1. Labor

2. Capital Productivity

Output of manufactured goods...Germany is second

1. Machinery, (used to be cotton textiles manufacturing)

2. Lumber

Flour and meal fall off of the list (low income elasticity)

Elastic= Luxuries, >1, double income...consume more than double

Inelastic= Necessity, <1, double income...consume less than double

Invention: typewriter, machines to seal cans, etc.

Innovation: Refrigerated rail cars, long distance pipelines

ALLOWED FOR MASS PRODUCTION

New methods for steel (2):

1. Bessemer Process: very quick, did not allow for adequate testing...flaws

2. Open-Hearth process: Took longer, but better quality. Cost advantage

(By 1900 primary way of making steel)

1. Standardized interchangeable parts

2. Continuous flow of operations or assembly line

1. Managers should make decisions only on what they oversee

2. Firms should engage in internal auditing to ID problems and suggest solutions

3. Routine performance evaluations for all employees, even managers

1. Learn more in efficient environment

2. fair and higher wage allocation based output

3. Workforce care program

4. Injured workers are not productive workers

5. Pay based on output

OVERALL: POSITIVE

1. Unlimited life

2. Financial capital through stock sales

3. Limited liability

Growth of big businesses:

Financial: Growth in commercial banks...find investors/shareholders and gain access to financial capital

Legal: easier and less costly to obtain corporate charter

Economic: output increases, avg. cost decreases so firms could benefit by becoming larger

1. TR-TC

2. (P*Q)-(ATC*Q)

3. Q(P-ATC)

1. PC= sell at market equilibrium price and quantity

2. M= higher price, producing less (MR=MC, highest price consumer is willing to pay)

1. Price fixing

2. One firm would agree with another firm that neither of them would charge a price above a set amount

(closer to Monopoly price than perfectly competitive)

1. Divide up regions and only sell in your own territory

2. Restrictions on output

1. Processed consumer goods

2. Infastructure

firms producing the inputs consolidated the ownership of resources (backward vertical merger)

Ex: steel industry

Why would firms that rely on continuous flow of operations be inclined to vertically merge?

1. Backwards vertical merger

2. Net assets went from 700 mil. to 1.4 bil.

3. Controlled half of steel making in US

1. Cigarettes could be mass produced (continuous stream of inputs), lead to vertical integration

2. Cigars had to be rolled (could not be mass produced)

1. Firms grew, but so did markets (monopoly power depends on size of firm relative to market)

2. IN some local markets, competitions actually increased (trans. costs dec., face more comp.)

3. Few firms managed to maintain monopoly power (SR monopoly power is often eroded by entrance of competing firms in LR)

4. Most markets were closer to oligopolies (few firms that produce similar products and services)

5. Diversification meant availability of substitutes (more subs. reduce market power of monopoly)

6. Technological change meant the opening of barriers to entry (tech. change reduces MC, which benefits both existing firms and new entrants) 

Declared illegal every contract combination in the form of trust or conspiracy in the restraint of trade among the states

**Did not clearly define types of activities that are illegal...left up to judges**

Companies were working together as a merger to control the industry but were in "reasonable" restraint of trade so the did not violate SAA.

**Court made it clear that SAA did apply to collusive agreements among firms who were supposed to be in competition, however mergers were still legal

1. Standard Oil

2. American Tobacco Company

1. RR rebates

2. Acquiring refining companies through price wars

1. Price discrimination among buyers

2. Exclusive selling and tying contracts

3. Acquiring stock of a competitor

4. Interlocking directories

over: silver

circulated: silver

over: gold

circulated: gold

Charted banks by both states and federal government and each issued their own bank notes (bank created paper money)

-No interstate branch banking was allowed so both bank operations were limited to states

1. Congress wanted to stimulate the sale of US Treasury Bonds to help finance the civil war

2. Conservatives in congress wanted to provide uniform national currency, also decentralizing control of money supply

1. Legal reserve requirement (must hold % of deposits)

2. Double liability on stock

-operations limited to one state

SR: decreased number of state banks and increased number of national banks

LR: State banks began to increase and then had more state banks than national banks and greater total assets

**Reduced the need for bank notes by creating checking accounts to avoid tax

1. No centralized control

2. Limited restrictions on National Banks

3. Regulations on State banks varied by state

4. No nation-wide banking system

5. Little ability to regulate money supply

6. Uneven distribution of bank/bank notes 

7. Susceptibility to panics and runs

MV=PY where V is constant

M=money supply

V=Velocity 

P=Price level (measures inflation)

Y=real output

PY=Nominal GDP

**MONEY MATTERS**

1. Reduced the amount of treasury bonds

2. Scaled reserve requirements to city size

3. Ineffective attempt to bring more banks under national bank rules

1. Worst recession the country has experienced up until this point

2. Decrease in money supply and decrease in real output

3. No lender of last resort

Same as 1893, but this time DEPRESSION. 

**Lead to Aldrich-Vreeland act**

1. Provided "national currency associations" -no fewer than 10 banks with in sound financial condition

2. National monetary commission to make recommendations for reforms (central bank)

1. Purchase shares of capital stock of the district of the Fed

2. Deposit cash reserves with district bank

3. National Banks must join 

Fiscal Agent of government: Gov. receives payments and makes payments so they need a bank to perform these actions

Clearing house: If all of the banks have an account at some central place, at the end of the day sends checks to the fed to clear balances

Lender of Last Resort: Holds reserves and are able to make loans to banks who are having shortages of reserves

Exercise Counter Cyclical Monetary Policy: raise money supply in recession

**Early fed operated well!** 

1. State bank notes

2. National bank notes

3. Greenbacks

4. Demand deposits

Avalanche of new paper money and upwards zoom of prices (due to greenbacks) 

**When Y is stable a large increase in M will lead to a large increase in P)

Rep: contraction of money supply to bring prices down (burn greenbacks and take as many as possible out of circulation)...sharp dec. in P

Dem: Moderate contraction, holds M stable and gradual increase of Y brings prices down

Bland Allison act: limited coinage of silver but required treasury to purchase 2 to 4 million of silver per month at market price. Price of silver continued to fall and supply was increasing more rapidly than the demand. Price drop.

GRAPH: Demand and supply shift right but supply shifts more

Gold flowed into the US because of favorable international trade situations (increased X and decreased IM) and new gold in California, Alaska, and South Africa. Expansion in money supply which raised prices. 

**Adopted gold standard and money was backed by gold!**