Regents Prep: U.S. History: Economics:
Industrial Revolution

The Industrial Revolution began in Great Britain for a variety of reasons including, capital for investment, natural resources, a large labor force, and technological innovations.  This revolution quickly spread to the United States which had many of the same advantages.  The Industrial Revolution in the U.S. was primarily centered in the northern states, as the southern states continued to rely on agriculture, which was extremely profitable using slave labor under the plantation system.

Pre Civil War
Factories and mills spread quickly throughout New England prior to the Civil War due to good supplies of natural resources such as iron and coal, and the ease of transporting finished goods along the many navigable rivers. This in turn lead to the building of more railroads and canals to handle the increased traffic.  The South relied upon the North to purchase its agricultural products, and as a market for finished goods.  This made the North economically stronger than the South.

Civil War
The Civil War increased industrialization as both North and South required weapons.  The North was in a better position to expand as they already had industrialized to a certain extent.  Factories for guns, ammo, clothing, and various other supplies quickly grew.  Also, mechanization in agriculture became a primary concern as many farmers were away fighting the war. 

Post Civil War
After the war, the transcontinental railroad opened commerce across the country, and further stimulated economic growth. The North continued to industrialize at a rapid pace, while the South switched to sharecrop farming after the end of slavery.  Sharecropping is where a farmer would lease out parcels of land for others to work in exchange for a portion of the crops.  This left many sharecroppers poor as the larger landowners took nearly everything they produced.

Industrial Revolution
As the Industrial Revolution grew, new business practices developed.  Before, most business was owned by a sole proprietor (single owner), or a small partnership. But, ways of doing business changed dramatically during industrialization.

New Ways of Doing Business

Corporation A business with many share holders.  Corporations are formed to raise capital for expansion.  Share holders receive dividends when the company makes a profit, and can only lose what they put in.
Monopoly A monopoly is when a company or corporation controls an entire market.  This allows them to raise prices to any level.  Government regulation prevents all but a few monopolies such as utility companies.
Pool Companies in a single market making an agreement on prices and the division of business.  Railroad companies practiced this until it was outlawed by the government.
Trust Corporations in the same market or related markets would form a trust that put control of business under a single group of trustees. Share holders still received dividends, but had no say in the business.  Trusts were later outlawed.
Holding Company A holding company would buy enough stock in different companies to control them.  This was done to get around the outlawing of trusts. Eventually, holding companies were outlawed also.
Conglomerate A corporation that owns many different unrelated businesses.  Conglomerates are formed by mergers, where one company would take over another.  These are still in practice today.

Economic Philosophy
Laissez-Faire Economics: This was an economic philosophy begun by Adam Smith in his book, Wealth of Nations, that stated that business and the economy would run best with no interference from the government.  This economic system dominated most of the Industrial Revolution, and resulted in the government taking a more active role in U.S. Business and the economy.

Government Reform
In the late 1800's the government decided to take a more active role in business and the economy.  The U.S. slowly moved away from the policy of laissez-faire, and more toward a mixed economy where the free market and the government shared power over the economy.

Government Regulation

Munn v. Illinois
Supreme Court decision stating that states had the ability to regulate private property if it affected public interest.
Wabash Case
Declared that it was unconstitutional for states to regulate interstate commerce. Showed need for Federal regulation of interstate commerce.
Interstate Commerce Commission
In 1887, Congress passed the Interstate Commerce Act that setup the ICC.  This act states the federal government has the ability to regulate all aspects of interstate commerce.
Antitrust Act
In 1890, Congress passed this act which prohibited monopolies or any business that prevented fair competition.

Tariffs: The U.S. pursued an aggressive tariff policy as a way of promoting domestic business.  A tariff in 1890 that protected American sugar growers lead to Americans in Hawaii leading a revolution against the native government and subsequent annexation by the U.S..  The Wilson-Gorman Tariff of 1894 raised the tax on Cuban sugar to 40%.  This led Cuba to revolt against Spain because of the economic problems they faced.

The Progressive Era
The Progressive Era was a time of reform across the country.  Economic reform took many different forms inlcuding a Constitutional Amendment allowing Congress to impose an income tax, further regulation of business, and more government involvement in the direction of the economy.

Progressive Era Economic Reforms

Theodore Roosevelt: Ending of many trusts and a strengthening of the Interstate Commerce Commission with passage of the Hepburn Act in 1906.  This allowed the ICC to regulate railroads, pipelines, bridges and terminals.
William Howard Taft: The Mann-Elkins Act was passed (1910) which allowed the ICC to regulate telephone and telegraph business.

The 16th Amendment passed allowing Congress to levy an income tax.

Woodrow Wilson: The Underwood Tariff Act was passed (1913) which lowered tariffs and created a graduated income tax.

The Federal Reserve Board was established in 1913 to give the government a national banking system.  The country is divided into 12 districts, each with a Federal Reserve Bank.  This gave the government the ability to control the monetary supply and issue new currency which was more stable.

The Federal Trade Commission Act was passed (1914) which was meant to prevent unfair business practices.

The Clayton Antitrust Act of 1914 passed allowing the government to regulate business practices that tried to prevent competition.



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