unit 6: economics. colonial america mercantilism - common economic policy among european kingdoms in...
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Unit 6: Economics
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.
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)
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
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.
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
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.
TRIANGULAR TRADE
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
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
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.
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
PIC OF COTTON GIN
Interchangeable Parts
Whitney perfected interchangeable parts with muskets
Manufacturers in other industries took advantage of this idea
John Deere’s horse pulled steel plow revolutionized farming
Cyrus McCormick (1830s) invented a mechanical mower/reaper that made harvesting wheat more efficient.
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.
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)
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)
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
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
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
Expanding Economy Prior to 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
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
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?
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 1860-1890 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
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
Problems Overbuilt Mismanaged Fraud
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.
Industrial Empires
Steel Andrew Carnegie
Oil John D. Rockefeller
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
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
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.
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.
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.
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.
Horatio Alger
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.
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
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
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
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
Tools of labor
Divided on best methods to fight management Political action Strikes Picketing Boycotts Slowdowns
Goal to achieve union recognition and collective bargaining
Attempts to Organize
National Labor Union – 1866 Knights of Labor – 1869 American Federation of Labor - 1886
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)
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.
Knights of Labor Trade CardSeamstress and tailor (age and beauty) in Knights of Labor card designed to carry imprint of approved merchant on back.
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
MAJOR STRIKES
Railroad Strike of 1877 Haymarket 1886 Homestead 1892 Pullman 1894
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.
Pics of Railroad Strike
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 membershipNo 8 hour day until FDR’s New Deal
Haymarket Riot
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.
Homestead Strike
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
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.
Pullman Strike
Grover Cleveland
“If it takes the entire Army and Navy of the US to deliver a postcard in Chicago, that postcard will be delivered.”
Regulation of Big Business - weak Sherman Anti-trust Act (1890)
Vague language, lack of enforcement Teddy Roosevelt (1901-1909)
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
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
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.
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.
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
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
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
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.
New Industries Domestic chemical industry
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
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
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 1901-1920
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
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.
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)
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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