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Echoes Dispatches From Economic History

Kirsten Salyer

Weekly Links

over 3 years ago

History News Network on a brief history of New York City and hurricanes
Foreign Policy on the decline of U.S. prosperity
University of Geneva on the importance of League of Nations loans in the 1920s
Munich Personal RePEc Archive on economic development in Iran
University of Alberta on how sport rivalries form
The Winthrop Group on the democratization of higher education

Read more from Echoes, Bloomberg View's economic history blog.

Echoes: 11/01

In 1780, Benjamin Franklin commissioned a large mahogany box from a London craftsman. His instructions for this custom-made item, intended to house a delicate scientific instrument, were unusually precise. In particular, he urged that special care be taken in selecting the mahogany because, in his words, there was “a great deal of difference in woods that go under that name.” He desired the “finest grained that you can meet with.”

Franklin’s suspicions about what passed for mahogany suggest his awareness of a growing problem at the time: The precious trees were being rapidly depleted. Consequently, the size and quality of available mahogany was becoming increasingly erratic.

Baltimore workers

President Barack Obama promises to “make education and training a national priority.” His electoral opponent, Republican Mitt Romney, favors using federal funds to reimburse private companies for hiring and training new employees.

This issue -- what role the federal government should play in developing a skilled workforce -- first became campaign fodder a century ago. Debate over whether the government can promote national competitiveness has raged inconclusively ever since.

Echoes Freddie Mac

For me, a magazine advertisement in 1984 explains where it all went wrong. In a bizarre ad in the American Bankers Association journal, the chief financial officer of Freddie Mac, Leland Brendsel, appears to be consulting with gnomes on how to oversee America’s mortgage- backed securities markets.

According to the advertisement, “the gnomes of the secondary market, our omniscient associates” had brought the secret of securitization to Freddie Mac, the government- sponsored housing-finance company. Although clearly the result of an advertiser pulling an all-nighter, the gnomes reflected the supernatural aura of the collateralized mortgage obligation, which seemed to violate the rules of nature. Even to bankers, the system was mysterious. Yet its history was entirely conventional.


Philip Scranton

How Not to Campaign During a Depression

over 3 years ago

In late August 1932, George Foster Peabody, a major figure in railway and electric-power development, wrote a letter to the New York Times, criticizing President Herbert Hoover's response to the Great Depression. Peabody’s conclusion was stark: “I am thus thoroughly convinced that Mr. Hoover is incompetent.”

Meanwhile, support for New York Governor Franklin D. Roosevelt, the Democratic presidential candidate, was growing. The Economist wrote: “Mr. Roosevelt has plunged boldly into the trenches and is arousing enthusiasm by the energy of his personal raids on the enemy's lines.”

Maytag Washing Machine Company

Coal miners lining up behind the Republican presidential nominee, Mitt Romney; auto workers praising President Barack Obama for saving the U.S. car industry. You don’t have to look far to see signs of Americans’ deep anxiety over deindustrialization, and of a profound nostalgia for a more toilsome past.

Yet a closer look at bygone days shows that the decline of U.S. industry isn’t only the result of unfair Chinese trade practices or the low wages of Asian workers.

Echoes: Commercial College

Advertisements touting for-profit universities are everywhere. Schools such as Apollo Group Inc. (APOL)’s University of Phoenix peddle instruction in person and online, promising that students can earn their degrees on their own time, in their own homes -- even in their pajamas.

The growth of such institutions has sparked controversy, partly because of their reliance on federal financial aid and the high default rates of their students.

Echoes: President John Tyler

The U.S. is quickly approaching a “fiscal cliff,” a combination of scheduled tax increases and automatic spending cuts that could seriously disrupt the economy. It’s a grim situation, but not an unprecedented one.

The country has tottered on the edge of a similar budgetary precipice before -- and barely averted a national calamity.

Echoes: 10/23, Ford Edison

During the sharp recession of 1921- 1922, Thomas Edison turned from making innovative consumer products to reinventing the U.S. monetary system.

He was driven to economics by a sincere desire to be useful in a crisis and by his friend Henry Ford. Ford had proposed that the federal government issue paper dollars -- effectively zero- interest bonds -- to finance the completion of the Wilson Dam on the Tennessee River, which he would then buy from the government. Ford took Edison to the dam site, and Edison was impressed with the proposal.

Echoes: 10/22

In June 1931, with the U.S. economy in a depression and leaf tobacco prices at 20-year lows, R.J. Reynolds Tobacco Co. decided to increase the price of Camel cigarettes.

This proved a truly bad idea. And the response of consumers and competitors offers a telling example of how the Great Depression was upending industry after industry. Increasing the price of a pack of 20 cigarettes to 15 cents from 14 cents launched a price war that undermined Big Tobacco's hold on a shrinking market.


Jessica Lautin & B.J. Lillis

When Banks Were Able to Print Their Own Money, Literally

over 3 years ago
Echoes: Bull's Head Bank

In 2012, it isn’t unusual to go days without using actual money: Lunch goes on the debit card, a clothing purchase goes on the credit card and in some cities even parking meters take plastic. As the Internet and instruments of credit continue to transform our relationship with money, it is worth reflecting on the forms that money has taken in the past.

Before the institution of federally backed paper currency in 1862, the government didn’t see issuing paper money as its responsibility. Although it coined gold and silver, there was never enough in circulation to provide an effective medium of exchange. Because the Constitution prohibited states from printing money, banks became the primary suppliers of paper money in the U.S.

Echoes: Madison, 10/18

Americans across the political spectrum who object to intimate links between government and high finance have often upheld James Madison as their champion.

Conservatives who condemn the Federal Reserve, trade regulations and the tax code for strangling markets and restricting freedom often cite Madison as a founding libertarian. Liberals criticizing connections between government and the investing class for concentrating wealth into an ever smaller segment of society look to Madison as a defender of more democratic approaches.


Michael O’Malley

Fort Knox, an Impregnable Monument to Security Theater

over 3 years ago
United States Gold Depository

During the panic of 1792, the Bank of North America tried to stave off a run by having employees “carry its specie busily to and from the cellar in order to give a magnified notion of what it had,” historian Bray Hammond wrote. Bank managers “ostentatiously brought in deposits of gold and silver that had unostentatiously been carried out a little while before.”

The show of specie reassured jittery customers, saving the bank from failure. As a young clerk in Iowa during the panic of 1907, Hammond recalled employing exactly the same dodge: heaping impressively large sacks of low-value coin in plain view and ostentatiously counting it to give the impression of overflowing vaults.


Philip Scranton

A Federal Fix for a Foreclosure Fiasco

over 3 years ago
Echoes: Federal Fix

The U.S. construction industry boomed through most of the 1920s as new office buildings, factories, warehouses and homes were built across the country.

A developing securities market, in which commercial bonds could be sold to finance construction, helped boost the housing surge. In 1928, however, the Federal Reserve tightened monetary policy to stem speculation, especially in the stock market, and housing investment began to fall.


The past few months have seen some good news for Amtrak. In July, the nation’s passenger-rail service announced a record monthly ridership of 2.78 million trips. In fiscal year 2012, more than 31.2 million passengers rode the rails, also a record.

Unfortunately, any excitement over these developments has to be tempered by economic reality. The National Railroad Passenger Corp., the for-profit company that runs Amtrak, is always in the red. Only operating subsidies from Congress keep Amtrak running -- to the tune of about $466 million this year. Subsidies are down by more than $250 million since 2004, and Republican presidential candidate Mitt Romney has targeted the Amtrak funds for one of his budget cuts.


In the 1930s, Fortune magazine called weddings a “depression-proof” business; these days, the term is “recession resistant.” That isn’t exactly true, but there’s no denying that the U.S. wedding industry is big business today: Even in a sluggish economy, the average cost of a wedding in 2011 was $26,501, according to a Brides magazine survey.

Much of the debt incurred by marriage-bound couples and their families stems directly from a desire to follow tradition -- to purchase the goods and services necessary for a “proper” wedding. But many of these traditions are actually relatively new: They were invented by businesses using shrewd advertising campaigns, promotions and consumer “education” programs.

Echoes: PAC

In this election, political action committees and so-called super-PACs have come to play an outsized role in campaign finance. These organizations are nothing new, but they have come a long way from their origins -- particularly when it comes to their scale and electoral goals.

The first organization to call itself a political action committee was formed in July 1943 by the Congress of Industrial Organizations, and it was done to re-elect a Democratic president and friends of labor.


About Echoes

Echoes is Bloomberg View's economic history blog. It is edited by Stephen Mihm, an associate professor of history at the University of Georgia and the author, with Nouriel Roubini, of "Crisis Economics: A Crash Course in the Future of Finance," and of "A Nation of Counterfeiters: Capitalists, Con Men and the Making of the United States."

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