The Foundation of the American Economy
The Constitutional Framework - The role of the
state
Charles Beard - An Economic Interpretation of the Constitution (1913)
- Framework for a National Market-market depends on legal and institutional framework
- Federal powers under Constitution -
- taxation to provide for defense and common welfare
- borrow money
- regulate interstate commerce
- immigration and naturalization laws
- coin money and regulate its value
- establish a postal system
- protect intellectual property through copyrights
- establish a system of courts
- establish weights and measures
- Article I Section 9 - Congress can regulate Commerce with foreign nations and among the states
- McCulloch v. Maryland (1819)
- Maryland attempted to tax the Bank of the United States
- necessary and proper clause - Congress has the power to create and enforce all necessary and proper laws --"elastic clause"
- Article I, Section 10 - Enforce contracts
- states can not recind contractual obligations
- Bankruptcy laws
- Association of labor Commonwealth v. Hunt (1842)
- labor association is legal
Elements of Early Political Economy
Regional economies - Northeast, West and South
- evolution of regional economies
- interdependence of regional economies
- interests in conflict
Factors promoting national economy
land for agriculture
improved rail transportation
growth of shipping industry
turnpikes and canals
favorable government policies
Government policies supporting transportation
technologies and expansion of national economy
- railroads
- state charters
- eminent domain powers
- land grants
- state purchase of stocks and bonds
- state construction of turnpikes
- state capital for canals
Impact of railroads
- reduced costs of transportation
- backward linkages: coal, mining industry
- forward lingages
- market for grain
- sophisticated system of distribution
- growth of stock and bond market
- development of financial markets - access to capital
- model for complex organizational structures
Economic organization and modern corporations
- organizational scale
- divisions of company
- line and staff functions
- cost accounting
- mergers and consolidations: 1883-1904
- creation of monopolies
- complexity of production
- scale of activity
- geographic dispersion
Tariffs and political economy
- regional interests in conflict
- political parties on conflict
- tariff-pension system
- Tariff Act of 1828 - Tariff of Abominations
- Dingley Tariff Act of 1897
Early problems of public finance
- state banks issued notes in excess of reserves
- no unified system of currency (multiple bank notes)
- resistance and distrust of National Bank
- Jackson and Biddle
- Eastern elites and European interests
- bank panics - 1819
- balance of payment problems with Britain - outflow of specie (gold and silver coin)
- inflation and depression (1837)
Capital and finance
- U.S. has a capital market-based system of finance - stock and bonds sold by corporations
- important source of capital for expansion
- Bank of United States - 1791-1811
- Second Bank of the United States - 1816
- Specie Circular - 1837 - the Era of Free Banking
- land sales in specie not bank notes
- ended land speculation in West
- ended credit expansion
- produced bank panic ending specie payments
- National Banking Act of 1864
- national bank charters
- minimum capitalization levels
- reserve requirements
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