Big Businesses and Monopolies of the 1800s - Essay Example

Big Businesses and Monopolies of the 1800's The beginning of the 19th century was marked by growth of the industrial and financial sectors in America. During this century, the country turned from agrarian-dominated industries to industrial production such as steel and metal industries, ship building and gold mining, etc. Big businesses and monopolies dominated during this period of time, though they differed from traditional interpretation and nature of monopoly. The main industrialists of this period were John D. Rockefeller, James J. Hill and Vanderbilt C. These monopolists gain their wealth in free market. The main industries, steel, mining, sugar, transportation, agriculture, ship-building, wine etc., were under monopoly control in all states before the new initiative which came at the beginning of the 20th century. Under conditions approximating pure competition, price was set in the marketplace. Price tended to be just enough above costs to keep marginal producers in business. Thus, from the point of view of the price setter, the most important factor was costs. If a producer's cost floor was below the prevailing market price, the product would be produced and sold. Since the producer in such a market had little discretion over price, the pricing problem was essentially whether or not to sell at the market price. Monopoly steel industry and sugar production was closely connected with nature of competition and inability of competitors to introduce new competitive products to the market. While costs and demand conditions circumscribe the price floor and ceiling, competitive conditions helped to determine where within the two extremes the actual price should be set. Reaction of competitors was the crucial consideration imposing practical limitations on pricing alternatives (Slichter 1948). During the 1800's, 'natural monopolies' existed in some industries. Steel and textual industries were limited by what their competitors charged; any price differentials from competitors were justified in the minds of customers on the basis of differential utility, that was, perceived value. At the end of 19th century, cartels played a dominant role on the market, and be seen as a restraint on competition. A cartel is said to exist when two or more independent firms in the same or affiliated fields of economic activity join together for the purpose of exerting control over a market. More specifically, a cartel was a voluntary association of producers of a commodity or product organized for the purpose of coordinated marketing that was aimed at stabilizing or increasing the members' profits. A cartel was engage in price-fixing, restriction of production or shipments, division of marketing territories, centralization of sales. Many small companies had the right and obligation to take action that protected and fostered the prosperity of the businesses, but they followed 'silent market and ethical rules' which helped them to compete (Witzel, 2003). While costs and demand conditions circumscribed the price floor and ceiling, competitive conditions created by monopolies helped to determine where within the two extremes the actual price should be set. For instance, if accompany set high price reaction of competitors and buyers was often the crucial consideration imposing practical limitations on pricing. Such behavior considered unethical and was discouraged by partners and buyers (Hansen, 1957). There were times when a company in such a competitive structure ignored competitive prices. Such activities were also discouraged and eliminated which opened new opportunities for rivals. In addition, poor market performance was also considered as a restraint on competition and the main cause of monopolies (Witzel, 2003). The transport sector brought with it all kinds of difficulties, not least the highly regionalized nature of provision, the large amounts of money invested in existing grid systems and the obligation of local authorities to secure transport provision. Subsidized production of coal and ore, overcapacity and cheap energy resulted in a wide disparity in prices and distorts the market for energy. Alternatively, the transport industry was already well in the throes of deregulation. In the middle of the century, "In 1851, the Erie Railroad linked the Hudson River to Lake Erie. Rail connected Chicago, Ill. With eastern ports 1852, the National Road was completed to Vandalia, Illinois" (American History, n.d.). Efforts were specifically directed for such issues as state aid, which tended to foster efficiency and fairly protect companies from the realities of difficult market conditions, and monopoly and merger policies which can produce national monopolies and cartelized oligopolies (Williamson 1957). Steel industry needed monopoly in order to survive on the market. Successful companies from different states had a monopoly over best practice they had simply derived a good fit between efficient business techniques and market conditions. This means adapting systems and techniques to fit existing company values and norms. Being a combination of the best of strengths to create a harmonious and productive working environment Land owners were the main monopolists in the South. By the end of the seventeenth century, the slave population had rapidly mounted. They were confined in the main to employment in the Southern plantation economy. While the bulk of them were used for field and household labor, others were trained in a variety of trades and often farmed out by their masters. Following Merriam (1970): The stream of slavery moved mainly according to economic conditions. Soil and climate in the Northern States made the labor of the indolent and unthrifty slave unprofitable, but in the warm and fertile South, developing plantations of tobacco, rice, and indigo, the negro toiler supplied the needed element for great profits. The church's part in the business was mainly to find excuse" (5). The skilled Negro artisan was, therefore, a serious threat to the free Southern workman in such towns as Charleston. Ultimately he entirely replaced the free workman in the supply of skilled labor in the South. The increase in rice and indigo production in the South boosted the price of slaves. The average price in the 1800's was 20 a head, in 1810 25, and by the eve of the Revolution between 50 and 80. Economic data shows that since the beginning of slavery American experienced rapid economic growth in all spheres of economy: sugar and cotton production, steel and gold mining. These monopolies produced great volumes of currency which were invested in production facilities and technological innovations which replaced old methods of agriculture and modes of production. Similar to the factories of the industrial towns were the somewhat smaller works set up on numerous plantations in the Southern Colonies (Witzel 2003). For instance, monopolist Carter was engaged in milling on an ambitious scale. He built a grain mill designed to grind 25,000 bushels of wheat a year and requiring 5,000 annually for its operation; in his two ovens 100 pounds of flour could be baked at one time. So wide a variety of occupations throws out of perspective the traditional picture of the planter solely dependent upon the vagaries of the tobacco market for the livelihood of family and workmen. With a baseline of some of the worst years in plantation profits during the American Revolution, every planter's situation improved after 1783 when slavery was introduced in all states. For one thing, it should be noted that the spread and growth of these industries are closely linked to the growth of agriculture, from which they stem. Agricultural changes necessarily bring changes in the agricultural processing industries. A shift from tobacco growing to wheat growing helped to build up Richmond as a milling center with the help of slave labor only (Hansen 1957). Only at the end of the 19th century, a gradual erosion of local monopoly power was therefore essential beginning with the value added periphery products and services followed by some of the more entrenched new technologies. Achievement of liberalization involved removing restrictive practices concerning the equipment, distribution, maintenance and connection, the only proviso being that equipment can be refused if it fails to meet required technical specifications. The principles of markets not only explain how economies work but also prescribe a role for government in the process of economic policy-making. According to economic conditions of the 1800s, because the company was central, the role of government was that of constructing a framework for individuals to pursue self-interest. In this context the primary role of monopolies and syndicates was to make rules which prohibit the use of unfair market practices. Monopolists made rules which ensure a competitive environment where individuals become equal. Because of the coercive inclination of government, rules were constructed which ensure that its arbitrary nature could be controlled through various checks and balances. Balances and regulations included decentralization of powers and creating many centers of power as opposed to a centralized authority. Government by rules and principles also included the conduct of economic policy. Market liberals therefore favored an economic policy which is guided by fixed rules (Hansen 1957). Following Schumpeter, monopoly and big businesses were the main engibes of economic growth protecting industries from unfair practices and competition. Schumpeter's support of profits as an engine of creative destruction can be applied to oligopoly, without having to embrace textbook monopoly as a desirable market structure. Ever since Adam Smith, economists have repeated the warning that the behavior of established monopolists is usually not in the social interest (Hansen 1957). The case of steel and mining industries in America proved that monopoly was the only effective tool which helped them to survive and grew. Tobacco and sugar syndicates made an impact on economy as most countries feel lack of equal access to the world's material assets, including technological resources, and there was less linkage between urbanization and industry - an informal economy often predominates, and the spatial segregation is overlaid by ethnicity, caste, religion and language. Productivity and revenues at many syndicates grew dramatically, while overall employment had not. Meanwhile, a dispersal of productive wealth was underway as monopolists established operations in key developing countries. Many economists agree that this dispersal narrowed the gap between 'poor and rich' industries. It is important to note that with the development of manufacturing facilities and machinery, these industries required more labor in order to expend production. Slavery was the cheapest labor which allowed agriculture and manufacturing to save costs and invest them into production. Without cheap labor big businesses would fail to meet changing social conditions and economic demands. Once entered into the lists of gradual emancipation experiments, manufacturing was naturally subjected to scrutiny. In economic terms, early years of increased profit were explained away as a contextual coincidence. During 1800s, if a production function exhibited increasing returns to scale then higher growth rate generated rising real living standards for the community as a whole. Such industries as transportation and cotton production experienced rapid economic growth. Within monopolies, small producers were linked to each other and had specific dependence relations to each other (Witzel 2003). In sum, government and state regulations did not have a great impact on competition and nature of market relations, but companies regulated this environment themselves through monopolies and industry regulations. Also, the larger was the market, the greater was the scope for competition and the higher was the opportunities for production. Of concern to the manufacturer were such characteristics of the marketing intermediary as trading area covered, product lines carried, sales organization, potential sales volume of the manufacturer's product line, capacity to provide auxiliary services, financial strength to maintain inventories and extend credit to customers, and the willingness and ability to promote the manufacturer's product line. Works Cited Page 1. American History. N.d. http://kclibrary.nhmccd.edu/19thcentury1850.htm#bus 2. Hansen, A.H. The American Economy. McGraw-Hill, 1957. 3. Merriam, G.S. The Negro and the Nation: A History of American Slavery and Enfranchisement. Haskell House, 1970. 4. Slichter, H. The American Economy: Its Problems and Perspectives. A. A. Knopf, 1948. 5. Wells, S. Power Elites in America. http://laissez-fairerepublic.com/monopoly.htm 6. Williamson, H.F. The Growth of the American Economy. Prentice-Hall, 1951. 7. Witzel, M. Political Economy in Nineteenth-century America. Thoemmes Continuum, 2003. Read More