During the 1800s business and industry developed in America in different ways, and much depended on geography. Because of the easy access to natural power sources, the northern states were inclined to develop manufacturing and other factory-related businesses. The Erie Canal further helped factory-made goods, and people travel westward, and eventually, railroads followed its path. With industry, came wealth, and power. In comparison, the southern states tended to rely upon farming, creating an agricultural economy. As a result, cultural differences between northern and southern states increased, as ways of life diverged.
American government in the 19th-century officially endorsed a laissez-faire policy. They kept their "hands off" of business, letting it run itself. The U.S. Government also tried to protect American manufacturers by passing protective tariffs, or taxes on imported goods. This made American goods seem cheaper, more affordable. The government also issued patentsfor new inventions, protecting the inventor from having ideas stolen.
Following the Civil War, industrialization in the United States advanced rapidly. One reason for the dramatic economic transformation was that rural workers and immigrants moved into the cities at an amazing rate. By 1880, over 25% of the entire population lived in cities. But railroad expansion was the key to the rapid industrialization following the Civil War.
The first railroad to connect the coasts was completed in 1869. It connected the formerly remote rural settlements to distant urban markets, and brought settlers west in search of land. With the country linked together like this, some businesses saw an opportunity to develop a national market emerge. Nationwide department stores and mail-order catalog companies grew to accommodate the increased demand for finished goods across the nation.
Before the Civil War, most business was owned by individuals or were partnerships. After the war, corporations became more popular. To build capital, a corporation sells partial ownership in itself to investors, called stockholders, and shares profits with them. The advantage of a corporation, is that accountability is limited, because a corporation is recognized by state law as a separate person. So, if a corporation goes bankrupt, it doesn't ruin the actual people involved, it just disappears.
As similar business grew, they realized that they were competing with each other, and lowering everyone's profits. Many of these companies formed agreements to join together and control their industry. These cartels, as the trade groups became known, artificially lowered production to increase prices, and, with them, profits. Sometimes, though, the cartels couldn't stand up to deep recessions, or downturns in the economy.