Social Education 58(1), 1994, pp. 23-26
1994 National Council for the Social Studies
No nation ever went bankrupt because of trade.
Teaching about past economic events is never easy for U.S. history teachers. The causes are cloudy and always debatable; the concepts are abstract and rarely make intuitive sense to students with limited economic knowledge. Therefore, when an international dimension is added to this subject, the instructional and learning difficulties seem to grow in geometric rather than arithmetic proportions. No wonder teachers and students expend little intellectual energy analyzing the influence of the world economy on the historical development of the United States.
Unfortunately, even the lack of attention to a topic invites conclusions. The lack of attention to the role of the world economy in U.S. history may lead students to conclude that the world economy was not important to the development of the United States, that this country began and grew through self-sufficiency rather than through interdependence. Such conclusions are inaccurate.
Take a Hike
Imagine the following circumstances. A veteran social studies teacher, I. M. Wearrie, tired of teaching students about the eventual decline of the United States in world political and economic affairs, takes a hike in the mountains to get away from it all. By the third day he is feeling refreshed and once again talkative, so he is pleased to be joined by another hiker while making camp for the evening. The new arrival is an older man named E. Z. Daze who agrees to share the camp site with I. M. The conversation, which lasted long into the night, is reproduced here.
I. M. Wearrie: It sure is peaceful here in the mountains. It helps a person forget how unpleasant it is to read the newspapers describing the latest problem in the economy. The United States just isn't what it used to be.
E. Z. Daze: Funny, your attitude is shared by many people, but Ben Franklin takes a different point of view.
I. M. Wearrie: Ben Franklin? He's dead and gone. How would you know what he thinks about today's economy?
E. Z. Daze: Oh, Ben is dead all right, but he isn't gone. His spirit lives on and channels itself through different people. In fact, I'm serving as his official channel. Since his death, he has observed the events of U.S. history and drawn some conclusions about our current conditions. I hope you are interested in talking to him because I can feel him beginning to take over my senses right now. Look out! Here comes a 290-year-old man to discuss the economy with you.
I. M. Wearrie: Wait a minute, don't freak out on me. Why do I always get the strange camp partner?
Ben Franklin: Too late, I'm here. E. Z. can't hear you now, so let's talk. What is the problem? Why are you so upset with this country?
I. M. Wearrie: This is weird, but you seem harmless. All right, let's talk. I'm not upset with the country, but I am discouraged about our ability to compete in the world economy. I know it is popular to talk about the global economy and the shrinking world; but, frankly, I would have liked it better in the old days when the United States was self-sufficient and we didn't have to worry about competition from other countries. The first two hundred years were great. Fate had destined this country to be great. With its abundant natural resources, it was self-sufficient from the beginning and required little or nothing from other countries. Its oceans protected it from the competitive trade of other nations. Now we are adrift in the changing tides of a global ocean of trade, losing our jobs to foreign competitors, and begging other countries to buy our exports. If the world economy is an ocean, we are like California surfers who wipe out instead of riding the waves. I just think we will not continue to be a world economic power unless we protect ourselves from trade with other nations.
Ben Franklin: Well, not only did you choose a poor California metaphor, but you have a rather inaccurate and selective memory as well.
I. M. Wearrie: I thought it was a carefully chosen and insightful comparison. And what do you mean, inaccurate and selective memory? I teach United States history for a living. I know what took place in the last two hundred years.
Ben Franklin: Let me present a scenario to you. Foreign citizens are visiting the United States as tourists in record numbers. Immigration (legal and illegal) brings thousands of new residents every year. Businesses in the United States are finding it difficult to compete with foreign producers. A trade deficit exists because imports are greater in number than exports. Foreign companies and individuals are purchasing land and building in major U.S. cities. They are also providing most of the financial capital for expansion of transportation and transportation facilities. What historical era does this sound like: the 1830s, the 1870s, or the 1990s?
I. M. Wearrie: I hate multiple-choice test questions, but it sounds like the 1990s to me.
Ben Franklin: It actually describes all three time periods. The United States has always been part of the world economy, and the nation's growth has come as the result of the economic cooperation we receive by trading and competing with other economies. Only when the American Indians lived in North America undisturbed by people living in Africa, Europe, and Asia was the economy of the continent self-sufficient.
Ironic, isn't it, that throughout our history as a nation, our economy has benefitted from international trade and migration-it has always been necessary to our welfare-yet people today are afraid of trade and migration. Moreover, they gain little confidence from the historical record that suggests that the United States flourishes in periods of international trade and migration.
I. M. Wearrie: Ben, you are dead wrong! I recently looked through the U.S. Statistical Abstract. It shows that the international trade section of the economy has always been a very small part of our Gross Domestic Product. You can't argue with the evidence.
Ben Franklin: Part of the twentieth-century problem. You can read and quote economic statistics but you can't see an economy for what it is. Remember Bob Dylan, or was he before your time?
I. M. Wearrie: I know who he is.
Ben Franklin: He once wrote that you don't need a weatherman to know which way the wind blows. Well, Ben says that you don't have to be an economist to notice how an economy works. It is true that Gross Domestic Product estimates for the last 200 years of nationhood suggest that world trade transactions were not a large part of the U.S. economy. It is also true that we have been more self-sufficient than other, smaller countries which needed to acquire natural resources from other places. But a broader economic view reveals a larger picture-one that includes how the economy was influenced by the global community.
The world has a limited amount of available resources-land, labor, and capital-that can be used to create items to satisfy human wants. Every nation competes for the use of these resources because, contrary to conventional wisdom, these resources are very mobile and people can choose to use them very differently. Stanley Lebergott, in his book The Americans: An Economic Record (1984, 1), put it this way:
If American economic history has a single theme it is that of choice. . . .[An] unending and unremitting choice between workers, land locations, and production processes created the new society.
Let's look at how the United States has used each type of resource (land, labor, and capital) during its history. Land refers to natural resources (gifts of nature), capital to human-made resources (tools), and labor to the intellectual and physical talents of human beings.
I. M. Wearrie: Wait a minute. I took economics in college. I know the United States has abundant natural resources, and they are not mobile. You can't move the Minnesota iron mines to Mexico or the forests of the Northwest to Japan.
Ben Franklin: Too bad your economics professors failed to teach you how to reason economically. All resources can move, and the United States does send its iron to Mexico and its trees to Japan. Some resources are more difficult to transport than others, but they can be moved if people have incentives to do so. The United States lacked natural resources during the 1700s, so it acquired them. Remember, the first thirteen states covered only a small portion of the eastern seaboard of North America. How did it gain more natural resources? By war and trade. It captured land from the American Indians and bought even more land from France. Ever hear of the Louisiana Purchase? France's wars and its poor financial condition allowed us to make a purchase of millions of acres of natural resources. The world economy presented us with an opportunity to acquire resources.
I. M. Wearrie: Okay, I get your point, but is that the best you can do? We were influenced by the world economy because we got a deal on some land.
Ben Franklin: Oh, no. I have just begun. Do you have an eternity to talk about this subject?
I. M. Wearrie: No, get to the point.
Ben Franklin: The reality of U.S. history is that labor and capital were scarce in the United States relative to other countries in Europe and Asia. Also, the United States had little of the financial capital (savings) required to purchase capital resources and pay workers to build towns, canals, railroads, and factories. How did the United States acquire these necessary resources? The world economy provided most of them until we were able to develop our own capital and accumulate enough savings to invest in a manufacturing sector. Some of your confusion comes from a misunderstanding of which economic resources are most important. Often people think natural resources are the most important economic resource, and people the least important. Some population experts even argue that people are harmful to the economy because of the dangers of overpopulation. A nation's most important economic resource is its people, its labor. People also provide more than muscle work. From a nation's people come creative ideas, new techniques, inventions, and innovations. If a nation allows immigrants to migrate from other countries, it gains new resources from other countries.
The United States experienced two types of immigration that benefitted the country. One type, slavery, is not a proud legacy, but it did provide the economy with many capable, productive people who contributed to the growth of the nation's economy and culture. Southern production of agricultural goods could not increase without more people. The harvesting and planting of cotton, sugar, indigo, and tobacco were labor-intensive activities in a country with a small population. The slave trade brought thousands of Africans to this country whose labor produced agricultural goods that were later sold for profit.
The second type of migration was also critical to the transformation of the United States. Look at this chart.
I. M. Wearrie: You brought along a chart on a hiking trip!
Ben Franklin: Certainly. I need my data and, remember, E.Z. carries my things. Spirits can't carry backpacks.
The chart illustrates the influence of immigration during the 1800s and early 1900s. More than thirty million people from Asia and Europe chose to leave the lands of their birth and participate in the U.S. economy. It is the largest migration the world has ever seen.
The political choice to encourage voluntary immigration changed our nation dramatically and helped make a poor economy into a wealthy, productive one. For example, immigrants settled the prairies and changed forever the use of those lands. Whether one believes the lands should have been left to American Indians or to cattle ranchers, it is indisputable that food production jumped tremendously in the United States when farmers planted for grain crops rather than expanded grazing. In fifty years the United States changed from a country barely able to feed its people to one capable of feeding the world. Many U.S. farmers attempted to be self-sufficient as they worked their farms but found that trading in the world economy provided a better alternative for their families' economic welfare. They became commercial farmers, specializing in crops that sold well in world markets. They also found that their success or failure was directly related to the world price of the crops they produced.
Immigration also brought this country its garment industry. Soon the nation's citizens were clothed with store-bought goods that cost consumers less than home-made clothes. Immigration also brought to these shores master carpenters who helped build homes in such abundance that even unskilled workers could rent or own their shelter. People were not rich; not everyone shared equally in the wealth. But the production of economic goods increased because of the contribution from immigrants to the limited resources available to the economy of the United States.
I. M. Wearrie: What about the capital resources? Did the factories, roads, canals, and railroads migrate to the United States from the rest of the world?
Ben Franklin: Of course! Remember, we were a poor nation in the beginning. We had little or no savings to fund the building of roads, factories, and other tools. So we borrowed both ideas and financial capital from the rest of the world. We borrowed ideas for capital development. We learned how to build roads, canals, factories, weaving machines, and other tools from other countries. Then we borrowed foreign savings, financial capital, to buy these resources for the United States. Foreign investors provided the means to pay for the construction of canals, railroads, telegraphs, street lamps, small businesses, and so on. Even the cattle ranches in the west, so important in American mythology, were often owned by foreign investors. The foreign investor allowed the United States to gain and use capital resources. The same investments could have been used in other poor countries like Russia, Mexico, or Egypt, but they were not because of the U.S. success at convincing foreign investors to send capital to the United States.
I. M. Wearrie: All right, I can see how the world economy helped us acquire resources, and I even admit that it wasn't fate that caused the country to develop a large, productive economy. But don't we have a serious problem in the future? Americans just don't know how to sell to the rest of the world; we don't have a global perspective.
Ben Franklin: Perhaps you are right. The future is uncertain, but our historical experience is reassuring. After all, you still haven't asked me how the world economy encouraged all this productive activity in the United States.
I. M. Wearrie: O.K. I'll bite. How did the world economy provide an incentive for U.S. production? I suppose you are going to tell me they made even self-sufficient people like the mountain men and the whalers part of the world economy.
Ben Franklin: I'm glad you asked. As a nation we wanted to sell items to people in other, richer countries so we would have the income to buy products we didn't produce. What did the foreign customers want? Things like cotton, sugar, indigo, wheat, beaver skins, whale bone, and trips to the Wild West. So Americans trapped animals in the frozen lakes and rivers of the Rocky Mountains to satisfy European popular tastes. Americans hunted whales in the North and South Seas to satisfy world demand for these materials. Now many mountain men were self-sufficient and chose to live in the woods and mountains with little contact with the rest of the world. Most of these independent self-sufficient people, however, chose to become dependent on the world economy when they attempted to earn income by trapping and selling animal furs. They were as dependent upon the world economy as you are right now with your Italian hiking shoes, German stove, South Korean rain gear, Swiss Army knife, Norwegian socks, Japanese camera, Chinese sleeping bags, Finnish fishing lures, Swedish fishing reel . . .
I. M. Wearrie: All right, all right! I get your point.
Ben Franklin: When beaver pelts were hard to acquire and fashion tastes changed, most mountain men had to find another line of work.
I. M. Wearrie: So, do you think I should teach my students that the U.S. economy will perform well in the future?
Ben Franklin: The future is unpredictable, but some optimism is warranted when you realize that the United States has always been involved in competition with other nations. In the past, we have done well attracting resources to this country, so this situation is not new to us. Maybe we can find some lessons in our past to help us move into the future.
I think you should teach your students to make their own judgments about the potential in world trade. Why don't you hold a seminar like the one I held for the members of the Constitutional Convention? They were hung up over the issue of trade between the states and whether interstate trade should be encouraged. Here's what I did.
I handed out small presents (pencils, candy, fruit) to each member. Then I asked them to rate their satisfaction on a one-to-five scale and I added up the total satisfaction for the whole group. Then I put them in small groups and let them voluntarily trade these items within their group. Most people traded for an item they preferred, compared to the one I had first given them. After five minutes, I called an end to the trading and polled them again. Their total satisfaction number had risen. Then I encouraged them to trade with anyone in the seminar to gain an item they wanted. About half of the group made another trade at this time. The final poll revealed an even higher satisfaction total. I asked them why the total satisfaction level had risen. They were smart enough to realize that items had voluntarily been transferred to people who valued them most. After participating in this demonstration, the delegates passed the interstate commerce clause of the Constitution. The same idea applies to voluntary trade with citizens of other countries.2
Well, this international trade talk has been stimulating, but I've got other things to do. It is time for my air bath, so I'll let you talk to E. Z. now. Maybe we will meet again some time.
E. Z. Daze: So, did you have a good talk with Ben?
I. M. Wearrie: He did most of the talking but, yes, you could say we had a spirited conversation. I'm going to try some of his ideas in my classroom. He gave me an interesting perspective on the history I thought I knew. But enough about serious stuff. Tell me, how do you like being a channel for Ben Franklin?
E. Z. Daze: It's not too bad. I meet interesting people, and I get a lot of rest when he is busy talking. I just hate it, though, when he wants to take an air bath in the mountains. Do you realize how cold it is to sit around naked at an altitude of eight thousand feet?
1Even during that period, most economies were not self-sufficient. Trade was common among the peoples of North America before European settlement began.2A complete version of this lesson idea can be found in the first unit of Mark Schug et al., United States History: Eyes on the Economy (New York: National Council on Economic Education, 1993).Reference
Lebergott, Stanley. The Americans: An Economic Record. New York: W. W. Norton & Company, 1984.Donald R. Wentworth is Professor of Economics at Pacific Lutheran University in Tacoma, Washington.