Chapter 17
Industrial Supremacy
The Rise of Industry
• The American industrial system had steadily
grown at a faster rate than many European
powers .
– However, more change and growth took place
between 1870-1900 than even before.
• American industries benefitted from a variety
of new technology
• Changes in corporate organizations that
enabled more capital
• Waves of immigrants that provided cheap
labor
The Age of Steel
• The rise of steel revolutionized the economy of
Western Pennsylvania and eastern Ohio.
• The Bessemer Process
– Developed by Englishman Henry Bessemer
– Steel must be purified at a higher temperature than
iron to get all the impurities out.
– Bessemer Converters blew air through the molten coke
to get it hotter.
• Western PA was ideal for this industry because of
the abundance of iron ore that was mined.
The Bessemer Converters
Pittsburgh
• The development of steel industry along the Great
Lakes region became commonplace.
– Freighters along the lakes could easily transport the
ore, and railroads connecting the towns and cities
could easily do the same.
– Pittsburgh became an ideal location because of its
proximity to the mines, and confluence of the three
rivers enabled easy transport.
• Railroads and steel companies often worked
together since they needed the new steel rails
and parts for their cars.
Rise of the Oil Industry
• In 1859 Edwin Drake established the first oil well
near Titusville, PA.
– As the oil pumped out 500 barrels a month and they
found new used for it the industry grew.
– Eventually Quakers State, Pennzoil, and Wolf’s Head oil
companies were based out of nearby Oil City, PA.
– By the late 1870’s oil grew to 4th among America’s top
exports.
• Oil could be used to lubricate machines, light
lamps in factories, and later for fuel.
Corporate America
• Corporation:
– Groups of investors in a chain of businesses who each
receive a portion of the profit according to the amount
invested.
– On the other hand, they only lose what they invested
also, this is called Limited Liability.
– After the Civil War more companies became
incorporated as business owners realized they would
need more capital to compete in foreign markets.
Corporate America Cont.
• Trusts:
– Several companies give control to a board of trustees
who then handle finances and make decisions for all of
them.
• Burger King, McDonalds, Taco Bell, and KFC join a trust
together.
• BK and KFC are doing well, but Taco Bell and McDonalds are
struggling – the board would use profits from the first two in
order to help increase business for the others. Once they
are stable again they allow the funds to be used otherwise.
• In this way all four do better together as part of the trust
rather than by themselves.
Corporate America Cont.
• Holding Companies:
– Manufactures no goods and has no customers
– The purpose of a holding company is to buy stocks
in other companies.
– Investors could hold a majority of stocks in
multiple companies through holding cos.
– This is illegal today!
Corporate America Cont.
• Horizontal Integration:
– Consolidation of two or more companies from the
same industry.
– Example: Verizon and ATT combine to make one large
phone company.
• Vertical Integration:
– Consolidation of two or more companies from
different industries.
– Example: Verizon provides cell phone coverage,
Motorola provides the actual phone. These are
different services that could be combined into one
business.
Rockefeller’s Standard Oil Co.
• Began his career as a book keeper
for a produce company in Cleveland
when he was 16 years old
• He began investing in the oil
industry shortly after Drake’s Well.
• Much like the gold rush, millions of
people came to Western PA and
Ohio hoping to buy oil rich land.
• Rather than risk all his money on a
well that may never produce,
Rockefeller purchased refineries
where the oil had to be processed.
Standard Oil – Horizontal Integration
• The Rebate: Rockefeller would give railroads oil at
a much cheaper rate in exchange for cheap
transportation of his goods.
– The rail lines would also give him information about
where his competitors sent their oil.
– Basically, Rockefeller could stay in any market cheaper
than his competition until he got rid of them.
• Once he gained control of the industry,
Rockefeller then expanded Vertically.
– Built his own barrel factories, warehouses, pipelines,
and even developed his own freight cars and owned
some of the significant banks in the U.S.
Standard Oil Cont.
• Standard Oil was considered a trust – often
Rockefeller acquired control of a competitor, but
allow them to stay in business while he ran their
finances.
• Rockefeller’s refinery corporation which earned
him over $1 Billion in his lifetime.
– Eventually Rockefeller consolidated over 40% of
American refineries and controlled access to 90% of
refined oil in the U.S.
Andrew Carnegie – Vertical Integration
• Carnegie was an immigrant from
Scotland
• He got his start as a clerk for a
railroad company.
– He would invest leftover money from
his paychecks in iron ore deposits.
– Eventually he made enough from his
investments to actually buy the
railroad company too.
• Using his iron ore interests and
control of Great Lakes railroads he
was the first to bring the Bessemer
process to America.
U.S. Steel
• In 1901 Carnegie sold his shares of Carnegie Steel
to the wealthy banker, J.P. Morgan for $450
million.
– Morgan then consolidated it with other investments to
create the U.S. Steel company based out of Pittsburgh.
– Eventually U.S. Steel controlled almost 2/3 of the
nation’s steel production, and was worth over
$1.4 billion.
Social Darwinism:
• Applying the biological theories of Charles Darwin to
the business world.
– In particular “survival of the fittest”
• The idea is that bigger businesses are more capable of
surviving in the American market
– Therefore small shop owners will eventually run out of
business.
• They do this through a process called Economies of
Scale.
– Big businesses may sell goods at a much lower price so that
they may eventually get rid of competition.
– They are capable of doing this because they produce so
much more goods than other companies.
The Gospel of Wealth
• Idea developed and promoted by
Andrew Carnegie.
• The belief that it is the duty of
wealthy people to give back and
take care of the less fortunate.
– Belief in the “Gospel of Wealth” is
why Carnegie gave back so much of
his fortune.
– Most of it to libraries, research
institutes, and education.
Myth of the Self Made Man
• Opponents of the corporate titans claimed their
power corrupted local, state, and national politics
and threatened the republican way.
• They tried to defend their actions and provide
rationale for society’s benefit.
– They claimed that the new economy was actually
increasing the individuals opportunities and the ideal
of the “rags-to-riches” stories.
• Unfortunately, few of them were actually like
Carnegie or Rockefeller, most came from positions
of wealth and their rise was more a result of
ruthless tactics than ingenuity.
Horatio Alger
• Originally a small town minister in Massachusetts,
but was removed from the pulpit over a sexual
scandal.
– He moved to New York and began writing stories that
revolved around poor boys moving from small towns to
big cities in search of fortunes.
– Books sold over 20 million copies and made him wildly
rich and popular.
– Alger’s name became synonymous with this myth of the
self made man.
The Problem with Monopolies
• By the end of the 19th Century laborers, farmers,
consumers, and small time manufacturers felt the
need to change the system.
– 1. captains of industry had created artificially higher
prices.
– 2. this inflation of prices weakened the economy as a
whole until eventually it seamed on the verge of
collapse with the Panic of 1893.
– 3. workers wages and conditions rarely improved or
provided opportunities for them.
• The gap between rich and poor had gotten too large.
Life of the Laborer
• While conditions were initially enticing after the Civil
War, most laborers made well below poverty levels by
the end of the 19th Century.
– Wages were constantly adjusted, and much of the work
became seasonal, technological advancement reduced jobs
as well.
– Factory laborers worked 10 hr. days – 6 days a week, steel
workers had 12 hr. days.
– Conditions were alarmingly unsafe, and workman’s
compensation was rare if at all.
• As corporate employers put more control of factories in
the hands of managers the atmosphere became hostile.
Unions in America
• Original attempts usually failed
– Single shops or smaller specialized unions rarely had
power to stand up to employers.
• When the economy faltered at times, the majority
of middle-class workers blamed union supporters
for their troubles, rather than employers.
– Molly Maguires: an Irish coal mining group in PA.
• Used intimidation, violence, and murder to terrorize owners
for their rights.
• Were viewed as the reasons why unions were dangerous.
Railroad Strike of 1877
• Eastern railroads cut wages by 10% as a result of
1877 recession.
• Workers decided to strike from Baltimore to St.
Louis.
– Strikers disrupted rail service which led to equipment
disruptions and outright riots in Pittsburgh.
– President Hayes had to call in troops to put down riots
in West Virginia and Baltimore, and militia opened fire
in Philadelphia.
– Over 100 people were killed over several weeks.
National Labor Unions
• The Knights of Labor (1869)
– Open membership to all “toiled” workers around the
country.
– Excluded lawyers, bankers, liquor dealers, and gamblers
– Included women and black members though.
– Chapters met in their local assemblies that were loosely tied
to the national “general assembly”
– Most of their goals were vague and long range
• Child labor laws, 8 hr. work day, adjustment to wage systems.
– Under Terrence Powderly the Union rose to 700,000
members in the 1870s and 80s.
– Experienced limited success, but when railroad strikes in
Texas crushed local groups the Knights fizzled out by 1890.
Unions Cont.
• American Federation of Labor (AFL):1886
– Led by Samuel Gompers
– Craft union that represented mainly just skilled workers
• Were actually hostile to any attempts at unskilled unionizing.
– Resisted the idea of women workers who drove down
prices and were used to break up bargaining.
– Rejected the ideal of government involvement, but
rather understanding between laborers and employers.
– Favored primarily collective bargaining, but not
opposed to strikes.
– Most extreme action was calling for a national strike
beginning May 1, 1886 for a 8hr. work day.
Haymarket Square Strike
• Workers for the McCormick Harvester Co. in
Chicago in April 1886.
– Police harassed strikers and killed 4, the next day one of
them threw a bomb at police and killed 7, injured 67.
– 8 Strikers were arrested, placed on trial and convicted
of murder.
• No real evidence that the 8 had anything to do with the
bombing and trial was handled questionably.
– Sentenced to death, one of them committed suicide, 2
were executed and the rest had sentences reduced to
life in prison.
The Homestead Strike (Pittsburgh
1892)
• Skilled Steel labor unions had the most power of any in
the nation. Amalgamated Association of Steel Workers
– As changes to the steel making process reduced the power of
these skilled laborers, Carnegie began cutting their wages.
– At first the unions obliged, realizing their loss of power.
– But eventually they struck when wages were cut and
management refused to bargain at all.
– Plant immediately closed down, hired 300 Pinkerton agents
to guard the doors and, hired replacements.
– Fighting killed 3 guards and 10 strikers and Pinkertons were
eventually forced to surrender.
– Pennsylvania national guard brought 8,000 soldiers to diffuse
the situation and after 4 months the Workers surrendered.
The Pullman Strike (Chicago 1893-94)
• Pullman Palace Car Co. made parlor and sleeping cars
for railroads.
– Built the town of Pullman where workers rented houses run
through the company.
– Winter of ‘93 the Pullman company slashed wages, but
retained the cost of rent.
• Rent was already higher than similar housing in the area.
– Pullman workers united with the American Railway Union
and together they shut down transportation from Chicago to
the Pacific. (27 state economies were disrupted)
– When the governor of Illinois refused to protect the
businesses they convinced President Cleveland to send
2,000 federal troops and eventually arrested all union
leaders.