscal policy did not succeed on either one of these fronts.)

12. Keynesian economists link the start of the Great Depression to the drop in construction spending and the downturn in consumption following the stock market crashes of 1929. Answer:

True

13. During the Great Depression, the U.S. was not firmly tied to the world economy. Answer:

False

14. The Smoot-Hawley Tariff Act of 1930, like any tariff act, increased the price of the taxed imported goods as well as the domestic price of U.S. goods and services produced in the industries favored by the tariff. Consequently, any tariff negatively impacts U.S. consumers by forcing them to pay higher prices. Answer:

True

15. Under the gold standard of the Great Depression, any country experiencing a balance of payment deficit was expected to finance those deficits by exporting gold. The loss of gold should be followed by contractionary monetary policy, reducing demand and causing prices to fall. All countries operating under the gold standard followed these rules of the game throughout the Great Depression. Answer:



False

Multiple Choice

1. The depression of the 1930s was (a) the first depression in the nation’s history. (b) not the first but the most serious depression in the nation’s history. (c) not the first depression in the nation’s history and no more serious than some of the others. (d) not as serious as the depressions of the 1840s and 1870s. Answer:

(b)

2. Keynesian economics endorsed the idea of (a) increased government spending as a counterforce against slumps or recessions. (b) reduced taxation as a counterforce against rising prices. (c) increased government spending as a counterforce against inflation. (d) decreased government spending as a counterforce against slumps or recessions. Answer:

(a)

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3. Hughes and Cain (2011) talk about falling levels of investment during the Great Depression. What does the “investment” that they are talking about refer to? (a) Engineering ideas behind the industry of the era (b) Money loaned by banks to consumers (c) Land, labor, and equipment used in production (d) Tools, equipment, machines, and buildings used in production Answer:

(d)

4. During the worst year of the Great Depression, according to the official statistics, about what percentage of the labor force was unemployed? (a) 10% (b) 15% (c) 25% (d) 35% Answer:

(c)

5. Which view of the causes of the Great Depression emphasizes factors largely external to the domestic economy, particularly the Gold Standard? (a) The Monetarists’ (b) The Keynesians’ (c) The Austrians’ (d) The International View Answer:

(d)

6. Which view of the causes of the Great Depression emphasizes the decline in the money supply which caused aggregate demand for goods and services to shrink, leading businesses to cut production and employment? (a) The Monetarists’ (b) The Keynesians’ (c) The Austrians’ (d) The International View Answer:

(a)

7. Which view of the causes of the Great Depression emphasizes that there is little evidence that the economy was suffering from any real shortage of money; the problems, instead, stemmed from a fall of private consumption and investment spending? (a) The Monetarists’ (b) The Keynesians’ (c) The Austrians’ (d) The International View Answer:

(b)

Chapter 24

The Great Depression

8. The Great Depression is still the subject of controversy, including the question(s) of (a) what caused the initial downturn. (b) why the economy contracted for so long (1929 to 1932) and why it contracted so much (real GNP fell about 30%). (c) whether government policy helped or hindered the recovery attempt. (d) all of the above. Answer:

(d)

9. Which of the following did not occur during the early years of the Great Depression? (a) Marriage rates fell. (b) Birth rates fell. (c) Divorce rates increased. (d) Actually, all of the above occurred. Answer:

(c)

10. In 1933 the unemployment rate was about 25%. This percentage (a) is probably quite accurate because the data on unemployment collected by the federal government was quite good at the time. (b) is probably too high because some people with jobs claimed to be unemployed so that they could collect unemployment compensation payments. (c) is probably too low because there were discouraged and underemployed workers. (d) is probably meaningless because the data on unemployment was either very poor or nonexistent. Answer:

(c)

11. Regarding business conditions during the 1930s, which of the following events did not occur? (a) The number of patents applied for declined. (b) The number of mergers between companies increased in an attempt to increase their consolidated strength. (c) Some interest rates, such as the prime rate, fell to less than 1%. (d) In the early years of the Depression, business investment spending on plants and equipment was not enough to increase or maintain the country’s capital stock. Answer:

(b)

12. The Great Depression and the New Deal transformed the U.S. into which type of economy? (a) Laissez-faire (b) Socialist (c) Mixed (d) Communist Answer:

(c)

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13. Field (2003) claims that the period from 1929 to 1941 was the strongest period of what in U.S. history? (a) Technological advancements (b) Monetary policy (c) Government action (d) Internationalization Answer:

(a)

14. What do the Monetarist and Keynesian economists claim was the main cause of the Great Depression? (a) A contraction in supply (b) A downturn in demand (c) The falling federal deficit (d) All of the above Answer:

(b)

15. Which group of economists argues that the stock market crash of 1929 significantly reduced wealth, causing consumption to fall and resulting in a significant downturn in residential construction and investments? (a) Classical economists. (b) Keynesian economists. (c) Monetarists. (d) Austrians. Answer:

(b)

16. Federal taxes increased in 1932, 1935 and 1937, and Social Security taxes were imposed in 1937. Which group is credited for these tax increases during the Great Depression? (a) Classical economists (b) Keynesian economists (c) Monetarists (d) Government officials and special interest groups Answer:

(d)

17. The International View of the Great Depression blames the contraction in the U.S. economy on (a) the failure of the U.S. markets to permit a fall in aggregate prices under the gold standard or to devalue its exchange rate. (b) exports’ and imports’ large proportion of total GDP in the U.S. (c) Great Britain abandoning the gold standard. (d) all of the above. Answer:

(a)

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18. Today, the Federal Reserve System can contract the money supply by (a) increasing the discount rate. (b) increasing reserve requirements. (c) selling U.S. Treasury and federal agency securities. (d) engaging in all of the above. Answer:



(d)

Essay Questions

1. How do Friedman and Schwartz (1963), Temin (1989), Bernanke (1995) and Kindleberger (1973) differ in the factors they consider important in causing the severity of the Great Depression? Which consider the bank failures of 1930 to 1932 important, and why? 2. Identify the successes and failures of the Federal Reserve System during the Great Depression. Describe the different views on the net success of the Fed. 3. Explain how the Federal Reserve System and the overall banking system changed after the Great Depression. 4. Could the Federal Reserve have prevented the increased downturn from 1930 to 1932? What are the viewpoints of Friedman and Schwartz (1963), Temin (1989) and Bernanke (1995) on this? 5. What was the Smoot-Hawley Tariff Act of 1930? What were its goals? Did it achieve these goals? Explain why or why not. 6. Why was Keynes’ view considered heretical to classical or free market economists? What exactly did he propose that classical economists opposed? 7. Why did the Fed do little to help the U.S. economy recover from its depression during the early thirties? 8. Discuss the debate over whether expansionary monetary or fiscal policy would have successfully pulled the U.S. economy out of the Great Depression. 9. How serious was the Great Depression? Explain by making reference to the various data that measure economic performance. Contrast the “Monetarist” view of the cause of the Depression with the “Keynesian” view. 10. Describe the economic conditions of the Great Depression. Present the spending and money hypotheses about what caused the Great Depression. Explain the economic arguments behind each. 11. Present the international views on the forces behind the Great Depression. 12. Discuss the changes in federal tax policies during the Great Depression. Explain their impacts on private spending.

Chapter 25 The New Deal 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. The Great Depression tried and tested the Gold Standard and this standard met the challenge. Answer:

False

2. The Great Depression was marked by non-farm housing slumps and falling real estate prices, prompting many states to impose a moratorium on residential mortgage foreclosures. Answer:

True

3. For the first time in U.S. history, the federal government assumed responsibility for managing unemployment during the Great Depression. Answer:

True

4. The National Recovery Administration (NRA) of 1933–35 attempted to restore market competition within U.S. domestic and international markets. Answer:

False

5. The Glass-Steagall Act of 1933 separated commercial banks from most of their securities business. Answer:

True

6. Implementation of the National Industrial Recovery Act (1933) positively impacted overall industrial production. Answer:

False

7. The U.S. Supreme Court ruled that the tax on food processors in the 1933 Agricultural Adjustment Act (AAA) was unconstitutional. Answer:

True

8. The Social Security System of 1935 was flawed from the beginning. It left old-age pensions in the control of the states. Two examples include workers’ and unemployment compensation. Answer:

True

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9. Social Security taxes were and are progressive, meaning that the highest proportion is taxed from the highest incomes. Answer:

False

10. The government significantly raised farm incomes by raising farm prices by: (i) destroying crops, (ii) slaughtering millions of baby pigs and pregnant sows, (iii) paying farmers not to grow crops and (iv) injecting dye into harvested potatoes, making them inedible. Answer:

False

11. Franklin D. Roosevelt’s nationwide “Bank Holiday” in March 1933 merely finished the job started by the governors of the states, who were already closing down the banking systems. Answer:

True

12. Capitalists like Henry Ford welcomed the Fair Labor Standards Act of 1938. It relieved them of the responsibilities associated with contracting wages, hours and working conditions. Answer:

False

13. The decision to give the politically appointed members of the Federal Reserve Board an automatic majority weakened the power of the private sector in the determination of monetary policy. Answer:

True

14. The commerce clause strengthened the federal government’s interventionist power in industries operating on a national scale. Answer:

True

15. The National Industrial Recovery Act of 1933 increased competition among firms. Answer:

False

16. The research of Ben Bernanke (1983) found the banking system of the 1930s to be fundamentally flawed and unable to serve its function of financial intermediation. Federal help was needed. Answer:

True

17. Barry Eichengreen (1992) blamed the severity of the worldwide depression from 1929 to 1933 on the countries who abandoned the rules of the gold standard during economic downturns. This abandonment relieved countries from the monetary discipline measures of the gold standard. Answer:

True

18. The New Deal in U.S. history is that period during the Great Depression in which American “capitalism” is redefined and the role of the federal government in the economy fundamentally changes forever. Answer:

True

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19. The reforms, acts and programs that emerged during the New Deal were dissolved quickly at the end of the Great Depression. On this front, the New Deal command economy was similar to the World War I command economy. Answer:

False

20. Many researchers blame the severity and length of the Great Depression on the breadth and depth of government interference in private market affairs. Answer:

True

21. The New Deal allowed the federal government to reorganize and pursue economic planning. Answer:

True

22. Capitalists like Henry Ford welcomed the Fair Labor Standards Act of 1938. It relieved them of the responsibilities associated with contracting wages, hours and working conditions. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The objections to the Walsh-Healy Act of 1936, which mandated “prevailing wages” in government employment, (a) concerned the tendency of government wages to undercut those of the private sector. (b) came from the labor unions. (c) held that unemployment would be maintained artificially high. (d) held that payment of prevailing wages would reduce the national debt too slowly. Answer:

(c)

2. The National Industrial Recovery Act (1933) (a) did not permit businesses to set prices and production quotas. (b) established three advisory boards composed of government, Webb-Pomerene firms and members of the Federal Reserve System. (c) was thrown out by the Supreme Court in May 1935. (d) prohibited collective bargaining. Answer:

(c)

3. In 1938, another Agricultural Adjustment Act was passed. The error of the 1933 Act was now avoided. What had that error been? (a) Acreage allotments (b) Combining provisions for conservation with subsidies (c) Imposition of specific taxes on food processors (d) Excessive delegation of power Answer:

(c)

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4. The “New Deal” programs of the 1930s aimed at (a) transforming American capitalism into a planned socialist economy. (b) introducing short-term measures to cure the depression but no fundamental changes in the American economy. (c) introducing measures to deal with the crises and cure the depression combined with measures to restructure important aspects of the economy and increase the role of government in it. (d) reintroducing laissez-faire policies (non-government intervention) like those that had worked in the 19th century. Answer:

(c)

5. During the 1930s, labor legislation was (a) generally favorable to organized labor. (b) generally unfavorable to organized labor. (c) generally neutral with regard to organized labor. (d) virtually the same compared to previous periods. Answer:

(a)

6. The “New Deal” measures introduced in 1933 and 1934 to end the depression (a) brought about almost complete recovery by the mid-1930s. (b) were not completely successful in ending the Depression, which lasted until the beginning of World War II. (c) actually interfered with recovery, and the Depression worsened in the mid-1930s. (d) were not very successful at first but finally ended the Depression by the late 1930s. Answer:

(b)

7. Which of the following best describes the policy of the New Deal to combat the Great Depression? (a) Taxation should be increased so as to eliminate the deficit in the federal budget. (b) Government spending should be reduced so as to give businesses confidence that the free enterprise system was not being replaced by big government. (c) The government should offset deficiencies in private spending with increased government spending in order to create jobs—any jobs. (d) Private enterprise should be replaced by government planning because the market system had failed to provide prosperity and economic growth. Answer:

(c)

8. When the government increased spending during the 1930s in an attempt to create jobs and end the Great Depression, it provided an example of expansionary (a) fiscal policy. (b) monetary policy. (c) regulatory policy. (d) welfare policy. Answer:

(a)

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9. Which of the following is blamed for the lack of increased business investment spending on new factories and machinery during the 1930s? (a) The new presence of government’s large-scale economic activity caused business to lose some of its former confidence. (b) The general outlook stressed caution. (c) A much lower rate of population growth and family creation depressed the housing market. (d) All of the above. Answer:

(d)

10. During the New Deal, the structure of capitalism in the U.S. changed forever in each of the following areas except for one. Which one? (a) The relation between government and markets changed in the sense that government interventions of one sort or another occurred. (b) The Federal Reserve System began to control actively the money supply and interest rates to control overall levels of consumer and business spending in the economy. (c) Government spending rose and was intended to serve as an economic stimulus, similar to private investment spending. (d) Individual households began to take greater charge over their own economic welfare with no government assistance. Answer:

(d)

11. President Franklin D. Roosevelt’s first action regarding the run on banks was to (a) close all banks. (b) increase the money supply. (c) prohibit bank foreclosures. (d) provide federal guarantees to depositors. Answer:

(a)

12. Those closest to fomenting a real revolution during the early years of the Great Depression were (a) bankers. (b) farmers. (c) industrial workers. (d) the middle class. Answer:

(b)

13. Which act established rules and regulations for minimum wage, overtime pay, record-keeping and child labor standards? (a) Fair Labor Standards Act of 1938 (b) Walsh-Healy Act of 1936 (c) National Industrial Recovery Act (1933) (d) Wagner Act of 1935 Answer:

(a)

Chapter 25

The New Deal

14. The Bank Act of 1935 restructured the Federal Reserve System (FRS) in which of the following ways? (a) The FRS Board of Governors gained discretionary control over bank reserves and margin requirements for loans against securities. (b) The Governor’s Committee was renamed the Federal Open Market which was comprised of 12 members, 7 of whom were governors on the FRS Board. (c) The secretary of the U.S. Treasury and comptroller of currency were removed from the FRS Board. (d) All of the above Answer:

(d)

15. Which of the following acts was/were designed to take out the risk in the securities industry? (a) Truth in Securities Act of 1933 (b) Fair Labor Standards Act of 1938 (c) Social Security Act of 1935 (d) All of the above Answer:

(a)

16. Which of the following federal activities was new under the New Deal? The federal government (a) subsidized building construction. (b) provided federal finances to build houses. (c) established regulatory agencies intended to influence activities in private markets. (d) engaged in all of the above. Answer:

(b)

17. The National Labor Relations Act of 1935 and the Fair Labor Standards Act of 1938 forced employers to (a) negotiate with unionized labor. (b) keep hours at a minimum. (c) pay maximum wages. (d) do all of the above. Answer:

(a)

18. Most researchers agree that the New Deal positively impacted (a) employment and overall production. (b) wages, working conditions and working hours. (c) electricity production and use of it as power. (d) all of the above. Answer:

(c)

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19. The New Deal reduced (a) government involvement in private affairs. (b) individual liberty. (c) taxes. (d) rent-seeking. Answer:

(b)

20. A government fulfills a protective function when it (a) gives cash payments to the poor. (b) provides funds for flood control projects and builds highways. (c) prevents illegal seizure of private property. (d) redistributes income. Answer:

(c)

21. Which of the following was illustrated by the majority voting decisions witnessed during the Great Depression? (a) If the U.S. wants to get the most from its resources, the pricing of goods and allocation of investment should be decided by majority voting. (b) In a representative democracy, majority voting will assure that approved projects are productive. (c) There are good reasons to expect that majority voting will sometimes result in the approval of projects that are inefficient. (d) Private firms can force their customers to pay for products they produce, but the government cannot do so. Answer:



(c)

Essay Questions

1. Explain how the National Banking Act of 1935 transformed how banking was conducted in the nineteenth century. 2. “The U.S. experience during the Great Depression offers little support for those individuals who argue for a public policy of laissez-faire.” Discuss. 3. “The myth persists that from the beginning Roosevelt followed a set of fiscal policies directed specifically at, and adapted to, the objective of increasing aggregate demands for output to the levels required to restore acceptable levels of real output and employment. This is indeed a myth. Roosevelt had formulated no definite fiscal policy before he became President. As already noted, he excoriated Hoover repeatedly during the 1932 campaign for his budget deficits and the alleged threat to the government’s credit, and he promised to put the government’s financial house in order.” (L.V. Chandler, America’s Greatest Depression, 1929–1941, p. 136). Evaluate and compare the chief characteristics of the policies taken by the Hoover and Roosevelt administrations in their attempts to cope with the Great Depression. 4. Suggest a set of policies, macro- and micro-economic, which the federal government might have followed to avoid the Great Depression. How close did the Hoover administration come to adopting your recommendations?

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5. Was there anything “new” about the New Deal? Where did it come from? What did it try to accomplish? To what extent did the New Deal alter basic U.S. institutions? 6. Discuss the key transformations in labor history during the New Deal era. 7. The Social Security Act (SSA) of 1935 provided a security net for individuals who found themselves without productive resources for a variety of reasons. Describe those individuals targeted by the SSA and explain under what conditions they were eligible in 1935. Did the initial creators of the SSA intend for it to be used as it is today? Explain. 8. Compare and contrast the First and Second New Deals. 9. The constitutionality of the Agricultural Adjustment Act (AAA) and National Recovery Act (NRA) were questioned. On what grounds were these Acts questioned, and what were the outcomes? 10. Under the New Deal, the institutional structure of the U.S. economy changed fundamentally. Explain how. However, the fundamental political principles held by the colonists survived. What were these principles and how did they survive? 11. Discuss the role of the federal government as an employer. Discuss the advantages and disadvantages associated with the government assuming this role. 12. Explain why some economists claim that the federal government and the New Deal programs of the Great Depression were responsible for the severity and length of the economic downturns. 13. The use of federal power to set up a national health insurance was debated in Congress as early as 1938. Discuss why congressional efforts to pass an act establishing a national health insurance plan failed to pass then. Describe what has changed regarding this debate since then. 14. How do consumers vote for which producers stay in business and which go? Were these voting rights altered under the New Deal? Explain. 15. Compare and contrast the Great Depression policy moves in the housing sector to those made during the most recent crisis. Highlight their differences and try to explain them.

Chapter 26 The “Prosperity” of Wartime 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Since the economy was operating at less than full capacity when the U.S. entered World War II (1941–45), price controls did not surface until the end of the war. Answer:

False

2. When World War II (1941–45) came, the U.S. civilian labor force could be expanded only by about 30 percent. Answer:

True

3. The low interest rates that prevailed after 1942 made World War II (1941–45) financing problems fundamentally the same as World War I (1914–18). Answer:

False

4. Output expanded and was distributed toward wartime uses and away from private uses only during World War I (1914–18), not World War II (1941–45). The high unemployment of the 1940s made this possible. Answer:

False

5. During World War II (1941–45), Engel’s law applied. As income rose, consumption of food dropped relative to all other goods and services purchased. Answer:

False

6. Unlike World War I (1914–18), the war debt of World War II (1941–45) was manageable and did not contribute to inflation. Answer:

False

7. The Employment Act of 1946 continues to impact us today. It gives the federal government official responsibility in managing full-employment efforts in the U.S. through fiscal policy. Answer:

True

8. The U.S. economy experiences a public debt when the value of its annual deficits exceeds the value of its annual surpluses over an extended period of time. Answer:

True

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The “Prosperity” of Wartime

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9. Residential construction did not return to its 1926 high levels until 1949. Answer:

True

10. Keynes (1941) claimed that government spending during wartime could generate a healthy increase in the demand for output, thus raising employment levels and boosting incomes. To avoid inflation, physical rationing, monetary measures and other controls were consequently needed. Answer:

True

11. The Field Hypothesis (2003) suggests that production possibilities expanded during the depression years. Much of the resulting increase in potential went unrealized, though. This explains why potential output in 1942 was greater than expected. Answer:

True

12. All economists agree that World War II (1941–45) was responsible for ending the Great Depression. Answer:

False

13. If the increase in government expenditures of World War II (1941–45) is matched against the decrease in private investment and consumption during the same period, it was the end of World War II that officially concluded the depression era, not the start of World War II, according to Robert Higgs (2007). Answer:

True

14. During World War II (1941–45), the market coordinated what the government commanded in terms of production. Answer:

True

15. The rules of strict constitutionality apply even during times of war in the U.S. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. When World War II (1941–45) came, (a) the labor force expanded by very little despite the high unemployment of 1941. (b) unemployment was still high enough that the armed forces could be expanded and war production expanded without a large increase in the labor force. (c) a large increase in the labor force occurred in all categories, including men over 65 and women. (d) none of the above occurred. Answer:

(c)

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2. Pegging the bond market in 1942–45 meant that World War II (1941–45) (a) would be financed by free-market interest-rate determination. (b) fixed high interest rates. (c) fixed low interest rates. (d) sent high interest rates floating above the peg. Answer:

(c)

3. According to Robert Gordon (1969, 1999), the extraordinary expansion of physical production in 1942–45 was achieved by (a) massive government investment in new plants and equipment. (b) finally bringing into production manufacturing plants and equipment that had been idle since the early 1930s so that big government investment was not necessary. (c) the Federal Reserve’s peg on the bond market, which enrolled the private sector to mobilize the necessary capital to invest in new plant and equipment. (d) none of the above. Answer:

(a)

4. The command of World War II (1941–45) (a) was more structured than that of World War I (1914–18) (WWI). (b) experienced the same unconstitutionality problems experienced during WWI. (c) was distinct from WWI in most ways. (d) did not involve rationing of goods and services, given the high unemployment of the period. Answer:

(a)

5. During World War II (1941–45), Golden (1990) argues, the opportunity cost of women staying at home (a) decreased. (b) stayed the same. (c) increased. (d) cannot be measured. Answer:

(c)

6. Shortly after World War II (1941–45) and the price controls ended, (a) unemployment levels returned to those levels experienced during the Great Depression. (b) unemployment levels returned to their full employment levels. (c) unemployment dipped sharply and inflation surged. (d) unemployment rates increased and deflation emerged. Answer:

(b)

Chapter 26

The “Prosperity” of Wartime

7. Which of the following was a source of the U.S. federal government’s financial revenue for World War II (1941–45)? (a) Tariffs (b) Bond sales to other governments (c) Bond sales to the Federal Reserve System (d) Bond sales to the U.S. Congress Answer:

(c)

8. After World War II (1941–45), the U.S. public debt (a) remained unchanged in 1947 even though the government ran a budget surplus (government expenditures fell below revenues in 1947). (b) continued to rise even though the government ran a budget surplus at times. (c) decreased even though the government ran a budget surplus continuously. (d) remained high while the government continuously ran deficits. Answer:

(b)

9. Bonds sales to finance World War II (1941–45) (a) helped finance the government’s current budget deficits. (b) helped finance, manage and eventually pay down the private debts accumulated during World War I (1914–18). (c) were loans the U.S. government made to individuals in its private sector. (d) led to higher interest rates and decreased private spending and investment. Answer:

(a)

10. World War II (1941–45) bond sales (a) were successful and purchased primarily by banks, not private individuals. (b) were successful and purchased primarily by private individuals, not banks. (c) were successful but eventually led to inflation when bondholders decided to cash them in or sell them to the Fed. (d) were not successful. Answer:

(c)

11. Tax policies involving increases in taxes paid by the private sector (a) are generally tolerated when incomes are rising faster than taxes. (b) are always opposed by the private sector. (c) are death to politicians concerned about re-election. (d) are progressive when the lowest income bracket pays the highest percentage of total income. Answer:

(a)

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12. Some economists argue that the increases in aggregate demand for output spurred by wartime spending, complemented by the strong spending in the private sector, impacted the U.S. economy by (a) increasing production and employment. (b) increasing employment and income. (c) increasing income, thus fueling additional spending. (d) contributing to all of the above. Answer:

(d)

13. During World War II (1941–45) which of the following fell? (a) Real GDP per capita (b) Private consumption expenditures (c) Private investment (d) Government expenditures Answer:

(c)

14. According to the Quantity Theory of Money (Chapter 3), the increase in the money supply from $39.7 billion in 1940 to $99.2 billion in 1945 should have fueled strong inflation. However, it did not because (a) the World War II (1941–45) (WWII) economy was operating below full employment levels of production. (b) the WWII economy was operating at full employment levels of production. (c) the WWII economy was operating above full employment levels of production. (d) price controls prevented the surge in prices across the economy. Answer:

(a)

15. The federal government’s abilities to tax during war- and peace-times are constrained by (a) the need to be re-elected by the voting population. (b) the interests of the non-voting population. (c) the U.S. Constitution. (d) the protected rights of state and local governments to tax. Answer:

(a)

16. During World War II, a labor shortage emerged in some markets. New recruits into the civilian labor force included (a) teenage females. (b) married women. (c) retired people 65 years of age or older. (d) all of the above. Answer:

(d)

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17. The wartime demand for manufacturing goods directly impacted the economy in which of the following ways? (a) Increased demand for factory workers (b) Increased demand for imported goods (c) Decreased demand for agricultural goods (d) All of the above Answer:

(a)

18. During World War II, the distribution of income shifted. Who did this shift favor? (a) Labor (b) The idle and wealthy class (c) The government (d) Foreign-born individuals Answer:

(a)

19. During World War II, price controls were necessitated as shortages emerged in consumer markets. This required (a) the federal government to ration goods through tickets. (b) the federal distribution of rationing points. (c) a forced reduction in private consumption. (d) all of the above actions. Answer:

(d)

20. Under the Employment Act of 1946, what action did the federal government take for the first time in U.S. history? (a) Assuming power and responsibility for managing the world economy (b) Assuming power and responsibility for managing the U.S. economy (c) Relinquishing all influence for managing the U.S. economy to state governments (d) Relinquishing all influence for managing the U.S. economy to the private sector Answer:



(b)

Essay Questions

1. Discuss the forces behind the tax policies during and shortly after World War II (1941–45). 2. What is the “pay-as-you-go” tax policy? Identify its roots in the New Deal Era and World War I (1914–18). Explain why it is generally acceptable; specifically identify what taxpayers receive in exchange for the taxes paid. What would taxpayers sacrifice if there were no taxes? Hold all else constant. 3. How did World War II (1941–45) (WWII) affect family incomes and wages? Business expectations? Consumer confidence? Overall demand for goods and services? Use your answer to explain why, in part, post-WWII unemployment figures returned to the pre-WWII levels.

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4. Discuss World War II’s (1941–45) (WWII) impact on the supply of and demand for agricultural goods. Compare WWII’s impact on the agricultural sector to the manufacturing sector. 5. What is Engel’s law? How does it apply to World War II (1941–45) (WWII) changes in consumption and real income? Look at Table 26.6, and note that real income and wages were rising. Comment on what you observe and describe those forces that interfered with the application of Engel’s law during WWII. 6. What is rationing? Describe its economic benefits and costs. What type of rationing took place during World War II (1941–45)? How did rationing affect some economists’ application of Engel’s law? 7. How did the post-World War II surge in demand for consumption goods and services help boost investment spending? What was the impact on output and income? Prices? 8. Discuss Keynes’ (1941) views on wartime spending. Highlight the measures needed to manage inflationary pressures. 9. Apply the Quantity Theory of Money first presented in Chapter 3 to the wartime economy of World War II (1941–45). Using Table 26.2, quantify the changes in the money supply from 1940 to 1945. Explain why these changes did not lead to the rapid inflation one would predict using this theory. 10. Explain why Robert Higgs (2007) argues that the Great Depression did not conclude until World War II ended. 11. Describe the economic consequences associated with the inefficient allocation of resources associated with the rationing of private consumer goods and services during World War II. Explain why there was a rise in the proportion spent on food at a time when incomes were increasing during this period.

PART 5 BRAVE NEW WORLD? 1945-PRESENT

Chapter 27 Before the New Frontier: The Postwar Economy



True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Eisenhower’s conservative policies were characterized by budget surpluses that produced further declines in price levels. Answer:

False

2. The post-World War II prosperity (1945–1949) was due in large part to Harry Truman’s commitment to maintaining high levels of federal expenditures after World War II (1941–45). Answer:

False

3. In 1945–52, the records show that falling price levels stimulated increases in real Gross National Product (GNP). Answer:

False

4. Like the two world wars, the Korean War (1950–53) produced shortages of resources, labor and output due to large-scale foreign military deployments and demands for the production of war-related goods and services. Answer:

False

5. Moore (1959) finds evidence to suggest that the mild cyclical deviations in employment and output of the Korean War were caused by progressive income taxes and unemployment compensation. Answer:

False

6. After World War II, the U.S. dollar was to become the main, official “reserve currency of the new international order,” according to Hughes and Cain (2011). Answer:

True

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7. The Marshall Plan (1948–51) brought about the immediate integration of Europe into international markets. Answer:

False (It did not.)

8. The Economic Act of 1946 allowed the federal government to use discretionary fiscal policy to pursue economic prosperity. Answer:

True

9. The natural rate of unemployment is not zero. It is at least 5 percent, allowing for individuals who are frictionally and structurally unemployed. Answer:

True

10. Expansionary fiscal policy includes an increase in government spending, a decrease in taxes or some combination of the two. Answer:

True

11. Private investment spending escalated during the post-World War II era (1945–50). Answer:

True

12. Under the Marshall Plan (1948–51), the U.S. granted resources to and transfused U.S. dollars into European countries devastated by World War II. In return, the U.S. requested coordinated plans of European recovery that promoted efficient and effective production in private markets with minimal government interference. Answer:

True

13. World trade and tariffs have been regulated by the International Trade Organization (ITO), General Agreement on Tariffs and Trade (GATT) and the World Trade Organization (WTO). Today, only the ITO still exists to address international trade issues and monitor the implementation of any trade agreements negotiated in the Uruguay Round of world trade talks. Answer:

False (Only the WTO still exists.)

14. Eisenhower wanted producers of weapons and war-related goods to have influence over fiscal policy decisions. Answer:

False

15. By fixing the mint price of gold among commercial nations under the Gold Standard, the exchange rate risk falls significantly, thus encouraging trade. Answer:

True

16. Some economists argue that unemployment compensation increases the natural rate of unemployment because it increases the amount of time people spending finding new work while without work. Additionally, it makes unemployment more visible with the steady growth in urbanization. Answer:

True

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

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Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. In implementing the Marshall Plan (1948–51), (a) the United States discouraged European countries from cooperating among themselves to increase trade, as it was felt that economic recovery would be better achieved through competition. (b) the United States, in order to offset the large capital outflow caused by loans and grants made abroad, tried to maintain a balance of payments surplus. (c) the United States offered financial aid to many of the economies in Western Europe devastated by World War II. (d) the U.S. dollar was devalued 30% against other world currencies. Answer:

(c)

2. Unemployment in the post-World War II era (1945–50) (a) was reduced only because of the post-war decline in the size of the civilian labor force. (b) rose above wartime levels, but remained far below the levels of the 1930s. (c) rose in response to the decline in civilian consumption levels. (d) remained at the low levels achieved in World War II (1941–45). Answer:

(b)

3. After the depression of the 1930s and the interruption of World War II, in the post-war period (1945–50) private investment (a) fell back to the 1920s level. (b) rose to unprecedented levels. (c) collapsed in the 1948 downturn and then returned to the stagnation levels of the 1930s. (d) did none of the above. Answer:

(b)

4. The growing post-war (1945–50) economy was sustained by (a) an expansion of government expenditures. (b) the general expansion of nearly all sectors despite the decline in government expenditures. (c) significant increases in both government and private expenditures. (d) trade deficits. Answer:

(b)

5. Which of the following best describes the Employment Act of 1946? (a) A piece of New Deal legislation that had to be postponed until after the war (b) An effort to stabilize the U.S. balance of payments as the world moved toward using the U.S. dollar as the main reserve currency (c) An attempt to reduce the overall extent of federal responsibility in the post-war national economy (d) All of the above Answer:

(b)

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6. The International Monetary Fund, one of the Bretton Woods Institutions, (a) was meant to provide short-term credit. (b) was meant to provide long-term credit. (c) was meant to provide both short- and long-term credit. (d) was not meant to provide credit. Answer:

(a)

7. What was the World Bank designed to do? (a) Serve as a long-term lender (b) Serve as a short-term lender (c) Make both short and long-term loans (d) Make grants-in-aid, but not to be a lending institution Answer:

(a)

8. What did the 1958 Treaty of Rome establish? (a) The European Payments Union (b) The European Economic Community (c) The European Coal and Steel Community (d) The Marshall Plan Answer:

(b)

9. What produced the European Payments Union? (a) The Schumann Plan (b) The Monet Plan (c) The Spaak Plan (d) The Marshall Plan Answer:

(d)

10. The Employment Act of 1946, which sets up the Council of Economic Advisers, (a) was the final legislation of the New Deal. (b) grew out of the War Manpower Board’s experience. (c) grew out of financial negotiations with Britain. (d) was the product of New Deal experience with fiscal policy. Answer:

(c)

11. What did the Economic Act of 1946 require the U.S. government to do? (a) Keep its “hands off” the economy (b) Present an annual “Economic Report of the President” (c) Let market forces determine equilibrium quantities of labor hired and wages paid (d) Maintain a current account surplus where U.S. exports exceeded imports each year Answer:

(b)

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213

12. Between 1945 and 1950, the U.S. price level rose by one-third. This increase was complemented by which of the following? (a) An increase in nominal and real GDP (b) An increase in nominal GDP but a decrease in real GDP (c) An increase in real GDP but a decrease in nominal GDP (d) Stable nominal and real GDP Answer:

(b)

13. Between 1945 and 1950, federal expenditures (a) dropped by two-fifths despite the Marshall Plan. (b) dropped by two-fifths because of dissipation of wartime expenditures. (c) increased by two-fifths because of increased spending in private consumer and business markets. (d) increased by two-fifths because of the Marshall Plan. Answer:

(a)

14. What characterized the 1950–1962 economy (from the Korean War to the last year of John F. Kennedy’s presidency)? (a) Significant inflation (b) Deflation (c) High unemployment (d) Falling prices and wages Answer:

(a)

15. How can banks increase the amount of loanable funds available for private lending? (a) By selling government securities to securities dealers and the Federal Reserve System (b) By buying government securities from securities dealers and the Federal Reserve System (c) By buying stocks, property and other assets to hold on behalf of the banks (d) By holding 100 percent of customers’ deposits in bank vaults Answer:

(a)

16. Compared to earlier times, the period of the 1950s to the early 1960s was one characterized by (a) temporary deficit spending of the government. (b) permanent deficit spending of the government. (c) temporary surplus spending of the government. (d) permanent surplus spending of the government. Answer:

(b)

17. When all else is held constant, during recessions government (a) revenues and expenditures increase. (b) revenues increase and expenditures decrease. (c) revenues decrease and expenditures rise. (d) revenues and expenditures decrease. Answer:

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18. What did the fiscal conservatives of the Eisenhower administration (1953–61) want? (a) Balanced budgets and with manageable inflation (b) Inflation and budget surpluses (c) A balanced budget and high rates of interest (d) Laissez-faire economy Answer:

(a)

19. Economists believe the “full employment” level of unemployment is (a) 0 percent (b) 2 percent (c) 5 percent (d) 10 percent Answer:

(c)

20. The Bretton Woods Systems established (a) the International Monetary Fund. (b) the International Bank for Reconstruction and Development (the World Bank). (c) the International Trade Organization (WTO). (d) all of the above. Answer:



(d)

Essay Questions

1. Explain the economic theory behind Moore’s (1959) claim that a progressive income tax system and unemployment compensation are likely the “automatic stabilizers” causing some of the cyclical fluctuations in the U.S. economy experienced during the post-war era. 2. What is fiscal policy? Under the Eisenhower administration, why did the U.S. government experience budget deficits during recessions and surpluses during expansions? 3. Explain what is meant by the impressive stability of the “peacetime” economy in the U.S. between 1945 and 1962. 4. What agreement was made between the Federal Reserve System and the U.S. Treasury in 1951? Why was it significant? 5. Define the “natural” rate of unemployment, structural unemployment and frictional unemployment. What does “overfull-employment” produce? Why did economists change the natural rate of unemployment? 6. Why is international trade important to the U.S. economy? How does it contribute to economic growth in U.S. output and income? Which barriers to trade emerged during the Great Depression and remained in place until the Bretton Woods System was established? 7. Describe the origins of and the economic history behind the European Common Market.

Chapter 27

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215

8. Compare and contrast the International Bank for Reconstruction and Development (the World Bank) and the World Trade Organization using Internet resources. Identify what they have in common and describe how they differ. 9. From the end of World War II to the beginning of the Johnson presidency (1945–1962), what did the “New Frontier” mean in terms of the economy? 10. How did the world try to establish a new sense of financial order after World War II (1941–45)? Why did the world choose to use the gold-backed U.S. dollar as reserves? 11. Link modern discussions about industrial incentives to influence fiscal policy decisions in the wake of 11 September 2001. Discuss the impact on consumers and on firms competing with the industries benefiting from swayed fiscal policy, subsidies and expenditures. 12. Explain why the Employment Act of 1946 is not a “New Deal” device. 13. Explain how the U.S. produced its own “competition” in the world. Identify the benefits and costs of doing so. 14. Why is it important for the U.S. to maintain stable imports in a global economy?

Chapter 28 Population, Health, and Labor 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Adam Smith (1776) is primarily associated with the theory that industrialization proceeds at the expense of the working class. Answer:

False

2. The rise of the tertiary sector is positively associated with modernization and economic development. Answer:

True

3. Goldin (2001) gives the U.S. investment in public education credit for boosting the U.S. labor force participation rates and helping the U.S. economy develop. Answer:

True

4. During the 20th century, the percentage of unskilled laborers in the U.S. rose steadily. Answer:

False

5. The amount earned by the tertiary laborer is determined by labor productivity in the primary and secondary sectors of the U.S. economy. Answer:

True

6. The immigration rates of the 20th century returned to the high rates of the 19th century. Answer:

False

7. Today, about one out of four legal immigrants arrives in the U.S with experience in a professional occupation. Answer:

True

Chapter 28

Population, Health, and Labor

217

8. By the end of the 20th century, the countries of origin of the new U.S. immigrants shifted away from its European majority. A smaller percentage of total immigrants arrived from Europe, and more and more came from Asia, Canada and Mexico. Answer:

True

9. The unemployment rate of today is significantly lower than that rate one hundred years ago. Answer:

False (It is about the same.)

10. Goldin (2001) refers to the 20th century as the “human capital” century and credits education for the rise in overall income. Answer:

True

11. The tertiary sector of the economy employs housecleaners, restaurant help and hotel employees; it does not employ private consultants, accountants, nanotechnologists, managers and other professionals. Answer:

False (It includes all service types of employment.)

12. The U.S. economy is not a perfectly competitive market. There are costs associated with negotiating contracts, enforcing agreements, taxes and less than perfectly competitive firms. Nevertheless, according to Wallis and North (1986), the U.S. economy has grown in the presence of these transaction costs and these costs have risen sharply as a percentage of GDP between 1890 and 1970. Answer:

True

13. Individuals rationally choosing career paths should weigh the preparation costs to the potential incomes generated within those careers. Answer:

True

14. According to Hughes and Cain (2011), today’s growth in white-collar jobs is fueled by investments in education and does not depend on apprentice-style training or land holdings. Answer:

True

15. Union membership is likely to fall as growth in tertiary employment occurs in the private sector. Answer:

True

16. The transformation in labor has dramatically impacted the distribution of income in the U.S. Answer:

False

17. The U.S. transfer system takes funds from the rich and distributes them to the poor. This transfer has significantly impacted income equality in the U.S. Answer:

True

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Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. In the 20th century, tertiary employment accounted for roughly (a) fifty percent of the total job increases. (b) ninety percent of the total job increases. (c) thirty percent of the total job increases. (d) seventy percent of the total job increases. Answer:

(a)

2. The increase in the proportion of tertiary employment over time at the expense of both primary and secondary employment (a) is peculiar to the western industrial countries. (b) is strictly an American phenomenon. (c) is present generally in all industrial countries. (d) is restricted to countries with relatively small government sectors. Answer:

(c)

3. Which of the following economists is/are considered the leader(s) in the theory of market behavior? (a) Alfred Marshall (b) Adam Smith (c) David Ricardo (d) All of the above Answer:

(d)

4. Employment in the tertiary sector in the 20th century showed (a) a marked cyclical tendency in harmony with the business cycle. (b) a leveling off in times of recession. (c) a downturn during cyclical expansions. (d) a steady increase since 1900. Answer:

(d)

5. At the beginning of the twenty-first century, (a) many people returned to living in the Northeast and Midwest. (b) the majority of U.S. citizens lived in rural areas. (c) the majority of people resided in the South and West. (d) all of the above Answer:

(c)

Chapter 28

Population, Health, and Labor

6. Compared to the 19th century, the population of the 20th century (a) was largely urbanized. (b) was 3.7 times larger in number. (c) experienced a 63 percent increase in life expectancy at birth. (d) can be described by all of the above. Answer:

(d)

7. Richard Easterlin (1968, 1987) maintains that the 20th century’s pattern of births was (a) affected primarily by Real Gross National Product (Real GNP). (b) negatively affected by the U.S. population’s materialistic desires and positively affected by its income. (c) explained by waves of discrimination. (d) explained solely by the wars. Answer:

(b)

8. During the 20th century, U.S. death rates (a) exhibited the same cyclical waves as birth rates. (b) fell with advancements in healthcare and medicine. (c) exhibited an upward trend. (d) generally stayed flat. Answer:

(b)

9. The Immigration Act of 1965 (a) helped pick up the pace of immigration in the U.S., effectively increasing the supply of highly skilled laborers. (b) imposed country quotas on the number of U.S. immigrants. (c) encouraged immigration on the basis of skill, political asylum and family reunification. (d) can be characterized by all of the above. Answer:

(c)

10. U.S. demand for tertiary labor increases when (a) the wage rate rises. (b) urbanization proceeds. (c) demand for goods and services decreases. (d) price of output declines. Answer:

(b)

11. Which of the following occurred during the 20th century? (a) The total U.S. population increased. (b) The percentage of foreign-born residents decreased, on average. (c) The median age fell. (d) All of the above occurred during the 20th century. Answer:

(a)

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12. Easterlin (1968, 1987) argues that as the relative price of children rises, (a) the average household demands fewer of them. (b) society, at large, demands fewer of them. (c) society, at large, demands more of them. (d) nothing happens since the demand for children is not influenced by price. Answer:

(a)

13. Research indicates that which one of the following factors likely gave rise to increased obesity in the U.S.? (a) Advancements in modern cooking technology (b) Increased consumption of restaurant and fatty foods (c) A shift from exercise in leisure to labor (d) All of the above Answer:

(a) (Contrary to popular beliefs, the microwave and other modern day conveniences have been held accountable for increases in U.S. obesity rates.)

14. Differences in what can explain the wage gap between U.S.-born and foreign-born workers? (a) Culture (b) Schooling (c) Urbanization (d) All of the above Answer:

(b)

15. Laborers of which sector work in the tertiary or service sector? (a) Teachers, doctors, lawyers, nanotechnologists, musicians and athletes (b) Farmers, fisher people and foresters (c) Manufacturers and processors of raw materials (d) All of the above Answer:

(a)

16. Differences in what can help explain the wage gap between U.S. born and foreign born workers employed in the U.S.? (a) Gender (b) Schooling (c) Immigration policy (d) All of the above Answer:

(b)

Chapter 28

Population, Health, and Labor

17. Industrialization in advanced economies suggests that rising productivity is responsible for (a) a drop in the number of laborers employed in the primary sector. (b) a smaller percentage of the total labor force working in the secondary sector. (c) a significant rise in the number of people working in the tertiary sector. (d) all of the above. Answer:

(d)

18. What does the demand for labor depend on, directly or indirectly? (a) The wage rate (b) Productivity of labor (c) Demand for the goods and services produced by the labor (d) All of the above Answer:

(d)

19. Which of the following best explains the closing gap between rural and urban mortality rates? (a) Relatively higher incomes in urban areas (b) Relatively lower prices in urban areas (c) Medical advancements, health education, and public health and sanitation involvement (d) All of the above. Answer:

(c)

20. The number of highly skilled and knowledge workers entering the workforce increases when (a) firms substitute capital for high priced labor. (b) the market demands labor with advanced degrees. (c) the government cuts educational funding. (d) All of the above Answer:

(b)

21. The premium on a college education increases when (a) the market demand for knowledge and skilled workers decreases, and all else is held constant. (b) the market supply of knowledge and skilled workers increases, and all else is held constant. (c) the growth in the demand for knowledge and skilled workers outpaces the growth in supply. (d) the growth in the supply of knowledge and skilled workers outpaces the growth in demand. Answer:

(c)

22. Which statement holds true in the post-World War II era? (a) There was a permanent increase in the percentage of working adult women with children. (b) Firms found it most profitable to treat women as individuals rather than groups. (c) Marriage bars returned. (d) Female participation in farming, common labor and craft work in the U.S. increased significantly. Answer:

(a)

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23. Social Security provides incentive for individuals to (a) save more than they consume during their working years. (b) manage their assets privately in order to prepare to live on principal and interest during retirement. (c) rely on transfer payments made by the working class to them during retirement. (d) carefully manage their private retirement portfolios and use the income earned to consume and save during retirement. Answer:

(c)

24. Economic theory predicts that (a) market forces impose stiff penalties on profits whenever enterprises discriminate against individuals on any basis other than productivity. (b) government intervention is required to combat discrimination. (c) market mechanisms and government interventions are weak in addressing issues of discrimination. However, government is relatively stronger. (d) discrimination is a necessary part of life private and public life. Answer:



(a)

Essay Questions

1. Discuss the factors affecting the demand for and supply of tertiary labor. Over time, what has happened to the U.S. demand for and supply of tertiary labor? 2. Describe the conditions imposed on a perfect economic world. Point out the evidence which suggests that we live in an imperfect economic world. What are the economic ramifications? Mention transaction costs. 3. Compare and contrast the opportunity costs of going to medical school, choosing a trade as a profession and working at a grocery store after high school. 4. Discuss the key changes in the U.S. labor force during the 20th century. 5. Describe the pattern of female participation in the labor force in the 20th century. Discuss the opportunity costs of gender discrimination. Historically, which factors account for discrimination against women in the U.S.? Why is this type of discrimination less of a problem today than it was 100 years ago? Use the economic way of thinking to provide answers to these questions. Hold all other factors constant. 6. Describe the pattern of African-American or black individuals’ participation in the labor force in the 20th century. Discuss the opportunity costs of racial or minority discrimination. Historically, which factors account for discrimination against blacks in the U.S.? Why is discrimination of this type less of a problem today than it was 100 years ago? Use the economic way of thinking to provide answers to these questions. Hold all other factors constant. 7. Leo Troy termed the phrase “Old Unionism.” What is it? How can it be used to explain the changes in union activity and membership over the course of the 20th century?

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8. Discuss the economic history behind the changes in the pattern of retirement over the course of the 20th century. What role has Social Security played? 9. Discuss the paradox of tertiary employment. 10. Define the gender gap and discuss the forces that cause this gap to shrink and expand. Reference Goldin’s (1990) research on this topic. 11. Discuss the challenges of the union movement at the close of the 20th century. 12. Compare and contrast the union movement of the beginning of the 20th century to the union movement at the end. Identify what the two movements have in common. Describe how they differ, using scholars’ research to explain why these differences exist. 13. Explain why neoclassical economists claim that economic growth is an effective redistributor of income. 14. Discuss the key changes in the distribution of income over the 20th century. Use statistics to back the claim that the income distribution after transfers is about as unequal today as it was almost twenty years ago. 15. Provide the five explanations that link health improvements to mortality. 16. Explain how urbanization has fueled increased demand for services using the concept of derived demand. 17. Discuss the economic costs of discrimination. Explain how rising incomes among blacks increased those costs.

Chapter 29 Postwar Industry and Agriculture 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Even though the number of workers in manufacturing has increased in the post-war world (since 1947), the proportion of manufacturing workers in the total labor force has declined. Answer:

True

2. The rapid adoption of Basic Oxygen Furnaces by “Big Steel” (the top six firms) kept the American basic steel industry from falling behind changes in world technology during the 1960s. Answer:

False

3. The decline of output of other domestic auto producers besides Ford, General Motors and Chrysler occurred in the presence, even before 1970, of rising sales of imported cars in the U.S. market. Answer:

True

4. The evidence shows that both the U.S. steel and auto industries seem to have lost their vigor for growth and competitive edges in the global marketplace. Answer:

True

5. There has been a massive relocation of heavy industry from the U.S. Northeast and upper Midwest to the “Sun Belt.” Answer:

False (it is a myth.)

6. Employment in manufacturing fell by almost twenty percent between 1980 and 1999. Answer:

True

7. A slowdown in labor productivity causes a slowdown in economic growth when all else is held constant. Answer:

True

8. The overall productivity crisis of the 1970s can be attributed, in part, to insufficient investment in research and development. Answer:

True

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9. The loss of total market share of steel in the world market for steel can be blamed on steel producers’ decisions to not adopt the latest steel technology. The producers in other countries that adopted it gained market share at the expense of the U.S. Answer:

True

10. The steel industry successfully lobbied for protection from foreign competition. Consequently, the steel-producing industries and those industries using steel benefited. Answer:

False (The steel-using industries lost.)

11. Labor productivity is measured by dividing Gross Domestic Product (GDP) by population. Answer:

False

12. Stagflation at the end of the 1970s was marked by increasing inflation and unemployment. Answer:

True

13. Governments, not markets, have the best record of allocating investment resources into those projects with the highest expected rate of return. Answer:

False

14. Compared to other countries, the U.S. government is very concerned with intellectual property rights. This can explain, in part, the success of its software, computer and other electronic industries. Answer:

True

15. Industrial growth and location changed while manufacturing employment rose in the Sun Belt and fell in the Frost Belt. This growth and relocation were primarily due to the relocation of plants, functions and people moving from the Frost Belt to the Sun Belt. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Low-wage manufacturing industries exhibit which of the following? (a) Low output per worker (b) Added value that rises above labor’s share of total employment (c) Highly educated and skilled workers (d) All of the above Answer:

(a)

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2. Growth rates in labor productivity (a) increased in the 1970s. (b) slowed across all employment sectors, with some experiencing more severe drops than others. (c) decreased across all employment sectors at the same rate. (d) were largely stagnate. Answer:

(b)

3. Chandler (1994) maintains that domestic labor productivity has a tendency to dip with (a) a decrease in the variety and number of new goods and services. (b) flat consumer demand. (c) increased foreign competition. (d) all of the above. Answer:

(d)

4. From the late 1970s to the late 1980s, Hall (1994) finds that leverage buyouts most commonly take place among firms (a) in the volatile tech industry. (b) facing steep global competition. (c) that are unstable. (d) like those mentioned in all of the above. Answer:

(b)

5. The income elasticity for cars is high. During the late 1960s, some U.S. citizens experienced a decrease in their real incomes. Consequently, they purchased (a) more expensive U.S. cars. (b) more foreign imports due to their relatively low costs. (c) used U.S. cars in order to avoid foreign imports. (d) U.S. cars of any type to avoid foreign imports. Answer:

(b)

6. U.S. automobile manufacturers chose not to switch to producing subcompact cars for which of the following reasons? (a) They did not perceive the U.S. demand for subcompacts as permanent. (b) This switch was not economically feasible in the long run. (c) Government policy prevented them from doing so. (d) All of the above. Answer:

(a)

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7. According to Kuznets (1954), competition will (a) unfairly destroy leading industries and impede overall economic growth across industries. (b) require government intervention. (c) push efficient industries into leadership roles and pull the backward and forward industrial links to these leaders with them. (d) contract consumer market opportunities. Answer:

(c)

8. Chandler (1994) credits IBM’s dominance in the world computer market to (a) advancements in technology. (b) investments in research and development. (c) solid management and sophisticated marketing. (d) all of the above. Answer:

(d)

9. Increased specialization in the computer industry is evidenced by (a) the types of government policies implemented to aid the computer industry. (b) the growth of the software industry. (c) the growth of the manufacturing industry. (d) the growth of agriculture. Answer:

(b)

10. Between 1967 and 1999, the industrial structure of the U.S. experienced which of the following changes? (a) The industries experiencing slow or negative growth—primary metals, transportation, mining and steel—sought protection from competition from the federal government. (b) All major nondurable sectors experienced growth. (c) Machinery and electronics experienced rapid growth. (d) All of the above. Answer:

(d)

11. In absolute terms and relative to other countries, what happened to U.S. growth rates in productivity as measured by output per paid hour in the late 1960s and 1970s? (a) They increased. (b) They stayed the same. (c) They fell. (d) They fell early on and then increased past their previous levels. Answer:

(c)

12. From the mid-1960s to the present, what would a graph of U.S. productivity rates against time reveal? (a) A stable upward trend in the amount of output per paid hour (b) An unstable but upward trend (c) A U-shape (d) A downward trend Answer:

(c)

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13. The implementation of new technology can be quick throughout the world if (a) patent rights are leased and purchased. (b) unions are strong. (c) economies are closed to foreign competition. (d) tariffs are placed on those imported goods and services benefiting from the technological advancements in the rest of the world. Answer:

(a)

14. In the 1970s, the largest steelmakers were slow or failed to adopt quickly the latest technology: oxygen furnaces. Some researchers blame (a) the federal government for its enterprise-crippling policies, subsidies and import restrictions. (b) unions for their low productivity efforts and high wage demands. (c) management for not keeping abreast of global changes in the marketplace. (d) all of the above. Answer:

(d)

15. Unlike the steel industry, the automobile industry (a) became more concentrated. (b) became less concentrated. (c) remained the same in terms of concentration. (d) constantly fluctuated in terms of concentration. Answer:

(b)

16. The market for U.S. cars was impacted significantly by consumers’ options to buy which of the following? (a) Used cars (b) New cars produced by U.S. producers (c) New cars produced by foreign producers (d) All of the above Answer:

(d)

17. The U.S. demand for foreign cars has increased dramatically since the early 1900s because (a) Americans perceive foreign cars as lower quality cars than U.S.-produced cars. (b) foreign producers are manufacturing relatively fuel-efficient cars. (c) U.S. consumer demand for large, fuel inefficient cars has increased. (d) of all of the above reasons. Answer:

(b)

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18. Burns (1934) argued that retardation and decline in some industries are (a) healthy for a growing and developing economy because resources are released for use in productive sectors. (b) healthy only for the competitors of the declining industries. (c) unhealthy for a growing economy because resources are idle in the declining industries. (d) unhealthy for a growing economy because the released resources are used unproductively by the competitors of the declining industries. Answer:

(a)

19. Since the 1950s, (a) U.S. holdings of foreign assets and foreign holdings of U.S. assets have risen steadily. (b) U.S. holdings of foreign assets and foreign holdings of U.S. holdings have declined. (c) U.S. holdings of foreign assets have declined while foreign holdings of U.S. assets have risen steadily. (d) U.S. holdings of foreign assets have risen steadily while foreign holdings of U.S. assets declined. Answer:

(a)

20. According to Chandler and Cortada (2000), the driving force of the U.S. economy has been what since the beginning? (a) Agriculture (b) Manufacturing (c) Information (d) Steel and automobiles Answer:

(c)

21. During the 20th century, the agricultural sector experienced an increase in (a) the number of operating farms. (b) the farm population. (c) the farm output. (d) all of the above. Answer:

(c)

22. Darby (1984) argues that the problem with declining productivity of the 1970s was not an issue. He adjusted labor productivity upward to take into account which of the following? (a) The immigration policies of the 1970s restricted the free migration of highly qualified workers. (b) More men than women re-entered the workforce. (c) The overall labor force was relatively young and comprised of individuals still maturing in their knowledge base and skill sets. (d) The labor force of the 1970s was older, more senior and had gained more experience than in the past. Answer:

(c)

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23. Which of the following contributed to the clear advancement of the automobile and steel industries? (a) Oligopoly behavior (b) Voluntary export restrictions (c) Quotas set for the number of foreign products entering the U.S. (d) Dynamic entrepreneurialism Answer:

(d)

24. The income elasticity for cars is high. This is best illustrated by which of the following? (a) College students buy a high percentage of the lower priced, dependable foreign cars. (b) The purchase of all hybrid cars increases in response to the call to reduce the auto’s footprint. (c) U.S. cars built by foreign automakers sold at relatively lower prices than their equal American counterparts. (d) All of the above. Answer:

(a)

25. In 2002 the steel industry successfully lobbied Congress to impose a tariff of 8 to 30 percent on foreign steel. Which of the following is an unintended consequence of this tariff? (a) U.S. steel firms were protected from the price cutting efforts of foreign competitors benefiting from governmental support in their countries. (b) U.S. steel firms could charge higher steel prices in order to boost profits. (c) Many steel-using firms in the U.S. went out of business and about 200,000 workers lost their jobs to higher steel prices. (d) American steel workers kept their jobs. Answer:



(c)

Essay Questions

1. Describe the notable changes in industrial growth since 1967. Identify those industrial sectors experiencing the highest value-added and those realizing the lowest. Compare changes in valueadded to changes in shares of total employment. What do you infer? 2. Discuss the demise of the steel industry from the economic historian’s perspective. 3. From the economic historian’s perspective, discuss the changes in the automobile industries between 1945 and 2000. What was the role of these changes in the macro-economy of the U.S.? Do you agree or disagree with government intervention in these industries? Use economic reasoning to support your answer. 4. Discuss the economic history behind the U.S. semiconductor industry. Highlight the role of foreign competition. 5. Discuss how the U.S. government policy that enabled firms to import semi-finished goods helped U.S. firms to be more internationally competitive with respect to production capacities.

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6. The U.S. has remained the world’s leader in the computer industry since the 1950s. Do you think it faces the same fate as the U.S. steel and automobile industries? Explain your answer. 7. Describe the “productivity crisis” of the 1970s and identify the sources of this crisis. Reference Chandler’s (1994) work. Discuss how Darby (1984) addresses the crisis issue. 8. Discuss the role of research and development in growing industries. 9. Discuss the developments in agriculture during the 20th century. 10. How did the federal government’s actions impact the steel and automobile industries negatively? Positively?

Chapter 30 To the New Millennium and Beyond 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Prices rose strongly during the Vietnam War (1964–1974), and only the adroit monetary and fiscal policy management of the Carter administration (1976–1980) managed to get inflation under control. Answer:

False

2. In the 1970s, the relationship between stock-market prices and the consumer price index was roughly equal to that of the 1920s, rising in roughly equal amounts. Answer:

False

3. The hope of “Reaganomics”—that ending inflation will stimulate economic growth—is supported by the experience of 1945–49. Answer:

False

4. After the inflation of the Johnson-Nixon-Ford years (1963–1976), the Carter Administration, while still inflationary, managed to slow down the rate of advancing prices. Answer:

False

5. The expansion of governmental direct controls over the economy which characterized the “New Frontier” and “Great Society” programs of the Kennedy-Johnson years was continued and expanded by the Nixon Administration. Answer:

True

6. The Economic Stabilization Act of 1970 gave private industry the right to establish wage and price controls, but President Nixon vetoed this power. Answer:

False

7. The techniques of government regulation in the U.S. are intended to increase the degree of competitiveness in the domestic and international marketplaces. Answer:

False

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8. Political and social desires to increase the “quality of life” in the U.S. led to an increase in the federal funding of public libraries, television and radio as well as increases and broadened uses of federal lands, waters and parks. Answer:

True

9. William J. Clinton (1993–2001) was the first U.S. president since the Great Depression to increase taxes to try to reduce the federal budget deficit. Answer:

False (FDR was the first.)

10. Like Franklin D. Roosevelt (1933–45), William J. Clinton’s (1993–2001) deficit-reducing tax hikes pushed the economy into a recession. Answer:

False (Only FDR’s tax hikes resulted in a recession.)

11. Unlike the 1930s, the Federal Reserve System followed an easy money policy in the first decade of the 2000s and, consequently, was able to prevent a severe recession from following a period of notably high economic activity. Answer:

True

12. In the long run, holding all else constant, inflation requires a decrease in the money supply relative to the output of goods and services—not enough money chasing too many goods. Answer:

False

13. Monetarists maintain that the increase in the money supply can explain the inflation of the 1970s and 1980s when one considers the bonds purchased by the Fed to finance the federal deficits of the period. Answer:

True

14. Economic history shows that stock market averages are useful predictors of the future. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. The years after 1960 witnessed some social and economic changes of extraordinary magnitude, including all of the following except (a) The core of U.S. growth shifted away from its historic base in heavy industry. (b) A huge influx of women into the labor force occurred. (c) Legislation provided for greater safety on the job and cleaner air and water. (d) The Cold War ended in the early 1970s, following the end of the Vietnam War, and defense spending declined significantly from the Cold War years of the 1950s. Answer:

(d)

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2. Which of the following did not occur during the period 1960–95? (a) The problem of inflation (b) The growth of federal budget and trade deficits (c) Rising unemployment rates (d) All of the above occurred during this period. Answer:

(d)

3. In the period 1960–95, the federal government (a) played, in general, a much larger role in the economy during this period than prior to World War II. (b) played a small role in the economy, similar to the 1920s. (c) eliminated most of the major programs for the federal government that were established by the New Deal in the 1930s, while state and local governments began to play a larger role in the economy. (d) played a large role in defense spending but followed basically a laissez-faire policy toward the rest of the economy. Answer:

(a)

4. In the period 1960–95, the cycles of upturns and downturns in the economy (booms and recessions) (a) were eliminated as knowledge of how the economy operated grew. (b) continued to occur, although not nearly as severely as prior to World War II. (c) grew even worse than prior to World War II. (d) were equally as bad as the period prior to World War II. Answer:

(b)

5. In the period 1960–95, (a) the relations between capital and labor (owners and workers) continued to be as hostile and violent as they were in the 1930s and earlier. (b) the relations between capital and labor (owners and workers) continued to be cooperative and peaceful, as they had been throughout U.S. history. (c) an accord was struck which involved more cooperative relations between capital and labor and encouraged high rates of productivity in industry. (d) the federal government intervened with a strong hand to ensure that labor and capital worked together cooperatively. Answer:

(c)

6. The Cold War was of overriding importance during the period after World War II for all of the following reasons except (a) It was an automatic “pump primer” which helped keep spending levels high in the overall economy. (b) It helped fuel growth of key sectors of the economy, such as aircraft manufacturing and computers. (c) It fostered economic growth and urbanization in many parts of the nation where military bases and defense factories were built. (d) It put people to work who would otherwise have been unemployed because without high levels of defense spending, the economy almost certainly would have lapsed back into a depression like the one of the 1930s. Answer:

(d)

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7. All of the following were important structural changes in American capitalism during the period 1960–95 except (a) New technology in the form of automated (machine-guided) production processes (b) A capital-labor accord which allowed workers to share in productivity gains through wage increases, particularly during the 1950s and 1960s (c) An increase in self-sufficiency as the nation reduced its economic interdependence with other nations (d) A large and central role for government in directing the post-war economy Answer:

(c)

8. The government played a central role in directing the post-World War II economy, causing all of the following to occur except (a) The reduction of entitlements, such as Social Security and unemployment benefits. (b) Massive spending by the federal government, justified by the Cold War. (c) Enormously expanded government infrastructure spending on things like highways, airports, education and research and development. (d) There is no “except”; all of the above occurred. Answer:

(a)

9. The term “stagflation” refers to an economy with the simultaneous problems of (a) rising inflation rates and falling unemployment rates. (b) rising deflation and unemployment rates. (c) rising inflation and unemployment rates. (d) falling deflation and unemployment rates. Answer:

(c)

10. The persistent problem of inflation, beginning in the late 1960s, had its causes in all of the following except (a) The full-scale entrance of the United States into the Vietnam War in 1965 (b) “Oil shocks” in the 1970s (c) Rising production costs in almost every sector in the economy due to rising energy costs (d) Rising corporate taxes which raised the cost of doing business Answer:

(d)

11. What does the idea of a trade-off between inflation and unemployment mean? (a) That lower inflation could be established but only at the cost of higher unemployment (b) That lower unemployment could be achieved but only at the cost of more government spending (c) That lower inflation could be established but only at the cost of lower unemployment (d) That lower unemployment could be achieved but only at the cost of lower inflation rates Answer:

(a)

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12. What was/were the most enduring legacy/legacies of the 1960s according to Hughes and Cain (2011)? (a) Medicare and the War on Poverty (b) The violent antiwar movement (c) The environmental, consumer and women’s movements (d) The black power movement Answer:

(c)

13. The famous “Kennedy Tax Cut” of 1964 was (a) meant to stimulate private spending. (b) meant to reduce private investment. (c) meant to restrain consumption. (d) designed to increase the federal deficit. Answer:

(a)

14. The techniques of regulation used in the U.S. are (a) meant to solve basic problems, but they create others. (b) meant to re-enforce the “decisions of the marketplace.” (c) meant to manage problems rather than solve them. (d) designed to make the economy more efficient than is possible with only the free market mechanism. Answer:

(a)

15. The Kennedy Tax Cut, enacted in 1964 after his death, was the first supply-side tax cut used in U.S. history. Its intent was to stimulate the economy by reducing tax rates in order to do what? (a) Reduce supply (b) Increase production, employment and disposable income (c) Increase government spending (d) Increase the money supply Answer:

(b)

16. The trade deficit and federal budget deficit plagued which U.S. presidential administration with high inflation and low levels of production and employment? (a) Franklin D. Roosevelt (1933–45) (b) Dwight D. Eisenhower (1953–61) (c) John F. Kennedy (1961–63) (d) Ronald W. Reagan (1981–89) Answer:

(d)

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17. The U.S. economy remains subject to frequent boom and bust cycles. Throughout U.S. history, policymakers after the Great Depression often (a) raise or lower taxes and spending to adjust aggregate demand and thereby smooth the business cycle. (b) take a hands-off approach to the business cycle. (c) consult with world organizations on how to address cyclic fluctuations. (d) close economies to international trade. Answer:

(a)

18. Bracket creep forces taxpayers to pay a larger percentage of their income in taxes when which of the following occurs? (a) The emergence of high unemployment (b) Inflation (c) Deflation (d) The growth of trade deficit(s) Answer:

(b)

19. Inflation leads to bracket creep, which forces taxpayers to pay a larger percentage of their income in taxes, when (a) Changes in the real purchasing power of their income do not keep pace with inflation. (b) Changes in the real purchasing power of their income keep pace with inflation. (c) Income tax codes change quickly as inflation emerges, impacting real purchasing power. (d) Income tax codes increase without taxpayer knowledge, forcing them to pay higher taxes than anticipated. Answer:

(a)

20. The 1990s and 1920s have which of the following in common? (a) Growth in real output, real output per person, employment and productivity (b) Changes in the levels of nominal output, money supply and participation in the stock market (c) Similar expansions in the stock markets at the end of each period (d) All of the above Answer:

(d)

21. Government controls over industry (a) limit overall net industrial growth. (b) help all industries. (c) lower consumer costs in the industries assisted by government. (d) encourage the destruction of inefficient and lagging industries. Answer:

(a)

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22. How much does it cost to tax a dollar of revenue away from the private sector and transfer it to the government in order to bail out a specific industry? (a) One dollar (b) Less than one dollar because the administration of and compliance with the tax laws creates jobs for people (c) Less than a dollar because of the excess burden resulting from the elimination of productive exchanges by the taxes (d) More than a dollar because collection of the taxes requires resources that would otherwise be available for private sector production Answer:

(a)

23. The federal government incentive to support special-interest groups (steel, auto, drug, environment) at the expense of unorganized, widely dispersed groups (for example, taxpayers or consumers) occurs (a) only when the benefits that accrue to the special-interest group exceed the costs imposed on others. (b) when nonspecial-interest voters are unconcerned or uninformed about the issue, and campaign funds are readily available from the special-interest group. (c) only if the government action is efficient. (d) only if the government action will reduce the monopoly power of business or labor, and thereby lead to an improvement in the general welfare. Answer:

(b)

24. Which of the following provides a tool by which you can measure overall price changes paid by representative individuals living in urban households? (a) The GDP Deflator (NGDP/RGDP*100, expressed as a percentage) (b) The Producer Price Index (c) The Consumer Price Index (d) The Housing Price Index Answer:

(d)

25. When output is held constant, inflation does which of the following? (a) Increases real GDP (b) Increases real income (c) Increases government spending (d) Reduces the purchasing power of individuals living on fixed incomes. Answer:

(d)

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Essay Questions

1. Hughes and Cain (2011) suggest that between 1960 and 1995, the nation witnessed “social and economic changes of extraordinary magnitude,” and that the “American republic headed into policies that changed the economy beyond recognition.” This sounds remarkable. What were these changes? 2. Describe the U.S. economy between 1961 and 1980. Identify those factors hindering economic growth during this period. 3. Describe the U.S. economy between 1980 and 2001. Identify those factors contributing to the economic growth of this period. 4. Discuss the “new breed” of federal non-market controls that emerged after 1962. Identify exactly what distinguishes this modern set of federal interventionist agencies and policies from those of the past. 5. Discuss how desires to improve the “quality of life” in the U.S. stimulated changes in government intervention in market activities and federal regulation. 6. Some economists argue for increased government regulation. Why do other economists disagree? 7. Describe the deregulation efforts of the Reagan Administration. On what economic grounds did the Reagan Administration succeed and fail? 8. Describe the economic history behind the transportation sector in the U.S. What key changes took place and what fuelled these changes? 9. Explain the Kennedy Tax Cut of 1964. Why was it controversial among economists, and why did the tax need to be perceived as long-term and permanent if it was going to be effective? 10. What is the Consumer Price Index (CPI)? Interpret Table 30.1. Explain how increases in the CPI affect (i) individuals living on fixed incomes, (ii) savers with deposits paying interest rates not indexed to inflation rates and (iii) net U.S. exports. When does inflation not affect real output and the purchasing power of income? 11. Discuss the government’s role in exacerbating inflation in the U.S. To curtail inflation, describe those contractionary fiscal actions the government could have taken. 12. When did the Bretton Woods System collapse? Describe the events leading to its collapse. 13. Discuss the events leading up to the demise of the Glass-Steagall Act in 1999. 14. Discuss how the basic steel and automobile industries have been challenged by foreign competition and have been forced to change to remain competitive. Identify the costs associated with the changes. Explain why these industry challenges, by contrast, have benefited consumers of steel and autos.

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15. What events prevented the high inflation of the 1970s from permanently crippling the U.S. economy? 16. Explain why the inflation of the 1970s increased the opportunity costs of one woman staying at home. 17. Compare the Kennedy, Reagan, G.H. Bush and G.W. Bush tax cuts. Identify what they have in common and explain how they differ. 18. During the 1920s and 1990s, the U.S. economy experienced remarkable growth in the overall economy and several key sectors. Identify what these periods have in common and provide two reasons why the expansive growth of the 1990s was not trailed by a severe depression like the Great Depression following the 1920s. 19. With special attention paid to the role of economic forces, explain the rise in the number of two-income families in the U.S. 20. Explain how the energy crisis of the 1970s provided economic incentive to explore other energy alternatives.

Chapter 31 Does Our Past Have a Future? 

True/False

Read each statement carefully. Identify whether it is true or false using the economic historian’s way of thinking. 1. Secured property rights provide individuals with incentive to use the resources they own productively because they realize the gains from this use. Answer:

True

2. The U.S. has a system of private property rights that encourages productive uses of its resources even in the presence of some government influence. Answer:

True

3. Olson (1971) argues that the gains from private competition cannot be exceeded by the gains from collective action. Answer:

False

4. Historically, the U.S. government has been used to overcome crises, redistribute income and wealth and address negatively received market outcomes. Answer:

True

5. The founders of the U.S. Constitution clearly understood how to write a document capable of producing the amount of wealth presently accumulated in the U.S. Answer:

False

6. The decisions of today have consequences that lie in the future. Answer:

True

7. Even today, individuals distrust the outcome of free markets, as is evidenced by the protests against the construction of Walmarts across the nation. Answer:

True

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8. The following have strengthened individual control over private property: taxation, zoning, land-use restrictions and eminent domain law. Answer:

False

9. The power of the contract and the ability to enforce contracts in the U.S. are, in part, responsible for the overall success of the U.S. economy. Answer:

True

10. Continued U.S. economic growth requires little institutional and technological change. Answer:

False

11. The decisions of today have consequences that lie in the future. Answer:

True

12. The greater the social immobility is within a country, the greater the chance that human talent and skills will not go to waste. Answer:

False

13. Health care debates illustrate how special interest groups can use their lobbying power to “control” the federal government to transfer wealth from one group of productive, income earning individuals to another group that may or may not be productive. Answer:

True

14. Social Security, like other governmental programs, alters individuals’ decisions to save, consume and invest privately for the present as well as the future. Answer:

True

15. Net worth and assets are the same. Answer:



False

Multiple Choice

Using the economic way of thinking and holding all else constant, choose the best answer among those provided. 1. Sustained economic growth in the U.S. has been primarily a product of which of the following factors? (a) War and exploitation of natural resources (b) Capital accumulation, increases in capital and labor productivity, and technological advancements (c) Restricted trade (d) Government policies and market interventions Answer:

(b)

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2. The U.S. government is an asset to the U.S. economy when it (a) effectively serves its role as the agent that defines and protects private property rights. (b) taxes one group of individuals and redistributes that taxed income to another group. (c) permits special groups to secure legislative protection from foreign competition in the industries which they own, manage or work within. (d) does all of the above. Answer:

(a)

3. The U.S. system of property rights (a) is strictly private. (b) is influenced by a mix of private and public forces. (c) does not permit governmental seizure of property under any circumstances. (d) does not permit the government to seize earned income through taxation. Answer:

(b)

4. Historically, the U.S. governmental structure and political system (a) changes in the presence of a system of checks and balances as circumstances change. (b) is a fixed structure and, therefore, provides the stability needed to support productive activities. (c) guarantees that only the qualified can vote. (d) strongly protects the economic interests of capitalists identified as responsible for economic growth. Answer:

(a)

5. Which of the following factors have contributed and continue to contribute to long-term economic growth in the U.S.? (a) Individual rights to vote and popular democracy (b) Public and private education (c) Increased labor productivity, capital accumulation and technological change (d) All of the above Answer:

(d)

6. Overall, U. S. citizens and foreign-born residents embrace change that promises overall growth. This is evidenced by which of the following? (a) Innovation (b) The growth of new industries and the demise of others (c) Population migration from one part of the U.S. to another (d) All of the above Answer:

(d)

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7. Governmental policy decisions have (a) only social benefits. (b) no private costs. (c) intended and unintended effects. (d) no social costs. Answer:

(c)

8. Which of the following threatens the future of the U.S. economy? (a) A strengthening of private property rights (b) Effectively preventing some individuals and organizations from pursuing noncompetitive market legislation (c) Racism, discrimination and sexism (d) Increased private consumption and investment and reduced government expenditures Answer:

(c)

9. Why does popular democracy, as defined in the U.S. Constitution, contribute to long-term economic growth and political stability? (a) It allows regular change in the structure of the government. (b) It provides incentive to invest, innovate and invent. (c) It permits the President of the U.S. to choose fiscal policies to advance contemporary mercantilism. (d) It transfers wealth from the extremely wealthy to the desperately poor. Answer:

(b)

10. Why does the history of the U.S. matter? (a) Historical knowledge helps us understand the forces that shaped the current economy. (b) The lessons of the past help us avoid future mistakes. (c) Historical knowledge helps us identify who or what is most likely to fuel future economic prosperity. (d) All of the above. Answer:

(d)

11. Wal-mart (a) is the railroad of the late nineteenth century. (b) provides an example of how one large business enterprise still can seize market power to restrict entry and exit. (c) holds monopoly power in retail. (d) exists at the expense of consumers. Answer:

(a)

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12. A review of U.S. history provides evidence that (a) class mobility is restricted. (b) race and gender barriers simply cannot be dismantled. (c) the wealthy and idle rich class has deep and permanent roots in the U.S. (d) there are no social barriers that cannot be overcome in the U.S. Answer:

(d)

13. Which of the following reduces U.S. potential for economic growth by reducing household incentive to use private property most efficiently and effectively? (a) Personal income taxes (b) Farm subsidies and import tariffs (c) Auto bailouts (d) Regulation in the health care industry Answer:

(a)

14. Special interest groups (such as doctors, teachers, lawyers, health insurance companies, the automobile industry and others) can best be characterized by which of the following statements? (a) They are constantly working the government to seek rents from policy decisions. (b) They are resistant to change in governmental policies that benefit them at the expense of others. (c) They help push through federal policies that result in technological backwardness, low productivity and less overall economic growth. (d) They can be characterized by all of the above. Answer:

(d)

15. Heavy business taxes (a) vary according to firm size. (b) benefit small firms but cost large ones. (c) stifle entrepreneurial activity. (d) can be described by all of the above. Answer:



(c)

Essay Questions

1. Discuss the economic history behind the importance of social mobility in the U.S. Provide evidence that it exists and explain why it contributes to our growing and developing economy. 2. Describe some of the lessons learned from key “failures” in U.S. history. Discuss how these lessons have contributed to the political, social and/or economic successes of the present. Describe how they can help shape the future. 3. From the economic historian’s perspective, discuss the highlights of the evolution of U.S. political institutions. List these highlights and explain their economic underpinnings.

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4. Discuss discrimination and the economic waste attached to it throughout U.S. history. 5. Discuss the key changes in the U.S. federal government’s role in the market throughout U.S. economic history. 6. Discuss Chandler and Cortada’s (2000) claim that the driving force of the U.S. economy has always been information. 7. Comment on the following: “The American economy succeeded in part because it already succeeded.” 8. Use lessons learned from your study of economic history to answer the question: “Does our past have a future?” 9. Answer the question: “Who will create the future?” Discuss your role as well as the roles of those individuals who made decisions in the past. 10. Explain how the current debate over Wal-Mart is similar to the debate that took place with regard to the railroad industry in the late nineteenth century. How is this debate different?