73-476 AMERICAN ECONOMIC HISTORY: TOPIC 1

I. Introduction

  1. Why should we be interested in American Economic History?

  2. What is unique in the American Experience?

    1. Massive Pop. Growth

    2. Large Number of Slaves

    3. Stable Constitution and Government

    4. Tremendous Economic Growth

II. The Development of Government Sanctioned Property Rights

  1. Definition: Land Tenure -- The manner in which, and the period for which, rights in land are held.

    1. Rights in Land held by a private party are an estate in land.

    2. The current form of land tenure used in the United States -- Title in Fee Simple or Free and Common Socage -- Evolved from the Feudal land tenure system.

  2. The Feudal System

    1. The Feudal System -- Political and Military between King and nobility
    2. Manorial System -- Economic between Lord and Peasants
    3. The Feudal Land System

      1. All Land Belonged to the King -- He divided it into his and ...
      2. Granted the rest to his Important Followers (Dukes, etc.)
      3. Transfered Land known as a Fief or Fee or in Latin Feudum -- Hence, Feudal System.

    4. Major Land Tenure Types in Feudal England

      1. Free

        1. Military: The land came with burdens or Incidents -- homage, service, wardship, marriage, reliefs, aids, escheat, and forfeiture.
        2. Free and Common Socage: Civil Rights and Military Duties not mixed with the holding of Land. A quitrent (the modern property tax) which was fixed and certain was paid to the Lord (later, the government).

      2. Villein (unfree)

  3. Fee Simple Title (Free and Common Socage)

    1. It is perpetual
    2. It can be inherited
    3. It can be passed in a Will
    4. Obligations are fixed and certain (the quitrent)
    5. Owner has the right to Waste
    6. Freely alienable (owner has the right to sell)

  4. Summary of the North & Thomas Argument

    1. Private Property Rights and a Means of Enforcement are necessary for long run real, per-capita economic growth
    2. Economic Growth (per-capita improvement) is:

      1. Innovation (this can be good or bad -- transistor vs. cotton gin)
      2. Economies to Scale (Steel vs. Iron RR rails)
      3. Education -- Investment in human capital
      4. Capital Accumulation
      5. Etc.

    3. Efficiency -- Growth will not occur without it. The structure of incentives must be such to bring the Private Rate of Return (Private Benefits - Private Costs) close to the Social Rate of Return (Net Private Benefits + Net effect on Everyone Else).
    4. Individuals must be given property rights
    5. Examples of Poorly Defined Property Rights

      1. Navigation
      2. Piracy
      3. The Spanish Mesta

    6. Why Have Property Rights not Evolved?

      1. Free-Rider Problems
      2. Costs of Enforcement > Benefits

    7. Government is the Best Means to enforce Private Property Rights
    8. Problem: No Guarantee that Government will protect those Private Property Rights that promote efficiency

      1. History shows that Property Rights developed when they did, and where they did, because it was in the fiscal interest of the government at the time
      2. This raises the question: How do you get Government to behave rationally to promote growth?

  5. Overview of 900 - 1600AD

    1. Population Increases -- Revival of Trade and Markets
    2. Necessity of Government over larger geographic areas to protect trade and markets
    3. Disintegration of Feudal System and Rise of Nation State
    4. Nation States Need Money to sustain professional military -- Taxing schemes must be easy
    5. Some Taxing Schemes by chance guarantee forms of private property rights favorable to growth

  6. Chronology

    1. 900AD Europe a "Vast Wilderness" of isolated and self-sufficient manors
    2. 1000AD Italian City States trading with moslems -- population increases in N. Europe, trade begins to revive, cities begin to revive
    3. 1066AD Norman Invasion of England -- Normans impose strong central government and dual court system
    4. 1100-1200AD

      1. Pop. growth continues; migration of peasants to wilderness areas weakens hold of Lords
      2. Trade increases, regional markets develop

    5. 1200-1300AD

      1. Very rapid Pop. growth. Land becomes scarcer, balance of bargaining power shifts back to Lords
      2. Kings become more powerful -- money economy allows Kings to hire permanent military. Military used to protect trade routes and markets.
      3. Commercial Law Develops
      4. Private Property in Land Emerges in England in part due to the dual court system. The Free-Men gain the right to alienate land by substitution without the Lord's permission.
      5. Italian Commercial Innovations

        1. Bills of Exchange
        2. Insurance
        3. Deposit Banking

    6. 1300-1450 Famine, Plague, and War -- Population Crashes

      1. Value of Labor increases, value of land decreases, peasants strengthened vis a vis Lords
      2. Rent payments replace labor services because of labor shortage
      3. Consolidation of Nation States continues
      4. Labor shortage puts premium on military technology (capital substitution) -- Pikemen, longbow, gunpowder and cannons
      5. Military technology + Labor Costs force governmental consolidation (returns to scale)
      6. Because of (c)-(e), Nation States need Money which leads Kings to be creative with Taxes
        1. France -- Inefficient Taxation -- powerless taxed, nobles and clergy exempted -- sales taxes, salt monopoly, tariffs within France, etc.
        2. Spain -- The Mesta, which eventually causes Spain to Fail
        3. England -- Tax on Wool but King's ability to tax limited by Magna Carta of 1215

    7. 1500-1600 The Age of Exploration of the Western Hemisphere

      1. Population Increases again and reaches 1300 Level about 1600
      2. By about 1500 Feudalism effectively dead
      3. As population increases, real wages fall

    8. 1600-1700 England and Netherlands Achieve Self-Sustaining Real Per-Capita Economic Growth

      1. England

        1. Dual Court System imposed in 1066 Enable Free-Men to Obtain more rights
        2. Henry VIII's Battle with Catholic Church Also Gave Parliament More power
        3. Stuart Kings Battles with Parliament Weaken Monarchy further
        4. 1624 Statute of Monopolies ends Crown prerogative to grant monopolies thereby increasing economic efficiency
        5. 1688 Glorious Revolution Makes Parliament Supreme -- Balance of Power sets stage for Industrial Revolution
        6. Supremacy of Parliament plus the embedding of private property rights in the Common Law made Capitalism successful in England

      2. Netherlands

        1. Geography makes Netherlands natural trade port
        2. Policy of rulers was to promote unity and trade
        3. Monopolies were discouraged and foreigners with skills were readily admitted to country in spite of the opposition of the guilds
        4. Adopted the Italian innovations -- Deposit Banking, Bills of Credit, Endorsement, etc.
        5. Large volume of transactions led to standard practices -- these put into commercial law
        6. Selling by sample and published prices -- futures market develops

    9. The also-rans: France and Spain

      1. France

        1. War to drive England from France in 15th Century makes King absolute
        2. King sells offices and tax exemptions and increases size of bureaucracy (needed to collect taxes from peasants)
        3. Tariffs between regions setup to collect more money
        4. Monopolies granted

      2. Spain

        1. After 1492 consolidation, Ferdinand & Isabella opt for short-run revenue gain and do not break the Mesta monopoly
        2. No agricultural surplus is produced in absence of true private property rights
        3. After Netherlands revolts and breaks free, loss of revenue forces Crown to tax merchants who are driven out of business as a result




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