Transcript Slide 1

CHAPTER 17
AN INDUSTRIAL
GIANT
The American Nation:
A History of the United States, 13th edition
Carnes/Garraty
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ESSENTIALS OF
INDUSTRIAL GROWTH
 Value of manufactured products grew from $1.8
billion in 1859 to over $13 billion in 1899
 American manufacturing flourished because:
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New natural resources were discovered and exploited
thereby increasing opportunities
Opportunities attracted the brightest and most
energetic of an expanding population
Growth of the country added to the size of the
national market
Protective tariffs shielded the market from foreign
competition though foreign capital entered freely
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ESSENTIALS OF
INDUSTRIAL GROWTH
 Search for wealth led to corrupt business practices:
stock manipulation, bribery, cutthroat competition,
“combinations in restraint of trade”
 European immigrants provided needed labor
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2.5 million arrived in 1870s
Twice as many arrived in 1880s
 Period of rapid advance in basic science leading to
new machines, processes and power sources that
increased industrial and agricultural productivity
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Displaced some people
Made farmers dependent on vagaries of distant
markets and powerful economic forces beyond
their control
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ESSENTIALS OF
INDUSTRIAL GROWTH
 Improved milling of grain led to packaged cereals
 Commercial canning of food expanded rapidly
 Cigarette rolling machine created a new industry
 George B. Eastman developed mass-produced,
roll photographic film and simple but efficient
Kodak camera
 Remington company perfected the typewriter in
the 1880s, revolutionizing the way office work
was performed
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RAILROADS:
The First Big Business
 1865: 35,000 miles of track
 1875: 74,000 miles of track
 1900: 193,000 miles of track
 1890: mature but growing
system took in over $1 billion
in passenger and freight
revenues (federal income was
only $403 million)
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Value of railroad property
was more than $8.7 billion
National railroad debt was
$5.1 billion (five times
national debt)
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RAILROADS:
The First Big Business
 Emphasis in railroad construction after 1865
was on organizing integrated systems
 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

Spread out feeder lines to draw business
into main lines
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RAILROADS:
The First Big Business
 Cornelius Vanderbilt built one of first interregional
railroad networks with his combination of lines in
New York with those in the Midwest in 1870s
 At the same time, Thomas Scott was building
connections from Pennsylvania to Midwest
 By 1869, Erie extended from New York to
Cleveland, Cincinnati, and St. Louis and soon
extended to Chicago
 1874: Baltimore & Ohio also reached Chicago
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RAILROADS:
The First Big Business
 Jay Gould was dominant system
builder of Southwest
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Consolidated Kansas Pacific
(Kansas City to Denver) with
Union Pacific and Missouri
Pacific (Kansas City to St. Louis)
 Henry Villard constructed
another great complex in
Northwest based on control of
Northern Pacific
 James J. Hill controlled another
large network, the Great
Northern
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RAILROADS:
The First Big Business
 Civil War highlighted need for railroad connections to South
 Chesapeake and Ohio opened a direct route from Norfolk,
Virginia, to Cincinnati
 By 1880s: Richmond and West Point Terminal Company
controlled 8,558 mile network
 Most of lines were controlled by northern capitalists
 Trunk lines connected, which created need to standardize
many of their activities
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1883: railroads developed present system of time zones
1886: standard track gauge developed
Standardized car coupling and braking systems, even
standard methods of accounting were essential
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RAILROADS:
The First Big Business
 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
 By 1880s a professionalized railroad management
saw the advantages of cooperating with one another
to avoid “senseless” competition
 Railroads in sparsely settled regions and in areas
with underdeveloped resources devoted money and
effort to stimulating local economic growth
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RAILROADS:
The First Big Business
 To speed settlement of new
regions, railroads:
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Sold land cheaply and on
easy terms
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
Sent agents to eastern ports
and to Europe to encourage
immigrants
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RAILROADS:
The First Big Business
 Technological advances accelerated economic
development
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1869: George Westinghouse invented air brake, which made
possible increase in size of trains and speed at which they
could be operated
1864: George Pullman invented sleeping car
To pull heavier trains, more powerful locomotives were
needed
In turn led to call for more durable rails which was supplied
by steel that had become cheaper due to technological
innovations
 Railroads had close ties with Western Union Telegraph,
which they let string wires along their rights of way in
exchange for free telegraph service
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IRON, OIL,
AND ELECTRICITY
 Iron industry
 Output rose from 920,000 tons in 1860 to 10.3 million tons in 1900
 Big break in production of steel which combines hardness of cast
iron with toughness of wrought iron
 Problem: too expensive
 Solution: 1850s Bessemer Process developed by Henry Bessemer
of England and perfected by William Kelly of Kentucky
 Bessemer process and open-hearth method introduced
commercially in 1860s
 1870: 77,000 tons of steel produced
 1890: 5 million tons
 Made possible by enormous iron concentrations of the Mesabi
region
 Pittsburgh became iron and steel capital of country (separate
complex developed around Birmingham, Alabama)
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IRON, OIL,
AND ELECTRICITY
Petroleum Industry
 1859 first successful well drilled by Edwin Drake in Pennsylvania
 Production ranged between 2 and 3 million barrels a year during
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Civil War but had reached 50 million barrels by 1890
Prior to auto and gasoline engine, major use was kerosene for
lamps
By early 1870s refiners developed process to obtain more
kerosene and to use the byproducts
Increase in supply of crude oil drove prices down
Put a premium on refining efficiency which meant larger plants
using more expensive machinery and employing skilled technicians
became more important
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In mid-1860s only three refineries could process 2,000 barrels
a week
By 1870s plants capable of handling 1,000 barrels a day were
common
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IRON, OIL,
AND ELECTRICITY
Telephone and Electric Light Industry
 Telephone invented in 1876 by Alexander Graham Bell
 By 1900: almost 800,000 telephones in U.S. (twice total for
all Europe)
 Dominated by American Telephone and Telegraph
 Thomas Edison built prototype of modern research
laboratory at Menlo Park in New Jersey, where he
developed the electric light in 1879
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1882: opened power station in New York City
By 1898 there were 3,000 stations in the country
 Electricity replaced steam power in factories and by early
20th century 6 billion kilowatt hours of electricity were
produced annually
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COMPETITION AND
MONOPOLY: The Railroads
 Expansion combined with concentration, which was driven
by economies of scale and by downward trend in prices
after 1873
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Deflation result of failure of money supply to keep pace with
rapid increase in volume of goods produced (lasted until
1896-97)
 To deal with loss of profits from competition, railroads:
 Issued rebates and drawbacks
 Gave passes to favored shippers
 Built sidings at the plants of important companies without
charge
 Gave freely of their landholdings to attract businesses to their
territory
 Charged higher rates at waypoints where no competition
existed
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COMPETITION AND
MONOPOLY: The Railroads
 Cheap transportation stimulated economy but
cutthroat competition hurt it
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Small shippers, and anyone located where there
was no competition, suffered
Railroad discrimination speeded concentration of
industry in large corporations located in major
centers
Instability of rates hampered planning
Loss of revenue from rate cutting combined with
inflated debts put most railroads in trouble when
economic downturn came
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COMPETITION AND
MONOPOLY: The Railroads
 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
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Led to another wave of bankruptcies when true
depression hit in 1890s
 Reorganization put most railroads under control of
financiers such as J. Pierpont Morgan
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Opposed rate wars, rebating and other competitive
practices
Because representatives of bankers sat on the board
of every railroad they saved, control of railroad network
became centralized
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COMPETITION AND
MONOPOLY: Steel
 Iron and steel industry intensely competitive
 Demand varied erratically
 New technology put emphasis on efficiency
 Improved transportation let widely separated
manufacturers compete with one another
 Andrew Carnegie (born in Scotland) was the kingpin
of the industry
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1890: Carnegie Steel Company dominated the industry
Output increased tenfold in next decade
 1901: Morgan put together United States Steel—
world’s first billion dollar corporation
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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
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COMPETITION AND
MONOPOLY: Oil
 Output surged ahead of demand
 1870s: chief refining areas were
Cleveland, Pittsburgh, Baltimore,
and New York City
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1870: Standard Oil Company of
Cleveland founded by John D.
Rockefeller
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
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COMPETITION AND
MONOPOLY: Oil
 Won control of market
 Obtained 10% rebate and drawbacks on competitors’ shipments
from railroads
 Cut prices locally to force small independents to sell out or face ruin
 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
 Employed spies to track down customers of other brands and offer
them cheap prices
 Bribery
 Rockefeller sought not so much to crush competition as to get
them to join him
 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
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COMPETITION AND
MONOPOLY: Retailing & Utilities
 In early stages of electric light and telephone industry, Edison and
Bell spent a large amount of time in court protecting their patents
 1892: Edison and Thomson-Houston Electric merged to form
General Electric, a $35 million corporation whose only major
competition was Westinghouse
 Life insurance industry expanded after Civil War due to the “tontine”
group policy which led to cutthroat competition
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By 1900: three giants dominated industry: Equitable, New York Life,
and Mutual Life
 In retail, the period saw growth of department stores
 1862: Alexander Stewart had an 8-story emporium in New York City
 By 1880s John Wanamaker in Philadelphia and Marshall Field in
Chicago had similar establishments
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Advertised heavily, stressing low prices, efficient service, and
money-back guarantees
High volume made for large profits
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AMERICAN AMBIVALENCE
TO BIG BUSINESS
 Americans believed in laissez-faire government non-
interference
 Encouraged by belief in Darwinian theories
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By the 1870s his theory was influencing opinion in U.S.
Nature had ordained a kind of inevitable progress,
governed by natural selection of individual organisms
best adapted to survive in a particular environment
Complemented reasoning of classical economists and
concept of “invisible hand”
 William Graham Sumner took these ideas and
applied to social relations—social Darwinism
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AMERICAN AMBIVALENCE
TO BIG BUSINESS
 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
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Banking laws, tariffs, internal improvement legislation, and the granting
of public land to railroads
Americans saw such laws as intended to release human energy and
increase the area in which freedom could operate
 Americans concerned by new corporate enterprises
 Also concerned about monopoly
 Worried about rise in prices (in fact prices fell and consumer bonanza
resulted)
 Worried they were destroying economic opportunity and threatening
democratic institutions
 Businessmen responded that concentration was necessary to
create stability, economy, efficiency, and benefit the community
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REFORMERS:
George, Bellamy, Lloyd
 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
 1888: Edward Bellamy wrote utopia novel Looking Backward,
2000-1887
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Sold over a million copies in first few years
Described a future America that was completely socialized
 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 laissez-faire policies
 None questioned underlying values of middle class majority
 Insisted reform could be accomplished without inconvenience to
any class or individual
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REFORMERS: The Marxists
 1877: Socialist Labor party formed
 1884: Lawrence Gronlund attempted to explain Marx’s
ideas to the American public
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Capitalism contained the seeds of its own destruction
State ought to own all means of production
Expected millennium to arrive peacefully
 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 rank-and-file working people
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THE GOVERNMENT REACTS TO
BIG BUSINESS: Railroad Legislation
 Political action regarding business regulation began on state
level with railroads
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By end of century 28 states had railroad commissions to
supervise lines in their states
 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
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14 states had Granges by 1872
1874: Membership reached 800,000
Became political—candidates won seats in Southern and
Western state legislatures
 Grange-controlled legislatures established “reasonable”
maximum rates and outlawed “unjust” discrimination
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THE GOVERNMENT REACTS TO
BIG BUSINESS: Railroad Legislation
 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

Legislatures might fix maximum charges and if they
seemed unreasonable then businesses should
complain to legislatures or voters and not courts
 Wabash, St. Louis & Pacific Railroad v. Illinois (1886):
declared unconstitutional an Illinois regulation
outlawing the long-run-short-haul evil—essentially
stating that Illinois could not regulate interstate
shipments
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THE GOVERNMENT REACTS TO
BIG BUSINESS: Railroad Legislation
 Congress filled the gaps created by Wabash decision by
passing the Interstate Commerce Act (1887)
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States all charges made by railroads shall be “reasonable
and just”
Rebates, drawbacks, the long-and-short-haul evil and other
competitive practices were deemed illegal as were
monopolistic counterparts—pools and traffic-sharing
Railroads were required to publish schedules of rates and
forbidden to change them without due public notice
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
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THE GOVERNMENT REACTS TO BIG
BUSINESS: The Sherman Antitrust Act
 First anti-trust laws originated in southern and
western states—were vaguely worded and illenforced
 1890: federal passage of Sherman Antitrust Act
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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
Persons forming such combinations were subject to
fines of $5,000 and a year in jail
Individuals and businesses who suffered losses as
result of illegal combinations could sue in federal court
for triple damages
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THE GOVERNMENT REACTS TO BIG
BUSINESS: The Sherman Antitrust Act
 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.
 Supreme Court did rule in 1898 and 1899 that
several agreements to fix prices or divide the market
violated the Sherman Act

Led to outright mergers in which a handful of large
companies swallowed hundreds of smaller companies
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THE LABOR UNION
MOVEMENT
 Aside from ironworkers, railroad workers, and miners,
few industrial laborers belonged to unions
 The growth of national craft unions was stimulated by
labor dissatisfaction during the Civil War
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1866: National Labor Union was founded
By early 1870s: many new trades had been unionized
Most of leaders were visionaries who were out of touch
with practical needs of workers
 Opposed the wage system, strikes, and anything that
increased the workers’ sense of being members of the
working class
 Major objective was formation of worker-owned
cooperatives
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THE LABOR UNION
MOVEMENT
 1869: Knights of Labor founded by Uriah S. Stephens
and headed by Terence V. Powderly
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Supported political objectives that had no direct
connection with working conditions such as currency
reform and curbing of land speculation
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
Attacked wage system and frowned on strikes
Tended to be more industrial rather than craft oriented
Welcomed blacks, women, unskilled workers and
immigrants
Demanded 8-hour day
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THE LABOR UNION
MOVEMENT
 Originally Knights were a secret organization that had
about 10,000 members by 1879
 Under Powderly, secrecy was abandoned and
successful strikes in 1882 and 1886 brought new
recruits
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1882: 42,000 members
1885: 110,000 members
1886: 700,000 members
 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
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THE LABOR UNION
MOVEMENT
 1886: several hundred thousand workers were
on strike in various parts of the country by May in
support of the 8-hour day

In Chicago, 80,000 were involved
 When a striker was killed at the McCormick
Harvesting Machine Company, anarchists called
a protest meeting on May 4 in Haymarket Square

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
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THE AMERICAN
FEDERATION OF LABOR
 In response to Haymarket, 7 anarchists were
condemned to death and 4 were executed
 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
 American Federation of Labor (AFL), a
combination of craft unions formed in 1886, took
its place

Concentrated on “bread and butter” issues such
as higher wages and shorter hours
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THE AMERICAN
FEDERATION OF LABOR
 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
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Unions were a club as well as a way of defending and
advancing rights
Chief weapon was the strike
Federation worked for 8 hour days, employers’ liability,
and mine safety laws but stayed out of politics
 AFL grew
 1886: 150,000 members
 1892: 250,000 members
 1901: passed the million mark
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LABOR MILITANCY
REBUFFED
 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
 1877—Great Railroad Strike
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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
Violence broke out, railroad yards were torched,
businessmen formed militia companies to patrol streets of
Chicago
Eventually President Hayes sent federal troops to restore
order
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LABOR MILITANCY
REBUFFED
 Twice as many strikes occurred in 1886 as in any previous
year
 1892: violent strike by silver miners at Coeur d’Alene, Idaho
 Homestead Strike at Carnegie’s steel plant near Pittsburgh—
strikers attacked 300 private guards brought in to protect
strikebreakers
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7 guards killed and the rest forced to “surrender”
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
Strike started when company decided to crush union
Defeated after 5 months, destroyed Amalgamated Association
of Iron and Steel Workers and eliminated unionism in steel
industry
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LABOR MILITANCY
REBUFFED
1894—Pullman Strike
 Workers at Pullman Company outside Chicago walked out
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in protest of wage cuts and failure of Pullman to reduce
rents in the company town accordingly
Some workers belonged to American Railway Union
headed by Eugene Debs
After strike had dragged on, union voted not to handle any
trains with Pullman cars attached
Railroad owners appealed to President Cleveland who, on
the pretext of ensuring the movement of the mail, sent
soldiers
Debs defied an injunction to end the strike and was jailed
The strike was broken
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WHITHER AMERICA,
WHITHER DEMOCRACY?
 Each year, more of the nation’s wealth was in fewer hands
 By 1913: Morgan and the Rockefeller National City Bank
group between them could name 341 directors to 112
corporations worth over $22.2 billion
 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

Living standards rose
 Courts seemed only concerned with protecting the rich
and powerful

Eugene Debs, in prison for contempt, became a socialist in
1897
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MILESTONES
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WEBSITES
 Alexander Graham Bell Family Papers at the Library of Congress
http://memory.loc.gov/ammem/bellhtml/bellhome.html
 Anarchist Archives at Pitzer University
http://dwardmac.pitzer.edu/Anarchist_Archives/archivehome.html
 John D. Rockefeller and the Standard Oil Company
http://www.micheloud.com/FXM/SO
 National Refinery Company
http://www.enarco.com
 Labor-Management Conflict in American History
http://ehistory.osu.edu/osu/mmh/LaborConflict/default.cfm
 Samuel Gompers Papers at the University of Maryland
http://www.history.umd.edu/Gompers/index.html
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