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The Ledger Federal Reserve Bank of Boston’s Economic Education Newsletter Spring/Summer 2000 Economics in Your Own Backyard In this issue This article focuses on the economic evolution of And for those of you who live too far away to make 1 Economics in Your Own Backyard Worcester, Massachusetts, and the Blackstone River the trip, below are some of the highlights from In Their 4 Gone But Not (Totally) Forgotten Valley. But on a more general level, it is also about Shirtsleeves… 4 Worcester “Firsts” and Fast Facts rediscovering the treasures in our own backyards. Every community is rich in undervalued resources – artifacts, Worcester Basics 5 Read All About It! photo archives, old work sites, workplace memories passed Worcester, Massachusetts is 44 miles west of 5 Fed Challenge 2000 on to us by neighbors – useful tools for helping students Boston. The Blackstone River, which was important to 6 By the Numbers make the connection between economics and the wider Worcester’s early economic development, runs 46 miles 8 Worth a Thousand Words world. A good place to learn more about using these tools to the southeast and drops 438 feet through a series of is the local historical society in your town or county. waterfalls before it empties into the Atlantic Ocean at 10 Web Wise 11 A Question of Economics Providence, Rhode Island. Hot Tip Worcester provides an ideal vantage point for You don’t have to spend $30,000 a year looking at the process of economic change. The shift to have a quality educational experience. from agriculture to industry, a century of industrial Here’s an alternative: prosperity, de-industrialization, and the successful • head for the Worcester Historical Museum in Worcester, Massachusetts; transition to a post-industrial economy – Worcester has been through it all. Economic opportunity has drawn people to • pay the $3.00 admission; and • spend an hour going through the central Massachusetts city since the early 1700s. In Their Shirtsleeves…, a permanent exhibit They have come to sell their crops, dig the Blackstone that chronicles the industrial innovation and Canal, lay track for the Providence and Worcester economic diversity that made Worcester one of Railroad, and earn a decent living in mills and facto- America’s most successful mid-sized cities. ries. In Their Shirtsleeves… uses artifacts, audio rem- There have been times, especially during the iniscences, videos, computer displays, and a collec- 1970s, when Worcester’s best days seemed to be in tion of wonderful old prints and photos to tell a the past. But as the 21st century begins, the city compelling story that spans more than 200 years. appears to have found a path to post-industrial And when your visit is over, you’ll walk away with a prosperity with a new economic mix that includes: clear understanding of how and why economic conditions change. • higher education (Assumption, Clark, Holy Cross, and Worcester Polytechnic Institute); • health care (the University of Massachusetts For those of you planning a visit . . . Medical Center); • high tech/biotech (Massachusetts The Worcester Historical Museum 30 Elm Street Worcester, Massachusetts Phone: (508) 753-8278 Hours: Tuesday through Saturday, 10 a.m. to 4:00 p.m. Web site: www.worcesterhistory.org Biotechnology Research Park); • transportation (a revitalized airport); and • entertainment/leisure (the Worcester Centrum). 1710 The Ledger Bob Jabaily, Editor Research Department Federal Reserve Bank of Boston P.O. Box 2076 Boston, MA 02106-2076 Or phone: (617) 973-3452 This newsletter is published twice a year as a public service by the Federal Reserve Bank of Boston. The reporting of news about economic education programs and the materials contained herein do not necessarily reflect the views of the Federal Reserve Bank of Boston or the Board of Governors. 1770 1750 1730 1790 1713: After two failed attempts, 1789 – 1793: When Samuel 1814: English colonists establish a per- Slater emigrates to the United cient water power to run large- manent settlement on the site of States in 1789, he carries the secrets scale textile mills. But in 1814 a present-day Worcester. For the of English textile technology in his Worcester company, Merrifield & next 100 years, it remains a rela- head. Within four years, he and his Trowbridge, begins to produce tively small “market town” where American financial backers are machinery for turning cotton into farmers from the surrounding operating Slater Mill on a site cloth. Many of the company’s countryside come to sell their pro- where the Blackstone River rushes machines are sold to textile mills in duce. Many of the farm families past Pawtucket, Rhode Island. the Blackstone Valley. supplement their income by pro- Water power from Pawtucket Falls ducing yarn, homespun cloth, and runs the machinery that spins cot- home-made handicrafts. ton into yarn. During the next 20 Worcester lacks suffi- years, a number of other waterpowered textile mills open up in the Blackstone Valley. 1830 1840 1831: Ichabod Washburn opens a fac- 1835: tory in Worcester to produce metal wire. 1850 The Boston & Worcester 1847: The Providence and Worcester Railroad provides a cheap, efficient way Railroad provides a cheaper, more reli- to ship fin- Copies of this newsletter and a catalog of other educational materials and research publications may be obtained free of charge by writing: able alternative to the Blackstone Canal. ished products from Worcester to Boston. And it’s a Publications Research Department Federal Reserve Bank of Boston P.O. Box 2076 Boston, MA 02106-2076 lot faster than making the trip by oxcart. internet: www.bos.frb.org 1880 1900 1890 e-mail: robert.jabaily@bos.frb.org 1885: Metalworking industries are expanding, and 1899: Washburn & Moen is acquired by American that’s creating demand for better grinding wheels. Steel & Wire. Norton Company, using a process pioneered by Swedish inventor Sven Pulson, begins to produce 1901: high-quality grinding wheels made from a ceramic of U.S. Steel. This reflects two economic trends: 1) material. (Remember, Franklin Norton and his American companies are consolidating, and 2) a grow- cousin began as potters in 1858.) The Norton wheels ing number of factories are no longer run by local are made from a mixture of clay, emery, and water owners. that is fired in a kiln. The ceramic-based wheels are a big improvement over the old wooden grinding wheels that were coated with glue and embedded with emery. American Steel & Wire becomes a division 1910 1810 1830 1828: The Blackstone Canal connects Worcester to Providence. The canal runs parallel to the Blackstone River for 90 percent of its length; a series of 49 locks makes it possible for boats to bypass the river’s falls. One of the big economic benefits to Worcester: The cost of shipping freight to Providence via canal is nearly 50 percent less than the overland freight cost from Worcester to Boston. 1860 1849: 1880 1870 1880: The Blackstone Canal Ichabod Company goes out of business. It Washburn’s wire manu- can’t compete with the railroads. facturing company has become Washburn & Moen, the largest wire 1858: Two cousins, Franklin B. producer in the world. Norton and Frederick Hancock, Some of its products – leave of telegraph wire, tele- Bennington, Vermont to open a phone wire, suspension Worcester pottery shop, where they cable for bridges – make jugs, jars, storage and cooking reflect the growing eco- their hometown pots, pitchers, spittoons, and beer bottles. Their shop will eventually nomic importance of communications and transportation. Another evolve into the Norton Company, one of the world’s foremost pro- product, barbed wire, provides an inexpensive way to fence in the open ducers of industrial abrasives. (See 1885.) range of the American West. 1920 1930 1940 1914: Local corset firms employ 1918: Worcester is declared the 1929-1940: 1,500 women. most efficient war production zone Worcester feels the effects of the Great Depression. 1950 1940-1945: Defense produc- tion gives Worcester a temporary in the United States. (For those of economic boost. But when World you who aren’t too good with War II ends, lower-cost foreign dates, 1918 was the last year of and domestic competitors continue World War I.) to erode the city’s traditional manufacturing base. Worcester Economic Timeline, 1713-1945 The Ledger • Spring/Summer 2000 3 Gone But Not (Totally) Forgotten The names of old-time manufacturing firms had a straightforward, almost tactile quality. They left little doubt as to what a company made or who was in charge. And the companies themselves were such a strong presence that they often seemed like permanent fixtures in places like Worcester. But nothing lasts forever. New technology and changing tastes make old products obsolete. Or companies pack up and move to distant places where labor is cheaper and more compliant. And even though new enterprises often replace the old, it’s hard not to feel a little nostalgic for the days when you could tell a lot about a company just by reading its sign. The Loss of Select Worcester Manufacturing Companies, 1950-1992 1950 1953 1955 1958 1960 1962 1969 1971 1973 1974 1977 1978 1980 1983 1984 1986 1987 1991 1992 Royal Worcester Corset Company Whittal Carpet Company Heywood Boot and Shoe Bell Company Reed-Prentice Corporation Pullman Standard Graton & Knight Worcester Stamped Metal American Steel & Wire Harrington & Richardson U. S. Envelope American Steel & Wire Worcester Molded Plastics Crompton & Knowles Curtis & Marble Rexnord (Baldwin Chain) Johnson Steel & Wire Reed & Prince Coes Knife Heald Machine corsets and girdles carpeting men’s shoes woolens and worsteds machine tools railroad passenger cars industrial belting metal machine parts wire mfg. division firearms envelopes steel and electrical cable plastic household goods looms textile machines industrial chainbelts wire screws and fasteners industrial knife blades grinding machines Worcester “Firsts” and Fast Facts 1826 1850 1855 1887 1900 1906 1971 1972 Above: 1906 – A lunch car from the Worcester Lunch Car Company. Right: 1855 – Joshua Stoddard and his steam calliope. Photos on pages 1 to 4 are courtesy of the Worcester Historical Museum. 4 Spring/Summer 2000 • The Ledger The Coes brothers, of Worcester, obtain a patent for the screw wrench – better known as the monkey wrench. Worcester hosts the first national women’s suffrage convention. Joshua Stoddard invents the steam calliope in Worcester. Scientific American credits Worcester resident Charles Thurber with the invention of the first American typewriter. The Whitney Valentine Company makes Worcester the center of the American valentine industry. From 1906 to 1961, the Worcester Lunch Car Company manufactures diners, some of which are still serving up pie and coffee to hungry customers thoughout the Northeast. Graphic designer Harvey Ball creates the smiley face, a 1970s icon. Worcester’s David Clark Company designs and manufactures high altitude flying suits for the U. S. Air Force and NASA. Want to know more? Blackstone River Valley National Heritage Corridor: www.nps.gov/blac/ The Worcester Historical Museum: www.worcesterhistory.org/ A good site for anyone interested in the construction and operation of the Blackstone Canal: www.hollowcreek.com/blstone.html Read All About It! Engines of Enterprise: An Economic History of New England, edited by Peter Temin Harvard University Press, $24.95 (not available through the Federal Reserve Bank) dramatic as any in the world. From an inauspi- tion of New England from an agricultural to cious beginning as immigration ground to a halt an industrial region. •Joshua Rosenbloom continues the story in the eighteenth century, New England went on to lead the United States in its transformation through the Great Depression. from an agrarian to an industrial economy. And •Lynn Browne and Steven Sass carry when the rest of the country caught up in the mid- the story from the Second World War to the In October 1998, the Federal Reserve Bank of Boston hosted a conference on “Growth and Development of the New England Economy.” The papers and discussions from that conference form the basis of this new book. The following description of the book appeared on the Harvard University Press web site: twentieth century, New England reinvented it- end of the twentieth century, describing how self as a leader in the complex economy of the in- New England reinvented itself to lead the formation society. This dramatic story is told in economy, producing (and exporting) intangi- a sequence of narrative essays written by preemi- ble services such as education and software. New England’s economy has a history as •Peter Temin surveys the transforma- The final chapter poses questions raised by nent historians and economists. •Margaret Newell surveys the colonial the preceding narrations. Bernard Bailyn argues period in New England, discussing the orga- that slavery, while not prominent in colonial New nization of agriculture and growth of trade England, was a part of the economy. Merritt Roe over two centuries. Smith contends that the federal government also •Winifred Rothenberg describes the played a crucial role in the development of New economic revolution that took place during England industrial skills. And Paul Krugman dis- the Revolutionary period in New England, cusses the factors that make for regional growth when the growth of markets transformed in general and asks if New England can count on industrial production. the prosperity of the past to generate future economic growth. Fed Challenge 2000 Team members from Gorham High School in Gorham, New Hampshire, celebrate the fact that they are heading to Washington, D.C., to represent the First Federal Reserve District in Fed Challenge 2000. The happy man on the cell phone is teacher Mike Brosnan. Next to him are, L to R: Niklas Brosnan, Matthew Labonville, Rosalind Stever, Zack Demers, Gabe Graff, Wesley Turner, and technical advisor Chad Miller. Gorham won a hard-fought regional competition that included teams from Boston Latin School, Boston, MA; The Bromfield School, Harvard, MA; Choate Rosemary Hall, Wallingford, CT; and Winchester High School, Winchester, MA. Fed Challenge is a national competition in which high school students analyze current economic conditions and formulate a monetary policy recommendation. The students’ efforts mirror those of the Federal Reserve’s Open Market Committee, which is responsible for setting U.S. monetary policy. The Ledger • Spring/Summer2000 5 By the Numbers and textile mills. Others are being forced off the land because the small farms where they grew up can no longer compete with the A Statistical Snapshot larger, more productive farms in places like Ohio, Indiana, and Each edition of The Ledger highlights at least one statistic related to economic change. This issue looks at four: Illinois. 1880: • U.S. farm productivity, 1800-1960, More than 70 percent of Americans still live in rural areas, but the United States is well on its way to becoming an • U.S. urban growth, 1840-1960, urban, industrial economy. The percentage of people living in • U.S. urban/rural population split, 1800-1960, urban areas has almost tripled since 1840. Chicago alone has • Raw steel produced in U.S., 1860-1920. gone from fewer than 5000 people in 1840 to more than 500,000 Yes, the titles sound dry, but the numbers behind them tell a in 1880. And the U.S. economy is becoming much more indus- story about how and why an economy evolves. The story begins in trial. One example: Raw steel output has increased from 13,000 the early 19th century. Two American political factions, with very short tons in 1860 to 1,397,000 short tons in 1880. different visions of the future, are vying for dominance. 1920: The 1920 U.S. Census shows that for the first time a One faction, led by Alexander Hamilton, is convinced that majority of Americans live in urban areas. The small, indepen- manufacturing, banking, and urban growth are the keys to future dent farmer is still an important American icon, but there’s no prosperity. The opposing faction, led by Thomas Jefferson, believes denying that the United States has evolved into a full-fledged that representative government cannot thrive without a strong core urban, industrial economy. Figures for raw steel output testify to of independent farmers. the growth of industry: 1,397,000 short tons in 1880; Which would prevail? A quick glance at the numbers will tell 46,183,000 in 1920. you almost everything you need to know. 1800: Only 5.7 percent of the U.S. New technology and better techniques made farming less labor intensive . . . population lives in urban areas. Small farms employ a large number of people because farming is very labor intensive; 373 man-hours go into producing 100 bushels of wheat. 1840: Agricultural productivity is much higher than it was in 1800. New technology – metal-tipped plows, U.S. Farm Productivity, 1800-1960 1800 1840 1880 Wheat (Man-hours per 100 bushels) 373 233 152 Corn (Man-hours per 100 bushels) 344 276 180 Cotton (Man-hours per bale) 601 438 303 1920 90 122 296 1960 12 11 47 Source: Historical Statistics of the United States, Colonial Times to 1970 , U.S. Department of Commerce, Bureau of the Census mechanical reapers, improved thresh- Economic opportunity attracted a steady stream of newcomers… ers, and increased use of fertilizer – has made it possible to produce more food with less labor. But as farmers have become more productive, Jefferson’s vision of an agrarian society has begun to fade. The number of Americans living in urban areas has nearly doubled since 1800, in part because the children of farm families are leaving home and heading for the city – especially in New England. Some are drawn by the opportunity to earn steady cash in factories 6 Spring/Summer 2000 • The Ledger Atlanta Boston Chicago Detroit Los Angeles New York Philadelphia Pittsburgh St. Louis 1800 * 24,937 * * * 60,515 41,220 * * Urban Growth, 1800-1960 1840 1880 1920 * 37,409 200,616 93,383 362,839 748,060 4,470 503,185 2,701,705 9,102 116,340 993,078 * <20,000 576,673 312,710 1,206,299 5,620,048 93,665 847,170 1,823,779 21,115 156,389 588,343 16,469 350,518 772,897 1960 487,455 697,197 3,550,404 1,670,144 2,479,015 7,781,984 2,002,512 604,332 750,026 Source: U.S. Department of Commerce, Bureau of the Census Note: Atlanta, founded in 1837, was little more than a railroad junction in 1840. Chicago and Detroit were remote trading outposts in 1800. And Los Angeles, a cow town with fewer than 2,000 inhabitants, was still part of Mexico in 1840. 1960: Farm productivity has risen dramatically since 1920, but farmers have almost become victims of their own efficiency because high farm yields are holding down prices for crops and livestock. But the low prices benefit consumers, and according to the 1960 census nearly 70 percent of the U.S. population now lives in urban areas. The census also shows that Boston and St. Louis have lost population since 1920 – a sign that the migration to suburbia has begun in earnest. But that’s another story. Postscript: How far removed are we from Jefferson’s vision of an agrarian republic? A New York Times article on the hardships of family farmers offers some insights. 1 It focuses on McPherson County, Nebraska, at the end of the 20th century: • In 1997, McPherson County had the lowest per capita income of any county in the United States: $3,961 (New York County, a.k.a. Manhattan, had the highest: $68,686.) • Like most rural areas, McPherson County continued to lose population during the 20th century. In 1920, it had a population of 1,692 but by the end of 1999, only 540 people still called it home. • The percentage of Americans living on farms and ranches declined from 42 percent in 1900 to less than 2 percent in 1999. 1 “As Life for Family Farmers Worsens, the Toughest Wither,” Nicholas D. Kristof, The New York Times, Sunday, April 2, 2000, page 1. The percentage of people living in urban areas continued to climb . . . 1800 1840 1880 1920 1960 U.S. Urban/Rural Split, 1800-1960 (numbers rounded to nearest thousand) Urban Rural % Urban/Rural 322,000 4,986,000 5.7/94.3 1,845,000 15,224,000 10.8/89.2 14,130,000 36,026,000 28.2/71.8 54,158,000 51,553,000 51.2/48.8 125,269,000 54,054,000 69.9/30.1 Source: U.S. Department of Commerce, Bureau of the Census Note: “Urban” is defined as a place that has a population of 2,500 or more; “rural” is 2,500 or less. One measure of industrial growth was the increase in steel production . . . Raw Steel Produced, U.S., 1860-1920 (1,000 short tons) 1860 13 1880 1,397 1900 11,227 1920 46,183 Economic Education Councils & Centers The National Council on Economic Education – a nonprofit partnership of leaders in education, business, and labor – has worked to foster economic education since 1949. Its teacher training affiliate, EconomicsAmerica, provides training and support to more than 120,000 teachers a year. New England currently has three EconomicsAmerica affiliates: Maine Council on Economic Education P.O. Box 9715-159 Portland, ME 04104-5015 Phone: (207) 780-5926 Fax: (207) 780-5282 e-mail: econmaine@aol.com Economic Education Council of Massachusetts 2060 Turnpike Street North Andover, MA 01845 Phone & Fax: (978) 691-2774 e-mail: jcdlstewart@worldnet.att.net Rhode Island Council on Economic Education Rhode Island College Providence, RI 02908 Phone: (401) 456-8037 Fax: (401) 456-8851 e-mail: jblais@grog.ric.edu e-mail: pmoore@grog.ric.edu If you live outside New England and would like to find out how to contact the EconomicsAmerica affiliate in your area, visit the National Council on Economic Education web site: www.nationalcouncil.org Or write to: EconomicsAmerica National Council on Economic Education 1140 Avenue of the Americas New York, NY 10036 Correction The Winter 1999/2000 issue of The Ledger incorrectly stated that “more than $450 billion worth of U.S. currency was held outside the United States in 1998.” According to Treasury Department estimates, the correct figure was close to $300 billion. The $450 billion figure represented the total amount of U.S. currency in circulation during 1998. Source: Historical Statistics of the United States, Colonial Times to 1970 U.S. Department of Commerce, Bureau of the Census The Ledger • Spring/Summer 2000 7 Worth a Thousand Words Anyone who has spent time looking at old photos knows that the experience can be vaguely unsettling. The people in them, frozen for all time in a single instant of work or play, have a way of drawing us into their world. Their eyes look out at us from across the years, and we can’t help but wonder if their dreams and fears were at all like ours. Worth a Thousand Words uses the power of archival photos and prints to focus on New England economic history. It is rocket science! There’s a scene from the film Apollo 13 when an astronaut radios mission control with this chilling message: “Worcester, we have a problem.” Cut!!! Every film buff knows the line is really, “Houston, we have a problem.” Less well known is the fact that Worcester, Massachusetts, played a key role in aerospace history. Dr. Robert Goddard, a Worcester native and a member of the Clark University physics department, developed and successfully launched the world’s first liquid-fueled rocket at his Aunt Effie’s farm in neighboring Auburn, Massachusetts. Lift-off was at 2:30 p.m. on March 16, 1926, and according to Goddard’s diary the rocket “rose 41 ft, & went 184 ft, in 2.5 secs, after the lower half of nozzle had burned off.” Eventually Dr. Goddard moved his test launches to Roswell, New Mexico – a site with better year-round weather, better visibility, and “a minimum of people and houses on it, where rockets could rise, or crash, or even explode without wear and tear on neighbors’ nerves.” But Worcester still maintains a strong link to Robert Goddard through Clark University’s Goddard Archives. If you are at all interested in Photos courtesy of Clark University Archives rocketry – and even if you think you’re not – be sure to check out the archives online: http://libref.clarku.edu/archives/archivesintro.htm It’s a fun site, packed with fascinating detail. 8 Spring/Summer2000 • The Ledger In 1920, Dr. Goddard published “A Method of Reaching Extreme Altitudes,” which discussed the theoretical underpinnings for someday reaching the moon. The New York Times responded by suggesting that he seemed “to lack the knowledge ladled out daily in high schools.” But in 1969 – 24 years after Goddard’s death and three days before humans first walked on the moon – a Times editorial acknowledged that “it is now definitely established that a rocket can function in a vacuum as well as in an atmosphere. The Times regrets the error.” W E B W I S E Current Value of Old Money • “English Consumer Prices, 1264-1998” economics. But you don’t have to be from • “Treasure and Prices in Spain 1505-1650” Massachusetts to benefit from the material, • “US Inflation Calculator, 1800-1999” nor do you even need to be a student. There’s www.ex.ac.uk/~RDavies/arian/ • And more a lot of interesting stuff here. money.html, scroll down to Other Note: For those who are curious about Sources of Monetary History, click the directory name arian in the site’s URL, • links to primary source materials; on current value of old money Mr. Davies explains that it is “the Welsh word • a teachers guide; for money. It also means silver, which was for • a link to Lizzie Borden and Fall River, many centuries the most common metal for a University of Massachusetts-Amherst in- making coins.” dustrial history course adapted for use in How much was an English pound worth in 1770? It’s a question that often prompts anx- grades 7-12; ious parents to call our bank: “My fifth-grader is doing a project on causes of the American Revolution and there’s this question about taxes and English pounds and . . . oh, what are we going to do? The assignment is due tomorrow.” Relax! The British have come to our rescue with a web site maintained by Roy Davies at the University of Exeter. One of the highlights is “Dollar-Pound Exchange Rates, 1800-1997.” But that is only the beginning. There are also links to: • “How Much Did Things Cost in Roman Times?” The site’s major components are: Taking a Whack at Industrial History http://k12s.phast.umass.edu/ ~masag/industrial_history.html Any web site that can figure out a credible way to connect “industrial history” and • an industrial history bibliography. The “Online Primary Sources” included in the industrial history bibliography are particularly useful. Be sure to check out the Kids Info. link on immigration and the industrial revolution: www.kidinfo.com/American_History/ Industrial_Revolution.html “Lizzie Borden” deserves a look. The Massachusetts Studies Project developed this site as a way to help teachers and students tackle the Commonwealth’s curriculum frameworks for social studies and A Bit of Boston Folklore www.bpl.org/WWW/print/brinksjob. html Just the Facts BOSTON, January 17, 1950 Investigators from the Boston Police Department immediately interviewed Brink’s employees at the crime scene. Judging by the expression on everyone’s face, clues were scarce. Note to the style conscious: Check out the beautiful old overcoat on the uniformed officer. Photo: Boston Public Library Print Department 10 Spring/Summer 2000 • The Ledger Okay, this one might not have a direct application to economic education, but it has a lot to do with money. And it’s fun, too. The Print Department of the Boston Public Library has put together a photo retrospective to commemorate the 50th anniversary of the Brink’s robbery. The exhibit, located in the Wiggin Gallery Balcony of the BPL, is open Monday-Friday, 9 a.m. to 5 p.m., through December 2000. And you won’t have to rob a bank to get in. Admission is free. continued on page 12 1. Expensive compared to what? When asked for his thoughts on the subject, a colleague at the Boston Fed didn’t A Question miss a beat: “The ‘flip’ economist answer would be that college really isn’t expensive compared to the cost of not going to college.” In order to spare him the wrath of all those who are buried under a mountain of college debt, we won’t publish this colleague’s name. But there’s merit in what he says. Just of Economics A Question of Economics focuses on questions related to economics in everyday life. Anyone can submit a question – students, teachers, anyone at all. “Why is college so expensive?” The “fat envelope” arrives from the col- And the question need not be complicated. In fact, the more it pertains to daily life, the better. lege of your choice. You’re in! But your troubles aren’t over. Before you Send your question to: Robert Jabaily, Editor The Ledger Research Department Federal Reserve Bank of Boston P.O. Box 2076 Boston, MA 02106-2076 know it, the college bursar’s office will be look at the earnings differential between college and high school graduates. Over the course of a lifetime, those differences add up to “real money.” Median Annual Earnings, 1997 Bachelor’s Degree $40,100 High School Graduate $26,000 Source: Bureau of Labor Statistics from Bureau of the Census, unpublished data. Median Annual Household Income, by Educational Attainment of Householder, 1997 Bachelor’s Degree $59,048 High School Graduate $33,779 mailing your first bill, and it’s going to be a big Source: U.S. Census Bureau (www.census.gov/hhes/income/histic/f018.html) one. 2. Higher costs get passed on to Higher education doesn’t come cheap. consumers. During the 1999-2000 school year, the av- “Higher education” is a business, and erage annual cost – tuition and fees, books and whenever a business incurs additional costs, it supplies, room and board, transportation, and will pass those costs on to consumers if it can. “other” – was $10,909 at a 4-year public col- Numbers from the National Center for lege and $23,651 at 4-year private college. Educational Statistics show that the amount And those are average costs. Students can ex- colleges spent per student went up signifi- of shredded money for each person in your class pect to pay anywhere from $30,000 to cantly during the 25-year period from 1970 to (limit 35). $36,000 a year at a “highly selective” private 1995: E-mail: robert.jabaily@bos.frb.org Fax: (617) 973-3957 If we use your question, we’ll send you a bag college. The question in this issue was submitted via e-mail from Braintree, Massachusetts. Expenditures per Full-Time (in 1995-96 constant dollars) 1970-71 1995-96 help to reduce the cost, and Public 4-Year Colleges $15,308 $20,579 according to The College Private 4-Year Colleges $20,006 $28,623 Board, more money than Yes, financial aid can ever was available in 1999. Increase 34.4% 43.1% Source: National Center for Education Statistics, U.S. Department of Education. But 58 percent of it was in the form of student What are colleges spending more loans, compared with just over 40 percent in money on? According to an article in The 1980-81. Chronicle of Higher Education, “salary increases Why is going to college so expensive? for faculty members and the costs of im- Let’s approach the question from a few dif- proving computer access and student ameni- ferent angles. ties on campus” have had the biggest impact on per-student costs during the 1990s. The Ledger • Spring/Summer 2000 11 continued from page 11 The increased per-student costs were reflected in higher tuition and fees paid by continued from Web Wise, page 10 students and their families: Those of you who don’t live near Boston Average Tuition & Fees at 4-Year Colleges, 1971-71 to 1996-97 (in constant dollars) 1971-72 1996-97 Increase Public 4-Year Colleges $1,519 $3,102 104.0% Private 4-Year Colleges $7,351 $13,411 82.4% can still get the facts on the famous heist by visiting the Library’s web site: www.bpl.org/WWW/print/brinksjob.html • Fun Fact: Only $51,906 of the Brink’s Source: The College Board. cash was ever recovered. Most of it eventually 3. Higher education is a hot product. ended up in the Federal Reserve Bank of Boston’s When demand increases, producers often tend to push up the price of their vault, where it was sent for safekeeping. product. Colleges are no exception. • Economic Education Connection: Between 1980 and 1998, the number of full-time college students increased by more than 32 percent. Maybe there is a way to make this into an “educational” experience. The amount of cash stolen Demand is particularly strong at highly selective colleges, which often receive a in the Brink’s Robbery topped $1.2 million. (An dozen or more applications for each opening in the freshman class. And many of those additional $1.5 million in checks, money orders, applications come from students whose Total Number of Full-Time Undergraduates Enrolled in U.S. 4-Year Colleges 1980 6,315,000 1990 7,234,000 1998 8,364,000 Source: U.S. Census Bureau. and securities was stolen as well.) families are willing to pay top dollar be- Go to the Minneapolis Fed web site and cause they are convinced that getting use the “What’s a Dollar Worth?” calculator to into the “right” school is the key to fu- determine how much the $1.2 million in cash ture happiness and prosperity. Bottom would be worth today. (The cash was stolen in line: Colleges can charge as much as 1950.) they do because so many of us are willing to pay the price. The URL for the Minneapolis Fed site is: Want more information? http://woodrow.mpls.frb.fed.us/economy/calc/ • Trends in College Pricing, an informative 23-page report, is available on the web cpihome.html site for The College Board: www.collegeboard.org • For a comprehensive look at how much colleges spent per student, from 1929-30 to 1995-96, visit the National Center for Educational Statistics web site: http://nces.ed.gov/pubs99/digest98/d98t336.html The Ledger Research Department Federal Reserve Bank of Boston 600 Atlantic Avenue P.O. Box 2076 Boston, MA 02106-2076 Change Service Requested First Class U.S. Postage Paid Boston, MA Permit No. 59702