Building an 1800s town in America

America in the 1800s

Building a New Town
Let us say a small town in America during the 1800s has $2 million worth
of goods and services being bought and sold each year. This basically
means it has a $2 million economy.

The town includes farms, smithys, tanneries, lumber mills, etc. If the
town has 1,000 people, this would mean the average person earned
$2,000.00 per year. Some people earned more, some earned less. But on
the average, we can say each person's income was about $2,000.00 p/yr.

1,000 X $2,000.00 = $2,000,000.00

The local bank in that town has printed $2 million worth of banknotes,
and these are used as currency in the town by the people. As the bank
printed these banknotes, it didn't necessarily give them to the town
people. It used this money to lend to people, it may have bought land,
hired workers, started up shops, etc.

Basically, the people who own the bank will own much of the town when it
begins to grow.

If perhaps another $1 million worth of new goods and services are
created, but these are gambling parlors, saloons, and similar, it is
true the bank can print an additional $1 million in currency without
causing inflation. This is "economic growth".

But as pointed out earlier, such "vice businesses" inevitably cause more
problems than they will benefit. Divorce will rise. Many people find it
harder to do their work properly when they're drunk or after arguing
with a neighbor over some trivial problem. This additional $1 million in
new economic growth will actually impinge upon the existing $2 million
worth of economic activity currently in the town.

Over time, where the vice businesses cause so many headaches and
problems for people running their normal businesses, the $2 million in
stable economic activity might be reduced by 50%. This would mean a $2
million economy which grows by $1 million with vice industries to $3
million, will actually be reduced back down to a $2 million economy or
even less. Often the excess currency in circulation is not withdrawn,
but rather, inflation results.

If $3 million in currency is in circulation in a town with just $2
million worth of goods and services, it will experience a 50% inflation
rate (meaning the price for most things rise by 50%)..

Here we see a good example of how certain types of economic growth can
actually be bad for a town. Even though new currency can be printed to
match it without causing inflation, and that it is economic growth.

Banknotes were the staple for good economic growth and wealth creation
in America during the 1800s, but towns quickly learned it was not
worthwhile to print banknotes to match rises in vices and social problem
businesses. Bankers had to be careful about what new industries they
would fund.

Money could be created, where it did not exist before, to fund the
creation of valuable new businesses and highly stable industries like
farms, log mills, general stores, ship construction, tanneries, road
construction and more.

The growth in "social problem businesses", however, would eventually
make the town goofy, lazy and unproductive; all of which would interfere
with good businesses.

This is why many families in the 1800s brought their children up well,
and kept them away from prostitution, gambling and other vices. There
are often negative economic consequences associated with such vices.