Economy #2

I. Brief Background
a. Throughout the 19th and into the 20th centuries, labor unions will struggle to gain a foothold

I. Labor Unions
a. Seek two major concessions
i. The right to legally organize/exist
ii. The right to collective bargaining for contracts
b. Specific Benchmark Legislation helpful to labor meeting its two goals:
i. 1842: Commonwealth v. Hunt:
1. “honorable and peaceful” actions
ii. 1914: Clayton Anti-trust act
1. Legalize strikes and peaceful picketing
iii. 1936 National labor relations acts (Wagner Act)
II. Panics- Recessions- Depressions
a. Simple Causes tend to be:
i. Loose money
1. Refers to the fact there is too much money in the economy
2. Loose money = easy credit
ii. Inflation
iii. Speculation
1. Believe that the price of something will continue to go up
a. A very risky investment
2. Land speculation
a. Panics of the 1800s as a result of this
3. Overspeculation causes problems
a. Too many people are paying prices that are too high
iv. Business and Consumer uncertainty
1. People won’t seek credit if they don’t have confidence in their economy
b. Obvious Effects tend to be:
i. Unemployment
ii. Falling GNP/GDP
iii. Inflation-deflation
1. Bad for everyone except for farmers
iv. Business and bank failures
v. High interest rates
1. Do hurt individuals from borrowing money from borrowing what they need
vi. Tight money
1. Make it too difficult to borrow money
c. Solutions:
i. Slow the economy
1. If inflation is happening to fast then they can stop people from borrowing
money
ii. Tight money-deflationary policy
d. Today the US has a Central Banking System
i. The Federal Reserve Bank whose primary function is to minimize the ups and downs of
the business cycle
1. Before 1913 there was a panic every 10 years
e. Panic of 1819
i. Causes:
1. Overspeculation on western lands
2. BUS over-extended credit to “wild cat” banks
 3. BUS loans had to be paid back in specie
ii. Effects:
1. Bankruptcies, failures, unemployment
2. Hatred of the BUS by the west
3. Cry for soft money
4. Seeds of Jacksonian democracy are planted
f. Panic of 1837
i. Causes:
1. BUS “killed” by Jackson
2. Specie Circular issued
3. Gov’t money deposited into pet banks
4. Speculation in west on borrowed capital
5. Failure of wheat crops
6. Failure of several British Banks
a. American Banks start borrowing from British Banks
ii. Effects:
1. Collapse of many banks
2. Agricultural prices, public land sales, exports all down
3. Business failures
4. Unemployment
iii. Solutions:
1. Congressional Whigs will want:
a. Expansion of bank credit and high protective tariff
b. Subsidies for internal improvements
2. Van Buren will:
a. Divorce government from banking system
b. 1840 establishes the Independent Treasury
g. Panic of 1857
i. Causes:
1. Gold Rush leads to inflation
2. Surplus of grain available due to end of Crimean War
3. Land and railroad speculation
ii. Effects:
1. Northern grain farms hit hard
2. South cotton is okay due to exports
iii. Solution:
1. Homestead Act of 1860
2. Call for high protective tariff
a. Done to protect the farmers
h. Panic of 1873:
i. Causes:
1. Unbridled expansions
2. Poor loans by banks
ii. Effects:
1. NY bank Jay Cooke and Co. collapses
2. 15k+ business failures
3. New black investment bank Freedman’s Savings and Trust Co. goes down
iii. Solutions:
1. Debtors scream for inflation policies
2. Resumption Act of 1875
a. Opposed of the inflation
b. Calls back all the greenbacks
3. By 1879 value of gold and greenbacks are fairly equal
 iv. Long Run Effects:
1. Bland Allison Acts of 1878
a. About silver rights
2. Republican hard money policy spawns the Greenback Labor Party
3. Sherman Silver Purchase Act of 1890:
a. Purchase of silver w/ notes that could be redeemed in either silver or
gold
b. Gold will drain out of the treasury during the panic of 193; act later
repealed by President Cleveland’s Administration
i. Depression of 1893:
i. Most devastating of the century
ii. Causes:
1. Policy that allowed treasury to be drained of gold
2. Over-building, land speculation , labor disputes, and agricultural depression
iii. Effects and solutions:
1. Dangers of having to go off gold standard
2. Repeal of Sherman Silver Purchase Act
3. President Cleveland sells gov’t bonds for gold
4. Cleveland gets $65 million loan in gold from Morgan
a. People in the West hated this
5. Ragged Coxey Army demonstrates for gov’t relief
iv. Long-Run Effects:
1. 1896 election:
a. WJB v. McKinley
2. Gold Standard Act
3. New gold discoveries ease gold supply worries
4. Silver argument fades into the golden sunset
j. Roosevelt Panic of 1970
i. Causes:
1. Financial world hated TR
2. Business regulations, taxes and support of labor
3. TR thinks plutocrats had “engineered” the panic
ii. Effects and Solutions:
1. Runs on banks and loss of savings
2. Fiscal reforms
a. Aldrich-Vreeland Act 1908- authorized bank to issue emerge currency
as long as it was backed by collateral
b. 1913- Creation of the Federal Reserve System
k. Recession of 1920- ’21:
i. Post war down turn
ii. National debt ballooned to $23 billion in 1921
iii. 1921- Bureau of Budget created by Congress to aid President in creating a balanced
budget
l. Great Depression 1929- 1941:
i. Make sure to look at your Great Depression/ New Deal fluff for cause and effects
ii. In a nutshell much of the Laissez Faire behavior of the 20s will precipitate the severe
recession of 30s
m. Recession of 1946-‘47
i. Postwar down turn
ii. Inflation from removal of price controls and wage ceilings
iii. The only reason prices will rise is because the people have so much money
iv. People can’t buy things because of rationing
v. Precedes the longest peacetime economic growth
 vi. Much of this “prosperity” fueled by the “military industrial complex”
n. The Stagnant 70s = stagflation
i. Cause:
1. Vietnam War and Great Society spending
2. Rising oil prices and inflation overall
3. Increased taxes
4. Plateau of productivity
5. Very successful business fail to modernize and invest
6. The Japanese and Europeans catch up and create competition with US
manufacturers
ii. Effects and Solution:
1. 90 day wage and price ceiling by Nixon in 1971
2. Nixon takes us off the gold standard
3. This helps to stimulate US exports
4. To fight inflation, the feds will raise interest rates on loans
o. Reaganomics in the 1980s
i. “neo conservatives”
ii. Deregulation of specific markets is the remedy
iii. Cut social programs
iv. Supply side economics = stimulate the business sectors:
1. Cut taxes (personal and business) up to 25% for over 3 years to stimulate
investment
2. Benefits will “trickle down” to the rest of the economy
v. Increase in military expenditures
vi. Effects
1. Unprecedented budget deficits
2. Massive government borrowing = increase in interest rates for all as overall
credit available will decrease
3. American products abroad will increase in price
III. Econ 101
a. C + I + G + X – M = GDP
b. Classical v. Keynesian
i. For an economy to grow, we must have a steady and consistent GDP growth
ii. Prior to the Great Depression government play little if any role in monitoring this
iii. Two philosophical schools of thought
c. Classical (Smith)
i. Classical Economics:
1. Body of economic though that emphasizes self interest (supply and demand)
2. If left alone (laissez faire), these principles will tend to guide the economy
towards equilibrium
3. Supply Side Economics is an aspect of Classical thinking = stimulating business
will lead to economic growth
ii. To grow GNP, we must stimulate the C, I, G side
iii. Plays down government
iv. Instead emphasis is on business investment in new productive resources
v. Gilded Age Presidents
vi. Presidents of laissez faire 20s
vii. Associate supply side economics with the neoconservatives- Reagan and the Bushes
d. Keynesian Economics
i. Originate with John Maynard Keynes in the 1930s
ii. Equilibrium can be reached with the addition of government intervention
1. There are times when business cannot and will not spend money so it’s the job
of the government to motivate people to spend money
 2. Fiscal and monetary policies
iii. Direct contrast to classical economics
iv. Keynesian economics believe that there should be an increased government spending
v. To grow the GNP, we must still stimulate that C, G, I
1. To grow GNP in a slow economy, government spending will increase
vi. To slow the rate of GNP growth, G spending will shrink
vii. Government can also raise or lower taxes, affects consumers and business
viii. Great Depression and beyond: FDR, Truman, LBJ, Carter, Clinton