*Unequal Gains*

by on February 3, 2016 at 9:27 am in Books, Data Source, Economics, History | Permalink

That is the forthcoming book by Peter H. Lindert and Jeffrey G. Williamson, and the subtitle is American Growth and Inequality since 1700.  The sections on recent America, while unobjectionable, are ordinary, but the early coverage of American history is very interesting indeed.  Here is one excerpt:

Why the Old South reversal of fortune?  A benign part of the story seems to have been that the colonial South was still a labor-scarce frontier region with high returns to coastal land producing export crops, like indigo, rice, and tobacco. Its decline after 1774 was echoed in two other frontier cases many decades later.  One was the dramatic relative decline of the West South Central income per capita between 1840 and 1860 — from 60 percent of the U.S. average to just 9.5 percent above it…The other was the loss of the Pacific region’s gold-discovery-generated super-incomes after the 1850s and early 1860s (the Pacific states were 213.3 percent above the US average in 1860, and the mountain states were 30.5 percent above).

I hope to report on other interesting sections of the book soon; it is due out in April.  Again, most business cycles in history have been real business cycles.

1 Ray Lopez February 3, 2016 at 9:56 am

The passage quoted doesn’t make sense ( “from 60 percent of the U.S. average to just 9.5 percent above it”) as a decline.
TC says most business cycles in history have been real business cycles, and I agree, but I recall reading an interesting book by this George Selgin predecessor: https://en.wikipedia.org/wiki/Richard_Timberlake who wrote Monetary Policy in the United States: An Intellectual and Institutional History (1993)

I wonder if S. Sumner quotes him, given that: “However, Timberlake does not reject the gold standard. While many economists blame the gold standard for the monetary collapse, Timberlake cites data that refutes the validity of their complaints. He shows that the Fed Banks and U.S. Treasury had plenty of gold in the 1929–1933 period. Timberlake concludes that government interference with gold standard adjustments caused most of the trouble in the past, producing cycles of money growth and deflation, panic and depression.”

I can’t agree however that money supply really matters, given that it seems money is largely neutral (see Bernanke’s 2002 FAVAR econometrics paper for details).

2 Ray Lopez February 3, 2016 at 10:02 am

Further (I wanted to be first so I forgot to add this), I often wonder how good are the stats for the early 19th century, given that GDP was first accurately measured only in the post 1930s, when a certain economist named Kuznets started measuring this metric (by analogy, S. Sumner wants the USA to measure future expectations of nominal GDP, but it seems there’s no real –pardon the pun–interest in doing this).

How much of 19th century stats–remember that the US population in 1850 was only something like 23 M people, about the size of Greater NYC today (New York metropolitan area)–are outliers and bogus, given the small population?

3 Roy LC February 4, 2016 at 2:03 am

Probably the only really good stats are the portion of imports that paid duty and by far the best gold and silver production in California after 1854 and the opening of the mint in San Francisco. Everything else is very suspect since so much trading in kind occurred and the government had no real reason to collect accurate statistics until much later.

4 Ziel February 3, 2016 at 12:30 pm

Wow that quote is just pathetic, and I’m dumbfounded that Professor Cowen would quote a passage with such a nonsensical statement. Unreal.

5 Asher February 4, 2016 at 4:55 am

I’m pretty sure it means: “from 60 percent of the U.S. average [above it] to just 9.5 percent [of the US average] above it.” It is not the clearest sentence but I’m pretty sure that grammatically you can parse it this way.

6 ziel February 4, 2016 at 8:07 am

It’s a stretch – “x% of Y” is pretty universally meant to mean 0.xY, not 1.xY. And it doesn’t seem plausible that West South Central was 60% richer on a per-capita basis than the rest of the country in 1840 – even if you don’t count slaves. That would be interesting to see if true.

7 Pshrnk February 3, 2016 at 9:57 am


8 anon February 3, 2016 at 10:02 am

In history we have probably had every kind of business cycle imaginable. I am skeptical than many were pure forms, as given by any theory. Certainly in my lifetime real shocks have been accompanied by crowd response and strange echoes.

Is oil that is too cheap a real shock? Regionally yes, but beyond that it might be animal spirits. The later might outweigh the former as the investment community convinces itself that down is up.

9 anon February 3, 2016 at 3:20 pm

I should have thought about that oil example a bit more. Low oil price is the result of poor modeling by oil producers. So we have to back up the clock to find some point of rational expectations in markets …

10 rayward February 3, 2016 at 10:15 am

Lindert and Williamson are economic historians and have researched such matters as public spending, inequality, and economic growth as far back as the ancient world. Historians may look at phenomena and draw different lessons as compared to those more comfortable with economic theory.

11 Roy L February 3, 2016 at 10:20 am

The Pacific’s income level in the period before the railroad and any manufacturing in Northern California is very hard to compare to East. Massive quanties of gold were pulled out in the 1848-60 period but price levels were insane enough to promote cattle drives from places like Arkansas to California and massive amounts of gold were physically shipped East. Even in 1860 food was being imported to California, there was no coal mining, mercury necessary for the mines was still coming from Mexico and South America at great expense and basic mining equipment still was being successfully imported from vast distances in a time when shipping cost was hardly negligible.

As to the “Old South” the massive loss of fertility from cotton monocropping was dealt with by the mass movement of capital and population, elite and slave into the West. I assume to the “West South Central” if this means the Mississippi valley and Texas. As to relative decline where does this come from? Northeastern manufacturing, the massive growth in the midwest from Illinois onto the great plains that was shifting the center of the country far to the West, or was it all that gold, and later silver, pouring out of the mines not just in the Far West but by 1859 in places like Colorado and Idaho.

I don’t have better statistics, but 12 million ounces of gold were produced in California by 1855, and in 1850 the whole world had around 10,000 tonnes of total production, much of it not being in circulation.

This economy was completely different and these statistics are not comparable.

12 Roy LC February 3, 2016 at 10:26 am

By total production I mean the total humans had pulled from the earth before the chalcolithic to 1850. About 5000 before 1500 and another 5000 tonnes between 1500 and 1850. In California alone they would pull another 350 tonnes just in hydraulic mining before it was effectively banned in 1880.

13 Ray Lopez February 3, 2016 at 12:47 pm

Nice stats, I’ve saved them on my log file for future reference. You’ll note, if you’re a monetarist, that the USA adopted to both rising and falling prices during the gold era of the 19th century, which is another proof that money is neutral and monetarism, as TC implies, is more or less useless (3.2% to 13.2%, out of 100%, on a range of real variables, as Ben Bernanke shows in his 2002 FAVAR paper, i.e., next to nothing albeit statistically significant).

14 Roy LC February 4, 2016 at 1:58 am

I can only vouch for the California statistics, since I read a USGS report only a year ago and use them in class, but they are short by several million ounces. They don’t count traditional placers after 1855, and the hydraulic stats only include large scale operations that were banned in 1880. Also they are only for California and don’t include silver. The silver mines in Nevada at Comstock produced a couple million ounces purely as byproduct of silver mining in the 1860s. You can probably find much better numbers just by trolling through old reports online.

15 PD Shaw February 3, 2016 at 1:49 pm

By “West South Central,” I believe he means Louisiana, Arkansas, Texas and Oklahoma, which is the US Census Bureau designation. He also refers to the “South Atlantic” states from Florida to Delaware, leaving the “East South Central” as Kentucky, Tennessee, Alabama and Mississippi.

Economic activity in WSC had to have been dominated by New Orleans in 1840, since Texas didn’t join the union until after 1845. Arkansas became a state in 1836 and Oklahoma in 1907. Thus slow growth from 1840 to 1860 in an expanding frontier territory is pretty striking. New Orleans was a boom town from 1815-1837, serving as a trade hub for the entire Mississippi Valley.

16 Roy LC February 4, 2016 at 1:43 am

Slow growth makes plenty of sense if you keep in mind that lack of infrastructure development had made New aorleans and the lower reach of the Mississippi incredibly rich in the first forty years of the 19th century, but then it stopped being the hub of all trade in the West.

As to the end of the period the railroad didn’t go very far into the hinterland by 1860, so Texas products were very hard to market, that same railroads that hadn’t made it far enough into Texas had already captured much of New Orleans river trade and sent in directly east, Chicago andSt. Louis rose and New Orleans began it ls long retreat. The decline in cotton prices in the 1850s took their toll as well and the boom on the Red River after Shreve cleared the Great Raft in the 1830s was long over by 1850.

17 spencer February 3, 2016 at 10:53 am

Does he talk about the condition of the land?

The export crops are often very rough on the land and you can not continue raising a crop like tobacco on the same plot year after year without very heavy applications of fertilizer.

Very early in their history Virginia was imposing very strict rules on tobacco farming to preserve the quality of the crop — using manure to fertilize the land caused the tobacco to have a bad taste.

I was of the opinion that by the time of the revolution states like Virginia and South Carolina saw slaves as their primary export to the southern frontier rather than as labor to produce agricultural exports.

18 Cooper February 3, 2016 at 1:14 pm

Not just the condition of the land but the changing relative value of the crops.

The tobacco market in the 1800s stagnated while the cotton market grew rapidly. Moreover, the price of cotton fell from 18 cents to 13 cents per bale from 1820 to 1850. If Virginia’s cotton production didn’t increase much during this period, its economy would decline in relative terms.


19 JonFraz February 3, 2016 at 1:33 pm

Not quite at the time of the Revolution ,when the frontier was not yet open and cotton was not a primary cash crop yet. But by the early 19th century, when westward movement was in full swing and cotton was on its way to its throne– yes.

20 Heorogar February 3, 2016 at 11:23 am

“Why the Old South reversal of fortune?” There is no short, simple answer. Let us consider that sectional reversals of fortune ultimately resulted in secession and civil war.

As early as the first Presidency of Washington, Treasury Secretary Hamilton, et al pushed a diversified economy and encouraged manufacturing. Critics said that was a conspiracy against the agrarian, slave states. Initially, tariffs were meant for revenue (implied power in the Constitution), later they were used as protective tariffs to advance nascent (Northern) industries at the expense of the Old South. With the invention of the cotton gin, cotton became the main cash generator and reason for the continuation of slavery. The North developed more on the nonagarian/industrial line. Ergo, at the outset of the Civil War the huge advantages enjoyed by the North in agriculture, heavy industry, natural resources, manpower, finance, transportation/RR’s/shipping, etc. .

21 prior_test February 3, 2016 at 12:16 pm

‘Again, most business cycles in history have been real business cycles.’

Not to mention that most things in history have been real things.

22 Mick February 3, 2016 at 12:38 pm

Why focus the income inequality debate on individual income or income by gender? I suspect the Republican party would be willing to address income inequality on a regional basis. Would the left agree to double subsidization of the flyover states by the coasts in pursuance of income inequality? And for that matter, will New York City finally share some of its broadway plays with the rest of the country? The 96% are tired of NYC having so much more culture than the rest of us – it’s time for greedy liberals to share.

23 Nick February 3, 2016 at 5:16 pm

One of our hosts former colleagues, David Schleicher in his paper City Unplanning, put it more like places such as NYC should do more to increase the supply of housing so that the rest of can more easily afford to live there. Specifically through looser local land use regulations.
To pull a couple of quotes “From 1880 to 1980, average U.S. state incomes continuously converged: ‘one of the most striking relationships in modern macroeconomics.’ Population also flowed from poor states to rich ones. Since 1980, however, convergence in incomes has slowed substantially, and population flows to rich states have stopped.” “Silicon Valley, our fastest growing modern boomtown, illustrates this phenomenon perfectly. During the first dot-com boom in the late 1990s, Silicon Valley actually lost residents…. Further, between 2000 and 2009, the Valley only gained 100,000 residents and actually lost 250,000 domestic residents (immigrants made up the balance). This is despite the fact that, in 2009, the average wage in Silicon Valley was $85,000, roughly $35,000 above the national median wage. By comparison, the median wage in Phoenix was about sixty percent of the Silicon Valley average, but Phoenix gained over half-a-million Americans between 2000 and 2009.”

24 charlies February 3, 2016 at 1:28 pm

If you were to take a snapshot of America in 1705 and one in 2015, I don’t think the biggest difference that stood out would be “unequal” gains.

25 George Selgin February 3, 2016 at 2:15 pm

While it is certainly true that real shocks have historically been very important–and all the more so in past times when there was far less economic diversity, so that a shock to one sector could have much greater consequences–it is rather misleading to speak of these real ups and downs as constituting business “cycles.” That term connotes inherently self-reversing movements, or at least unsustainable ones, of the sort that are most likely to be caused by monetary innovations. It is for owing to this understanding, and not because they have been too dull to notice that harvest failures, war, and disease on one hand and technological breakthroughs on the other had a greater overall bearing on output fluctuations than monetary developments tended to have, that business cycle theorists tended until relatively recent times to give pride of place to monetary theories of the cycle. Or rather, it was owing to this reason and the fat that monetary “cycles” were regarded as being relatively avoidable, at least in principle.

The modern development of “real business cycle” theories owes nothing to the discovery that economic fluctuations (to use that term in the loose sense meaning ups or downs, as opposed to ups-and-downs) often have real sources. Who ever denied it? Instead, it grew out of New Classical economics, with its insistence on continuously market clearing prices, and consequent monetary neutrality implications. It was because they had worked their way to the “money doesn’t matter” corner, on the basis of strong theoretical priors, that New Classical economists felt compelled to insist that real shocks must account, not only for most variations in output and employment, but for all of them, including the most blatantly “cyclical.” If you want a case of apriorism run amok, forget the Austrians: here is the most flagrant one of all.

26 Too Late February 3, 2016 at 2:51 pm

What’s the distinction between ” ups or downs” and “ups-and-downs”? The latter refers to a cycle while the former refers to random positive/negative shocks?

27 George Selgin February 3, 2016 at 3:00 pm

That was the intended meaning, Too Late. It is ultimately the doctrine that nominal price adjustments will eventually restore a former real equilibrium following a nominal money shock that is at play here. There is nothing quite like it w.r.t. technology innovations, war, disease, etc.

28 Ray Lopez February 4, 2016 at 4:57 am

Nice! George Selgin, GMU grad, schooling! But you have to admit that monetarism is very difficult to prove. Again the Bernanke 2002 FAVAR paper comes to mind. Surely there’s some effect to money illusion and there’s some price / wage stickiness, but IMO not enough to build a coherent theory around.

29 Tom Warner February 3, 2016 at 7:04 pm

Permanent relative declines of regions’ productivity over long time frames are called secular change. Such things are obviously not cyclical.

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