The Civil War & Northern Industrialization

Chapter 13

Plantation efficiency

· Large plantations were considerably more productive than small, slave less farms…why?

· Exceptionally high levels of productivity levels

· Superior lands large plantations occupied

· Work speed

Economic exploitation

· Though exploitation occurred, owners did not carelessly mistreat their slaves…

1. Each male filed hand was worth $600,000

2. Standards of living for slaves was low yet self-sustaining

· The entrapment of slaves kept them from advancement by taking away their incentive for self-improvement

Economic Entrenchment & Regional Incomes

· The South was slow to industrialize – due largely to the slave system

· Plantation slavery was extremely profitable

· Laws were established to punish those assisting slaves to runaway

Political Compromises & Regional Conflict

· Most significant issue was slavery’s containment, not its eradication

· In 1819 the Senate was balanced:

· 11 slave states

· 11

· Missouri compromise of 1820

· Missouri was admitted as a slave state

· Maine was admitted as a non-

· From this point forward, states were admitted in pairs – one free, one slave


· In 1854, the Kansas- Nebraska Act replaced the Missouri compromise and provided “popular sovereignty” in the unsettled portions of the Louisiana purchase.

· The Dred Scott decision in 1857 declared congress could not prohibit slavery in the territories .

Enter Abraham Lincoln

· Lincoln was elected President in 1860

· This presented only two options for the south:

1. Submit to becoming non slave stated

2. Secede

Chapter overview:

· In the mid-1860s, the democratic party split allowing the republican, Abraham Lincoln to become president with just 40% of the vote.

· By the Civil War’s end, more than 620,000 soldiers &sailors had lost their life – more than all other American conflicts com~

The economics of War

· South had to use some of its precious manpower to repress its slave labor force

· When possible, slaves & free blacks fought for the north – tipping the war in favor of the North

· Both sides relied on imported weapons, but the north was able to increase its production quickly

· South’s limited rail network was strained to capacity

· Primary shortage was horses & mules

· South’s hope was that the North would eventually tire of the enormous human costs and agree to let the South secede

Trade & Finance Polices / South & North

· South also faced financial issues:

· South had a hard time collecting taxes – hurting their war effort and

· Increasing inflation in the Southern states

· The gap between prices & money increased due to two reasons:

1. Decline in Southern production

2. Decline in confidence in the southern currency

· Astronomical inflation rates occurred once it was clear the Union was going to claim victory

· The North’s economic strain was not as bad as the South’s.

· In 1861 a sharp financial panic did start when banks suspended specie payments

· Government quickly raised taxes and sold bonds.

· The tax changes brought about the first federal taxes on income

· The north escaped hyperinflation and confounded the south

The Civil War & Northern Industrialization

· The Civil War spurred northern industrial expansion

· With the north in charge, legislators passed laws intending to unify markets & propel industrialization

· New programs included

· National Banking System

· Increase in tariffs

· Land-grant college act

· Land grants to

· The civil war was tragic

· Consider this: the war costs twice as much as the overall valor of the slaves.

· Manufacturing changed as well:

· Minute stimulus manufacturing arouse (focus on the now (small arms) v. long term (railroads).

Economics In the South

· In 1860, the South & North had nearly the same commodity output per capita.

· In 1870, the North’s per capital output exceeded the South’s by nearly 2/3

· Lincoln’s Emancipation Proclamation:

· Reduced the South’s agricultural output

Decline in the Deep South

· The greatest setbacks occurred in the 5 key cotton states in the South – 3 reasons

· The highly efficient plantation system was destroyed.

· Economies of scale from driving slave labor were lost

· Significant reductions in field labor

· Decline in per capital ag output of 30%-40%

· Cotton demand slowed due to competition from India, Brazil & Egypt

· U.S. had dominated the cotton market commanding 77% of English imports

· South became a food-importing region

· South maintained a comparative advantage in cotton production

· Southern cotton farmers were as responsive to price changes as Northern farmers were to wheat price changes

Chapter 16 Railroads & Economic Change

The Trans-continentals

· Gold rush of 1849 sparked a frenzy to move west, where land was vast.

· Three ways existed to get to the west:

1. Wagon trains

2. Sea route through Panama

3. A clipper ship around Cape Horn

· Government participation was viewed as essential.

· By 1853, Congress was convinced of a railroad’s feasibility

· The civil war alienated the southern state’s river towns.

· In 1862, Council Bluffs, IA, was selected and congress ordered a railway be constructed from Council Bluffs to the western boundary of Nevada.

· To build the railroad, the government assisted in 2 ways:

1. Public land grants

2. Loans for each mile of the track completed

· Loans were to be 1st mortgage bonds

· Without sufficient capital, government doubled the land grant and the railroads sold first-mortgage bonds

· Given the loans per mile:

· Construction of the railroad was quick

· The quality of the track was not that great

· Union Pacific & Central Pacific fought the final 2 years to garner as much subsidy as possible ( remember the loans per miles).

· Union Pacific relied on ex solders & Irish immigrants laid 1086 miles of track

· Central Pacific, relying on Chinese immigrants laid 689 miles – some of which was through the mountains .

· May 10, 1869: the Union Pacific & Central Pacific joined at Promontory Summit a few miles west of Ogden Utah.

Total Construction: Pace & Patterns

· From 1864-1900, the greatest percentage of track was laid in the plains states

· Chicago was the thief terminal

· Railroad construction had a strong influence on aggregate demand and business cycles

· Railroad construction accounted for 20% U.S. gross capital formation in the 1870s

· In 1920, 5% of all Americans were employed on the railroad

Productivity Advance & Slowdown

· Total factor productivity of the railroad more than doubled between 1870 & 1910

· Sustained rapid growth of output per inputs were due to 2 productivity advancements:

1. Economics of scale in operation

2. More powerful locomotives, stronger steel rails, automatic couplers, air brakes.

· Railroads were not the sole cause of American’s rapid economic progress – railroads did symbolize a ceaseless wave of entrepreneurial energy and technological progress.

Building Ahead of Demand?

· Joseph Schumpeter argued:

· Railroad projects “meant building ahead of demand in the boldest sense of the phrase… middle western and western projects could not be expected to pay for themselves in such as most investors care to envisage”

· In other words, government aid to the railroads

· Albert Fish flow supported Joseph Schumpeter arguments:

· If railroads were built in unsettled regions, the demand for the railroad’s services must have been low initially…

· Three test:

1. Government aid should be widespread

2. Profit rates initially should be less than profit rates in alternative investments and should grow after the railroad aged

3. The number of people living near the railroad should be low compared to the number living near Eastern railroads.

· All 3 test failed to support Schumpeter’s assertion that the railroad were

· Fish low discovered what he called “anticipatory settlement.”

· Fogal & Mercer followed up on Fish low and determined railroads were built ahead of demand

· They had relatively low initial profit rates

· Profit rates grew over time

Railroads & Standard Time

Land Grants, Financial Assistance, & Private Capital

· Subsides for canals were common

· States & municipalities helped the railroad by buying railroad bonds.

· Financial aid came more from the federal government rather sate or municipalities – a change from the antebellum period.

· (congress did receive reduced rates for transporting troops, mail & government property)

· Land grant subsidies were discontinued after 1870 due to public opposition

Unscrupulous Financial Practices

· Fraudulent practices often involving construction companies emerged.

· Insiders were rewarded with stock below ‘par-value’ essentially taking money in a way that shareholders could not benefit from

· Certain members of Congress bought stock or were given shares – a conflict of interest

Government regulations on the Railroad

· Railroads engaged in discriminatory pricing policies. Discrimination practices included:

· Long-haul v. short-haul rates

· Separate markets had different rates on per ton loads (e.g. coal v. manufactured goods)

· Often the railroad had competition for some clients and no competition for other clients based on location

· Albert Fink took the lead in forming regional ferdations to pool either traffics or profits.

· State regulations:

· First wave of regulations came from the state level in the 1870s.

· Farmers demanded legislation to regulate rates

· In 1871 & 1874, Illinois, Iowa, Wisconsin & Minnesota passed regulatory laws.

· 1886 – Wabash, St. Louis, and Pacific Railway v Illinois:

· State found the Wabash was charging more per ton for a shorter haul from Gilman, IL to NYC than from Peoria, IL to NYC and ordered the rate adjusted

· U.S. Supreme held that IL could not regulate rates on interstate shipments.

· Federal Regulations:

· Interstate Commerce Commission (ICC)

· Commission was to examine the business of the railroad

· Commission heard complaints that arose from violations of the Act to Regulate Congress

· Commission required all railroads to submit annual reports based on a uniform system of accounts

· Commission provided Congress an account of its activities.

· ICC was the first independent regulatory agency

· Railroad manager used the ICC to stabilize profit rates and secure other advantages of cartel management

Railroads & Economic Growth

· By World War 1, railroads were decaying and had little capital.

· The U.S. nationalized the railroads in the interest of the war effort.

· After the war, railroads were returned to private ownership.

· Schumpeter argued:

· Railroads led the transition to modern economic growth

· Growth came from applying major technological advances

Chapter 17 Industrial Expansion & Concentration

Structural Change & Concentration

· Exact flip-flop of commodity distribution between agriculture & manufacturing.

· In 1869, agriculture was 53%, manufacturing was 33%

· In 1899, agriculture was 33%, manufacturing was 53%

· American gains in manufacturing were also phenomenal relative to the rest of the world.

· In the 1890 s, America was the leading industrial power and

in 1910, America produced twice as much as the next nearest country, Germany

New Technologies

· Technological changes,

· Investments in human capital, and

· New energy sources brought economies of scale.

· Also, shifts in resources from lower to higher productivity rates led to exceptional long-term trends.

· Advances based on invention & innovation

· Invention signifies the discovery of something new (e.g. steam power or electricity)

· Innovation denotes the many ways found to use and adapt new ideas to existing products and services.

· Most growth in value added in textiles was the result of innovation and greater automatically.

New Forms & Resource of Energy

· Before WWI, power reliance moved from wind & water generation to other sources

· Electricity appeared on the stream add was made either with the burning of fuel or water flow

· By WWI, one-third of the nation’s industrial power was provided by electricity

Mass Production

· Faced with unmanageable size & complexity, the railroads developed a host of new management practices and concepts

· Managers authority to make decisions should match their responsibility

· Worker efficiency could be improved by:

· 1. Analyzing the movements to perform a job

· 2. Carrying out experiments

3. Offering incentives for superior performance

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