Bryan Caplan  

Openness in the Gilded Age

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Supplemental Pessimism... Monetary Contraction Update...
A great debating point by Don Boudreaux:
[Pat Buchanan] frequently asserts that 19th-century America's policy of relatively high tariffs, along with its impressive economic growth, proves that protectionism promotes prosperity.  End of story; full stop; no further analysis is necessary.  Fact A's simultaneous existence with fact B proves that A caused B.

Well, 19th-century America also had open immigration.  So Mr. Buchanan ought to join the ranks of those of us who support a return to that policy.  After all, according to the tenets of his own epistemology, the mere fact that booming 19th-century America had open immigration proves that open immigration promotes - or at least doesn't hamper - vibrant economic growth.

At first glance, Don's merely saying that if "post hoc, ergo propter hoc" is good for the goose, it's good for the gander.  But I spy a deeper point: On balance, it looks like the U.S. was more open to international competition during the Gilded Age than it is today.  Barriers to the free flow of goods were moderately higher, but barriers to free flow of labor were much lower.  And remember: labor's roughly 70% of the economy.

I take this as further evidence that (some) libertarians' effort to distance themselves from the policies of the Gilded Age are deeply mistaken.  Yes, there are important ways that we're freer today.  But during the Gilded Age, many of libertarians' most controversial ideas actually prevailed.



COMMENTS (8 to date)
Tim Worstall writes:

"Barriers to the free flow of goods were moderately higher,"

True: but it's worth noting that even as tariffs were raised post Civil War actual trade barriers were falling.

Total trade barriers are a combination of the legal barriers (tariffs, quotas etc) and transport costs. Transport costs were falling so fast in this era (nearly an order of magnitude over a few decades) as a result of the railroads and steamships that total trade barriers were falling.

The US was becoming more open to trade even as those tariffs rose. We can see this in the way that we got intercontinental price convergence in the period.

And transport costs were a little odd as well. Mid West wheat to London, say. It cost more as a percentage of the Chicago value of the wheat to get it from Chicago to New York than it did from New York to London.

Alan Crowe writes:

I've tried three ways to understand the logic of Pat Buchanan's position, but none of them work.

First, compare 19th century Europe with 19th century America. Europe has lots of internal barriers to trade. America doesn't. America outperforms Europe: a win for free trade.

Second, compare say Indiana, Mississippi, and Illinois, with Prussia, Austria, and the Grand Duchy of Tuscany. Using small units for our economic analysis, the trade barriers which we have previously analysed as internal trade barriers, (internal to America and Europe) now become external trade barriers, between Prussia, Austria, and Tuscany, holding them back, while free trade between Indiana, Mississippi, and Illinois help them on.

Third, compare America with Austria. Both have internal free-trade and external tariff barriers. They are mis-matched in size. The logic of the protectionist argument is that free trade is bad and hence the smaller the free trade area the less harm free trade does. Yet Pat Buchanan claims it was the larger area (and it is very much larger) that prospered best, the opposite of what the logic of his position requires.

Peter Schaeffer writes:

Folks,

Try reading some immigration history. 19th century immigration was highly restricted by transportation costs. In real life, only highly skilled immigrants could (in general) afford to come to America. The number of immigrants was variable, but generally small.

Over time, technological advances (steamships) reduced the cost of immigration and less skilled immigrants started flooding into America. Public opinion shifted from supporting immigration to strongly opposing it.

The standard paper is

"International Migration in the Long-Run: Positive Selection, Negative Selection and Policy"

http://www.econstor.eu/bitstream/10419/20570/1/dp1304.pdf

The abstract should help

"Most labor scarce overseas countries moved decisively to restrict their immigration during the first third of the 20th century. This autarchic retreat from unrestricted and even publiclysubsidized immigration in the first global century before World War I to the quotas and bans introduced afterwards was the result of a combination of factors: public hostility towards new immigrants of lower quality, public assessment of the impact of those immigrants on a deteriorating labor market, political participation of those impacted, and, as a triggering mechanism, the sudden shocks to the labor market delivered by the 1890s depression, the Great War, postwar adjustment and the great depression. The paper documents the secular drift from very positive to much more negative immigrant selection which took place in the first global century after 1820 and in the second global century after 1950, and seeks explanations for it. It then explores the political economy of immigrant restriction in the past and seeks historical lessons for the present."

and

"Thus, the proportion of the immigrants that were unskilled rose from 16 percent in the 1820s to 55 percent in the 1890s, while the share that were skilled fell rom 61 to 30 percent."

Peter Schaeffer writes:

A few related points. The U.S. had high tariffs and restricted immigration after WWI. The "closed" economy of the period did rather well. Indeed, it did so well that it ended with a bubble and a crash.

Conversely, the U.S. has systematically opened its economy to immigration and trade since 1965. The results have not been positive. Lower growth, declining wages, trade deficits, soaring debt, social polarization, higher inequality, etc.

Indeed an entire book has been written about it, "The Great Stagnation".

Nathan Smith writes:

Bryan, bravo!

Peter Schaeffer... it's amazing how much ignorance there is in the world.

re: "Try reading some immigration history. 19th century immigration was highly restricted by transportation costs."

Totally, ludicrously false. Immigrants in the 19th century came by SHIP. Shipping technology was relatively cheaper even than airplane technology today. Consider this: beef was shipped from Argentina by ship to customers in Britain. Would beef bear the costs of plane transportation today? Education levels of immigrants in the 19th century were certainly lower than today.

And is Cowen's book about how *immigration* has slowed economic growth since 1965? Are you seriously pretending that? Cowen attributes it to changing technology; the demographic transition is another strong reason. Of course, the hypothesis is controversial. But there's not the slightest evidence that immigration is to blame, nor does theory support the idea in any way.

The astonishing badness of the arguments, and falseness of the purported facts, that people use to oppose immigration is constantly reinforcing my preference for open borders.

Evan writes:
I've tried three ways to understand the logic of Pat Buchanan's position, but none of them work.
I think I understand it. It goes something like this: Foreigners are bad, therefore, trading with them must be bad for the country. Anyone who disagrees is unpatriotic.

@Peter Schaeffer

Over time, technological advances (steamships) reduced the cost of immigration and less skilled immigrants started flooding into America. Public opinion shifted from supporting immigration to strongly opposing it.
That paper offers an explanation for why people did increasingly oppose immigration, but not a good reason for them to. If there is high demand for less-skilled people it makes sense to let more less-skilled people in to fill it. The situation the paper presents makes it look like immigration restrictions were passed by a combination of greedy, selfish unions, and paranoid people who were willing to inflict massive suffering on others in order to slightly decrease the crime rate.

Peter Schaeffer writes:

Evan,

"That paper offers an explanation for why people did increasingly oppose immigration, but not a good reason for them to. If there is high demand for less-skilled people it makes sense to let more less-skilled people in to fill it."

There wasn't "high demand". Unskilled immigrants competed directly with natives (who were predominantly unskilled back then). Immigration reduced wages and the public reacted. Democracy.

See "The Political Economy of Immigration Restriction in the United States, 1890 to 1921" by Goldin (in addition to the Hatton paper). The abstract follows.

"Anti-immigrant forces almost succeeded in passing restrictive legislation in 1897, but their plan did not ultimately materialize for another twenty years. During that time 17 million Europeans from among the poorest nations came to the United States. This paper explores the economic and political forces that propped the door open for those twenty years, as well as the factors that eventually shut it Economic downturns and their consequent unemployment almost always brought demands for restriction. The flood of immigrants eventually did result in large negative effects on the wages of native-born workers. But the political clout of immigrants was strengthened by the reinforcing nature of their flows. Cities having large numbers of the foreign born received a disproportionate share of immigrants during the 1900 to 1910 period. After 1910, however, immigrant flows were diluting. This factor and the negative impact of immigrants on native wages were important in the passage of restrictionist legislation, although the rural heartland of America was pro-restriction from the l890s."

Peter Schaeffer writes:

NS,

"Totally, ludicrously false. Immigrants in the 19th century came by SHIP. Shipping technology was relatively cheaper even than airplane technology today."

Wow is that ill-informed. Shipping costs were extremely high before the 20th century (for people). For example, consider the institution of indentured servitude. It took up to seven years of free labor to pay for one transatlanic passage. In other words the difference between the minimum support cost of a servant (room, board, clothes) and the wages of a free worker over 7 years (less in some cases) was equal to a shipping fare. A quote should help.

"Indentured servant" (Wikipedia)

"Wages were low in England,[when?] amounting to about 50 shillings a year for a plowman, and 40 shillings a year for an ordinary unskilled worker. Ship captains negotiated prices for transporting (and feeding) a passenger on the seven or eight week journey across the ocean, averaging about 6 pounds to 10 pounds sterling in 1750 (£861 to £1434 in 2010 pounds) (10 pounds is equivalent to $2,040.43 USD as of 2003), the equivalent of four or five years of work back in England."

There were 20 shillings per pound back then, so wages were 2-2.5 pounds per year.

Of course, shipping costs slowly fell over the next 150 years and wages rose. For the early 19th century, several data sources indicate shipping fares of around 6 pounds. As we get closer to the twentieth century, shipping costs really are lower. See

"Shipping companies and transatlantic migration costs: the case of cunard, 1880-1914"

A quote should help

"But even with all those costs taken into account, only about seven months of work in the 1880s, or four months in 1913, were needed to fully recoup those costs, at typical wage rates and living costs obtained by low-skilled European migrants in the United States."

Of course, that's using American wages. Typical wages for low-skilled immigrants in Europe were much lower and saving a transatlantic fare would have taken years.

"And is Cowen's book about how *immigration* has slowed economic growth since 1965?"

It should be obvious that importing low-wage workers, slows per-capita growth. Math.

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