Modern Economic Theory Questions and Responses


Chapter 19.
Please watch the following Ted Talk video on modern economic theory, relating to our discussions on the Gilded Age and its enormous wealth inequalities. Video is around 17 minutes long.
Answer the following questions after watching the following video. Answers may be short and to the point, no long paragraphs necessary for this assignment (unless you want to!).
1) How does Nick Hanauer categorize himself within our modern economic system?
2) In today’s neoliberal economic models, who ultimately benefits from the current systems? The rich or the middle class?
3) In reference to intellectuals, scholars, and economic theorists, what is the result of today’s rising inequality and political divisiveness? 
4) Instead of capital being the backbone of economic growth, what factor does Hanauer say truly grows modern economies? 
5) In his discussions of equilibrium systems with wages vs. jobs, what is his assessment of the teetering “myth” between the two? 
6) Using an example of Seattle passing a $15 minimum wage, what was the outcome for local businesses? Did the economy struggle under this new measure, or grow?
7) What are the three assumptions currently made in modern economics?
8) How does Hanauer describe the two competing ideas of greed vs. reciprocity? 
9) Toward the end of his Ted Talk, Hanauer describes five “rules of thumb” for how to evolve modern economies to become more equitable and fair. What is the summarization of these?
10) Personal Commentary Question: Using our conversations with the Gilded Age, this Ted Talk of neoliberal market economies, and modern-day understandings of growing income inequality within the United States, what are your thoughts on the current situation of income inequality in America? If you were a head economic advisor, do you have any solutions to begin tackling this rising and pressing issue? Discuss freely.  
Chapter 18
Please respond to each of the following questions with at least 5 sentences per answer. Your analysis should be well thought out, finely edited, and informative.
The first few questions are substantive based on the reading, and the last is a more subjective viewpoint and an opportunity for you to share your thoughts, opinions, and analysis on the subject matter.
1) Why were railroads so important to America’s second industrial revolution? What events demonstrate their influence on society and politics as well as the economy? 
2) Why did organized efforts of farmers, workers, and local reformers largely fail to achieve substantive change in the Gilded Age?
3) Describe how the “robber barons” attained their God-like wealth, and make comparisons between their triumphs and today’s billionaire class. Do you see similarities in wealth, influence, and power? How so?
4) How did the Sherman Antitrust Act curtail the greedy practices of businesses? Is this law still effective in the present-day when analyzing large and powerful corporations?
5) The Gilded Age saw a series of corruption scandals and election gridlock within its political sphere. Compare and contrast politics between the Gilded Age and today’s polarized politics and electorate. Use specific examples.
Finally, please respond to TWO classmates’ answers. This will further discussion and participation in class. Your engagement, commentary, and useful feedback to your peers will be factored into grading.
Feel free to utilize any articles or videos within the module to support your answers. You may also utilize outside research as well.

Ch. 18 America’s Gilded Age
Second Industrial Revolution

After the Civil War, the United States underwent an enormous leap in industrial output.
− Internal Factors → Utilizing natural resources, growing supply of labor (internally &
immigrant based), expanding market for goods, and capital for investments.
− Government intervention → Promoted industrial/agricultural development through high
tariffs, which protected industry from foreign competitors. Also granted railroad
companies land for construction, relocated the Native Americans, and gave land to
By 1913 C.E., the U.S. produced ⅓ of of the world’s industrial output. More than Great Britain,
France, and Germany combined! (The European superpowers at the time.)
Major industrial transition
− Agricultural farming society → industrial society
− What did this transition mean for the people?
− Land-owning & independent farmers → working-class wage employees for
companies, businesses, and craft shops.
− Massive migration from rural land to cities. 1870-1920 C.E., 11 million moved
from farms to city, and 25 million immigrants arrived in coastal cities.
Railroads Change America

Cornelius Vanderbilt – an American business magnate who built his wealth in railroads and shipping.
After working with his father’s business, Vanderbilt worked his way into leadership positions in the inland
water trade and invested in the rapidly growing railroad industry.
− With the increased flow of people to the U.S. and within its borders, transportation became a
crucial element within the society.
Railroad Networks:
− Funded by private investment
− Massive land and money incentives from local, state, and federal governments.
• Governmental loans totaled $150 million and 185 million acres of land.
− Farmers referred to them as robber barons for stealing land.
From 1860-1880 the mileage of railroads tripled. Tripled again from 1880-1920.
− Grew from 35,000 miles at the end of Civil War to over 200,000 miles by 1900s.
Time Zones → created by the railroad companies to keep track of their trains and run them efficiently
from the customers and business operators. (Pacific, Mountain, Central, East.)
Rise of National Brands
− Due to the increased interconnectivity from the East to West coast, companies were now able to
form large-scale operations. Nationwide companies fed into the new modern industrial economy of
the U.S.
Vanderbilt’s Life & Business

Andrew Carnegie: Scottish-American

Born in Scotland, U.K. in 1835.
Family were weavers, part of the textile industry.
By the 1840’s, factories were making local textiles
obsolete and running them out of business.
Facing poverty, his family emigrated to the United
States for a better opportunity.
Hard work, business savvy, and ruthless strategy
allowed Carnegie to become the richest man in the
Thankfully, his later years were spent giving away his
millions to charity and the public good.
− “The man who dies rich, dies disgraced.”
Andrew Carnegie’s Life
PS/Andrew Carnegie on Wealth
Carnegie applauded American capitalism for creating a society where, through hard work, ingenuity, and a bit of
luck, someone like himself could amass a fortune. In return for that opportunity, Carnegie wrote that the wealthy
should find proper uses for their wealth by funding hospitals, libraries, colleges, the arts, and more. The Gospel of
Wealth spelled out that responsibility.
“Poor and restricted are our opportunities in this life; narrow our horizon; our best work most imperfect; but rich
men should be thankful for one inestimable boon. They have it in their power during their lives to busy
themselves in organizing benefactions from which the masses of their fellows will derive lasting advantage, and
thus dignify their own lives. . . .”
“This, then, is held to be the duty of the man of Wealth: First, to set an example of modest, unostentatious living,
shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him;
and after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called
upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is
best calculated to produce the most beneficial results for the community—the man of wealth thus becoming the
mere agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience and
ability to administer, doing for them better than they would or could do for themselves…”
PS/Andrew Carnegie on Wealth Pt. II
“In bestowing charity, the main consideration should be to help those who will help themselves; to
provide part of the means by which those who desire to improve may do so; to give those who desire
to use the aids by which they may rise; to assist, but rarely or never to do all. Neither the individual
nor the race is improved by alms-giving. Those worthy of assistance, except in rare cases, seldom
require assistance. The really valuable men of the race never do, except in cases of accident or sudden
change. Everyone has, of course, cases of individuals brought to his own knowledge where
temporary assistance can do genuine good, and these he will not overlook. But the amount which can
be wisely given by the individual for individuals is necessarily limited by his lack of knowledge of the
circumstances connected with each. He is the only true reformer who is as careful and as anxious not
to aid the unworthy as he is to aid the worthy, and, perhaps, even more so, for in alms-giving more
injury is probably done by rewarding vice than by relieving virtue.”
—Andrew Carnegie, The Gospel of Wealth
Oil Boom

John D. Rockefeller – an American business magnate and philanthropist. He is widely
considered the wealthiest American of all time, and the richest person in modern history.
Rockefeller was born into a large family in upstate New York that moved several times before
eventually settling in Cleveland, Ohio.
− Born in 1839 to modest means, he helped his mother with chores and earning extra
money around the farm.
− When they moved to Cleveland in 1853, he had an opportunity work as a bookkeeper.
Learned of Colonel Edwin Drake who struck “black gold” in Pennsylvania, and sought to
explore himself.
− Initially worked with friends, but in 1870 ventured on his own to create the Standard Oil
Company, initially valued at $1 million.
Business Practices
− Monopoly – a business that is the only provider of a good or service, giving it a
tremendous competitive advantage over any other company that tries to provide a similar
product or service.

Business “Competition”

With economic prosperity increasing at an unprecedented rate, the legal codes that
governed business affairs could not catch up in time.
Trusts – legal devices whereby the affairs of several rival companies were managed by a
single director.
− Companies’ answer to the growing economic boom within the marketplace.
Established large “pools” of businesses working together for their common interest.
“Independent” Industry
− Multiple companies began to coordinate their economic activities around one
another. On paper they were “independent,” however they schemed behind closed
• Economic mafia, if you will.
The Big Three → Carnegie Steel, J.P. Morgan Investing, and Rockefeller Oil
Business Domination

Vertical Integration – controlling each phase of a particular business model from raw materials to
transportation, manufacturing, and distribution.
− Famous historical example: Andrew Carnegie vertically integrating his steel mills.
• Controlled every part of production from raw materials to distribution, cutting out the
− Modernly: Apple having control over their IOS, chips/internals of phone, and phone itself.
Horizontal Integration – business practice that involves buying out competitors thereby establishing
a monopoly in the specific field.
− Famous historical example: John D. Rockefeller buying other oil refineries, making his business
the largest oil refinery in the U.S. and the world. He controlled 90% of the U.S.’s oil industry.
Robber Barons – incredibly wealthy tycoons who wielded power within their own company and
industry without any accountability within an unregulated marketplace.
− Notably fought the creation of organized unions by their employees.
− Wealth against Commonwealth (1894), by Henry Demarest Lloyd. Discussed Rockefeller’s
unfair economic “competition” and him manipulating the market by bribing legislatures.
• Do we have any lobbying occurring today in the U.S.?

Bell and the Telephone

Alexander Graham Bell – a Scottish-born American inventor, scientist, and engineer who is
credited with inventing and patenting the first practical telephone. He also co-founded the
American Telephone and Telegraph Company in 1885.
− Within twenty years of the first cable lines being laid, Western Union controlled 80% of
the country’s telegraph lines, operating nearly 200,000 miles of telegraph routes.
− Allowed people to be connected like never before. Replies now came in minutes rather
than days or weeks.
Telephone Patent
− Patented by Bell in 1876, he was not he first one to invent the actual concept but was the
one to capitalize on it.
− Western Union would later commission Thomas Edison to invent and improved version
of the telephone.
− Fearing a lawsuit from Bell, they sold Edison’s idea to the Bell Company.
− Bell Company ultimately became the American Telephone and Telegraph Company.
• Acronym: AT&T
Edison & Electricity

Thomas Alva Edison – an American inventor and businessman who has been described as
America’s greatest inventor. He developed many devices in fields such as electric power
generation, mass communication, sound recording, and motion pictures.
− Said famously that “he hoped to have a minor invention every ten days and a big thing
every month or so.”
− Registered 1,093 patents over his lifetime and ran a world-famous laboratory.
Other notable inventions:
− Phonograph, mimeograph machine, motion picture projector, the dictaphone, and the
storage battery.
Light Bulb
− In 1879, Edison invented his greatest invention at the time. The incandescent light bulb.
− Explored over 6,000 materials for the filament when finally stumbling upon carbonized
cotton thread as a good solution. His direct current, DC power, limited to 2 miles.
George Westinghouse – an engineer who invented alternating current, or AC power, which
could travel far greater distances.
Barons vs. Workers

The Gilded Age allowed vast amounts of wealth to be accumulated by few individuals, but
many workers suffered under this system.
Uneven distribution of wealth → a wide gap between wages earned by skilled workers
and profits earned by robber barons and other tycoons soon reached untold proportions.
By 1890, the richest 1% of Americans controlled the same income as the bottom half of
the population and owned more property than the other 99%.
− Sound familiar to our modern-day situation?
The Theory of the Leisure Class (1899). Economist/historian Thorstein Veblen published
the upper-class lavish culture that focused on “conspicuous consumption.” Spending was
not needed, or even wanted on desired goods, but to simply show the available opulence
at the hands of the few.
− Examples of aristocratic lifestyle: Building palatial homes, attending exclusive social
clubs, schools, colleges, private balls, intermarrying into select families, etc.

Gilded Age Politics

Gilded Age – nickname given to the era between 1870-1890
from the title of a Mark Twain novel, The Gilded Age,
meaning covered in a layer of gold but masks a deceivingly
hollow and little-value core.
“Boss” William M. Tweed – a Democratic Party political
machine politician who exerted incredible influence within
his New York district. Gave jobs to many, gained
loyalty/voter support, reached many political positions, stole
vast sums of money from building projects, died in jail for
corruption charges.
− Stole anywhere from $45-200 million.
Government & Economy

Civil Service Act 1883 – created a merit-based system for federal employees to enter the
system via competitive exams rather than political influence. Goal was to have the most
competent and qualified individuals get the job.
Interstate Commerce Commission 1887 – first federal agency to regulate economic
activity. Ensured railroad rates for farmers and merchants so they may transport goods at
a reasonable cost, no unfair treatment.
Sherman Antitrust Act 1890 – banned all combinations and practices that restrained free
− Ex’s: Monopoly, vertical integration, horizontal integration, behind-closed doors
trusts, etc.
All of these various laws were weak at first. An attempt by the U.S. government to get
control of the uncontrolled economic situation, however it was a step in the right
Wealth-Driven Social Issues

Social Darwinism – a theory that evolution was a natural process in human society as
well as in nature, meaning that some individuals are inherently superior/more
intelligent/better suited toward a better life than others.
− Underlying socio-economic as well as racial prejudice.
− Borrowed from Darwin’s On the Origin of Species, where his work on evolution was
revolutionary for science.
As the wealth gap increased, many used social Darwinism as the reasoning why so many
found themselves in poverty, with low wages, and could not gain economic freedom.
− Sound familiar to today’s rhetoric?
Wealth rightly flows to those with the best business skill, not to those with lowly manual
labor jobs.
-End of Ch. 18!
-Keep up with
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