AN INDUSTRIAL GIANT
• Essentials of Industrial Growth
– American manufacturing flourished in the
last quarter of the nineteenth century
– new natural resources were discovered
and exploited, creating opportunities that
attracted the brightest and most energetic
Americans
– the national market grew, protected from
foreign competition by tariffs, and foreign
capital entered the market freely
– European immigrants provided the
additional labor needed for industrial
expansion
– advances in science and technology
created new machines and power sources,
which increased productivity
• Railroads: The First Big Business
– in the last quarter of the nineteenth century,
railroads were probably the most
significant element in American economic
development
– important as an industry themselves,
railroads also contributed to the growth and
development of other industries
– railroads developed into larger and more
integrated systems, and their executives,
including Cornelius Vanderbilt and Jay
Gould, became some of the most powerful
and wealthiest people in the country
– railroad equipment became standardized,
as did time zones
– land grant railroads helped to settle the
West by selling their lands cheaply and on
easy terms to settlers
– new railroad technology, including the air
brake and more powerful locomotives,
made it possible for larger trains to travel at
faster speeds
• Iron, Oil, and Electricity
– the transformation of iron manufacturing
affected the United States almost as much
as the development of railroads
– new techniques, including the Bessemer
process, made possible mass production
of steel
– huge supply of iron ore and coal in U.S.
allowed for rapid growth of steel production
– the Mesabi range yielded enormous
quantities of easily mined iron
– Pittsburgh, surrounded by vast coal
deposits, became the iron and steel center
– the petroleum industry expanded even
more spectacularly than iron and steel
– new refining techniques enabled refiners to
increase the production of kerosene,
which, until the development of the
gasoline engine, was the most important
petroleum product
– technological advances and the growth of
an urban society led to the creation of new
industries, such as the telephone and
electric light businesses
– Alexander Graham Bell invented the
telephone in 1876, and his invention
quickly proved its practical value
– of all Edison’s many inventions, the most
significant was the incandescent light bulb
– the Edison Illuminating Company opened a
power station in New York, and power
stations began to appear everywhere
– the substitution of electric for steam power
in factories had an impact comparable to
the substitution of steam for water power
before the Civil War
• Competition and Monopoly: The
Railroads
– growing importance of expensive
machinery and economies of scale led to
economic concentration
– deflationary pressures after 1873 led to
falling prices and increased competition,
which cut deeply into railroad profits
– railroads attempted to increase the volume
of shipping by giving rebates, drawbacks,
and other discounts to selected customers
– sometimes these discounts were far
beyond what the economies of bulk
shipment justified; in order to make up
these losses, railroads charged higher
rates in areas where no competition
existed
– combination of lost revenue from rate
cutting and inflated debts forced several
railroads into receivership in the 1870s
– in the 1880s, major railroads responded to
those pressures by creating interregional
systems
– these became the first giant corporations
• Competition and Monopoly: Steel
– the iron and steel industry was also
intensely competitive; production continued
to increase, but demand varied erratically
– Andrew Carnegie used his talents as a
salesman and administrator, along with his
belief in technological improvements, to
create Carnegie Steel Company, which
dominated the industry
– alarmed by Carnegie’s control of the
industry, makers of finished steel products
began to combine and considered entering
primary production
– in response, Carnegie threatened to turn
out finished products
– J. P. Morgan averted a steel war by buying
out Carnegie, his main competitor, and the
main fabricators of finished products
– the new combination, United States Steel,
was the first billion-dollar corporation
– Carnegie retired to devote his life to
philanthropy
• Competition and Monopoly: Oil
– competition among refiners led to
combination and monopoly in the
petroleum industry
– John D. Rockefeller founded the Standard
Oil Company in 1870
– he used technological advances and
employed both fair and unfair means to
destroy his competition or to persuade
them to join forces
– by 1879, Rockefeller controlled 90 % of
nation’s oil refining capacity
– to maintain monopoly, Rockefeller
• Competition and Monopoly: Utilities
and Retailing
– utilities, such as the telephone and electric
lighting industries, also formed monopolies
in order to prevent costly duplication of
equipment and to protect patents
– Bell and Edison fought lengthy and
expensive court battles to defend their
inventions from imitators and competitors
– competition between General Electric
Company and Westinghouse dominated
the electric lighting industry
– the life insurance business expanded after
the Civil War, and it, too, became
dominated by a few large companies
– in retailing, this period saw the emergence
of urban department stores, including
Wanamaker’s and Marshall Field
– the department stores advertised heavily
and stressed low prices, efficient service,
and guaranteed products
• Americans Ambivalence to Big Business
– the expansion of industry and its
concentration in fewer hands changed the
way many people felt about the role of
government in economic and social affairs
– although Americans disliked powerful
government and strict regulation of the
economy, they did not object to all
government involvement in the economic
sphere
– the growth of huge industrial and financial
organizations frightened many people
– at the same time, people wanted the goods
and services big business produced
– the public worried that monopolists would
raise prices; still more significant was the
fear that monopolies would destroy
economic opportunity and threaten
democratic institutions
• Reformers: George, Bellamy, Lloyd
– the popularity of several reformers
reflected the growing concern over the
maldistribution of wealth and the power of
corporations
– in Progress and Poverty (1879), Henry
George argued that labor was only true
source of capital
– he proposed a “single tax” on wealth
produced by appreciation of land values
– Edward Bellamy’s utopian novel, Looking
Backward (1888), described a future in
which America was completely socialized
– Bellamy’s ideal socialist state arrived
without revolution or violence
– Henry Demarest Lloyd’s Wealth Against
Commonwealth (1894) denounced the
Standard Oil Company
– his forceful but uncomplicated arguments
made Lloyd’s book convincing to
thousands
– despite their criticisms, these writers did
not question the underlying values of the
middle class majority, and they insisted that
reform could be accomplished without
serious inconvenience to any individual or
class
• Reformers: The Marxists
– by the 1870s, the ideas of the Marxian
socialists began to penetrate the United
States; Marxist Socialist Labor party was
founded in 1877
– Laurence Gronlund’s The Cooperative
Commonwealth (1884) attempted to
explain Marxism to Americans
– leading voice of Socialist Labor party,
Daniel De Leon, was a doctrinaire
revolutionary who insisted that workers
could improve their lot only by adopting
socialism and joining Socialist Labor party
– he paid scant attention to the opinions or to
the practical needs of common working
• The Government Reacts to Big
Business: Railroad Regulation
– political reaction to the growth of big
business came first at the state level and
dealt chiefly with the regulation of railroads
– strict railroad regulation resulted largely
from agitation by the National Grange and
focused on establishing reasonable
maximum rates and outlawing unjust price
discrimination
– in Munn v. Illinois (1877), the Supreme
Court ruled that such regulations by states
were constitutional when applied to
businesses that served a public interest
– however, the Supreme Court declared
invalid an Illinois law prohibiting
discriminatory rates between long and
short hauls in the Wabash case (1886) on
the ground that a state could not regulate
interstate commerce
– the following year, Congress passed the
Interstate Commerce Act, which required
that railroad charges be reasonable and
just
– it also outlawed rebates, drawbacks, and
other competitive practices
– in addition, the act created the Interstate
Commerce Commission, the first federal
regulatory board, to supervise railroad
regulation
• The Government Reacts to Big
Business: The Sherman Antitrust Act
– first antitrust legislation originated in the
states
– federal action came with the passage of
the Sherman Antitrust Act (1890), which
declared illegal trusts or other
combinations in restraint of trade or
commerce
– the Interstate Commerce Act sought to
outlaw the excesses of competition; the
Sherman Act intended to restore
– the Supreme Court undermined the
Sherman Act when it ruled that the
American Sugar Refining Company, which
controlled 98 percent of sugar refining, was
engaged in manufacturing and therefore its
dominance did not restrict trade
– in later cases, however, the Court ruled
that agreements to fix prices did violate the
Sherman Act
• The Labor Union Movement
– at the time of the Civil War, only a small
percentage of American workers were
organized, and most union members were
skilled artisans, not factory workers
– the growth of national craft unions
quickened after 1865
– the National Labor Union was founded in
1866, but its leaders were out of touch with
the practical needs and aspirations of
workers
– they opposed the wage system, strikes,
and anything that increased laborers’
sense of membership in the working class
– their major objective was the formation of
worker-owned cooperatives
– founded in 1869, the Knights of Labor
supported political objectives that had little
to do with working conditions and rejected
the idea that workers must resign
themselves to remaining wage earners
– the Knights also rejected the grouping of
workers by crafts and accepted blacks,
women, and immigrants
– membership in the Knights grew in the
1880s, encouraged by successful strikes
against railroads
– in 1886, agitation for an eight-hour day
gained wide support
– clashes between workers and police in
Chicago led to a protest meeting at
Haymarket Square
– a bomb tossed into the crowd killed seven
policemen and injured many others
• The American Federation of Labor
– the violence in Chicago damaged
organized labor, especially the Knights of
Labor, which the public associated with
anarchy and violence
– membership in the Knights declined
– a combination of national craft unions, the
American Federation of Labor, replaced
the Knights of Labor as the leading labor
union
– led by Adolph Strasser and Samuel
Gompers, the AFL concentrated on
organizing skilled workers
– it fought for higher wages and shorter
hours
– the AFL accepted the fact that most
workers would remain wage earners and
used its organization to develop a sense of
common purpose and pride among its
members
– the AFL avoided direct involvement in
politics and used the strike as its primary
tool to improve working conditions
• Labor Militancy Rebuffed
– threatened by the growing size and power
of their corporate employers, the
substitution of machines for human skills,
and the influx of foreign workers willing to
accept low wages, labor grew increasingly
militant
– in 1877, a railroad strike shut down twothirds of the nation’s railroad mileage
– violence broke out, federal troops restored
order, and the strike collapsed
– in 1892, violence marked the strike against
Carnegie’s Homestead Steel plant
– the defeat of the Amalgamated Association
of Iron and Steel Workers eliminated
unionism as an effective force in the steel
industry
– the most important strike of the period took
place in 1894, when Eugene Debs’s
American Railway Union struck the
Pullman company
– President Cleveland broke the strike when
he sent federal troops to ensure the
movement of the mail
– when Debs defied a federal injunction to
• Whither America, Whither Democracy?
– each year more of America’s wealth and
power seemed to fall into fewer hands
– bankers dominated major industries
– centralization increased efficiency but
raised questions about the ultimate effects
of big business on democracy
– the defeat of the Pullman strike
demonstrated the power of courts to break
strikes
– the federal government obtained an
injunction in that case by asserting that the
American Railway Union was engaged in a
combination in restraint of trade prohibited
by the Sherman Act
– after the failure of the Pullman strike, Debs
became a socialist