American Economy PDF

Week 1: 9/26 Corporation → legal status, defining a company. Offers limited liability to its shareholders. ○ They don’t lose more money than they invested. Incorporation → creation of a company by 2 people. It creates an artificial person, different from the people who cr...

Week 1: 9/26 Corporation → legal status, defining a company. Offers limited liability to its shareholders. ○ They don’t lose more money than they invested. Incorporation → creation of a company by 2 people. It creates an artificial person, different from the people who create the company, with perpetual life, until it is dissolved, amassing large amounts of money. You can sell it. A partnership doesn’t incorporate, advantages like paying less taxes but are not protected, not liability for shareholders The dividends → proportion of the profit shareholders get ○ C corporation → classic version of corporation ○ S corporation → small one (100 shareholders or less), different taxes ○ B corporation → beneficial corporation, supposed to do good thing, different goals than make a lot of money like protecting the environment (Ben & jerry’s have this status) Public corporations → shares are available in the stock exchange; everybody can buy them. ○ Going public means people can buy their shares on the stock exchange Closely held corporations → limited number of shareholders Non-profit → no need to make profits like churches, hospitals, universities, … cooperatives → one member one vote, if someone owns 55% of the company, they don’t have more saying than others, like democracy Sole proprietorship → one person owns a business, no difference between that person and the business Each state has its own corporate law Corporations have rights like individuals of the US, corporations have the right of speech, it’s protected by the 1st amendment 5 economic periods: 1. Agrarian-commercial society / characterized colonial slavery à 17th to 19th century 2. Industrial revolution à 1810/30 to end of 19th Century 3. Unregulated capitalism à 1880s to 1920s 4. Fordism / new deal consensus à 1920s/30s to 1970s 5. Financial capitalism à 1970s to today Agrarian-commercial society Rose from slavery and European expansion from French, British and Spanish Triangle of trade → North America, Northern Europe and Africa. Each continents providing goods to the others ○ The most important and largest port in 18th, early 19th century was in Philadelphia (first capital of the US), the most important in the system. A lot of the economy was focused there  ○ Society was rural, farmers. 1820 à 72% of Americans were farm relating workers ○ No large businesses at the time, family household was the typical economic unit → Equality between free household =/= sharp inequalities in the society for the non-free population, labor: slaves, indentured servitude à temporary contract of slavery to repay a debt, happened a lot to immigrants to pay back for the travel from Europe to North America, could go from 7 to 10 years, not same living conditions because white and master could be punished if they killed one of them. Industrial revolution – 1810/30s to end of the 19 centuries Many debates around the dates, chronology unclear but many sharp changes, don’t know what came first and triggered the rest Most important way to transport goods were canal to access with boats. 1820/30s progress of railroads. Came with technical advancement like the steam engine ○ Major hubs of railroads were in Chicago, Northeast and Midwest → transportation was more important Mass production of cotton around 1820. Real change in the way the economy was organized End of the rural society à 1920 first time than the farm population was less important than the non-farm population The typical economic unit change à progressively replace by the rise of large businesses like factories or like railroads businesses ○ Became increasingly easy to create a corporation ○ General incorporation Act 1850 and 1860 à Law that says to create a corporation you just have to sign a piece of paper Factory system started w/ textile industry and expanded to other type of industry like shoes ○ First factory was in Lowell, Massachusetts around 1850, textile mills ○ 1860 à value of manufactured goods became equal to the value of agricultural production Evolution focused in the northeast ○ 1846 à invention of the sewing machine and change the way people could produce clothes ○ Increase of wage labor for people employed by other in exchange Week 2: 10/03 1880s-1920s: unregulated capitalism: the roots of the modern american business The golden age of free markets? Also called “The Lochner Era” (1890-1937) ○ Named based off a supreme court case - Lochner v. New York ○ Supreme court intervened very little → when they had to they Systematically decided against economic regulation States would try to pass regulations to support the rights of workers, but the Court struck it down ○ Laissez Faire philosophy → protect property rights, freedom of commerce ○ Employers/corporations were often protected but not the workers ○ 1905 Case - about the protection of the health of workers in the baking industry Struck down by the Supreme Court Also the emergence of the Progressive Era (1890s-1910s) ○ Ex: 1890: the Sherman Antitrust Act First federal law to try to control large corporations Trust = financial agreement between companies to control/fix prices Allowed the government to go to court and break up these agreements when necessary ○ Consequence of Sherman → Great Merger Movement (1880s-1900s) Many companies decided to merge Act was counterproductive? Prevented different companies from getting into an agreement, but they just decided to merge ○ Ex: 1906: the Pure Food and Drug Act Mandated the government to inspect consumer products when they were sold between states Started with meat, expanded to other consumer products Still exists today - FDA Passed in response to The Jungle by Upton Sinclair (muckraker) High Levels of Inequality Pre-WWI (1913), the US became the first economic power ○ Misconception that the US became strong because of European destruction after WWI Certain people were growing powerful (ex: Vanderbilt, Rockefeller, Carnegie) but the working classes were mistreated and very poor 1921 - quotas on immigration ○ “5% Chinese, 5% Mexican”) ○ Often became farmers or other working-class jobs, extremely poor and lived in terrible conditions (tenements)  Slavery abolished in 1865, but followed by the Jim Crow era ○ Black Americans paid the lowest wages Social Unrest and Political Instability Labor Unions were not recognized by the government at this time ○ Strikes and riots ensued to attempt to get unions recognized ○ Riot in Baltimore during the Great Railroad Strike of 1877 ○ Bombing of Haymarket Square in Chicago in 1886 Most powerful union - Knights of Labor - called for a strike Asking for the 8 hour work day (could be up to 14 hours) Increasingly large and differentiated corporations & the rise of wage labor Differentiated corporations - large companies expanded into different industries (ex: Johnson & Johnson) Many cities became specialized in one type of production, cities grew around these factories ○ Ex: Detroit = “Motor City” ○ Ex: Pittsburgh = “Steel City” Expansion was connected to the railroads ○ Highly evolved railroad trackage from 1870-1890 ○ Railroads were important because companies were functioning from city to city ○ Key for expansion was being able to sell a product on a national level ○ Railroads structured the American market and created a few central markets (Chicago, New York, New Orleans, San Francisco) ○ Because of the railroads the US adopted an international time system Big companies getting bigger ○ Holding = one parent company holding smaller companies ○ 1890s → 1% of US corporations controlled 33% of industrial production Some people saw this as a positive and efficient development Others saw these big corporations as uncontrollable monsters (see Standard Oil, Puck) ○ 1904 - government attacked Standard Oil ○ 500 cities employed >1000 factory workers, 4 employed >10,000 Many women and children working in factories 1.5M children under 16 1930s-1970s: Fordism and the New Deal Consensus Collapse of unregulated capitalism with the Great Depression Prices of crops dropping, rise in farm foreclosures 25% unemployment in 1932 ○ Higher numbers in individual cities - ex 80% unemployment in Toledo, OH ○ Government did not intervene at first Rise of the New Deal consensus and coalition, stability and prosperity ○ FDR took office in 1933, emergency measures to save the economy ○ Created administrations and institutions to change the economy in a meaningful and structural way Ex: public works like a dam built in Tennessee, Golden Gate Bridge ○ Government could give jobs to people who were unemployed (not just helping the businesses) ○ Democrats controlled congress until the 1980s ○ While Roosevelt’s programs were popular, they did not solve the problems After WWII (1945), US became a superpower ○ Helped to build a strong middle class → came along with a strong American way of life ○ Development of the suburbs Typical economic unit: large multidivisional corporation aiming at mass production Mass production touched every sector The Assembly Line - Ford ○ Division of labor into small, identical portions ○ Able to identify inconsistencies, areas of improvement Relied on a high division of labor ○ Economics studied the divisions and the workers to find the highest productivity Changed the face of American industry with even more production than before Dominant form of business = Multidivisional Corporation ○ Ex: Ford/General Motors produced cars, refrigerators, vacuum cleaners, etc Division for each of these Advertising Credit Protected wage labor, but not universal Most common type of labor was wage labor - it was protected but not universal 1935 Wagner Act → unions had the right to exist and they were protected by the government 1950s: merger of two most powerful unions (AFL and CIO) ○ workers were protected by their employers and by the government ○ could go on strike, request changes, etc Did not apply to everyone - particularly African Americans Week 3: 10/10 1970s: Financial capitalism The period of financial capitalism started with the crisis of the new deal model, fordist model ○ stagflation: before, there was either unemployment or inflation (followed the model of Keynes) ○ new: there was at the same time inflation and unemployment - meant something went wrong in the keynes model, so it meat that spending gov money wasn't enough Two evolutions that happened at the same time: 1. deindustrialization 2. financialization American economy became less industrial and more financial ○ Manufacturing sector represented 24% of the US GDP in 1970 while in 2014, only 12% of factories were located in the north, midwest heavy industrial regions (Michigan, Wisconsin...) ○ Factories were abandoned, unemployment was very high, the region was called the Rust Belt At the same time finance had been rising, the financial part of the gdp had kept rising as well as the importance in finance in us employment, the wages had been increasing in the financial sector, while they'd been lowering in the industry sector ○ Process of deregulation: gov intervening less and less ○ Banks, insurance companies having more momentum, they tend to control other companies Increased in the 1980s: anti new deal, gov intervention president: Reagan – gov is the problem, ppl should be more free to invest, create companies, will help create jobs… ○ Popular among republicans but also democrats ○ Deregulation happened in several sectors Airline industry, 1978: Airline Deregulation Act ○ Increased globalization, internationalization of the american economy, with more import/exports ○ Other countries became competitors, especially Germany and Japan Consequences on american businesses: ○ where were american goods produced ○ [outsourcing] ○ [offshoring] Process of production: supply chain — div of international supply chains ○ New economic model: the rise of the gig economy (2000s-2010s) ○ The part that the gig economy plays in american economy is difficult to measure ○ Gigs - freelance or short term work rather than permanent jobs Business of Slavery Economic aspects of slavery – what kind of companies, businesses were involved especially between the 18th century ○ Still impacts the american economy today Slavery was a massive institution and economic sector, concerned hundreds of thousands and millions of people ○ At the time of the american revolution (1770s: 750 000, 1865 (abolition): 4M) slavery was concentrated in the southern states ○ It was abolished through an amendment, the 13th, which in theory ended slavery. It didn't end its economic importance though, but the practice stopped in 1865 It was a brutal institution, with different regulations in diff states, usually through Slave Codes, which explained how slavery should work. they gave no rights to the slaves, they couldn't hold property, go to court, be a witness in court, move freely, organize meetings,carry arms, not allowed to get married, learn how to read and write. ○ White people had every right on their slaves lives, the violence was not punished. Some white people could kill without being punished, but sometimes there was a sentence. They weren't killed often because they were considered as a commodity and they were expensive, an investment, especially women. The Codes were not enforced everywhere, the violence could be harder in some parts than in others. We can know a slave’s life because they would write a book: Slave’s narrative ○ Masters could emancipate the slaves, and others would escape ○ Frederick Douglass The majority of slaves lived on plantations, usually in large groups called gangs and were strictly controlled all the time ○ They were considered both as labor and as capital (L & K) because they could be sold they represented an investment and potentially a source of profit Solomon Northup: wrote a book “12 years a slave”. was born free in New York in 1808. Played violin, took a trip in washington dc in 1841 to play the violin (job) DC was at the border between the north and south, there he was kidnapped and he couldn't prove he was free because he didn't have his papers on him. His family and friends were able to track him and he regained his freedom in 1863. ○ He was sold for 650$. the master who bought him sold him in louisiana for 900$. ○ twelve years later, he estimated that his value would have been 2000$ Insurance companies were involved Powerful Economic Institution The rise of King Cotton In the south in the 19th century, the big thing was an industry built around cotton, it was a key to the economy of the south. there were other crops that were produced: tobacco, sugar, rice... but none of them were as profitable as cotton. ○ Technological innovation that accompanied these dev. ○ Agricultural innovation: a diff form of cotton that could grow on diff soils and climates Cotton had to be picked in the field and then transformed and sold to textile companies ○ Invention of a machine called: Cotton Gin (1793) by american engineer Eli Whitney Put pressure on the slaves to pick up more cotton ○ The production expanded to the deep south (western south) ○ The production increased a lot: 1820: 500 000 bales of cotton a year, 1860: 5M bales/year ○ Southern states exported, especially to england. in 1860, cotton represented 2⁄3 of total American exports ○ King Cotton: domination agriculture and commerce. parallels made with the Gold Rush ○ Cities grew around the commerce of cotton: new orleans, charleston… ○ In Alabama, the number of slaves was multiplied by ten between 1820 and 1860; it followed the evolution of the cotton industry Slave Trade: international and national Part of the triangle trade, system of commerce between diff continents. africans would export people (often captured) and send them to the americas where they would produce raw materials, then sent to europe where they would 16th and 19th century: between 10 and 12 millions people were traded ○ Crossing of the atlantic: the middle passage In the US the international slave trade was banned in 1808: consequence of the american constitution – debate about the trade, seen as immoral ○ No new slaves were imported from africa. If they wanted new slaves, they had to ensure slave women would reproduce. That meant they had to treat the slaves a little bit better. The conditions were better in the US than in other places, like in the West Indies (Jamaica...) Children of women slaves were always slaves even if they were mixed race, or if their father was free. The domestic slave trade developped. they had to rely on internal commerce, they were professionals, businesses that were specialized in slave commerce. ○ Franklin & Armfield: largest slave trade company The slave trade was very important economically: their values had been estimated by historians at $3.5 billion. it was more than the RailRoad at this period  The traders would transport the slaves and then sell them. there were markets, Auctions, where the slave would be presented to the public on a stage, and the value could change because of age, gender… ○ Families would be separated, they were very traumatic experiences ○ The prices would vary, depending on many factors SLAVERY AND CAPITALISM: WAS THE PLANTATION PROFITABLE? Life on the plantation Only a minority of white people in the south owned slaves, only 350,000 owned slaves out of 6 millions Some slaves were domestic servants, lived closer to the family, could eat the same food - they were “privileged” in a way. Slaves that lived in the city were better, they had more social interactions, with free black people even. [The Underground Rail Road] The planters were the elite of the southern economy, they were the richest. they displayed their power and wealth very ostensibly The masters provided the slaves with the necessities (food, clothes...). slaves lived in specific places on the plantation (slaves quarters) Week 4: 10/16 (class canceled, video lesson) Week 5: 10/23 CLASS CANCELED fall break Week 6: 11/7 - The Forms of American Businesses Corporate function comes from Medieval times - King delegating tasks The Three Ages of American Business 1. The networked firm in the age of commerce (1600s-1830s) a. Economy ran by merchants and manufacturers - point was to sell and control markets b. Merchants - organizing production (no need for a corporation, the merchants would coordinate the producers to sell products) c. Pre-1900s corporation in the US - ex: bank or turnpike d. Organized by the state - had to have some sort of public interest 2. The vertically integrated firm in the factory age (1830s-1970s) a. Mechanization b. Vertical integration - purchase of companies at all levels of production  i. c. Horizontal integration - purchase of competing companies in the same industry i. ii. Ex: Standard Oil Company - by 1880 SO controlled 90% of all oil production in the US 1. VI: SO had its own buying agents, warehouses, rail cars, pipelines, refineries, etc. Even bought forest land to get wood for the barrels transporting oil 2. HI: Mergers and absorptions of rival companies 3. 1882 Standard Oil Trust: 40 corporations engaged in producing, refining, and marketing oil d. Waged labor necessary to take control (paid either per hour or per piece, but per hour was more successful) e. Oligopoly: 2-3 large companies control almost the entire market (ex: planes) 3. Disintegration at the financial age, the return of the networked firm? (1970s-) a. Emergence of free-floating capital: the free circulation (at the same moment as they abolished the Bretton Woods system) b. Diversification: the rise of multidivisional form of corporation (conglomerates) i. Attempt to vertically and horizontally integrate as much as possible  ii. c. Cluster i. Ex: Silicon Valley - needs lots of engineers/coders, easy to consolidate it into one place ii. Focus on the Emergence of Corporations The economists’ explanation for the development of firms: transaction costs ○ ○ Search costs: costs incurred for searching and gathering information, recognising potential sources of purchase, etc ○ Bargaining costs: costs associated with negotiations under both parties settle on a final agreement ○ Enforcement costs: costs related to ensuring all parties comply to the contract and policing of the transaction Multidivisional corporation  ○ Managers coordinating each division General Incorporation Act