Encyclopedia

Jerry Mushin, Victoria University of Wellington

1931-39

One of the consequences of the economic crisis of 1929–33 was that a large number of countries abandoned the gold standard. This meant that their governments no longer guaranteed, in gold terms, their currencies’ values. The United Kingdom (and the Irish Free State, whose currency had a rigidly fixed exchange rate with the British pound) left the gold standard in 1931. To reduce the fluctuation of exchange rates, many of the countries that left the gold standard decided to stabilize their currencies with respect to the value of the British pound (which is also known as sterling). These countries became known, initially unofficially, as the Sterling Area (and also as the Sterling Bloc). Sterling Area countries tended (as they had before the end of the gold standard) to hold their reserves in the form of sterling balances in London.

Joshua Rosenbloom, University of Kansas

During the seventeenth and eighteenth centuries a variety of labor market institutions developed to facilitate the movement of labor in response to the opportunities created by American factor proportions. While some immigrants migrated on their own, the majority of immigrants were either indentured servants or African slaves.

Because of the cost of passage—which exceeded half a year’s income for a typical British immigrant and a full year’s income for a typical German immigrant—only a small portion of European migrants could afford to pay for their passage to the Americas (Grubb 1985a). They did so by signing contracts, or “indentures,” committing themselves to work for a fixed number of years in the future—their labor being their only viable asset—with British merchants, who then sold these contracts to colonists after their ship reached America. Indentured servitude was introduced by the Virginia Company in 1619 and appears to have arisen from a combination of the terms of two other types of labor contract widely used in England at the time: service in husbandry and apprenticeship (Galenson 1981). In other cases, migrants borrowed money for their passage and committed to repay merchants by pledging to sell themselves as servants in America, a practice known as “redemptioner servitude (Grubb 1986). Redemptioners bore increased risk because they could not predict in advance what terms they might be able to negotiate for their labor, but presumably they did so because of other benefits, such as the opportunity to choose their own master, and to select where they would be employed.

Harold Bierman, Jr., Cornell University

Overview

The 1929 stock market crash is conventionally said to have occurred on Thursday the 24^th and Tuesday the 29^th of October. These two dates have been dubbed "Black Thursday" and "Black Tuesday," respectively. On September 3, 1929, the Dow Jones Industrial Average reached a record high of 381.2. At the end of the market day on Thursday, October 24, the market was at 299.5 — a 21 percent decline from the high. On this day the market fell 33 points — a drop of 9 percent — on trading that was approximately three times the normal daily volume for the first nine months of the year. By all accounts, there was a selling panic. By November 13, 1929, the market had fallen to 199. By the time the crash was completed in 1932, following an unprecedentedly large economic depression, stocks had lost nearly 90 percent of their value.

Siddharth Chandra, University of Pittsburgh

The history of opium has attracted the attention of historians for decades, and in a way that the history of few other commodities has. Because a lot has already been written on the opium trade in various parts of the world (for a sampling, see the citations at the end of this article), this piece will focus on the history of the opium trade through the lens of the economic historian. In other words, it will address the question “Why is opium of special interest to economic historians?” Following a brief background of the opium trade, a discussion of this question is provided with a focus on Asia and with references to more detailed and case-specific sources.

Opium: A Brief Background

Opium is produced from the opium poppy. The primary narcotic agent in opium is morphine. The morphine-rich sap of the poppy is derived from incisions made in the bulbous portion of the flower. The harvesting of the sap is an extremely labor-intensive process. The sap is then boiled down (or gradually dried to about ten percent of its original water content) to make opium.

John Singleton, Victoria University of Wellington, New Zealand

Living standards in New Zealand were among the highest in the world between the late nineteenth century and the 1960s. But New Zealand’s economic growth was very sluggish between 1950 and the early 1990s, and most Western European countries, as well as several in East Asia, overtook New Zealand in terms of real per capita income. By the early 2000s, New Zealand’s GDP per capita was in the bottom half of the developed world.

Table 1:
Per capita GDP in New Zealand
compared with the United States and Australia
(in 1990 international dollars)

Source: Angus Maddison, The World Economy: Historical Statistics. Paris: OECD, 2003, pp. 85-7.

Albrecht Ritschl, Humboldt Universitaet – Berlin

Between 1948 and 1951, the United States poured financial aiding totaling $13 billion (about $100 billion at 2003 prices) into the economies of Western Europe. Officially termed the European Recovery Program (ERP), the Marshall Plan was approved by Congress in the Economic Cooperation Act of April 1948. After a transitory 90-Days Recovery Program, the Marshall Plan spanned three ERP years from July 1948 to June 1951. Congress appropriated payments to European countries in annual installments. Most of U.S. assistance under the ERP took the form of grants; the loan component had deliberately been kept low to avoid transfer problems. Distribution of the ERP funds among the recipient countries and their allocation to key sectors were placed in the hands of a U.S. board operating in Europe, the Economic Cooperation Agency (ECA). Countries would present requests for deliveries of goods to the ECA, which evaluated and decided them according to a set scheme of priorities. Dollar payments by the ECA for any deliveries were complemented by a system of national matching funds in the recipient countries, called counterpart funds. Countries would pay for ERP deliveries, not in U.S. dollars but in their own national currencies. These payments were credited to their respective counterpart funds. With a view to the German transfer problem of the inter-war period, no attempt was made to transfer these payments into U.S. dollars. Instead, the ECA employed these counterpart funds to channel investment into bottleneck sectors of the respective national economies. Repayment to the U.S. of the ERP’s loan component was effected in the mid-1950s.

Nadav Halevi, Hebrew University

The Pre-state Background

The history of modern Israel begins in the 1880s, when the first Zionist immigrants came to Palestine, then under Ottoman rule, to join the small existing Jewish community, establishing agricultural settlements and some industry, restoring Hebrew as the spoken national language, and creating new economic and social institutions. The ravages of World War I reduced the Jewish population by a third, to 56,000, about what it had been at the beginning of the century.

As a result of the war, Palestine came under the control of Great Britain, whose Balfour Declaration had called for a Jewish National Home in Palestine. Britain’s control was formalized in 1920, when it was given the Mandate for Palestine by the League of Nations. During the Mandatory period, which lasted until May 1948, the social, political and economic structure for the future state of Israel was developed. Though the government of Palestine had a single economic policy, the Jewish and Arab economies developed separately, with relatively little connection.

Two factors were instrumental in fostering rapid economic growth of the Jewish sector: immigration and capital inflows. The Jewish population increased mainly through immigration; by the end of 1947 it had reached 630,000, about 35 percent of the total population. Immigrants came in waves, particularly large in the mid 1920s and mid 1930s. They consisted of ideological Zionists and refugees, economic and political, from Central and Eastern Europe. Capital inflows included public funds, collected by Zionist institutions, but were for the most part private funds. National product grew rapidly during periods of large immigration, but both waves of mass immigration were followed by recessions, periods of adjustment and consolidation.

Robin Neill, University of Prince Edward Island

Harold Innis has been called "the first Canadian-born social scientist to achieve an international reputation" and "the father of Canadian Economic History." He was the second president of the Economic History Association (1942-1944) and the fifty-fourth President of the American Economic Association (1951). He has been credited with joint authorship of the Staple Theory of Canadian Economic Development (W.T. Easterbrook, 967, p. 261). In a backhanded posthumous complement a Keynesian said of him that he led the Canadian economics profession down the wrong path for fifteen years.

Innis's influence in Canadian social science was pervasive in the pre-Keynesian period. His studies of the fur trade, the cod fisheries, and the mining and forest frontiers broke new ground, and provided an economic underpinning for the Laurentian School of Canadian historians. His students, W.T. Easterbrook, Hugh G.J. Aitken, Albert Faucher, and two of the then famous four Saskatonians, Vernon C. Fowke and Kenneth A.H. Buckley, are still cited in current Canadian economic history texts. The building-of-the-Canadian-nation histories that typified the Laurentian School have lost some of their appeal. Regional and community histories are now more frequently celebrated. Close reading of Innis, and particularly of Fowke (R.F. Neill, 1999), however, shows the two to have made a greater contribution in this regard than one would surmise from reading the general texts that draw on their work.

Catherine R. Schenk, University of Glasgow

Hong Kong’s economic and political history has been primarily determined by its geographical location.  The territory of Hong Kong is comprised of two main islands (Hong Kong Island and Lantau Island) and a mainland hinterland. It thus forms a natural geographic port for Guangdong province in Southeast China. In a sense, there is considerable continuity in Hong Kong’s position in the international economy since its origins were as a commercial entrepot for China’s regional and global trade, and this is still a role it plays today.  From a relatively unpopulated territory at the beginning of the nineteenth century, Hong Kong grew to become one of the most important international financial centers in the world.  Hong Kong also underwent a rapid and successful process of industrialization from the 1950s that captured the imagination of economists and historians in the 1980s and 1990s. 

Daniel B. Klein, Santa Clara University and John Majewski, University of California – Santa Barbara ¹

Private turnpikes were business corporations that built and maintained a road for the right to collect fees from travelers.² Accounts of the nineteenth-century transportation revolution often treat turnpikes as merely a prelude to more important improvements such as canals and railroads. Turnpikes, however, left important social and political imprints on the communities that debated and supported them. Although turnpikes rarely paid dividends or other forms of direct profit, they nevertheless attracted enough capital to expand both the coverage and quality of the U. S. road system. Turnpikes demonstrated how nineteenth-century Americans integrated elements of the modern corporation – with its emphasis on profit-taking residual claimants – with non-pecuniary motivations such as use and esteem.

Private road building came and went in waves throughout the nineteenth century and across the country, with between 2,500 and 3,200 companies successfully financing, building, and operating their toll road. There were three especially important episodes of toll road construction: the turnpike era of the eastern states 1792 to 1845; the plank road boom 1847 to 1853; and the toll road of the far West 1850 to 1902.

Fred Smith and Sarah Allen, Davidson College

Introduction

Any discussion of urban decline must begin with a difficult task – defining what is meant by urban decline. Urban decline (or "urban decay") is a term that evokes images of abandoned homes, vacant storefronts, and crumbling infrastructure, and if asked to name a city that has suffered urban decline, people often think of a city from the upper Midwest like Cleveland, Detroit, or Buffalo. Yet, while nearly every American has seen or experienced urban decline, the term is one that is descriptive and not easily quantifiable. Further complicating the story is this simple fact – metropolitan areas, like greater Detroit, may experience the symptoms of severe urban decline in one neighborhood while remaining economically robust in others. Indeed, the city of Detroit is a textbook case of urban decline, but many of the surrounding communities in metropolitan Detroit are thriving. An additional complication comes from the fact that modern American cities – cities like Dallas, Charlotte, and Phoenix – don't look much like their early twentieth century counterparts. Phoenix of the early twenty-first century is an economically vibrant city, yet the urban core of Phoenix looks very, very different from the urban core found in "smaller" cities like Boston or San Francisco.[1] It is unlikely that a weekend visitor to downtown Phoenix would come away with the impression that Phoenix is a rapidly growing city, for downtown Phoenix does not contain the housing, shopping, or recreational venues that are found in downtown San Francisco or Boston.

Norman Jones, Utah State University

The question of when and if money can be lent at interest for a guaranteed return is one of the oldest moral and economic problems in Western Civilization. The Greeks argued about usury, Hebrews denounced it, Roman law controlled it, and Christians began pondering it in the late Roman Empire. Medieval canon lawyers adapted Greek and Roman ideas about usury to Christian theology, creating a body of Church law designed to control the sin of usury. By the early modern period the concept began to be secularized, but the issue of what usury is and when it occurs is still causing disputes in modern legal and theological systems.

Aristotle

The Greek philosophers wrestled with the question of whether money can be lent at interest. Most notably, Aristotle concluded that it could not. Aristotle defined money as a good that was consumed by use. Unlike houses and fields, which are not destroyed by use, money must be spent to be used. Therefore, as we cannot rent food, so we cannot rent money. Moreover, money does not reproduce. A house or a flock can produce new value by use, so it is not unreasonable to ask for a return on their use. Money, being barren, should not, therefore, be expected to produce excess value. Thus, interest is unnatural.

Joseph Santos, South Dakota State University

Many contemporary [nineteenth century] critics were suspicious of a form of business in which one man sold what he did not own to another who did not want it… Morton Rothstein (1966)

Anatomy of a Futures Market

The Futures Contract

A futures contract is a standardized agreement between a buyer and a seller to exchange an amount and grade of an item at a specific price and future date. The item or underlying asset may be an agricultural commodity, a metal, mineral or energy commodity, a financial instrument or a foreign currency. Because futures contracts are derived from these underlying assets, they belong to a family of financial instruments called derivatives.

Traders buy and sell futures contracts on an exchange – a marketplace that is operated by a voluntary association of members. The exchange provides buyers and sellers the infrastructure (trading pits or their electronic equivalent), legal framework (trading rules, arbitration mechanisms), contract specifications (grades, standards, time and method of delivery, terms of payment) and clearing mechanisms (see section titled The Clearinghouse) necessary to facilitate futures trading. Only exchange members are allowed to trade on the exchange. Nonmembers trade through commission merchants – exchange members who service nonmember trades and accounts for a fee.

The September 2004 light sweet crude oil contract is an example of a petroleum (mineral) future. It trades on the New York Mercantile exchange (NYM). The contract is standardized – every one is an agreement to trade 1,000 barrels of grade light sweet crude in September, on a day of the seller’s choosing. As of May 25, 2004 the contract sold for $40,120=$40.12x1000 and debits Member S’s margin account the same amount.

William Troost, University of British Columbia

The Bureau of Refugees, Freedmen, and Abandoned Lands, more commonly know as the Freedmen’s Bureau, was a federal agency established to help Southern blacks transition from their lives as slaves to free individuals. The challenges of this transformation were enormous as the Civil War devastated the region – leaving farmland dilapidated and massive amounts of capital destroyed. Additionally, the entire social order of the region was disturbed as slave owners and former slaves were forced to interact with one another in completely new ways. The Freedmen’s Bureau was an unprecedented foray by the federal government into the sphere of social welfare during a critical period of American history. This article briefly describes this unique agency, its colorful history, and many functions that the bureau performed during its brief existence.

The Beginning of the Bureau

In March 1863, the American Freedmen’s Inquiry Commission was set up to investigate “the measures which may best contribute to the protection and improvement of the recently emancipated freedmen of the United States, and to their self-defense and self-support.”¹ The commission debated various methods and activities to alleviate the current condition of freedmen and aid their transition to free individuals. Basic aid activities to alleviate physical suffering and provide legal justice, education, and land redistribution were commonly mentioned in these meetings and hearings. This inquiry commission examined many issues and came up with some ideas that would eventually become the foundation for the eventual Freedmen’s Bureau Law. In 1864, the commission issued their final report which laid out the basic philosophy that would guide the actions of the Freedmen’s Bureau.

Dalit Baranoff

Fire Insurance before 1810

Marine Insurance

The first American insurers modeled themselves after British marine and fire insurers, who were already well-established by the eighteenth century. In eighteenth-century Britain, individual merchants wrote most marine insurance contracts. Shippers and ship owners were able to acquire insurance through an informal exchange centering on London's coffeehouses. Edward Lloyd's Coffee-house, the predecessor of Lloyd's of London, came to dominate the individual underwriting business by the middle of the eighteenth century.

Similar insurance offices where local merchants could underwrite individual voyages began to appear in a number of American port cities in the 1720s. The trade centered on Philadelphia, where at least fifteen different brokerages helped place insurance in the hands of some 150 private underwriters over the course of the eighteenth century. But only a limited amount of coverage was available. American shippers also could acquire insurance through the agents of Lloyds and other British insurers, but often had to wait months for payments of losses.

Mutual Fire Insurance

When fire insurance first appeared in Britain after the Great London Fire of 1666, mutual societies, in which each policyholder owned a share of the risk, predominated. The earliest American fire insurers followed this model as well. Established in the few urban centers where capital was concentrated, American mutuals were not considered money-making ventures, but rather were outgrowths of volunteer firefighting organizations. In 1735 Charleston residents formed the first American mutual insurance company, the Friendly Society of Mutual Insuring of Homes against Fire. It only lasted until 1741, when a major fire put it out of business.