Chapter 18 The Rise of Industry 1860-1900
Between 1865 and 1890, the United States catapulted into the position of the world's
greatest industrial power. How were men like John D. Rockefeller and Andrew Carnegie
able to transform America into an industrial giant? What were the benefits and costs for
the nation as a whole?
CHAPTER SUMMARY
In 1848, the 13-year-old son of a Scottish immigrant named Andrew Carnegie
worked as a bobbin boy in a Pittsburgh textile mill for 20 cents a day. By 1900, Carnegie
was the richest man in America. As head of Carnegie Steel he enjoyed an annual
income of $40 million. His company produced more steel than all of Great Britain,
supplying steel for the Brooklyn Bridge and the Washington Monument. In 1901 he sold
his company to financier J. P. Morgan for $500 million and retired to a castle in Scotland.
(Morgan merged Carnegie Steel with other steel mills to form United States Steel,
capitalized at $1.4 billion.) Carnegie is the classic example of the "rags to riches" tale,
and certainly one of the most productive, successful, and civic-minded of the so-called
"robber barons" of the American industrial era.
The keys to Carnegie's success reveal much about the business environment in
which he thrived. Unlike many of the industrial leaders of the era (such as George
Westinghouse), Carnegie was not an inventor or technical expert. He was a shrewd
businessman. He took advantage of the boom-and-bust business cycle, jumping in
during hard times, building and buying when prices were low. He hired skilled managers
who drove his workers hard. (Between 1870 and 1910 there were almost 4,000 injuries or
deaths at Carnegie's South Works alone.) He ran his steel mills "24X7" year-round, closing
only on July 4th. Carnegie scrapped machinery and workers to keep costs down and
undersell competitors. His steel empire spread both horizontally, by purchasing rival steel
mills and constructing new ones, and vertically, buying up sources of supply and
transportation. In short, he knew how to compete.
Carnegie is especially interesting as a historical case study because he not only
personified the philosophy of Social Darwinism, he also wrote about it in The Gospel of
Wealth (1889): "We accept and welcome... great inequality of environment; the
concentration of business, industrial and commercial, in the hands of a few; and the law
of competition between these as being not only beneficial, but essential to the future of
the race." Indeed, the laissez faire political/ economic climate of the era gave wise and
ambitious entrepreneurs like Carnegie a free hand. The fact that most people failed to
follow in Carnegie's footsteps was frequently attributed to laziness, ignorance, and moral
deficiencies. To his credit, Carnegie left most of his fortune to libraries, colleges, and the
Carnegie Foundation for Peace. "The kept dollar is a stinking fish," he wrote. "The man
who dies rich, dies disgraced."
Men like Carnegie certainly helped increase national wealth as America became
the leading industrial power in the world. Yet they also concentrated power, corrupted
politics, and made the gap between rich and poor more apparent than ever. In 1890,
the richest 9 percent of Americans held nearly three-quarters of all wealth in the United
States. But by 1900, one American in eight (nearly 10 million people) lived below the
poverty line. An unskilled worker could expect about $1.50 for a 10-hour day. It took
about $600 to make ends meet, but most manufacturing workers made under $500 a
year. Native-born white Americans tended to earn more than immigrants, those who
spoke English more than those who did not, men more than women, and all others more
than Blacks, Latinos, and Asians. A great many children worked in American factories,
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but few repeated the rags-to-riches rise of Andrew Carnegie. Child labour was a
widespread practice encouraged by industry, agreed to by parents, and ignored by
government. By 1890, the industrial labour force included some 1.5 million children. For
employers, the tiny workers were a bargain, and besides, they claimed that factory work
was "good for the little devils." On average, children worked 60 hours a week and
carried home pay checks a third the size of adults. "If you speak, they say, 'Get out.'"
Moreover, the practices of big business subjected the economy to enormous
disruptions. The banking system could not keep up with the demand for capital, and
businesses failed to distribute enough profits to sustain the purchasing power of workers
(let alone provide a safe and healthy working environment or a comfortable standard of
living). Altogether, three severe depressions rocked the economy between 1873 and
1897. With hard times came fierce competition as the industrial barons ruthlessly cut
costs.
With the growing instability of the economy and its adverse impact on workers, early
labour unions became increasingly active [see Lecture 4]. The financial "panic"
[depression] of 1893 was especially disconcerting to business, labour, and government
officials, but striking workers were generally afforded little public sympathy. Mostly they
felt the heavy boot of strike-breakers. Employers sometimes hired "detectives" from the
Pinkerton agency--uniformed thugs--and also sought relief through the courts. Because
state and federal lawmakers feared unions and did little if anything to protect the rights
of organized labour, judges usually sided with business, issued injunctions to end strikes,
acquiesced in the use of federal troops as strike-breakers, and sent union leaders to
prison.
Still, many American workers, seeing some improvement in their lives, believed in the
American dream. This largely explains why the socialist movement never caught on
despite the great inequality of wealth, harsh working conditions, and periods of labour
unrest and radical protest. The new industrial order reshaped America in countless
beneficial ways, but the costs were high. The power of business to exploit workers and
befoul the environment grew with very little government interference. It should be noted
that to the extent that government aided the rise of men like Carnegie--by investment,
railroad land grants, tariffs, pro-business laws and court rulings--laissez faire capitalism
never truly existed. And in time, led by Progressives like Theodore Roosevelt, the federal
government began to exercise not just a helping hand but a guiding hand, balancing
the interests of business, labour, consumers, and the environment.
Approximate Date and Event
1870
John D. Rockefeller incorporates Standard Oil Company of Ohio
1873
Carnegie Steel Company founded; Panic of 1873 brings on a six-year depression
1876 Thomas Edison establishes "invention factory" at Menlo Park, New Jersey;
Rutherford B. Hayes chosen president in controversial election
1877
Great Railroad Strike - first major interstate labour strike
1882
Rockefeller's Standard Oil becomes the nation's first trust
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1885
Bell organizes the American Telephone and Telegraph Company (AT&T)
1886 George Westinghouse develops electric motor using alternating-current (AC)
system; American Federation of Labour organized; Haymarket Square riot/bombing in
Chicago
1888
Edison General Electric Company formed
1889
The Gospel of Wealth published by Andrew Carnegie (Social Darwinism)
1890
Sherman Antitrust Act passed - used against organized labour, not business
1892
Homestead Steel strike
1893
Panic of 1893 marks beginning of a three-year depression
1894 Pullman strike crushed by federal troops - railway union president Eugene Debs
imprisoned.
1901 J. P. Morgan incorporates United States Steel as the first billion-dollar company;
Eugene Debs founds the Socialist Party of America; William McKinley assassinated and
Theodore Roosevelt becomes president
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