Chapter 18

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					       Chapter 18

The Rise of Industrial America
• 1.) What brought about prodigious industrial
  growth and the rise of giant corporations in
  the period of 1865-1900?
• 2.) How did some business leaders, such as
  Andrew Carnegie and John D. Rockefeller,
  overwhelm competitors and dominate their
            Introduction (cont.)
• 3.) How and why did southern industrialization
  patterns differ from northern ones?
• 4.) How did workers respond to the changes resulting
  form rapid industrialization and the growth of big
• 5.) In the labor-management clashes of the period,
  why did management almost always win?
   The Rise of Corporate America
• The Character of Industrial Change
   – Rapid industrial expansion was made possible by:
      • using America’s vast coal deposits for cheap energy
      • Adopting new technology
   – Enabled manufacturers to cut production costs
      • Employ low-paid unskilled and semiskilled workers
      • Ruthless competition among businesses
          – Lowered commodity prices
          – Ruined weaker companies
          – Left fewer huge corporations in control of each industry
The Character of Industrial Change
• The unrelenting competition also drove business to
  brutally exploit labor and heedlessly pollute the
• Though prices fell:
   – interest rates remained high
   – credit tight
   – because of the failure of the money supply to keep up with
     the expansion of the economy
             Railroad Innovations
• By 1900, the United States had more rail miles tying
  the country together than did all of Europe
• Building this extensive railroad system opened a vast
  internal market to American industry
• The railroad companies also led the way in
  developing accounting, financial, and managerial
  practices that made large-scale corporate enterprise
   – Sale of stocks and bonds to raise needed capital
     Railroad Innovations (cont.)
• Railroad management innovations became
  the model for other businesses trying to sell
  products in a national market
Consolidating the Railroad Industry
• A group of innovative and unscrupulous railroad
  entrepreneurs bought out their smaller competitors
  one by one
   – Collis P. Huntington
      • Central Pacific Railroad
   – Jay Gould
      • Financier, developer, speculator
   – James J. Hill
      • Great Northern Railway
Consolidating the Railroad Industry
• By the 1890’s, they had established great
  trunk lines that controlled most of the track
• These integrated lines carried goods all over
  the country efficiently
  – Standardized equipment and track gauge
Consolidating the Railroad Industry
• However, the railroad companies abused their
  – Bribed politicians
     • Free passes and other favors
  – Gave rebates and kickbacks to big shippers
  – Overcharged small businesses and farmers
Consolidating the Railroad Industry
• Small shippers demanded legislation to curb
  the unfair practices
• In the 1870’s, many Midwestern states
  outlawed rate discrimination
  – These laws were ruled unconstitutional when the
    Supreme Court said states could not regulate
    interstate commerce
Consolidating the Railroad Industry
• Interstate Commerce Act
  – Passed Congress in 1887
  – Forbade pools, rebated, and other monopolistic
  – Established the Interstate Commerce Commission
     • Investigate complaints and unreasonable rates
  – Interstate Commerce Act short summary
Consolidating the Railroad Industry
• The Interstate Commerce Act was ineffective
  for several reasons:
  – Federal courts decisions almost always sided with
    the railroads
  – ICC’s lack of power to set railroad rates
  – Presidents appointing pro-railroad commissioners
Consolidating the Railroad
    Industry (cont.)
             • In the early 20th century,
               under the guidance of
               investment bankers
               railroad consolidation
               proceeded still further
                – J.P. Morgan
             • By 1906, 7 giant
               corporations controlled
               2/3’s of all the track
Applying the Lessons of the
    Railroads to Steel
              • Andrew Carnegie’s
                career illustrates the
                close connection
                between railroad
                expansion and the
                growth of heavy
     Applying the Lessons of the
      Railroads to Steel (cont.)
• Carnegie’s best customers were the railroad
• From his early experiences working in the
  railroad industry, he learned the
  organizational, accounting, and managerial
  innovations that he later applied to his steel
     Applying the Lessons of the
      Railroads to Steel (cont.)
• He also copied the railroad practice of
  consolidating small enterprises into fewer and
  fewer huge companies
• Carnegie integrated his business both
  vertically and horizontally
     Applying the Lessons of the
      Railroads to Steel (cont.)
• U.S. Steel
  – 1901
  – Carnegie Steel and J.P. Morgan’s Federal Steel
  – The world’s first corporation capitalized over $1
  – Contained 200 member companies
 The Trust: Creating New Forms of
      Corporate Organization
• By 1900, the consolidation process that had
  placed the railroad and steel businesses in the
  hands of a few corporate giants had also taken
  place in oil, sugar, meatpacking, and many
  other industries
 The Trust: Creating New Forms
of Corporate Organization (cont.)
• Standard Oil Company
   – John D. Rockefeller
   – Oil-refining
   – Adopted the latest
   – Made deals with the
     railroads to get special
     shipping discounts
   – Engaged in deception and
     aggression to ruin
   – Created the 1st trust and
     later holding company to
     extinguish all competition
     in oil refining
 The Trust: Creating New Forms of
  Corporate Organization (cont.)
• The growth of trusts, oligopolies, and monopolies in
  one industry after another led to public pressure for
  govt. intervention
• In 1890, Congress passed the Sherman Anti-Trust Act
   – Outlawed all contracts and combinations that were in
     restraint of trade in interstate commerce
   – Sherman Anti-Trust Act
 The Trust: Creating New Forms of
  Corporate Organization (cont.)
• The Sherman Anti-Trust Act was ineffective in
  stopping the growth of trusts:
   – Vaguely worded
   – Presidents rarely brought suits against companies under it
   – Supreme Court in the E.C. Knight case (1895) interpreted
     the meaning of interstate commerce so narrowly as to
     prevent the law’s use against manufacturing corporations
      • PBS summary
      • E. C. Knight case short summary
          – Large-scale consolidations in industry accelerated after the E.C.
            Knight case
   Stimulating Economic Growth
• The Triumph of
   – The invention and
     patenting of new machines
     in the period 1860-1900
     also brought about the
     growth of huge
       • Alexander Graham Bell’s
         invention of the
         telephone in 1876 gave
         rise to Bell Telephone
       • By 1900 had installed
         some 800,000 phones
     The Triumph of Technology
• Thomas Edison
   – Menlo Park
   – Perfected the light bulb
     (Edison Electric)
   – Invented the phonograph,
     microphone, motion-
     picture camera and over
     thousands of other items
• Bell and Edison proved
  that new inventions could
  be the foundation of
  profitable big business
        Specialized Production
• Manufactures of specialized products also
  greatly expanded their output between 1865
  and 1900
  – Locomotives
  – Furniture
  – Women’s clothing
• Not necessarily done in huge factories though
      Advertising and Marketing
• Aggressive advertising and marketing were
  effective in expanding sales and beating out
  competitors in the late 19th century
  – Procter and Gamble
  – American Tobacco
  – Eastman-Kodak
Advertising and Marketing
     Economic Growth: Cost and
• By 1900 the chaos of thousands of small companies
  competing for the national market had been
  replaced by an economy dominated by a small
  number of enormous corporations offering a dazzling
  array of new products
• The price of these accomplishments was the crushing
  of thousands of small-and medium-sized business,
  the exploitation of millions of workers, and the
  fouling of the environment
                    The New South
• The South industrialized more slowly than the North
   – Until 1900 lagged far behind North
• Reasons why:
   – The destruction of the South’s credit system by the Civil
      • Shortage of capital
   – Federal govt. policies that hurt the South economically
      • High protective tariffs
   – South’s poor educational facilities
      • High rate of illiteracy
       The New South Creed and
       Southern Industrialization
• In the 1870’s, southern newspaper editors, planters,
  and businessmen began to preach the “New South
   – The region must industrialize
• Eager to attract northern capital:
   – southern states offered tax exemptions for new businesses
     that would locate there
   – Held industrial fairs
   – Leased convicts from state prisons as cheap labor
   – Practically gave away land, forests, and mineral rights to
     northern corporations
    The New South Creed and
 Southern Industrialization (cont.)
• Iron and steel production expanded
  – Birmingham and Chattanooga
• The iron and steel mills hired many unskilled
  African Americans
     The Southern Mill Economy
• Unlike the iron and steel industry, where
  factories were usually in or near urban areas,
  southern textile mills opened in the
  – Towns and villages were created around the mills
• Most of the textile mills were located in the
  Piedmont region of VA, the Carolinas, GA, and
The Southern Mill Economy (cont.)
• The southern mills combined northern technical
  expertise with southern rural paternalism
• They recruited workers from the poor white farm
• Hired many women and children, and even whole
• The owners paid the laborers 30-50% less than New
  England mills
     The Southern Mill Economy
• The textile companies dominated life in the mill towns
  they started
• They provided their employees with housing, stores,
  schools, and churches
    The Southern Mill Economy
• The mills underpaid their workers and
  overcharged for rent and supplies
   – the employees often fell into debt to companies
      • Just as sharecroppers were indebted to their landlords and
          Southern Industrial Lag
• Despite impressive advances, southern
  industrialization occurred on a small scale and at a
  slower pace then in the North
• The southern economy remained essentially in a
  colonial status
• Industry was owned largely by northern firms
   – Example=U.S. Steel controlled the foundries in
    Factories and the Work Force
• From Workshop to Factory
  – The number of industrial workers in the United States
    climbed from 885,000 to 3.2 million by 1900
  – The trend toward large-scale, increasingly mechanized
    production accelerated
  – the nature of work changed markedly
     • Fewer artisans
     • Remaining skilled workers had less control over their work and
       derived less satisfaction from it
 From Workshop to Factory (cont.)
• Factories hired more low-skilled, low-paid
  women and children
• Jobs became simple, machine-paced,
  repetitive, and boring
 The Hardships of Industrial Labor
• Already by the 1880’s, almost 1/3 of the labor force
  in steel and railroad industries were unskilled
• Common laborers drifted from city to city and from
  industry to industry
   – Worked for wages that were 1/3 of those paid to skilled
• In the expanding factories and on railroads, workers
  were exposed to a variety of industrially induced
   – Black lung (exposure to coal dust)
   – Brown lung (inhaling cotton dust)
 The Hardships of Industrial Labor
• They also had appallingly accidents
• Employers rarely paid compensation to
  injured workers and opposed passage of state
  health and safety codes
              Immigrant Labor
• More and more, immigrants filled the least skilled,
  lowest-paid, dirtiest, and most dangerous jobs in the
  expanding mines, factories, and railroads
• Impoverished French Canadians crossed the border
  to work in the New England textile mills
• Chinese constructed railroads and mined ore in the
• If immigrant workers stayed healthy, they often lived
  better than they had in their homelands
        Immigrant Labor (cont.)
• Most of the immigrants worked very hard
• Most did not adjust easily to the fast pace and
  monotony of factory work or to the rigid
  discipline management tried to impose on
   Women and Work in Industrial
• Since women could be paid even less than men and
  could do unskilled industrial jobs just as well,
  management hired more and more women
• Married, working-class women and their children
  often spent hours finishing garments, rolling cigars,
  and performing other labor for manufacturers in
  their tenement apartments
   Women and Work in Industrial
        America (cont.)
• Young, single women readily took jobs in factories
  because they preferred them to domestic service
• Almost the only alternative for uneducated females
• Immigrant parents regularly sent their daughters into
  the mills and factories to supplement inadequate
  family incomes
• By 1900, women made up 17% of the labor force
   Women and Work in Industrial
        America (cont.)
• In the late 19th and early 20th centuries, women
  also began to obtain clerical positions
   – Office work paid better and offered more prestige than
     factory jobs
      • But women clerical workers had almost no chance of moving up to
        managerial positions
• Despite the increase in female wage earners,
  women’s work outside the home was viewed as
• A women’s career was that of housewife and mother
    Hard Work and the Gospel of
• Newspapers and magazines preached the gospel
  that, for male workers, America was the land of
  opportunity and hard work led to success
• The papers were filled with rags-to-riches stories
• Poor immigrant boys who rose to become heads of
  major corporations (Andrew Carnegie)
• In fact, Carnegie was the exception
    Hard Work and the Gospel of
          Success (cont.)
• 95% of executives of big corporations came
  from middle-and upper-class families
• There was some opportunity for skilled
  workers to move into ownership and
  management of small businesses
    Hard Work and the Gospel of
          Success (cont.)
• For unskilled immigrant workers there was
  less mobility
• At best they moved from unskilled to
  semiskilled or skilled industrial jobs
  – They remained in the working class
    Hard Work and the Gospel of
          Success (cont.)
• A huge gulf existed between the rich and poor
• By 1890, America’s richest families (top 10%) owned
  73% of the country’s wealth
• At the other extreme, better than 50% of all
  industrial laborers earned incomes that placed them
  below the poverty line
     Labor Unions and Industrial
• Organizing the Workers
  – In response to the unfavorable changes that rapid
    industrialization was forcing on them, workers
    turned to labor unions
  – National Labor Union
     •   1866
     •   Formed by William H. Sylvis
     •   Several trades
     •   Declined in membership in 1870’s
     Organizing the Workers (cont.)
•   Knights of Labor
•   Terrence V. Powderly
•   1870’s
•   Advance social and economic reforms:
    –   Equal pay for men and women
    –   Abolition of child labor
    –   Inclusion of black workers in unions
    –   A graduated income tax
    –   Cooperative ownership of factories, mines, and other
    Organizing the Workers (cont.)
• Despite their egalitarian ideals, the Knights and other
  labor groups favored immigration restriction
• Labor opposition to the Chinese, whom they accused
  of working so cheaply that they undercut native-born
  workers, was especially strong
• The federal govt. responded to anti-Chinese
  sentiment by passing the Chinese Exclusion Act in
   – Chinese Exclusion Act of 1882
    Organizing the Workers (cont.)
• When the Knights won a series of strikes in the
  1880’s, workers rushed to join, swelling its
  membership to 700,000
• In the late 1880’s, the Knights suffered setbacks:
   – It lost several big strikes
   – Its craft unions broke away to form the American
     Federation of Labor (AFL)
   – Its membership declined
Organizing the Workers (cont.)
               • AFL
               • Led by Samuel Gompers
               • Did not attempt to
                 organize unskilled workers
               • Dropped the far-reaching
                 social-reform goals of the
                 National Labor Union and
                 the Knights
   Organizing the Workers (cont.)
• AFL concentrated on winning short-term
  improvements in wages and hours for its skilled
• The AFL grew, but by 1900 less than 5% of America’s
  workers belonged to any union
• The development of unions was seriously impeded
   – splits in the labor force between skilled artisans and
     common laborers
   – religious and ethnic divisions
   – differences among labor leaders concerning goals and
     Strikes and Labor Violence
• Between 1881 and 1905 almost 37,000 strikes
  took place
• Nearly 7 million workers
• Violence erupted as strikers attacked
  employers’ property and the scab laborers
 Strikes and Labor Violence (cont.)
• Some of the biggest and most violent confrontations
   – The railroad strikes of 1877
   – The eight-hour strikes of 1886
      • 8 hour strike
   – The Haymarket Square bombing (for which 4 anarchists
     were unjustly convicted and executed)
      • Chicago History
   – The Homestead steel strike
      • PBS Homestead Strike
   – The Pullman strike
      • Chicago History
 Strikes and Labor Violence (cont.)
• To combat labor unrest, employers forced workers to
  sign yellow-dog contracts and hired their own private
  police forces
• Because of the violence, the public regarded strikers
  as dangerous radicals
• The federal govt. intervened repeatedly on the side
  of management
   – Used the army to quell disturbances
   – Used injunctions to order union members back to work
Strikes and Labor Violence
             • When injunctions were
               disobeyed, union officers
               like Eugene Debs (the
               leader of the Pullman
               strike) were thrown in jail
             • As a result of employer,
               public, and govt. hostility,
               strikes almost always
               failed and unions
      Social Thinkers Probe for
• The growing extremes of poverty and wealth
  and the violent clashes between labor and
  management troubled middle-class Americans
• A number of social commentators tried to
  explain these developments and put forward
  their own solutions
       Social Thinkers Probe for
         Alternatives (cont.)
• Social Darwinists
  – Believed that labor’s misery was an inevitable
    product of the constant struggle for survival that
    weeded out all but the fittest
  – They opposed any govt. interference with the
    workings of these natural laws
  – Andrew Carnegie
  – William Graham Sumner
        Social Thinkers Probe for
          Alternatives (cont.)
• Others attributed the social problems to a human-
  made economic system that placed private property
  and unrestricted profit seeking above all else
• They called for govt. regulation, tax reform and a
  cooperative commonwealth
• Lester F. Ward
• Henry George
• Edward Bellamy
       Social Thinkers Probe for
         Alternatives (cont.)
• Tiny socialist and anarchist groups preached
  that only the overthrow of the capitalist and
  the govt. that protected them would make
  possible a just and humane society
• Industrialization had brought great benefits to
  – International power status
  – Lower-cost goods
  – More jobs
  – A tremendous array of new consumer products
            Conclusion (cont.)
• But the price had been high:
  – Shoddy business practices
  – Polluted factory sites
  – Urban slums
  – Poverty for the workers
            Conclusion (cont.)
• Exploited laborers periodically vented their
  rage and frustrations in violent outbursts and
• Middle-class Americans were ambivalent
  about the new industrial order
  – They wanted to keep the benefits but somehow
    alleviate the accompanying social evils

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