Industrialization increased the standard of living and the opportunities of most Americans, but at what cost? INDUSTRIAL AMERICA
In less than 125 years, America became the leading industrial power of the world. Major reasons for this quick rise to power include: • RAILROADS!!!!!!!!! • Resources • An abundance of natural resources • An abundance of human resources • unskilled & semi-skilled labor • Government policy towards business • Willing to help at all levels to stimulate growth • Market growing as U.S. population increased. • Entrepreneurs – talented group of businessmen & advisors with abundant capital • New inventions & technology
RAILROADS • The factor MOST responsible for growth of American Industry. • The Railroad fueled the growing US economy: • First big business in the US. • A magnet for financial investment. • The key to opening the West. • Aided the development of other industries. • Became a consumer of other industries.
“The Big Four” Railroad Magnates Charles Crocker Collis Huntington Mark Hopkins Leland Stanford
Transcontinental Railroad(During Civil War – to connect CA with the Union) • RACE – Pacific Railway Act, 1862: • Received 20 sq. mi. of land for every mile of track laid • $16,000 loan for every mile on flat land • $48,000 loan for every mile over mountains • Union Pacific: building west from Omaha, NE • Irish immigrants • Central Pacific: building east from Sacramento, CA • Leland Stanford & the Big Four • Chinese immigrants used • Most difficult time – Sierra Nevada Mtns. • Union lays 1,086 miles & Central 689
Improvements in RRs will increase their profitability: • Standardization & Consolidation: • Binds all sections of country together into one market • Cornelius Vanderbilt: • “The Commodore” – steamboat fleet • Consolidates NY railroads into NY Central RR Company • Eventually leaves his RR empire to his son, William H. Vanderbilt
Improvements in service: • 4 track main line • Standard gauge track • Use of Westinghouse air brake – allows all cars to stop simultaneously…can then carry heavier loads on longer trains • Pullman Palace Cars – luxury cars • Time Zones develop due to RR: • Develop because needed for RR scheduling • Originally 4 in U.S. • How many in U.S. now? • Eventually spreads worldwide
How did the RRs impact: • National unity? • Industry? • Mining & agriculture? • Growth of cities and urban areas? • Immigration? • The Environment? • Wealth?
Corruption in the Railroad Industry: • Stock Watering • Exaggerating RR assets; selling stock at higher prices than it’s worth • Bribery • Of judges, legislature; free passes to politicians • The “pool” • An anti-competitive combination – group of RR companies agree to divide business in a geographic area and share the profits • Rebates and Kickbacks • Reward powerful shippers for steady & assured traffic • Price Gouging • Rates are low on competing lines, but jacked up on non-competitive lines
Government Regulation of RR: • State regulation – 1870s • Encourages farmers to protest & organize (the Grange) & pressure state legislatures into passing regulations to control RR monopolies • Federal regulation • 1886 – Wabash v. Illinois • Sup. Ct. rules that states CANNOT regulate interstate commerce • 1887 – Interstate Commerce Act • Prohibits rebates, pools, requires that rates be published, establishes ICC to enforce • Impact of the ICC • Provides forum for resolution of conflicts • A good first step, but not very powerful
Resources: • Natural Resources: • Coal – amount mined doubles each decade between 1840 & 1890 • Iron Ore – Great Lakes, PA, AL • Oil – Western PA; to TX by 1900 • Human Resources: • Population doubles between 1860 & 1890 • IMMIGRATION – 14 million immigrants to U.S. during this time (“new immigrants” from S & E Europe)
Favorable Government Policy Towards Business • LAISSEZ-FAIRE!! • The ideology of the industrial age • Individuals should compete freely in the marketplace. • No room for government in the market! • Industry has very few government regulations and restrictions • ENTREPRENEURS • One who takes the risk of organizing and beginning a new business • Received help from the U.S. government: • High protective tariffs • Cheap land • Liberal immigration laws – cheap labor
JOHN D. ROCKEFELLER • OIL REFINING (Standard Oil Co.) • Consolidated 40 oil refining companies – a nationwide monopoly – controlled 95% of all refineries by 1877 • Believed in “economies of scale” • Ruthless in business! (dubbed “Reckafellaw”) • “American Beauty” rose analogy – pluck off the early buds… • Used rebates, drawbacks, spies & secret info from RR to learn about competitors & force them out of business • Stock or Cash Buyouts
Treated his workers well – the first to offer old-age pensions & tried to protect them in bad times • Hated waste! • Personally: • Ambitious • Abstemious • Pious • Parsimonious • Devout churchgoer and Sunday School teacher • Strong family man • Only the strong survive “GOD GAVE ME MY MONEY.” John D. Rockefeller
Gave away dimes to children on the street Retired at age 40 Spent rest of his life giving away money Gave away over $520 million to charities $78 million to colleges $60 million to medicine $18 million to African American education Lots more to education & research University of Chicago
Died at age 98 at Ormond Beach , FL
ROCKEFELLEREXPOSED BY JOURNALISTIDA TARBELL • A lifelong Rockefeller hater (her father took the cash buyout) • Exposed Rockefeller’s unethical business dealings with RR, etc.
ANDREW CARNEGIE • STEEL (U.S. Steel Corporation) • Hired the best technical & scientific experts • Used new process & made steel so cheaply it forced competitors into bankruptcy & then he bought them
Did not treat his workers as well as Rockefeller • Drove wages down & hours up for the common laborers & constantly fought unionization • But, made upper level management & experts partners in the business
Poor Scottish immigrant who went from “rags to riches” – a true Horatio Alger story • Began work in 1848 as bobbin boy - $1.20/wk • By 1900 produces half of nation’s steel –$25 million/year take-home pay • Ambitious, energetic, a “gambler” • Deeply believed that if one worked hard, saved $ & invested wisely, anyone could become wealthy “The first man gets the oyster, The second man gets the shell.” Andrew Carnegie
“Gospel of Wealth” – Wealthy are blessed with greater talent and wealth and have a duty to help those who would try to help themselves. Inequality is inevitable and good. Wealthy should act as “trustees” for their “poorer brethren.” Retired at 66 (bought out by J.P. Morgan – becomes U.S. Steel) Lived to be 84 Gave away over $350 million to charities Mostly to libraries Carnegie Hall & Museum, NY “The man who dies rich, dies disgraced.”
New Financial Businessman Wall Street – 1867 & 1900 • The Broker
Beliefs defending class distinctions:SOCIAL DARWINISM • Philosophy that applied Darwin’s biological theory of “survival of the fittest” to human society & those who succeeded • Wealth no longer looked upon as bad; viewed as a sign of God’s approval. • Yale professor William Graham Sumner: “millionaires are a product of natural selection.” • Individuals must have absolute freedom to struggle, succeed or fail. Therefore, state intervention to reward society and the economy is futile! • Both Rockefeller and Carnegie were strong believers in this philosophy • Believed it was a method better than elections for selecting leaders • Only the strong survivors will control industry and wealth
RUGGED INDIVIDUALISM • Equates to contempt for the poor • Many of nouveau riche had “pulled themselves up by their bootstraps” • The poor are only poor because of their laziness and lack of initiative • Rev. Russell Conwell • Christian duty to accumulate wealth • Should not help the poor. • “Acres of Diamonds” speech: • “There is not a poor person in the U.S. who was not made poor by his own shortcomings.” • 1/10 of people own 9/10 of all the wealth by 1900
HORIZONTAL INTEGRATION: SEVERAL FIRMS IN THE SAME KIND OF BUSINESS CONSOLIDATED, JOINED TOGETHER Best example: ROCKEFELLER and his Standard Oil Co. VERTICAL INTEGRATION BUSINESSES IN DIFFERENT BUT RELATED ACTIVITIES JOINED TOGETHER; COMBINES ALL PHASES OF MANUFACTURING INTO ONE ORGANIZATION Best examples: CARNEGIE Gustavus Swift, Meat-packing EFFORTS TO CURB COMPETITON:
INTERLOCKING DIRECTORATES: • J.P. MORGAN • “Banker’s banker” • Put officers of his own banking syndicate on Board of Directors of rival businesses • Made millions financing reorganization of RRs, banks, insurance companies
A corporation is a company formed by a group of investors who get a share of ownership in proportion to the amount of money they invest Corporate investors enjoy LIMITED LIABILITY … which means that investors risk ONLY the amount of their investment (stock cost) and can’t be held personally liable for debts of the corporation Due to huge sums required to build railroads, corporations become major business form in U.S.
ADVANTAGES OF CORPORATIONS OVER OTHER TYPES OF BUSINESSES: • Viewed as a legal “person” under the law – can make contracts, sue and be sued, etc. • PERMANENCE - they continue forever • EASY TO RAISE LARGE SUMS OF MONEY • Small amounts of $ from many individual investors can be pooled into huge sums of $ need to start or expand a large company • LIMITED LIABILITY
Advantages of “Big Business?” • Can produce more and better goods at a lower cost • created jobs • Can afford to pay high salaries to get the best experts • increased efficiency by establishing separate departments in business
What are the disadvantages of“Big Business?” • Methods they used to get “Big” • Demanded, & got, volume discounts from shippers • Underselling & forcing competitors out of business • Raising prices to the consumer • Bribing of public officials • Destruction of the environment • Why would people put up with this?
Images of the new elite Jay Gould – the Archtype of the Robber Baron (from left to right) John D. Rockefeller,Andrew Carnegie, Cornelius Vanderbilt, and J.P. Morgan Dr. Thomas C. Durant, Vice- Pres., Union-Pacific Railroad
Henry Flagler An American tycoon who worked with John D. Rockefeller to establish Standard Oil. He helped develop Florida as the vacation land it is today. • Moves to St. Augustine • Founder of Palm Beach • “Father of Miami” • Founds the Florida East Coast Railway • By 1912 Florida Overseas Railroad was completed to Key West • Flagler County, Flagler Beach, Flagler College
Flagler Resort Flagler College Whitehall - 1st big mansion in West Palm –--- history museum there now
Regulating the Trusts 1877 Munn. v. IL – okay for states to regulate RR rates 1886 Wabash, St. Louis & Pacific Railroad Company v. IL – overrules Munn; federal gov’t controls RR interstate commerce 1890 Sherman Antitrust Act Forbids combinations in “restraint of trade” No real means of enforcement First lawsuits all decided in favor of the trusts & against labor unions – restraining trade 1895 US v. E. C. Knight Co.– Fed. gov’t using Sherman Act to get rid of sugar monopoly but lost. Ct. held that manufacturing industries not subject to fed. gov’ts interstate commerce control
NEW INVENTIONS & TECHNOLOGY: • Bessemer and open hearth process • Created a lighter, stronger, rust-free metal – STEEL • U.S. producing 1/3 of world’s supply by 1890 • Refrigerated RR cars • Edison • light bulb • phonograph • motion pictures.
Thomas Alva Edison “Wizard of Menlo Park”
The Light Bulb Birth of the Night Shift! Industrial production now possible 24 hrs. per day.