Why Should We Study History, In the First Place?

0:00Welcome to the Economic History of the United States. My name is Dr. Mark Thornton. I'll be your instructor for this course. I want to begin today with a discussion of why we should study history in the first place. Many people and many students consider the study of history to be a boring, antiquated process, something that really isn't quite necessary and is much more of a burden and something that bears very little benefits or utility to them.

0:45What does it have to do with your future? What does it have to do with your job? What does it have to do with your understanding of the world you live in? Or as one observer noted, history is just one damn thing after another. Of course, there is the notion widely held that the reason we study history is so that we don't repeat our mistakes. But if this was really the case, it doesn't seem to be working because, in fact, we do very often repeat our mistakes.

1:30So if we have been studying history, it hasn't worked on that account. And that is why we, in this class, study history from a very particular angle. We seek to achieve and to learn lessons from history by using economic theory. And therefore, this is an economic history of the U.S., not just a history of the economy, of Using Economic Tools such as Supply and Demand, Opportunity Cost, the fact that Incentives Matter, things of that nature in order to understand and derive the lessons that history in general can teach us.

2:16So it's not a business history. We look at all history but from the lens of economic theory. Now some of the main lessons that we're going to look at in this course for example are why did America do so well economically? This area, this nation of the United States has been around basically the beginning of Our settlement starts about 400 years ago and yet we now surpass all other nations around the world basically in terms of economic performance.

3:06We surpass Europe where most of Americans' roots are from. We certainly surpass most of the European economies in terms of economic performance. Countries, regions, nations that have been around for much, much longer. We also have surpassed countries such as Mexico and South America, which went through the basic same process of colonization and development, but are now much worse off economically than is the United States. So we're going to use economic theory, we're going to use the past to try to divine and provide the keys to success.

3:55What are the keys to our current economic success and the success that the nation has achieved over time? Of course, a second set of lessons is we have problems in this country as well. Economic problems and other types of problems. We certainly have a very large national debt for example. This is something that doesn't get discussed or thought about on a day-to-day basis, but it is something that could cause tremendous economic hardship as it has in other nations throughout history. We have problems of war. We have problems of terrorism. The economic history of the United States speaks to both of those issues.

4:48We have more modern problems about immigration and outsourcing to foreign countries, and the past has much to say about issues such as these as well. But, even though this is a history course, as I said before, it's not really a course about history per se. It's not going to be a chronology of economic events. We want to apply basic economic tools in this class to understand our history, to be able to tell successes or failures, or rather whether something specifically contributed to our success or whether it caused a failure or a problem. We can then use those lessons to go forward in time. A good example of all this is the railroads, the railroads of the United States, The Intercontinental Railroads. History, American history, textbooks and books and professors have very much emphasized the importance of railroads in the development of the United States and there's no question that it did play a role here in the United States, but of course railroads are something that can be built in any country and indeed were built

6:18around the globe at approximately the same time. Then there's the issue of subsidies, whether or not that they were necessary. Of course, the building of the Intercontinental Railroads across the United States from the Midwest to California and the West Coast is considered a grand and glorious achievement in American history. But what we found is that By analyzing the intercontinental railroads, the building of these railroads, we found that, first of all, that the railroads did not really contribute anything magical or mystical to economic development in the United States and we also have found that the subsidies provided to some of the intercontinental railroad projects were basically unnecessary and in many cases were actually wasteful in terms of resource allocation and there are other problems with railroads so that today from the economic point of view we would not place as much emphasis on the idea of building railroads across the United States as the American history presentations would have had it in the In the past, there's simply nothing magical or mystical about building railroads.

7:52If railroads could cause prosperity, then we would have a magic elixir for underdeveloped countries that they could simply build railroads and they would achieve prosperity. That simply is not the case in other countries that have built railroads or have built subsidized Railroads or even government produced railroads, they have achieved no significant increases in economic development. So there's a big problem with that notion in American history. Now the railroads, to take that forward and looking at government efforts to promote railroad Railroad Building vs. Private Initiative and Entrepreneurship Building Railroads In today's environment, we have a similar situation with space travel.

8:58In the United States, NASA basically has been controlling space exploration, space travel, space transportation. They basically have a monopoly where the United States is concerned with space travel, space exploration, and so on. And basically I think anybody would have to admit that NASA and its various projects have been or constitute a very large economic mess. They basically have not been able to fulfill any of their targets in terms of their timetables. All of their projects have experienced significant cost overruns and many of the projects that What they've developed have resulted in failure, where the missions are incomplete, where the aircrafts and the crews are killed or destroyed, or where the payloads simply don't get into outer space the way they're supposed to, whether it's the Hubble telescope or the shuttles schedule to get things like satellites and scientific experiments and so on and so forth up into the outer atmosphere. They've had setback after setback after setback. And lo and behold a couple years ago a private individual decided to offer a prize, the X prize, for

10:31anybody who for the private sector could achieve to get up into space on private initiative. And of course that XPRIZE has already been claimed, where someone was able to design a craft, to launch that craft, to get it into the upper atmosphere, to land the craft safely, and then within a very short period of time to be able to refuel and restock and do the same thing over again. So that you have something that is cost effective, you have something that is effective in what and the Reusable, the one-shot deal, the private initiative, a small amount of money, in the relative sense of NASA's multi-billion dollar budget, was able to achieve its goals and its targets, a tangible goal, in a very short period of time, for a very small amount of Money without any apparent loss of life or anything of that nature.

11:41So that's another thing that we're going to be looking at, who wins and who loses the race or the game or the goals or whatever we're looking at in terms of the government or the private sector, who cares for their employees, who's efficient, who's effective, who kills and who saves, those sorts of issues, not just who wins the race but how it's done as well. Now, of course, I'm sure many of you are wondering, well, can we really say that business people or politicians and bureaucrats are always bad or always good? Well, of course not. Business people are not always good or always bad and politicians and bureaucrats are not always good or always bad. But there are some very strong scientific reasons that We're going to present in this course regarding the role that competition and entrepreneurship plays versus that of bureaucracy and government management of resources.

12:44Indeed, one of the focuses in this course is going to be on the entrepreneur. It's going to be on entrepreneurship. And we're going to look at some case studies of the successful entrepreneur in developing in the American Economy. Now, entrepreneurs, there are many, many famous entrepreneurs who have invented things, who have developed businesses, Henry Ford, Bill Gates, and the list is very, very long. But entrepreneurship in a market economy is also something that's pervasive. It's not just the big entrepreneur that gets written up in history books.

13:30It's also the little entrepreneur who is so very necessary in daily life, not to invent the next computer or the next appliance or the next mode of transportation, but somebody who is operating a gas station or a grocery store. Entrepreneurship also seeps down into everyone's life in a market economy. Where are you going to work? What profession are you going to get into? What city are you going to live in? What neighborhood are you going to build your house in? Goals in a Market Economy make entrepreneurial-like decisions on a regular basis, so it's a general feature of the American economy.

14:24We're going to take a very in-depth look at that throughout this course. Now the major goals of this course include, first of all, America's success, you know, why has America succeeded? If we know that, we have a very powerful tool about the present world in which we live in, in our future going forward. Second, America's mistakes. We've made plenty of mistakes in this country. We've gotten ourselves involved in wars. We've had our own civil war. Of course we've had the problem of slavery. Now that's a very big problem, enslaving part of your population. Big Mistakes, The Growth of Government, The Growth of Government is one of the pervasive The features we see in the history of the United States, when the United States is formed, basically the federal government is very small, state government is very small, local government exists but it's not very large and the private sector is enormous, where you have families, You have businesses, you have churches, you have social organizations, things of that

16:02nature make up the massive bulk of what we call society and government. The portion of society that is government is very, very small in the U.S. So, for example, that an American born at the time that the Constitution is formed might go their entire lives without seeing an employee of the federal government outside of somebody that's working for the U.S. Postal Service or maybe somebody who is a military veteran. But other than that, many Americans would never have any cause to see a federal employee

17:16Crisis and your professions. We want to know what caused that. We want to know what the implications of that are. So we're going to look at that in detail and find out why, possibly what can be done about it. In that regard, one of the textbooks in this course is Crisis and Leviathan, Critical Episodes and the Growth of American Government by Robert Higgs. It's It's an economic classic and it teaches a very valuable lesson as well as presenting important historical information about the economic history of the United States. So that's going to be a major goal and outcome of this course.

18:02Another goal is to look at the hidden role of money and banking in the history of the United States. Now when you look at American history, there's very little about money and banking that actually makes it into your standard textbook on American history. But it is indeed very important. Money and banking really play a pivotal role in American history. It should not be too It's not be too surprising that money is more important than historians understand because money isn't the type of tangible event that historians typically link onto.

18:53They have to report on what history was and they have a comparative advantage in reporting on that. Money and banking don't seem to work themselves into the historian's consciousness. The economist on the other hand sees money and banking as really the ultimate key in the good and the bad in the economy and in economic development over time. Let's look at today. If we look at modern America, we look at today, we look at the newspaper today, if we look at the television today and you turn to the news and you turn to the business news, what you'll see is that the stock market and the economy and the business channels are looking at what is the Fed going to do next?

19:52What is the Federal Reserve or the Central Bank of the United States going to do next? What's happening to the money supply? What's happening to the consumer price index? What's happening to interest rates? What's happening to mortgage rates? All of those things are considered really the key factor in today's economic events. So it really shouldn't be surprising that those same issues of money, of banking, of inflation, of prices in the economy and of mortgage rates and construction and everything The History of Money and Banking in the United States The Colonial Era to World War II by Murray N. Rothbard The History of Money and Banking as well as key theoretical insights about money, about banking and about monetary institutions, because it's monetary institutions that have changed so dramatically in the United States.

21:10We start the nation off with a system of basically gold and silver coins with no national federal regulatory structure over money and banking and contrast that today where we don't have gold or silver backing up our money we have paper money and we have a central bank the Federal Reserve that's more or less completely in control of the money supply or inflation it regulates all the banks in a variety of of Different Ways, and so we've really flip-flopped the whole monetary and banking system in the United States. And finally, we're going to highlight some myths about American history to more or less debunk some myths about various episodes in American history. The clarity

22:18The first example here is that World War II got us out of the Great Depression. Now, historically those two items are closely linked. The Great Depression comes. It is followed by World War II, which is followed by a return to prosperity. But there's nothing logical to suggest that World War II got us out of the Great Depression.

23:16This week's topic begins with colonialism. This of course is a time period in the United States from about 1600 to 1776. We are going to be looking at a lot of the historical facts and institutional development and that sort of thing. I title it colonialism because we also want to look at it in a more broader context. We want to get more of a general idea of how colonialism applies to the United States in the past, other nations in the past, and how that, what are the similarities regarding colonialism over time.

24:10What is colonialism? Why was it put in place? Why did people do it in the first place? And why did Americans want to get out of it? And of course, it's not just Americans that wanted to get out of colonialism, a lot of people have wanted to get out of colonialism and indeed have. So you know, the who, the what, the where and how many are important, yes, but we want to answer the questions, why was that there? Why was it replaced? What Were the Implications? In developing this topic of colonialism, one of the things we're going to see is it's going to be a very useful tool for the remainder of this course.

24:57What that tool is, is a basic understanding of three schools of economic thought, or three schools of economic policy. In other words, what is the role of government in the economy and there's going to be three basic approaches where we have either socialism, capitalism or mercantilism. Now socialism is where the government is basically controlling everything. In capitalism, we're going to have a situation where the government is really not involved in the economy to any significant extent where the government is limited and it's limited to non-economic functions such as national defense, a justice system, crime control, things of that nature, but is not involved in production, distribution, deciding on who And who gets what in society, so there's no redistribution like there is in socialism, where the government has the basic functions of defense and property and crime, justice, but also is in charge of production, distribution and consumption.

26:25And with socialism, of course, you also have this general tendency for a socialist economy Money or State to redistribute wealth and goods across society so that there's a more even or level or equal distribution of consumption. And finally there's mercantilism, and mercantilism is actually going to be the most important school of economic thought for us to understand. Modernism was an economic philosophy that dominated Europe during the time in which colonization started and flourished.

27:10So it's going to be an important component to the genesis of the discovery and colonization of the New World. And it's also the philosophy that sort of structured what the Europeans were doing in the New World. So it's going to have a lot to tell us about what was happening and why it was happening in the New World. And with mercantilist economic thought, basically you have a philosophy which is designed to make the state stronger. It's an alignment between government and big business to make themselves both better off so that the state becomes more powerful, that business is there to support the state, and that the state is there to support business.

28:12So that mercantilism proposes that, for example, that gold is wealth and that a primary goal of economic policy should be the accumulation of money, that the government should do everything in its power to use all of its resources in the economy to make it as productive as possible, that production should center on manufacturing rather than agriculture and raw materials, that manufactured goods should be exported and that import should be restricted and should be restricted to raw materials which then the domestic economy turns into manufactured goods.

29:02So we'll be looking at all the tenets of mercantilism and how that develops over time and we'll We'll also be showing how mercantilism really was an important policy theme, not just in Europe but also in the United States. So that we're really going to be introducing all three schools of economic policy in this colonialism period and we'll be then using those as a method of understanding future and their historical development in the economy of the United States.