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Unit 6: Economics.

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1 Unit 6: Economics

2 Colonial America Mercantilism - common economic policy among European kingdoms in the 17th century - saw trade, colonies and the accumulation of wealth as the basis for a country’s military and political strength. Government regulated trade and production in order to become self-sufficient Purpose of colonies was to provide raw materials to the parent country Colonies existed only for the purpose of enriching the parent country.

3 Colonial America Navigation Acts (1650-1673) Mercantilistic policy
Established three rules for colonial trade Trade could only be carried by English or colonial built ships operated by English or colonial crews All imports (except a few perishables) had to come through English ports Enumerated goods from colonies had to be exported to England only. (at first tobacco, but list grew)

4 Impact of Navigation Acts
Helped New England ship-building Chesapeake colonies had tobacco monopoly in England Colonial manufacturing was severely limited Farmers got low prices for their crops Colonists had to pay high prices for manufactured goods from England Enforcement was sometimes slack

5 Colonial Labor Shortages led to:
Indentured servants – contracted for 4-6 years, passage paid, work for room and board Headright system – 50 acres offered to each immigrant who paid own passage or to any plantation owner who paid for an immigrant’s passage Slavery – first Africans arrived in Virginia in 1619, brought by a Dutch trader. At first not held for life, roughly same status as indentured servants By 1650’s only about 400 African laborers By 1660’s Va. House of Burgesses had passes laws that discriminated between blacks and whites. Africans and offspring to be slaves for life. White laborers to be freed after a certain period of time.

6 Slavery By early 18th Century there were tens of thousands of slaves
By 1750 half of Virginia’s population and two thirds of SC’s population were slaves Slave trade was profitable for New England merchants

7 TRIANGULAR TRADE Ship loaded with rum left New England, crossed the Atlantic to West Africa Traded rum for hundreds of captive Africans Set sail across Middle Passage Those who survived would be traded as slaves in West Indies for cargo of sugarcane Sugarcane would go back to New England where it would be made into rum.


9 Government under Articles of Confederation
Major economic problems Reduced foreign trade and limited credit b/c of war debts that hadn’t been paid No national taxes States printing worthless paper money States suspicious of each other, competing for economic advantage Tariffs and restrictions placed on movement of goods across state lines

10 New Nation Alexander Hamilton (Washington’s Secretary of the Treasury)
Plan to put the US on firm financial footing Pay off national debt ($54 million) and have the government assume the war debts of the states ($25 million) Protect new and developing industries and collect revenues by imposing high tariffs on imported goods Create a national bank for depositing government funds and printing money, provide stable US currency Conflict between northern merchants who supported and state’s righters who thought states would lose power to new government

11 Market Revolution The antebellum era was a time of great technological and economic innovation. The Industrial Revolution (England 1700’s) had produced new inventions and methods of production. American inventors transformed the U.S. economy with new innovations of their own.

12 1793 – Eli Whitney’s cotton gin
Southern planters abandoned most other crops in favor of cotton Greater need for slave labor North built factories to spin the cotton Factories created richer merchant class as well as laborers who were paid by the hour to tend the machinery or the cloth


14 Interchangeable Parts
Whitney perfected interchangeable parts with muskets Manufacturers in other industries took advantage of this idea

15 John Deere’s horse pulled steel plow revolutionized farming
Cyrus McCormick (1830s) invented a mechanical mower/reaper that made harvesting wheat more efficient.

16 Regional Specialization
the West farmed to feed the Northeast, the South grew cotton to ship to the Northeast, and the Northeast produced manufactured goods to sell in the West and South. The roads, canals, and other internal improvements made under Henry Clay’s American System made this nationwide trade possible.

17 Factory System First US factory – 1791
Samuel Slater came to the US with British secrets for building cotton spinning machines New England became the leading US manfacturing center b/c of abundant water power for driving the new machines and ports for shipping goods Also had ready labor supply b/c farming was being taken over by the west Financial businesses grew in New England as the factory system expanded (banking and insurance)

18 Labor Problems at first b/c mills and factories had to compete with the availability of cheap land in the west Lowell, Massachusetts Recruited young farm women and housed them in company dormitories Other factories followed this example Extensive use of child labor (as young as 7) Immigrants (toward the middle of the century)

19 Unions 1790’s – trade or craft unions in major cities
Increased in number as factory system took hold Long hours, low pay, poor working conditions led to widespread discontent Prime goal of early unions Reduce work day to 10 hours Obstacles to union success Immigrants (replacement workers) States outlawing unions Frequent economic depressions with high unemployment

20 Effects End of self-sufficient households Growing interdependence
Farmers fed the workers in the cities Workers provided farm families with mass produced goods Standard of living increased for most people Wages improved for most urban workers Gap between wealthy and poor increased Women in workplace Usually single women Domestic service or teaching in cities Factory jobs like Lowell were uncommon

21 Growth of cities Cities grew at key transportation points
1820 – Buffalo, Cleveland, Detroit and Chicago on the Great Lakes; Cincinatti and St. Louis on major rivers

22 Expanding Economy Prior to 1840 After 1840
Factory production concentrated in textile mills of New England After 1840 Spread rapidly to other states of Northeast Production of shoes, sewing machines, ready to wear clothing, firearms, precision tools, iron products for railroads, etc. Invention of sewing machine (Elias Howe) took production of clothing out of homes and into factories

23 Panic of 1857 Boom at midcentury ended in panic
Serious drop in prices, esp. for midwestern farmers Increased unemployment in cities South less affected – cotton prices remained high Led to southern belief that their economy was superior and union with north not needed

24 Rise of Industrial America
By 1900, the leading industrial power in the world Manufacturing exceeded three largest rivals – Britain, France and Germany US economy grew rapidly – 4% a year WHY?

25 Abundant labor supply (with plenty of immigrants coming in)
Plenty of natural resources that were essential at the time (coal, iron ore, copper, lead, timber, oil) Abundant labor supply (with plenty of immigrants coming in) Growing population, advanced transportation network – largest market for industrial goods in the world Plenty of capital (Europeans also willing to invest) Development of labor saving technologies Over 440,000 new patents between Friendly government policies that helped business Protection of private property, subsidized railroads with land grants and loans, protective tariffs, didn’t regulate businesses or heavily tax corporate profits Talented entrepreneurs who were able to build and manage vast industrial and commercial enterprises

26 Railroads – the nation’s first big business
After Civil War, mileage increased more than five times! Impact on American economic life was greater than any other innovation Created a market for goods on a national scale Encouraged mass production, mass consumption, economic specialization Resources used in railroad building promoted growth of other industries – esp. coal and steel Affected routines of daily life Soon led to division of country into four time zones (1883) Railroad time became standard time for all Americans Led to creation of modern stock holder corporation and development of complex structures in finance, business management and regulation of competition

27 Problems Overbuilt Mismanaged Fraud Panic of 1893
Speculators went into it for quick profits, made millions selling off assets and inflating the value of stocks Railroads scrambled to survive and offered rebates (discounts) and kickbacks to favored shippers. Charged high rates to smaller customers such as farmers. Tried to increase profits by forming pools – competing companies agreed to secretly and informally fix rates and share traffic. Panic of 1893 J. Pierpont Morgan and other banks took over bankrupt railroads and consolidated them. Eliminated competition, stabilized rates, reduced debts Railroads became more efficient, but control of powerful men who dominated boards of competing railroad corporations created regional monopolies.

28 Industrial Empires Steel Andrew Carnegie Oil John D. Rockefeller

29 Steel Industry Henry Bessemer of England and William Kelly in the US discovered that blasting air through molten iron produced high quality steel. (1850s) Great Lakes region emerged as leading steel producer Andrew Carnegie began manufacturing steel in Pittsburgh in the 1870s Vertical integration – company would control every stage in the process from mining raw materials to transporting the finished product. By 1900, Carnegie Steel was top in industry 20,000 workers, produced more steel than all of Britain Sold his company in 1900 for over $400 million New steel combination headed by JP Morgan US Steel, first billion dollar corporation and largest enterprise in the world – 168,000 workers, controlled 3/5 of nation’s steel business

30 Oil Industry First oil well - Titusville, PA. in 1859
Edwin Drake 1863 John D. Rockefeller founded a company that would come to control most of the nation’s oil refineries by eliminating its competition. Applied the latest technologies and efficient practices Extorted rebates from railroads, cut prices to force competitors out 1881 Standard Oil Trust controlled 90% of the oil refinery business. Horizontal integration – former competitors brought under control of a single corporate umbrella Controlled supply and price of oil products $900 million fortune when he retired

31 Antitrust Movement 1880’s fear of trusts’ power and increasing influence of the rich led to demands for action 1890 Sherman Antitrust Act Prohibited any contract , combination, in the form of trust or otherwise, or conspiracy in restraint of trade or commerce. Vague wording failed to prevent development of trusts in the 1890’s. SC in US v. EC Knight Co. (1895) ruled that the act only applied to commerce, not to manufacturing.

32 Social Darwinism Ideas of natural selection and survival of the fittest applied to the marketplace. Concentration of wealth in the hands of the “fit” was a benefit to all. Help for the poor was misguided because it interfered with the laws of nature and would weaken the evolution of the species by preserving the unfit.

33 Gospel of Wealth Religion also used to justify wealth
Applied the Protestant work ethic Hard work and material success are signs of God’s favor People like Rockefeller believed this and said that “God gave me my riches”. The wealthy had a God-given responsibility to carry out projects of civic philanthropy for the benefit of society. Carnegie donated over $350 million of his fortune to support building libraries, universities, etc.

34 Impact of Industrialization
Sharper divisions among classes Richest 10% of US population controlled 9/10 of the nation’s wealth by 1890s. New class of millionaires – flaunted wealth, lavish parties, enormous homes, yachts – conspicuous consumption Horatio Alger myth – ignored widening gap, looked at self-made men like Carnegie, American dream, Horatio Alger stories where young man of modest means became rich and successful through hard work and honesty, sometimes a little luck.

35 Horatio Alger

36 Growing Middle Class Large corporations needed thousands of white collar workers to fill administrative jobs Accountants, clerical workers, salespersons Middle class employees increased demand for other middle class workers – professionals (doctors and lawyers), public employees, storekeepers.

37 By 1900 2/3 of all Americans worked for wages
Most worked in jobs that required 10 hour days, six days a week Wages were barely above subsistence b/c of huge availability of immigrant labor Working class families depended on additional income of women and children In 1890 families averaged less than $380 a year in income. One in five women was in the labor force in 1900 Most were single and young Factory work was limited to textiles, garment and food processing industries Moved into clerical as demand increased Wages went down as occupations became feminized and lost status

38 Labor Discontent Factory work was highly structured and regulated to increase productivity – much different from the work that artisans did prior to Industrial Revolution. Assigned just one step in the process Semiskilled tasks, very repetitive and monotonous Tyranny of the clock Dangerous conditions Exposed to chemicals and pollutants Changed jobs a lot – average of every three years

39 Protest Absenteeism Quitting
Most common forms of protest About 20% dropped out of industrial workforce, far higher than percentage that joined labor unions Late 19th century – violent labor conflicts

40 Tools of Employers in dealing with Organized Labor
Surplus of cheap labor – easy to replace workers with strikebreakers or scabs. Lockouts – close factory to break movement before it could get organized. Blacklists – prounion workers on list, circulated. Yellow-dog contracts – workers had to sign agreement not to join union before they would be hired. Private guards/state militia – called in to put down strikes Court injunctions – against strikes Stirred up fear among the public against unions as un-American Prior to 1900, won most battles with organized labor, could always count on government support, esp. if there was violence

41 Tools of labor Divided on best methods to fight management
Political action Strikes Picketing Boycotts Slowdowns Goal to achieve union recognition and collective bargaining

42 Attempts to Organize National Labor Union – 1866
Knights of Labor – 1869 American Federation of Labor

43 National Labor Union 1866 First attempt to organize all workers in all states, both skilled and unskilled, agricultural and industrial Blacks and women not allowed to join Goals – higher wages, 8 hour day Broad social program – equal rights for women and blacks, monetary reform, worker cooperatives Lost support after depression in 1873 and unsuccessful strikes of 1877 (Great Railroad Strike)

44 Knights of Labor 1869 Led by Terrence Powderly
Began as secret society in 1869, went public in 1881 Opened membership to all workers – African Americans and women Goals – worker cooperatives to make each man his own employer, abolition of child labor, abolition of trusts and monopolies Difficulty bargaining collectively b/c they represented such diverse groups Couldn’t control local units that decided to strike Declined after violence of Haymarket riot in Chicago in 1886 turned public against the union.

45 Knights of Labor Trade Card Seamstress and tailor (age and beauty) in Knights of Labor card designed to carry imprint of approved merchant on back.  

46 American Federation of Labor
1886 Founded by Samuel Gompers Concentrated on practical economic goals Unlike KOL which had been idealistic and reform minded Went after basics Higher wages, improved working conditions Gompers ordered walkouts until employers would negotiate new contracts through collective bargaining. By 1901, the largest union in US, over 1 million members Didn’t achieve major successes until early decades of 20th century


48 MAJOR STRIKES Railroad Strike of 1877 Haymarket 1886 Homestead 1892
Pullman 1894

49 Railroad Strike of 1877 Why? B&O railroad announced 10% wage cut during depression, 2nd cut in 8 months Wage cut to reduce costs Also running extra long trains with two engines, workers laid off, dangerous Strike spread across 11 states and shut down 2/3 of the country’s rails Workers joined by other industries FIRST TIME in history – President Hayes sent in federal troops to end labor violence Strike collapsed More than 100 people killed Employers began to rely on federal and state troops to keep unrest/strikes down Some employers began to address grievances by improving wages and conditions, others worked harder than ever to bust workers’ organizations Workers accepted the wage cut and went back to work.

50 Pics of Railroad Strike

51 Haymarket 1886 1st May Day labor movement
Demonstrating for 8 hour workday McCormick reaper factory in Chicago – police broke up fight between workers and scabs, several wounded Protest rally May 4 Protesting treatment of workers by police Anarchists joined the protest (advocated violent overthrow of government Police attempted to break up the meeting at Haymarket Square Someone threw a bomb, killed 7 police officers Bomb thrower never found 8 anarchists were tried for conspiracy to commit murder – 4 hanged, 1 suicide in jail, 3 pardoned (no real evidence against them) Led many Americans to believe union movement was radical and violent. Knights of Labor lost popularity and membership No 8 hour day until FDR’s New Deal

52 Haymarket Riot

53 Homestead 1892 Why? Wages cut 20% by manager of Carnegie’s steel plant near Pittsburgh (Henry Frick) Frick used the lockout, private guards and strikebreakers to defeat workers walkout after five months. Workers fought bloody battle and drove off 300 Pinkerton detectives hired to guard the plant and break the strike. Gov. of PA sent state militia Union’s resources were exhausted, strike collapsed, workers accepted the company’s terms. American sympathy was with the strikers until someone tried to kill Frick. Plant remained non-union until the late 1930s.

54 Homestead Strike

55 Pullman 1894 Last of the great strikes
Marked shift in government’s involvement with labor-employer relations Why? Company town for Pullman workers, bad conditions Workers laid off, wages cut 25% Rent/prices in company town at same level Delegation protested, Pullman fired 3 of them Led to local union strike Pullman closed the plant, wouldn’t bargain

56 Pullman Eugene Debs (labor organizer) urged boycott of Pullman cars.
Widespread local strikes 120,000 railroad workers joined the strike Western railroad traffic disrupted, including mail delivery Railroad turned to the federal government Argued the mail had to get through Court order forbidding all union activity that halted railroad traffic. President Cleveland sent troops to make sure strikers obeyed. Over in a week. Government helped limit union gains for over 30 years. Workers did not get lower rents.

57 Pullman Strike

58 Grover Cleveland “If it takes the entire Army and Navy of the US to deliver a postcard in Chicago, that postcard will be delivered.”

59 Regulation of Big Business
- weak Sherman Anti-trust Act (1890) Vague language, lack of enforcement Teddy Roosevelt ( ) First President to really enforce the Sherman Anti-trust Act Believed growth of big business was inevitable Approved “good” trusts, tried to destroy “bad” trusts. Over 40 anti-trust cases Won a battle against a railroad trust that would have monopolized service in the Northwest. William Howard Taft (TR’s successor) Over 90 anti-trust cases Muckrakers helped regulate big business

60 Regulation of Big Business
Muckrakers Ida Tarbell exposed business practices of Standard Oil Company in her History of the Standard Oil Company Frank Norris wrote about the struggle of wheat farmers against the railroads in The Octopus Gustavus Myers wrote about corruption and exploitation practiced by leaders of big business in History of the Great American Fortunes Ray Stannard Baker wrote about railroad evils and abuses in Railroads on Trial Upton Sinclair wrote about the meat-packing industry in The Jungle

61 Regulation of Big Business
Woodrow Wilson Got Congress to enact several business reform laws Clayton Antitrust Act (1914) Tried to strengthen the Sherman Anti-trust Act by listing specific illegal practices and combinations: 1) price discrimination toward purchasers, 2) “tie-in” contracts by which merchants could buy goods from a company only on condition that he would not handle the products of that company’s competitors, 3) certain types of holding companies and interlocking directorates Declared these unlawful if they lessened competition or created a monopoly. Same problem with SC interpretation as with the Sherman Act – only restraint of trade that seemed “unreasonable” was considered illegal. Prohibited use of antitrust laws against farm cooperatives and labor unions.

62 Wilson’s regulation of Big Business
Federal Trade Commission Act (1914) Established the FTC to take reports and make investigations of business firms. Main purpose was to enforce Clayton Act prohibitions and prevent other unfair methods of competition. FTC has ruled as unfair: Misbranding goods False and misleading advertising Spying and bribery to secure trade secrets Closely imitating a competitor’s product Issues cease and desist orders to halt these practices.

63 Problems that led to creation of Federal Reserve System:
During times of crisis, the nation’s banking system lacked stability The amount of money in circulation was not pegged to the investment needs of the country No central bank set banking practices Wall Street (powerful business men) controlled too much bank capital

64 Federal Reserve System (1913)
Federal Reserve Act divided the country into twelve districts, each with a Federal Reserve Bank Federal Reserve Board Central board in Washington, D.C. directed US monetary policy and supervised Federal Reserve Banks and commercial banks that were members. All national banks were required to become members of the Federal Reserve system. States banks were invited to join. This reform transformed the control of US monetary policy – no longer in the hands of powerful private bankers Provided for an elastic money supply 3 main tools: reserve ratio, discount rate, open-market operations

65 BOOM of the 1920’s Plants were modernized and businesses expanded during WW I and the post-war years Techniques of production became more modern Factories achieved lower production costs per unit and greater productivity per worker

66 Henry Ford Mass production methods/assembly line Just prior to WW I
Workers stood along conveyor, moved steadily with units for assembly Each worker performed a task At the end of the line, the completed cars were driven away Production methods reduced costs, millions could afford cars Helped other industries: rubber, aluminum, plastics, gas and repair stations, garages, parking lots, system of new and improved highways.

67 New Industries Domestic chemical industry Entertainment Airplanes
Germans had led in this industry, trade cut off in WW I, German patents confiscated during the war Entertainment Movies – silent, then talkies (1927 – The Jazz Singer) Mickey Mouse – Steamboat Willie 1928 Radio – first commerical broadcast 1920, KDKA in Pittsburgh By 1927 there were over 700 stations across the country Standardized news – news written by national press associations (Associated Press, United Press) and distributed across the country Tabloids Banner headlines, revealing photos, stories about sex and violence Airplanes Invented in 1903 (Orville and Wilbur Wright) Commercial development begins in 1920s 1927 – Charles Lindbergh flew nonstop across the Atlantic from NY to Paris in 33 ½ hours Modern conveniences using electricity Refrigerators, radio, phonograph, vaccum cleaners, toasters

68 Immigration – Early 1800’s Increased in the 1830’s
Nearly 4 million people came to America from 1830s to 1850s Arrived by ship in NY, Philadelphia, Boston Many stayed in the cities they arrived in, others scattered – few to the South Why the increase? Development of inexpensive, fairly quick ocean transportation Famines and revolutions in Europe Growing reputation of US as land of opportunity About ½ of all immigrants were Irish Potato famine, tenant farmers – faced strong discrimination b/c of religion About 1 million were German A lot of artisans and farmers – came b/c of cheap, fertile farmland

69 Last half of 19th Century US population increased more than 3 times!
Pop. Of 23.2 million in 1850 Pop. Was 76.2 million by 1900 16.2 million of those were immigrants Peak immigration years Why so many immigrants? Mechanization of farm work in Europe led to displacement of farmers Overcrowding and joblessness in Europe due to population boom Religious persecution – ex: Jews in Russia Reputation of US for political and religious freedom, economic opportunities Large steamships for travel – relatively inexpensive

70 Old v. New Immigrants Old – from northern and western Europe, mostly Protestant, mostly English speaking, high level of literacy, blend in well New – beginning in the 1890s, came from southern and eastern Europe – Italians, Greeks, Croats, Slovaks, Poles and Russians. Poor, illiterate – left autocratic countries – not used to democratic traditions. Mostly Catholic, Greek Orthodox, Russian Orthodox or Jewish. Crowded into poor, ethnic neighborhoods in major US cities. About 25% were young men contracted for unskilled factory work, mining, construction jobs – would go back to native land after saving money to bring their families.

71 Restrictions on Immigration
1882 – Chinese Exclusion Act – ban on all new immigrants from China Next came restrictions on undesirables – those convicted of criminal acts, mentally incompetent 1885 – prohibited contract labor in order to protect American workers 1892 – Ellis Island opened – immigration center – new arrivals had to pass medical and document examinations, pay entry tax to enter All of these efforts were supported by labor unions – afraid immigrants would depress wages and break strikes. Supported by nativist groups who saw immigrants as inferior. (American Protective Association)

72 1920’s quotas 1921 – limited immigration to 3% of the number of foreign born persons from a nation counted in the 1910 census (a maximum of 375,000) 1924 – second act passed to make sure that the law would discriminate against immigrants from southern and eastern Europe - set the quotas based on based on the 1890 census prior to the arrival of the “new immigrants”. Only 2% of that number could come to US. By 1927 the quota for all Asian and eastern and southern Europeans had been limited to 150,000, with all Japanese immigrants barred. With all of these acts – the tradition of unlimited immigration to the US ended. Canada and Mexico were not included in the restrictions. Almost 500,000 Mexicans immigrated legally to the southwest in the 1920s.

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