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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© 2008
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:
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
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
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)
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
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
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:
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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)
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
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
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
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
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
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
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
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
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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