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Industrialization- The Issues

• Problem of Definition
○ Growth in manufacture
○ Advent of the factory system
○ Adoption of mechanical means of production and
inanimate forms of energy
○ Spread of the wage labor system
○ A very uneven, staggered thing- hardly a Industrial
 A Textile Revolution
• The Genesis
○ Large increase in the adoption and rate of inanimate forms
of energy and mechanical means of production- this
happens in starts and fits with regional differentiation
○ The Textile Revolution
 The Steam engine had nothing to do with the
Industrial Revolution- first designed to pump water
out of mines
 Putting Out System (cottage surplus labor organized
by merchants)
 Spinning Innovation (Jenny, Mule, 17501780)
 Spinning mills (1780s- but persistence of hand loom
weaving in GB)
 Automatic looms (Invention, 1730s, adoption US
1820s, GB 1840s)
• Was not adopted immediately because
there was a surplus of under utilized
labor supply
 Full factory systems
 Technological Logjams lead to industrialization- must
increase productivity of spinning- leads to spinning
jenny and spinning mule (Arkwright Shop, Scotland)
 The Mill (a grinding facility) was adopted to spinning
• Disruption of family labor system, females out
of household production system into factories
powered by running water
 Lowell does not depend on a railroad, all of its
products are shipped out via boat- Textiles not
railroads were the leading sector
 Mill Village (Slater’s Pawtucket), Philadelphia, Heavy
duty industry city (Lowell) Models
○ Railroads were not revolutionary, but spin offs from the
textile Revolution were enormous:
 A machine trade emerges out of no where to
feed the textile industry
 Brits have no lumber to build their
machineswrought ironsteel
• Iron and Steel industry is a product of the
textile industry
 Whitening- bleaching in the sun  Chemists begin
to study bleaches
• Railroads and Economic Development
○ Classical Analysis by Jenks
 Shumpeter’s Theory of Innovation- Railroads are the
trigger of a new cycle of economic growth
 Three Phases
• Railroad as an Idea- Entrepreneurship
• Railroad as Construction Enterprise- Demand
for Capital, Labor, Resources
• Railroad as Producer of Transportation
Services- distribution efficiency
○ Fogel- The railroad did not make an overwhelming
contribution to the production of the economy
 Axiom of Indispensability- absence of RR would have
restricted economic development
• Waterways and wagons would have replaced
RR at negligible extra cost to society
• Total Social Savings from Railroads= Total
Cost of Next Best Alternative + Hidden Costs –
Total Cost of Railroads
○ Hidden Costs- transit, transshipment
costs, additional wagon haulage costs,
capital costs, cost of slow transportation,
cost of being unable to use water routes
for 5 months out of the year
• Interregional Trade- 0.6% of 1890 GNP, Intra-
Regional Trade (Extra Wagon Costs)- 2.8% of
GNP, Intra-Regional Trade (Loss of Land- canals
would cause loss of land for growing products)-
2% of GNP
 Conclusions: Common overestimation of
manufacturing impact of RR on iron/coal/steel
industries (nails rather than rails), the winner isn’t
necessarily the best solution (RR weren’t better than
superior canals)
 Criticism- vague data and calculations, impossible
quantify hypothetical canal costs, presumed
insignificant of 5% of GDP, uses rates from 1890-
peak of RR dominance, doesn’t discuss political
impact/passenger travel
○ Albert Fishlow’s Synthesis of Theories- Railroad as an Idea-
primarily passenger travel, prosaic and romantic, intended
to complement canals and waterways
 New England RR industrialized in 1840s highly
 RR as a Construction Enterprise- influences of
Western immigration (RR development means
economic opportunities, RR with special immigrant
 Labor demand stimulates market production
(Regional specialization, west transformed from
agricultural to industrial economy)
 RR creates demand for factors of production: coal,
iron, machineryFALSE
 RR as Transport
• Not that cheap, canals still used for cotton N to
S, trade between W and S not great, Southern
trade independent form RR developments
○ Temin (see Antebellum notes)- Huge costs means Lowell
succeeds from pooling money, but some other capital costs
are not that great
 New England can build cheap machinery because of
the surplus of wood
• They do not invest too much in machinery (can
easily rebuild)
• GB had done away with forests, immediately
go into wrought iron construction. They can
borrow cheaply for this costly investment
○ England leads American in iron and
eventually steel production; US is in fact
far behind in steel and iron because of
their abundance of cheap wood
○ Brits are 50 to 60 years ahead on iron
and steel production
○ Charcoal Product in the US is from
burning timber and then used to make
○ This was insufficient for steel
○ Cheapness of a resource can lead to
retardation in economic modernization
○ Britain begins experimenting with
coalcoke (higher Carbon
content)1840s Britain has steel
(Bessemer Converter)
 We don’t produce steel until the
• Surplus of Wood means homeownership
becomes more popular in the United States-
expansion of homeownership in 19th C
(Philadelphia prime example)- Britain must
used expensive bricks
○ Douglas North- world market prices and demand
○ Knowledge is a factor that cannot be overlooked- a fusion
of technological knowledge and expertise- R&D transfer
from GB (had been working for 60 to 70 years) was
 Many mechanics from England immigrate to US
secretly- a Transatlantic Transfer
 Knowledge has a value
 Gun Manufactories- Long history of French
experimenting with standardized parts
 Industrial Espionage
• The Course
• The Causes- supply v. demand side views
○ From the Supply Side (Factors of Production and Cost)
 Diffusion of Technological Knowledge and Expertise
 Natural Resources
 Human Resources
 Unskilled Labor
 Skilled Labor (interchangeable parts production
techniques, the “American System of Manufacture”)
• Fitting non uniform parts requires most skill
and expense. French come up with idea to
take unskilled labor and make it semi-skilled.
Limit skilled labor to decrease costs- no need
to stop, file, and fit parts if the parts fit
perfectly- elevate one set of labor, deskill the
• Begin to apply French models for gun
manufacturing at Springfield Arsenal
• British are dazzled by the “American System of
Manufacture”- interchangeable parts
techniques really come from the French
○ This was only dominant in certain places
(Brits visit Whitney who would spend 9
years to perfect the system)
○ In actuality, this takes a century to
 Poor metallurgical knowledge,
don’t have precise tools or
○ From the Demand Side
 Importance of Preference and Taste in Marketplace
• Managers don’t seem to be too interested, but
they were phenomenal in advertising (Singer
doesn’t solve production problem, many
thought it was craft made considering how
elaborate it was)- there was no market for
standardized goods- people still had a
preference for what they thought was a
custom good
• Only when demand builds, do manufactures
begin to adjust and focus on interchangeable
parts- models begin to look like standardized
• Henry Ford takes this to a new level with the
assembly line- rapid pace interchangeable
○ Advertising- Ford convinces Americans
they will love standardized products
 Population Increase (the role of immigration)
• A shift towards immigration as the driver
of population
○ Push/Pull- An International Story
• Average children goes form 7 or 8 down to 2 or
3 during the 19th Century
 Urbanization- people are in the market- they
cannot produce their own goods- a positively
reinforcing feedback loop
• Supply v. Demand Side Views
• Questions of Resource Cost
• Skilled v. Unskilled Labor
○ Machine tenders and watchers v. Weavers
 Philadelphia- great surplus of skilled labor- maintain
hand production techniques
• Skilled labor- the more skilled labor you have,
the more skilled labors are attracted- leads to
disproportionate amount of German and
English immigrants
• Dearth of large scale investment- capital
focused elsewhere- leads to highly specialized,
custom, skilled basis- made to order
• Review of the Transportation/Communications Revolution and the
Question of State
○ Looking at Fogel’s Exercise- A Counterfactual Argument
 Canal Costs- volume x rate x distance
• Rate being used is the actual 1890 canal rate,
much lower than RR
• Canals must compete so they lowered their
rates in the face of RR- we have no idea what
those rates would have been if no RR
 Intraregional Problem- actual distance form canal to
• Canals are always much further away from
farms than railroads, given no competition this
would be magnified
• Volume x rate x distance (distance
 Why does one technology win out over another?-
Technological Determinism- the winner is the best
• Fogel casts doubt on this assumption
○ Wilderness Road and the Cumberland Gap- Daniel Boone
○ 1820s-1860s- Canal Building Boom
○ The real obstacle for the US transportation is a lack of
flowing river ways from the NE to the Midwest. Appalachian
Range is an issue too
○ The South does not have these obstacles, extraordinary
system of inland waterways
 South unsympathetic to government spending on
 Ships from Europe could literally take river ways
straight to a plantation dock
○ Hardly a place east of the MI that by 1860 did not either
have a road, canal, or railroad
○ 1840s Samuel Morse’s Telegraph- anywhere there is a
railroad track there is a telegraph line
 Railroads and Canals were communication networks,
but telegraph was instantaneous- a quantum leap in
communication capacities
• The Question of the State
• Setting up Session on the Profitability of the Slavery
○ Thursday- Profitability of slavery
 The Genesis of SlaveryThe Cost Differentials btw
Indentured Servitude and SlaveryThe Gradual
Abolition: Cost Issues (seasonal agriculture means
labor cannot be a fixed cost)The Profitability of
• The Profitability of Slavery- Would it have been self sustaining if not
for the civil war?
○ Ulrich B Philips- 1905- Ratio of slave prices and cotton
 Conditions for profitability- extreme scarcity and high
price for free labor, system of agricultural
organization (monitor productivity), low price for
 PreRevolution slavery was popular, speculation as
the source of inflated prices
 Last decade of antebellum eraslavery no longer
 1780s- slavery was unprofitable but saved by cotton
 1860- slave prices at speculative peak, slave to
cotton prices was at its highest
 Philips SchoolCharles Ramsdell- slave system was
unprofitable for most
• Irresistible tendency toward overproduction of
cotton, natural limits thesis, asserted
incompatibility between slavery and urban
○ Natural Limits Thesis- climate and soil
set limit to extension of slavery, reached
in 1860
○ Slavery required continuous territorial
expansion b/c of rapid soil exhaustion
 Eugene Genovese (1965)- distinguished from
northerners in their drive for profits, question of
culture not profit maximization
• Slavery- “Badges of honor, prestige and
○ Anti-Philips School
 Lewis Gray- slaves were skilled and more diligent
than free laborers
 Kenneth Stampp- Slavery was more efficient due to
lower cost
 Natural Limits Thesis Refuted: assumed increase in
ratio of slave labor to land would undermine slave
value. Slave values increase bc of growth in demand
for cotton growth>supply of cotton
○ Conrad and Meyer- rates on return on slaves- 7-8% return
on women and children, 5-8% or up to 13% on male slaves
 Interregional Slave Trade- Fogel and Engerman- 10%
total return from out of state salve sales, makes
slavery more profitable than thought of before
 “Time on a Cross”- Fogel and Engerman- good
business practices, similar to northern free workers,
slaves managed respectably, efficiently, no internal
economic contradictions
○ Refuting Fogel and Engerman
 If slaves were treated well, they would not be
• Slaves were likely not fed well
 Stampp- F and E disregard irrationality, friction and
conflict- managed by passion not simply discipline
○ David and Temin- were slaveowners “cavalier fop” or
rational profit maximizers?
 The positive incentive system was responsible for
smooth and profitable operation of slavery- evidence
is circumstantial at best
○ Yoram Barzel- Policing Costs
 Slaves do not make their own trade off between
leisure and profits
 Model for labor-Leisure Choice- Modifications- the
wage line of slave laborer lies above that of an
equally productive but free man bc owner is profit
 Equilibrium productivity point with netted
consumption is higher for the slave
 Factoring in Policing Costs- consumption and
 Slavery endured only in areas and occupations where
the productivity net of policing costs still exceeded
that of freemen
○ Evaluating Profitability of Slavery helps evaluate the
causes of the civil war
 Slavery is generally accepted as profitable, price
decreases in cotton mean increases in productivity
 Why was slavery profitable? – Slave labor was 35%
more productive than free labor on Northern farms-
is this accurate? Measuring profitability of market
rather than efficiency of farmers
• There were efficiencies in the organization of
production, highly productive workers w
positive incentives or how slaves were
managed using gang labor
• Did slavery make southern agriculture
profitable or was it profitable because cotton
prices were so high
○ Olmsted on Slavery- slave labor preempting free labor,
majority of the south is remarkably poor, no upward
 Supports Philip idea of capital asset bubble
 Fanny Kemble- what is the impact of the institution of
slavery on the black people?- slaves are not meeting
their full potential, slaves lack incentive to perform
 Accounting- revenues greater than expenses,
Economic- opportunity cost
• Economics of Slavery
○ The Genesis of Slavery
 Abundance of land/scarcity of laborbond labor to
the land (potential for production of marketable
 RacismSlavery, why first slaves codes enabled in
1660s not 1619?
 Class conflict among whites in 1660sdefused by
appealing to white lower classes and raising racial
fearslegal revolution of enslaving Africansracialist
 Rising cost of indentured servants relative to salves
after 1670sslaveryracialist justification
○ The Location of Slavery
 Fixed cost of slaves borne where labor steadily
employed across the year, not where there are short
growing and harvesting seasons and labor can be a
variable cost: the South and not the North
 But is the role of organized opposition to slavery to
be dismissed: the North not the South?
○ The Profitability of Slavery- Would slavery have died out
had it not been for the Civil War?
 Causes of the Civil War
• An irrepressible Conflict- Whigs v. Cavaliers?- a
fight to control the federal government to best
write a program that best suits their particular
• A Needless War- Douglas North- regions were
not diametrically opposed, in fact symbiotic,
result of extreme political ambitions, fervent
ideologies, inability to compromise
• Internal Divisions- secessionist movement
emerged in South to defuse class tensions
among whites, raising racial fears of abolition;
the non-extension of slavery—keeping the
West free for yeoman producership—emerges
as critical concern in the North to defuse rising
class tensions with industrialization
 UB Philips posits the unprofitability of slave cotton
plantation agriculture based on rising price of salves,
falling price per pound of cotton and therefore
lowering profits. The only way for slavery to spread
west was to move west and find new fieldsonce
Lincoln came this idea was obviated
 Conrad and Meyer challenged Philips
methodologically arguing for computing rates of
return on investments in land, salves, and cotton
• Conrad and Meyer gather voluminous data
form plantation records to calculate across
thirty year lifetimes of male and female slaves
the amounts they earn for their owners and the
costs of their maintenance to determine the
overall return in the initial investment.
Although rates of return vary across the South,
they are greater than other investment
opportunities. In other words, slave cotton
plantation agriculture was profitable
 Fogel and Engerman and others duplicate Conrad
and Meyer’s research, tweaking the numbers, but
basically finding rate s of return are better than other
investment opportunities. They raise a bigger issue:
why was slave cotton plantation agriculture
• Dismiss economies of scale because they
found small plantations and large plantations
were equally efficient, though smaller units are
less profitable since small percentages of labor
power are placed in market production, a
safety-first family survival strategy
• They look at the production system itself.
Compare northern and southern farms finding
southern farms more efficient (although they
cannot solve problem of comparability-pounds
of cotton v. wheat- and use market sales as
their numerator in creating ratios of efficiency).
They leap to the nature of the labor, shifting in
their explanations:
○ Slaves were hard workers, absorbing
Protestant work ethic
○ Proper incentives and rewards were
provided- occupational hierarchy, better
cabins, like a modern day factory
○ Slaves worked efficiently in gangs- did
not prove
• F&E enter another debate about nature of
slave experience.
○ The Nature of the Slave Experience
 Slavery was a benevolent institution
 Slavery was a despotic, cruel institution
 1807- Constitution prohibits slave trade- owners
must insure reproduction of their existing work
forces, unable to work slaves to death- American
slaves comparatively lived and worked under better
conditions as to food, shelter, medical care, and work
 Without sanctions of the catholic church or the state
American slave masters ruled with impunity, robbing
slaves of any dignity or agency (infantilized)- no RC
church recognition like in Caribbean
 Slaves resisted and formally and informally
negotiated better working and living conditions,
eking out space, creating their own cultural practices
 The “paternalism” of slave masters provided space
for negotiation with slaves who often gamed their
 Fogel and Engerman suggest odd agency for slaves-
productive adults, and like their masters, market
actors, bargaining as individuals for better rewards in
system that ostensibly offers incentives for greater
diligence. But is slavery a market relationship?
• A labor market exists when labor freely enters
into a wage relationship and can freely exit to
seek better circumstances and reward
• This with the comparison of northern farms and
southern plantations forced F and E to move
form explanations that focused on the
character of the slaves or incentive systems to
the organization of slaves into gangs
• Is the profitability of slavery not to be found on
the supply side, but on the demand side and
the market power of cotton and the textile

Was this a “if its not broke don’t fix it” type of problem? Cotton
demand was strong creating prosperity where cotton was grown.
Cotton was grown on plantations who used slaves as their labor force.
Slavery was profitable because cotton was. It wasn’t necessarily that
slavery caused it to be profitable.

• Antebellum Financial “Institutions”

○ Functioning of State Banks
 Pre Civil War lack of any banking system, merchants
financed working capital via merchant credit bills of
 After independence, state chartered banks issued
notes with little or no supervision from the federal
○ State Banks attempt at regulation
 Bank of North America, Philadelphia- 1781- origins
with Hamilton and Robert Morris- successful and
becomes model for state banks
• Public charter by state, but day to day
operations private matter
• Increasing interdependence of state banks-
deposits in one bank was a credit at another
bank, solvency of one bank tied to other banks
• Problem- Wildcat Banks- importance of physical
distance- banks started in far off places who
issued large amount of notes they had no
intention of paying back, fraudulent
• Suffolk Bank of Boston- regulation at the state
level, a private sector solution
○ Country Notes from originating
bankSuffolk buys these at discount as
clearinghouse Demand payment from
country banks
○ Demands that state banks hold specie in
Suffolk bank for easy redemption of
○ Further away the bank was, the larger
the distance
 New York Safety Fund, 1829- set of rules that all
banks chartered in NY area had to follow
• Mechanisms for regulation, limit leverage,
debt, create guarantee fund
○ Lamoreaux- Insider Banking and lending
 Insider Lending- directors of bank funnel funds to
their associates
 Branch banking prohibited, widespread insider
lending- bankers feel comfortable with whom they
loaned money
 Informal Regulation to prevent abuse- other banks
police counterparts, one bank going under creates
run on other banks
 New England transformed from capital scare to
capital rich region- allowed for growth of the
• Once credit became more abundant, control of
a bank became less necessary for access to
 Panic of 1837
○ Federal Attempts at Supervision
 First Bank of US (1791)- Hamilton- Bank Bill includes
formation of mint, financial centralization of
• Institute Credit- domestic and foreign, resolve
currency issues- revolution Era Fiat Currency
• Establish Financial Stability- universal currency
provided by the US Mint
• Structure like private bank and had foreign
• Jefferson- bank going against principles of
revolution, concentrate wealth in elite,
congress lacks power to create bank, fear of
money monopoly (public debt under influence
of the leader of the bank)
○ Bank Wars and the Jacksonian Period
 Second Bank (1816) chartered by Madison
• Created as result of War of 1812- severe
inflation and debt, difficulty financing capital
intensive war
• Nicholas Biddle chosen as Bank’s President-
privately held by stockholders
• The Bank War- Biddle and Clay proposed to re-
charter the Bank 4 years early (part of the
American system)
○ Election of 1832- Jackson ran platform
attacking bank and appealing to masses
○ Jackson vetoed Federal Charter- removed
Federal Funds and Re-Deposited Federal
funds in “pet” State Banksspoils
system rather than financial stability
 Panic of 1837- Biddle Recalled loans nationwide to
retaliate, loss of restraint with banks
• State banks ran wild printing currency creating
speculative bubble and run on bank
• Traditional View- Jackson contributed to the
panic by removing valuable brake on credit
expansion accelerating tendencies toward
• Temin’s View- economy was not victim of
Jacksonian politics but Jackson’s policies were
victims of economic fluctuations (trade deficit
with England and Chinese Purchasing Opium
rather than Silver)
• Question of the State and Politics
○ Structures of Government
 Regional specialization would have been impossible if
states could pass tariffs on others
 The Constitution did not create a capitalist market,
but it did allow
○ Direct Impacts and Subsidization
○ Indirect Impacts and Subsidization
○ Law and the Judiciary
○ The Politics of Development
• Looking Forward the Mid-term Exam- Precolonial Era up to but not
including the Civil War
○ 1 Hour Exam- October 24
 15 minutes- Identification Quiz- 8 terms, choose 5-
write brief paragraph- 25 points
• Identify the term (lead sentence) and then say
something about its historical significance
• Should be three sentences at most, usually 2
• Terms will come exclusively from the reading-
(See Index?)
○ People, Things, Terms
○ Example- The American System- Whig
Federal Government Plan- high tariffs,
internal improvements
 Essay- 45 minutes- Choose 1 of 2- Spend 20 minutes
organizing, 20 minutes writing- should be fairly brief
• Opening Paragraph- Take opinion on topic
• ¾ Paragraphs of real pertinent evidence
• Conclude
• Say what you’re going to say, say it, say what
you said
• Not an exercise in regurgitation- understand
argument, choose most relevant supporting
○ How to Study- Review Reading Questions (Will be used to
formulate the essay questions, melding some together)
 Thumb through readings, will not go too obscure
 Consult notes from Group Projects- assume those
have been read (good terms)

Embargo Act 1807- Impact on someone like Lowell- geopolitics can

jeopardize commercial trade, manufacturing as an alternative
Long Range Cause for Industrialization- diffusion of knowledge and
expertise- mechanic shops of England, the French armory system
Ending of the Napoleonic Wars- peace, British looking elsewhere than
North America, given up mercantile aspirations, less entanglements
Diffusion of knowledge, slow build up of domestic market (interlocking
hinterlands of the west with commercialized agriculture)
Philadelphia takes off in manufacture after Panic of 1819 and
Napoleonic Wars
Opening up agriculture, western PA, OH- real link to the hinterlands are
the true demand of specialized goods
Most of the successful industrialists in the new world had links to old
world expertise
Much of Lowell’s output was going to places like Pittsburg and
Tobacco has an off season- Chesapeake plantations are more self
sufficient, larger population of subsistence farmers and small
commercial enterprises for Annapolis and Baltimore. This is very
different than rice in GA and SC- 365 days/yr, labor intensive, most
foodstuffs imported

Henry Clay a latter day Hamiltonian?

- Hamilton likely would have become a Whig along the lines of Clay and
Webster- shared belief in strong central government, strong
modernized economy, strong army/navy, central government
orchestration of economic growth and development. Would have
supported tariffs, national bank, uniform currency, maintain the fiscal
solvency of the government and the banking system (would have
hated pet banks), support internal improvements
-Hamilton was a latter day mercantilist- imagined the agencies of
economic growth and development would have been the mercantile
community. By the time of the 1830s and 1840s, Clay and Webster
probably see a new type of agent for economic advancement (the
industrial capitalist). Merchants were likely ambivalent to tariffs,
especially in international channels.
-Hamilton and Clay are realists, yet elitists. People are not created
equal. Progress comes from empowering the most capable. Belief in
corporation- privileges to those who know how to create wealth.
Hamilton lived in an age of elitism and hereditary privilege. Webster
and Clay were meritocratic.

Jackson- Nullification Crisis- Jackson goes after SC after refusing to

recognize Protective Tariff. Jackson believes in the strength of the
union. States must abide by federal law absolutely not selectively, but
federal laws should be few and far between. Was against tariffs, but
not desecration of federal government.
Jefferson- Prefers William Young to Francis Cabot Lowell

Industrial Process in City- Fragmented industrial processes- highly

specialized production system- cloth can be manufactured through the
efforts of 7 or 8 firms

Commercial Wealth of Philadelphia focused on banking, insurance,

mercantile practices, coal development, canals, and railroads

Philadelphians believe in craft and quality, they can profit for this.
Benefits of specialization rather than scale

Neo-Whig historians dismiss the economic grievances of the colonists

Progressives- viewed mercantilist relationship as exploitative

Slater comes out of the mill village system of England, family labor-
Moses Brown- merchants looking to use wealth to create textile works
Slater recreates the English Mill Village in Pawtucket, RI. The
Blackstone River could not have powered the Lowell Mill- labor scarcity
is another issue- intentionality and circumstances
Farmers in VT and NH are not as prosperous as they used to be,
loosing out to middle income, need income so send daughters to
industrial cities- must be moral atmosphere. The girls are not
mechanics, they are machine tenders. Recent research suggests
many were happy to leave the farms, a liberation from the monotony
of farm family life.

Manufacturing- Energy? Resources? Costs? Intentionality?

The British make India an importer for textiles- forced demand

Why does industrialization not mean dark and dreary?

P42- Role of Labor Cost in Industrialization
Bonded Labor= abundance of land + scarcity of labor + demand for
product raised on the land
How did the antimercantilist sentiment pervade American society?
Regional Differentiation? A matter of