economic history

ECON 321 SUMMER 2018: INDIVIDUAL ASSIGNMENT 5 Due June 22nd, 2018 by 11:55 PM

Name
Last 3 digits of Student Number
Group Name

Honor Code: I guarantee that all the answers in this assignment, except those for the question specifically marked as a group discussion question, are entirely my own work. I have cited any outside sources in APA style.

Name or Signature for Honor Code: ______________________________________________

The table below is for TA use only.

Question	Marks	Out of
1	a		12
	b		3
2	a		10
	b		5
Total		30

1. Read the following paper, but SKIP Section 3 , which starts on page 143 and finishes on page 155. (UVic connection required for free access.)

Rich, G. (1989). Canadian banks, gold, and the crisis of 1907. Explorations in Economic History, 26(2), 135 – 160. Retrieved from https://www.sciencedirect.com/science/article/pii/0014498389900089

a. (12 marks) Write a 3-2-1 report in the usual fashion.

b. (3 marks) A quick glance at Chart 1 in the paper (reproduced below) is enough to show that the Montreal ‘call loan rate’[footnoteRef:1] is much smoother than the New York and Boston call loan rates, which are ‘spiky’ even in the years without a crisis. Using what you have learned in ECON 321 and the paper you just read, briefly explain why this makes sense. [1: For the purpose of this question, you may think of the call loan rate as the interest rate charged on very short-term loans of cash. For a more technical definition, see Call Loan Rate [Web Page]. (n.d.). Retrieved from https://www.investopedia.com/terms/c/callloanrate.asp ]

1. [Group Discussion Question] This question asks you to investigate the convergence (coming together) of British and North American wheat prices between the late 1800s and early 1900s. In an influential paper, C. Knick Harley attributed this mostly to falling transportation costs due to technological change.

If graphing by hand, use only the first eleven years of data (1845 – 1855). Otherwise, use the full data set (1845 – 1934).

a. (10 marks) Use the data series provided to plot nominal (not adjusted for inflation) prices for 1 bushel of wheat in Great Britain and Chicago[footnoteRef:2]. Note that there are 20 shillings in a pound (£) and 8 bushels in a quarter[footnoteRef:3]. Your graph should have: [2: US data is more readily available than Canadian data for this time period.] [3: From an 1810 British guide to measures: “A Load, or Comb 40 Bushels … A Last of Corn … , 2 Load or 10 Quarters”. Thus, 10 Quarters = 2 Loads = 2 x 40 Bushels 1 Quarter = 8 Bushels.]

i. Years on the Horizontal Axis, and Dollars Per Bushel on the Vertical Axis.

ii. Two line graphs: one for the price of wheat in Great Britain, and one for the price of wheat in Chicago. You will have to convert both price series! British prices are in shillings/quarter, and Chicago prices are in cents/bushel. You want both in dollars/bushel.

b. (5 marks) Suppose the only thing affecting grain prices over the period are transportation costs and minor random shocks. Assume the British price is the price paid by consumers, and the Chicago price is the price obtained by suppliers. Transportation can be thought of as a tax driving a wedge between consumers and producers, as in the tax incidence models you should have covered in Micro[footnoteRef:4]. [4: This is NOT a realistic model for the 19th century international wheat market, but it is useful for teaching purposes and thinking about basic trends. ]

A major result of this model is that the burden of the tax is highest on the party with the lowest elasticity. If price elasticity of demand is lower than price elasticity of supply, consumers will pay most of the tax via higher after-tax prices. If the reverse is true, producers will pay most of the tax via lower take-home prices.

Consider your graph from part a. Given what you have plotted, and our simplifying assumptions, until 1900 (or 1855 if doing it by hand), which was higher: Britain’s price elasticity of demand, or North America’s (Chicago’s) price elasticity of supply? Briefly explain your reasoning. [Hint: For any given change in transportation costs, which changed more: the after-transportation price paid by British consumers, or the take-home price obtained by Chicago wheat sellers?]

Which elasticity was higher? ___________________________________

Explain your reasoning:

Useful References (UVic connection or VPN needed for free access)

Question 1

Rich, G. (1989). Canadian banks, gold, and the crisis of 1907. Explorations in Economic History, 26(2), 135 – 160. Retrieved from https://www.sciencedirect.com/science/article/pii/0014498389900089

Question 2

Fisher, G. (1811). The Instructor, or, Young Man’s Best Companion. London: T. Martin & Co. Retrieved from https://archive.org/details/instructororyou00accgoog

Harley, C. K. (1980). Transportation, the world wheat trade, and the Kuznets Cycle, 1850 – 1913. Explorations in Economic History, 17(3), 218 – 250. Retrieved from http://www.sciencedirect.com/science/article/pii/001449838090011X

Tax Incidence: How the Tax Burden is Shared between Buyers and Sellers [Web Page]. (n.d.). Retrieved from http://thismatter.com/economics/tax-incidence.htm

DATA APPENDIX (BY HAND FIGURES ONLY, SEE EXCEL SHEET FOR FULL SERIES)

Year	Price of Wheat	Exchange Rate	Price Indices
	British Price	Chicago Price		Consumer Price Index	Retail Price Index
	(shillings/quarter)	(cents/bushel)	(dollars/pound)	US, 1967 = 100	Britain, 2010 = 100
1845	57.875	60.958	4.87	28	1.296
1846	55.070	52.292	4.82	27	1.324
1847	70.854	60.417	4.79	28	1.403
1848	50.327	68.667	4.87	26	1.277
1849	43.964	57.625	4.81	25	1.236
1850	40.215	64.583	4.87	25	1.199
1851	38.493	45.167	4.91	25	1.171
1852	41.201	44.667	4.9	25	1.180
1853	53.985	72.958	4.89	25	1.267
1854	72.509	108.083	4.88	27	1.366
1855	74.812	130.125	4.89	28	1.372

Data Sources: See Excel Sheet