Chapter 24

1. Industry Comes of Age 1865-1900 Chapter 24

2. I. Iron Colt Becomes the Iron Horse • Many lured away from politics to business • America lost civic leadership in late 19th century • US move to industrialization caused transformation in everyday lives of Americans, growth of railroad leads the way • Prime example of government and business entanglements was the RR industry • RR building expensive and needed government money • Arguments used- to populate country, postal needs and military needs • Federal government gave land grants to RR, all land given to them was not open to public until they decided what they wanted to do with it

3. I. Iron Colt Becomes the Iron Horse • 1887 Cleveland opens up unclaimed land to the public • Government received benefits of using RR for military and mail • Granting land was way to subsidize RR construction without taxes or cash • RR used land as collateral for loans, and to make money selling it (land had little value until RR ) • Many frontier outposts competed for RR, those that won bidding flourished

4. II. Spanning the Continent with Rails • 1862- Congress passes provisions to allow for transcontinental RR, to bind east and west • Construction begins after war • 1869- Union Pacific from the east, Central Pacific from the West meet in Ogden, Utah • Allowed goods to travel across country for first time, opened trade with Asia, allowed for opening of growth of West

5. III. Binding the Country With Railroad Ties • Four other Transcontinental lines completed by 1900 • All except Great Northern received federal land grants

6. III. Railroad Consolidation and Mechanization • Many western lines were expansion of older eastern lines • Major player behind this was Cornelius Vanderbilt, offered superior railway service at lower rates • Technology and standardization effected RR industry • Steel, not iron rails • Air brakes • Standard gauge track width • Pullman cars

7. IV. Revolution on the Railways • RR changed many parts of American life • Country united in a physical sense • Created domestic market for consumer goods and raw materials, spurred industrialization • Opened up new markets and sources for raw materials • Allowed cities to grow • Immigrants came to regions advertised in Europe • Environmental Impact: Destruction of tall grass prairie, “industrialized” land into square grain plots, cattle displaced buffalo, forests cut and transported to growing cities • Time was “industrialized” with establishment of standardized time zones to keep train running on schedule • Made millionaires of men (new RR aristocracy), became an investment opportunity for those on Wall Street

8. V. Wrongdoing in Railroading • Corruption allowed fortunes to grow • Credit Mobilier, land speculation, boom and bust of RR stock • Stock watering favorite get rich quick scheme • Inflated value of lines assets and profitability, sold overvalued stocks to investors • Forced RR to charge higher rates to provide return on investments • Railroaders bought and sold public officials to gain favor • Control of RR by few allowed monopoly to grow • Competition between RR grew into cooperation, used the “pool” method to divide business in given area and split the profits • Some granted special rates to some shippers for steady money and traffic • Charged more for short haul than long haul • These actions were done with little regard to the American consumer

9. VI. Government Bridles the Iron Horse • Farmers resented RR plutocracy because of high rates • Government slow to respond to economic injustice, counter to American ideal of free enterprise, competition and government interference in business • Depression of 1870’s hit farmers hard and felt RR rates were part of the problem • Agrarian groups like the Grange formed to lobby for farmers and use state legislative action to regulate the RR monopoly

10. VI. Government Bridles the Iron Horse • States had some successes in the Midwest (Grange Laws) but Supreme Court put an end to all of it • 1886Wabash vs. Illinois decided that states had no authority to regulate interstate commerce, only the federal government • 1887 Congress passes the Interstate Commerce Act • Prohibited rebates and pools • RR had to publish rates openly • Forbid discrimination against shippers, rates for short and long haul • Set up Interstate Commerce Commission (ICC) to enforce, regulate new legislation • Act provided a way for business interests to resolve their differences in the open, country could avoid rate wars and action by state legislatures • ICC stabilized business in America • First large scale attempt to regulate business in the interest of society at large, demonstrated that government would protect public interest

11. VII. Miracles of Mechanization • After the war America steadily grew to be the world leader in Industrial production • Why? • Natural resources- coal, timber, many navigable rivers, in 1859 oil was discovered - new source of inexpensive energy • Workforce growth- Immigrants pushed from their homeland pulled by the opportunity that America offered. Mechanization of agriculture pushed many farmers to the new, growing cities to find work. Provided new industry a huge workforce • Capitalism- liquid capital became more available after the war, system of free enterprise allowed entrepreneurs to fuel industrial growth, established factories, created jobs, attracted foreign investment • Government Policies- encouraged growth of business. Provided railroads millions of acres of land to link the country. Passed protective tariffs, encouraged laissez- faire policies Strong legal system and private property rights encouraged investment and growth • Technological Innovation- capitalism encouraged innovation and efficiency, brought women into the workplace, established a communication network, changed the daily lives of Americans

12. VIII. The Trust Titan Emerges • New ways of doing business emerged that concentrated capital and allowed for more efficient control of industry • Corporation people share ownership through stock ownership, created huge pool of capital to invest in the business, run different factories • Corporations worked to maximize profits, tried to pay workers as little as possible, pay low prices for raw materials. • Monopolies were formed to gain complete control of a product or service charge low fares to put others out of business, • Others tried to eliminate competition by forming cartels to keep prices artificially high • More efficient ways of doing business and organizing their companies • Two new methods: • Horizontal Integration- consolidating many firms into one business (Standard Oil and refineries) • Vertical Integration- gaining control of the many different businesses that make up all parts of a products development (Carnegie Steel)

13. Vertical and Horizontal Integration

14. Capitan’s of Industry • Andrew Carnegie, John D. Rockefeller, J.P. Morgan, Richard Sears and Alvah Roebuck were men skilled in organizing and promoting big business. • Rockefeller, Carnegie were known for their innovations in organization • J.P. Morgan developed investment banking • Sears and Roebuck were the pioneers of mail order retailing

15. IX. The Supremacy of Steel and Andrew Carnegie • Steel was a scarce expensive commodity before the Civil War, after the war with the perfection of the Bessemer Process steel became inexpensive and fueled industrial and economic expansion in the US • By 1900 the US produced 1/3 of the worlds steel • America was one of the few places in the world where the raw materials needed for steel production were found close together (coal, iron ore, abundant labor supply)

16. IX. The Supremacy of Steel and Andrew Carnegie • Master of steel industry was Andrew Carnegie • Born in Scotland to a poor family experienced a rise from rags to riches • During the Civil War developed a military telegraph system • After the war- built railroad bridges, steelmaking and investments • 1873 Carnegie began to concentrate on steel • Not a technical expert but a salesman, promoter and organizer • Hired men of ability to run business and used the most up to date machinery • Bought out struggling companies and had a philosophy of continual innovation • Stood out as a thinker and publicized a philosophy for big business, “ The Gospel of Wealth” (1889) • When he retired at 65 devoted himself to giving away his fortune for the public good. Gave money to universities, libraries, parks, churches, public buildings

17. John D. Rockefeller • Obsessed with order, precision, tidiness he decided to bring order to the oil industry • Recognized the potential for profits in the oil industry • 1870-Standard Oil of Ohio, began to buy out other refiners, in less than six weeks he controlled 90% of all oil refining in the United States • Began to purchase all aspects of production barrels, pipelines, tank cars, oil storage facilities and he made deals with railroads to ship his products cheaply • Established a trust to make business more efficient, centralize control of the business, established the idea of a holding company (controlling the majority of stock of many different companies) • End of his life Rockefeller gave most of his fortune away, gave away more than $500 m.

18. J.P. Morgan • Born to a wealthy family • Used his connections to bring capital from Europe to the United States to invest in businesses • Purchased stock and bonds wholesale and sold them for a profit- beginning of investment banking • Morgan began to consolidate these companies into trusts • By the 1890’s he was in charge of one sixth of the nations railroads • Morgan believed that control brought stability to the economy • 1901 Morgan purchased Carnegie’s steel and iron holdings • Created the first billion dollar corporation in the United States (US Steel)

19. Sears and Roebuck • Many new products in the later 1800’s needed markets. • How did retailers reach the millions of people that lived in small towns and isolated farms? • 1890’s two Chicago entrepreneurs Richard Sears and Alvah Roebuck began offering goods by mail. • They purchased goods in high volume from wholesalers and sold it at prices lower than the local rural stores • Development of free rural mail delivery in 1898 meant that rural Americans could purchase goods, before were expensive or only available to city dwellers • The new business helped create a truly national market

20. X. The Gospel of Wealth and Social Darwinism • Industrialists credited heavenly help for success • Carnegie said wealthy entrusted with riches of society, they must be morally responsible according to Gospel of Wealth • Wealthy trustees of poor • Many business leaders followed idea of Social Darwinism, survival of the fittest theories (business and race) • Questioned what do social classes owe each other? • Involved contempt for the poor • Industrial plutocracy took its stand based on the Constitution • Lawyers stood behind 14th Amendment, corporation was a legal entity and had same protections as individuals when it came to protection of rights • Many business incorporated in easy states like where restrictions were mild or nonexistent

21. XI. Government Tackles the Trust Evil • Masses begin to mobilize against the monopolies • State legislation did not work • 1890- Congress passes the Sherman Anti-Trust Act • Forbid monopolies that restrained trade (bigness was the sin) • Law was ineffective and hard to enforce, actually used against labor unions to curb their activities • Early step to government control of the business sector

22. Robber Barons or Captains of Industry? Captains of Industry Business leaders served nation positively Provided jobs Technology, innovation helped American economy, allowed America to become an international leader Many were important philanthropists Robber Barons Americans felt that cartels, trusts, monopolies gave businessmen unfair advantage Consumers and workers were harmed by these business practices

23. XII. The South in the Age of Industry Industrial expansion did not touch south, after Reconstruction South struggled to develop industry, remained agricultural and poor Absentee land ownership (land worked by sharecroppers) South produced fraction of manufactured goods as the north 1880’s Southern agriculture received a boost with invention of machine rolled cigarettes, tobacco consumption went up Tobacco became a consolidated monopoly , controlled by James Duke Southern leaders pushed for “New South”- modernized economy, agriculture and industry

24. XII. The South in the Age of Industry Railroads expanded, linked rural areas across south and to port cities Few railroads connected to northern cities South used federal money and prison labor to finance and build rail lines Plenty of natural resources, not enough skilled labor or capital Limited education, few technical colleges Low wages Banks had limited assets, wealth concentrated among small group of people Railroad rates- charged more for goods going north; except raw materials Manufacturing cotton textiles had modest success in south Labor nonunionized and cheap, Southern leaders also gave manufacturers tax incentives Cheap labor major southern attraction Provided work to women and children instead of farm work (working conditions no better than in north)

25. XIII. The Impact of the Industrial Revolution on America Increased wealth, higher standard of living Urban centers grew Cities and jobs attracted rural people and immigrants Jeffersonian ideal of Americans as small farmers was dying Federal authority was expanding to protect consumers from large corporations Lives were chained to factory whistle Women felt biggest changes, invention of typewriter and telephone provided employment opportunities Marriage was delayed and the size of families dropped Women still earned lower wages Image of women as having more power “Gibson Girl” Extravagance of age led to criticism, mostly from European immigrants (socialists) Nation of farmers became a nation of wage earners, more venerable to swings in economic cycle Reformers wanted more economic security for workers

26. The Labor Movement

27. XIV. In Unions there is Strength Wage workers did not share in benefits employers had Worker was lever puller, originality and creativity stifled Personal relationship with employers was lost, factory was depersonalized Mechanization caused unemployment, a glutted labor market, brought down wages Individual workers were powerless so they united Corporation had federal courts in their corner They could request troops to break strikes, impose lockouts or make employees sign oath of allegiance Many lived in company towns and were in perpetual debt to the company Middle class did not listen to outcry, agreed with ideas of the day like Social Darwinism Strike also seemed like foreign idea and was seen as unpatriotic

28. XV. Labor Limps Along Civil War put a premium on labor, boost to unions By early 1870’s thousands of workers unions 1866 National Labor Union, skilled and labor, mostly white males Colored National Labor Union represented A-A’s NLU worked for 8 hour day, arbitration of industrial disputes Labor hurt during economic troubles of 1870’s 1869Knights of Labor pick up where NLU left off, included skilled and unskilled labor, did not enter politics , instead campaigned for economic and social reform, also campaigned for 8 hour work day Against foreign labor, wanted worker owned shops, equal pay Leader Terence Powderly

29. XVI. Unhorsing the Knights of Labor Knights downfall came in 1886 Called for May Day strikes across nation mostly failed Chicago where most violent action occurred Anarchists mixed with strikers at Haymarket Square during workers protest Tensions escalated and somebody threw a bomb in the crowd, killing and injuring civilians and police Anarchists charged with bombing known as “Haymarket Riot” Five sentenced to death, others received long prison terms, later pardoned by governor of IL. Decline of Knights of Labor- Public began to associate Knights with anarchists, Knights inclusion of skilled and unskilled labor undermined position to bargain

30. XVII. The AFL to the Fore 1886- American Federation of Labor founded, early leader was Samuel Gompers; Jewish immigrant that worked his way up the ladder, led AFL 1886-1924 AFL consisted of self governing national unions AFL just unified overall strategy Only open to skilled labor Did not enter politics, presented economic strategies and goals Wanted better wages and working hours Major goal was closed shop (all union work force) Chief weapon was walkout or boycott, kept national strike fund to ride out prolonged strikes

31. Labor Disputes 1870-1900

33. XVII. The AFL to the Fore Labor disorders were not solved by labor unions, continued through the end of the century Won about half of their strikes but management still held upper hand By 1900 public attitude toward labor changed, they thought workers had right to organize Management wanted to avoid economic warfare and began to bargain with labor, although equality was a long way off