Dominion of Memories - Susan Dunn (Basic Books, 2007)

At the time of the American Revolution, Virginia was the leading state in the Union.  By the time of secession 80 years later, Virginia had slipped into an economic and cultural backwater.  The author finds that the system of slavery was the principal cause for this decline: it stymied state politics, discouraged industry and commerce, and led to a rigid social structure that caused its most talented to seek their fortunes elsewhere.  [975.503]

The thesis is simple: Virginia was the premier state in the early Union, yet within 70 years it had become a backwater.  The reason is slavery.  It is clear that the commonwealth of Virginia had produced a disproportionate share of the leading men of the early Republic.  Four of the first five Presidents and four Virginians served on the early Supreme Court.  Men like Patrick Henry, George Mason, Jefferson, Washington, and Madison had defined the new country.  Virginia had been prosperous in the 1780s but would be impoverished by the 1820s.  It would never play a leading role again in U.S. history.

Susan Dunn finds slavery as the cause of this decline and she presents clear arguments for it.  The slave economy and its agricultural base stultified economic development and sustained political rule by a class of conservative landowners with very different interests from the mass of people.  Slavery corrupted the intellectual life of the people and discouraged invention and industry.

The first impact of slavery was to define labor as something unfit for white men.  Labor was servile and only lesser people should perform it.  (By drawing the work line along color boundaries, the myth of the equality of all white men could be maintained.)  By denigrating work, interest in promoting new industries or inventions was discouraged.  Persons of talent left the state to find more conducive environments.

With so much wealth tied to land and slaves, the decline in land values in the 1820s impoverished many of the state's elites.  The nature of the assets and the decline in values led to a shortage of capital for new enterprises.  The agrarian interests that controlled the state legislature had a fear of banks.  Consequently, few banks were chartered and the capital shortage persisted.

Slavery induced a fear of the central government because it might always be possible for the national government to tax or outlaw slavery.  Therefore, all encroachments on state sovereignty had to be resisted.  This meant that national roads and canals and, even state managed roads, were to be resisted which further discouraged new industry.  Although western Virginia was rich in minerals, for example, difficult transport meant that these were not exploited.  While the opening of the Erie Canal boosted New York with goods from the Midwest, the ports at Alexandria and Richmond suffered for lack of exports coming from the interior.  Ironworking in Richmond was based on pig iron brought from Pennsylvania rather than from smelting in Virginia.  Further, to make internal improvements would require tax revenues.  The planter class that dominated the state legislature was not going to allow taxation of its property in persons.  

The lack of public funds - and the bar on educating slaves - meant that public schools were not established as they were in New England.  Education remained principally a private domain.  The University of Virginia stands as an exception, but it remained beyond the reach of most residents.  Virginia would not have a comprehensive school system until the 20th century.  

Finally, the structure of plantation society impeded political reform.  The Revolutionary War era constitution of the state allocated Delegates (members of the legislature) equally to each county regardless of population and the governor and judges were appointed by the same legislature.  This left the commonwealth's government dominated by planters from the Tidewater region who would continue to govern based on their group's interests.  In addition to their aversion to taxation and public works and their fear of abolition, they were hesitant to embrace political reform, especially of the franchise.  Voting remained restricted to white males who owned property.  It was contended that governance should be in the hands of those who have the greatest stake in society.  All other state inaction followed from this.  By the 1840s, Virginia was one of the only two states in the Union that still required property ownership as a condition of voting.

Thus, without the will or the means to adapt to the changing economy and society, Virginia slipped into a nostalgia that made a virtue of its old-style ways, bad roads, and divided society.  Without economic development, it fell further behind the North and the Midwest and lost its role as leader of the nation.

Throughout the book, Messrs. Jefferson and Madison continually appear to exert local influence on events and movements.  In doing so, they alternate between radical and conservative positions.  The bold men of the 1770s and 1780s could become cautious farmers by the 1820s.  Although it is disappointing to see heroes fail to live up to their reputations always, it is a reminder that these men could be misguided by their own immediate interests, poverty, and needs.  This is not muckraking or just bringing down statues, it is history.

This short book is strongly recommended for a fresh perspective on U.S. history as seen through ties to economics and social dynamics. 

Deflation: What Happens When Prices Fall - Chris Farrell (Collins, 2004)

Inflation has been the global experience since the end of WWII, but this may have been the anomalous period in modern economic history in that deflation or stable prices are more likely over the long run.  Since the mid-1990s, deflationary pressures brought about by advances in productivity and technology have moderated the increase in prices and wages. This book looks at causes and consequences and tries to argue that, in the main, this is a good thing. [332.43]

This book was written as an analysis of current economic trends.  With the perspective of the past dozen years, a book such as this becomes interesting for what it appears to have gotten right and for what we now know to have been quite wrong. 

The author's premise is that deflation brought about by a drop in demand, as happened in Japan after its real estate bubble collapsed can be very damaging to an economy.  The Great Depression is another example of such a deflation; it was a rapid drop in prices and, by setting up expectations of further falls in price, encouraged consumers to put off buying goods that would only be cheaper later still.  The fall in demand and economic activity becomes self-perpetuating.   

There is another type of deflation, one that is gradual and results from outward shifts of the aggregate supply curve.  (NB. This is NOT an argument of "supply side" economics nor should it be confused with that specious doctrine.)  Such a shift results from new technology, increased competition, or changes which reduce the costs of production generally.  In this world, wage increases may be severely dampened, but they are more than compensated for by increased purchasing power. 

Farrell argues that our current bout of low inflation, bordering on deflation, is similar to the same phenomenon at the end of the 19th century in that both grew from new technology: railroads, telegraph, electricity or the internet and supply chain management.  In fact, he suggests that most of modern history saw fairly stable prices with the post-WWII period being the true exception.  Such periods of economic transition can be very difficult for many workers and business owners as industries undergo Schumpeterian creative destruction. 

Correctly, then, Farrell expected some social stress as workers are displaced and industries undergo new competition.  He could see free trade as a likely scapegoat for the social cost of a changing global economy.  This clearly is continuing today and it has affected our political process.  The book is colored by the dot.com collapse and its destruction, but that is already fading.  The author cannot anticipate the far more serious collapse of 2008.  This will exacerbate some of the negative trends and will reverse the steps toward income equality that the late-90s boom engendered as employment grew.   And, the consequent deleveraging as credit collapsed would hold back recovery much longer than might have been expected.  Overall, the author has presented a clear argument that better explains what our economy is going through and offers comfort in that we have been here before. 

This book is recommended for its fresh perspective on deflation.