Section 19-3: New Methods and Business Organizations Ryan Atwood, Spencer Grant, Carter Gagnon

Capitalism Capitalism is the economic system in which individuals rather than governments control the factors of production. Before the revolution, most capitalists were merchants who bought, sold, and exchanged goods. This is commercial capitalism. Capitalists of the Industrial Revolution got more involved in producing and manufacturing goods themselves. Because of this, methods of production became largely mechanized and industrialized. This makes it industrial capitalism.

Division of Labor Factory owners hired large numbers of unskilled laborers, divided the manufacturing process into a series of steps and assigned a step to each worker – a form of division of labor. Since a large number of products could be made in a shorter amount of time, the cost of those products dropped. Machines that did labor also helped drop cost by being able to do multiple steps.

Interchangeable Parts American inventor Eli Whitney used division of labor and interchangeable parts to make muskets. Machines could make the interchangeable parts, and inexperienced workers could handle the machines thus making the process and retail price of the completed muskets cheaper.

The Assembly Line Both division of labor and interchangeable parts are both essential parts to mass production, but the assembly line became the third important factor of mass production in the late 1800s. The assembly line was used in factories and consisted of the item being passed from one employee to another, each performing a different task on the item until it is complete and at the end of the line.

Rise of the Corporation Before the industrial revolution businesses were either sole proprietorships – a business owner by one person or a partnership – a business owner by two or more people. These types of businesses could not survive the industrial revolution, however. Small businesses weren’t able to afford mass-production methods or machinery necessary. As scale of business grew in the 1800s, so did the corporation. A corporation is a business organization in which individuals buy shares of stock, elect directors to decide policies, hire managers, and receive dividends according to the number of shares they own.

Business Cycles The Industrial Revolution brought alternating periods of prosperity and decline – the Business Cycle In a business cycle, when one industry prospers so does another. When a machine is in high demand, so are the parts to make them. This helps both the industry that sells the machines and the industry that makes the parts for the machines. However, when one industry is in decline so is another. Workers are paid less and laid off to keep the business alive. When this happens to one industry, it can create a domino effect to other industries and the economy to be at an extreme low. This is a depression.