Industry Comes of Age in the ‘Gilded Age’ 1865-1900

1. Industry Comes of Agein the ‘Gilded Age’1865-1900 Part I (cont.) & II A.P. US History Mr. Houze

2. Old Industries Transformed, New Industries BornA. Miracles of Mechanization (cont.) “Genius is one percent inspiration and ninety-nine percent perspiration.” -- Thomas Alva Edison

3. Old Industries Transformed, New Industries BornA. Miracles of Mechanization (cont.) • Edison pioneered the use of electricity as an energy source to power his inventions – among his major inventions were the ‘phonograph’, ‘motion picture camera’, ‘mimeograph’, and the ‘incandescent light bulb’ • By the late 19th century, electricity had become part of American urban life – powering trolley’s, subways, factories, and lighting homes, office buildings, apartments and other structures

4. Old Industries Transformed, New Industries BornA. Miracles of Mechanization (cont.) • George W. Westinghouse, a lesser competitor and contemporary of Edison, invented the Westinghouse air brake – a braking system utilized in railroading that greatly increased the efficiency and safety of rail transportation. • By the early 1890s, the freewheeling era of ‘robber barons’ and inventors was closing and the heyday of corporate consolidation opened – among the first was General Electric [formerly Edison General Electric]

5. II. Old Industries Transformed, New Industries BornB. The Supremacy of Steel & Andrew Carnegie • In 1848, Andrew Carnegie came to America from Scotland – his first job was as a ‘bobbin boy’ in a textile mill, earning $1.20 a week. • By 1900, Carnegie was producing one-fourth of the nation’s ‘Bessemer Steel’! • By then, Carnegie Steel Corp. was earning $40 million a year, which he divided with his partners [his take, a cool $25 million a year]

6. Old Industries Transformed, New Industries BornB. The Supremacy of Steel & Andrew Carnegie (cont.) • Carnegie sold his company in 1900 to J. Pierpont Morgan for $450 million dollars! • By the time of his death in 1919, Carnegie had given away more than $300 million dollars to charitable causes! • Andrew Carnegie became the nation’s leader in the transition from the age of iron to that of steel – avoiding the corrupt speculation exhibited by many of his contemporaries to make steel production the nation’s first ‘manufacturing’ big business. • He reshaped the iron and steel industries by building the most up-to-date steel plant on 100 acres just outside of Pittsburgh, Pennsylvania – a site with access to the Monongahela River and two railroad lines.

7. Old Industries Transformed, New Industries BornB. The Supremacy of Steel & Andrew Carnegie (cont.) • The river and rail lines provided his plant with a natural highway to Pittsburgh, the Ohio River, and Pennsylvania’s coal fields • To ensure access to iron ore, coal, and rail service, Carnegie pioneered ‘vertical integration’ – a system of business organization that maximized output while minimizing costs by allowing him to control every aspect of the steel business. • Using ‘vertical integration’, Carnegie combined all phases of manufacturing from mining to marketinginto one organization – Carnegie Steel • owned iron ore mines in the Mesabi Range, • Carnegie ships carried the ore across the Great Lakes, • Carnegie railroads carried the ore from the Great Lakes to his blast furnaces in Pittsburgh, and carried the finished products to distant markets.

9. Old Industries Transformed, New Industries BornB. The Supremacy of Steel & Andrew Carnegie (cont.) • Through ‘vertical integration’, Carnegie eliminated all middlemen and their costs while improving efficiency and the quality of his steel products. • By 1900, Carnegie’s business model enabled his mills to produce 10,000 tons of steel a week – enough to meet America’s growing need for bridges, skyscrapers, railroads, elevated trains, etc. • Carnegie’s pioneering use of ‘vertical integration’ came at a cost to workers! • long hours, • low wages, • dangerous working conditions.

11. Part II: • Describe how the economy came to be dominated by giant ‘trusts’, such as those headed by Carnegie and Rockefeller in the steel and oil industries (cont. from Part I) • Explain why the South was generally excluded from industrial development and fell into a ‘third world’ economic dependency • Analyze the social changes brought by industrialization, particularly the altered position of working men and women

12. Old Industries Transformed, New Industries BornC. Rockefeller Grows an American Beauty Rose • ‘Captains of Industry’ like Andrew Carnegie, John D. Rockefeller, and J. Pierpont Morgan used their genius and business skills devising ways to cut costs, increase efficiency, and eliminate competition. • The ‘horizontal integration’ business model was based less on efficiency and more on the idea of allying with competitors, forming an oligarchy, to monopolize a ‘market’.

13. Old Industries Transformed, New Industries BornC. Rockefeller Grows an American Beauty Rose • John D. Rockefeller was a master of this business stratagem – pioneering a variant of ‘horizontal integration’ called the ‘trust’ • In 1859, Edwin Drake discovered oil in Pennsylvania – beginning an oil boom to meet America’s growing need for refined machine lubricants and kerosene for lighting 19th century houses. • Between the 1860s and 1870s the cost of building oil refineries was comparatively low -- low barriers to entry – typically less than $25,000. • As a result, the oil industry was convulsed by virtually uncontrolled cutthroat competition among many small refining companies

15. Old Industries Transformed, New Industries BornC. Rockefeller Grows An American Beauty Rose (cont.) • Rockefeller, who began his business career at nineteen, was already a shrewd and successful businessman as this era dawned. • In 1870, John D. Rockefeller incorporated the Standard Oil Company of Ohio – the precursor of today’s Exxon-Mobil Corp. • Rockefeller, the largest oil refiner in Cleveland, eliminated middlemen and squeezed out competitors by following a policy of ‘rule or ruin’, which included: (1) demanding secret rebates from railroads on the freight bills of his competitors, (2) employing spies to infiltrate his competitor’s businesses to gain information, and (3) demanding secret rebates from railroads in exchange for guarantees of his business

16. Old Industries Transformed, New Industries BornC. Rockefeller Grows An American Beauty Rose (cont.) • These business practices enabled Standard Oil Company to undercut his competitors prices and dominate more than 90 percent of the oil business by the 1890s • In addition, these techniques enabled Rockefeller to pressure competing refiners to sell their companies to him or face ruin and bankruptcy • Then, in 1882, Rockefeller established a new corporate structure – the ‘Trust’, a business model designed to control the market through ‘horizontal integration’ of all aspects of the oil ‘refining’ process

17. Old Industries Transformed, New Industries BornC. Rockefeller Grows An American Beauty Rose (cont.) • The ‘trust’ allowed Standard Oil Co. ‘trustees’ to hold stock in various refinery companies ‘in trust’ and coordinate policy between the refineries – a means to guarantee that refiners would adopt prices and practices dictated by Rockefeller • Rockefeller bought controlling shares in competing refinery companies in order to place his ‘trustees’ on their boards of directors • The ‘Standard Oil Trust’, valued at $70 million, enabled Rockefeller to monopolize the oil-refining industry • After the federal government threatened to outlaw the trust as a monopolistic violation of free trade and fair competition, Rockefeller transformed the Standard Oil Company into a new business form – the ‘Holding Company’

18. Old Industries Transformed, New Industries BornC. Rockefeller Grows An American Beauty Rose (cont.) • The ‘Holding Company’ eliminated the ‘trust’ and ‘trustees’ by bringing competing oil companies (which he owned controlling shares of stock in) under one central administration • Between 1902 and 1905, journalist Ida B. Tarbell exposed Rockefeller’s business practices in a series of articles appearing in ‘McClure’s Magazine’ – Rockefeller had ruined her father’s business

19. From Competition to ConsolidationD. J. Pierpont Morgan, Finance Capitalist & Sultan of Steel • J. Pierpont Morgan was the most influential banker of his day – he built his reputation by financing the reorganization of banks, railroads, and insurance companies • Consolidation restructured American industry as the ‘corporation’ developed into the dominant form of business organization

20. From Competition to ConsolidationD. J. Pierpont Morgan, Finance Capitalist & Sultan of Steel (cont.) • Financiers like J.P. Morgan and various banks played key roles in sponsoring the shift from individual entrepreneurship to ‘finance capitalism’ • Morgan viewed corporate competition as wasteful and inefficient – seeking to eliminate it through corporate consolidations and centralized control of operations • In the 1890s, ‘Jupiter Morgan’ rescued bankrupt railroads by creating a ‘community of interest’ – using handpicked managers he eliminated wasteful competition in the industry through ‘interlocking directorates’

21. From Competition to ConsolidationD. J. Pierpont Morgan, Finance Capitalist & Sultan of Steel (cont.) • Using ‘interlocking directorates’, he placed officers of his own banking syndicate on the various boards of directors of these railroads – ena-bling J.P. Morgan & Co. to control them as if they were one railroad • Morgan’s consolidation of the railroad industry, using ‘interlocking directorates’ and ‘holding companies’, concentrated America’s railroads in the hands of his directors – creating a railroad empire controlling two-thirds of the nation’s track • Morgan’s efforts to bring order to the nation’s railroad industry had its price – railroads were burdened with heavy debt because J.P. Morgan & Company engaged in ‘stock watering’ for short-term profits

22. From Competition to ConsolidationD. J. Pierpont Morgan, Finance Capitalist & Sultan of Steel (cont.) • Morgan’s consolidation achieved stability and kept investors happy but inflated the value of railroad stock – more stock was sold than the assets of his rail lines justified [‘stock watering’] • As a result, Morgan’s managers ran the railroads from an accounting and profit perspective – discouraging long-term investments in innovative technologies and organizational innovation • Business consolidations earned Morgan’s financial empire millions of dollars from commissions and blocks of stock acquired through handling such transactions

23. From Competition to ConsolidationD. J. Pierpont Morgan, Finance Capitalist & Sultan of Steel (cont.) • In 1898, J. Pierpont Morgan & Co. plunged heavily into the steel industry – manufacturing steel pipe tubing which threatened to cut into Andrew Carnegie’s business and profits • Morgan’s steel empire, created by consolidating several smaller steel companies, forced Andrew Carnegie to build a new plant for the manufacture of finished steel products [i.e. steel tubing, wire, hoops, nails, etc.] • By 1900, the press characterized the duel between Carnegie and Morgan as the ‘battle of the giants – in actuality, Carnegie (who was anxious to retire) maneuvered Morgan into buying out Carnegie Steelworks for $480 million dollars [equivalent to $9.6 billion in current dollars]

24. From Competition to ConsolidationD. J. Pierpont Morgan, Finance Capitalist & Sultan of Steel (cont.) • Morgan’s buyout of Carnegie Steel marked the beginning of the new corporate world – after the acquisition, Morgan consolidated other competitors into United States Steel capitalized at $1.4 billion • United States Steel became the largest steelmaker in the world – yet it did not monopolize the steel industry [ today it is known as USX] • Significant smaller steelmakers, including Republic and Bethlehem Steel, remained competitive within an ‘oligopoly’ - a system in which several large companies controlled production • The meatpacking industry, pioneered by men like Gustavus F. Swift and Philip Armour, also functioned as ‘oligopolies’ modeled after the steel industry – Swift, Armour and other ‘meat kings’ took their place among America’s new royalty

25. From Competition to ConsolidationD. J. Pierpont Morgan, Finance Capitalist & Sultan of Steel (cont.) • J. Pierpont Morgan, at his death in 1913, left an estate valued at $68 million, far less than the personal fortune of Andrew Carnegie – but Morgan was motivated by the power to control billions of dollars in assets, not by the accumulation of personal wealth • J. Pierpont Morgan, more than men like Rockefeller and Carnegie, left a lasting mark on the twentieth century – pioneering the model for corporate consolidation that social scientists and economists justified through the theory of ‘Social Darwinism’

26. From Competition to ConsolidationE. The ‘Gospel of Wealth’ & ‘Social Darwinism’ • In the age of ‘absolute monarchs’ royalty invoked the divine right of kings to justify their power, wealth, and actions – in the age of wide-open capitalism, the ‘Captains of Industry’ embraced the survival-of-the-fittest theories of Charles Darwin and ‘natural selection’ • British naturalist Charles Darwin’s, ‘On the Origin of Species’ (1859), theorized that the process of adaptation and survival triggered a ‘natural selection’ among species that led to evolutionary progress and change • At Yale University, Professor William Graham Sumner borrowed heavily on Darwin’s theories in arguing that, “The millionaires are a product of natural selection” – going further, Sumner stated, “They get high wages and live in luxury, but the bargain is a good one for society”

27. From Competition to ConsolidationE. The ‘Gospel of Wealth’ & ‘Social Darwinism’ (cont.) • British theorist Herbert Spencer, like Sumner, borrowed on Darwin’s theories to reach the same conclusions • Sumner and Spencer co-developed the theory of ‘Social Darwinism’, which when applied to human society, concluded that progress resulted from relentless competition in which the strong survive and the weak died out • Those who embraced ‘Social Darwinist’ theory believed equated wealth and power with ‘fitness’ for survival – they also believed that for humanity to achieve progress, the less fit must be allowed to die off according to the laws of nature and evolution

28. From Competition to ConsolidationE. The ‘Gospel of Wealth’ & ‘Social Darwinism’ (cont.) • ‘Social Darwinist’ theory presented formidable obstacles to social reform aimed at helping the less fortunate in American society – it was also used as a formidable argument by the wealthy to justify their social status, the means by which they ran their monopolistic corporations, and their accumulation of vast amounts of wealth • At the core of ‘Social Darwinist’ theory lay the key component of racism – which judged Angle-Saxons superior to all other groups • In 1889, Carnegie published, ‘The Gospel of Wealth’ – an essay that softened the harsh tone of ‘Social Darwinism’ by arguing that he was essentially acting as a trustee for the benefit of his poorer brethren, using the natural gifts God gave him to improve their lives as well as his own

29. From Competition to ConsolidationE. The ‘Gospel of Wealth’ & ‘Social Darwinism’ (cont.) • Through his ‘Gospel of Wealth’, Carnegie preached philanthropy and implored the rich to live ‘unostentatious’ lives and to ‘administer surplus wealth for the good of the people’ • Most millionaires, including J. Pierpont Morgan, followed Carnegie’s lead – but to varying degrees • ‘Social Darwinism’ assuaged the America’s conscience in an era of gross inequality of wealth, and neglect of the poor in the name of ‘race progress’

30. Politics & CultureA. The South in the Age of Industry • The ‘Compromise of 1877’ ended the Radical Republican’s military ‘Reconstruction’ of the South – in every Southern state the ‘Democratic’ party speedily reasserted its control, voted ‘Republicans’ out of office, and suppressed black civil rights • Southerners voted for ‘Democratic’ candidates in every presidential election for the next seventy years • At state and local levels, ‘Democrats’ in the so-called ‘Solid South’ had to contend with third-party challenges and changing political alliances resulting from economic pressures to overhaul the region’s devastated infrastructure and economy

31. FILM CLIP

32. Politics & CultureA. The South in the Age of Industry (cont.) • As the South’s economy languished after the Civil War, the North’s economy continued to grow at an unprecedented speed – prompting a group of influential Southerners to call for a ‘New South’ modeled on the industrial North • Henry W. Grady [editor of the weekly ‘Atlanta Constitution’] used his paper to promote industrialization of the South

33. Politics & CultureA. The South in the Age of Industry (cont.) • Grady, and other forward-thinking Southerners, achieved only modest success in a region with abundant in natural resources and cheap labor - the South remained largely backward and rural • In the 1880s, James Buchanan Duke began to manufacture machine-made cigarettes using the new technologies of mass-production – by 1890, he incorporated the ‘American Tobacco Company’ which swallowed many of his smaller competitors • Beginning around 1880, northern capitalists began investing in the South – building cotton textile mills which took advantage of (1) tax benefits, (2) cheap and plentiful non-unionized labor, and (3) the close proximity of raw materials (cotton fiber) to the actual mills

34. Politics & CultureA. The South in the Age of Industry (cont.) • Grady, and other forward-thinking Southerners, achieved only modest success in a region with abundant in natural re-sources and cheap labor - the South remained largely back-ward and rural • In the 1880s, James Buchanan Duke began manufacturing machine-made cigarettes using the new technologies – by 1890, he incorporated the ‘American Tobacco Company’

35. Politics & CultureA. The South in the Age of Industry (cont.) • This investment motivated southern men and women of all colors to join the migration of people from farm to city • Northern investment in south-ern textile mills produced two major regional changes - New England’s textile industry be-gan to decline, and by 1900 the South became the nation’s lead-ing producer of cotton textiles

36. Cotton Manufacturing Moves South, 1880-1980

37. Politics & CultureA. The South in the Age of Industry (cont.) • Railroads opened the South for industrial development – in fact, they were the first large industry to invest in the South • Between 1865 and 1890, railroad investments in the post-Civil War period quadrupled the number of track miles constructed • These northern-dominated railroad interests served, (1) to connect northern manufacturers with southern markets and sources of raw materials, and (2) provide rapid rail transportation for shipment of southern textiles, also dominated by northern financial interests, to northern markets and overseas shippers

38. Politics & CultureA. The South in the Age of Industry (cont.) • Despite the South’s advantages in cheap labor and abundant natural resources, northern bankers and investors didn’t allow the South to compete equally with the North • Ex: railroads gave preferential rates to manufactured goods moving south from the north, but charged higher rates for southern products shipped north

39. Politics & CultureA. The South in the Age of Industry (cont.) • Moreover, northern-dominated railroad interests gave preferential low rates for southern raw materials shipped to manufacturers in the North • The net effect of this form of economic discrimination was to keep the South in a state of virtual ‘Third World’ servitude to the Northeast • The ‘New South’ was most proud of its growing iron and steel industry which grew in the region around Birmingham, Alabama – it too faced the same kind of economic discrimination by northern-dominated banking, financial, and manufacturing interests

40. Politics & CultureA. The South in the Age of Industry (cont.) • One example of this economic discrimination against Southern iron and steel mills was the ‘Pittsburgh plus’ pricing system – an elaborate mechanism for inflating the price of southern steel in order to protect Pittsburgh’s steel companies and their customers from competition • Under the ‘Pittsburgh plus’ system, Pittsburgh’s steel lords [i.e. Carnegie Steelworks and other companies] brought pressure to bear on railroads to charge Birmingham steel companies a fictional fee to inflate the price of southern steel – essentially charging them as if it their steel had been shipped from Pittsburgh

41. Politics & CultureA. The South in the Age of Industry (cont.) • As a result of the North’s industrial and financial domination, the industrialized ‘New South’ achieved only limited gains – the South remained largely rural and agricultural, tied to the ‘crop-lien’ system that kept white and black southern farmers poor and in debt • Between 1865 and 1900, black and white voters occasionally entered into political alliances to achieve common goals – the ‘Readjusters’, a Virginia coalition formed to lower the state’s debt and promote public education, was one such alliance that captured state elective offices from 1879 to 1883

42. Politics & CultureB. The Impact of the Industrial Revolution on America • In the ‘Gilded Age’, Americans enjoyed a sharply rising standard of living and more comforts than workers in other industrial nations – however, it did not come easy and workers did not share proportion-ately with their employers in the benefits of the age of big business • During this period, America was transformed from a nation of farmers and independent producers to a nation of wage earners – by 1900, two out of three American workers depended on wages • American workers dependent on wages became increasingly vulnerable to economic cycles and the power of their employers – resulting in constant fears of illness, injury, and economic downturns that could leave them unemployed

43. Politics & CultureB. The Impact of the Industrial Revolution on America (cont.) • During this period, the insatiable demand for factory labor lured rural American migrants and peasant European immigrants to growing urban centers – there, industries imposed discipline and revolutionized the very concept of time by forcibly compelling them to adhere to strict work schedules • The industrial revolution of America’s ‘Gilded Age’ profoundly impacted the lives of women – opening new economic and social oppor-tunities made possible by recent inventions including the typewriter and telephone switchboard • For working middle-class women, careers frequently meant delaying marriage and having fewer children

44. Politics & CultureB. The Impact of the Industrial Revolution on America (cont.) • By the 1890s, the ‘Gibson Girl’ became the romantic ideal of the ‘new woman’ – an image created by artist Charles Dana Gibson for his magazine ‘The Gibson Girl’ • In the ‘Gilded Age’, most women worked out of necessity – not for independence or to conform to romantic images of what a woman should be • America’s industrial revolution during this period heightened class divisions – a growing problem made all the more apparent as ‘captains of industry’ openly displayed their bloated fortunes • Evoking bitter criticism, such open displays of wealth gave rise to a small but increasingly vocal group of radicals and socialists

45. Politics & CultureB. The Impact of the Industrial Revolution on America (cont.) • By 1900, approximately one-tenth of the people owned nine-tenths of America’s wealth – a testament to the existence of an oligarchy of money • Reformers struggled against this oligarchy of money to ensure some measure of security for working class Americans – measures including job and wage security and unemployment provisions • Toward the end of the ‘Gilded Age’, strong internal pressures within the nation and external pressures with other nations arose in competi-tion for markets – developments which put America on a course of empire and conflict with other nations