Introduction to the Economic Way of Thinking

1
Introduction to the Economic Way of Thinking
2
Overview

• Guide to Economic Reasoning
• Why did the Colonists Fight?
• Other economic mysteries

3
Why Did the Colonists Fight
4
Why Did the Colonists Fight?

• At first glance the American Revolution seemed
  inevitable
• Sugar Act in 1764
• Stamp Act in 1765
• Tea Act in 1773
• Neither side was willing to back down.

5
The Colonists Were Safe

• Colonists lived in relative safety due to British
  military protection.
• The Royal Navy protected American shipping.
• The British spent heavily to protect the colonies
  from French forces and their Indians allies.
• The French and Indian War lasted from 1755-1763.

6
The Colonists Were Prosperous

• By todays standards colonial life was rough.
  But by the standards of their own time, colonists
  enjoyed a high quality of life.
• Growth of production
• Lived longer than most
• Average incomes were as high or higher than in
  England
• Even today, relatively few countries generate
  average income levels that approach the earning
  of free Americans on the eve of the Revolution.
  (Walton and Rockhoff, 2002)

7
The Colonists Were Free

• The colonies were a long way from Britain
• Transportation and communications were slow.
• English authorities were inclined to leave the
  colonists more or less alone.

8
The Colonists Were Free

• Samuel Eliot Morison (1965) writes
• British subjects in America were then the
  freest people in the world.
• Practiced in self government
• Freedom of speech, press and assembly.
• The hand of government rested lightly on
  Americans.

9
Lesson 7 Mystery

• The British colonies in America grew and
  prospered. Since the colonists were economically
  successful under British rule, why did they seek
  independence?
• Why would colonists fight a revolution against
  Great Britain, one of the worlds most powerful
  nations and, in many ways, the wellspring of
  their freedom and prosperity?

10
Apply the Guide to Economic Reasoning

• 1. People choose.
• 2. Peoples choices involve costs.
• 3. People respond to incentives in predictable
  ways.
• 4. People create economic systems that influence
  individual choices and incentives.
• 5. People gain when they trade voluntarily.
• 6. Peoples choices have consequences that lie in
  the future.

11
People Choose

• The colonists decided that fighting the
  Revolution offered the best combination of
  benefits and costs they could attain.

12
Peoples Choices Involve Costs

• Questions of cost loomed large.
• They risked losing
• Guaranteed market for some goods.
• Subsidies and bounties.
• Military protection

13
People Respond to Incentives

• After 1763, new taxes and regulations became more
  restrictive.
• Sugar Act
• Stamp Act
• Tea Act

14
People Create Economic Systems

• The Navigation Acts (1651, 1660, 1663) changed
  the rules of the game.
• Britain was more willing to enforce the rules
  resulting in higher prices for colonists.

15
People Create Economic Systems

• Trade was allowed only in American or British
  vessels.
• All imports were through British ports.

16
People Create Economic Systems

• Enumerated goods (tobacco, sugar, cotton, indigo,
  rice, and naval stores) from the colonies could
  only be shipped to England.
• Townsend Act placed new taxes on tea, glass and
  paper.

17
People Create Economic Systems

• Agricultural land was very important to many
  colonists.
• Quebec Act of 1774
• Enlarged the size of Quebec.
• Destroyed western land claims of Massachusetts,
  Connecticut and Virginia.

18
People Gain from Voluntary Trade

• Trade was very important to the colonial economy.
• Colonial producers saw Britains tightening
  mercantile policy as an obstacle to free trade.

19
Future Consequences

• Changes in British policy increased the risk that
  the future would not be as safe prosperous and
  free as the past had been.
• Economic growth was in doubt.
• Self-government was threatened.

20
Solve the Mystery

• The colonists fought the Revolution because
  benefits they had obtained - - especially
  prosperity and self-government - - were
  threatened.
• The prospect of fighting to secure these benefits
  for the future outweighed the other choices.

21
Other Mysteries in U.S. History
22
Lesson 2 Mystery

• American Indians are widely supposed to have
  favored common ownership rather than private
  property.
• Like people everywhere, however, American Indians
  distinguished between private and public
  ownership.
• Why did they decide to use private property in
  some cases but public ownership in others?

23
Lesson 4 Mystery

• The American colonies were an unlikely candidate
  for economic success.
• There was no gold and silver and no spices to
  trade.
• England held sway as a primary source of
  manufactured goods.
• Colonial America did possess land and other
  natural resources, but labor was not abundant.
• Eventually, however, the colonists lived longer
  and better than the populations of other nations
  and places at the time.
• Why?

24
Lesson 5 Mystery

• Indentured servants cut trees, moved boulders,
  built barns, plowed fields, planted tobacco,
  baled hay, cooked, cleaned and so forth.
• But from about 1650 to 1780 young people from
  England eagerly committed themselves to terms of
  indentured servitude in the North American
  colonies.
• Why would people sell themselves into bondage?

25
Lesson 18 Mystery

• In light of the economic advantages of the North
  over the South, it seems in retrospect almost
  irrational for the South to have engaged the
  North militarily.
• Why did the South secede?

26
Lesson 24 Mystery

• During the late 19th century, industrialization
  proceeded rapidly in the U.S. Men like Andrew
  Carnegie, John D. Rockefeller and the Cornelius
  Vanderbilt pioneered the way.
• Were these men Robber Barons or industrial
  entrepreneurs?

27
Lesson 33 Mystery

• People feared that the end of World War II would
  be followed by a return to depression.
• Instead, the years that followed the war brought
  rising prosperity and an unprecedented expansion
  of the American middle class.
• Why did the economy expand after World War II
  rather than falling into a new depression?