Unit 2 Quiz

- Why was Big Business growing at this time? You will notice that one factor that explains the rise of Big Business was overseas investment. In particular, what was one country that was investing heavily in the U.S?

- Big business was growing during this time because of significant support from the state and federal government. T -Cheap labor, access to natural resources, and new technology also helped grow business -overseas investment from Great Britain

- compare the two tables side by side that are based on Allan Kulikoff's interpretations. What do neo-classical and Marxian authors believe about the transition to capitalism?

-A Marxist would view the transition to capitalism as violence in which workers and farmers are violently exploited of their labor. They believe the transition to capitalism arrives late -Neo-classical beliefs would view the labor of workers and farmers to be a fair and entrepreneurial exchange with benefits for both sides

- What country was Adam Smith from originally? In what years did he live?

-Adam Smith was born in Scotland -Lived from 1723-1790

- What evidence do we have to conclude that we are living in a "New Gilded Age"? Make sure you are aware of the specific answers

-CEO to Average worker compensation is much higher than in previous decades (300 to 1) -Share of national income for the 1% is much higher than in previous decades -Monopolization

- Explain the ways in which Marx's predictions were wrong or unrealistic.

-Capitalism hasn't failed (yet) -He has a naïve approach when it comes to the governments desire for power (The socialism -> communism transition will be just as hard as the capitalism -> socialism one) -Some would say that he simplifies history by putting too much emphasis on class conflict -Marxist influenced countries have yet to be very successful (It is important to note that they have been severely undercut by US intervention in almost all cases)

- Note that there are STILL more problems with the gold standard. What do I mean by countries cooperating with each other? Why wouldn't they cooperate?

-Countries had different relationships with debt and inflation and just overall different value systems. -some countries might value social welfare systems while others put more emphasis on the stability of their economy

- Dialectical materialism is a bit abstract and theoretical. It may help to look at the diagram on the right side of slide showing base and superstructure. What factors are part of the base? What factors are part of the superstructure? Notice that religion belongs in the superstructure. So what shapes or influences religion according to dialectical materialism?

-Dialectical materialism is that idea in which superstructures (by products of production) maintain the Base (means of production) and the base shapes the superstructure. -One way of thinking about it is the ways in which the bourgeoises have adapted in order to maintain rule throughout history, first being kings and lords, then transitioning into robber barons.

- What other problems were there with the gold standard? What happens with gold mining?

-During wartime, countries had to depart from it because of the restrictions it enforced on lending -It relied too much on the supply of a single industry. If gold mines were outputting more or less gold it would affect the entire market -Deflation was common Countries did not cooperate with each other and didn't agree with how the Gold standard should operate -There were penalties for losing gold, but no offsetting mechanisms for countries that acquired lots of gold -gold reserves did not necessarily equal a countries value to the economy. An example would be that France had 27% of the world's gold in 1932, but only accounted for 5.4% of the world's economy

- What did FDR do when it came to the price of gold? What effects did this have? Notice that one of the effects was currency devaluation. We might normally think of devaluing (or weakening) your currency as bad, but it proved beneficial in this context. Why?

-FDR raised the price of gold from $20.67 to $35 per ounce, which is known as currency devaluation -It was risky and controversial, but it stopped deflation and debt-default spirals, raised prices (which was a good thing for farmers and manufacturers), made exports more competitive, and protected the US from international shocks -He was also able to enact Monetary Policy and fiscal policy -Monetary policy: U.S. FED creates more money →higher prices, lower interest rates, more lending, and therefore, more economic growth -fiscal policy: U.S. Treasury Dept runs budget deficits to put people back to work through public works programs and military spending

- How should we analyze the term "freedom of contract"? Even if we say "freedom" or "liberty" of contract, does that mean that the immigrant workers actually had freedom?

-From the workers perspective they would not have true freedom because all options lead to struggle and suffering. So although they can reject a certain contract, there won't be a better one available because all business owners offer bad contracts. -The business owner would disagree, but of course they don't have to live under the same conditions as workers

- what are common arguments that are influenced by Marx?

-Gender and racial inequality reflect class inequality -arguments that blame systems for problems and not individuals - "Liberty for whom" -capitalism's desire for resources will always lead empires to war

- What were some of Marx's ideas? What is a social class according to Marx? How is a social class defined? Note that the proletariat is a social class. The bourgeoisie is also a class.

-He developed the idea that history and and historical development were driven by class conflict and not individuals -There are five stages of historical development (in this specific order) : feudalism, mercantilism, capitalism, socialism, and finally communism -There are two social classes: bourgeoisie (own means of production and capital) and the proletariat (working class wage workers -Bourgeoisie class extracts surplus value from laborers and own means of production so it is hard for laborers to create independence -he believed overcoming capitalism required a violent revolution because those benefitting from capitalism would never willingly give up power

- What are the basics on Karl Marx? Where was he from originally? If Smith saw capitalism as self-regulating, how did Marx feel about capitalism?

-He was born in Trier SW Germany and lived from 1818-1883 -Karl Marx was a communist who believes that capitalism was unsustainable. He published the Communist Manifesto and Das Kapital

- If Marx was wrong, why do we study him in college? Pay attention to the reasons.

-He was extremely impactful to 20th century politics -He is crucial in understanding the modern American labor movement - Anti-imperialist movement in developing countries are shaped by Marxism -His method of criticism (viewing things from perspective of inequality and class) has been used in many disciplines such as feminist studies, ethnic studies, sociology, philosophy, and environmental history -many of the issues he preached today, such as class inequality still persist today

- Why did workers form unions? There are several reasons. Be able to explain them all

-In order to gain some bargaining power against their employers (collective bargaining) -Labor unions were more democratic than private companies

- What is the international gold standard? How specifically did it operate?

-It is a currency system where paper money is redeemable in gold at a fixed rate and ties lending to the amount of gold -It specifically operated by flowing between countries to settle imbalances of trade. If a country imports more than it exports, then it runs a deficit and if that deficit persists, the country has to export gold -lower gold reserves increases interest rates

- What is Smithian growth? What do I mean by more demand?

-It is the economic growth that arises from division of labor and the expansion of markets - the amount of good that are desired by consumers

- What term describes the ability of the Supreme Court to strike down laws as unconstitutional? Was this power in the original Constitution? If not, when did it first occur?

-Judicial Review is the ability of the Supreme Court to strike down laws as unconstitutional as they see fit -it was not in the constitution and originally appeared in 1803 with the Chief Justice Marshall Court

- It is the job of Supreme Court justices to interpret laws to see if they are consistent with the Constitution. What would a broad interpretation of the commerce clause imply? What would a narrow interpretation of the commerce clause imply?

-Judicial review gives the supreme court the ability to strike down laws as unconstitutional -If this is applied broadly then things such as health care, income taxes, and regulations are okay because they involve interstate commerce -if applied narrowly then health care, income taxes, and regulations interfere with property rights of business owners

- How would you describe labor conditions for industrial workers in the Gilded Age? See the slide talking about coal mines, bakeries, and cotton mills.

-Long hours, few breaks, and not weekends Coal mines would lead to lung problems such as black lung disease -Factories would lead to explosions -Bakeries were dirty with poor ventilation

- What was the relationship between the gold standard and the Great Depression?

-Many claim that the Gold standard was the main factor in the severity of the Great Depression. Caused the money supply to decline > price declines > decline of output and economic growth. It also prevented countries and central banks from using aggressive fiscal and monetary policies to manage an economy -countries that abandoned the Gold Standard earliest were the quickest to recover from the Great Depression

- What was the background to the case Lochner v. New York? What did the Court rule in this case? What is substantive due process? Why is this ironic in terms of the 14th Amendment?

-New York legislature imposed a maximum 60 hr. work week and more sanitary work conditions -Bakery owner Joseph Lochner is fined for violating the law and sued -5-4 in support of Lochner, citing the 14th amendment. -substantive due process, which is the legal doctrine that property must be protected in spite of what democratically elected legislatures pass. Property deserves extra protection

- Be able to list and explain all of the drawbacks (negatives) of the railroads

-Positives of railroads: Increased property value, more access to consumer goods, investments in RR companies returned profits, year round shipment of goods, a more unified nation, faster and more convenient shipping, was a significant stimulus to the rest of the economy -Negatives of railroads: Corruption, wealth inequality and concentration, risky investments from RR companies fueled the Panics of 1873 and 1893, RR created monopolies in the West that gave them significant power in the region

​- What was the result of the Pullman strike? Who was president and what did he do?

-President Cleveland called in federal troops who put a violent end to the strike, resulting in the death of 12 people -Attorney General issued a injunction for interfering with mail delivery and interstate commerce

- Look at the graph showing 250 years of consumer price inflation. When the blue dips below the black line at 0, you have deflation. Have we had sustained deflation since 1945? Why do you think that is the case?

-Since 1945, we have not sustained deflation -This is due to the fiscal and monetary policy that we enact in order to prevent deflation as well as us abandoning the gold standard

- can socialism work within the context of a democratic government? What examples can you find? Are there such things as American socialists?

-Some aspects of government such as welfare and public education can be implemented, but even countries that are thought of a socialist exploit developing countries for their cheap labor and resources. -Some American politicians are democratic socialists, who believe in those same social programs, but still view capitalism as the means to reach those goals. Socialism is a complete shift in the means of production while a social democrat essentially still believes in capitalism, but just wants more social safety nets

- what messages are contained in the cartoon known as the Pyramid of the Capitalist System?

-The main idea behind the cartoon is that every aspect of society is created in order to maintain the status quo of capitalism. -The bottom of the pyramid are the workers who support the entire system by working in factories and providing food. -The elite consume thereby keeping a constant demand. -The military enforces capitalistic values using violence. -Religion uses its influence of people's values and faith in order to shape their world view around capitalism. -The government enacts policies that uphold capitalism

- What were the key features and assumptions of the gold standard? What is the gold standard trying to prevent or avoid?

-The main reason for using a gold standard was to prevent inflation, prevent debase currency, and limit government spending -Money supply and credit is linked with gold and you can only print more money and lend if you have an influx of gold -Prices should rise and fall based on the supply of gold -it is supposed to be self regulating

- What did Smith mean by the natural price and the market price of a commodity?

-The natural price is the price of the labor that was required to make a product -The market price is the price that a good is actually sold at as dictated by supply and demand (market price is often higher)

- What are the self-reinforcing feedback loops I mentioned? Will the self-reinforcing feedback loops go on forever or will they correct and balance out at some point? Note that balancing out can take several years. In the meantime, some might consider using a government (through fiscal policy) or a central bank (through monetary policy) to intervene in an economy in order to prevent undue suffering. Can you do this under a gold standard?

-The self-reinforcing feedback loop is a cycle that economies get into as a result of the Gold standard. During deflation, prices drop which means that employers cut wages, which means that consumers can't spend as much money, which means that other companies have to cut wages since no one is buying their products. since no one is buying anything, the economy suffers -This process is not no permanent but is devastating and takes years to recover from without adequate fiscal and monetary policy

- Note that businesses are under pressure to cut costs. How would a business cut costs?

-They can cut wages or cheap out on safety equipment -Try to achieve mass production so they could cut workers therefore decreasing the labor cost

- Is Smith's philosophy exactly like the philosophy of Ronald Reagan from the 1980s? How are they the same and/or different? What did Smith say about the role of government?

-They differ most significantly in their views on government -He thought the government was responsible in protecting against invasion, providing justice and protecting property (especially from the poor), and promoting public institutions such as public education -Reagan is anti government and anti welfare

- Pay attention to the decision in In Re Debs. What did the Supreme Court say about labor unions when it interpreted the Sherman Anti-Trust Act? Why is this ironic?

-They said that labor unions violate the Sherman anti-trust act of 1890, as they interfereinterstate commerce -it was ironic because the act was originally made to limit big business, but was used to limit unions

- What were the chief characteristics of Big Business in the Gilded Age? Notice that corporations adopted new business models and became more complex. Why did this happen?

-They were fiercely competitive and would often find ways to cut costs in order to maintain profit (this often involved the suffering of employees) -These new business models were the result of an expanding population and an increasing volume of trade

- Smith started out the Wealth of Nations with an example of making pins. What happens if one person performs all of the tasks involved in making a pin? What happens if you divide up the process so that several workers work on a single component task of pin-making?

-This leads to specialization in which more products can be made, because tasks are divided amongst more people. -If 10 people are tasked with making pins, they would make 48,000... if 1 person made pins they would make only make 1-20 pins

- How did the government shape the rise of Big Business? Be able to list and explain them

-Through a variety of acts and govt policies -National Banking act: Standardized the banking system -Lucrative War contracts given to northern railroads financiers, and manufactures to supply the union army -Pacific Railroad Act: Fed and state subsidies to railroad companies (sold public land to railroads for cheap) -Sale of public land also helped to fund colleges and water infrastructure projects -Morrill Tariff: protected industry -Eminent domain law -Use of army to remove Natives from the West

- A lot of people mistakenly believe that paper money must be "backed" by something like gold to be stable. Most mainstream economists disagree and note that the dollar is stable even though it has not been exchangeable in gold since the 1970s. Why is the dollar stable in spite of being off the gold standard?

-We use it as legal tender (we can pay taxes with it) -Investors have confidence in the US political and economic system

- Where did the term "Gilded Age" come from? What does it mean?

-came from Mark Twain and Charles Dudley Warner's 1873 novel The Gilded Age: A Tale of Today -describes the era between the Civil War and WWI which was a time of American population/economic growth. It was also a time with lots of corruption

- How did bosses fight labor unions?

-fire and blacklist workers who joined unions - recruit strikebreakers -employ private security forces -instigate ethnic and racial tension amongst workers

- A philosophical question: why don't we want children working in factories today?

-grueling hours and unsafe working conditions -kids should be in school learning -loss of innocence

- Smith describes the division of labor. What processes or forces contribute to the division of labor? Note that I'm talking about human nature and greater demand.

-human nature makes it so that humans can only focus on 1 thing with great efficiency -With division of labor, you dont have to waste time changing tasks

- How well did the gold standard live up to expectations? To answer this question we should look at the historical record. Were prices stable under the gold standard? Were recessions frequent or infrequent? What about unemployment?

-it was seen as a failure with frequent and disastrous recessions such as the ones in 1873,1893,1907,1919, and 1929 -High unemployment and frequent strikes -Self reinforcing feedback loop in which Price decline > Wage decline > further price decline. Think of Mr. Campbell's water bottle example

- What does a stable economy require? What is the connection between the gold standard and the Eurozone crisis?

-management, flexibility, and regulation -Eurozone is similar to Gold standard because each country has different value systems in how money should be spent or saved

- Look at the slide called "The Power of Myth." What are the reasons that people still feel fondly about the gold standard despite a poor historical record?

-old ideas die hard - the idea that central banks should stabilize the economy and that governments should take care of the poor is a new concept - "Those who could succeed under the Gold Standard just didn't work hard enough" myth -Nostalgia -replicating Britain's prosperity

- Look at the series of yellow-colored maps. Imagine, as the map indicates, that New York is your home base. How long does it take to get from New York to Chicago in 1800? ​- Now figure out the same route for 1830. Again for 1857. And for 1930.

1800: 6 weeks to get to Chicago 1830: 3 weeks to get to Chicago 1587: 2 days to get to Chicago 1930: 1 day to get to Chicago

​- in 1930, how long did it take to cross the entire country by rail?

3 days to cross the country by rail

- Look at the graph called "The Great Slump Revisited." What happened once all of these countries abandoned the gold standard? Does that mean they began to recover economically once they abandoned the gold standard?

As stated, there were many factors to the Great Depression, but those that abandoned the Gold Standard found themselves getting out of Great Depression quicker. Once they left the Gold Standard, industrial production increased

- Notice that deflation is a persistent problem with the gold standard. Why is deflation so damaging and typically something that economists want to avoid?

Because it reduces spending which creates a feedback loop in which wages go down, less food/products are produced, and investment goes down. -Mild inflation is good for the working class because it helps debtors pay back loans and stimulates investment

- Who wants to revive the gold standard? Why do these groups want to revive it?

Billionaires and right wing ideologues. Deflation is beneficial to lenders, which billionaires are. Also fiscal policy is used to help poor people and promote social welfare, which conservative tend to be against

- Notice Richard Thaler's point about 1982 Bordeaux wine. What did he mean?

He was being humorous about the fact that we based the entire world's on a single commodity. We could just as easily assign value to wine

- Why do some Marxists believe that creating a better society requires violence?

In order to get to communism, a complete economic revolution would need to take place which implies violence. The capital owning class would never give power away willingly, so it must be taken away

- Was "freedom of contract" democratic? Was it written explicitly in the Constitution?

It was not democratic because the courts often shut down laws the were passed by state legislatures Protecting property was not the overwhelming desire of the people -Freedom of contract is NOT in the US Constitution

- Be able to understand the competing views of liberty. What does "liberty" mean to the business owner? What does "liberty" mean to the worker? Note that this illustrates a major theme in this course - that freedom means different things to different segments of the population and it depends on the historical context.

Liberty for the business owner: Property is protected in the 14th amendment and as such business contracts need to be upheld and protected. Workers have the freedom to not sign a contract and work somewhere else Liberty for the worker: Freedom of choice is insufficient if all owners offer low wages and unsafe working conditions. They believe that there should be new conditions that protect the liberties of workers

- What is one advantage of using fiscal policy? What can governments do that business cannot do? What happens to one's skills and mental health during long-term unemployment?

One advantage of using fiscal policy os the general betterment of social programs such as education, welfare, social security, etc. these programs can promote jobs and personal enrichment -Governments can take much more risks by spreading that risk out to the millions of taxpayers. -We also recognize today that long -term unemployment can have very damaging consequences, from loss of skills to mental health issues. Therefore, it may be better to spend government money, even with deficits, if it prevents these social problems.

- Who were some of the most noteworthy businessmen of the Gilded Age?

Rockefeller, Carnegie, Gould, Vanderbilt

- is social security considered socialist? Who helped originate the idea of social security?

Social security came from a right wing leader named Bismarck. It is considered a welfare program, but it does not change the means of production, so it is not socialism. -It protects the interest of capital owners by giving workers just enough to not feel compelled to rebel

- Why did railroad workers in Pullman, Illinois launch a nationwide strike in 1894?

The Pullman Strike was a reaction to both the Panic of 1893 and the wage cuts of 25% that the company town enacted Eugene v Debs and the American Railway Union called for a nationwide boycott of Pullman cars

- To understand labor history, you have to understand the role of the Supreme Court. During the Gilded Age there was a legal debate over whether workers had a right to form labor unions. Why was this a debate? To answer this question, you might consider whether the Constitution even mentions labor unions. Does it mention them? If not, what other clause is applicable to labor unions? (Note that I'm referring to the commerce clause).

The US Constitution doesn't say anything specific about unions, but it does grant Congress the ability to regulate interstate commerce. If this is applied broadly then things such as health care, income taxes, and regulations are okay because they involve interstate commerce. This can broadly apply to labor unions as they involve many of these factors.

- Look at the slide where I call the international gold standard an imbalanced, asymmetrical system. You will notice two pie charts. Look at the pie chart on the right. You should notice two countries that have accumulated a very large percentage of the world's gold, far beyond what you might expect from their GDP. Which two countries are those?

The US: 34% of gold and 20% of economy France: 27% of gold and 5.4% of economy

- Think about the lecture as a whole. What are all the problems with the gold standard? Try to memorize them if you can. Was the gold standard consistent with active fiscal and monetary policy?

The gold standard stands in opposition to active fiscal and monetary policy. The latter will increase spending often going into debt and mild inflation, while the other doesn't promote debt spending and leads to deflation

- What is corporate personhood?

The practice of the Supreme Court to recognize corporations as persons under the 14th Amendment

- Is there one way to define socialism? To help you answer this question you might want to think about all of the variations - Stalinism, Maoism, etc.

There are multiple views of socialism. A common definition for socialism at least in theory is an economic system in which the workers own the means of production

- Why do we usually think of railroads as the first "Big Business"?

They amassed an absurd amount of power and influence and were able to lobby the government. They also became too big and had too much influence over the rest of the economy

- Look at the graph showing GNP and federal spending. The left side of the graph is a period in which we had a gold or silver standard while on the right side, we have a more managed economy with more spending and a more active central bank. Recessions are noted by periods in gray. Are recessions more frequent since federal spending has increased? Less?

They are now less frequent and less severe

- What do capitalists do to laborers in terms of surplus value?

They extract surplus value from workers by selling products at the market price instead of the natural price. Any amount of money above the natural price is considered surplus value and is thus money stolen from the worker

- it is often claimed, especially by conservatives, that Marx's ideas are responsible for the death of 100 million people. What do we make of this claim?

This is a dumb claim because its a massive simplification of history. Pinning the deaths of millions of people because of a political system is naïve. -When compared the historical track record of capitalism (Slave trade, Vietnam War, etc.) the numbers begin to look similar

- What did Smith mean by the "invisible hand"?

people often seek jobs in which they are good at or passionate about and that leads to the general benefit of the market and society