Economic Change



Types of Economic Systems - There are essentially three basic kinds of economic systems. If people do things because "it's always been done that way," that is a traditional economy. You do it that way because people in the past did it that way. If the government tells businesses what to do, that is a command economy. If people make whatever they want, and buy whatever they can afford, often with some government regulation of business, that is a market economy.



Type of
economy
Who or what
runs it?
It's done that way...

Traditional economy
Past practices.
because "it's always been done that way."

Command economy
The regime in charge.
because the government said so.

Market economy
The market forces of supply and demand.
because the incentive to make a profit drives business.






The Economic Transformation of the United States - The history of business in American is a story of the transformation of an agricultural economy, or one based primarily on farming, to an economy where capitalism, or private ownership of businesses, prevailed.



In the beginning, the English saw the colonies as a business investment. In short, the colonies existed for the betterment of the mother country. To the colonists in America, business was much more important than it was to those who lived back in England.


In England, one simply could not be both engaged in business, and call oneself a gentleman. To the aristocracy, the two were mutually exclusive. In America, however, business was the catalyst for the revolutionary changes that would come later. From the time of settlement to the Revolution, the political and social ideals that later spurred the Revolution -democracy, independence and equality- grew from American involvement in business.





Business in England and the American Colonies

Nation
England
America

Type of Economy
Early stages of industrialization
Still primarily agricultural in focus

Who was involved
Nobles and peasants did not engage in business. Merchants were generally considered lower class.
Nearly everyone was involved in business to some degree. Cash crops were necessary to help farmers survive.

Land in Society
Land was inherited.
Land was a commodity.

Social Status
Titles of nobility and status were inherited.
Trade could earn you power and a gentleman's status.

Slavery
Slavery was outlawed.
The slave trade was a very profitable business.

Business Products
Finished goods for sale in colonies and foreign nations.
Raw materials (e.g. timber, furs) and farm produce.






From Revolution to Reconstruction - During the 1800s business and industry developed in America in different ways, and much depended on geography. Because of the easy access to natural power sources, the northern states were inclined to develop manufacturing and other factory-related businesses. The Erie Canal further helped factory-made goods, and people travel westward, and eventually, railroads followed its path. With industry, came wealth, and power. In comparison, the southern states tended to rely upon farming, creating an agricultural economy. As a result, cultural differences between northern and southern states increased, as ways of life diverged.



American government in the 19th-century officially endorsed a laissez-faire policy. They kept their "hands off" of business, letting it run itself. The U.S. Government also tried to protect American manufacturers by passing protective tariffs, or taxes on imported goods. This made American goods seem cheaper, more affordable. The government also issued patents for new inventions, protecting the inventor from having ideas stolen.



Following the Civil War, industrialization in the United States advanced rapidly. One reason for the dramatic economic transformation was that rural workers and immigrants moved into the cities at an amazing rate. By 1880, over 25% of the entire population lived in cities. But railroad expansion was the key to the rapid industrialization following the Civil War.



The first railroad to connect the coasts was completed in 1869. It connected the formerly remote rural settlements to distant urban markets, and brought settlers west in search of land. With the country linked together like this, some businesses saw an opportunity to develop a national market emerge. Nationwide department stores and mail-order catalog companies grew to accommodate the increased demand for finished goods across the nation.



Before the Civil War, most business was owned by individuals or were partnerships. After the war, corporations became more popular. To build capital, a corporation sells partial ownership in itself to investors, called stockholders, and shares profits with them. The advantage of a corporation, is that accountability is limited, because a corporation is recognized by state law as a separate person. So, if a corporation goes bankrupt, it doesn't ruin the actual people involved, it just disappears.



As similar business grew, they realized that they were competing with each other, and lowering everyone's profits. Many of these companies formed agreements to join together and control their industry. These cartels, as the trade groups became known, artificially lowered production to increase prices, and, with them, profits. Sometimes, though, the cartels couldn't stand up to deep recessions, or downturns in the economy.



Thieves or Great Leaders? - With the incredible success of large corporations and trust, several crafty businessmen became unbelievably wealthy. These ultra-rich capitalists gave the time period its name, the Gilded Age, because of their extravagant lifestyles.



Some citizens thought they were the "Captains of Industry" because the men helped create the modern economy based on business and industry. Critics called them "Robber Barons" because of the ruthless way these corporate executives tried to destroy all competition and keep wages low. After the depression of 1873, many large manufacturers began to drive smaller companies out of business and take over those companies. Sometimes corporations would join together, instead, forming a trust, completely controlling the production and sale of a product. Gaining complete control of a market is known as having a monopoly.



To illustrate this, consider that Andrew Carnegie emigrated to America with almost nothing. He ended up one of the richest men ever, controlling most of American steel production in the early 1900s. John D. Rockefeller controlled almost 90% of oil-related business in the nation. He was so powerful, he was able to force even the huge railroad companies to give him special rates. John Pierpont "J.P." Morgan, an investment banker worked with Rockefeller to accomplish such amazing exploits. As an example of their success, Morgan and Rockefeller, together in 1912, controlled over 100 corporations worth over $22 billion. They would be worth over $400 billion in 2003 money.



The Government's Reaction - The Federal Government generally allowed business to operate freely. Some of the abuses of big business, though, soon called for government intervention. At first, states tried to regulate the railroads. Then the Supreme Court ruled in Wabash v. Illinois (1886) that only the federal government has the authority to regulate railroads.



A year later, Congress passed the Interstate Commerce Act (1887). It established the first federal regulatory agency, and tried to stop railroad abuses and discrimination. Change continued, and in 1890 Congress passed the Sherman Anti-Trust Act. It allowed federal prosecution against any "combination in the form of trusts or otherwise, or conspiracy, in restraint of trade." Ironically, this law was used more against unions in its early days, than against "big business."



It wasn't until the administration of Teddy Roosevelt that the federal government was successful in combating the growing power of trusts. Roosevelt argued that "trust-busting" would protect the farmers, workers and consumers being taken advantage of by huge mega-corporations. He hoped that by regulating the offending companies, the economy of the entire country would benefit.

Class Discussion Today

In groups of four read the handout (or post) Presidential Decisions. Thinking about the current President George W. Bush and the President Elect Barack Obama. Create a list of Presidential Decision Bush made. How did these decision change how the world views the United States?

Using the list of Presidential Decisions think of some of the decisions you think President Obama is going to have to make. How do these deisions demonstrate the powers of the Presidency. Site the article for examples.

Chart your discussion. Be prepared to share out.

Presidential Decisions from www.regentsprep.org

Presidential Decisions

Commander-in-Chief: As Commander-in-Chief of the United States' armed forces, the President is ultimately at the head of the chain of command for the Army, Navy, Air Force, Marines and the Coast Guard. While many former military generals such as Washington, Jackson, Grant and Eisenhower have served as president, there is no requisite of former military service to become Commander-in-Chief. This is an important concept in the Constitution, making the ultimate head of the armed forces an elected civilian and not a member of the forces directly under his command. Civilian control of the military serves to balance the needs of defense and security with accountability to the democratic populace.

Chief Executive: As Chief Executive the president is technically the head of all Federal agencies, departments and bureaucracy within the executive branch. Examples of these would include the Department of Justice and the agencies of the FBI and the ATF under that department's control, the Internal Revenue Service and hundreds of other government offices. The president issues executive orders to these agencies and directs the enforcement of the laws as passed by Congress and interpreted by the Supreme Court. The president also appoints and removes the government officials responsible for heading these various and diverse government offices.

Head Diplomat: As Head Diplomat the president represents the United States in negotiations with foreign countries. Article II of the Constitution grants the President the power to negotiate and sign treaties on behalf of the United States (treaties do require ratification by the Senate to take effect). The president also extends or removes recognition of nations and their governments. As head diplomat the president sets US foreign policy, to be carried out by the Department of State, via the Secretary of State, US Ambassadors and US envoys around the globe.

Chief Lawmaker: As Chief Lawmaker the president's main responsibility is proposing the federal budget. By directing the spending of the federal government the president effectively determines what programs and policy areas are to receive funding priority. The president also proposes legislation to be considered by Congress. While it is Congress's role to craft and pass all legislation, proposals from the president are usually given special consideration and have been the origin of many of our significant laws and policies throughout US history. Finally, the president has the power of the veto, or the rejection of legislation passed by Congress, giving him the power to strike down proposals with which he does not agree. While vetoes can be over ridden by Congress, the veto remains a power lawmaking weapon.

Special Judicial Powers: As a check on the judicial branch of government, the Constitution endows the president with a few special judicial powers. The president has the ability to pardon anyone convicted of a crime, effectively nullifying their conviction and freeing them from their sentence. Also given the president is the power to grant amnesty from a type or class of crime. In the case of amnesty, a general forgiveness for all persons convicted of a particular crime is granted, not to a specific individual. These two judicial powers are used sparingly by most presidents and usually only in special circumstances, as they effectively overturn an indictment or conviction in a court of law and potentially grant guilty parties their freedom.

Head of State: As the Head of State, the office of the presidency serves as the symbolic or ceremonial representation of the United States. An analogy can be made to the Queen of England or the Emperor of Japan, individuals who serve to represent the government to its people, or to represent that government symbolically to the world. In this capacity the president may attend ceremonies or funerals for the heads of foreign governments, or toss the first pitch on baseball's opening day.

Bully Pulpit: The concept of the Bully Pulpit is not found in the Constitution or any actual law, it instead developed as an extension of the president's position and meaning in American society. Coined by President Teddy Roosevelt, the bully pulpit is the use of the prestige and public authority of the president to advocate for a particular agenda or idea, not by legislation but by persuasion of the American people. Public speeches in which the president may ask the American people to undertake a specific request, not because of a government action, but because of a presidential appeal, is an example of the bully pulpit. The ability to use the 'Bully Pulpit' is based purely on the president's moral authority and respect for the office of the presidency.