WEBVTT NOTE The Cost and Consequences of the Civil War 1 00:00:00.000 --> 00:00:05.800 The first thing I wanted to mention to you is that in the latest issue of the Journal 2 00:00:05.800 --> 00:00:12.340 of Libertarian Studies, there's a review of the book that we're using in this class by 3 00:00:12.340 --> 00:00:19.340 Thomas di Lorenzo, who's also written extensively about the Civil War and about Lincoln. He's 4 00:00:20.080 --> 00:00:26.480 a very perceptive economist. He really knows what he's talking about. So I urge you all 5 00:00:26.480 --> 00:00:48.480 The Journal of Libertarian Studies, Volume 18, No. 4, 2004 6 00:00:48.480 --> 00:01:00.480 It also has articles by Scott Trask on William Graham Sumner, one of the most interesting Americans from the 19th century, the late 19th century intellectual, 7 00:01:00.480 --> 00:01:10.480 and Joseph Stromberg's article on sovereignty, international law, and the triumph of Anglo-American cunning. 8 00:01:10.480 --> 00:01:16.680 That article is something that Joe is going to present here at our economics workshop, 9 00:01:16.680 --> 00:01:24.880 it's a brown bag seminar that's held in the library on Thursday at noon, so, this Thursday, 10 00:01:24.880 --> 00:01:25.880 yeah. 11 00:01:25.880 --> 00:01:37.300 We have, that's mostly a weekly seminar that the general public is invited to and we cover 12 00:01:37.300 --> 00:02:03.300 for all sorts of topics and if you go to the Mises webpage, at the bottom of the webpage you can sign up for announcements of things going on at the institute for people in the local area to attend so that you can be informed about what's actually going on here on a regular ongoing basis. 13 00:02:03.300 --> 00:02:13.740 Okay, in the last class, we were talking about inflation, we were talking about money, we 14 00:02:13.740 --> 00:02:20.540 were talking about prices, and how those things just really skyrocketed due to paper money 15 00:02:20.540 --> 00:02:28.480 inflation on both sides, but in particular on the part of the Confederacy, which used 16 00:02:28.480 --> 00:02:36.360 a lot more inflation to finance itself and we argue that that was another important contributing 17 00:02:36.360 --> 00:02:43.080 factor in the economic collapse of the southern economy. 18 00:02:43.080 --> 00:02:48.880 But as we get to the end of that chapter, one of the things I didn't cover was how 19 00:02:48.880 --> 00:02:55.480 monetary institutions in the US were changed dramatically and now that we're getting into 20 00:02:55.480 --> 00:03:02.960 The last chapter, the results or consequences of the war, this little section fits in quite 21 00:03:02.960 --> 00:03:06.160 well with that whole discussion. 22 00:03:06.160 --> 00:03:13.840 And what we argue, and what I think is in fact the case, is that there was a sea change 23 00:03:13.840 --> 00:03:17.960 in the United States in terms of its money and banking. 24 00:03:17.960 --> 00:03:25.080 We went from a system that was almost entirely privately run to one that was publicly controlled. 25 00:03:25.080 --> 00:03:43.080 We went from a system where the federal government had almost virtually no role and states played the leading regulatory role to one where the federal government really was the primary regulator. 26 00:03:43.080 --> 00:03:57.080 And then, of course, we go from one of very light regulation. In some states, you could open up a bank and accept deposits, issued notes, with almost virtually no requirements placed on you by state governments. 27 00:03:57.080 --> 00:04:05.080 And that's replaced by one of heavy regulation by the Fed, not the Federal Reserve, but by the Federal Government. 28 00:04:05.080 --> 00:04:20.080 And we also go from a system that was almost entirely metal-oriented, gold and silver coins, to one that was dominated by paper in the aftermath of the Civil War. 29 00:04:20.080 --> 00:04:35.080 Despite this heavy regulation and its uniform, because it's done at the federal level, the American economy continued to suffer the problems of contagion. 30 00:04:35.080 --> 00:04:49.080 Of contagion is the primary problem in a money and banking system, whereas the mistakes of one bank or one area of the country can infect the entire system. 31 00:04:49.080 --> 00:04:55.080 And these problems actually, in some sense, got worse in the post-Civil War period. 32 00:04:55.080 --> 00:05:03.080 There were a lot of panics and economic depressions after the Civil War. 33 00:05:03.080 --> 00:05:14.080 There was a redistribution effect in that the region of the South was devastated by the war, 34 00:05:14.080 --> 00:05:22.080 But particularly so in terms of money. Of course, all the Confederate money, all the Confederate bonds became worthless. 35 00:05:22.080 --> 00:05:33.080 And so Southerners were starting from ground zero, basically. Whereas the Northeast, where many of the large city banks were located, 36 00:05:33.080 --> 00:05:36.640 and basically these banks were given preferential treatment. 37 00:05:36.640 --> 00:05:41.000 They really benefited by essentially controlling 38 00:05:41.000 --> 00:05:44.440 loans, banking in the United States. 39 00:05:44.440 --> 00:05:49.480 Then we have a lot of interesting developments that occur 40 00:05:49.480 --> 00:05:53.960 in the post-war period. The free silver movement 41 00:05:53.960 --> 00:05:58.160 came up during this period where people were 42 00:05:58.160 --> 00:06:01.760 attacking the gold standard, 43 00:06:01.760 --> 00:06:15.760 Wanting, you know, they basically didn't have any money to use and gold coins were too, had too much worth attached to them and so they wanted the free minting of silver coins. 44 00:06:15.760 --> 00:06:25.760 Then there's the Greenback Party, again, sort of a monetary political party with the primary aim of increasing the money supply. 45 00:06:25.760 --> 00:06:53.760 In the course, William Jennings Bryant ran for president on the sort of the Greenback platform and on page 77 in the book it discusses the Wizard of Oz as an allegory to the problems of, to the monetary problems in the United States in the late 19th century. 46 00:06:53.760 --> 00:07:06.760 So let's take a look at that allegory, The Wizard of Oz, The Wonderful Wizard of Oz was a very important book, obviously a very popular book. 47 00:07:06.760 --> 00:07:15.760 It was something that was done in play form in theaters in the United States for years and years and years, as a matter of fact it continues to be. 48 00:07:15.760 --> 00:07:20.760 I think there was even a new version of it on Broadway a few years ago. 49 00:07:20.760 --> 00:07:50.720 and then of course Walt Disney made the movie The Wizard of Oz, one of the big first blockbuster movies that continues to play year after year, so it was a big thing in terms of culture in America and it's very interesting that the author, Frank Baum, it's been suggested with a lot of evidence and scholars have debated this issue 50 00:07:50.720 --> 00:07:59.280 back and forth, but if you look at a lot of the things in the Wizard of Oz, you'll find 51 00:07:59.280 --> 00:08:06.000 that there are all these little signs that he was really talking about monetary problems 52 00:08:06.000 --> 00:08:08.360 in the United States. 53 00:08:08.360 --> 00:08:17.000 First of all, the Wizard of Oz, OZ, is the abbreviation for ounce, the ounce of gold, 54 00:08:17.000 --> 00:08:29.200 The Emerald City, the Green City, is symbolic of Washington D.C. where the Wizard of Oz 55 00:08:29.200 --> 00:08:34.300 is located, the Wizard of Oz is supposed to be the president who is manipulating everything 56 00:08:34.300 --> 00:08:41.000 behind the scenes against the population on behalf of the big city banks. 57 00:08:41.000 --> 00:08:46.560 The Tin Man, the Scarecrow, the Munchkins represent different groups of people while 58 00:08:46.560 --> 00:08:52.200 While the cowardly lion represents William Jennings Bryan. 59 00:08:52.200 --> 00:08:57.160 The Tin Man is supposed to represent the industrial workers of the Northeast. 60 00:08:57.160 --> 00:09:01.520 The scarecrow, let's see down there, the Tin Man has no brain? 61 00:09:01.520 --> 00:09:02.520 Brain. 62 00:09:02.520 --> 00:09:03.520 Yeah. 63 00:09:03.520 --> 00:09:04.520 So. 64 00:09:04.520 --> 00:09:05.520 No, no, the scarecrow has no brain. 65 00:09:05.520 --> 00:09:06.520 One of them has no heart. 66 00:09:06.520 --> 00:09:07.520 The lion has no heart. 67 00:09:07.520 --> 00:09:08.520 That's eliminate. 68 00:09:08.520 --> 00:09:09.520 The lion has no heart. 69 00:09:09.520 --> 00:09:10.520 The scarecrow. 70 00:09:10.520 --> 00:09:37.520 Let's eliminate, the lion has no heart, the scarecrow, the tin man has no heart, see the tin man is the industrial worker, they were benefiting from Republican policy, and so they didn't have a heart, the farmers were the dupes in all this, so I guess they didn't have a brain, 71 00:09:37.520 --> 00:09:45.520 That's right. Cowardly Lion, William Jennings Bryan didn't have the guts to really take the free silver movement forward. 72 00:09:45.520 --> 00:10:15.500 And Dorothy stands for everything, just the general American citizen, the average good-natured citizen who does not have a clue about the underlying causes of the problems of society. 73 00:10:15.520 --> 00:10:23.280 the yellow brick road of course is the gold standard and the ruby slippers 74 00:10:23.280 --> 00:10:29.120 remember the ruby slippers well in the book they weren't ruby they were silver 75 00:10:29.120 --> 00:10:36.040 slippers and when Dorothy clicks the silver slippers three times that's 76 00:10:36.040 --> 00:10:41.260 supposed to be the cure-all just as the free silver movement and the free 77 00:10:41.260 --> 00:10:47.020 and coinage of silver were supposed to be the magic cures for all these problems. 78 00:10:47.020 --> 00:10:53.660 There's no indication really of whether or not how the author actually felt about all 79 00:10:53.660 --> 00:10:54.660 these things. 80 00:10:54.660 --> 00:11:01.380 He was just building all of these aspects of society into the equation. 81 00:11:01.380 --> 00:11:04.300 So he was just looking around, he was looking at this problem, he understood what it was 82 00:11:04.300 --> 00:11:07.300 and he just built his imaginary story around it. 83 00:11:07.300 --> 00:11:14.060 What was the significance of the water that did away with the Wicked Witches of the East or West? 84 00:11:14.060 --> 00:11:24.940 Well, yeah, the Wicked Witches were in the North and the East, right? 85 00:11:24.940 --> 00:11:29.540 And the Good Witch was from the South and West or something like that. 86 00:11:29.540 --> 00:11:33.140 But they're supposed to represent good regions and bad regions, 87 00:11:33.140 --> 00:11:36.500 The People Who Are Exploiting Versus The People Who Are Getting Exploited 88 00:11:36.500 --> 00:11:40.460 And so this is a 89 00:11:40.460 --> 00:11:44.260 yeah, you really need to read the book in its original context because 90 00:11:44.260 --> 00:11:49.860 of course Disney has to, for purposes of making a movie 91 00:11:49.860 --> 00:11:54.380 and just subtle changes along the way, the movie makers often 92 00:11:54.380 --> 00:11:59.060 change what's written in the book and so it's often important to get what's in 93 00:11:59.060 --> 00:11:59.660 the book 94 00:11:59.660 --> 00:12:10.660 Unless the book is written after the movie. In my writings on Star Wars, for example, the movie was written first. 95 00:12:10.660 --> 00:12:19.660 And I based my analysis on what the writer had done and what was in the movie. 96 00:12:19.660 --> 00:12:25.660 And then somebody wrote a book about it. But that wasn't the author, it was just somebody who was filling in the script. 97 00:12:25.660 --> 00:12:30.740 and it turns out that a lot of the things that were in the book kind of 98 00:12:30.740 --> 00:12:39.620 conflicted with the movie. So read the original sources. Okay, well in any case 99 00:12:42.380 --> 00:12:48.180 the new national banking system that replaced the largely laissez-faire system 100 00:12:48.180 --> 00:12:54.540 And it's often regarded that that was somehow in the public's interest. 101 00:12:54.540 --> 00:13:02.140 But when you look at the facts, that's something that's hard to defend precisely because there 102 00:13:02.140 --> 00:13:08.400 were all this contagion effects, there was all this redistribution of wealth from some 103 00:13:08.400 --> 00:13:12.720 regions to others, from some groups to others. 104 00:13:12.720 --> 00:13:18.240 And so after a lot of analysis, the notion that it was in the public interest has become 105 00:13:18.240 --> 00:13:20.680 under increasing criticism. 106 00:13:20.680 --> 00:13:25.960 As a matter of fact, I quote three leading monetary, mainstream monetary economists in 107 00:13:25.960 --> 00:13:31.720 the book who studied the national banking system and found that if they assume the system 108 00:13:31.720 --> 00:13:37.640 was based on the public interest motives to improve the economy and help everyone in society, 109 00:13:37.640 --> 00:13:40.600 that the system was a colossal failure. 110 00:13:40.600 --> 00:13:48.060 And I quote, The provision of the Acts of 1863 and 1865 that established the national 111 00:13:48.060 --> 00:13:54.360 banking system were designed to remedy two perceived defects of the antebellum state 112 00:13:54.360 --> 00:14:00.200 banking system. One was the circulation of a wide variety of state bank notes, often 113 00:14:00.200 --> 00:14:06.700 at a discount, which made for an inefficient payment system. The second defect was instability 114 00:14:06.700 --> 00:14:13.140 of Note Issue, marked by over-issue bank runs and failures and periodic suspension of convertibility 115 00:14:13.140 --> 00:14:16.800 into specie or gold. 116 00:14:16.800 --> 00:14:24.080 To remedy the first defect, the national bank issues of U.S. bond secured currency replaced 117 00:14:24.080 --> 00:14:26.320 state bank notes. 118 00:14:26.320 --> 00:14:32.240 To remedy the second defect, stringent reserve and capital requirements, oversight and regulation 119 00:14:32.240 --> 00:14:38.240 by the Comptroller of the Currency were conditions for national bank charters. 120 00:14:38.240 --> 00:14:44.800 Unfortunately, the remedies did not work as intended by the architects of the national banking system. 121 00:14:44.800 --> 00:14:51.440 Instead, the system was characterized by monetary and cyclical instability, 122 00:14:51.440 --> 00:14:58.400 for bank panics, frequent stock market crashes and other financial disturbances. 123 00:14:58.400 --> 00:15:20.400 In other words, it never lived up to its promise, and the idea that it was to remedy something that was in the public interest, even if that was what its intentions were, it certainly never turned out that way. 124 00:15:20.400 --> 00:15:50.400 And as a matter of fact, of course, as we get to the turn of the 19th century, these problems of instability become not only more acute but also more important because the economy is continuing to modernize and so this eventually leads to calls for a central banking system as a way of creating even more government intervention, more government control and power over money and banking 125 00:15:50.400 --> 00:16:02.940 Okay, the consequences of the war. I introduced this chapter with a quote from Ludwig von 126 00:16:02.940 --> 00:16:09.520 Mises and I'd like to recite it here to you because I think it's very important. I think 127 00:16:09.520 --> 00:16:19.160 the public's notion of war and its economic effects is decidedly wrong. I think that they've 128 00:16:19.160 --> 00:16:28.160 They've been duped by propaganda in a very systematic way. 129 00:16:28.160 --> 00:16:36.160 Economists, however, have a traditional view of war that it's destructive. 130 00:16:36.160 --> 00:16:40.160 And I think Mises's quote underlines this. 131 00:16:40.160 --> 00:16:46.160 Quote, every unprejudiced person can naturally have no doubt 132 00:16:46.160 --> 00:16:54.780 that war can really cause no economic boom. War prosperity is like the prosperity that 133 00:16:54.780 --> 00:17:02.560 an earthquake or a plague brings. Earthquakes mean good business for construction workers 134 00:17:02.560 --> 00:17:09.400 and cholera improves the business of physicians, pharmacists and undertakers, but no one has 135 00:17:09.400 --> 00:17:18.400 has for that reason yet sought to celebrate earthquakes and choleras as stimulators of the productive forces in the general interest. 136 00:17:18.400 --> 00:17:28.400 Now Mises wrote that a long time ago. Unfortunately, what he said there is no longer the case. 137 00:17:28.400 --> 00:17:58.400 When we have wars, when we have earthquakes, when we have tsunamis, it won't take but one or two days later before you find some mainstream economist or business writer getting up or in print and saying, well you know that was really too bad for all those people who were killed, but this is really going to be good for jobs, or this is really going to be good for construction, or this is really going to stimulate things that are going on. 138 00:17:58.400 --> 00:18:05.200 going on, and this is a basic economic fallacy, and we explain this fallacy in the book by 139 00:18:05.200 --> 00:18:15.000 going back to Frederic Bastiat, his parable of the broken window. It's a very simple parallel, 140 00:18:15.000 --> 00:18:20.000 but it sort of brings out what's going on here in terms of understanding the basic cause 141 00:18:20.000 --> 00:18:28.380 and effect of war. In the parable, some little rotten kid in the streets of Paris decides 142 00:18:28.380 --> 00:18:58.380 The guy has to pick up a rock and throw it through a storekeeper's front window, smash, crash, the glass goes breaking everywhere, the kid runs away, and people start to gather to see what the commotion was about, to give their sympathies to the store owner, and then somebody says, yeah, you know, this is too bad that little rotten kid, but, you know, now all of a sudden Pierre is going to have to pay 143 00:18:58.380 --> 00:19:28.380 The window, the man who fixes windows to come and fix this window and so he's going to have more work and then he's going to get that money and he's going to be able to spend more money at the grocery store and so the grocer is going to end up with more money and so the grocer can go out and buy more clothes and then the tailor can have his house painted and then the house painter can and then so that you know really this broken window may have been 144 00:19:58.380 --> 00:20:03.880 on something else and then the money circulates throughout the economy in the 145 00:20:03.880 --> 00:20:11.180 same way except we have an extra good functioning window for that store and the 146 00:20:11.180 --> 00:20:17.220 same is true with war, earthquakes and so on and so forth. It creates a lot of 147 00:20:17.220 --> 00:20:26.700 activity but basically in addition to killing people and destroying capital it 148 00:20:26.700 --> 00:20:32.260 It means basically that society is going to have to do without what they would otherwise 149 00:20:32.260 --> 00:20:35.060 would have spent that money on. 150 00:20:35.060 --> 00:20:45.660 So that the end result is that war, earthquakes, tsunamis are not good for the economy in any 151 00:20:45.660 --> 00:20:46.660 tangible way. 152 00:20:46.660 --> 00:20:50.060 And that anytime somebody gets up there and says, yeah, this is going to be good for the 153 00:20:50.060 --> 00:20:55.460 economy, just tell them they're wrong. 154 00:20:55.460 --> 00:21:02.980 I think it's probably a good sign of how badly we've gone in terms of our economic knowledge. 155 00:21:02.980 --> 00:21:10.700 That what Mises said 80 years ago about nobody would dare say such a stupid thing, now people 156 00:21:10.700 --> 00:21:11.700 say all the time. 157 00:21:11.700 --> 00:21:12.700 Okay, yes? 158 00:21:12.700 --> 00:21:14.700 Okay, yes. 159 00:21:42.700 --> 00:22:05.700 Yeah, that is an entirely bogus argument. And the idea that science is somehow stimulated by war, it's just not true. We've never seen that kind of thing in any of our research. 160 00:22:05.700 --> 00:22:17.700 It's just not true. We've never seen that kind of thing in any really truly positive way. 161 00:22:17.700 --> 00:22:25.700 Now there are some new inventions, there are some advances that occur as a result of wars. 162 00:22:25.700 --> 00:22:34.700 For example, Claire's favorite thing, nuclear energy and nuclear power was stimulated, 163 00:22:34.700 --> 00:23:03.700 brought on line sooner than it otherwise would have been because of the war and the cold war and all that, so it's not that nothing is produced or increased or invented or discovered, but the net effect is that it actually hurts all of these areas of technology and advancement and the Civil War is a good case study on this. 164 00:23:03.700 --> 00:23:09.700 and historians have gone back and looked at things, particularly looked at things before the war. 165 00:23:09.700 --> 00:23:16.700 How were things before the war, you know, for so long historians just looked at what happened after the war 166 00:23:16.700 --> 00:23:20.700 and said, wow, this must be to the Civil War, this must be the result of the Civil War. 167 00:23:20.700 --> 00:23:25.700 Anything that was good, they said, boy, this must have been the result of the Civil War. 168 00:23:25.700 --> 00:23:34.700 And what they found is that, well, at least once we filter things through in the theoretical approach, 169 00:23:34.700 --> 00:23:42.200 that the advances, the so-called advances after the war, most of them were there before the war, 170 00:23:42.200 --> 00:23:51.000 and there was really no advance during the war, and that growth and development was actually slower after the war. 171 00:23:51.000 --> 00:24:04.840 So you have to have the theoretical approach, which is a tool to help pry open a better understanding of history. 172 00:24:04.840 --> 00:24:10.240 And let me try to explain what I mean there. 173 00:24:10.240 --> 00:24:17.120 For a long time, historians held a positive view of the war, that it had a positive impact. 174 00:24:17.120 --> 00:24:31.120 Primarily, they label this as the North destroying the agrarian society, the power of agrarian slave-based, plantation-based economy 175 00:24:31.120 --> 00:24:42.120 and that the US became a global power, militarily, economically, and they wiped out the Indians, we had an industrial revolution, 176 00:24:42.120 --> 00:24:51.120 Big business started developing, the intercontinental railroads were built and we completed our manifest destiny. 177 00:24:51.120 --> 00:24:59.120 So this is sort of the positive spin that the historians put on the post-war period. 178 00:24:59.120 --> 00:25:08.120 We argue that the war didn't do any of this and actually hurt many of these developments or slowed them up. 179 00:25:08.120 --> 00:25:16.120 In other words, they can't take credit for all those positive developments. 180 00:25:16.120 --> 00:25:29.120 However, there are some interesting things, some of which I mentioned earlier, about the reform movements of the late 19th century, like populism. 181 00:25:29.120 --> 00:25:33.120 It's sort of the fly in the ointment. 182 00:25:33.120 --> 00:25:52.120 The general results of the war, of course, the North won, the Union was maintained, 1 million people were killed or wounded, slavery was abolished in the United States, 183 00:25:52.120 --> 00:26:02.120 We added three amendments to the Constitution, of course, about slavery and about solidifying the Union. 184 00:26:22.120 --> 00:26:39.120 Only in isolated states, like Wyoming, we had a fight really hard, George. 185 00:26:39.120 --> 00:26:44.120 George, what you don't realize is that women have been controlling the world all along. 186 00:26:44.120 --> 00:26:46.120 They never needed the right to vote. 187 00:26:46.120 --> 00:26:49.520 What they absolutely did in the play of the Cisterna. 188 00:26:49.520 --> 00:26:53.640 They should have withheld their favors until they got the whole. 189 00:26:53.640 --> 00:26:56.280 Okay, this is a general audience here. 190 00:26:56.280 --> 00:26:59.800 We're out on the web here, so. 191 00:26:59.800 --> 00:27:04.800 Okay, there's, we could go into a lot 192 00:27:04.800 --> 00:27:06.960 about this general issue of war, 193 00:27:06.960 --> 00:27:10.640 about World War II and post-World War. 194 00:27:10.640 --> 00:27:12.580 We can go back to that if you want to 195 00:27:12.580 --> 00:27:15.160 in the question and answer period, that'd be fine. 196 00:27:15.160 --> 00:27:23.060 But sticking with the Civil War itself, the war obviously destroyed a lot of labor and capital. 197 00:27:23.060 --> 00:27:29.060 As I just mentioned, one million people killed or severely wounded. 198 00:27:29.060 --> 00:27:35.960 Maine, there was a lot of people who lost limbs and were unable to work after the war. 199 00:27:35.960 --> 00:27:39.060 A lot of capital was destroyed. 200 00:27:39.060 --> 00:27:58.060 Mostly the physical building type capital was destroyed in the south, the burning of cities and things of that nature, the bombing of cities, the destruction of housing, the southern railroad system was pretty much completely depreciated by the end of the war. 201 00:27:58.060 --> 00:28:07.060 They used iron rails back then and those things were just about completely worn out and the northern system wasn't in great shape either. 202 00:28:07.060 --> 00:28:18.060 a big part of their capital base. There was a decrease in the amount of farmland under production and of course farmland was the landed capital of the United States. 203 00:28:18.060 --> 00:28:31.060 And most everything else in terms of machinery, housing, factories, warehouses was depreciated during the war and businesses were disrupted. 204 00:28:31.060 --> 00:28:37.980 were disrupted. All kinds of businesses failed during the war, lost their markets, lost their 205 00:28:37.980 --> 00:28:45.780 input suppliers, had to convert over to war uses and so forth. So there was a lot of depreciation 206 00:28:45.780 --> 00:28:52.740 of the capital stock and disruption of business and business practices. So when we look at 207 00:28:52.740 --> 00:29:00.940 the results of the war, emancipation was really the one clear, solid, great thing that happens. 208 00:29:00.940 --> 00:29:11.940 And historians are not completely uncritical. Generally things were good, according to their point of view. 209 00:29:11.940 --> 00:29:17.940 But there were some things that these left-wing historians had problems with. 210 00:29:17.940 --> 00:29:27.940 For example, the rise of the robber barons, the big city businesses that developed in the late 19th century 211 00:29:27.940 --> 00:29:34.260 century and made huge fortunes and controlled large industries. Then there is 212 00:29:34.260 --> 00:29:40.660 populism which I mentioned, the development of labor unions, and then of 213 00:29:40.660 --> 00:29:46.380 course many historians are critical of reconstruction, that reconstruction was 214 00:29:46.380 --> 00:29:52.100 ineffective, that it didn't work, that it may have made matters even worse, that 215 00:29:52.100 --> 00:29:58.740 That there was a lot of corruption that went on during Reconstruction and that nothing 216 00:29:58.740 --> 00:30:05.900 was really done to help the former slave population. 217 00:30:05.900 --> 00:30:10.340 Theory can help us make sense of this all. 218 00:30:10.340 --> 00:30:18.940 If we think back to what the Republican economic agenda was, what their interests were like, 219 00:30:18.940 --> 00:30:23.940 Who were they supporting? 220 00:30:23.940 --> 00:30:41.940 Well, they favored protectionism, tariffs, national money and banking, over small businesses, farmers, and labor that work for small business. 221 00:30:41.940 --> 00:31:01.940 Okay, so their agenda helped people in the Northeast in terms of banks, steel, cotton textiles, people up there in big businesses and because they were protecting their business, they were helping to generate all those profits. 222 00:31:01.940 --> 00:31:16.940 Whereas it hurt small business, it hurt labor in small business, and it hurt regions like the South, parts of the Northwest. 223 00:31:16.940 --> 00:31:28.940 And those were the groups that made the backbone of all of these reform movements, like populism, the Greenback Party, the Free Silver Movement. 224 00:31:28.940 --> 00:31:35.020 and so it's not a situation where things are inconsistent where the historians say well there 225 00:31:35.020 --> 00:31:38.620 were some good things and there were some bad things and we really don't know how to latch them 226 00:31:38.620 --> 00:31:45.020 all together but if we realize that the Republican Party was a very dominant party in the United 227 00:31:45.020 --> 00:31:50.620 States they really controlled the federal government and most state governments their agenda was in 228 00:31:50.620 --> 00:31:58.540 place they were protecting industries they were establishing these these favorite regulations for 229 00:31:58.540 --> 00:32:00.540 for big city banks. 230 00:32:00.540 --> 00:32:03.540 And so they were helping to create these large industries. 231 00:32:03.540 --> 00:32:11.540 They were helping to create these mega wealthy individuals at the expense of the little guy. 232 00:32:11.540 --> 00:32:16.540 And the little guy formed the backbone of these reform movements who were complaining. 233 00:32:16.540 --> 00:32:23.540 A large number of Americans were complaining about conditions in the United States during this time. 234 00:32:23.540 --> 00:32:35.540 So we go back to the theory, we look at the policy of the dominant party, and it all fits together fairly well for history. 235 00:32:35.540 --> 00:32:51.540 So the Republican agenda is not true laissez-faire. That's one of the mistakes that the historians made is that they labeled the Republican party agenda as laissez-faire. 236 00:32:51.540 --> 00:32:58.980 But it wasn't in the sense that where government was just leaving business to its own. 237 00:32:58.980 --> 00:33:06.340 It was creating conditions where business, big business, almost had the right to exploit 238 00:33:06.340 --> 00:33:12.300 the rest of the economy by manipulating federal economic policy. 239 00:33:12.300 --> 00:33:21.020 So their agenda was better classified as mercantilist. 240 00:33:21.020 --> 00:33:27.940 The Transcontinental Railroad. Here's another case where historians said, Transcontinental 241 00:33:27.940 --> 00:33:34.380 Railroad, great accomplishment, amazing. We've got three lines running across the country. 242 00:33:34.380 --> 00:33:42.700 The U.S. had to subsidize these lines to a fairly significant extent, but the social 243 00:33:42.700 --> 00:33:50.060 results of this policy was a good thing. Because if you look at the profits of the railroads 244 00:33:50.060 --> 00:33:56.500 And then you add in all the satisfaction that consumers got out of the railroads, and then 245 00:33:56.500 --> 00:34:04.500 you consider like multiplier effects and things of that nature that Keynesian economists assume. 246 00:34:04.500 --> 00:34:08.980 Then they just come up with the idea that these transcontinental railroads were a wonderful 247 00:34:08.980 --> 00:34:11.460 and great thing. 248 00:34:11.460 --> 00:34:18.860 The problem with this analysis is that it just doesn't hold up too well. 249 00:34:18.860 --> 00:34:26.820 In terms of railroads providing a lot of consumer satisfaction, they really didn't. They really 250 00:34:26.820 --> 00:34:32.820 didn't. And the reason they didn't is, I mean, consumers were like the idea of having 251 00:34:32.820 --> 00:34:38.500 the railroads. Don't get me wrong. But railroads can price discriminate. They can charge you 252 00:34:38.500 --> 00:34:45.260 one price and you another price. They can charge one farmer a certain amount to bring 253 00:34:45.260 --> 00:34:51.260 to bring their crops to market and another price to another farmer to bring their crops 254 00:34:51.260 --> 00:34:59.420 to a different market so that if they can charge you a higher price because you value 255 00:34:59.420 --> 00:35:05.020 that service more, then you don't really have the surplus of value. 256 00:35:05.020 --> 00:35:10.980 Every time we buy something, we get more enjoyment out of it than the money we give up. 257 00:35:10.980 --> 00:35:13.640 That's why we do it. 258 00:35:13.640 --> 00:35:19.360 But if the business that we're dealing with can discriminate, and they find out how much 259 00:35:19.360 --> 00:35:23.900 you like the product, then they raise the price. 260 00:35:23.900 --> 00:35:30.640 So that, like the movie theater charges people who go at night, what, $8? 261 00:35:30.640 --> 00:35:33.900 No, I'm always cheap. 262 00:35:33.900 --> 00:35:34.900 You go during the day? 263 00:35:34.900 --> 00:35:35.900 Any time. 264 00:35:35.900 --> 00:35:36.900 I'm still cheap. 265 00:35:36.900 --> 00:35:37.900 He's a senior citizen. 266 00:35:37.900 --> 00:35:38.900 Well, yeah. 267 00:35:38.900 --> 00:35:39.900 Price discrimination. 268 00:35:39.900 --> 00:35:43.560 That's price discrimination in the day, night, and so there's that kind of thing that's 269 00:35:43.560 --> 00:35:49.720 going on with railroads in a major way so that historians have made a basically an 270 00:35:49.720 --> 00:35:56.240 incorrect assumption about the value of these railroads in order to for their 271 00:35:56.240 --> 00:36:01.520 calculations to come out in a positive way. Yes Ozzie. 272 00:36:01.520 --> 00:36:16.520 The Commerce, the Department of Commerce, didn't they have any, and didn't they have some influence over these railroad barons, the hell with the public people, Vanderbilt and all those guys? 273 00:36:16.520 --> 00:36:18.520 No, no they didn't. 274 00:36:18.520 --> 00:36:20.520 They were just cynical. 275 00:36:20.520 --> 00:36:25.520 I was going to say that especially the railroads were discriminating in the south. 276 00:36:25.520 --> 00:36:28.520 They were keeping the bank corrupt. 277 00:36:28.520 --> 00:36:36.520 And finally the federal government was the only one with enough muscle to control the railroads. 278 00:36:36.520 --> 00:36:44.520 Yeah, they eventually passed the Sherman Antitrust Act. 279 00:36:44.520 --> 00:36:52.520 And that was designed specifically because of what the railroads were supposedly doing to their customers and so on. 280 00:36:58.520 --> 00:37:03.520 That is the United States. 281 00:37:03.520 --> 00:37:25.520 And, you know, basically what happened prior to the war is that the railroad system was fairly well developed in the East. 282 00:37:25.520 --> 00:37:50.520 So that, you know, basically there was all sorts of connecting routes in the east, out to Galveston area, I think up to Minnesota even, and of course... 283 00:37:50.520 --> 00:37:53.520 That wasn't true in the southeast. 284 00:37:53.520 --> 00:37:58.820 In the southeast, yes, there was an extensive railroad system in the southeast. 285 00:37:58.820 --> 00:38:03.220 There was a line that came from Savannah, for example, over here. 286 00:38:03.220 --> 00:38:13.320 There was a line out of Mobile to Ohio, yeah, someplace like that. 287 00:38:13.320 --> 00:38:21.120 And then there was another one that came up to Montgomery, I think. 288 00:38:21.120 --> 00:38:40.120 I was thinking that, say, in Alabama, that the line ended in Columbus or something, and then you couldn't get from there to Montgomery, and then there was a different gauge or different width. 289 00:38:51.120 --> 00:38:53.120 and mobile to Columbus too. 290 00:38:53.120 --> 00:38:58.120 So there was a pretty extensive system of transportation in the East, 291 00:38:58.120 --> 00:39:00.120 largely because it paid. 292 00:39:00.120 --> 00:39:05.120 And there was also public subsidies for some of these roads. 293 00:39:05.120 --> 00:39:11.120 But the big deal, the big question was, who's going to build to the West? 294 00:39:11.120 --> 00:39:17.120 And essentially what happened after the war as a result of these subsidies 295 00:39:17.120 --> 00:39:20.120 was that there was three lines built. 296 00:39:20.120 --> 00:39:26.920 Northern line, central line, and the southern line. 297 00:39:26.920 --> 00:39:32.720 So that as a result of the subsidies, we got not just an intercontinental railroad, we got three of them. 298 00:39:32.720 --> 00:39:39.960 And there's really not much commerce going on with the West. 299 00:39:39.960 --> 00:39:49.160 There's not much weight in terms of settlement and those kind of things, so that it was really a lot of overkill 300 00:39:49.160 --> 00:39:56.600 as a result of these subsidy programs these railroads were essentially not needed and if they were needed 301 00:39:57.320 --> 00:40:05.640 really all you would have to have is one railroad so that say for example the northern one which was 302 00:40:06.920 --> 00:40:14.120 the most private one in the best run let's take that one off and take off the southern one 303 00:40:14.120 --> 00:40:26.680 and then build a west coast railroad system to connect the cities of South, North, Northern 304 00:40:26.680 --> 00:40:36.400 California, Oregon and so on. You would save for a very long time all the resources that 305 00:40:36.400 --> 00:40:44.980 were, had to be used in order to build those extra rail lines. And it wouldn't necessarily 306 00:40:44.980 --> 00:40:48.640 have to be the central one that was built. It could be the northern one. It wouldn't 307 00:40:48.640 --> 00:40:58.480 really matter which one was built. And think of all the timber, all the lumber, all the 308 00:40:58.480 --> 00:41:07.740 Iron that was used, all the labor that was used during this process, we could have probably 309 00:41:07.740 --> 00:41:13.800 gone without the extra Western railroads for decades without ever actually needing them. 310 00:41:13.800 --> 00:41:18.360 And that of course meant that it was difficult for these railroads to make a profit because 311 00:41:18.360 --> 00:41:24.280 there was so much capacity vis-a-vis the demand for the services. 312 00:41:24.280 --> 00:41:54.280 And then there's other issues like importing lots of immigrant Chinese labor, the conflicts with the American Indians and the slaughter of American Indian tribes that took place, even I think somehow the disappearance of the Buffalo I think is even related to the building of these intercontinental railroads so that what the subsidy program did was it diverted mountains of cash 313 00:41:54.280 --> 00:42:05.280 And without the subsidy, we think that a better built, lower cost, more timely system would have been built in its place. 314 00:42:24.280 --> 00:42:53.280 Stanford, wasn't Stanford one of the guys, one of the big wheels in the Western Railroad and he was equal to the Easterners, in other words, their pressure that they put on the government for subsidies and favoritism and all this and that. 315 00:42:53.280 --> 00:43:01.280 Yeah, Lehman-Stanford, I think, was responsible for western coast rail lines. 316 00:43:01.280 --> 00:43:09.280 And you know, Ozzie, like I said, I'm not saying that one road over the middle, I'm not picking the roads. 317 00:43:09.280 --> 00:43:18.280 But say, for example, this is St. Louis, and we hadn't built a rail line to the west. 318 00:43:18.280 --> 00:43:27.120 Well, there's absolutely no reason that as farmers start using this area to grow a lot of crops or feed a lot of cattle or whatever, 319 00:43:27.120 --> 00:43:31.880 that a railroad line couldn't have gone out into that area. 320 00:43:31.880 --> 00:43:37.560 So that you just need a spur line to get to the river and then you're into international markets. 321 00:43:37.560 --> 00:43:42.720 So a very similar thing happened in Texas. 322 00:43:42.720 --> 00:43:54.720 You know, Texas has a few rivers that were used initially by the first people to go there to grow cotton. 323 00:43:54.720 --> 00:43:58.760 And so they would congregate around the rivers. 324 00:43:58.760 --> 00:44:07.880 But there was a lot of area that was perfectly good for cotton growing that was unusable because of transportation costs. 325 00:44:07.880 --> 00:44:12.600 And so they started building wood plank roads and then eventually railroads. 326 00:44:12.600 --> 00:44:24.260 into some of these areas that weren't served so that, you know, a common notion is build it and they will come. 327 00:44:24.260 --> 00:44:28.560 You know, build the baseball park and the fans will come and it will be a success. 328 00:44:28.560 --> 00:44:38.260 That just never works. It only works once in a great moonshot of a time and only by pure luck. 329 00:44:38.260 --> 00:44:45.780 As a matter of fact, if the argument is, build it and they will come, that usually is a recipe for disaster. 330 00:44:45.780 --> 00:44:49.300 You need sensational stars and a lot of steroids. 331 00:44:49.300 --> 00:44:54.980 That thing of subsidizing railroads is still with us, isn't it? 332 00:44:54.980 --> 00:45:00.420 It always deals with the retirement of railroad employers today. 333 00:45:00.420 --> 00:45:01.380 I don't know. 334 00:45:01.380 --> 00:45:03.700 Yes, it's a category on your federal... 335 00:45:03.700 --> 00:45:06.260 Oh, yes, yes, yes. There is a thing in there. 336 00:45:06.260 --> 00:45:18.260 How many of you see it? It bothers me. I've got a friend that's a Vice President. They held these political types out in just about every state and railroad companies. 337 00:45:18.260 --> 00:45:32.260 And they're out there as lobbyists who deal with state legislatures and that kind of thing, making sure that the benefits that there's no negative legislation against their particular railroad. 338 00:45:32.260 --> 00:46:02.260 Well, the railroads have been a mess of a business pretty much from the start when government started getting involved but you know back to Ozzie's question here in terms of you know would they build the railroads well of course if they're growing crops in this area they're going to build a railroad network to serve that and you know so that a private owner can look out there at the potential 339 00:46:02.260 --> 00:46:24.260 and the potential rewards, the potential business that's developing, that might develop, that could develop, put their own money down and sure enough those are the type of roads that are going to be built when and where necessary and they're going to be beneficial to the local economy and to the railroad owner themselves. 340 00:46:24.260 --> 00:46:25.260 Yes, James. 341 00:46:25.260 --> 00:46:35.260 I think Tommy Lorenzo makes the point that in Utah, the Latter-day Saints, they built their own railroad system. How expensive was that? Do you know the details of that? 342 00:46:35.260 --> 00:46:42.260 I really don't know about that. 343 00:46:42.260 --> 00:46:54.260 Well, you know, most of these systems were privately owned. It's just that they were given various forms of subsidies and protections. 344 00:46:54.260 --> 00:47:10.260 And that's true of some of these eastern roads as well. It's just that when the federal government gets involved in it, it becomes a much bigger, more luscious types of subsidies that are being generated. 345 00:47:24.260 --> 00:47:34.520 the great northern route, the great northern was... 346 00:47:34.520 --> 00:47:37.420 it was a little bit for steel, wasn't it? 347 00:47:37.420 --> 00:47:39.380 well, at the least subsidized 348 00:47:39.380 --> 00:47:46.780 I mean, not steel, but the product they got from hibbing and all those places, the ore and stuff that they got out of there 349 00:47:46.780 --> 00:47:48.660 yeah, I would imagine so 350 00:47:48.660 --> 00:48:10.660 built their reputation on that. Great Lakes, you know, what the steel going out and the raw materials coming in and it depended where the, I mean, the railroads were built around those, I think, were built during World War II. 351 00:48:10.660 --> 00:48:12.660 Well, that's a lot later, though. 352 00:48:12.660 --> 00:48:20.660 Yeah. And during the global rush days, it might take from two months to six months to get from New York to California. 353 00:48:20.660 --> 00:48:26.660 If they went around South America, or if they went across the isthmus, half of them would die. 354 00:48:26.660 --> 00:48:27.660 Yeah. 355 00:48:27.660 --> 00:48:29.660 I'd say the railroad was needed. 356 00:48:29.660 --> 00:48:33.660 Well, I mean, yeah, if you were a 49er... 357 00:48:33.660 --> 00:48:38.660 Or if you were one of the... California had a considerable population. 358 00:48:38.660 --> 00:48:49.660 Well, not actually before the gold rush. It wasn't that big of a populous of a state. 359 00:48:49.660 --> 00:48:57.660 There were, and you come to this point too, that it was the need become substantial. Private money does it. 360 00:48:57.660 --> 00:49:05.660 There were railroads and other means of conveyance in the gold rush days to accommodate the needs of the gold rush traffic 361 00:49:05.660 --> 00:49:35.660 Across Nicaragua and Central America, there's one river going to Nicaragua and a railroad in the isthmus of Tehuantepec, Mexico, there are all kinds of transit points down through there, and not only Panama too, there's a railroad there, and that goes all the way around, and I don't see, and I wonder, as a question of economic theory, what's the difference in highways and other roads, 362 00:49:35.660 --> 00:49:37.660 and Transportation in Railroads. 363 00:49:39.660 --> 00:49:45.660 We subsidized a lot out of all these road systems and railroads and everything, 364 00:49:45.660 --> 00:49:49.660 and aren't they basically a question of economics? 365 00:49:49.660 --> 00:49:51.660 They're the same. 366 00:49:51.660 --> 00:49:54.660 If one thing gets there, one thing gets built. 367 00:49:54.660 --> 00:49:59.660 Like early railroads, you had spurs going everywhere, all by private money, 368 00:49:59.660 --> 00:50:02.660 and many of them didn't do too well. 369 00:50:02.660 --> 00:50:15.340 Well, you know the private roads and railroads work just fine. Now sometimes there was boom 370 00:50:15.340 --> 00:50:21.100 bust cycles in the economy where these large capital projects went under just like everything 371 00:50:21.100 --> 00:50:28.300 else and sometimes the government subsidies would create competition that would make the 372 00:50:28.300 --> 00:50:40.400 the private sector is perfectly capable of transporting, providing the necessary transport. 373 00:50:40.400 --> 00:50:49.340 There's no economic rationale for why transport should somehow be treated differently than 374 00:50:49.340 --> 00:50:50.340 anything else. 375 00:50:50.340 --> 00:50:57.220 And, you know, getting people across the country is a fairly easy process and doesn't necessitate 376 00:50:57.220 --> 00:51:08.780 the need for railroads in any sense. It's only heavy materials that require railroad 377 00:51:08.780 --> 00:51:12.580 conveyance in the absence of water conveyance. 378 00:51:12.580 --> 00:51:40.580 Is this true or not? Every time they had a big board hassle like between the big eastern railroads and they, several authorities said that the railroads can transport more goods more efficiently and more cheaply than any other type of transportation, air, sea, whatever, air, sea and water. 379 00:51:40.580 --> 00:51:44.220 whatever, heresy and trucking and so forth. 380 00:51:44.220 --> 00:51:46.300 Is that not still true? 381 00:51:46.300 --> 00:51:48.580 I mean, that is true. 382 00:51:48.580 --> 00:51:51.100 Why is it then that they don't, 383 00:51:51.100 --> 00:51:53.140 their government doesn't uptake that? 384 00:51:54.100 --> 00:51:57.680 What's in the railroads, or in other words, 385 00:51:57.680 --> 00:52:01.340 make them more efficient and rebuild a lot of them 386 00:52:01.340 --> 00:52:04.500 and so they can take advantage of it 387 00:52:04.500 --> 00:52:07.180 and think of the jobs that would be created 388 00:52:07.180 --> 00:52:09.340 if they put the railroads back up 389 00:52:09.340 --> 00:52:13.340 The government, Ozzie? Why doesn't the government do that? 390 00:52:13.340 --> 00:52:18.340 No, I don't mean the government. Why don't they encourage it? 391 00:52:18.340 --> 00:52:23.340 Ozzie? Ozzie, you're breaking my windows. 392 00:52:23.340 --> 00:52:33.340 No, I mean, it makes sense. If one type is more efficient than the other, well... 393 00:52:33.340 --> 00:52:52.340 That sounds like an engineer's report. It's fine as far as it goes in the sense that if you had to pick one system, that might be the most overall viable one because we couldn't use airplanes to carry really, really heavy stuff. 394 00:52:52.340 --> 00:52:58.800 and you know so basically you'd really prefer to have a mix of things and I'm 395 00:52:58.800 --> 00:53:02.220 going to come to a solution to your problem here you're probably not going to 396 00:53:02.220 --> 00:53:08.540 like it but in a market economy consumers like choice they don't want 397 00:53:08.540 --> 00:53:15.580 just one system one size fits all I hate the concept of one size fits all 398 00:53:15.580 --> 00:53:22.320 because in my case it never does I know I'm getting to your problem so you like 399 00:53:22.320 --> 00:53:33.320 I like railroads and a lot of people love railroads. There's a great nostalgia for railroads and there's a lot of engineering efficiencies with regard to railroads in terms of moving freight and people and all sorts of things. 400 00:53:33.320 --> 00:53:50.320 And there's nothing wrong with that. In terms of figuring out what's the best mix of railroads and planes and cars, I mean you wouldn't want to have to wait for the railroad to come and drive you to your home. 401 00:53:50.320 --> 00:54:18.320 Well, I understand what you're trying to say, Ozzie. And the basic problem with railroads is that they face too strong of a competition from federal highway building and things of that nature. 402 00:54:18.320 --> 00:54:20.320 If there was no... 403 00:54:20.320 --> 00:54:23.320 Right, they're in Washington and they're getting the federal money for that. 404 00:54:23.320 --> 00:54:26.320 And look at all the pollution that arises from that. 405 00:54:26.320 --> 00:54:31.320 If you had an efficient train system, I don't know how... 406 00:54:31.320 --> 00:54:38.320 Several years ago, when we traveled in Europe, they had a great train system. 407 00:54:38.320 --> 00:54:47.320 But the point of it is, is that the car, the automobile is going to asphyxiate the United States. 408 00:54:47.320 --> 00:55:12.320 Well, I accept your medical opinion on that, but the important thing is that, I think this points out, is that it's only a market economy that can figure out what mix of transportation services is the best for an economy at any one point in time. And that's going to change. It's not going to stay the same. 409 00:55:12.320 --> 00:55:24.320 In 1965, we went all the way around Santa Fe Railroad to Los Angeles, Southern Railroad 410 00:55:24.320 --> 00:55:30.400 to Portland and Union Pacific back to Chicago. 411 00:55:30.400 --> 00:55:33.080 We had to get to Chicago from Tiffin, Ohio. 412 00:55:33.080 --> 00:55:37.160 I worked two summers on the railroad as a section hand. 413 00:55:37.160 --> 00:55:53.200 When I worked there, they still had human maintenance, but when they went to automated maintenance, my God, I got on that train and rode from 414 00:55:53.200 --> 00:56:13.200 Okay, you're going off the subject, Ozzie. You're getting off the track. Okay, so just calm down. We're going on to tariffs now. 415 00:56:13.200 --> 00:56:20.200 Okay, tariffs. The Morrell Tariff of 1862. Tariffs were... 416 00:56:43.200 --> 00:56:52.860 For 20% on average before the war, the rest of the century, including the Civil War itself, 417 00:56:52.860 --> 00:57:01.360 the Republicans raised tariff rates up to about 50%, so that the tariff rates on imported 418 00:57:01.360 --> 00:57:09.740 goods were increased by 150% of their pre-war levels. 419 00:57:09.740 --> 00:57:21.040 Scientists have found that 21 major industries had 100% tariff protection, and what this 420 00:57:21.040 --> 00:57:28.480 meant is the 50% rate was the tax that they had to pay to import it, and that tax rate 421 00:57:28.480 --> 00:57:37.040 was significant enough basically to prevent anything from being imported in 21 major industries. 422 00:57:37.040 --> 00:57:45.480 So people in those industries were completely insulated from competition and from abroad. 423 00:57:45.480 --> 00:57:50.680 The losses to consumers under these types of tariff was tremendous. 424 00:57:50.680 --> 00:57:59.680 They were paying lots of money for products that were made out of iron, textiles, machinery 425 00:57:59.680 --> 00:58:02.720 and so forth. 426 00:58:02.720 --> 00:58:11.040 This loss to consumers, of course, translates into gains to the producers, the iron producers 427 00:58:11.040 --> 00:58:20.760 and the textile manufacturers in the northeast and almost entirely in the north, yes. 428 00:58:20.760 --> 00:58:28.840 Now of course there's steel, iron, excuse me, iron in a few places in the south, but 429 00:58:28.840 --> 00:58:40.140 Almost all of that is in the north, and at least prior to the war, there's very little textile manufacturing in the south that was done almost entirely in the north. 430 00:58:40.140 --> 00:58:58.040 Now, with those tariffs and with that protection, some of that started to leak down into the south, so that, you know, Birmingham, for example, was an iron town, and Richmond produced some iron, and textiles were moved down into the south as well. 431 00:58:58.040 --> 00:59:17.840 I think there was some iron production in Tennessee and other places, so because of the protection and the fact that we couldn't get cheap imports from Europe, some of it did leak back down into the South, but initially it was all beneficial to the Northeast and the Midwest. 432 00:59:17.840 --> 00:59:40.840 Now this is going to have the effect of reducing potential income, reducing potential economic growth, and keeping the standard of living down. 433 00:59:40.840 --> 00:59:49.080 In the book, we report on the increasing skepticism about the so-called beneficial effects of the war. 434 00:59:49.080 --> 00:59:54.880 And some of this gets to the question of technology, education, science, and so on. 435 00:59:54.880 --> 01:00:03.140 George Taylor, a historian, you know, talks about the economy growing after the war. 436 01:00:03.140 --> 01:00:09.840 But in terms of comparing it to before the war, the economy was growing very well before the war as well. 437 01:00:09.840 --> 01:00:16.280 So in terms of economic growth, they can't find any positive effect from the war. 438 01:00:16.280 --> 01:00:22.840 Robert Starkey, another historian, looked at economic institutions before the war and 439 01:00:22.840 --> 01:00:30.040 after the war and found that only banks were somehow different as a result. 440 01:00:30.040 --> 01:00:35.120 And that's something that we said was going to be different, is that banks were now more 441 01:00:35.120 --> 01:00:40.320 more likely to be nationally chartered banks rather than state chartered banks and they 442 01:00:40.320 --> 01:00:47.240 held more government debt because the government had issued more government debt. And that 443 01:00:47.240 --> 01:00:54.480 the financial power in the country was clearly in the northeast and clearly had financial 444 01:00:54.480 --> 01:01:03.320 power over the south and west. And I think we quote him something to that effect. Yes, 445 01:01:03.320 --> 01:01:10.480 He says, as the national banking system took shape after the war, it was apparent that 446 01:01:10.480 --> 01:01:16.940 human ingenuity would have had difficulty contriving a more perfect engine for class 447 01:01:16.940 --> 01:01:23.520 and sectional exploitation, creditors finally obtaining the upper hand as opposed to debtors 448 01:01:23.520 --> 01:01:29.320 and the developed east holding the whip over the underdeveloped west and south. 449 01:01:29.320 --> 01:01:36.420 This tipping of the class and sectional balance of power was, in my opinion, the most momentous 450 01:01:36.420 --> 01:01:44.760 change over the 23-year period of 1850 to 1873. 451 01:01:44.760 --> 01:01:54.280 This is a historian named Robert Sharkey, Sharkey as in the big fish with the big teeth. 452 01:01:54.280 --> 01:02:24.280 Hunter Dupree looked at the issue of technological advance and you see things like the development of steam powered ships and warships and things of that nature and the Gatling gun and all that kind of things that we see on TV and you get the impression that technology advanced significantly during the war but after examining the question Dupree said that the Civil War actually 453 01:02:24.280 --> 01:02:31.280 Inventors like Edison and those guys, tremendous impact on... 454 01:02:54.280 --> 01:02:58.000 in advance and knowledge and that thing were actually stopped during the war. He mentions 455 01:02:58.000 --> 01:03:05.240 a few. For example, if we're not at war, one of the things we use the military for is exploring 456 01:03:05.240 --> 01:03:11.920 and charting and all that kind of stuff and that had to stop during the war. Robert Bruce 457 01:03:11.920 --> 01:03:18.560 historian said that the war was a distinct detriment to science and the famous Alfred 458 01:03:18.560 --> 01:03:26.280 Charles Chandler looked at transportation and business organization, yet found no benefit 459 01:03:26.280 --> 01:03:32.640 from the war. He concluded, quote, if we take a broad perspective, then it seems safe to 460 01:03:32.640 --> 01:03:38.880 say that of all the decades in the second half of the 19th century, the decade of the 461 01:03:38.880 --> 01:03:47.880 1860s witnessed the fewest and least important changes in the organization of American transportation. 462 01:03:47.880 --> 01:04:05.880 He also argued that, quote, the Civil War appears to have had little impact on the organization of American transportation and manufacturing, particularly if viewed from the perspective of a half a century of rapid development. 463 01:04:05.880 --> 01:04:13.880 In other words, he saw a lot of the rapid development and innovation occurring before the war, not after the war. 464 01:04:13.880 --> 01:04:42.880 and there's other Civil War historians are in American historians are quoted in here we note that the the phrase Yankee ingenuity that Americans were somehow technologically adept and they could solve problems with technology was something that was coined by Henry David Thoreau 465 01:04:42.880 --> 01:04:52.560 at least as early as 1843. So in 1843, Americans were already known to be technologically advanced 466 01:04:52.560 --> 01:04:57.880 and Kenneth Sokoloff looked at the number of patents that were registered in the United 467 01:04:57.880 --> 01:05:06.000 States and found that in the pre-war period, the rate of patent registration was very significant. 468 01:05:06.000 --> 01:05:12.460 So they can't really find anything in Republican policy and the Civil War that contributed 469 01:05:12.460 --> 01:05:24.460 in a positive way. We also look at economic growth during, before, during, and after the war. 470 01:05:24.460 --> 01:05:35.180 And there's a table here, table 4.1, where we look at the capital stock formation in the country. 471 01:05:35.180 --> 01:05:40.260 And capital stock is really what drives prosperity. 472 01:05:40.260 --> 01:05:52.060 If your population saves and those savings get put into capital or tools, 473 01:05:52.060 --> 01:05:58.900 then what we find is that the economy grows, income and wages increase. 474 01:05:58.900 --> 01:06:26.900 And in this table, basically what it shows is that the rate of capital formation increases in the United States and in the two decades prior to the Civil War, 1840 to 1860, the rate of economic capital formation, capital stock formation, is at its highest level in our history. 475 01:06:26.900 --> 01:06:40.300 And then in all subsequent periods, the capital stock formation declines and now we're back to a much lower level, 476 01:06:40.300 --> 01:06:49.200 approximately only one half the rate of capital formation now as it was in the two decades prior to the Civil War. 477 01:06:49.200 --> 01:06:54.900 Now this would indicate to me and did indicate to me that if I looked at income statistics, 478 01:06:54.900 --> 01:07:01.900 That that would ultimately be reflected in those income statistics. 479 01:07:01.900 --> 01:07:06.900 And the guy who put these together, Robert Gallman, is kind of interesting. 480 01:07:06.900 --> 01:07:14.900 On page 93, he said, let's see, he surmised, quote, 481 01:07:14.900 --> 01:07:23.900 One would think that the effects of the war on improved farmland would have largely been removed by 1875. 482 01:07:23.900 --> 01:07:32.900 So when he was looking at this capital stock, one of the things he was looking at was improved farmland, land that had been cleared and ready for plowing. 483 01:07:32.900 --> 01:07:43.900 And during the war, as I said, the amount of farmland decreased because a lot of it was allowed to lay fallow and trees and bushes and stuff grew back onto it. 484 01:07:43.900 --> 01:07:52.900 Now he's saying you would have thought ten years after the war that all that land would have been reclaimed and put back into production. 485 01:07:52.900 --> 01:07:58.900 But why wasn't it? Class, this is your final examination here. 486 01:07:58.900 --> 01:08:03.900 The manpower was depleted. 487 01:08:03.900 --> 01:08:06.900 Well, certainly the manpower was depleted, that's true. 488 01:08:06.900 --> 01:08:10.900 What about the McCormick Reaper? Didn't that come in about 1850 or something? 489 01:08:10.900 --> 01:08:12.900 No, that was a little bit later. 490 01:08:12.900 --> 01:08:16.900 That was what? Yeah, but that had a tremendous impact on... 491 01:08:16.900 --> 01:08:27.900 But in terms of answering this question, why would it be, according to Goldman, he would have thought, well, 10 years later they should have got all that land back into production. 492 01:08:27.900 --> 01:08:30.900 The population had stabilized itself. 493 01:08:30.900 --> 01:08:38.900 Don't we have to know something about land ownership after the war? 494 01:08:38.900 --> 01:08:39.900 No. 495 01:08:39.900 --> 01:08:43.900 What about the physical laborers in the field? 496 01:08:43.900 --> 01:08:46.180 No, there wasn't really a shortage of that. 497 01:08:46.180 --> 01:08:48.140 As a matter of fact, there was... 498 01:08:48.140 --> 01:08:52.860 This former slave population was actively looking for land of their own. 499 01:08:52.860 --> 01:08:54.460 It has to relate to markets. 500 01:08:54.460 --> 01:08:55.180 It has to. 501 01:08:55.180 --> 01:08:57.180 Is it customer base or not? 502 01:08:58.900 --> 01:09:00.700 That's getting close. 503 01:09:00.700 --> 01:09:02.060 Was it taxes? 504 01:09:02.060 --> 01:09:04.700 It was taxes, yeah. 505 01:09:04.700 --> 01:09:10.460 Remember, Republican agenda was to, quote-unquote, 506 01:09:10.460 --> 01:09:13.820 protect the United States. 507 01:09:13.820 --> 01:09:20.940 to provide protection for iron and textile industries and those sorts of things. 508 01:09:20.940 --> 01:09:28.340 So the prices of those goods went up, the wages in those industries went up. 509 01:09:28.340 --> 01:09:34.940 But for the South that was producing a lot of cotton and other export goods, 510 01:09:34.940 --> 01:09:38.780 now there was less of a market for their particular crops. 511 01:09:38.780 --> 01:09:45.180 The relative price of cotton was now far below the relative price of these manufactured goods 512 01:09:45.180 --> 01:09:46.180 in the United States. 513 01:09:46.180 --> 01:09:53.120 So basically our economy drifted away from its strength in agriculture and moved towards 514 01:09:53.120 --> 01:10:01.300 its comparative disadvantage in manufacturing iron products and textile goods. 515 01:10:01.300 --> 01:10:07.540 So its protectionism tariff taxes essentially which disadvantaged agriculture so it was 516 01:10:07.540 --> 01:10:13.920 was no longer as profitable to be in agriculture as it once was. 517 01:10:13.920 --> 01:10:19.780 It would be more profitable to go get a job in an iron foundry or in a textile mill. 518 01:10:19.780 --> 01:10:29.140 So Galman's quizzical statement, again, is readily answered with respect to the economic 519 01:10:29.140 --> 01:10:42.740 Talk Tools, Understanding Republican Economic Agenda and Policies. 520 01:10:42.740 --> 01:10:52.360 I think I'll save the reconstruction of the New Deal for the last class and see if we 521 01:10:52.360 --> 01:11:04.360 Do we have any questions about growth and policy and the Republican economic agenda at this time? 522 01:11:09.360 --> 01:11:11.360 Anybody have any questions or comments? 523 01:11:11.360 --> 01:11:33.360 I'm no student of the Civil War and certainly what reconstruction, but I've always had the general feeling that reconstruction dealt more with some kind of psychological reconstruction as opposed to the non-reconstruction of the South with the military occupations and that kind of thing. 524 01:11:33.360 --> 01:11:57.360 In terms of the way you think about reconstruction today, whether it be Europe after World War II or Japan or whatever, South Korea, was there any of that, was there any real economic reconstruction of the South? 525 01:11:57.360 --> 01:12:09.360 Not that I know of. Not that I know of with respect to, you know, rebuilding infrastructure and things of that nature. 526 01:12:09.360 --> 01:12:20.360 There was very little effort in that regard. It was, as far as I can tell, it was a Federal Army occupation. 527 01:12:20.360 --> 01:12:30.240 Union, and it was designed to basically occupy the South until Southerners in particular 528 01:12:30.240 --> 01:12:40.520 states were willing to concede, sign pledges, you know, that sort of thing, to get back 529 01:12:40.520 --> 01:12:41.520 in the Union. 530 01:12:41.520 --> 01:12:45.760 They weren't going to be allowed out of the Union, but to get back in the Union, they 531 01:12:45.760 --> 01:12:58.760 Everybody, or many large categories of people were disenfranchised and then re-enfranchised 532 01:12:58.760 --> 01:13:01.760 by different categories. 533 01:13:15.760 --> 01:13:21.520 If you were involved in the Confederate government or even the state governments of the Confederacy, 534 01:13:21.520 --> 01:13:25.920 those people had to basically either weren't allowed to vote or if they were they had to 535 01:13:25.920 --> 01:13:26.920 sign pledges. 536 01:13:26.920 --> 01:13:30.920 If you were a soldier, if you were, if you tailed any, any, some adopters. 537 01:13:30.920 --> 01:13:32.920 Right. 538 01:13:32.920 --> 01:13:40.920 Uh, regarding, if Claire has commented on taxes to the terrorists, I'm sure Ward Allen told me 539 01:13:40.920 --> 01:13:46.920 that the young man who worked for a scrap dealer in town outside of Birmingham, he had to ship his scrap 540 01:13:46.920 --> 01:13:54.920 the filth to Pittsburgh, because of the railroad tariffs that wouldn't allow him to ship it 10 miles to Birmingham. 541 01:13:54.920 --> 01:14:15.640 really that's an amazingly stupid policy I mean it's you know every every time 542 01:14:15.640 --> 01:14:22.400 you you think they can't become any more idiotic you find examples that they're 543 01:14:22.400 --> 01:14:35.400 Was the cotton gin invented right after the war or in the early 19th century? 544 01:14:35.400 --> 01:14:43.400 So that would diminish the need for slave labor? 545 01:14:52.400 --> 01:15:00.400 stuff, that was invented at the end of the previous century and so that was already around 546 01:15:00.400 --> 01:15:09.360 and it was being developed and made more productive over time and the ability to gin that cotton 547 01:15:09.360 --> 01:15:18.840 and get the seeds out mechanically reduced the cost of crude cotton available for manufacturing 548 01:15:18.840 --> 01:15:19.840 textile goods. 549 01:15:19.840 --> 01:15:47.000 and so, by hand, and combs, well, the Indians processed it by hand, but that technique basically 550 01:15:47.000 --> 01:15:57.720 pushed cotton into the primary material for making textiles, giving it a clear comparative 551 01:15:57.720 --> 01:16:04.480 advantage and that increased its price, the demand for it increased its price and the 552 01:16:04.480 --> 01:16:13.680 production of cotton increased dramatically throughout the entire, certainly the entire 553 01:16:13.680 --> 01:16:19.280 pre-war period and I believe it continued to increase afterwards because they were still 554 01:16:19.280 --> 01:16:28.040 pushing out cotton production into the west and of course filling in all the open places 555 01:16:28.040 --> 01:16:29.040 in the east. 556 01:16:29.040 --> 01:16:44.040 Martin, when was the legislation that made interstate tariffs on the interstate commerce? 557 01:16:44.040 --> 01:16:47.040 The interstate commerce? 558 01:16:47.040 --> 01:16:53.040 It prevented these tariffs between, among the states. 559 01:16:53.040 --> 01:16:57.040 Oh, the clause itself is in the Constitution. 560 01:16:57.040 --> 01:17:07.480 Yeah, so that's in there, that's in there from the very beginning. 561 01:17:07.480 --> 01:17:24.480 Well then how are these, it's been said I think in this class that 70 or 80 percent of the income to the national government was from taxation or tariffs on southern cotton. 562 01:17:37.480 --> 01:17:46.480 and others goods, it also prevents the federal government from taxing exports, but it still can tax imports. 563 01:17:46.480 --> 01:17:53.480 And so the federal government was taxing the imports into the United States. 564 01:17:53.480 --> 01:18:05.480 This is largely the iron and textile goods that I've been referring to, manufactured products, machinery, those kind of things. 565 01:18:05.480 --> 01:18:11.320 So that the Southerners aren't paying the tax on the cotton. 566 01:18:11.320 --> 01:18:20.120 They're selling the cotton, but then when they buy the iron goods and the textile goods and the finished products, 567 01:18:20.120 --> 01:18:25.440 they have to pay the tariff that's built into the price of all those products. 568 01:18:25.440 --> 01:18:31.200 And it doesn't matter if it's an imported good that's had to raise its price 569 01:18:31.200 --> 01:18:35.360 or a domestically produced good that gets to raise its price. 570 01:18:35.360 --> 01:18:41.640 that Southerners and many people who weren't directly involved in those protected industries 571 01:18:41.640 --> 01:18:45.000 pay the tariffs indirectly. 572 01:18:45.000 --> 01:18:54.360 You certainly don't think of the people in a iron mill in the North that's benefiting 573 01:18:54.360 --> 01:18:59.560 from the tariff as having to pay the tariff even though some of the products that they 574 01:18:59.560 --> 01:19:02.160 buy may have the tariff worked into it. 575 01:19:02.160 --> 01:19:17.160 So the southerners are considered to be basically, at this time, paying the bulk of the cost of the tariff and therefore paying the bulk of the cost of the government. 576 01:19:17.160 --> 01:19:33.160 When you said the products were taxed, I mean, the tariffs on them were 150 percent, why didn't that choke off everything? For God's sake, if you tax it three times what it's worth, I mean... 577 01:19:33.160 --> 01:19:48.160 Well, actually, Ozzie, the tariffs went from an average of 20% to 50%, okay, and that was enough to choke off virtually all imports in 21... 578 01:19:48.160 --> 01:19:52.160 That's actually 50% of the value of the product was the tariff. 579 01:19:52.160 --> 01:20:00.160 That's right. And, you know, there's a lot of... that's not unheard of. 580 01:20:00.160 --> 01:20:10.160 There's a lot of countries that have had tariff rates of that same sort and still do today. 581 01:20:10.160 --> 01:20:18.160 You know, a lot of poor small countries will put heavy tariffs on certain items that they know are going to be imported 582 01:20:18.160 --> 01:20:27.160 and then know people are going to have to pay a huge tariff to get them in there because that's their stream of revenue. 583 01:20:27.160 --> 01:20:48.160 And so that's been a common ploy of governments. This is not, unfortunately, this is not all that unusual for governments to want to put high tariffs on their economies, even though it's on net detrimental to the economy. It's going to benefit somebody. 584 01:20:48.160 --> 01:20:56.840 So, that's the key thing is that the overall equation here is that the government benefits 585 01:20:56.840 --> 01:21:03.440 by getting tariff revenues. The producers in protected industries benefit from that 586 01:21:03.440 --> 01:21:10.880 protection from competition. But even if you combine the dollar values of those two benefits, 587 01:21:10.880 --> 01:21:16.900 the loss to consumers is still much greater because they have to pay more, they get less 588 01:21:46.900 --> 01:22:10.900 of the Economy, and there's a lot of misconceptions about this, even on the part of economists, I should say, because we had high tariffs in the United States, and because we were so prosperous in the late 19th century, a lot of people have said tariffs caused the prosperity, but that's not really the case. 589 01:22:10.900 --> 01:22:20.900 The case is that the United States was an extremely free economy, basically on the gold standard, despite the monetary problems. 590 01:22:20.900 --> 01:22:28.900 We had increasing amounts of labor coming in from Europe and around the world. 591 01:22:28.900 --> 01:22:36.900 We had a huge amount of land that was available and we had capital pouring in from around the world 592 01:22:36.900 --> 01:23:01.900 German Anti-Trust Act or the Anti-Trust Movement? 593 01:23:06.900 --> 01:23:13.420 with the railroads and it's tied up with the farmers and the interest of the 594 01:23:13.420 --> 01:23:19.740 farmers getting their products to market and feel that they were being charged too 595 01:23:19.740 --> 01:23:24.100 high of a price and that the railroads weren't charging competitive prices well 596 01:23:24.100 --> 01:23:29.460 I mean this is I think just another example of how the Republican Party 597 01:23:29.460 --> 01:23:43.460 The agenda had sort of put things in the direction of the big guy, like the railroads and the banks, to the disfavor of the small guy, the small farmer and the worker. 598 01:23:43.460 --> 01:23:51.380 and so as a result there's a movement a reform movement develops amongst the 599 01:23:51.380 --> 01:24:00.140 farmers to somehow put controls on industries like the railroads and that's 600 01:24:00.140 --> 01:24:06.800 where it was directed at is against big business like the railroads and 601 01:24:06.800 --> 01:24:24.800 and Rockefeller's Oil Company, the mining and industries that were making these huge profits off of the Republican agenda, you know, so that's basically what the target was. 602 01:24:24.800 --> 01:24:35.800 Is it the same situation that existed in the first World War into the prosperity and inter-recession of the 20s and 30s? 603 01:24:54.800 --> 01:25:00.060 World Trade Tariff levels, rate levels that I've seen in textbooks indicate that the tariffs 604 01:25:00.060 --> 01:25:09.460 went down during that time period only to be, of course, the Smoot-Hawley tariff comes 605 01:25:09.460 --> 01:25:18.760 back in with the beginning of the Great Depression and world trade re-collapses basically. We 606 01:25:18.760 --> 01:25:24.360 had just gotten onto a relatively free system and then it just collapsed back on itself. 607 01:25:24.360 --> 01:25:52.360 Yes, I mean they were definitely, they were definitely one of our competitors in a lot of these markets and so yeah, obviously the sentiments from World War I combining with the fact that we were competitors and if we were going to be keeping anybody out it would be the Germans in large part, who were out competing us in some major industries. 608 01:25:52.360 --> 01:25:58.760 Okay, we're out of time. Once again, we've got one more class coming up next week.