Development of the American Economy
The NBER's Program on the Development of the American Economy met in Cambridge on March 4. Program Director Claudia Goldin, NBER and Harvard University, chose the following papers for discussion:
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The Panic of 1837 was among the most severe banking crises in U.S. history, marking the start of a business downturn from which the nation did not recover for six years. Because the panic had serious consequences for the rapidly evolving commercial and industrial sectors, economists have attempted to disentangle its "true" causes from a host of aggravating domestic and international shocks. Using previously unexploited information from U.S. government documents and contemporary newspapers, Rousseau finds that neither the official distribution of the federal surplus to the states in the spring of 1837 nor an international shock was at the heart of the crisis. Rather, a series of previously overlooked interbank transfers of government balances ordered in the year leading up to the crisis combined with a policy-induced increase in the demand for coin in the western states, drained the largest New York City banks of their specie reserves and rendered the panic inevitable.
An empirical tradition in international trade seeks to establish whether the predictions of the factor abundance theory match current data. Researchers typically have found the measured factor content of trade to be far smaller than its predicted magnitude in the pure Heckscher-Ohlin-Vanek framework. This is known as the "missing trade mystery." Estevadeordal and Taylor ask if the theory was as at odds with reality at the time of its conception as it is now. They apply contemporary tests to historical data on goods and factor trade from Ohlin's time, focusing on the major trading zone that inspired the factor abundance theory: the "Old World" and "New World" of the pre-1914 "Greater Atlantic" economy. Their analysis is set in a very different context from contemporary studies. Thus, their work complements tests applied to today's data and informs the search for improved models of trade.
The United States became a net exporter of manufactured goods around 1910, after a dramatic surge in iron and steel exports occurred in the mid-1890s. Irwin argues that an abundance of natural resources fueled the expansion of iron and steel exports, in part by enabling a sharp reduction in the price of U.S. exports relative to those of other competitors. The commercial exploitation of the Mesabi iron ore range, for example, reduced domestic ore prices by 60 percent in the mid-1890s and affected U.S. iron and steel export prices in a way that was equivalent to nearly 30 years of industry productivity growth. These results are consistent with other research showing that U.S. manufactured exports were natural resource intensive at this time.
Libecap and Hansen examine two major homestead failures on the U.S. agricultural frontier: one in western Kansas in the 1890s and the other in eastern Montana about 25 years later. They focus on the problems of obtaining weather information faced by migrants to the Great Plains between 1880 and 1920. Libecap and Hansen show that there was only primitive knowledge of the climate, no understanding of what triggered droughts, and no long-term precipitation records for most sites in the region. Hence, the homesteaders had neither an analytical framework nor sufficient data for predicting fluctuations in rainfall. Also, dryfarming, or scientific soil culture as it was labeled by its advocates, appeared after 1900. It outlined methods for storing moisture in the soil, and as such, made understanding the climate of the Great Plains and its fluctuating rainfall seem less critical. Dryfarming was promoted enthusiastically by all sources of information available to homesteaders. But the resulting information led homesteaders to establish farms that were too small, undercapitalized, and insufficiently diversified to withstand the drought.
Fishback, Haines, and Kantor assess the effectiveness of federal New Deal relief programs by examining their impact on infant mortality rates. Using both cross-sectional and difference-equation methods, the authors find that the New Deal had a relatively modest effect on infant mortality during the Great Depression. With the exception of the Federal Emergency Relief Administration's direct relief to unemployables and the Work Projects Administration's building of public works designed to improve public health, the New Deal played a limited role in influencing the socioeconomic status of children. It seems that the reductions in infant mortality that continued through the 1930s can be explained more by the public health programs and sanitation systems that were implemented in the early part of the twentieth century than by New Deal programs.