The Rise of Industrial America
1865-1900
By 1900, the United States was the leading industrial
power in the world
• Treasure-house of raw materials –coal, iron ore, copper, lead, timber, oil
• Abundant labor supply, seemingly endless supply of immigrants
• Growing population and advanced transportation network made us
the largest market in the world for industrial goods
• Lots of capital. Rich people here and rich Europeans invested in
economic expansion
• Development of labor-saving technologies. Almost ½ million patents
between 1860 and 1890
• Friendly government policies (subsidized government grants and loans
for railroads, protective tariffs, limited taxes on corporations, laissez-faire)
• Talented entrepreneurs
Railroads
• After the Civil War, railroad mileage increased more than five times over
• 35,000 miles in 1865
• 193,000 miles in 1900
• Created a national market for goods … encouraging mass production,
mass consumption, and specialization
• Coal and steel industries boomed (needed for rail construction)
• Creation of four railroad zones led to four time zones
• Most important innovation of railroad industry?
• Creation of modern stockholder corporation
• Development of complex structures in finance, business
management, and the regulation of competition
Eastern Trunk Lines
• Consolidation of competing railroads after the Civil War into integrated
trunk lines (a trunk line was a route between major cities; smaller branch
lines connected the trunk line with smaller towns and cities)
• “Commodore” Cornelius Vanderbilt
• Merged local railroads into the New York Central in 1867
• NYC to Chicago and operated more than 4,500 miles of track
• Other major trunk lines that connected eastern seaports with Chicago and
the midwest:
• Baltimore and Ohio Railroad
• Pennsylvania Railroad
Western Railroads
• Promoted settlement of the west
• Linked East and West creating a national market
Federal Land Grants
• Federal government recognized that western railroads meant western
settlement
• 80 railroad companies given > 170 million acres of public land
• Mile-square on either side of tracks government expected railroads to
sell to settlers
Negative consequences?
• Land grants and loans led to hasty/poorly constructed lines
• Bribery of public officials (Credit Mobilier)
• Protests against land grants (public angry that railroads controlled ½
of the land in some western states)
Transcontinental Railroads
• First authorized by Congress during the Civil War – Omaha to Sacramento
• Union-Pacific (Irish immigrants)
• Central Pacific (Chinese immigrants)
• Completed in 1869
• Three others completed in 1883
• Southern Pacific (New Orleans to LA)
• Atchison, Topeka, and Santa Fe (Kansas City to LA)
• Northern Pacific (Duluth to Seattle)
• (1893) Great Northern (St. Paul to Seattle)
All helped to settle the West, but many were bad business ventures in the
short-term. (built in areas with few customers)
Competition and Consolidation
• Speculation often follows new technologies…sometimes leads to the
overbuilding of new technologies
• 1870s and 1880s marked by overbuilding of new railroads
• Attracted speculators like Jay Gould
• Entered railroad business to make quick profits
• Sold off assets and “watered stock” (inflating the value of
corporation’s assets before selling its stock to the public)
• More and more railroads being built led to a scramble to survive
• Rebates (discounts to favored shippers while charging exorbitant
freight rates to smaller customers like farmers)
• Pools (competing companies agreed secretly to fix rates)
• Financial panic in1893 forced ¼ of all railroads into bankruptcy
• J.P. Morgan and other bankers swooped in to consolidate
and take control of the bankrupt railroads
• With competition eliminated, they stabilized rates and
reduced rates
• By 1900, seven giant systems controlled 2/3 of the
country’s railroads creating regional monopolies
• Early attempts to regulate did little good
• Not until 20th Century did Congress expand the powers of
the Interstate Commerce Commission to protect public interest
Industrial Empires
• Shift in type of industrial production in late 1800s
Early factories: textiles, clothing, leather products
After Civil War: “second industrial revolution” large-scale industry
steel, petroleum, electric power.
The Steel Industry
• Bessemer in England and Kelly in the U.S.
• Bessemer Process: blasting air through molten iron produces
high-quality steel
• PA coal and Minnesota iron ore
Andrew Carnegie
• Started manufacturing steel in Pittsburgh in 1870s
• Vertical integration: controlled every stage of steel production from
mining the raw materials to transporting the
finished product
• By 1900 he had 20,000 workers and produced more steel than all the
mills in Britain
U.S. Steel Corporation
• Carnegie retires from steel business in 1900
• Sells company to corporation headed by J.P. Morgan
• U.S. Steel becomes the first billion dollar company as well as the
largest enterprise in the world (168,000 employees)
• Controlled more than 3/5 of the nation’s steel business
Rockefeller and the Oil Industry
• First U.S. oil in PA in 1859
• 1863, J.D. Rockefeller founded company that would come to control most
of the nation’s oil refineries
• Worked deals from railroad companies for rebates to temporarily cut prices
to force competitors out of business
• By 1881, Standard Oil Trust controlled over 90% of the oil refinery business
• Trust made up of various companies he acquired, managed under a board
of directors he controlled
• Horizontal integration: former competitors are brought under a single
corporate umbrella
Antitrust Movement
• 1890, Sherman Antitrust Act
• Prohibited any “contract, combination, in the form of a trust
or otherwise, or conspiracy in restraint of trade or commerce”
• Too vaguely worded to stop the development of trusts
• Supreme Court in United States v E.C. White Co. (1895) ruled
the Act could only be applied to commerce, not to manufacturing
• Result? Very few convictions.
Laissez-Faire Capitalism
• Idea that government regulation was alien to the prevailing economic,
scientific, and religious beliefs of the late 19th century
Conservative Economic Theories
• As early as 1776, economist Adam Smith
• The Wealth of Nations
• Argued that business should be regulated, not by
government, but by “the invisible hand” of the law
of supply and demand
• If government kept their hands off, business would
be motivated by their own self-interest to provide
improved goods and services at low prices
• American industrialists appealed to laissez-faire theory to justify their methods of
doing business (even while they accepted the protection of high tariffs and
government subsidies!)
• But, the rise of monopolistic trusts in late 1800s undercut the competition needed for
natural regulation of business (“the invisible hand”)
• Even so, laissez-faire was constantly invoked when legislators even hinted of
regulating business
Social Darwinism
• Herbert Spencer
• British social philosopher
• Argued that Darwin’s theory of natural selection should be applied
to the marketplace
• Concentrating wealth in the hands of the “fit” benefits everyone
• Graham Sumner
• American Social Darwinist
• Yale professor
• Argued that helping the poor was misguided because it interfered
with the laws of nature and would only weaken the evolution of man
by preserving the unfit
• Gave some a “scientific” stamp of approval for racial intolerance
• Race theories about the superiority of one group
over another
Gospel of Wealth
• Some found religion more convincing than social Darwinism in justifying
the wealth of successful industrialists and bankers
J.D. Rockefeller
• Strong believer in Protestant work ethic (hard work and material
success are signs of God’s favor)
• “God gave me my riches”
Reverend Russell Conwell
• “Acres of Diamonds” lecture
• Preached everyone had a duty to become rich
Andrew Carnegie
• Article titles “Wealth”
• Argued wealthy had a God-given responsibility to carry out
projects of civic philanthropy
• Gave $350 million for building of libraries, universities, etc.
Technology and Innovations
• Industrial progress depended on new inventions
• Greater productivity in workplace and mass-produced goods in the home
Inventions:
• Samuel Morse, telegraph (1844)
• By Civil War, rapid communication and transportation (especially
in the North)
• Cyrus Field, improved trans-Atlantic cable (1866)
• U.S. to Europe in minutes
• By 1900, all continents, nearly instantaneous communication
• Led to internationalized markets and prices for basic
commodities like grain, coal, and steel
• Often left local smaller producers at the mercy of
international forces
Tons of new inventions and products…..
Edison and Westinghouse
Thomas Edison
• Greatest inventor of the 19th century
• Menlo Park research laboratory
• 1st modern research laboratory
• Concept of scientists and engineers working together as a team
rather than lone inventors
• More than a thousand patented inventions (first practical light
bulb, phonograph, motion picture camera, dynamo for producing
electricity)
George Westinghouse
• Held more than 400 patents
• Developed air brakes for railroads (1869)
• Transformer for producing high-voltage AC current (1885)
• Made possible lighting of cities, powering streetcars and
subways, and powering electrically powered machines
and appliances
Marketing Consumer Goods
• Businesses had to find ways to sell their merchandise to a large public
• Department stores in large cities
• 5 & 10 stores across the country
• Mail order companies (used improved rail system to ship goods
nationwide)
• Packaged foods (refrigerated cars)
• Advertising
• Newspapers and magazines
• Created a consumer culture where shopping became a pastime
How did industrialization impact life in America?
• Growth of industry raised the standard of living for most Americans
• But, also created sharper economic class divisions among the rich,
middle class, and the poor
Concentration of Wealth
• By 1890s, richest 10% controlled 90% of the nation’s wealth
• Industrialization created a new class of millionaires (flaunted wealth)
• Mansions, yachts, lavish parties
Horatio Alger Myth
• Writer who wrote rags to riches stories
• Hard work, honesty…anybody could be like Carnegie
• Reality? Opportunities for upward mobility did exist, but stories like
Carnegie’s were rare
• Typical wealthy business person: white, upper or middle-class background,
whose father was in business or banking
The Expanding Middle Class
• Expanding corporations needed thousands of white-collar workers
• Middle management between executives and factory workers
• Industrialization also led to need for accountants, clerical workers,
and sales persons
• New middle-class employees increased demand for other services
• Doctors, lawyers, storekeepers, etc.
• Number of good-paying occupations after the Civil War significantly increased
the size of the middle –class
Wage Earners
• By 1900, 2/3 of all workers worked for wages (usually 10 hrs. a day, 6 days a week)
• Wages determined by supply and demand (large supply of immigrants competing
for jobs meant wages enough to barely survive)
• David Ricardo (1772-1823) “iron law of wages”
• Raising wages would only increase the working population
• Availability of more workers would cause wages to fall
• Result would be a cycle of misery and starvation
• Real wages (adjusted for inflation) rose steadily in the 1800s, but not enough
to support a family on one income
• Working-class families came to depend on income
from working women and children
• In 1890, 11 million of the 12.5 million families in the
country averaged less than $380 a year
Working Women
• One adult woman out of every five was working for wages by 1900
• Most were young and single (only 5% of married)
• Factory work for women in industries perceived as an extension of the home
(garment, textile, food-processing, etc.)
• Demand for clerical workers increased (secretaries, bookkeepers, typists,
telephone operators)
As occupations became “feminized” (women in the majority) usually lost status
And received lower wages and salaries.
Labor Discontent
• “the tyranny of the clock”
• Monotonous, repetitive, dangerous working conditions
Organized Labor
• Late 1800s, period of frequent, and deadly labor disputes
• Many feared outright war between capital and labor
Industrial Warfare
• Management held most of the cards in struggles with organized labor
• Strikers easily replaced by strikebreakers (scabs)
• Tactics aimed at defeating unions:
• Lockout: closing a factory to break a labor movement before it
could get started
• Blacklists: names of pro-union workers shared by employers
• Yellow-dog contract: condition for employment that you can’t
join a union
• Private guards & state militias to put down strikes
• Court injunctions against strikes
• Management often stirred up public fear of unions as anarchistic and
un-American
• Prior to 1900, management almost always won (they could count on the
(support of federal and state governments)
Great Railroad Strike of 1877
• In midst of an economic depression, railroad companies cut wages
to reduce costs
• Strike starts on the Baltimore and Ohio RR
• Spreads across 11 states and shuts down 2/3 of country’s tracks
• RR workers joined by 500,000 workers from other industries (strike
quickly becomes national in scale)
• President Rutherford B. Hayes sends in federal troops to end labor violence
• 100 people killed during strike and related violence
• Outcome? Mixed results:
• Some companies improved wages and working conditions
• Others took a hard line union-busting
Attempts to Organize National Unions
I. National Labor Union (1866)
• First attempt to organize all workers in all states (skilled and un-skilled)
industrial and agricultural
• 640,000 members by 1868
• Pushed for higher wages and an 8 hour work day
• Social program (Equal rights for women and blacks)
• Won 8 hour workday for federal employees
• But the union lost support following a depression in 1873 and following
unsuccessful strikes in 1877
II. Knights of Labor
• Began as secret organization in 1869 under Terence Powderly (went public 1881)
• Open to all workers (including blacks)
• Advocated: Worker cooperatives “to make each man his own employer,
Abolition of child labor, Abolition of trusts and monopolies
• Powderly favored negotiation to strikes, but couldn’t control local units who
decided to strike
• 730.000 members by 1886
Knights of Labor membership declines quickly following the Haymarket
riot in Chicago in 1886 (turned public opinion against unions)
Haymarket Bombing (1886)
• 800,000 Knights of Labor living in Chicago in 1886 also about 200 anarchists
who advocated the violent overthrow of all government
• Clash between police and strikers at McCormick Harvester left 4 workers dead
• Local anarchists called a demonstration the next day, bomb thrown
• 7 policemen killed
• Bomber never found, even so 8 anarchist leaders tried, 7 sentenced to death
Impact of the incident?
• Convinced public that the union movement was radical and violent
• Knights of Labor lost popularity and membership
American Federation of Labor
• (AF of L) founded in 1866 as an association of 25 craft unions, (skilled workers)
and led by Samuel Gompers until 1924
• Focused on narrower economic goals (higher wages and improved working
conditions)
• Gompers: walk out until employers agreed to negotiate a new contract
through collective bargaining
• Largest union in the country by 1901
• Didn’t achieve major successes until the early decades of the 1900s
Strikebreaking in the 1890s
Two major strikes, Homestead and Pullman, showed the power of management
To prevail in the 1890s.
Homestead Strike 1892
• Homestead Steel plant outside of Pittsburgh owned by Andrew Carnegie
• Carnegie was confident that new machinery could enable him to replace
many skilled workers
• Plant managed by Henry Clay Fick (coal magnate and union buster)
• Uses “the lockout” shutting down the plant, if they want to return
to work they had to abandon the union and sign new individual
contracts with a 20% pay cut, Private guards (Pinkertons)
• Locked out workers open fire, gunfight leaves 7 workers and
three Pinkertons dead
• Employs strikebreakers (scabs) to defeat the union
Impact?
Sets back the union movement in the steel industry until the
New Deal in the 1930s
Pullman Strike 1894
• Pullman sleeping cars, company town outside of Chicago
• 1894, announced a general cut in wages and fired the leaders of the
worker’s delegation who came to meet with him (George Pullman)
• Workers refuse to work and ask for help from American Railroad Union
headed by Eugene V. Debs
• Debs directed railroad workers not to handle any trains with Pullman cars
• Union’s boycott tied up rail transportation across the country
• Owners linked Pullman cars to mail trains, appealed to President Cleveland
to use the army to keep the mail trains running
Federal Court’s involvement:
• Issued injunction forbidding interference with the mail and ordered workers
to abandon the strike and boycott
• Debs refuses and he and other union leaders are jailed, effectively ending
the strike
• In re Debs 1895, Supreme Court approved the use of court injunctions
against strikes
• Debs turns to socialism, helps found the American Socialist Party in 1900
• By 1900, only 3% of workers belonged to unions…Management held the
upper hand