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AN INDUSTRIAL GIANTChapter 18

Elevated railroad, Wabash Avenue, Chicago, Ill Library of Congress, Prints and Photographs Division, Detroit Publishing Company Collection Reproduction Number

LC-D4-70164 DLC (b&w glass neg.)

The American Nation, 12e

Mark C. Carnes John A. Garraty

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ECONOMIC STATISTICS

• Value of manufactured products grew from $1.8 billion in 1859 to over $13 billion in 1899

• GNP increased 44% between 1874 and 1883

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ESSENTIALS OF INDUSTRIAL GROWTH

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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• 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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• 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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• 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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• Cornelius Vanderbilt built one of first interregional railroad networks with his combination of lines in New York with those in Midwest in 1870s

• At 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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• 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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• 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 8558 mile network

• Trunk lines connected which meant they had 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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• 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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• To speed settlement of new regions, railroads:– Sold land cheaply and on

easy terms– Offered reduced rates to

travelers interested in buying farms an set up “bureaus of immigrations” 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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• Technological advances accelerated economic development– 1869 George Westinghouse invented air brake which

made possible increase in size of trains and speed at which could 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 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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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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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– 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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• 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 into trouble when economic downturn came

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• 1880s major roads responded to problems by building or buying lines to create interregional systems—the first giant corporations, capitalized n 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 in 1848) was the kingpin of the industry– 1890 Carnegie Steel Company dominated

the industry– Output increased tenfold in next decade

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COMPETITION AND MONOPOLY:Steel

• 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

48-inch universal plate mill, Homestead Steel Wks

Library of Congress, Prints and Photographs Division, Detroit Publishing Company

Collection Reproduction Number LC-D4-70680 DLC (b&w glass neg.)

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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 groundTHE SANDUSKY NEAR TIFFIN

Library of Congress, Prints and Photographs Division, Detroit Publishing Company

Collection Reproduction Number LC-D43-T01-1925 DLC (b&w film dup. neg.)

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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 and Utilities

• In early stages of electric light and telephone industry, Edison and Bell spent a large amount of time in court protecting their patents

• In 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 the 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 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 raise prices (in fact prices fell and consumer bonanza resulted)

– Worried were destroying economic opportunity and threatening democratic institutions

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

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REFORMERS:George, Bellamy, Lloyd

• 1879 Henry George published Progress and Poverty, an attack on the 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 the 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 Regulation

• 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– Membership reached 800,000 in 1874– Became political and candidates won seats in

Southern and Western state legislatures• Granger-controlled legislatures established

“reasonable” maximum rates and outlawed “unjust” discrimination

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• 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

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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• 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 and so 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 roads acted illegaly

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THE GOVERNMENT REACTS TO BIG BUSINESS: The Sherman Antitrust Act

• First anti-trust laws originated in southern and western states and were vaguely worded and ill-enforced

• 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% 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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• 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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• 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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• 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 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 the 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 a

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 among silver miners at Coeur

d’Alene, Idaho• Homestead Strike at Carnegie’s steel plant near

Pittsburgh where strikers attacked 300 private guards brought in to protect strikebreakers– 7 guards were 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 REBUFFED1894—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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WEBSITES

• Alexander Graham Bell Family Papers at the Library of Congress

http://memory.loc.gov/ammem/bellhtml/bellhome.html

• Alexander Graham Bell Telephone Sketchhttp://lcweb2.loc.gov/cgi-bin/query/D?mcc:1:./temp/~ammem_gqbY

:: • Anarchist Archives at Pitzer Universityhttp://dwardmac.pitzer.edu/Anarchist_Archives/

archivehome.html • John D. Rockefeller and the Standard Oil

Companyhttp://www.micheloud.com/FXM/SO

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WEBSITES

• National Refinery Company

http://www.enarco.com • Labor-Management Conflict in American History

http://history.osu.edu/Projects/LaborConflict/Default.htm

• Samuel Gompers Papers at the University of Maryland

http://www.history.umd.edu/Gompers/index.html

an industrial giant

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