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The Major Crises and the Poor: 

The Major Crises and the Poor “The depression of the 1890s was very severe - the bread lines were long - and a great change occurred. People began to say that the federal government had responsibility for the country’s economic welfare, and they began to organize on that basis… If the federal power could be used to aid railroad magnates and manufacturers, it could be used also for the poor. In the depression of the 1890s a very different future was beginning to appear.” Hughes, American Economic History, 3rd ed., 375-6.

East-West Relations: 

East-West Relations Source: Butterfield, The American Past, p. 272

East-West Relations: 

East-West Relations Source: Butterfield, The American Past, p. 272

Peto and Poor: 

Peto and Poor Peto: (513-515) Nature of funding railroads in the US. “subscribed to in a wholly different manner” Poor: (513-517) “The argument in favor of Government aid is as conclusive as it is simple…” “Aid extended… instead of weakening the public credit, would greatly strengthen it.”

Railroads: 

Railroads Economies of Scale Diseconomies of Scale What if market demand is not big enough to get to Q1?

Railroads: 

Railroads Quantity Dollars per Unit Average Cost Q1 Why would costs look like this? Natural monopoly

Railroads: 

Railroads Why would costs look like this? Technology - requires big investment at first; relatively low operating costs. (High fixed costs, low variable costs). Demand - not big enough to support multiple firms. Under what circumstances should a firm shut down? - in the long run, if it is losing money - in the short run, if it fails to cover its variable costs.

Railroads: 

Railroads Quantity Dollars per Unit Average Cost Q1 Natural monopoly Q2 One firm at Q1 is more efficient than two at Q2. Bigger is better!

Railroads and more: 

Railroads and more Twin goals of getting bigger: 1. Reduce cost by moving down the AC curve 2. Eliminate competition by merger, or predatory pricing - Enable surviving firms to gain monopoly power - Restrict output and raise price - Restrict entry (using politics and economics)

Railroads and more: 

Railroads and more Solutions? Turn to Adams article from 1871 North American Review

Slide12: 

Source: T. Clarke, et al, The American Railway, p. 429

Slide13: 

Joining of the Rails, May 10, 1869, Promontory, Utah (Detail of Savage and Ottinger Stereoview, "Engineers shaking hands.") Chief Engineers for CPRR (Samuel S. Montague) and UPRR (Grenville M. Dodge).  http://cprr.org/Museum/index.html

Slide14: 

Stereographs Sacramento photographer and artist Alfred A. Hart documented the CPRR construction.   http://cprr.org/Museum/index.html

Railroads: 

Railroads “The Grange Awakening the Sleepers”, 1880s FUEL MONOPOLY FOOD MONOPOLY OPPRESSION USURPATION BRIBERY EXTORTION CONSOLIDATION TRAIN The farmer’s hat says GRANGE Source: Butterfield, The American Past, p. 235

Discontent of the Farmers: 

Discontent of the Farmers Readings in The Nation, 1873 1. Define "corners” “pools” and "watering stocks" (p. 381). 2. What was happening to the relative prices facing farmers for agricultural and manufacturing goods, and why? 3. What system was put in operation "no sooner had the Southern members left Congress” ? (p. 382) 4. What prevents Western farmers from competing with Russian wheat? 5. What does it mean "to get the long end of the lever” ? (p. 382) 6. What is the cause of the farmers' discontent?

Slide17: 

C.M. was the Construction Company that built the Union Pacific. Railroad Company issued stock and bonds to raise money. Received government subsidies (land, financial). Railroad Company gave, or sold at very low price, stock and bonds to the Construction Company, which in turn sold to the public for a large profit, although still below “par” (face value of the stock or bond). Crédit Mobilier and other financing frauds.

Slide18: 

Two shares; 1871

Slide19: 

Construction costs were sufficiently overstated to allow huge profits to the Construction Company, which was frequently owned by the same people as the RR, plus politicians. Original owners made profits of up to 100%.

Slide20: 

Railroad capitalized at $500,000 = 10,000 shares at $50 Shares are given to a Construction Company, which offers the shares for $40 to the public. Stock is “watered” if more than 10,000 shares are printed. And/or profits are made if the true construction costs are far less than $500,000. Revenues were often inadequate to support debt service and to pay dividends on the stock.

Slide21: 

Putting money, bonds or stocks where they will do the most good… -Wayland & Chapin, 1886

Railroads: 

Railroads Source: Butterfield, The American Past, p. 245 “The Senatorial Round-House” from Harper’s Weekly” BECK’S BILL, TO PREVENT MEMBERS OF CONGRESS FROM ACCEPTING FEES FROM SUBSIDIZED RAILROADS

Slide23: 

1892 letter from Richard Olney, corporate lawyer, to Charles E. Perkins, President of the Chicago, Burlington and Quincy Railroad, on whether the RRs should seek to abolish the ICC: “My impression would be that looking at the matter from the railroad point of view it would not be a wise thing to undertake … … the result would very probably be in giving it [the ICC] the power it now lacks. …The part of wisdom is not to destroy the Commission, but to utilize it.” Quoted in Walton and Rockoff, History of the American Economy, 8th ed. p. 366.

Slide24: 

Chicago New York Fort Wayne

Price Discrimination: 

Price Discrimination All because, through competition, the farther point was served at a loss to the carrier, and, therefore, the nearer had to pay the road profits for both, besides replacing the loss. The agents of the roads do not seek to deny this; they acknowledge and defend it. They say, and say truly: “We must live. If our through business is done at a loss (and they show that it was done for nothing), then our local business must pay for all.” C.F.Adams, Jr., The Government and the Railroad Corporations, The North American Review, v. 112, issue 230, January, 1871, pp. 31-61.

Slide26: 

Railroads Quantity Dollars per Unit Average Cost Q1 Price Discrimination Q2 Marginal Cost Overall Average Charge a higher price to the customers with less elastic demand. Goal: To make a profit, at least on average. Q2 = short-haul; high price Q1 = long-haul; low price

Slide27: 

Historical Statistics, E42, E53, E135 Ratio shows farm prices relative to CPI

Slide28: 

Source: T. Clarke, et al, The American Railway, p. 429 Average charges may have been falling, but (a) so were overall prices, and (b) we don’t know from this what was happening on individual routes.

Slide29: 

Funk and Wagnalls

Inadequate money supply?: 

Inadequate money supply? Gold? Silver?

Slide31: 

Was the farmers’ discontent due to: Financial scandal? Bribery and political scandal? Monopoly and economic price discrimination? Falling farm prices? The tariff? Inadequate money supply? All of the above; some of the above; none of the above?

Slide32: 

The job of an Economic Historian Which of the farmers’ discontents were justified? What really was hurting farmers – for there is no question about the pain? I will post several datasets regarding the economic conditions facing farmers. You tell the economic story.

Slide34: 

Cradling wheat near Sperryville, Virginia. A hand binder follows the mower. These men had never heard of a combine harvester. "Sure would like to see that." Their father used a reap hook. Suggested credit Line: Library of Congress, Prints & Photographs Division, FSA-OWI Collection, [reproduction number, e.g., LC-USF35-1326]

Slide35: 

Land-grant colleges taught “scientific farming”.

Slide36: 

View of man driving three-horse team led reaper and another man bundling cut rye probably somewhere in Routt County, Colorado reached via Denver & Salt Lake Railroad (formerly Denver, Northwestern & Pacific), Moffat Road; man holding whip to drive horses. Western History/Genealogy Department, Denver Public Library

Slide37: 

View of agricultural machinery on Montgomey (Montgomery?) farm, in (probably) Colorado; shows horse-drawn wheat thresher, men, and a tractor. Western History/Genealogy Department, Denver Public Library

Slide38: 

Complete view of threshing operation, Wilmont Farm, Colorado; shows machinery needed to run thresher, mule-drawn wagon with crop piled high awaiting threshing, partially emptied wagon with crop being placed into thresher, and horse-drawn wagon being filled with threshed crop in burlap sacks. Cut field is in foreground. Western History/Genealogy Department, Denver Public Library http://www.loc.gov

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