Incredible Economic Expansion 1860-1900

Three major questions:

  1. What Caused/Helped It?
  2. How Did the Process Happen? (The 4 c’s)

 

1.                  What Caused/Helped It?

 

A. Change in the law à Limited Liability

 

B. Abundance of natural resources (oil, timber, iron, gold, cattle, copper)

 

C. Tariffs provide government with money, but also help protect developing American industries

 

D. The Railroad nurtures Economic Expansion

 

n      consumes resources: steel, timber, coal, iron (creates a guaranteed market for these goods)

 

n      link raw materials to processing centers (coal and iron ore to steel mills; cattle to slaughterhouses; copper to manufacturers)

 

n      link agricultural products to urban consumers (people eat better and cheaper)

 

n      speed the development and population of the West

 

n      land grants from government – 200 million acres (the size of Belgium, The United Kingdom, and Spain combined)

 

n      creates markets for newly mechanized agriculture

 

n      more food sustains cities where industrial production takes off due to increased population

 

n      more jobs draws more people (immigrants); railroads help them settle in the West where they create demand for manufactured goods from eastern industrial cities

 

n      demand for manufactured goods goes up; railroads transport goods west

 

 

2.         How did the Process Happen?

 

“THE 4 C’s”

 

1. COMPETITION

 

Drives down prices so no one makes a good profit 

 

Not efficient

 

2. COOPERATION

 

Companies form pools, but always seems like someone “cheats” by lowering prices

 

Not effective and raises suspicions of price fixing – threat of government intervention

 

3. CONSOLIDATION

 

Horizontal Integration

(one oil company buys the other smaller oil companies)

 

Concentrate resources and take advantage of economies of scale

 

(This doesn’t work in low-tech/low-capital intensive industries such as salt and cord because it is easy to start up a new salt company or cord company – not much start-up capital needed)

 

  1. CENTRALIZATION

 

Vertical integration

(a company controls and profits from every step of the production and distribution)

 

 

By the turn of the century “Big Business” has emerged

 

WHY IS BIG BUSINESS SOMETHING NEW?

 

Features of Big Business

 

-- large pools of capital needed; makes it harder for start ups

-- huge fixed costs (overhead); more than operating costs

-- altered nature of ownership (little contact with the boss)