Chapter 17: Sources of Industrial Growth

Objectives:

o We will study how American

industry grew in the Nineteenth

Century and its impact on the

American economy.

o We will analyze specific

developments in technology and

innovation that propelled America

to be a industrial power.

Dan_12:4 But thou, O Daniel,

shut up the words, and seal the

book, even to the time of the end:

many shall run to and fro, and

knowledge shall be increased.

o American Industry had abundant raw materials,

o A large and growing labor supply,

o A surge in technological innovation.

o The emergence of talented, ambitious and often ruthless entrepreneurs;

o A federal government eager to assist the growth of business;

o And great and expanding domestic market for the products of manufacturing.

Factors that Contributed to the Growth:

o Iron production had developed

slowly in the U.S. through most of

the nineteenth century; steel

production had developed hardly

at all by the end of the Civil War.

o In the 1870s and 1880s, however

iron production soared as

railroads expanded.

Factors that Contributed to the Growth:

o Steel came to prominence with Englishman Henry Bessemer and American William Kelly who developed almost simultaneously a process for converting iron into the much more durable and versatile steel

o The process that took Bessemer’s name that consisted of blowing air through molten iron to burn out of the impurities.

Steel:

o The Bessemer process also

relied on the discovery by the

British metallurgist Robert

Mushet that ingredients could

be added to the iron during

conversion to transform it into

steel.

Steel:

o Abram S. Hewitt introduced from Europe another method of making steel the open hearth process.

o Which ultimately largely supplanted the Bessemer Process.

o These techniques made possible the production of steel in great quantities and large dimensions.

o Used in the manufacture of locomotives, steel rails, and girders for the construction of tall buildings.

Steel:

o In the United States, the steel industry emerged first in Western Pennsylvania and Eastern Ohio.

o Partly because iron ore could be found there in abundance and because there was already a flourishing iron industry.

o Cities that flourished in steel production included Birmingham, Cleveland, Detroit, Chicago among others.

Steel:

o As the steel industry spread new transportation systems emerged to serve it.

o The steel production in the Great Lakes region was possible because of the availability of steam freighters that could carry ore on the lakes

o This contributed to the development of new and more powerful steam engines.

Steel:

o Steel manufacturing provided rails and parts for railroad cars.

o The Pennsylvania Steel Company provided it with substantial initial capital and ensured it a market for its products with an immediate contract for steel rails.

o The Steel industry’s need for lubrication for its machines help create another important new industry in the late nineteenth century, oil.

Steel:

o Edwin L. Drake one of Bissell’s employees established the first oil well near Titusville Pennsylvania which was soon producing 500 barrels of oil a month.

o Demand for petroleum grew quickly and promoters soon developed other fields in Pennsylvania, Ohio, and West Virginia.

Steel:

o Two technologies critical to the development of the automobile, one was the creation of gasoline.

o It was refined from crude oil.

o In the 1870s, designers in France, Germany, and Austria inspired by the success of railroad engines had begun to develop an internal combustion engine which used the expanding power of burning gas to drive pistons.

The Airplane and the Automobile:

o The American Automobile industry developed in the aftermath of these breakthroughs.

o Charles and Frank Duryea built the first gasoline driven motor vehicle in America in 1893.

o Three years later, Henry Ford produced the first of the famous cars that would eventually bear his name.

o In 1895 there were only four automobiles but by 1917 there was nearly 5,000,000.

The Airplane and the Automobile:

o Another major development was two brothers in Ohio, Wilbur and Orville Wright who owned a bicycle shop in which they constructed a glider by an internal combustion engine the same that propels an automobile.

o They made their celebrated first flight near Kitty Hawk, North Carolina.

The Airplane and the Automobile:

o The rapid development of new industrial technologies encouraged business leaders to sponsor their own research to allow them to keep up with rapid changes in industry.

o General Electric, fearful of technological competition, created one of the first corporate laboratories in 1900.

The Airplane and the Automobile:

o By 1913, Bell Telephone, DuPont, General Electric, Eastman Kodak, and about fifty other companies were budgeting hundreds of thousands of dollars each year for research.

o The emergence of corporate research and development laboratories coincided with a decline in government support for research.

The Airplane and the Automobile:

o That helped corporations to attract skilled researchers who once worked for government and decentralized the sources of research funding.

o And ensured that inquiry would move in many different directions, and not just along paths determined by the government.

The Airplane and the Automobile:

o By the beginning of the twentieth

century, many industrialists were

turning to new principles of “scientific

management.”

o Those principles were often known as

“Taylorism” after their leading

theoretician Frederick Winslow Taylor.

o They were controversial.

The Science of Production:

o Taylor urged employers to reorganize the production process by subdividing tasks.

o This would up production; it would also make workers more interchangeable and thus diminish a manager’s dependence on any particular employee.

o And it would reduce the need for highly trained skilled workers.

The Science of Production:

o If properly managed by trained

experts, Taylor claimed, workers

using modern machines could

perform simple tasks at much

greater speed, significantly

increasing productive efficiency.

The Science of Production:

o The most important change in production technology in the industrial era was the emergence of mass production.

o Above all, the moving assembly line, which Henry Ford introduced in his automobile plants in 1914.

o This revolutionary technique cut the time for assembling from 12 ½ hours to 1 ½ hours.

o Ford was able to raise wages, reduce hours, for workers and cut the base price of the Model T from $950 in 1914 to $290 in 1929.

The Science of Production:

o The principal source of industrial

process in the late nineteenth

century remained the railroad.

o Railroads were the nation’s

principal form of transportation.

o They helped determine the path

by which agriculture and

economies developed.

Railroad Expansion:

o Allowed forests to be cut down for timber and transported to the cities.

o Connected remote farms to transport goods to the cities.

o Transported cattle into region and carry meat back to the cities.

Railroad Expansion:

o Railroads also altered concepts of time.

o There was a need for a uniform railroad time schedule for the nation for the railroad lines.

o On November 18, 1883 the railroad companies working together created the four time zones across the continent that was later adopted by the Federal Government.

Railroad Expansion:

o Subsidies from federal, state, and local governments,

o And investments from abroad were vital to help expand railroads.

o Government assistance was needed because companies could not raise enough capital for themselves.

Railroad Expansion:

o Equally important was the

emergence of great railroad

combinations that brought most

of the nation’s railroads under

the control of a very few men.

o Many railroad combinations

continued to be dominated by

individuals.

Railroad Expansion:

o The railroad became symbols to much of the nation of great economic power concentrated in individual hands.

o But railroad development was less significant for the individual barons it created that for its contribution to the growth of a new institution, the modern corporation.

o Famous Barons included Vanderbilt and Collis P. Huntington

Railroad Expansion:

o The modern corporation emerged as a major force only after the Civil War, when railroad magnates and other industrialists realized that no single person or group of limited partners, no matter how wealthy, could finance their great ventures.

The Corporation:

o Under the laws of incorporation

passed in many states in the

1830s and 1840s, business

organizations could raise

money by selling stock to

members of the public; after

the Civil War.

The Corporation:

o What made this appealing was that investors only had limited liability that is, they risked only the amount of their investments;

o They were not liable for any debts the corporation might accumulate beyond that.

o The ability to sell stock to a broad public made it possible for entrepreneurs to gather vast sums of capital and undertake great projects.

The Corporation:

o The Pennsylvania Railroad and others were among the first to adopt a new corporate form or organization.

o But it quickly spread beyond the railroad industry.

o In steel, the central figure was Andrew Carnegie, J Piermont Morgan, et al, all made possible by Henry Bessemer’s ore process for producing steel.

The Corporation:

o Businessmen created large, consolidated organizations primarily through two methods.

o One was horizontal integration the combining a number of firms engaged in the same enterprise into a single corporation.

o The consolidation of many different railroad lines into one company was an example.

Consolidating Corporate America:

o Another method, which became popular in the 1890s was vertical integration, the taking over of all the different businesses on which the company relied for its primary function, such as Carnegie Steel.

o Where Carnegie controlled the processing of steel from mine to market.

Consolidating Corporate America:

o The most celebrated corporate empire of the late nineteenth century was John D. Rockefeller’s Standard Oil, a great combination that created through both horizontal and vertical integration.

o Rockefeller not only bought out competing refineries but also built his own warehouse, pipelines, and freight trains to transport his oil.

o He was the symbol of monopoly.

Consolidating Corporate America:

o Rockefeller and other industrialists saw consolidation as a way to cope with what they believed was the greatest curse of the modern economy: cut throat competition.

o Most businessmen claimed to believe in free enterprise and a competitive market place.

o But in fact they feared the existence of too many competing firms, convinced that substantial competition would spell ruin for all.

Consolidating Corporate America:

o By the end of the nineteenth century as a result of corporate consolidation.

o 1 percent of the corporations in America were able to control more than 33 percent of the manufacturing.

o A system of economic organization was emerging that lodged enormous power in the hands of a very few men:

o The great bankers of New York such as J.P. Morgan, industrial titans such as Rockefeller and others.

Consolidating Corporate America:

o They also brought controversy with

some believing that these major

industrial figures were responsible

for industrial and economic growth

while others feared that they had

too much power.

Consolidating Corporate America: