US Business & Finance History Midterm 2

Free Labor

-Was a republican ideology that working for wages was a temporary stage on the way to owning your own land or shop
-Rejected the pre-slavery idea that laborers were fixed in that condition for life. Led to Northern industry growing
-Starting the ideology for the period. Knights of labor shows the idea of free labor breaking down

Legal Tender Act (1862)

-The 1862 law authorized the treasury to print “greenbacks” as legal tender
-Passed alongside the Homestead and Pacific Railway acts. Noes were legal tender for all debts except import duties and interest on public debt
-First national paper currency that was not backed by gold

Greenbacks

The paper US notes created by the legal tender act, backed by the US government credit instead of gold
- Made people question Secretary Chase about an “endless chain” problem that later had greenbacks redeemed for gold and reissued
-Launched the “money question” that runs from resumption through free silver to the Fed

Jay Cooke

-Philadelphia investment banker whose firm, Jay Cooke & Co sold Union war bonds and financed the Northern Pacific Railroad
-Treasury Sec Chase turned to Cooke to sell bonds, Cooke used mass advertising aimed at small scale investors, Jay Cooke & Co failed triggering the Panic of 1873
-Connects war finance, railroad speciation, and freedmans bank

Resumption

-The policy of making greenbacks convertible to gold specie at the prewar rate
-Treasury Sec McCulloch called gold and silver the only true measure of value; resumption put creditors and financial elites against Radical Republicans who wanted expanded credit for reconstruction; Resumption Act of 1875
-Shows monetary policy choosing creditors over reconstruction and puts the us on the path to the gold standard

National Banking Acts 1863 & 1864

-Wartime laws creating a system of federally chartered national banks
-the 1863 Act set reserve riles and required pyramiding of reserves into big-city banks; 1864 Act taxed state banknotes 2% → 10% by 1865; by end of war there were 1600+ national banks and only 349 state ones
-Key turning point that created a uniform currency but an inelastic one with no lender of last resort → set up panics of 1873, 1893, 1907

Freedman’s Bank

-Freedman’s Savings and Trust Company, chartered by Congress in 1865 as a savings bank for formerly enslaved people
-By 1873 about 100k black depositors had deposited about $50mil; Henry Cooke (Jay Cooke’s brother) became chair of the finance committee in 1867; By 1868 1/3 of assets were in railroad bonds; Panic of 1873 destroyed 41% of deposits; line between savings and commercial banks blurring
-Freed peoples savings were funneled into white financiers railroad speculation

Panic 1873

-The financial crisis triggered when Jay Cooke & Co failed in Sept 1873 after over investing in Northern Pacific railroad bonds
-Railroad debt grew into the billions and half of US railroads went bankrupt starting a decade long depression; destroyed 41% of Freedman’s Bank deposits; led to Great Railroad Strike of 1877
-Exposed the fragility of national banking and railroad finance; blacks hit hardest

Jay Gould

-Gilded Age speculator and railroad financier, one of the railroaders mentioned in Richard White’s Railroaded
-White pairs him with Charles Francis Adams Jr and Henry Vilalrd as financiers who ran transcontinertals through stock manipulation and political connections instead of efficient management; controlled the Union Pacific and Western Union
-The face of financial manipulation of railroads and the producerist image

Overcapitalization

-Issuing stocks and bonds worth far more than the company’s real assets or earning power
-Central theme in White’s Railroaded where transcontinentals borrowed heavily against federal land grants and bonds and built ahead of demand; half of US railroads went bankrupt; Morganization changed valuations
-Finance, not just production drove railroad corporations which is why farmers blamed Wall Street

Southern Pacific

-California railroad acquired in 1868 by the “Associates” who also controlled the Central Pacific
-Dominated California transport and politics; refused to pay California taxes after the state barred railroads from decuting mortgages leading to San Mateo and Santa Clara court cases
-Case in which corporations won constitutional rights

Pacific Railway Act

-the 1862 and 1864 laws that chartered and subsidized the first transcontinental railroad
- Part of the republican wartime agenda; 1864 Act promised 12800 acres for every mile of track; built on Native land
-Federal government directly created private corporate empires → connected politics and business

Roscoe Conkling

-New York Republican who served in congress and helped draft the 14th amendment
-Lawyer for Southern Pacific in San Mateo County v. Southern Pacific and argued drafters wrote “person” instead of “citizen” so that corporations would be protected
-This is the bridge between a reconstruction civil rights amendment and corporate rights

Santa Clara County v Southern Pacific Railroad (1886)

-1886 supreme court tax case that established corporations as “persons” under the 14th ammendment
-Declared that constitutional property protections extend to corporation because their members don’t lose those rights
-14th amendment becuase a shield for corporations, even though its design was for blacks

Vertical Integration

-Controlling every stage of production from raw materials to final sale inside one firm
-Carnegie steel owning ore mines, ovens, and railroads is an example of this
-Cost cuts and uncertainty give rise to giant managerial firms

Horizontal Integration

Combining/acquiring competitors at the same stage of production to control a market
-Rockefeller’s standard Oil controlled about 90% of refining by 1880; prompted the sherman antitrust act
-The rout to monopoly that drove antitrust politics and the great merger movement

Gold Standard

-Monetary system in which currency is convertible into a fixed amount of gold
-The coinage act of 1873 ended bimetallism; resumption put the us on gold; greenbacks drained gold; Emergency Banking Act let FDR call in Americas gold; US left gold standard in 1933
-Fault line from the 1870s to the 1930s is that creditors wanted sound money and debtors wanted monetay expansion

Knights of Labor

The largest labor organization of the 1880s founded in 1869
-Advanced a producerist critique on the monied elite and the wage labor system; by 1886 over 700k members; Demand shifted to a consumerist demand for a living wage
-shows producerisms radical promise and its racial limits; employers ansdered with industrial partnership and profit sharing scemes

Producerism

the belief that those who make real goods (farmers/workers) create societys wealth while bankers and speculators live off them
-Knights of labor critiqued the monied elite and Farmers Alliance organized producers against monopolies
-Connects to Knights and Farmers Alliance

Farmers Alliance

-Farmers movement founded in 1877 to organize farmers against corporate monopolies
-Argued that nothing could withstand them if they organized as solidly as Standard Oil; grew into the peoples party (1892); declared railroad corporations will either own the people or the people must own the railroads
-Populism was a response to globalized commodity markets and corporate power

Charles Macune

Leader and chief economic strategist of the Farmers alliance
-Argued that co-operation would free mortgage burdened farmers from the tyranny of orgaized capital; Texas exchange pooled farmers capital so they could control crop prices; sub-treasury plan asked federal government to build warehouses where farmers could store crops
-producerist plant to beat corporations by copying their methods or organization

Free silver

The demand to restore silver coinage at a ration of 16 oz of silver to 1 oz of gold, expanding the money supply
-The coinage act of 1873 ended the bimetalic system; free silver opposed sound money advocates; centerpiece of populist-democratic funsion
-popluist money program in its final form

william jennings bryan

Democrat and 1896 presidential nominee for the democrats and the peoples party
-the face of populist and democratic fusion; his cross of gold speech attacked the gold standard in producerist terms; lost election
-The peak and defeat of agrarian populism

Panic of 1893

After a British investment in the US failed, gold flowed out of the treasury causing a credit crunch and deflation; Cleveland balmed the endless chain of greenbacks redeemed for gold; bankrupt railroads were then morganized; after financial banking and trust companies grew
-ties american finance to global capital flows → launches great merger movement

Great Merger Movement

-Wave of corporate consolidations from about 1895 to 1904 that created the giant industrial corporations
-followed the panic of 1893 and morganization; marked a shift in corporate finance away from debt and towards equity, thus the rise of the NYSE
-created big business and the antimonopoly backlash against the money trust

JP Morgan

Most powerful investment banker of the era
-reorganized bankrupt railroads and drove the great merger movement; in the panic of 1907 he led the morgan bailout by organizing many bankers; depected as the many armed head of the money trust investigated by the pujo committee in political cartoons
-Private banker acting as the nations central bank; why reformers wanted a public one

morganization

Morgans method of reorgainizing failed corporation: the firm entered receivership and was revalued based on expectations of future profit
-Applied to bankrupt railroads after 1893; bankers took board seats and control; shift from debt to equity = rise of NYSE
-corporate value came to rest on expected future earnings, with bankers in charge

Frederick Winslow Taylor

Founder of scientific managerment (taylorism) from his writing: The principles of Scientific Mangement
-Paired with fordism - entrepreneurial work eithic; time and motion studies broke jobs into standardized tasks and moved control of the work from skilled workers to managers
-workers lost control over how they worked even as success literature told them to think like entreprenuers

Henry Ford

Founder of Ford Motor Company and the namesake of “Fordism”; standardised mass production paired with mass consumption
-His 1903 vision was to make make every car idential just how every pin in a pin factory is idential; also absorbed “New thought” saying that “anybody can do anything that he imagines”
-Links mass production to the mindset culture of the “entrepreneurial work ethic”

General Motors

Automakers founded in 1908 as a holding company for several brands and reorganized in the 1920s
-The mode of decentralized management overtook Ford with a range of brands and models; Flint sit-down strike forced GM to recognize Unions
-The archetypal modern corporation; where New Deal labor law met big business

Decentralized Management

Sloans strucute at GM in the 1920s; semi-independent divisions like chevy and buick that ran their own operations; central office set policy, controlled finances, and monitored results
-Alfred Chandler’s multidivisional corporation; similar to Rosenthals multidivisional plantations
-Organizational form of big business in the 20th century

New thought

-Teaching that thought shapes reality, health, and success
-Marks a shift from the industrious work ethic to an entrepreneurial work ethic in the late 19th and early 20th centuries; Getting workers to adopt the idea that they are they business themself and are selling their skills to the employer
-Recast wage workers as self-entrepreneurs and made success a matter of mindset

Courteous Capitalism

Daniel Roberts term for the strategy that utility monopolies used to win public opinion through courteous customer service and public relations
-Electric, gas, telephone, and streetcar executies forced clerks to show courtesy; enforced by fake shoppers, and customer surveys; sold stock to customers; goal was to block public ownership, not to win customers
-Business shaping politics through emotional labor and PR which explains why antimonopoly sentiment faded in the late 1920s

Racial Capitalism

-Concept popularized by Cedric Robinson saying capitalism develops not by making people the same but by differentiating them, turning regional and cultural differences into racial ones
-Freedman’s Bank savings diverted to railroad speculation; Black entrepreneurs building parallel institutions inside a segregated economy (St. Luke Penny Savings Bank)
-Emancipation changed how race and capitalism were tied together but didnt unite them

Land Trust Company

-British investment company founded in 1888 to purchase lands in the more newly settled parts of the United States where population growth was raising land values
-Worked with the Kansas City based Jarvis-Conklin Mortgage Trust; supplied capital behind Roland Park Company in Baltimore
-Shows suburban development as global speculative investment, linking settler-colonial land speculation to American real estate

Roland Park Company

The company backed by the Lands Trust Company, that developed Roland Part and later Guilford as planned suburbs north of Baltimore
-Highly racialized nuisance restrictions; ads urged buyers to choose a location protected from unhealthful suroundings and undersirable neighbors; Guilford had an explicit racial covenant; Black developers responded with Cherry Heights in 1910
-Shows how exclusion was built into property value and suburban design: the architecture of exclusion

Edward Bouton

Kansas City developer who ran the Roland Park Company as general manager and later president
-Designed the deed restrictions governing Roland Park and Guildford, using the language of “health” and “undesirable neighbors” to exclude Black residents while allowing Black domestic servants on the premises
-Segregation as a deliberate business strategy to protect property calues, not just private prejudice

Restrictive Covenants

-Deed clauses barring sale to or occupancy by Black people
-The Guildord, MD deed is an example of this and says that the land shouldn’t be lived on by any negro, except servants; this followed earlier racialized health and nuisance restrictions in Roland Park
-Turned racial exclusion into a marketable feature of property

St Luke Penny Savings Bank

Black owned back founded in Richmond VA in 1903 by Maggie Lena Walker through the Independent Order of St. Luke, a black mutual aid society
-Encouraged small savings by Black working people; financed black homeownership and businesses; survived the depression by merging into Consolidated Bank and Trust
-An example of Black economic institution building under segregation

Maggie Lena Walker

-Leader of the Independent Order of St. Luke and the first woman of any race to charter a bank in the US
-St Luke Penny Savings Bank (1903); Championed black women’s economic independence; supported a boycott of Richmonds segregated streetcars
-Links race, gender, and finance; shows Black capitalism as a collective uplift

Herman Perry

Atlanta entrepreneur who founded the Standard Life Insurance Company of Georgia
-Standard Life advertised itself as “owned and operated by colored people”, operating in 10 states with 350 agents and promising “the economic emancipation of the race”; Perry’s empire expanded into banking and real estate but overextended and lost control to white owned capital
-Black capitalism as race uplift, and its structural limits in a segregated credit market

Booker T Washington

-Founder of Tuskegee Institute and the leading voice of Black economic self-help around 1900
-In his Atlanta address in 1895 said “No race that has anything to contribute to the markets of the world is long in any degree ostracized”; founded the National Negro Business League in 1900
-Bet that market success would bring civil acceptance - core argument of Black Capitalism

W.E.B. Du Bois

Sociologist and activist who criticized Washington and demanded full civil and political rights
-Studied Black business; was involved in the Niagara Movement, NAACP, and in the 1930s urged Black cooperative economics
-The counterpoint to Washington - economic progress could not be seperated from political rights

Detroit Housewives League

-Organization of Black women founded in Detroit in 1930 to direct their household spending to Black owned businesses
-Pressured stores to hire black workers; spread to other cities during the depression
-Shows black women using their consumer power as an economic and political strategy

New York Clearing House Association

Private association of New York banks formed in 1853 to settle payments among members
-Issued “bank certificates” for inter-bank transactions; in crises its loan committee would value member banks’ assets and issued “loan certificates” that members accepted in place of cash; in 1907 tried to lend but found many of the trust companies held worthless assets
-Private central banking before the Fed, and a response to the inelastic national banking system

Panic of 1907

Financial panic centered on New York’s trust companies
-After 1893, “financial banking” grew; trust companies faced looser rules on reserves and loan collateral than national banks and their deposits grew a lot; a failed attempt to corner the copper market brought down Knickerbocker Trust; the Clearing house found trusts holding worthless assets; JP Morgan led the Morgan bailout
-Proved that private bankers could not reliably stabilize the system, leading to the Aldrich Plan and the Fed

National Monetary Commission

-Commission created after panic of 1907 (by the Aldrich-Vreeland Act fo 1908), chared by Senator Nelson Aldrich
-Reformers worried about the “inelasticity” of the money supply and wanted banks able to lend countrycyclically in crises; the aldrich Plan was presented to the commission in Jan 1911
-Bridge from the 1907 panic to the Federal Reserve

Aldrich Plan

Senator Nelson Aldrich’s central-bank proposal, drafted by bankers at a secret meeting at the “First Name Club”
-Proposed a privately owned “National Reserve Association” with 15 branches to issue currency; its board would have 45 members: 27 elected by branch leaders, 6 appointed by the president, 12 chosen by business leaders
-Bankers control was the sticking point; the Fed kept the structure but added presidential appointment

Louis Brandeis

-Progressive lawyer and Supreme Court justice who attacked concentrated finance
-Shown with Wilson and Arsène Pujo in the lecture on the Pujo committe and the “money trust”
-Conencted bank concentration to threats to democracy, shaping the Fed’s public, decentralized design

“Money Trust”

-Progressive era term for the small group of New York bankers, led by Morgan, believe to control the nation’s credit
-Harper Weekly drew JP Morgan with many arms grabbing money bags (similar to jackson with the bank war cartoon); Idea that bankers had an outsized influence on companies and could get on their boards and make companies do things that would benefit their banks most
-continuity of the Jacksonian “money power”

Pujo Committee

-House subcommitte chaired by Rep Arsène Pujo that investigated the “money trust”
-Documented how morgan and allied banks controlled major corporations through interlocking directorates; fueled brandeis’s writings; added pressure that shaped Wilson’s Federal Reserve Act
-Turned antimonopoly suspicion into evidence that drove financial reform

Federal Reserve Act (1913)

-The 1913 law creating the Federal Reserve System, to provide elastic currency, rediscount commercial paper, and supervise banking
-12 regional banks overseen by a 7-member board appointed by the president; Federal reserve notes replace national banknotes, with 40% of currency backed by gold reserves
-Biggest banking turning point since 1863: an elastic currency and a lender of last resort, still tied to gold

Bankers Acceptances

Short term, interest-earning promissory notes guaranteed by a bank, used to finance trade
-Federal reserve branches bought them at a publicized discount rate; American acceptances financed international trade and gave US banks a new global presence as WW1 turned the US from a net debtor into a net creditor and challenged Britains financial leadership
-tool of the US rise as a new financial hegemon

Liberty Bonds

Government bonds sold to finance US participaiton in WW1
-Posters urged “lend your money to the government”, “If you cant enlist - invest”; sold in small denominations with interest coupons every 6 months; part of WW1s transformation of the US from net debtor to net creditor; first introduction to investing for millions of Americans
-Created a mass investing public that fed the Great Bull Market

Benjamin Strong

-Worked with Morgan during 1907 bailout; First governor of the Federal Reserve Bank of New York and the dominant figure in the early Fed
-in 1920 he raised NY Fed’s rate to 7% to restore the gold standard after wartime inflation, causing the great deflation; “sterilized” incoming gold by pulling it out of circulation; developed open market operations
-Embodies the continuity from private (Morgan) to public central banking, and the Fed’s priority on gold over domestic growth

Great Deflation

Sharp postwar deflation and recession of 1920-1921 fueled by high interest rates
-Wartime inflation raised question about how to restore the gold standard: deflation or devaluation; In 1920 Benjamin Strong and the Fed raised interest rates to 7%, and prices swung from 20% inflation to 15% deflation; recession lasted until the end of 1921
-Fed chose deflation to protect the gold standard, preview of choices after 1929

Open Market Operations

The Fed buying or selling Treasury securities to add or remove money and credit from the banking system
-Developed by Strong and the New York Fed in the 1920s; Fed treasury holdings rose and fell with discount rate changes; used with gold “sterilization”
-The Fed’s shift from passively rediscounting to actively managing credit

New York Stock Exchange

Nation’s main stock exchange
-Rose with the great merger movement and the shift from debt to equity finance; center of the great bull market and the 1929 crash; brought under federal oversight by the Securities Exchange Act (1934) and the SEC
-The core institution of corporate finance that the New Deal set out to regulate

Great Bull Market

The 1920s stock market boom (subject of Julia Ott’s “what was the great bull market?”)
-peaked in September 1929; on Oct 28 (Black Monday) the Dow fell 13% and on Oct 29 (Black Tuesday) another 12%; the crash destroyed about 10% of wealth
-Mass investment built on habits created by Liberty Bonds outran the real economy and set up the Depression

Liquidity Preference

John Maynard Keynes’ concept of the desire to hold wealth in liquid form rather than invest it; argues the propensity to save is stronger than that to invest
-Liquid assets keep value but are also easy to trade; that tension explains booms and busts. After 1929 the Bank of the US collapsed (1930), Almost 2300 failed in 1931 (10% of all), and by 1932 there was a liquidity trap with the 3-month treasuries yielding almost nothing; by march 1933 prices were down 30%; industrial production down 37%; unemployment over 22%
-Explains the depression as hoarding instead of investing - new deal would restore confidence

National Association of Manufacturers

Business organizstion founded in 1895 origionally to promote exports
-from 1903 led an aggressive open ship campaign against Unions; in the 1930s fought the New Deal and Wagner Act with large public relations campaign for the “American Way” of free enterprise
The organized political voice of manufracturers against labor and regulation

Associationalism

Herbert Hoover’s vision of cooperative trade associations that shared information, standardized products, and coordinated voluntarily with government as a facilitator rather than regulator
-Built on WW1s War Industries Board; promoted by Hoover as commerce Secretary; logic reappears in the NIRA’s industry codes
-A middle path between laissez-faire and state regulation that shaped the 1920s and early New Deal

Herbert Hoover

Commerce Secretary and then President from 1929-1933; leading advocate for associotionalism
-Met the depression with voluntary business cooperation and reconstruction finance corporation ,which FDR later repurposed as the engine of banking reform and capital investment; stayed on gold standard
-The limits of voluntarism in a collapse and continuity into the new deal

Emergency banking act

Law passed march 1933, days after FDR's First Inaugural Address to end the banking panic
-On March 6 FDR declared a “Bank Holiday” pausing all bank operations; the act let sound banks reopen and allowed the president to require Americans to turn in their gold for paper currency; on April 1933 the US left the gold standard and pursued “definitely controlled inflation”
-Stopped the runs and broke the gold standard’s hold, a direct answer to liquidity preference and hoarding

Glass Steagall Banking Act (1933)

-The act passed during the first 100 days
-Seperated commercial banks from investment banking, created the Federal Deposit Insurance Corporation (FDIC), and capped interest rated on deposits (Regulation Q)
-Ended bank runs as a routine feature of American finance: the key New deal turning point

Securities and Exchange Commission

Federal Agency created by the Securities Exchange Act (1934) to oversee securities markets; Joseph P Kennedy was its first chair
-Required corporations to regularly publish finance statements, which the SEC would audit; David M Kennedy called it “rationalization of capitalism” along the lines of capitalism’s own claims about how the free markets should work
-State made marked work as promised through disclosure, rather than replacing them

Agricultural Adjustment Administration

-Agency created by the Agricultural Adjustment Act (1933) that paid farmers to reduce production in order to reflate crop prices
-Part of the first new deal alongside the repurposed RFC; the AAA promised that America has enough food for everyone despite dustbowl migrants starving; payment s flowed to landowners and sharecroppers (mostly black) were pushed off the land
-Raised farm prices through state planning with unequal racial and class effects

national Industrial recovery act

-1933 law creating the National Recovery Administration
-NRA suspended antitrust laws and introduced industry “codes”; Rexford Tugwell wrote “The cat is out of the bag. there is no invisible hand”; Section 7a recognized the right to organize and sparked labor unrest; ruled unconsitutional in Schechter Poultry Corp V. US
-New deals biggest experiment in business-government planning, bigger trigger for labor’s revolt

Social Security Act (1935)

Law that established old-age insurance and unemployment insurance; centerpiece of second new deal
-Designed by Committee on Economic Security whose idea of “social security” was highly gendered, calling men breadwinners and wife homemakers; 1939 posters promised benefits for widows and children; private insurers went from fighting for exemptions to selling supplemental insurance
-The core of the ideology of economic security built around gender norms and expanding not replacing private insurance

National Labor Relations Act

the 1935 Wagner Act guaranteeing workers rights to unionize, gartain collectively, and strike
-Created the national Labor Relations Board to enforce the rules and oversee union elections; replaced NIRA’s section 7a after Schechter; enabled CIOs organizing drive
-Federal law shifted bargaining power toward workers, reshaping corporate labor relations

Congress of Industrial Organizations

Federation of industrial unions led by John L Lewis that split from the American Federation of Labor in 1935
-Launched a massive unionization drive in 1935-36, organizing whole industries regardless of skill; won the Flint sit-down strike against General Motors (1936-37)
-Brought mass-production workers into unions under federal protection, a long term answer to the knights of labor’s defeat