Market & Transportation Revolutions Notes

Market Revolution

  1. Cash deficient because Federal government put too much gold in coins, and so exported gold overseas and never returned because coins melted down for gold.
  2. Barter Economy inefficient form of media for transfer of goods and services.
    1. Have to find someone who actually has what you want and wants to trade for something you have. Not likely to happen.
  3. Credit economy works better. Everyone keeps record their transactions of exchanging goods and services in their Day Book or Journal. Keep transaction as dollar amounts rather than just goods and services exchanged. However, no need to total up one’s debits and credits since not organized for easy totalling, and no need to repay any time soon.
    1. Local economy plugged into local store/merchant, who maintains credit with outside. Merchant exchanges local goods with outside merchants. Citizens of non-market region normally only need cash to pay taxes.
    2. Repay when person dies and estate needs to be settled
    3. Repay when economy collapses
    4. “Business Cycle” of regular collapses approximately every 20 years.
      1. Panic of 1819 – 2 years
      2. Panic of 1837 – 6-9 years (depending on location)
      3. Panic of 1857 – 0.5-2 years (depending on location)
      4. Panic of 1873 – 2-20 years (depending on location)
      5. Panics of 1893, 1907, 1919
      6. Great Depression of 1929 – 13 years
  4. Recessions – 1946, 1959, 1974, 1983, 1992, 2000-2002, 2007-2010, 2020-
  5. Antebellum panics cause by
    1. Collapse of major agricultural commodity
      1. Cotton in 1819 and 1837
      2. Wheat in 1857
    2. Unstable banking environment
      1. Problems with 2nd BUS in 1819
      2. No BUS and problems with state banks in 1837
      3. Failure of Ohio insurance company with banking privileges in 1857
  6. Because economy collapses due to global environment, you can lose everything you own through no fault of your own, just because you happen to be short on cash when the bill comes in. Requires liquidation of assests by selling to highest bidder at court house auction. Causes great anxiety.
  7. Uneven economic system. Parts of country already tied into money economy. Other parts still just using credit economy. Other parts making transition from credit to money economy. All at the same time.
  8. Banks print paper money but works different than today.
    1. Discount rate for value of money dependent upon how far away the bank is located from where you want to spend the notes of the bank.
    2. Banks generally won’t accept notes of banks they are not familiar with.
    3. Notes work much like checks, in that the bearer of the note must sign the back of the note when they transfer it to someone else.
    4. Note is payable in coin (specie) when presented back to the home bank.

Transportation Revolution

  1. Getting involved in market relations is too difficult if means of transporting goods is too expensive.
    1. Cost $1 per mile to move bulky goods like grain prior to the transportation revolution.
    2. Traveling more than a few miles makes cost of good prohibitive.
  2. Many transportation improvements required large amounts of investment capital and thus were organized as corporations
    1. Corporations limit the risk to investors if the venture fails
    2. Required specific laws to be passed by legislature to authorize incorporation and then regulated corporation as a monopoly. Charter usually also expired after 20 years.
  3. Transportation improvements
    1. Turnpikes
      1. Most turnpike companies went broke because people used the turnpikes but avoided paying the tolls
      1. Local government took over the improvements and so the community benefitted even if the investors didn’t make a profit.
    2. Canals
      1. First developed as transportation canals under France’s King Louis XIV. His finance minister was named Colbert.
      2. Erie Canal is first major canal built in US
        1. Changed direction of flow of western goods from counter-clockwise (down the Mississippi River to Gulf of Mexico to around Florida to New York) to clockwise flow (from Ohio valley to Great Lakes to Buffalo to Albany to New York City.)
        2. Made New York the largest city in North America, so now everyone wanted a canal
      3. Canal building boom in 1830s destabilizes banking system, leads to depression in 1837.
    3. Railroads
      1. Cheaper to build than canals and not limited to areas where water will flow.
      2. Cost about $25k in the South, but about $100 in the North to build
  4. Main immediate benefit is that improved transportation gives access to market relations when couldn’t previously participate. Within 1 year of opening Erie Canal, people within 50 miles were now part of the money economy rather than just in the credit economy.