Post on 31-Dec-2015
Chapter 18
Rise of Corporate America
Early 19th century Corporate business used to
raise capital for transportation Separated manager from
owner Sold stock and bonds to raise
capital
After Civil War New forms of business
organization Combined innovative
technology, creative management structures, and limited liability
Depression years 1873-1879 1893-1897
Character of Industrial Change 6 features dominated large-scale
manufacturing after Civil War○ Exploitation of Coal deposits= cheap
energy○ Increase in pollution
○ Rapid spread of technological innovation in transportation, communication, and factory systems
○ Need for enormous # of workers○ Constant pressure on firms to
compete by cutting costs and prices○ Drive to maximize efficiency
○ Relentless drop in price levels○ Avalanche of consumer goods
○ Failure of money supply to keep pace with productivity○ Cost of living not = paid wages
Railroad Innovations Federal land grants
New internal market Created national market for goods Encouraged mass production, mass
consumption, and economic specialization Created new internal market
Promoted growth of iron and steel
Corporate enterprise Issuance of stock National distribution and marketing
systems New organizational and management
structures
Use of technology Telegraph Accounting systems
Consolidating the Rail Industry
1870s a state of chaos for Railroads No set standards for small companies 4 lines in NE 5 lines in West
Industry expansion (1870s-1880s) Huntington and Gould Robber barons Manipulated stock market “Trunk” systems
○ Largest business enterprises in world
Costs and Consequences Overextended systems Crooked business practices Farmers/ small business caught in the
middle○ Rate discrimination outlawed○ Interstate Commerce Act (ICC)
○ Oversee practices, challenged in court
○ Hepburn Act 1906○ Strengthened ICC, fixed prices
Depression of 1873 Rail industry plagued Lines shut down J.P. Morgan
○ Bought up bankrupt lines○ Reorganized administration○ Refinanced debts○ Built interstate alliances
Consequences By 1900 7 giant systems controlled
2/3 of railways Created modern stockholder
corporation Development of complex structures
in finance, business management, and regulation of competition
Example for other industries
Steel Close connection with rail
industry Abundance of Iron Ore in Great
Lakes
Andrew Carnegie 1870s built steel mill Used Bessemer’s technology
and cost-analysis approach Created vertical integration
Every stage of process controlled By 1900 Carnegie Steel
employed 20,000 people World’s largest at time
1901 bought by J.P. Morgan for $500 million○ U.S. Steel Corporation○ First Billion dollar business
○ New scale for industrial enterprise
○ Employed 168,000
The Trust
○ Other industries followed Created Oligarchy
○ Limited # of sellers influence price Public outcry
○ Sherman Anti-Trust Act 1890 Outlawed trusts and monopolies that fixed
prices Feared unchecked power
Too vague in wording
○ U.S. v. E.C. Knight Company Sherman Anti-Trust could ONLY be
applied to commerce, not manufacturing
Fierce competition led to consolidation in:
Oil, salt, sugar, tobacco, meat-packing industries
= lower prices, reduced costs
New organizational methods Oil- 1st drilled 1859 by Edwin Drake J.D. Rockefeller
○ Standard Oil Company 1873○ Small changes save thousands
of $
○ Horizontal integration○ 1882 created new type of
organization: Standard Oil Trust Trust: Created umbrella
corporation to run all companies
- Exchanged stock for trust certificates
- Stockholders retained share of profits, trust controlled production
Stimulating Economic Growth Specialty Production
Small, specialized businesses○ Jewelry○ Women’s clothes○ Still not mass produced
Advertising/ Marketing Output exceeded what market could
absorb Two kinds of businesses
○ Manufacturing devices for personal use Sewing machines
○ Mass produced consumer goods Flour, soap)
Needed marketing/advertising○ Brand names, trademarks, guarantees○ Packaged Foods
Kellogg, Post○ Department Stores
Macy’s, Marshall Fields○ Dime Stores
Woolworth’s○ Home-Shopping○ Sears, Roebuck, and Montgomery
Ward○ America now a “shopping population”
Economic growth Costs
High cost for workers○ Low wages○ Unreliable employment due to
technological innovations○ Encouraged sweatshops○ Long hours○ Rags to riches “myth”
Concentration of wealth○ 1890s- 10% richest controlled
9/10ths of nation’s wealth
Devastated environment○ Oil, chemical waste○ Air pollution
Benefits Social
○ Labor-saving products○ Lower prices
Advances in transportation and communication
Created thousands of jobs○ Middle-class administrative jobs
Accountants, clerks, etc.
Wider variety of clothing
New South Industrialization delayed
Physical devastation Scarcity of towns and cities Lack of capital
Southern banking destroyed Illiteracy Northern control of markets and
patents Low rate of technological
innovation “lost cause myth” Federal policies that limited growth
High tariffs
New southern creed Championed by Henry Grady and
Henry Watterson Newspaper editors
“natural” for industrial development Rich iron, coal, timber resources
and cheap labor
Southern mill economy Represented shift from agricultural economy Catalysts for villages and towns
Mainly in Piedmont
Opened new markets Augusta, GA “Lowell” of the South
Hired poor white workers Also exploited them
Dominated community○ Church○ School○ Mill community strong
Industrial lag Smaller scale and slower than in North Southerners paid higher prices despite
cheaper production costs Poorly educated white population unskilled
in modern technology
Factories and the Work Force
1860-1900 From 885,000 to 3.2 millions workers
From workshop to factory Transition series of jolts
Varied in strength and duration Impact on artisans and unskilled
laborers○ Example: Shoe industry
Hardships Unprecedented demand for unskilled
workers (wage earners)○ Subcontractors○ Pushers (foreman)○ Hazardous work○ Child labor○ No disability○ No safety and health standards
Immigrant Labor Plenty of unskilled labor
Darker, southern immigrants paid less
Horrible conditions
Women Shaped by marital status, social
class, and race White, married women accepted
“separate spheres” Single working-class women saw
factory work as an opportunity○ Hated “domestic” service
Rise in employment○ Changes in agriculture○ Immigrant families needed $○ Inexpensive, unskilled labor
Did not foster independence Didn’t make enough to live alone
Office work in 1890s Often considered temporary
One in 5 women working for wages by 1900
Hard Work and “Gospel of Success”
Any man can achieve success Ex. Andrew Carnegie
Mark Twain Success only to those who
lied and cheated 95% of leaders came from
good backgrounds
Rise in real wages 31% for unskilled labor 74% for skilled labor Overall economic mobility
complex
Labor Unions and Industrial Conflict
Needed a broad-based, national organization to protect workers and resist corporate power
Problems: Ethnic racial divisions within workplace Division between skilled/unskilled
workers Labor the new “slave power”
Three major unions: National Labor Union Knights of Labor
Against labor contracts and Social Darwinism
American Federation of Labor
Intolerable conditions led to violence
Terms: lockout, blacklist, yellowdog contracts
Organizing Workers Began during civil war
William H. Sylvis President of Iron Molders’ International
Union Endorsed 8 hour workday Wanted end of convict labor, currency
and banking reform, and restriction on immigration to increase wages
National Labor Union 1st attempt to organize nationally Founded 1866 Broad social program
○ Equal rights for women and blacks○ Monetary reform
8hr workday Lost support after Depression of 1873
Knights of Labor 1869 Started by 9 Philadelphia Tailors Led by Uriah H. Stevens
Molded on secretive societies, i.e. Masons○ Demanded equal pay for women ,end
child/ convict labor, a tax on all earnings
Boomed after Terrence Powderly took charge in 1881○ Went public○ Urged temperance, opposed strikes○ Advocated admission for blacks and
women○ Restrictions on immigrants, esp.
Chinese○ Peak 1886 = 730,000 workers○ Declined in late 1880’s due to failed
riots Change in public opinion
Unions and Violence
American Federation of Labor 1886 Craft unions from KOL (25) Samuel Gompers
○ Trade unionism○ High wages= respectable working
class families○ Skilled workers had bargaining
power○ Wanted to attract all trades
Solution a “federation” Each controlled by own members but
linked by executive council
○ Focused on short-term improvements 8 hr workday, injury disability, mine-
safety laws NO women (separate spheres!!)
○ 1.6 million members by 1904 Still only 5% of workforce
Strikes 1881-1905 = 37,000 Strikes
○ 7 million workers
1st wave○ 1877 Wildcat Railroad Strike (July)
Ignited by wage reduction
- During economic depression Baltimore & Ohio RR Spread throughout country
- 11 states President Hayes forced to call in
troops 2/3 railroad idle for 2 weeks Stunned middle-class America
- Terrified of corporate abuse of power and mob violence
Resulted in crackdown
- Pinkertons
- 100 killed
Strikes Continue May Day Movement
May 1, 1886○ Called for general strike to
achieve 8hr workday
340,000 workers Shut down Cincinnati for a
month
Haymarket Riot 1886 McCormick Plant
○ Chicago
May 3: 4 workers die May 4: Bomb killed 7
policemen, police opened fire killed 8 protesters (martyrs)○ 8 tried and sentenced to death
Public response Turn against labor unions
○ Thought was radical
Anti-labor Linked riots to immigrants
2nd Wave West
Idaho 1892○ Wages cut○ Protesters blew up mill and
captured guards○ Idaho National Guard called in
Homestead Strikes 1892 Carnegie’s plant
○ Henry Clay Frink
Cut wages 20%, locked out union workers
Protesters fired on Pinkertons 10 died, National Guard called in Set back Union movement
○ Failure, lasted 5 months
1894 Pullman Strikes (Chicago) Wages slashed due to depression Thousands went on strike Led by Eugene V. Debs
○ Leader of American Railroad Union
Paralyzed rail traffic General Manager’s Association responded
○ Hired strikebreakers○ Asked Attorney General for an injunction
Interrupted mail service Appealed to President
Attorney General Richard Olney○ Cited Sherman Anti-Trust Act○ Debs arrested, troops arrived
For not responding to injunction
○ 700 rail cars burned○ 13 died, 53 wounded
1895 Supreme Court Case In re Debs○ Upheld prison sentence○ Legalized injunctions
Government hampered development of Union
Social Alternatives Working class poverty
unsettling
Should government become mechanism for helping poor and regulating big business?
Defenders of Capitalism “Liberals”
Most Americans viewed the concentration of wealth as inevitable, natural, and justified by progress
Adam Smith Wealth of Nations Laissez-faire argument Self-interest “invisible hand”
regulated market
Andrew Carnegie Gospel of Wealth Applied Darwinism “god’s favor”
Rev. Russell Conwell Acre of Diamonds Everyone has duty to be rich Civic philanthropy a necessity
Social Darwinism Herbert Spencer= most influential
Believed concentration of wealth in hands of the “fit” a benefit to future of human race
William Graham What Social Classes Owe Each
Other Natural laws controlled social order
Social Darwinism
State owed citizens nothing but the law, order, and basic political rights
Thought interference with poor weakened them
Survival of the fittest
Socialists Lester Frank Ward
Laws of nature could be circumvented by human will Government could regulate big business, of natural
resources protect society's weak, and prevent exploitation
Henry George Progress and Poverty 1879 Solve uneven wealth with a single tax Tax on speculators Very popular Rejected land = freedom
Edward Bellamy Looking Backward 1888 Utopian novel Centralized, state-run economy for common good Cooperation replaces class strife, excessive
individualism, and cutthroat competition Inspired local organizations
Karl Marx Das Kapital 1867 Stratified society= unrest Basis of Socialism
Conclusion Industrialization
propelled U.S. to major world powerNew technology and
innovationsVertically integrated
companies
Cost highExploited workersPollutionviolence