Unit 6: Economics. Colonial America Mercantilism - common economic policy among European kingdoms in the 17 th century - saw trade, colonies and the accumulation.

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.