AN INDUSTRIAL · Pearson Education, Inc., publishing as Longman ... n New natural resources were...

Pearson Education, Inc., publishing as Longman © 2008

CHAPTER 17 AN INDUSTRIAL GIANT

The American Nation: A History of the United States, 13th edition

Carnes/Garraty


ESSENTIALS OF INDUSTRIAL GROWTH n Value of manufactured products grew from $1.8 billion in 1859 to over $13 billion in 1899

n American manufacturing flourished because: n New natural resources were discovered and exploited thereby increasing opportunities

n Opportunities attracted the brightest and most energetic of an expanding population

n Growth of the country added to the size of the national market

n Protective tariffs shielded the market from foreign competition though foreign capital entered freely


ESSENTIALS OF INDUSTRIAL GROWTH n Search for wealth led to corrupt business practices: stock manipulation, bribery, cutthroat competition, “combinations in restraint of trade”

n European immigrants provided needed labor n 2.5 million arrived in 1870s n Twice as many arrived in 1880s

n Period of rapid advance in basic science leading to new machines, processes and power sources that increased industrial and agricultural productivity n Displaced some people n Made farmers dependent on vagaries of distant markets and powerful economic forces beyond their control


ESSENTIALS OF INDUSTRIAL GROWTH n Improved milling of grain led to packaged cereals n Commercial canning of food expanded rapidly n Cigarette rolling machine created a new industry n George B. Eastman developed massproduced, roll photographic film and simple but efficient Kodak camera

n Remington company perfected the typewriter in the 1880s, revolutionizing the way office work was performed


RAILROADS: The First Big Business n 1865: 35,000 miles of track n 1875: 74,000 miles of track n 1900: 193,000 miles of track n 1890: mature but growing

system took in over $1 billion in passenger and freight revenues (federal income was only $403 million) n Value of railroad property

was more than $8.7 billion n National railroad debt was

$5.1 billion (five times national debt)


RAILROADS: The First Big Business n Emphasis in railroad construction after 1865 was on organizing integrated systems

n Lines had high fixed costs—taxes, interest on bonds, maintenance of track and rolling stock, salaries of office personnel—so to earn profits had to carry as much traffic as possible n Spread out feeder lines to draw business into main lines


RAILROADS: The First Big Business n Cornelius Vanderbilt built one of first interregional railroad networks with his combination of lines in New York with those in the Midwest in 1870s

n At the same time, Thomas Scott was building connections from Pennsylvania to Midwest

n By 1869, Erie extended from New York to Cleveland, Cincinnati, and St. Louis and soon extended to Chicago

n 1874: Baltimore & Ohio also reached Chicago


RAILROADS: The First Big Business n Jay Gould was dominant system

builder of Southwest n Consolidated Kansas Pacific (Kansas City to Denver) with Union Pacific and Missouri Pacific (Kansas City to St. Louis)

n Henry Villard constructed another great complex in Northwest based on control of Northern Pacific

n James J. Hill controlled another large network, the Great Northern


RAILROADS: The First Big Business n Civil War highlighted need for railroad connections to South

n Chesapeake and Ohio opened a direct route from Norfolk, Virginia, to Cincinnati

n By 1880s: Richmond and West Point Terminal Company controlled 8,558 mile network

n Most of lines were controlled by northern capitalists n Trunk lines connected, which created need to standardize

many of their activities n 1883: railroads developed present system of time zones n 1886: standard track gauge developed n Standardized car coupling and braking systems, even standard methods of accounting were essential


RAILROADS: The First Big Business n Lines sought to work out fixed rates for carrying different types of freight, charging more for valuable than for bulky freight and agreeing to permit rate concessions to shippers to avoid hauling empty cars

n By 1880s a professionalized railroad management saw the advantages of cooperating with one another to avoid “senseless” competition

n Railroads in sparsely settled regions and in areas with underdeveloped resources devoted money and effort to stimulating local economic growth


RAILROADS: The First Big Business n To speed settlement of new regions, railroads: n Sold land cheaply and on easy terms

n Offered reduced rates to travelers interested in buying farms and set up “bureaus of immigration” that distributed brochures describing the wonders of the new country

n Sent agents to eastern ports and to Europe to encourage immigrants


RAILROADS: The First Big Business n Technological advances accelerated economic

development n 1869: George Westinghouse invented air brake, which made possible increase in size of trains and speed at which they could be operated

n 1864: George Pullman invented sleeping car n To pull heavier trains, more powerful locomotives were needed

n In turn led to call for more durable rails which was supplied by steel that had become cheaper due to technological innovations

n Railroads had close ties with Western Union Telegraph, which they let string wires along their rights of way in exchange for free telegraph service


IRON, OIL, AND ELECTRICITY n Iron industry

n Output rose from 920,000 tons in 1860 to 10.3 million tons in 1900 n Big break in production of steel which combines hardness of cast

iron with toughness of wrought iron n Problem: too expensive n Solution: 1850s Bessemer Process developed by Henry Bessemer of England and perfected by William Kelly of Kentucky

n Bessemer process and openhearth method introduced commercially in 1860s n 1870: 77,000 tons of steel produced n 1890: 5 million tons

n Made possible by enormous iron concentrations of the Mesabi region

n Pittsburgh became iron and steel capital of country (separate complex developed around Birmingham, Alabama)


IRON, OIL, AND ELECTRICITY Petroleum Industry n 1859 first successful well drilled by Edwin Drake in Pennsylvania n Production ranged between 2 and 3 million barrels a year during

Civil War but had reached 50 million barrels by 1890 n Prior to auto and gasoline engine, major use was kerosene for

lamps n By early 1870s refiners developed process to obtain more

kerosene and to use the byproducts n Increase in supply of crude oil drove prices down n Put a premium on refining efficiency which meant larger plants

using more expensive machinery and employing skilled technicians became more important n In mid1860s only three refineries could process 2,000 barrels

a week n By 1870s plants capable of handling 1,000 barrels a day were

common


IRON, OIL, AND ELECTRICITY Telephone and Electric Light Industry n Telephone invented in 1876 by Alexander Graham Bell

n By 1900: almost 800,000 telephones in U.S. (twice total for all Europe)

n Dominated by American Telephone and Telegraph n Thomas Edison built prototype of modern research

laboratory at Menlo Park in New Jersey, where he developed the electric light in 1879 n 1882: opened power station in New York City n By 1898 there were 3,000 stations in the country

n Electricity replaced steam power in factories and by early 20 th century 6 billion kilowatt hours of electricity were produced annually


COMPETITION AND MONOPOLY: The Railroads n Expansion combined with concentration, which was driven

by economies of scale and by downward trend in prices after 1873 n Deflation result of failure of money supply to keep pace with

rapid increase in volume of goods produced (lasted until 189697)

n To deal with loss of profits from competition, railroads: n Issued rebates and drawbacks n Gave passes to favored shippers n Built sidings at the plants of important companies without

charge n Gave freely of their landholdings to attract businesses to their

territory n Charged higher rates at waypoints where no competition

existed


COMPETITION AND MONOPOLY: The Railroads n Cheap transportation stimulated economy but cutthroat competition hurt it n Small shippers, and anyone located where there was no competition, suffered

n Railroad discrimination speeded concentration of industry in large corporations located in major centers

n Instability of rates hampered planning n Loss of revenue from rate cutting combined with inflated debts put most railroads in trouble when economic downturn came


COMPETITION AND MONOPOLY: The Railroads n 1880s: major roads responded to problems by building or buying lines to create interregional systems—the first giant corporations, capitalized in the hundreds of millions of dollars n Led to another wave of bankruptcies when true depression hit in 1890s

n Reorganization put most railroads under control of financiers such as J. Pierpont Morgan n Opposed rate wars, rebating and other competitive practices

n Because representatives of bankers sat on the board of every railroad they saved, control of railroad network became centralized


COMPETITION AND MONOPOLY: Steel n Iron and steel industry intensely competitive

n Demand varied erratically n New technology put emphasis on efficiency n Improved transportation let widely separated

manufacturers compete with one another n Andrew Carnegie (born in Scotland) was the kingpin

of the industry n 1890: Carnegie Steel Company dominated the industry n Output increased tenfold in next decade

n 1901: Morgan put together United States Steel— world’s first billion dollar corporation n Included all Carnegie properties (wanted to retire and

do social good), Federal Steel Company (Carnegie’s largest competitor), American Steel and Wire Company, the American Tin Plate Company, and National Tube Company


COMPETITION AND MONOPOLY: Oil

n Output surged ahead of demand n 1870s: chief refining areas were Cleveland, Pittsburgh, Baltimore, and New York City n 1870: Standard Oil Company of Cleveland founded by John D. Rockefeller

n By 1879: controlled 90% of nation’s oil refining capacity along with a network of oil pipelines and large reserves of petroleum in the ground


COMPETITION AND MONOPOLY: Oil n Won control of market

n Obtained 10% rebate and drawbacks on competitors’ shipments from railroads

n Cut prices locally to force small independents to sell out or face ruin n Kerosene was sold in grocery stores so Standard supplied its

outlets with meat, sugar, and other supplies at artificially low prices in order to crush outlets that sold other brands

n Employed spies to track down customers of other brands and offer them cheap prices

n Bribery n Rockefeller sought not so much to crush competition as to get

them to join him n To stabilize monopoly, Rockefeller created the trust (1879,

perfected 1882)—stock from companies acquired was turned over to “trustees” who were empowered to exercise general supervision and in exchange stock holders received trust certificates on which dividends were paid


COMPETITION AND MONOPOLY: Retailing & Utilities n In early stages of electric light and telephone industry, Edison and

Bell spent a large amount of time in court protecting their patents n 1892: Edison and ThomsonHouston Electric merged to form

General Electric, a $35 million corporation whose only major competition was Westinghouse

n Life insurance industry expanded after Civil War due to the “tontine” group policy which led to cutthroat competition n By 1900: three giants dominated industry: Equitable, New York Life,

and Mutual Life n In retail, the period saw growth of department stores

n 1862: Alexander Stewart had an 8story emporium in New York City n By 1880s John Wanamaker in Philadelphia and Marshall Field in

Chicago had similar establishments n Advertised heavily, stressing low prices, efficient service, and moneyback guarantees

n High volume made for large profits


AMERICAN AMBIVALENCE TO BIG BUSINESS n Americans believed in laissezfaire government non interference

n Encouraged by belief in Darwinian theories n By the 1870s his theory was influencing opinion in U.S. n Nature had ordained a kind of inevitable progress, governed by natural selection of individual organisms best adapted to survive in a particular environment

n Complemented reasoning of classical economists and concept of “invisible hand”

n William Graham Sumner took these ideas and applied to social relations—social Darwinism


AMERICAN AMBIVALENCE TO BIG BUSINESS n Yet while Americans disliked powerful governments in general and

strict regulation of the economy in particular, they never meant they objected to all government activity in the economic sphere n Banking laws, tariffs, internal improvement legislation, and the granting

of public land to railroads n Americans saw such laws as intended to release human energy and

increase the area in which freedom could operate n Americans concerned by new corporate enterprises n Also concerned about monopoly

n Worried about rise in prices (in fact prices fell and consumer bonanza resulted)

n Worried they were destroying economic opportunity and threatening democratic institutions

n Businessmen responded that concentration was necessary to create stability, economy, efficiency, and benefit the community


REFORMERS: George, Bellamy, Lloyd n 1879: Henry George published Progress and Poverty, an attack

on uneven distribution of wealth and proposed a property tax to take profit landowners earned just by holding land—single tax

n 1888: Edward Bellamy wrote utopia novel Looking Backward, 20001887 n Sold over a million copies in first few years n Described a future America that was completely socialized

n 1894: Henry Demarest Lloyd wrote Wealth Against Commonwealth which attacked Standard Oil and application of Darwin’s survival of the fittest to economic and social affairs and condemned laissezfaire policies

n None questioned underlying values of middle class majority n Insisted reform could be accomplished without inconvenience to

any class or individual


REFORMERS: The Marxists

n 1877: Socialist Labor party formed n 1884: Lawrence Gronlund attempted to explain Marx’s ideas to the American public n Capitalism contained the seeds of its own destruction n State ought to own all means of production n Expected millennium to arrive peacefully

n Daniel De Leon, main voice of Socialist Labor Party, was a doctrinaire revolutionary who excoriated labor unions while ignoring the practical needs or opinions of rankandfile working people


THE GOVERNMENT REACTS TO BIG BUSINESS: Railroad Legislation n Political action regarding business regulation began on state

level with railroads n By end of century 28 states had railroad commissions to

supervise lines in their states n National Grange of the Patrons of Husbandry, founded in

1867 by Oliver H. Kelley, was created to provide social and cultural benefits for isolated rural communities n 14 states had Granges by 1872 n 1874: Membership reached 800,000 n Became political—candidates won seats in Southern and

Western state legislatures n Grangecontrolled legislatures established “reasonable”

maximum rates and outlawed “unjust” discrimination


THE GOVERNMENT REACTS TO BIG BUSINESS: Railroad Legislation n Munn v. Illinois (1877): grain elevator operator refused to comply with a state warehouse act but Supreme Court ruled that a business that served a public interest was subject to state control n Legislatures might fix maximum charges and if they seemed unreasonable then businesses should complain to legislatures or voters and not courts

n Wabash, St. Louis & Pacific Railroad v. Illinois (1886): declared unconstitutional an Illinois regulation outlawing the longrunshorthaul evil—essentially stating that Illinois could not regulate interstate shipments


THE GOVERNMENT REACTS TO BIG BUSINESS: Railroad Legislation n Congress filled the gaps created by Wabash decision by

passing the Interstate Commerce Act (1887) n States all charges made by railroads shall be “reasonable and just”

n Rebates, drawbacks, the longandshorthaul evil and other competitive practices were deemed illegal as were monopolistic counterparts—pools and trafficsharing

n Railroads were required to publish schedules of rates and forbidden to change them without due public notice

n Established Interstate Commerce Commission (ICC), first federal regulatory board, to supervise the affairs of railroads, investigate complaints and issue cease and desist orders when railroads acted illegally


THE GOVERNMENT REACTS TO BIG BUSINESS: The Sherman Antitrust Act

n First antitrust laws originated in southern and western states—were vaguely worded and ill enforced

n 1890: federal passage of Sherman Antitrust Act n Any combination “in the form of trust or otherwise” that was “in restraint of trade or commerce among the several states, or with foreign nations” was declared illegal

n Persons forming such combinations were subject to fines of $5,000 and a year in jail

n Individuals and businesses who suffered losses as result of illegal combinations could sue in federal court for triple damages


THE GOVERNMENT REACTS TO BIG BUSINESS: The Sherman Antitrust Act

n Supreme Court quickly emasculated act: United States v. E.C. Knight Company (1895) held that the American Sugar Refining Company had not violated the law by taking over a number of important competitors even though now controlled 98 percent of sugar refining in U.S.

n Supreme Court did rule in 1898 and 1899 that several agreements to fix prices or divide the market violated the Sherman Act n Led to outright mergers in which a handful of large companies swallowed hundreds of smaller companies


THE LABOR UNION MOVEMENT n Aside from ironworkers, railroad workers, and miners, few industrial laborers belonged to unions

n The growth of national craft unions was stimulated by labor dissatisfaction during the Civil War n 1866: National Labor Union was founded n By early 1870s: many new trades had been unionized n Most of leaders were visionaries who were out of touch with practical needs of workers n Opposed the wage system, strikes, and anything that increased the workers’ sense of being members of the working class

n Major objective was formation of workerowned cooperatives


THE LABOR UNION MOVEMENT n 1869: Knights of Labor founded by Uriah S. Stephens

and headed by Terence V. Powderly n Supported political objectives that had no direct connection with working conditions such as currency reform and curbing of land speculation

n Rejected idea that workers must remain part of working class, believing instead that workers could pool their resources and advance up the economic ladder and enter the capitalist class

n Attacked wage system and frowned on strikes n Tended to be more industrial rather than craft oriented n Welcomed blacks, women, unskilled workers and immigrants

n Demanded 8hour day


THE LABOR UNION MOVEMENT n Originally Knights were a secret organization that had about 10,000 members by 1879

n Under Powderly, secrecy was abandoned and successful strikes in 1882 and 1886 brought new recruits n 1882: 42,000 members n 1885: 110,000 members n 1886: 700,000 members

n National leadership unable to control locals who engaged in poorly planned and unsuccessful strikes while public became alienated by sporadic acts of violence and intimidation


THE LABOR UNION MOVEMENT n 1886: several hundred thousand workers were on strike in various parts of the country by May in support of the 8hour day n In Chicago, 80,000 were involved

n When a striker was killed at the McCormick Harvesting Machine Company, anarchists called a protest meeting on May 4 in Haymarket Square n Police intervened to break up the meeting and someone hurled a bomb into their ranks killing seven police officers and injuring a number of others


THE AMERICAN FEDERATION OF LABOR n In response to Haymarket, 7 anarchists were condemned to death and 4 were executed

n Knights of Labor, while not actually involved, was believed to be by the public and soon ceased to exist as a force in the labor movement

n American Federation of Labor (AFL), a combination of craft unions formed in 1886, took its place n Concentrated on “bread and butter” issues such as higher wages and shorter hours


THE AMERICAN FEDERATION OF LABOR n AFL accepted that most workers would remain wage earners all their lives and tried to develop in them a sense of common purpose and pride in their skills and station n Unions were a club as well as a way of defending and advancing rights

n Chief weapon was the strike n Federation worked for 8 hour days, employers’ liability, and mine safety laws but stayed out of politics

n AFL grew n 1886: 150,000 members n 1892: 250,000 members n 1901: passed the million mark


LABOR MILITANCY REBUFFED n AFL stress on strikes reflected increasing labor militancy,

especially since average employer acted as a tyrant toward workers and refused to bargain collectively with unions

n 1877—Great Railroad Strike n Began on Baltimore and Ohio system in response to wage cut and spread through other eastern lines and then throughout West until about two thirds of railroad mileage in country was shut down

n Violence broke out, railroad yards were torched, businessmen formed militia companies to patrol streets of Chicago

n Eventually President Hayes sent federal troops to restore order


LABOR MILITANCY REBUFFED n Twice as many strikes occurred in 1886 as in any previous

year n 1892: violent strike by silver miners at Coeur d’Alene, Idaho n Homestead Strike at Carnegie’s steel plant near Pittsburgh—

strikers attacked 300 private guards brought in to protect strikebreakers n 7 guards killed and the rest forced to “surrender” n Steel producers insisted the workers were holding back

progress by resisting technological advances while workers believed company was refusing to share the fruits of more efficient operation fairly

n Strike started when company decided to crush union n Defeated after 5 months, destroyed Amalgamated Association

of Iron and Steel Workers and eliminated unionism in steel industry


LABOR MILITANCY REBUFFED 1894—Pullman Strike n Workers at Pullman Company outside Chicago walked out

in protest of wage cuts and failure of Pullman to reduce rents in the company town accordingly

n Some workers belonged to American Railway Union headed by Eugene Debs

n After strike had dragged on, union voted not to handle any trains with Pullman cars attached

n Railroad owners appealed to President Cleveland who, on the pretext of ensuring the movement of the mail, sent soldiers

n Debs defied an injunction to end the strike and was jailed n The strike was broken


WHITHER AMERICA, WHITHER DEMOCRACY? n Each year, more of the nation’s wealth was in fewer hands

n By 1913: Morgan and the Rockefeller National City Bank group between them could name 341 directors to 112 corporations worth over $22.2 billion

n Centralization increased efficiency in industries that used a great deal of expensive machinery to turn out goods for the mass market and in those where close coordination of output, distribution and sales was important n Living standards rose

n Courts seemed only concerned with protecting the rich and powerful n Eugene Debs, in prison for contempt, became a socialist in 1897


MILESTONES


WEBSITES n Alexander Graham Bell Family Papers at the Library of Congress http://memory.loc.gov/ammem/bellhtml/bellhome.html n Anarchist Archives at Pitzer University http://dwardmac.pitzer.edu/Anarchist_Archives/archivehome.html n John D. Rockefeller and the Standard Oil Company http://www.micheloud.com/FXM/SO n National Refinery Company http://www.enarco.com n LaborManagement Conflict in American History http://ehistory.osu.edu/osu/mmh/LaborConflict/default.cfm n Samuel Gompers Papers at the University of Maryland http://www.history.umd.edu/Gompers/index.html

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