Download Economic History of the US

Economic History of the US
Reunification Era, 1860-1920
Lecture #4
Peter Allen
Econ 120
US “Industrial Revolution”, 1865-1900
Agriculture
Manufacturing
Mining & Construction
GDP
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Composition of GDP
1869
1899
53%
33%
33
53
14
14
$2.5BN
$16.1BN
Ag. Output expanded greatly…
…but manufacturing expanded even faster
Ag. #1 source of income until 1890
1900, market value of manufacturing output = 2X
agriculture
Labor force expansion, 1860-1910
Agriculture
Cotton Textiles
Construction
Teaching
Manufacturing
Trade
Mining
Railroads
Total Labor Force
2.0
3.0
←Multiples
3.7
5.2
5.4
6.0
6.7
23.2
3.4
11.1mm - 37.5 mm)
1865-1900
Growth of manufacturing in the US was…
…at a much faster rate
…than anywhere else in the world
1895, US largest manufacturing output in
the world
 …approx. $7 billion
 2X larger than second largest, Germany
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Factors, 1870s to 1880s
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True “revolution”
Rapid embrace of new technologies…
…resulting in productivity growth
…and higher profits
Market expansion w/transportation
“Scientific management”
Ability to concentrate capital
Rapid social change and mobility of factors
Fewer interests vested in status quo
“Creative Destruction”
 Productivity, or ability to
make more products
with the same resources
 Embrace of new
products
 Innovation
 Joseph Schumpeter
 “Capitalism, Socialism
and Democracy,” 1942
New Technologies, Examples
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Refrigerated rail car, 1880
Can sealing
Pipeline technology
Compressed air, electricity
Automatic machine tools
Open-hearth steel making
Typewriter, 1867
Sewing machine, 1846
Electrical streetcar
Telegraph, 1844
Standardized clothing sizes,
1865
Standardized shoe sizes, L&R
Incandescent light, 1880
Electric motor, 1873/1888
Swift and the Refrigerated Car
 Gustavus Swift
 How to get dressed
meat from…
 Chicago stock yards…
 …to eastern markets
 1880 first car
 Copied by Armour Co.
 Water-based
technologies until
1950s
Meatpacking in Chicago,
1865
 Union Stock Yards
 Peaked 1924
 more meat
processed in
Chicago than in
any other place in
the world.
10 Largest Industries, 1860 and 1910
Productivity in Top Industries
New Forms of Energy
 Interdependence of energy availability and
technological change
 1850s: ¾ of all power from animals
 1860s: water surpassed animals
 1870s: steam surpassed water
 Ever-increasing efficiency of steam engine
 High-pressure boilers
 coal as fuel, ability to transport
 Electricity, late 19th c.
 1917: electricity 1/3 of industrial power
Large-scale Management
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Corporation
 Multiple ownership
 Amass large amounts of
capital
 Permanent
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Model was the railroad company
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previously, most businesses had a
single owner
Mass production of consumer
products, very large scale
Scientific management
Departments with task specialization
and manager responsible
Hierarchy
Henry Ford, 1914 moving assembly
line
Productivity and higher real wages
Concentration
“Big business” typical in
manufacturing by 1905
All pressure toward concentration
of management and capital
Large size =
 minimum production cost
 Domination of supplies and final markets
Ultimate goal, monopoly profit
A Monopoly’s Profit is Often Large
Costs and
Revenue
Marginal cost
Monopoly E
price
B
Monopoly
profit
Average
total D
cost
Average total cost
C
Demand
Marginal revenue
0
QMAX
Quantity
Concentration
 Informal combinations, 1870s and 1880s (illegal)
 gentlemen’s agreements, usu. setting prices
 Pooling, assigning market share
 Trusts and Holding Companies, 1880s and 1890s
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Central control of an entire industry…
Stockholders of competing companies…
…give shares to a trust (legal owner)…
…in exchange for “certificate of trust”
Huge business success…
…elimination of competition bad for society
Two Phases of Concentration
 Horizontal Mergers, 1879-93
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First wave triggered by railroads
National market
Overcapacity in consumer
goods, other industries
Combination into larger units/
same industry
Standard Oil Trust, 1882
John D. Rockefeller 
90% of oil refining 1880s
Dissolved by Court in 1892
Phase 2 of Concentration
 Vertical Mergers, 18981904
 One firm…
 …control of all stages of
production
 Meatpacking, Chicago
 Bureaucratic
management
 Andrew Carnegie
 US Steel, 1901
 Coal, iron, steel
Steel Production, 1870–1910
Trust-busting
 Public concern with monopoly power
 Sherman Antitrust Act of 1890
 Prohibited “every contract, combination in the form
of trust, or otherwise, or conspiracy in restraint of
trade among the several states…”
 Brought by mid-western cattlemen’s associations,
against
 Monopoly power of
 Chicago meatpackers: Armour, Swift, Mayer