1800’s Economy and Market Boom

Do Now: Define the term “Economy” or “Economics.”

Objectives

• 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 / tobacco)

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

• Biggest change: INDUSTRIALIZATION– The process of turning from agriculture to machine made

products

• 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

factories– Earned close to $1 million

• Impact: by 1814 240 mills in PA, NY, NE

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 workers

• 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?

NORTH: RISE OF CITIES I

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

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

population

– 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 industrialization6. Why did people want to open bank savings

accounts?7. Define manufacturing8. Define Population density9. 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 GINLarge 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 pounds

• 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 colonies

• 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 slavery

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:

a. INDUSTRIAL REVOLUTIONb. Market Revolutionc. INDUSTRIALIZATIONd. Textilese. Tenementsf. “King Cotton”g. SECTIONALISM

Review Questions II

2. What jobs were available in the North? In the South?3. Compare and contrast the economies of the two

regions.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?

Transportation

STEAMBOATS• STEAM POWER: first used to

power textile factories

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

• MAJOR IMPACT: Western 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 Erie – IMPACT: the Northwest was

able to trade goods with the Northeast

– South left behind

ROADS / TURNPIKES

• Early roads carved out of forests and were extremely bumpy

• CUMBERLAND ROAD: – 1st federally built road and

well constructed– 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

RAILROADS • Developed first in England

• Used steam powered engine to create a STEAM LOCOMOTIVE:– Self-propelled vehicle which

pulled RR cars

• 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

IMPACT OF TRANSPORTATION

• 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

BANKING

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 banks– Private accounts and

loans were not insured – Banks were not required

to keep a certain amount of money in their bank

• 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 farmers

• 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 economy

• 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 banks.

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 innovation

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 profitable.

• 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 Guard.

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 Spiderman!!!

• 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.