Public Choice Analyses of American Economic History

Starting in 1755, the French-speaking colonists of Atlantic Canada (known as the Acadians) were deported by the British. The expulsion was desired by the American colonists in New England but was ultimately opposed by the British government. In fact, the expulsion was enacted against the wishes of the Imperial government. Set against the backdrop of rising public debt in Britain, the costly expulsion of the Acadians (combined with the subsequent conquest of the French-speaking colony of Quebec) contributed to a change in policy course favoring centralization. Using public choice theory, I construct a narrative to argue that the Acadian expulsion contributed to the initiation of the American Revolution.

This chapter challenges the long-standing conclusion that North-South alignments helped bring the 1787 Constitutional Convention to a successful conclusion. The widely divergent economic interests between the regions regarding commercial and merchant activities, imports and exports, and slavery and the slave trade created such widely divergent sectional differences that the North-South agreements and compromises that were necessary to complete the Constitution created a governing institution that sowed the seeds of its own downfall. By 1861, the Constitution’s original design could no longer serve as the nation’s governing institution; its design created circumstances that led to southern secession and a civil war that killed and wounded more than a million Americans, cost several billion dollars, and required three major amendments to “save” the Constitution as the nation’s governing institution. This chapter draws on economic reasoning, political theory, and the historical record of the 1787 Constitutional Convention to challenge the long-standing conclusion that the North-South alignments helped bring the convention to a successful conclusion. The methodological approach involves juxtaposing economic principles and the issue positions of the framers and their states on the major North–South agreements and compromises among the delegates.

Drawing upon insights from public choice political economy and an examination of historical records, this paper posits an explanation for the causes of secession by the original seven members of the Confederacy in 1860–1861. Secession is examined as a Hirschman exit, intended primarily to shore up and secure the waning federal subsidies and enforcement expenditures that had been afforded to plantation slavery in previous decades. Fears over the impending decline of these subsidies and protections explain the decision to withdraw from the Union, even though slavery itself was, legally, “much more secure in the Union than out of it,” to quote Confederate Vice President Alexander H. Stephens. The premises of secession are most evident in southern declarations complaining of the non-enforcement of the Fugitive Slave Act, the instigation of slave insurrections, and the decline of southern political clout. These emphases suggest the perceived threat to slavery was more readily realized in its legal enforcement than in the oft-emphasized territorial question.

The ratchet effect in public finance refers to the historical phenomena that the size of government increases during a crisis but does not return to its previous level when the crisis ends. The traditional explanation is that voters change their views on the appropriate size of government during the crisis. But change in taste is an explanation of last resort: it should not be accepted without examining alternatives. This paper looks Civil War taxes as an illuminating case of the ratchet effect. Both the observed political process and the resulting mix of taxes suggest that interest groups, not voters, led to the ratchet effect in this case. During the Civil War both tariffs and income taxes increased, but only the higher tariff stayed. This paper uses an analytical narrative to show that this was because the new interest groups only wanted the higher tariff and not the income tax.

Beginning in the 1840s many states passed laws mandating the compulsory education of children and regulating the work of women and children although these were far from universal by 1880. In this paper, we focus on the impact of hours laws, especially those for women. Scholars have raised serious questions about the effectiveness of these laws because of doubts about enforcement mechanisms and whether or not the laws were binding. Moreover, it has been questioned as to whether these laws were simply passed as part of rent-seeking behavior by those not covered by the laws, in particular, adult men. In response, many of the laws covering adult women have now been rolled back. One state, Massachusetts, however, did pass an effective law in 1874 that resulted in the (successful) prosecution of at least one politically powerful corporation. Here, we investigate the impact of these laws using establishment level data for 1880. The historical record is consistent with rent-seeking by men but not for the purpose of disadvantaging women. The historical record is consistent with rent-seeking by men but not for the purpose of disadvantaging women. Rather, men pressed the case for women and children to secure benefits that they were apparently unable to achieve on their own. This was possible because, at the time, women and children were complements to male labor rather than substitutes. We find that there were systematic variations in hours from industry to industry, between city and countryside and regionally and that violations of the laws was not uncommon. Larger firms such as those in urban areas or those employing large numbers of the affected group were, however, more likely to be in compliance, particularly in Massachusetts. The evidence for Massachusetts also suggests, albeit very weakly, that the magnitude and certainty of penalties for violating the law may have been a major factor determining compliance with the law.

The Federal Reserve Act (1913) established the Reserve Board Organization Committee (RBOC) to determine the number and location of Federal Reserve districts and Reserve banks. Some scholars argue that the decisions were politically motivated but direct econometric evidence is lacking. A regression model utilizing solely political variables correctly predicts 11 of the 12 selected cities; the exception being Cleveland’s selection over Cincinnati. Our results present direct evidence of the importance of political determinants for RBOC selection.

This paper analyzes the demand for both private and state-provided health insurance in a historical context. In the case of private health insurance, I show that both health insurance and medical care were of limited use and that the relationship between income and health insurance and income and medical care was relatively weak, suggesting that money could buy little in the way of improvements in medical care. These results implied that there should be very little demand for state-provided health insurance and indeed there was not. Although the persuasiveness of interest groups such as doctors and to a lesser extend trade unions did contribute to the defeat of state-provided health insurance matter, none of the variables could explain such a resounding defeat. Evidence from newspaper editorials, advertisements, and articles suggested that the absence of consumer demand for health insurance together with concerns over the cost of state-provided health insurance defeated the measure. My findings are in contrast to those of other researchers who have emphasized the role of a politically powerful medical profession and of World War I.

During the New Deal the federal government initiated a policy of massive grants to states for support of social welfare and other programs. Since that time grants have come to be an integral part of the American fiscal system, and scholars have continued to debate whether the allocation of federal grants between the states is motivated primarily by political or social and economic objectives. This paper shows that, during the 1930s, both political and economic effects were important determinants of grant allocation, but that the Congressional factors considered by Anderson and Tollison are not important while the Presidential factors considered by Wright are. When the analysis is extended to the years 1932–1982, however, Congressional influences do seem important. On the other hand, the dominant influence on federal grant policy over the larger sample appears to be state government expenditures, while both political and economic influences play a smaller role.