Industrial Expansion and Concentration (Chapter 17)
Structural Change and Industry Composition
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The continuing rise of manufacturing after the Civil War astonished contemporaries. It is a period that has come to be
known as the Second Industrial Revolution.
o The first Industrial Revolution began in England toward the end of the 18th century.
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Exact flip-flop between agriculture and manufactures in the percentage distribution of commodities produced in 1869
and in 1899:
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1869 – 53 percent agriculture, 33 percent manufactures, and 14 percent mining and construction combined.
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1899 – 33 percent agriculture, 53 percent manufactures, and 14 percent mining and construction combined.
Agriculture expanded in these years but fell relatively because of more rapid increases elsewhere
Agriculture’s labor force grew only by a factor of 2 from 5.9 million to 11.8 million between 1860 and 1910. Total
labor in manufacturing grew by a multiple of 5.4, and in railroads by 23.2.
In the mid-1890s, the United States became the leading industrial power, and by 1910, its factories poured forth
goods of nearly twice the value of those of its nearest rival, Germany.
In 1913, the United States accounted for more than one-third of the world’s industrial production.
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New Technologies
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Technological changes helped revolutionize industry after industry
Some new technologies were – the roller mill to process oatmeal and flour, refrigerated cars for meat packing, can
sealing for canned meat, vegetables and soup, long distance pipe lines, steel tank cars for the petroleum industry,
advances in Bessemer and open-hearth processes for steel making, cash register and typewriter.
These new technologies permitted mass production and generated lower per-unit costs through economies of scale.
Adding to these advances in plant size and productivity was the infrastructure of a transcontinental railroad and a
national telegraph network.
Another notable invention was the cutting machines that could cut through multiple layers of material at once.
The first successful method of making steel in quantity was invented in the late 1850s by an Englishman, Henry
Bessemer, and by an American, William Kelly.
By 1868, the main features of the open-hearth aka the Siemens-Martin process had been developed.
o Bessemer method was a cylindrical converter that could be tipped like a huge kettle
o The open-hearth method employed a furnace with a shallow, open container holding a charge of molten
pig iron, scrap iron, limestone, and even some iron ore.
The most surprising deficiency was that the method was so quick there was not sufficient time to test the steel for
carbon content
Several considerations made the open-hearth process more economical than the Bessemer process
o Could be sampled
o Chemical composition adjusted to exact requirements
o Cost advantage
By 1900 they could produce 500 tons of pig iron a day where as in 1860 they could only produce 10 tons of pig iron.
By 1895 sewing machines could operate up to 2800 stitches per minute.
New Forms and Sources of Energy
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In 1850, more than three quarters of all power was furnished by animal energy, and human energy produced more
power than machines did.
During the 1870s, steam surpassed water as a source of power.
In 1890 coal was the source of 90% of the energy furnished to manufacturing
Electricity brought about a remarkable improvement in the utilization of the older sources of energy.
Advantages were - it’s flexible and divisible, and power plant could be separated from the manufacturing
establishment by long distances,
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By World War I, one-third of the nation’s industrial power was provided by electricity, far more than in any other
country.
Nearly one-half of all urban dwellings had electric lights, although more than 98 percent of all farm families were
burning kerosene lamps after dark.
Electricity was another source of energy
Coal remained the main energy source until 1920 - petroleum and natural gas takes over after
Mass Production
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There were two new ideas that spread very quickly: mass production and scientific management
Cigarettes was one of the early applications that demonstrated the potential profitability of continuous-flow
production
Henry Ford devised the first progressive, moving assembly-line systems for large, complex final products.
Productivity enhancing improvements helped push real wages upward.
The large scale of the new industrial giants required new forms of management.
In the 1850s, Daniel McCallum of New York, president of the Erie Railroad, proposed a series of new management
principles—with wide potential application.
o Manager’s authority to make decisions should match their level of responsibility.
o Internal reporting systems (accounting) should be used to identify trouble spots and allow prompt
solutions.
o Performance evaluations, for employees and managers alike, should be routine.
Early Business Combinations
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Gentlemen’s agreements were usually used for setting and maintaining prices
Pooling, divided a market and assigned each seller a portion, it became common after 1875
Or sellers could form a profits pool where a net income was paid into a central fund and later divided on a basis of
percentage of total sales in a given period of time.
Gentlemen’s agreements and Pooling were not very durable
Two Phases of the Concentration Movement
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Phase one was Horizontal Mergers, these are the combining of firms that produce identical or very similar products.
Some firms created in this way were the Standard Oil Company of Ohio (later New Jersey), the Distillers and cattle
feeders trusts, the American Sugar Refining Company, and the US Rubber Company.
John D. Rockefeller’s firm was known as the best managed
Phase two were the Vertical Mergers, these firms were managed by different departments within one firm.
Andrew Carnegie built an integrated steel firm that combined with the Morgan and Moore interests to form the US
Steel Corporation in 1901
Legislation and Legal Actions
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One thing that was critical to the second wave of the concentration movement was the passage of legislation to
control monopoly power
The Sherman Act of 1890 made it illegal for people to monopolize any part of the trade or commerce.
The Federal Trade Commission
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In 1914 congress passed the Clayton Act, which was intended to remove ambiguities in existing antitrust law by
making certain specific practices illegal.
Price discrimination among buyers was forbidden, as well as exclusive selling and tying contracts if their effect was to
lessen competition.