Economics 362


 Fall 1999

For a Word version of this syllabus, click here.

Professor Steven Horwitz

MWF 9:40 10:40

11 Hepburn Hall


Office Hours: T 2:30-4 and W 2-4 and by appointment

Unlike many of the upper level economics courses, the major goal of this course is not to increase your understanding of economic theory. Instead, we will use many things you already know to make sense of historical events. Most economists do economic history by using econometrics and other fancy statistical techniques. That will not be the approach we take. Rather, we will attempt to understand American economic history and use economic theory to make the big events of the last 200 years ago or so intelligible. We will explore both the "big picture" and the "big story." We will be interested in both "the facts" and the "moral of the story." It is often said that those who ignore history are doomed to repeat it. We will take that seriously and explore how a solid understanding of American economic history can help us make sense of current issues and policy debates. Economic policy should be informed by good history, and one goal of this course is to make you good citizens by enhancing your understanding of how the US economy got to where it is today.

The major theme of our discussions will be the role of government in the US economy. One of the clear trends of US economic history is the growth in the size and scope of the government's involvement in economic activity. We will both trace the history of this growth and offer some explanations for why it has occurred. More important, however, is asking the question of whether this growth has been a beneficial change. What can an understanding of the history of that growth add to our understanding of current policy debates over the size of government, and over what exactly government should do?

If you have trouble reading complex material, coming to class regularly, or writing papers, you may want to think twice about this course. This class will also involve more reading and writing than most other economics courses, and I take writing seriously and my standards are high and firm.


Your grade will be based on two medium-length papers, a short library assignment, a short oral presentation, a comprehensive open-book final exam, an interactive electronic journal, and class participation/attendance. The two papers will count 15% each and will be about 5-7 pages in length and will cover one topic each. You will have a choice, though limited, as to the exact question you will address, but you all will be working on the same general topics at the same time. Topics will be distributed at least one week before the papers are due. Before the first paper is due I will distribute a guide for writing papers that will indicate what I expect in terms of content, documentation and presentation. READ THAT GUIDE. I will assume that you have read and understood it, and I reserve the right to lower grades for failure to comply with what is there.

You will also be required to rethink one of the two papers. You may choose the one you wish to rethink, but keep in mind that I expect significant work on a second draft. You must decide to do a second draft before the next paper is due. In other words, you can't decide after the next paper to rewrite the previous one. As part of your process of rethinking you MUST schedule a writing conference with me, outside of class, to talk about how you plan to proceed on the second draft.

The library assignment will involve finding a journal article on the subject matter we are discussing in class and providing a careful and thorough summary of it. We will talk more about this as the first chance to do so gets closer. This precis will be worth 15%. In addition you will also be responsible for "presenting" one of the assigned readings to the class once during the semester. More details on this will follow as well. This presentation will be worth 10%.

The interactive electronic journal requires that you understand how to use email with software such as Netscape or Explorer or Eudora, as well as having access to Word 97 and knowing how to attach a Word file to an email. What will be required of you is to create a Word file that includes your reactions/responses to one of the readings or to the class discussion and send me that file about once a week. I will comment on your responses and pose some questions and issues of my own. Over the course of the semester, this file will grow and will, by the end, be an intellectual journal of your experience in this course, as well as a way for us to interact one-on-one. I will assign specific questions from time to time, as well as mandating a certain number of entries by specific dates during the semester. At the end of the semester, I will grade (15%) the whole journal.

The final exam (20%), which will be open books and notes, is a chance for you to address some of the term's major topics in a more structured way. Class participation/attendance is expected in a class this small and counts for 10%.

Grading breakdown: Grading scale:

Topic Paper #1 15%

Topic Paper #2 15%

Journal article precis 15%

Interactive electronic journal 15%

Chapter presentation 10%

Class participation and attendance 10%

Final exam Mon. Dec. 13 1:30pm 20%

TREAT THIS SYLLABUS AS A CONTRACT - IT IS THE FINAL COURT OF APPEAL FOR ALL DISPUTES. Late papers are subject to a maximum penalty of 5 points (out of 100) per day. All requests for extensions must be made at least 48 hours before the paper is due. 


(H-Higgs; S-Smiley; K-Kolko; C&A-Cox and Alm)

All others are in the reading packet.)



Topic (approximate # of classes) Reading



The growth of government H (1, 2)

Ideas and events H (3)

An intellectual framework Hayek; H (4)

We begin the semester with some of the general themes we will pursue. The most central of these themes will be the question of the growth of government. The Higgs book sets out the issues and begins to explore the interpretive frameworks involved. The reading by Hayek provides additional theoretical help. What we will explore is the way in which both markets and politics attempt to provide social coordination. Hayek's discussion of markets as communication processes and public choice theory's description of politics as self-interested exchange will together give us a way of analyzing various institutions and their unintended consequences.


The industrial revolution Rosenberg and Birdzell; Hutt

The American revolution North et. al. (5)

Although we will not devote too much attention to it, understanding the early years of the US economy, and that of the West more broadly, is a necessary backdrop to the later episodes we will explore. One goal here is to examine the causes, events, and effects of the industrial revolution. The context will be Western Europe, but the story of its rise is crucial to understanding events across the ocean in the US. The other goal will be to look at the economic implications of the American Revolution, particularly the ideas held by the founders and the way they were put into practice in the US constitution.


An overview K (intro); H (5, 6)

Antitrust K (1 - 4)

Regulation K (5, 7)

The creation of the Fed K (6); Horwitz

World War I H (7); S (1)

The first of the three major US historical episodes we will explore is the Progressive Era, roughly 1870 to 1914. The period was one in which the size of government grew enormously, as both the public's ideology and the institutional incentives facing various actors aligned in such a way as to promote more government intervention. The three major areas we will look at are: 1) antitrust law; 2) general economic regulation, especially the railroads; and 3) the origins of the Federal Reserve System. What we will find is that rather than the frequently heard story that the private sector was out of control and needed the firm and public-spirited hand of government, guided by wise and noble leaders, to straighten it out, it was more that various interest groups saw opportunities to use state intervention to improve their relative positions in the economy. Much of the intervention that arose in this period has little basis in real economic problems generated by the private sector. We will conclude this section with a brief look at the economic consequences of the US entry into World War I.


The US 1920 to 1940 S (2, 3, 5)

The events of the Great Depression S (6); H (8)

What caused the Great Depression? S (7); Rothbard (on Hoover); Smiley vs. Cowen in CR

World War II S (8); H (9)

After the Progressive Era and World War I, the next period where the size of government became a major issue was the Great Depression and World War II. In this section we will look at the events of the Great Depression, and the way it fed back to people's beliefs about the benefits of the private sector and government intervention. Our interest here is in both what caused the Great Depression and what its legacy has been. Once again, we will see that the causes of the Great Depression lay within the political process, rather than unfettered markets, and that the government intervention that ensued was, again, largely unnecessary and mostly generated by the self-interest of various actors. We will conclude this section with an examination of the wartime economics of World War II.


An overview S (9, 11, 13)

The growth of government H (10)

The immediate years after World War II, especially the 1950s, are normally considered to be a boom time in US history. We'll take a quick look at the facts and figures of this period, and how it differed from what came before and presaged what would follow. The fall of the manufacturing sector and rise of the service sector are crucial issues here, as is the increased labor force participation of women. In addition, the same questions about the size and scope of government arise here as well.

THE 1980S AND 1990S (8)

An overview S (15)

Are US living standards declining? C&A (1-3)

Are the rich getting richer and the poor poorer? C&A (4); S (16)

Labor market trends at the turn of the century C&A (6-9)

The third of our three major periods is the last 25 years, or the period you have been alive. The goal here is threefold. First, what are the facts and figures? What has the US economy done in this period. In particular, are things getting worse in the way many commentators seem to argue? Second, how does this period fit in the context of the broader historical trends we've been examining all semester? Third, what does the last 25 years imply about the increasing size of government? Is it necessary? Is it counterproductive? Does it really even matter? Having explored the economic history of the US in some detail, we can see the last 25 years in a much richer way.


The market, the state, and economic progress K (conclusion); H (11)

What sorts of conclusions can we draw from what we've learned this semester? What are the morals of the story?



Cox, W. Michael and Richard Alm. 1999. Myths of Rich and Poor, New York: Basic Books.

Higgs, Robert. 1987. Crisis and Leviathan, New York: Oxford University Press.

Kolko, Gabriel. 1963. The Triumph of Conservatism, New York: Free Press.

Smiley, Gene. 1994. The American Economy in the Twentieth Century, Cincinnati: South-Western.

Readings: Cowen, Tyler. 1991. "Can Keynesianism Explain the 1930s? Rejoinder to Smiley," Critical Review 5, 1, Winter: 115-20.

Hayek, F. A.. 1945. "The Use of Knowledge in Society," in Individualism and Economic Order, Chicago: University of Chicago Press.

Horwitz, Steven. 1990. "Competitive Currencies, Legal Restrictions and the Origins of the Fed: Some Evidence from the Panic of 1907," Southern Economic Journal 56, 4, January: 639-49.

Hutt, William H.. 1954. "The Factory System of the Early Nineteenth Century," in F. A. Hayek, ed., Capitalism and the Historians, Chicago: University of Chicago Press.

North, Douglass, Terry Anderson, and Peter Hill. 1983. Growth and Welfare in the American Past, 3rd edition, Englewood Cliffs, NJ: Prentice-Hall.

Rosenberg, Nathan and L. E. Birdzell. 1986. How the West Grew Rich, New York: Basic Books.

Rothbard, Murray N. 1963. America's Great Depression, New York: Richardson and Snyder, chapter 7.

Smiley, Gene. 1991. "Can Keynesianism Explain the 1930? Reply to Cowen," Critical Review 5, 1, Winter: 81-114.