Economic Tools for Understanding the War

0:00Okay, let's get started with this material. As you said, the introduction is quite extensive. It's quite important. It's not something that can be overlooked, but we'll have to move through it fairly quickly. We're at the point right now where we're looking at the economics we need to know in order to basically make sense of the rest of the book. And as George says, you can make sense of just about any kind of economic argument based on these simple concepts. So when the editor of this project talked to Bob Eeklin and I about it, he said, you know, you're going to need some basic economics in here so that people can follow along.

0:50Well, it turns out that my co-author, Bob Eakland, has written a textbook in economics, and I think he's in his seventh edition, so it's something he's extremely good at. And the reviews of the book so far have all mentioned the fact that the economics presented in here is one of the best presentations that the reviewers have ever seen. And so we thought that people would just skip over this and go right to the meat of the The first concept is actually three concepts, opportunity, cost, specialization and trade. Human beings have benefited from about 10,000 years of increasing growth and economic development because of specialization and trade. We've gone from completely independent hunter-gatherer types to becoming sophisticated specialists and traders. Opportunity cost, and I'll define I'll explain this in just a second, but opportunity cost is the proper basis for specialization and trade.

2:16In other words, if you're doing things according to the opportunity cost of production, then your specialization and your trading will benefit you and you'll get more prosperous Research over time, whereas exploiters of resources tend to fail because they're not basing their decisions on real opportunity costs. They're just exploiting the resources. They're just exploiting their workforce or they're just exploiting the natural resources. A good example of this is on Easter Island. Remember, you might have seen the documentaries on Easter Island. It's a small island in the Pacific off of South America, and there's these giant stone carvings of heads, and there's hundreds and hundreds of these heads.

3:06It's just remarkable that primitive economies and societies could produce them, but what happened to them in the process was that they used up all of the trees on the island in In order to produce all of those giant stones, or sculptures, or whatever you want to call them, and in essence, they destroyed their economy in the process. So they exploited their timber resources in order to engage in this idolatry, and it really cost them, because nobody was considering, hey, what are we going to use these trees for? We need them for fire, we need them for housing, we need them for, in some cases, food, and so exploiters like that always fail, but individual property owners who must take account of the opportunity cost of their resources can efficiently calculate and use those resources effectively.

4:08Opportunity cost is the highest value you give up when you make a choice. So when we look at the Civil War and you look at a resource like iron or steel, in this case it was iron, you can use iron for railroads or nails, but if you use them for those resources you wouldn't have as much for things like guns and bullets. You can use fabric for uniforms or you can also use it for dresses and clothing for the civilian population. In terms of labor, you can have people join the army or work on the farms and possibly stay in a militia or something like that.

4:59So there's alternative uses of all the resources both north and south. How each side puts those resources to work is a critical question. It's not just how much or where or how often, but how those resources are assigned. Are they going to be assigned on the basis of opportunity cost or not? If you're not doing it on the And on the basis of opportunity cost, you're going to end up wasting resources. And if you're wasting resources, at a critical point in time, like a war, chances are you're going to lose.

5:46As a matter of fact, one of the ways of very simply putting the general argument embedded in this book is that we feel that it was Confederate government policy that caused a misallocation of resources on the part of the South made them so inefficient and wasteful that ultimately that determined the outcome of the war. So in the first class I mentioned, you know, how did the Union do it? Most people didn't give them much odds that the Union could actually defeat the South.

6:35I mean, certainly they could stay independent, there was no problem doing that. But actually, subduing the South was pretty much out of the question. And again, so we feel that it was really Confederate policy defeating the interest of Southerners in terms of their secession and their desire to set up an independent nation and all the rest.

7:09A couple examples, drafting soldiers. When you're drafting soldiers, you're eliminating opportunity costs from the picture. You're not saying, we'll offer a hundred dollars for someone to become a soldier today, to fight in our army, so that anybody who feels like a hundred dollars is worth it can join up and everybody who thinks, you know, I can If you want to make more money than that, shooing horses, or making holsters, or growing cotton, or whatever it happens to be. So drafting soldiers is not allocating resources on the basis of opportunity cost.

7:58And when you're drafting soldiers, you tend to use too many of them. If a government can just come in and say, I need 100,000 soldiers, put all the names of all 18-year-old males in a hat, and the first 100,000 of them are going in the army. That's a draft. But the politicians or Congress could say, 200,000, 300,000. The amount they're paying doesn't have to go up to encourage more people in. They can offer any amount of money or no amount of money at all. So drafting soldiers tends to mean too many soldiers can be allocated to the army and every soldier allocated to the army means one less person back on the farm growing food, One less person raising cattle, raising horses, grinding wheat or whatever it happens to be.

9:01Every time you take a soldier out, you make the domestic economy less productive. And also, there's a general tendency in history, you guys may have some examples of this, where drafted armies, where generals will tend to use too many soldiers and they'll be willing going to see the soldiers rush headlong into battle into extreme risk with knowing that many, many of them are going to die because they can always simply draft some more. So drafting soldiers seems like a straightforward thing, but there's a big cost to it on the The South, and to a lesser extent the North, also confiscated resources, or paid below market prices, so the troop would come into somebody's farm and confiscate food, confiscate feed for their horses, and pay a set amount, which would be below the market price for those goods.

10:08and then of course if you're confiscating resources, you'd be using too many. You would be wasting resources. You can just think of yourself, if you had grand political control over something and you could just go into Walmart with the government backing you up and saying, I'm hereby confiscating four tires and an oil change. If you had that power to go into any store and to confiscate resources, you would probably use too many. And finally, the example of inflation. Inflation also is really ignoring opportunity cost and reality, in a sense. Inflation is where the government simply prints up money to spend on goods and services that it wants. Now, if you're going to spend money on goods and services, you're probably going to waste a lot of resources as well. You're probably going to waste a lot of resources as well. You're probably going to waste a lot of resources as well.

11:08Now if government has the ability to just print up money rather than having to go to the taxpayer and say we need to take some of your resources and we hope you vote for us again, politicians don't like to do that. With inflation government and the military can become too big or much bigger than it otherwise would. lead to a lot of waste and it can zap resources out of the private sector. So opportunity cost is very, very important. The division of labor, we don't need to go into this at great length. The specialization in division of labor basically means that people divide up the work of producing goods. They specialize in certain and then they trade what they produce with other people. The grand effect of this is like getting extra wealth. Imagine a country like Canada, for example, where it's easy to grow wheat, but it's very difficult to grow nutmeg. To grow nutmeg in Canada, you have to build giant and so on. However, on the Caribbean island of Grenada, it's very difficult to grow wheat, effectively, yet it's very easy to grow nutmeg. It grows by itself, essentially. Now, would it make sense for Canada to have to produce its own wheat and nutmeg, while Grenada produces wheat and nutmeg?

12:55Now, would it make sense for Canada to have to produce its own wheat and nutmeg, while Grenada produces its own wheat and its own nutmeg? Well, allowing the two countries to specialize and then allowing them to trade means that Canada can produce all of Canada's wheat, all of Grenada's wheat, and then some. While Grenada can produce all of its nutmeg, all of Canada's nutmeg and then some. So it's like getting free additional resources which make you grow wealthier.

13:41Supply and demand. It says it all. The laws of supply and demand basically doesn't tell us what economizing behavior is all about. The Law of Demand simply states that as prices rise we reduce our consumption and at lower prices we increase our consumption of a particular product. And the Law of Supply is just the opposite. If prices rise in a in the Marketplace, suppliers will be willing to provide more of the product into the Marketplace. But as prices fall, suppliers don't have as great of an incentive to supply, and as a result they'll cut back their production and what they're willing to sell into the Marketplace.

14:40Now, there's also in this section a little discussion of substitutes and complements, as well as Relative Prices. I want you to have plenty of opportunity to read that section over. When we come to the issue of relative prices, I'm going to go into an in-depth discussion of it, so I'm going to leave that issue aside because it's a little complex to go from beginning to end at this point in time. Likewise, the quantity theory of money is simply about inflation. and the simple quantity theory of money is that as more money comes into an economy, the prices of goods and services rise in general and if there's a deflation of the quantity of money, prices in the economy fall. This is a natural, equilibrating mechanism. Most of the time, we don't even really I don't really recognize it going on because there's not as much change in money and prices, but in war, when both sides are inflating like crazy, this becomes a very important issue, and it also becomes more complex.

16:05And finally, in our toolbox, we have the concept of rent seeking and interest groups. This is something that's almost devoid in a lot of civil war history. You know, in wartime, you're not supposed to break into factions. You're supposed to be united, but the real use of this tool is in looking at why we split up north and south in the first place. Rent seeking sounds like a funny term, the term most often used for the price you pay for an apartment, right? Well, this is a different definition of rent and basically what we're talking about here is using the political process of a way of obtaining profits or wealth basically using the political process to get your hands on some money in some form or fashion and here the issues of tariff protectionism of government contracts and public works projects or even tax reform come into play.

17:31Interest groups is a little more understandable in the modern sense. Interest groups are simply or usually organizations with well-defined economic interests. The steel producers, for example, are well-defined economic interests. All steel producers, According to the law of supply, like higher prices and they don't like lower prices. So they're all united in that. And anything that will raise steel prices is in all of their interest. So they can work together voluntarily, but what they're doing is working the political process to drive prices higher.

18:17Textile owners and workers, postal workers, public school teachers, There's an endless list of interest groups. Lobbying groups in Washington DC, for example, are all interest groups. Gun owners, rights, environmentalism, all sorts of well-defined economic interests. An important point about this particular section is that politicians are rational. Politicians are rational. Voters are rational.

19:04And we're going to find, especially in this opening chapter, chapter one, that instead of being an irrational, illogical, inevitable catastrophe, which the Civil War was a catastrophe, we can see it as a rational series of cause and effect events, where politicians were making decisions in a unique political environment, in fact this is the number one thing that at the end of the introduction we list ten things that we hope the reader learns. And the first thing is that the Civil War was not an unexplainable event, that we can know some very specific things about it. However, what this also implies is that democracy may not be all it's cracked up for.

20:09Democracy in this case was obviously not up to the task of keeping the peace. And so in the modern context, at least what we hear on the television, it would seem as if democracy is almost the paramount virtue of society that democracy is almost a religious goal of society but far from that sort of utopian view of democracy what we really find is that democracy is a very messy thing The second point that we hope you learn is that economic knowledge is useful for understanding the Civil War.

21:07The third point is that ideology is also vital to understanding history, as well as those economic interests that are behind ideology. Fourth, the grand battles, the heroism and the military tactics of the war are all the more entertaining aspects of the Civil War. Those are where the vast bulk of the books have been written and where the vast number of TV shows and movies have been done about those particular aspects of the war. What we see, and what we want you to learn, is that the key thing was resource allocation. Resource allocation was the key.

21:55In this regard, you have to rank Gone with the Wind up pretty high on the ladder, in terms of the fictional component of Civil War history, in that there was a lot of economic content. There was a lot of the politics going on behind the scenes. and there was a great deal of the home front at issue in that particular movie and book. Fifth, the war at sea was a key to the outcome of the war, the blockade was a key to the Union victory and that the land war was essentially a stalemate. There was a lot of entertainment Value, along with the catastrophe that it was, but it really didn't decide anything.

22:46Six, the Confederates, you're going to see, ultimately help make the Union blockade effective. Seven, states' rights and limited government in the South was their particular perspective for Ideology, and yet what we're going to find that when it came to the war, they tended to fight the war with a big government approach, a heavy-handed approach, where the government would actually set up all the various industries, control all the various industries and trade, and so they took a very unusual approach when you compare their ideology to how they actually 8. North and South, people and politicians blamed inflation upon the entrepreneur, upon business, upon the market economy.

23:45What we're going to show is that inflation or higher prices was the result of the government printing press. Number nine, we're going to see so much of this that it's, just simply put, war is a bad thing. Again, it may have a great deal of entertainment value for modern Americans, but war is a very bad thing for the economy, for the population, and for the least advantaged groups in society. And then in number 10, in the introduction, we list five sort of quirky things that you're going to learn in the book.

24:31Number one, who coined the phrase, Yankee ingenuity? Number two, when did the New Deal begin? Number three, who was the Wizard of Oz? 4. How did the South get nicknamed Dixie? 5. What did the real-life Rhett Butler give a damn about?

25:18goes on for so long. In other words, once you're in it, all the problems go on for a long time. First of all... You mean after the war is over? No, no. During the war? After the war starts, the problems come up. Not in twos and threes, but in battalions. The point is that they don't, a lot of times, they're pragmatic and they leave some problems aside that they should pay attention to and they take up other problems that aren't as important as the ones, and so they've got to appear to be very wise and very, you know...

26:09One interesting thing about Sherman in terms of military tactics is that the American Civil War is one of the great watersheds in terms of how wars are actually conducted. That changes in the 19th century to a large extent. War was typically fought one army versus one army. With Sherman, we had the advent of the all-out war on the American continent. This is something that he really helped develop himself. He was the president of Louisiana. He was the president of the United States of America. He was the president of the United States of America.

27:00at Louisiana State University right before the war. But in his early military career, he led the war against the Seminole Indians in Florida. And just like all the other American generals who tried before him, he could not beat the Seminole Indians. And as a matter of fact, he was losing to the Seminole Indians, and you know, those American forts would get cut off, and their supply trains would be harassed. And so Sherman, The Federal Reserve decided that he was going to subdue the Seminoles, and so he started killing women and children, started burning houses and crops, and basically ignoring the Seminole warriors or their army, and just simply killing women and children, destroying crops, destroying water systems and things of that nature, and this is something that he sort of carries over into the Civil War in the sense of fallout war, you rush your troops against all of your opponents, whether they're civilian or military, and you just, you know, of course, Shermans marched to the sea, where he basically

28:13burned, destroyed, stole a wide swath of resources from basically an undefended civilian population. And then that gets carried on after the war in terms of trying to exterminate and move to remove the American Indians off of any perceived piece of valuable land. So Sherman was right, war is hell, especially once he got his hands on it. It really became a pretty dark issue. In his defense of Sherman, he didn't like fighting. His casualties, all the way from Chattanooga to Savannah, were fewer than Grant plus Ludwig's. That's true.

28:59He had to maneuver. Yes, he was a very good maneuverer, and every time he did, the Southern Army on that particular campaign just pulled back. They kept on pulling back. I'm still sort of puzzled by all that, and I think that he was very adversely affected by what he was doing. I mean, he complained to Grant that it had driven him mad in their early days together, but he always managed to pull himself together. in fact both of them relied on each other to keep their their heads together so to speak Sherman with from what I've read or been told sort of mental instability and then Grant with his with his famous drinking problems was a real Well, the Southern, the South did not intend, they didn't have a, what do you call it, destroy everything. He destroyed, in other words, he said that the only way you're going to end the war is to cut the enemy down and destroy their resources.

30:18and of course the Russians did that to the Germans too in World War II, a Scorch-Gerge policy. But the difference between like the southern armed forces in Germany, he always had more soldiers coming in from the north. Well they, once they expanded their soldiers, they had And so he could afford to be a long way from his base because he lived off the country.

31:17So, you know, at that point he was, you know, dependent as other generals are in terms of their supplies and their backups and things of that nature. Well, one thing about the South, when they won a battle or when they brought some territory, they took whatever was there, like, for instance, the story of Gettysburg. These Southerners, the South came in from the North, and the North came in from the South, and they were on, I remember reading one line, the Southerners were on the Emmitsburg Pike, they were looking for shoes. These guys were practically, you know, walking around there. When they came across a sizable town, they just went in there and took whatever they wanted.

32:08Well, but that's not uncommon for armies to do that kind of thing. And what we're going to find out is the answer to the question, why didn't they have any shoes? You know, that's the sort of the curious thing for a country that has a lot of soldiers.

32:38uh... or for a group of states at least uh... to not have shoes uh... is quite remarkable. Well, in Europe as well. uh... okay uh... let me delve a little bit into chapter one before we get to the break time here uh... and this is chapter one where we're looking at the causes the onset of the civil war uh... there were a lot of questions last week about you know what was the economy like prior to the start of the war and this chapter really provides some of the detail not just the history but the history in the context of the forces that Causes Civil War.

33:40Now as I mentioned in last week's class that today slavery is considered the cause of the war. And I mentioned the Fogel and Engerman thesis, Robert Fogel and Stanley Engerman's thesis which they wrote in their book Time on the Cross that sort of lifted the issue of slavery into the forefront. They argued that slavery was very profitable and there was basically no end in sight for slavery, that if the Civil War hadn't come that slavery would have persisted for an extremely long period of time. There's also the simple fact of the matter is that slavery was one of the few things that most Americans remember about this time period. We don't have relatives who directly knew relatives who were there at the time, or at least a lot of the population no longer has that connection.

34:46And so our memory of what things were like, of course, we don't have any direct memory of it. We don't have any family passed down, or that information isn't passed down as much, but we all have the idea through school and history books that slavery was definitely there before hand and afterwards it wasn't, okay? So it's in that sense. Mark, a little earlier you mentioned time on the cross, how can they present that argument when a dozen countries got rid of slavery before the states got involved in the Civil War Left a half a dozen to get rid of slavery after the war. All the new world got rid of slavery except the states, where they've killed a bunch of people.

35:36Yeah, it's, and they actually sidestep the issue, but they include, and as a matter of fact, that's my source for that information, is they include a list of places in the Western Hemisphere. The vast majority have got rid of slavery before the Civil War and then a few after the Civil War. Almost all of them were peaceful. There were a variety of different schemes over which it could have been brought about that were used with greater or less degrees of success. But I think it demonstrates that Fogle and Engerman's thesis is not all that sound.

36:23And then the Collier and Hoffler evidence that I presented, where they looked at all civil wars and they looked at what were the factors that were in common with civil wars and issues of race and ethnicity never seemed to be the real defining key feature. It was always economic interest that one group was trying to capture a very valuable resource or split off so that they could keep it to themselves. Our view of what caused the Civil War is that everything or at least many things need to be considered like ideology, the economy, and government.

37:11And another point I made last week was that before the Civil War and after the Civil War, all of these things changed dramatically. Ideologically, Americans changed, their economy changed and their government changed in a very significant way. Now the Beard thesis of history, Charles and Mary Beard, very famous historians, they argue that economic forces cause history. And so their textbook explains American history as a series of economic forces that lead to events. It's kind of a Marxist view of history.

37:57Our view is again we have multiple issues, economic forces are important, but politics and interests really are the key. and ideology is tied up in that as well. So the first thing we look at is antebellum politics. And what you'll see in this chapter and in the section on antebellum politics is there's two trends or two major groups of politicians. On the one hand we have the Federalists, like Alexander Hamilton, which is followed by the Whigs and Henry Clay, important leader, Henry Clay in Congress, and then finally we have the Republican Party emerging under the leadership of Abraham Lincoln.

38:57And I briefly explained that this group, the Federalists, the Whigs and the Republicans had some common threads, the threads of mercantilism and protectionism with regard to economic policies. Their desire to see an expansion of public works. Public works are things like building forts or building canals or the government building railroads or whatever it happens to be. Building buildings and building structures and building infrastructure when the government does it, is called public works. They like the idea of national banks, and these parties were behind the first and second national banks in the United States, and in general they like big government. The other side of the fence, we see the anti-federalists of the constitutional era, like Patrick Henry, the democratic republicans, like Thomas Jefferson, And then ultimately the Democrats or the Democratic Party, for example, Andrew Jackson.

40:06And this group was more free market, they wanted limited government where, you know, the government had a contract with the people that said it could do this, this and this, but couldn't do this, this and this. So it was limited in size, also limited in scope. They supported free trade and sound money, and the Anti-Federalists, Democratic Republicans and Democrats, they fought the first and second national bank of the United States. They fought the idea of... Jackson against the bank, he fought the bank for a year, I don't think he won that fight, did he? Ultimately, yes. The bank came down and I think basically with the second bank, its charter ran up out of time and Congress could not agree on recharging it.

41:00But these guys on this side, they didn't like the national banks. They didn't even like, some of them didn't even like banks, period. They didn't like paper money. They didn't like banks. They believed in gold and silver coins. These groups, these political beliefs, were not split along state borders. There were democrats in Whigs, North and South. There were strong, hardcore, anti-Federalists in the United States. Democrats and Whigs, North and South. There were strong, hardcore, anti-Federalist Democrats in New York and New Hampshire. And then there were strong advocates of Whigs, the Whig Party and the Republican Party in the South. John C. Calhoun is a real good case in point as As a young man, as a young politician, he supported the Whig view of a strong national government who did all this stuff, but by the end of his political career, he had completely switched his opinion and thought that a big national government, a strong national government was a threat, and so his political views changed, as is often the case with politicians.

42:27Did the Whigs go over to the Republican Party and proportionally more Whigs went into the Republican Party than the Democrats?

42:57At that point, they no longer spoke of each other in terms of political parties, and the Confederate government becomes more and more, not Republican, but more and more wiggish as time goes on. A lot of the Democrats would often go out and get themselves killed. Okay, so, it's not a north and south thing to begin with, but what we've got going on here is a western movement. This economy is growing, this economy is moving west, the population is increasing. The issue of slavery in the territories is a very big issue, and the consequence of all this is there's a big problem here.

43:47And initially the South really holds, is politically dominant. They control the Supreme Court, they had most of the presidents, you know, they had an advantage in the Senate. So they had political control. But then, in the antebellum period, the land issue becomes very important. The US has got all this land, the Louisiana Purchase, the Northwest Territory and of course the amount of land that the US controls grows significantly in the antebellum period and the whole issue is should they sell it or should they just give it away to people for free? You can imagine, just imagine yourself owning the Louisiana Territory, bigger than most European countries, vast natural resources of fertile, well watered agricultural land, just waiting to put a seed in it, and Congress gets to decide whether they're going to sell it or give it away for free.

44:58The Democrats supported selling it. They wanted that revenue there so tariffs could stay low and they wanted government to stay small. They wanted to sell the land where other people wanted the land to be given away for free. Free. And there was a free soil party, mostly in the North, that advocated giving away free land. I thought that free soil was no slavery, wasn't it? They were mostly abolitionists, but they were, free soil was their main deal. That was the main attraction.

45:48What, would they stake out, I mean, each guy put a stake out, or was it the railroads that had all this land that... No, Ozzie, a lot of that comes after the Civil War. You know, the intercontinental railroads and those land grants, there were some of that going on before the Civil War. I think the mobile to Chicago Railroad was built with federal land, but there was a free soil party there, there was running candidates and attracting a lot of votes, and a lot of immigrant votes, and immigration was increasing, and the whole idea is embodied in the Homestead Act, which was passed by the Republican Party in 1862, which said, You go out there, and you rope off 160 acres, and you get it for free.

46:52Okay, we've got immigration as an issue. Democrats were split on this issue. They basically supported free immigration. However, there was a lot of people who wanted immigration restricted. They thought that immigrants were driving down wages, which they were. And as a result of this problem in society, the Know-Nothing Party developed. This was a party sort of below the radar map, but they ran candidates, they had platforms. The idea was that if anybody asked you what your party supported, you said, I don't know nothing about it. And so the immigration issue was important. Slavery, of course, we also see a splitting and fracturing of Americans along political lines.

47:46The Democrats, North and South, said it should be decided on the matter of states' rights. But abolitionist groups, particularly in the North and Northeast, were very prominent and they wanted to do away with it. with it, and they wanted federal intervention. As a matter of fact, some of them actually argued for the northern states to secede from the southern states because of slavery in the south. Even alcohol, there was a minor group of prohibitionists. Alcohol prohibition was an important issue in the 1850s. Several cities and states prohibited the sale of alcohol Well, you know, Mark, considering the way our ancestors drank, it's no wonder there was a Prohibition Party. Because they were really terrible boosters.

49:01He points out that Americans, particularly in the late 18th century, early 19th century, consumed a tremendous amount of alcohol, and that they would drink alcohol products, breakfast, lunch, dinner, they would be drinking on break time, in mid-morning and mid-afternoon, and that they were basically always consuming alcohol products using alcohol and baked goods, and all the rest. They didn't get drunk. They never were drunk. It was more of a European thing where you just drink. They would use it as a beverage to purify water and all sorts of things.

49:48But as you get later into the antebellum period, there's more of this rambunctiousness and drunkardness which helps drive the prohibitionist movement. ultimately faltered, but there was a political movement for prohibitionists. Now basically what happens in the 1850s is that the Free Soil Party, the Know-Nothing Party, the abolitionists, the prohibitionists, and the Whigs all join together to form the Republican Party. So it's not just the Whigs, it's the Whigs and all these other splinter groups that really coalesce. They come together and they form what is otherwise a very fairly significant, especially in the northern states, where the Republicans gain political control in the election of 1860.

50:59Yes, it's Charles and Mary Beard. B-E-A-R-D. And they have at least a couple. What's the name of the book? Is it in your notes? No, it's not in my notes. Oh yeah, they were primarily historians, and very famous contributions, and like I said, there's an underlying Marxism built into it, even though they're saying economic forces are doing it, now they have one book that's something to the effect of economic forces in American history, where they detail the whole thing and the another one is the economic interpretation of the Constitution where they take every provision in the Constitution they say now why did they put that in there and why did they put this in there type of thing yes yes exactly early 1900s absolutely Absolutely, because his book was the book of American history.

52:25It was, you know, considered the one and only. Now, in some sense, that book itself has been highly criticized in many ways. But I'm not sure to the extent that its general point of view has really shrunk away from, well, it's still referenced and talked about quite a bit. It's still something that any graduate student in history, in American history, would certainly should be familiar with because discussions of American history, that's going to be included in any discussion of American history or the interpretation of the Constitution.

53:15I get to ask you, is Samuelson's textbook still used in economics? I think it's, yes it is. It's still in production. Is it really popular? No, it's not nearly as popular. It was once... Most of it. Most I was my age I think had it. Yeah, really it's nice stuff to read. It's a good book, you know. I remember him saying that there was... I remember, of course annually it was changed, and when we were buying what the KGB was giving us about the Russian economy back in the 50's, 60's, 56's, 57's I guess, and he would buy into that very heavily.

54:10I've always been attracted to this thing about economics as being the fundamental to conflict and when you look at the Civil War, I don't think you can question that to others, but with the New Englanders and certain people that were highly vocal there, I had no question that they had strong law convictions against slavery, but you had people in the South that had the same feelings, and it was difficult for them, I think, to print it and make it live in the newspapers, though, as they were good in the North, I guess, and the Northeast.

55:05But there are many examples, many people have strong feelings in the south about the morality of slavery, and I think in this book that we concluded earlier, I think we concluded from outside, I have a book, it was an avoidance that the problem could have been resolved, I guess maybe an analogy would be Brazil, where it's a country the same size as ours, and they have even more money to understand it, and they produce cotton and those things, and now this came after our war, and our war could perhaps have given it to some of us, but I don't think it could have been resolved.

55:55I think one of the rare causes, other than economic issues, were just the leadership that we had, the hotheads I call them, together in the south and over to the north, and none of the democracy fell just like it was just earlier in that they weren't controlled and that the level of hand or the right didn't rationalize things and avoid the war. I think that what we've heard is that the war has been making a lot of it.

56:44And we want the President to do it, recognize him, accept all the candidates and make him 60 or something.

57:08Why did the South secede when it did? Couldn't it have waited and looked for another round of whether or not things could have been worked out more diplomatically? And I think there again, there were a half a dozen people, one or two in each state, it was very vocal, and there were big columns, and there were a big mouth, and it stirred up the people. Did Lorenzo say that was Lincoln's fault? They could have come together. These supporters definitely wanted the damn war. No, no, look at this in the first inauguration speech.

57:56Well, I don't listen to speeches. I didn't listen to the last one. But South Carolina seceded way before Lincoln got inaugurated and those guys, I think they were, like Jack said, the hotheads, they practically said, well, we're going to have a war, I mean, Lincoln is going to abolish slavery and all this and that. And he said many times, if I could save the Union by allowing slavery to exist, I will. If I can save it the other way, I will. His idea is part of that. I believe he was very conciliatory toward the South.

58:48So that's right, he had already, it was a gone conclusion. Yeah, and that's what I'm going to basically, what I've been trying to set up here is that these forces were already in motion, and that the players really understood how this was all going to work out. They were much more perceptive about these issues than we are today. Because of the era of states' rights, limited government was a different game to be played entirely. And you're absolutely right. Lincoln did everything he could to keep the slavery issue off the table.

59:33He never spoke about it during the campaign. In his inauguration speech, he basically laid out that he's not going to do anything with regarding slavery, and in fact I think he mentions in his inaugural speech that they are working on a constitutional amendment basically which will explicitly reinforce slavery for all time. Now one of the things that's not in this book, but it's very much in interest of mine, and And I think it is important enough of an issue that I want to try to explain a little of this research because I think it gets to Jack's question most directly, as well as George's point about abolition, and that is that in the United States laws regarding slavery basically You made it very difficult to abolish slavery or reduce slavery or to phase slavery out of existence.

1:00:49Everybody of African descent was a slave and no one of non-African descent was a slave. Each state that had slavery had laws regarding the government catching and returning slaves, and the federal government had a law that would capture and return slaves from outside the slave states back into the slave states, which is, of course, one of the reasons why the Underground Railroad ended in Canada. It didn't end in New York City. It ended and that you had to go all the way to Canada or sometimes Vermont in order to really get away from slavery. The laws in the south not only mandated that the state would track your slaves down for you, arrest them if they were away from the plantation without a pass, but they also made it such that you were not allowed to free your slaves. And so only in a very Wasn't that because the South feared free slaves? If the idea took hold, they were afraid of what would happen?

1:02:24Why did they prevent them from teaching the slaves to read and things like that?

1:02:54Slave owners wanted to teach their slaves to read and write so that they could have black preachers and they could keep records and they could read, you know, stuff like that, but in general, slave owners don't want slaves reading and writing because if you can read and write, you can read a map. You can read a road sign. I think conditions differed in the deep south cotton states and the more northern parts of the south, because Robert E. Lee's father-in-law, for instance, made him all his slaves when he died and the only problem was just bookkeeping, you know, finding buyers or finding jobs for them and so on.

1:03:43Well that, see that's a problem because in a lot of southern states you could not manumit your, or free your slaves unless you sent them outside. Yeah, that's why you didn't want them to stay there. Well, and so the other states would say you're not allowed to manumit your slaves into this state. And so then they started manumitting, and not in massive numbers, but then they started freeing or manumitting into the northern states. and then the northern states said no you can't commit slaves to our territories and so there was a very complex web of state legislation on the part of all the southern states and even the northern states that made the structure of slavery static and a lot of it was in the the way of subsidizing slave ownership because you didn't have to have a, you know, if you had a hundred slaves and you didn't have the state backing you up, you'd have to hire a bunch of people with guns to keep an eye on them. Otherwise, I mean, you just walk, the

1:04:50slaves would just walk away. You couldn't keep your eye on that many of them. So, but without that, you don't need that many guys with guns. So you don't have to, you have You don't have to supervise your slaves, but you don't have to provide security. You can't read or write. You're not allowed to teach them to read or write. They're not allowed possessions of any weapons. There's just a whole series of slave code laws which kept that from breaking down. What about this, the price of a slave, did that go up as things heated up as far as the north and south, I mean, obviously the south couldn't have done as well growing cotton if they had, if they had a low slave population.

1:05:45The price of slaves would vary according to three main factors that we found. One was just the business cycle. As the business cycle was down, the price of slaves was down, if the economy was hot, the price of slaves would rise. Another thing was the price of cotton and tobacco, things of that nature. As those prices rose, the price of slavery also rose. And the third factor we found were these political factors. Every time the slave codes would be strengthened or reinforced, that would give a boost to slave prices because it was providing subsidies to slave ownership.

1:06:37And we think this legislation not only was a subsidy to slave ownership and slave owners, but it basically was preventing the system from breaking down. And if the system was allowed to break down, where white slave owners could free black slaves, and then you start In order to have a population of whites, black slaves, black free people and mulattoes, all of a sudden it's a lot more difficult to monitor a slave system. If you've got a slave system where all the white people are free and all the black people are slaves, then anybody can tell who's a slave and who's free.

1:07:26They drafted everybody in the population into these militias, into these patrols, and so if you saw a black person, you could naturally assume that that person was a slave, and if they were far away from their plantation, if they didn't have a written pass, the slaves could go off the plantation if they had a written pass, which is another reason why they weren't allowed to teach them to write. The thing about this is that you're not allowed to teach the slave population. If the slaves were free, they would be ignorant and they couldn't really make a living without being able to read and write. I think in those cases where they work for you, I'm not an expert, I'm not a student history on this issue, but they continued to do essentially the same thing that they've been doing.

1:08:20They were just compensated and life changed for them, and the culture changed, and there are costs, economic costs to slave ownership. Well, the big difference is security, and incentives, but the Southern Plantation System provided incentives for productivity. The main issue between the types of labor systems is security.

1:09:10A free labor force requires no massive police state to keep the workers on the job. They come to work because they want to get paid.

1:09:22So that's the big difference. Now in terms of all of that issue, we're jumping ahead of ourselves, because that's really in the last or second to last chapter of the Book about what would have happened, well the best answer for that is what actually did happen. But today we're prior to the war, to that cause, and I want to sort of summarize what the world was like, what the economy was like as we're heading into the war. Basically Basically the government was under the control of the Democratic Party through much of this period. The economy was growing as fast or faster than at any time in our history. In fact, most economies, this would probably be one of the fastest growing economies that's not being artificially stimulated in some way. By some measures, the standard of living Living in the United States doubled every generation, about every 50 years the standard of living was doubling. Tariffs were generally falling but there was a lot of turmoil in

1:10:40that area. There was a huge abundance of low cost fertile farmland and Americans were acquiring land ownership in huge numbers and they were actually acquiring fairly substantial plots Most estimates say that the farms were actually a little too big for what they really needed. Property rights were well-defined and well-enforced. Property rights were a big deal. Or how they were able to work the land until the farming group or things like that weren't invented. Then they could work a farm with less health.

1:11:26Well, I mean, you're talking back-breaking work in terms of clearing land. There was huge amounts of land clearing where you're doing all the work yourself with maybe horses and mules, things of that nature. But, you know, so you've got low-cost land, low taxes everywhere, and well-defined property rights. Everybody's carrying a gun, basically. Immigration is huge. People are coming in from Europe in increasing numbers because they're saying, hey, I can get pretty good wages, better wages, better conditions, I get myself established, get a plot of land, and we're off and running. Of course, slave imports have been stopped in the early antebellum period. The capital stock...

1:12:15They were still smuggling in from Cuba. In order for the South to ratify the Constitution, they had to let slavery continue until 1888 or something like that.

1:12:47The amount of capital stock that's being added to the economy, the tools that people are using, is increasing dramatically. There is an issue about labor and wages, and it's kind of a funny issue in some sense, not funny haha, that wages weren't actually going up all that much during this period. But the big thing here is there's so much immigration that that's suppressing wage rates. And some economists found they measured the employees at federal forts around the country who worked there and they found that people were getting shorter.

1:13:41And they surmised that people are getting shorter, they must not have enough food, and so they're malnutritioned, and they're suffering, they're being exploited, and so on and so forth. Well, what it really was, I'm sure, was that, in fact I've got a whole article on this particular nuance, is that the immigration population was smaller than the domestic population. And so with that great influx of labor, the average height of people were actually declining. Probably a stable dollar too at the time. Oh yeah, gold and silver coins, basically there was really no federal currency, there was no federal regulation.

1:14:29So the fact that wages were not increasing so quickly is not that big of an issue for a person.

1:14:59as golden information. Now when I say the Northwest, we're really talking about the Midwest, but at this time this was the Northwest. So they're growing staples out here in the West. The West is growing cattle, horses, some cotton, and then of course in the South, cotton is really the king. of the King, it's what's driving the Industrial Revolution. We don't want to take this too much out of context. The Industrial Revolution, as it's generally defined, as happening in England, Scotland, France, Germany, so on and so forth, is textiles.

1:15:45And the cotton from the South is the fuel for that thing. In the north, they're doing lots of things, manufacturing and services, banks, all that kind of stuff, transport, and now the flow of all this is that of course the northwest is sending grain to the northeast as well as some to the south. Cattle is moving east, or the resources of the west are moving east. Cotton is going to northern textile industries and the bulk of which is going to Europe.

1:16:47Northwestern grain is also going to Europe through the Great Lakes transportation system and the railroad transportation system which has now been completed out there. And the canal system too, that's right, yeah. We often forget the canals but that was a big part of things, especially 20s, 30s, and 40s. And then from the northeast, the manufacturing and services are heading south, west, and northwest. But Europe is also sending manufactured goods to the United States. And that's where the terror squabble comes in. That's it, I see, that is it. Mark, just being the case, how in the world wasn't it a foolish thing for the Confederacy to embargo the export of cotton during the conflict early on, especially when there were other forces of cotton from both Europe and the United States?

1:18:02The South was the dominant player in the cotton growing business. Today, of course, we're losing market share to the rest of the world. But at this time, we were definitely the dominant player in this industry. And you're right. I mean, it was rather silly, I think, especially the way they proceeded to do it, to embargo the sale of cotton. And that's ultimately what we're getting here, is this is a picture, a very messy picture of how different regions of the economy were specializing, where the Northwest was producing staples, the West was producing other types of staples for domestic consumption. This was domestic and foreign. The South was producing a staple for both domestic and foreign. And the Northeast was producing manufacturing services for the and the other three regions, as well as reselling European goods.

1:19:17Okay, so you have specialization going on, and then Europe, in exchange for its manufactured goods, was getting grain from the Northwest and cotton and tobacco from the South. Yeah, that was the triangle of trade, and that had a lot to do with specialization, The Division of Labor and Trade as well, but this is later on, that was the colonial trade more or less, and then of course the stopping of slavery brought that triangle of a trade to stop.

1:20:14Now this is a more intricate, more advanced, more complex level of specialization in trade, and of course they're growing food in the South, it's not complete specialization in trade. But to the extent that they were specializing, dividing labor and trading, what we have going on here is a little sort of inside picture of the American view of what the Industrial Revolution was going on. We were providing the raw material for the textile workers. We were providing food for the textile workers and in return we were getting clothing from and those same textile workers from Europe. So it's sort of our half of the picture but it's an important half and ultimately, of course, what we're going to see is that the war is going to bring an isolation to the south and a separation of the south from that whole system.

1:21:22The new product of which still exists. Well, there's certainly a lot of fallout and aftermath to all that, but that's where we'll pick it up next Tuesday.