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Questions and Answers
The gold standard is considered beneficial because it provides a stable measure of money's value.
The gold standard is considered beneficial because it provides a stable measure of money's value.
True
Good deflation refers to a decrease in prices due to improved productivity and efficiency.
Good deflation refers to a decrease in prices due to improved productivity and efficiency.
True
The Contraction Act was successful in stabilizing the economy by reducing the money supply.
The Contraction Act was successful in stabilizing the economy by reducing the money supply.
False
The Resumption Act of 1875 successfully reinstated gold as the basis for currency value, stabilizing the economy.
The Resumption Act of 1875 successfully reinstated gold as the basis for currency value, stabilizing the economy.
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Recessions in the postbellum era were primarily caused by excessive monetary supply and unregulated banking practices.
Recessions in the postbellum era were primarily caused by excessive monetary supply and unregulated banking practices.
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The Sherman Act aimed to encourage monopolistic practices in American industries.
The Sherman Act aimed to encourage monopolistic practices in American industries.
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Horizontal mergers primarily benefit corporations by reducing infrastructure costs.
Horizontal mergers primarily benefit corporations by reducing infrastructure costs.
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Predatory pricing refers to lowering prices to drive competitors out of the market.
Predatory pricing refers to lowering prices to drive competitors out of the market.
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Investment banks were formed primarily to support local businesses in the early 20th century.
Investment banks were formed primarily to support local businesses in the early 20th century.
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The dual banking system refers to the coexistence of both state and national banks.
The dual banking system refers to the coexistence of both state and national banks.
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The Clayton Act was designed to reinforce monopolies within the market.
The Clayton Act was designed to reinforce monopolies within the market.
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Deflation benefits borrowers as it decreases the real value of their debts.
Deflation benefits borrowers as it decreases the real value of their debts.
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The 'free silver' movement sought to expand the money supply by introducing silver as currency.
The 'free silver' movement sought to expand the money supply by introducing silver as currency.
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Study Notes
Industrial Expansion and Concentration
- The Sherman Antitrust Act of 1890 aimed to discourage unfair monopolies and promote free competition in commerce.
- Vertical mergers, according to Chandler, integrate supply chain stages within a single corporation, optimizing control, reducing costs, and improving efficiency. This minimizes reliance on external suppliers.
- Horizontal mergers consolidate operations and expand market share for corporations, particularly those with high start-up infrastructure costs.
- Corporations merged to increase market power and achieve economies of scale for cost reduction and enhanced competitive advantage.
- Scientific Management, developed by Taylor, standardized workflows, breaking tasks into small steps and improving efficiency, especially for railroads, but criticized for dehumanizing workers.
- Trusts were used to consolidate multiple companies under one board to reduce competition and control markets, increasing influence and profits.
- Holding companies gained power by owning controlling shares, enabling centralized management, influence across industries, and reduced competition without direct mergers.
Predatory Pricing and Standard Oil
- Predatory pricing is a strategy to temporarily lower prices below cost to drive competitors out of the market, then raising prices later.
- Standard Oil was accused of monopolistic practices, including price-fixing, predatory pricing, and forming trusts to control the oil market.
Industrial Revolution and Oligopolies
- The Industrial Revolution spurred technological advancements, mass production, and economies of scale, leading to oligopolies (a few large firms dominate an industry).
- Economies of scale are achieved by increasing production to spread fixed costs across a larger revenue base.
- Oligopolies were strengthened by the ability to lower costs and set prices, making it difficult for smaller businesses to compete.
Energy Usage in the Late 19th Century
- The late 19th century saw a shift from traditional energy sources (wood and coal) to more efficient fuels (oil and electricity), leading to industrial growth and developments like automobiles and electrical grids.
Worker Production During Industrialization
- Industrialization saw significant increases in worker production due to machinery, division of labor, and standardized processes but often led to long hours, poor wages, and harsh working conditions.
Investment Banks and Commercial Banks
- Investment banks focus on helping businesses raise capital and manage large financial deals, while commercial banks provide everyday banking services.
- Investment banks were needed during the Industrial Revolution to support capital demands for new factories and railroads, as commercial banks weren't always equipped or incentivized for these large-scale projects.
Coinage Act of 1873
- The Coinage Act of 1873, or "Crime of '73," demonetized silver, leading to the U.S. adoption of the gold standard.
Supply-Side Economics and Real Wages
- Supply-side economics focused on reducing barriers to business through lower taxes, regulations, and infrastructure investments.
- During the Industrial Revolution, real wages generally stagnated or fell initially, but increased as productivity rose over time.
Gold Standard vs. Free Silver
- The Gold Standard backed currency with gold to stabilize prices, but the Free Silver movement advocated for using silver as well, increasing the money supply and potentially reducing debt burdens for farmers and debtors.
Sound Money (Gold Standard)
- Sound money refers to a monetary system backed by a stable asset (usually gold or silver) to ensure value consistency and prevent significant fluctuations in currency prices.
Bank Runs
- Bank runs occur when many depositors withdraw their money simultaneously due to concerns about a bank's solvency, which can lead to bank collapses if the bank does not have sufficient cash reserves.
Farmers' Debt during the Late 19th Century
- Farmers in the late 19th century faced significant debt burdens due to falling crop prices, high interest rates, and deflation under the gold standard.
Deflation and Inflation
- Deflation increases the purchasing power of money but hurts debtors.
- Inflation decreases the purchasing power of money but benefits debtors.
Dual Banking System (State and National Banks)
- State banks were chartered by state governments with less regulation than national banks, which were federally chartered and required to hold U.S. Treasury bonds.
- State banks often avoided becoming national banks to retain their flexibility in decision-making and operations.
Greenbacks
- Greenbacks were paper currency issued during the Civil War without backing in gold or silver, causing inflationary pressures.
Banking Panics
- Banking panics occur when widespread fear causes depositors to withdraw their money simultaneously, leading to bank failures. This highlighted the need for a stable financial system.
Federal Reserve Act of 1913
- The Federal Reserve Act of 1913 established a central bank (Federal Reserve) to manage the money supply, lend to banks in times of crisis, and stabilize the economy.
Postbellum Era Recessions/Depressions
- Postbellum era recessions and depressions can result from various factors including fluctuations in the money supply (monetary policy), external factors such as wars or tariffs, and banking instability issues.
Quantity Theory of Money
- The Quantity Theory of Money (QTM) suggests a relationship between the money supply (M) and the overall price level (P): changes in M affect P.
Comparing Industries (General Information)
- Graphs portraying Average Total Cost (ATC) and demand curves can help to understand pricing power and output for large corporations. Analyzing these graphs helps determine prices and corresponding production output.
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Description
Test your knowledge on key concepts of industrial expansion, including antitrust laws, mergers, and scientific management. Explore the impact of monopolies and various consolidation strategies on market dynamics and corporate efficiency.
