Economics Transportation Business of slavery Banking

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					1800’s Economy and Market Boom
Do Now: Define the term “Economy”
         or “Economics.”

• Define the economies of the various sections of the US of the 1800s

• Identify Samuel Slater and Eli Whitney

• Compare and Contrast various elements of the North and South.

• Evaluate if sectional economic differences led to the Civil War
                US Economy 1800-1860 I

• At the beginning of the century, most Americans were farmers

• INDUSTRIAL REVOLUTION: use of machines powered by
  sources other than humans or animals

• Northern: emergence of factories in cities (industrial economy)

• Southern: few factories; mostly agrarian economy (cotton /
                   US Economy 1800-1860 II

• Post War of 1812 economy: the US economy dramatically improved

• Market Revolution: new generation of Americans make a living by:

1. Buying and selling goods (merchants)

2. Borrowing and circulating money to collect interest (bankers)

3. Creating wealth (investors)
                 SOUTH LEFT BEHIND

• Most economic changes between 1800 and 1860 occur in the North

   – The process of turning from agriculture to machine made

• Now the United States no longer depended on other nations for
  manufactured goods

• Most industrial centers are in the North and near major rivers… why?
                           SAMUEL SLATER
• Immigrated to the US after learning
  how to build textile mills (Define)

• Built the first textile mills in the US near
  Pawtucket, RI in 1793

• Over the next 42 years in America
   – Owned part or all of 13 textile
   – Earned close to $1 million

• Impact: by 1814 240 mills in PA, NY,
                          NORTHERN ECONOMY I
•   Land in New England was more productive if used
    for manufacturing:
     – The making of products by machinery

•   Francis Cabot Lowell: built the first centralized
    textile factory,

•   meaning:
     – all the tasks involved in making one product
       were done in one place

•   Lowell was also special for hiring young women as
•   Women now could earn money and have some
    economic power
                        NORTHERN ECONOMY II

•   Market revolution leads to more changes

•   Free enterprise system: companies compete against each other to make as much money
    as possible

•   This system is also called capitalism, which rewards people (with money) who find a better,
    faster, and more efficient way to run their business

•   What would be some drawbacks to capitalism?

         • One major effect of industrialization was
           the growth of American cities

         • Americans moved to cities to work
            – Increased sizes of cities in area &

             – Population density: amount of
               people within a given space

             – One side affect of this was that
               cities became overcrowded and full
               of the lower classes
                            NORTH: RISE OF CITIES II
•   1810: 6% of Americans lived in cities

•   1840: 12% of Americans lived in cities

•   Since most people worked all day there was
    need for public institutions like schools,
    hospitals, etc.

•   Most lived in cheap, crowded, unsanitary
    apartments called tenements

•   Most infamous: The Five Points in NYC
    (featured in Gangs of New York)
                  Do Now: Pop Quiz

1.   Define Free Enterprise/Capitalism…
2.   Why did industrialized economies make more than
     agricultural ones?
3.   Who brought the first textile mill to America in 1793?
4.   What is a textile mill?
5.   Define industrialization
6.   Why did people want to open bank savings accounts?
7.   Define manufacturing
8.   Define Population density
9.   What is a tenement?
                               ELI WHITNEY
• Skilled inventor: cotton gin and guns

• Interchangeable parts: produced parts
  made to an exact standard

• Cotton Gin: a machine that separated the
  seeds from the raw fiber of the cotton

• Impact: by hand a worker could clean 1
  pound of cotton per day… with the gin
  operated by water power a worker could
  clean 1,000 pounds of cotton per day

• *helped to increase production cotton
          COTTON GIN
• A machine that separated the seeds
  from the raw fiber of the cotton
• Invented by Eli Whitney
• Revolutionized cotton production in the
  South with four major impacts
                   5 EFFECTS OF COTTON GIN
Large demand for cotton means:
1. Increased profits of cotton  US exports
      boomed 6,000%

2. South’s economy dependent on cotton 
      possible problems?

3. Planters looking for new farm land  move
      to “new” South (AL, MS, LA, TX)

4.    The need for more labor  slave
      population doubles from 750 K to 1.5 M

5.    Northern cities like New York boom because
      of increased exports of cotton, about 40 cents
      of every dollar earned came from cotton in
      New York
                           “KING COTTON”

• Why Cotton?
• Cotton clothed all of America and Europe
   – 1820: South produced 160 million pounds
   – 1830: South produced 320 million pounds
   – 1840: South produced over one billion

• By 1860: Cotton (and cotton products) made
  up 2/3 of all American exports

• Cotton created wealth for both the North and
  the South because of the increased amount of
  textile factories.
                     THE “NEW” SOUTH

• The South included 6 of the original 13

• The “old” South included: Delaware,
  Maryland, Virginia, North Carolina, South
  Carolina, and Georgia

• The “New” South included: Kentucky,
  Tennessee, Alabama, Mississippi,
  Louisiana, Arkansas, and Texas

• While tobacco and rice did not grow well
  in the “new” South, cotton thrived
                   SOUTH: RURAL FACTORS

• South was mostly rural:
   – Made up of farms and countryside not cities

• Climate: most areas warm and fertile
   – 200 to 290 “frost” free days
   – Plentiful rain  fertile soil

• Southern cities develop gradually

• Major cities: Charleston (SC), New Orleans (LA), and Richmond (VA)

• Few Southerners lived in cities or towns
              CAUSE OF CIVIL WAR?
• Economic differences linked to SECTIONALISM

• “While the southern states were becoming
  increasingly a part of the national and international
  capitalist world, they also remained less
  economically developed than their northern
  counterparts.” – my college textbook

• “the economic revolution was transforming the
  nation. It was also dividing it.”- ibid

• Basically, as the north kept getting more developed
  and as ‘free labor’ flourished, the south dug in their
  heels and became more stubborn in their defense of
                       Sectional Specialization

• Northwest: grain, dairy, meat, breweries,
  and slaughtering

• Northeast: early industry and banks; more
  cities and factories
   – use Southern cotton to make goods

• South: farming and slavery
   – supply North cotton
                Review Questions I

1.     Define and include examples when possible of
       the following terms:
     b. Market Revolution
     d. Textiles
     e. Tenements
     f. “King Cotton”
              Review Questions II

2. What jobs were available in the North? In the
3. Compare and contrast the economies of the two
4. Who was SAMUEL SLATER? Why was he important
   to the North?
5. Who was Eli Whitney? Why was he important to
   the South?
6. Why were there more Northern cities? Why did
   Americans move to cities (especially in the North)?
7. Compare and contrast the “old” South with the
   “new” South.
8. How did America’s varied economies lead to the
   Civil War?
• STEAM POWER: first used to power
  textile factories

• Inventors used steam to power boats up
  major rivers (like the Mississippi River)
   – Called STEAM BOATS

  farmers were able to send
  their goods to all markets
                   CANALS: MAN MADE RIVERS

• Waterways were the cheapest way to
  transport goods and people.

• However not all areas were connected

• So… innovators created man made rivers
  called CANALS

• Best known canal: ERIE CANAL
   – Connected Hudson River with Lake
   – IMPACT: the Northwest was able to
      trade goods with the Northeast
   – South left behind
         • Early roads carved out of forests and
           were extremely bumpy

            – 1st federally built road and well
            – Stretched from Maryland to Ohio

         • TURNPIKES:
            – Privately built roads
            – Made money from collecting tolls,
              after paying workers would turn
              the pike (similar to the subways)
              to let the driver through
• Developed first in England

• Used steam powered engine to create a
   – Self-propelled vehicle which pulled RR

• First RR connected Baltimore and Ohio
   – Known as the B & O Railroad

• 1840 America has more tracks than any other
  country in the world

• Most RR’s are located in the North
                               Railroads, Cont’d.

•   Soon railroads became consolidated, where
    larger ones bought out smaller ones

•   Some examples of these were the
    Pennsylvania Railroad, the New York
    Central, and the Erie.

•   Railroads by 1890 were worth over $8 billion
    dollars (the government only made 400
    million a year)

•   Men like Cornelius Vanderbilt, Jay Gould,
    and James Hill became synonymous with
    railroads and the wealth that could be
    accumulated from them

• Most canals and RR’s in the North
  – Another example of SECTIONALISM

• Improved communication:
   – More post offices and faster mail

    – Newspapers now published daily
       • Able to link an expanding country

        • Improved literacy rate

        • Overall, the nation becomes more interconnected and people that would
          ordinarily stay in one place are able to move around more effectively
1800s Railroad Map
                        Rise of Banking Industry
• Banking Industry grew from economic
  changes during the Market Revolution

• Banks provided entrepreneurs, or
  businessmen, with capital, or money, that
  was used to start up new businesses

• Banks made money by charging interest
  for the loans it made

• Some banks were backed by the federal or
  state governments
                             1800s CURRENCY
•   National Gov’t did not print paper money

•   Most people preferred being paid in specie (gold or silver coins)

•   Most common form of money: bank note
     – Piece of paper issued by a bank

•   Problem: values of bank notes were unpredictable and often times a $100 notes were worth
    $50 or $25

*Despite problems, banks helped to expand America’s economy in the 1800s
                         Problems with Banking
• There were no laws that regulated
   – Private accounts and loans were
     not insured
   – Banks were not required to keep a
     certain amount of money in their

• PANICS occurred: When banks lost
  money from bad loans and people
  overreacted and took their money out
  of the bank.

* Panics: led to depressions and public
   fear of the national bank
• Biggest Supporter: Alexander Hamilton
   – Thought it would provide US with the ability to pay debts and make money
• McCulloch v. Maryland (1819)
   – Supreme Court Chief Justice John Marshall ruled that Congress has the right
      “to make all laws necessary and proper”
   – In addition, he ruled that states could not destroy the national bank through
      measures like taxation.
                        Against the Nat. Bank
• Groups against the bank included:
  Democrats, Southerners, Westerners, and
• Biggest Antagonist: Andrew Jackson
   – Felt the bank was a “monster”
   – Held the bank responsible for panics

• As President, Andrew Jackson vetoed the
  re-chartering the National Bank

• In addition, he decided in the Specie Circular
  to not allow any more payments with
  paper money, which lowered the income
  of the government

• When he did this, he didn’t realize how
  much it would impact the overall
  economic health of the country
                                 Panic of 1837

• Once the bank was eliminated, the government did not get all that involved in the
• President Jackson also did not like the idea of paying for public lands with paper
  money… why?
• Most banks did not have the specie to back up their banknotes, so they were unable to
  do business and the government also did not make any money
• As a result many banks failed, and people lost what little specie they did have… over
  300 banks failed across the country
• Eventually the government realized that they would have to find a way to regulate
                   Post War Economic Changes
• Commercial Agriculture emerged in the 1880s when farmers wished to raise
  their standard of living to those of the wealthy industrialists

• This usually meant that they didn’t grow crops for themselves, but rather sold
  them to either the domestic or international market.

• Competition was fierce, and because of overproduction of crops, prices
  dropped dramatically and many farmers (about 30 percent) were forced to
  mortgage their farms

• Farmers were also reliant on railroads and shipping companies to send their
  goods to distant markets, and they had to pay steep prices for this as well.

• Pretty soon, farmers found themselves in a predicament because they realized
  they had no control over their future, and instead believed that it lay in the
  hands of the middlemen that enabled their goods to reach market
Other Changes

       • The years after the Civil War also saw
         the revitalization of cities and the
         emergence of suburbs

       • Elevated railways criscrossed New York
         City by the end of the century, and cable
         cars ran on the main streets

       • Modern sewers, paved streets, electric
         lights, parks, and other internal
         improvements made city life safer, but
         not necessarily better for everyone

       • A huge influx of new immigrant groups
         also came ashore during this period from
         Southern and Eastern Europe (Russians,
         Italians, Greeks, Polish)
                   New Inventions/Technology

• The latter part of the 19th Century saw an enormous amount of new
  inventions that we all take for granted today

• Some of these inventors, like Charles Goodyear, Thomas Edison, Alexander
  Graham Bell, and others are icons today and often their legacies can be seen
  in the companies that bear their name or they founded.

• Edison invented the light bulb in 1879, and by 1882, New York City had the
  first electric power plant in the country.

• Goodyear and Harvey Firestone figured out how to galvanize rubber, which
  led to the development of tires (Goodyear Tires and Firestone Tires)

• Bell, in case you didn’t know, invented the telephone, and soon you could
  actually talk to someone across the country… he founded the Atlantic
  Telephone and Telegraph Company in 1876 (AT&T)
New Things…
                  Birth of Big Business: Railroads

• As mentioned previously, the nation’s railroad network grew exponentially in
  the years following the Civil War (52,000 miles in 1870 to 193,000 by 1900)

• Once the Transcontinental Railroad (Union Pacific) was completed in 1869,
  businessmen from across the country could now do their business in a much
  wider market.

• Railroads represented the first real modern American corporations: where
  people by stock in a company that they may not be involved in the day to day
  operations of the company and they also make millions

• Soon, railroads helped spawn a whole new generation of American businesses
  the likes of which would never be repeated…
                           Big Business 2: Steel
• Railroads required steel for its tracks, and soon
  companies began investing in small steel
  companies across the country and soon these
  steel companies began to take over the
  railroads as the biggest industry in the country

• Most steel mills were found along the Great
  Lakes and around Pittsburgh.

• Steel was tedious to make until a man named
  Henry Bessemer perfected it in the 1850s
  when he realized if you blow air into molten
  iron ore, you remove the impurities with the
  oxygen burning them off.

• This was called the Bessemer process, and
  every skyscraper, bridge, highway, and railroad
  that we see and use today are a result of that
     Andrew Carnegie: Epitome of the American Dream
•   Andrew Carnegie was a Scottish immigrant who arrived in the US when he was 13.
    He got a job as a telegraph operator on the Pennsylvania Railroad and soon rose
    through the ranks.

•   He bought his first steel mill outside Pittsburgh in 1873 and soon dominated the
    business by cutting prices so much that his competition couldn’t compete.

•   When his competitors folded, he bought them up, and also bought shipping lines
    along the Great Lakes and a few small railroads that could ship the ore to his mills…
    in essence he controlled every aspect of the steel making process

•   When he ‘retired’ in 1901, he sold his company to JP Morgan for over 450 million
    dollars (give or take he was worth almost as much as Bill Gates)

•   JP Morgan was a financier, who would buy stock in companies and combine them
    into huge corporations

•   He turned Carnegie’s operation into US Steel, which remains one of the biggest steel
    makers in the country… US Steel was the first billion dollar corporation the the
    country too.
                         Big Business 3: Oil
• For centuries, oil had been seeping through the ground in western
  Pennsylvania… but there was no real use for it.

• That all changed when a process to refine it was developed in the mid 1800s.

• At first, oil was refined to make kerosene for lanterns, but soon other uses
  for it (gasoline for street lights) were found that made it even more

• As new inventions, such as the internal combustion engine (ie. Car or any
  motor) the demand for oil dramatically increased and oil wells sprung up
  across the country

• Most of our products that we use every day come from oil… like plastics,
                          John D. Rockefeller

• John Rockefeller bought his first refinery in Cleveland, Ohio in the late
  1860’s… like Carnegie, he began to buy out the competition, and in 1870 he
  formed the Standard Oil Company of Ohio, which became simply Standard
  Oil (now Exxon by the way)

• Rockefeller was different from Carnegie because he didn’t believe in what he
  called ‘cutthroat competition’… hence why he bought out the competition

• He felt that competition only brought ruin for a greater number of people,
  and that in turn affected the economic well being of the country

• Eventually, he became the first billionaire in the United States (he was worth
  over 3 or 4 times what Bill Gates is worth today)
                    Poor Distribution of Wealth
• Men like Rockefeller, Carnegie, and Morgan dominated the American
  economy like no one has ever since

• Rockefeller’s wealth alone represented over 1 percent of the entire US
  economy (remember this is only 1 person)

• Most of these men preached the idea of social Darwinism which basically
  means survival of the fittest in every aspect of life.

• Those who succeed in business are the ones that are the ‘fittest’ and the rest
  who suffer or fail are a part of a natural order

• The amount of power that these men and others like Jay Gould, Henry Frick,
  and others had was remarkable, but often they donated enormous amounts of
  money to charities, schools, and libraries
Reaction to this… Labor Unions
           •   Because most of these powerful men wanted their
               factories to run efficiently, they didn’t want their
               employees in the mills and factories to have any
               control over their working environments… this
               earned them the nickname of Robber Barons.

           •   Often to cut costs, they hired unskilled laborers,
               children, and women to operate and maneuver the
               dangerous equipment in factories

           •   They also never hesitated to fire someone that got
               too expensive or complained, because there was
               always an immigrant waiting for their job.

           •   Soon, workers began to strike in response to lower
               wages and terrible working conditions… often these
               early strikes were extremely violent and unsuccessful.

           •   Public perception was that these people were
               anarchists and extremists, and the first unions
               struggled to achieve anything.
                The First Unions and their Growing Pains

•   One of the early successful unions was the Knights of Labor… but often they were too radical
    to achieve anything long term

•   The American Federation of Labor (AFL), which exists today, became the most powerful
    union because it incorporated a wide variety of skilled laboring jobs like carpentry, etc.

•   However, after the Haymarket Affair in Chicago in which an anarchist threw a bomb at police
    who were dispersing a crowd of protesters, the AFL had to lay low for awhile

•   Another strike, the Homestead Strike at one of Carnegie’s mills in Pittsburgh resulted in
    bloodshed between a hired police force and the workers… it had to be dispersed by the National
                         The Gospel of Wealth
• Carnegie wrote a book called the “Gospel of Wealth” in which he said that a
  person with great wealth or power also had great responsibility… just like in

• In addition, he thought that whatever money you had beyond what you
  needed for your life should be put in ‘trust funds’ that would used for the
  good of the community

• Over the course of their lives, Rockefeller and Carnegie donated more money
  to charity than any others… with exception to maybe Bill Gates today

• Some of their philanthropic legacies can be seen today in the University of
  Chicago, Lincoln Center, Rockefeller Center, the United Nations, Carnegie
  Hall, Carnegie-Mellon University, and ironically the historically black Spelman
  College in Atlanta (Rockefeller provided the initial endowment, and it was
  named after his wife’s maiden name)
Farmer’s Become Political

            •   Farmers realized that if they wanted to survive,
                they would have to form a strong political
                party or group that could counter the influence
                of the politicians from the cities

            •   In addition, they had to respond to the gradual
                decline in their standard of living… so they
                formed various ‘alliances’ and a party called the
                Grangers, which had some temporary success
                in the Midwest

            •   Eventually, farmers and their rural colleagues
                formed a party called the Populists, who
                wanted to protect their simple agricultural lives

            •   The most prominent Populist was William
                Jennings Bryan, who ran for President 3 times,
                and lost every time (God bless)

            •   They pushed for the addition of silver to be the
                basis of the monetary system along with gold
                 Why the Populists didn’t Succeed

• Bryan and his followers failed to recognize the importance of mechanized
  farming… and therefore represented a way of life that was on the decline

• They also failed to gain any support from the labor unions, who could have
  provided several thousand votes, but instead couldn’t attract their votes
  because labor and farming

• In the 1896 election, Bryan did rather well, but he lost every state that had an
  industrial base… in essence he only won the Midwest and the South.

• After this, the idea of silver being an important part of the monetary system
  slipped away.

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