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Development of the American Economy.

The NBER's Program on the Development of the American Economy met in Cambridge on March 3. Program Director Claudia Goldin of Harvard University organized the meeting. These papers were discussed:

Richard C. Sutch, University of California, Riverside, and NBER, "Henry Agard Wallace, the Iowa Corn Tests, and the Adoption of Hybrid Corn: American Corn Yields, 1866-2002"

Martha J. Bailey, University of Michigan and NBER, "Momma's Got the Pill"

Richard H. Steckel, Ohio State University and NBER, and John J. Wallis, University of Maryland and NBER, "Stones, Bones, and States: A New Approach to the Neolithic Revolution"

Howard Bodenhorn, Lafayette College and NBER, "Partnership, Entity Shielding, and Credit Availability"

William O. Brown, Jr., University of North Carolina, Greensboro; J. Harold Mulherin, University of Georgia; and Marc D. Weidenmier, Claremont McKenna College and NBER, "Competing with the NYSE"

Frank Levy, MIT, and Peter Temin, MIT and NBER, "Inequality and Institutions in Twentieth Century America"

Sutch, in his paper, makes the following claims: First, there was not an unambiguous yield advantage of hybrid corn over the open-pollinated varieties in 1935. Rather, the early adoption of hybrid corn can better be explained by a sustained propaganda campaign conducted by the U.S. Department of Agriculture at the direction of the Secretary of Agriculture, Henry Agard Wallace. The Department's campaign echoed that of the commercial seed companies. The early adopters of hybrid seed were followed by later adopters because of the droughts of 1934 and 1936. The eventual improvement of yields, as newer varieties were introduced, explains the continuation and acceleration of the process. "[he biological revolution in corn was not a unique phenomenon. Sutch finds remarkably similar "hockey stick graphs" for the yields per acre in cotton, wheat, tobacco, oats, potatoes, and barley. The synthesis of ammonia and the resulting increase in the use of commercial fertilizers are the more likely sources of the increase in yields of so many other crops during this period.

The 1960s ushered in a new era in U.S. demographic history, characterized by rising ages at first marriage and first birth and sharp reductions in family size. The importance of the birth control pill in this transition, released for the regulation of menses in 1957 and approved for use as a contraceptive in 1960, has found little support in the empirical literature. Bailey develops a new empirical strategy to quantify the importance of oral contraception in married women's fertility decisions, using cross-state variation in the restrictiveness of anti-obscenity statutes. Her estimates suggest that laws restricting the sales of birth control during the 1960s decreased the use of oral contraception and increased birth rates among married women.

The rise of agriculture and the emergence of towns and cities transformed human activities and marked the beginning of modern society. Social scientists have constructed various explanations on thin reeds of evidence, which can be placed into exogenous and endogenous categories, such as climate change and over-hunting of a common property resource. Steckel and Wallis review these explanations and consider new evidence that shows that urban living was less healthy but also considerably less violent than that found among hunter-gatherers. Drawing upon the theory of the natural state, in which the political system manipulates economic privilege to create social order, their explanation is consistent with evidence that new methods of social organization accompanied, and may even have preceded the rise of agriculture. They argue that Neolithic societies preferred urban living built on farming, despite a lower physical standard of living, because new methods of organization created social order, enforced property rights, and reduced violence.

Legal and economic historians have long placed corporate limited liability as the central innovation in organizational law. Without it, the modern industrial firm would not have appeared. An emergent "entity" literature, while not dismissing the importance of limited liability, focuses instead on a firm's ability to shield itself from the personal creditors of its owners. One implication of the entity approach is that firms that could shield their assets from claims of personal creditors should have received credit on better terms than firms not afforded the legal separation of business and personal assets. Bodenhorn shows that entity shielding was important. Partnerships and corporations accessed larger pools of credit on better terms than proprietorships. Entity shielding was as important an innovation as limited liability in the evolution of the modern firm.

The NYSE's recent merger with Archipelago and the proposed merger between the NYSE and Euronext raise many questions about the effects of competition between stock exchanges. Brown, Mulherin, and Weidenmier examine the largely forgotten, but unparalleled episode of competition between the New York Stock Exchange (NYSE) and the Consolidated Stock Exchange of New York (Consolidated) from 1885 to 1926. The ratio of Consolidated to NYSE volume averaged 40 percent and reached as high as 60 percent from 1885 to 1895. The Consolidated averaged 23 percent of NYSE volume for approximately forty years by operating a second market for the most liquid securities that traded on the Big Board. These results suggest that NYSE bid-ask spreads fell by more than 10 percent when the Consolidated began to trade NYSE stocks and subsequently increased when the Consolidated ceased operations. The Consolidated brought innovations to Wall Street including the establishment of a clearinghouse to increase the transparency of financial transactions and odd-lot trading. The stock market rivalry also played an important role in the development of the NY Curb Market (American Stock Exchange). This suggest that: 1) the NYSE has faced significant competition; 2) competition reduces bid-ask spreads; and 3) competition between exchanges may improve investor welfare by encouraging institutional innovations.

Levy and Temin provide a comprehensive view of the worsening income distribution in the United States, contrasting conditions since 1980 with those in earlier postwar years and arguing that income distribution in each period was strongly shaped by a set of economic institutions. The postwar years were dominated by unions, the negotiating framework set in the Treaty of Detroit, progressive taxes, and other government regulations, including a high minimum wage that pushed toward income equality. More recent years have been characterized by reversals in all these dimensions, in an institutional pattern known as the Washington Consensus. Other explanations for income disparities including skill-biased technical change and international trade are seen as factors operating within this broader institutional story.
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Title Annotation:Program and Working Group Meetings
Publication:NBER Reporter
Date:Jan 1, 2007
Previous Article:Law and Economics.
Next Article:Entrepreneurship.

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