Use these links to return to higher level sites

Welcome to Dick's Guides

Resource Library

American History, Free College Level Course and Resources

If you have any questions, or want to submit information for this page click here Customer Service

CHAPTER XVIII An Industrial Giant

By 1900 the US economy greatly exceeded the economies of Great Britain and Germany. American manufactured goods grew from "$1.8 billion in 1859 to over $13 billion by 1899."

Industrial Growth, an overview

Manufacturing flourished, with new resources, a growing country, an expanding population of the best and most ambitious, protective tariffs, a national marketplace and foreign capital. Business emphasized progress and enabled the growth of some Robber Barons, corrupt practices, stock manipulations, monopolies (trade restraint practices). Agriculture machinery made it cheaper to harvest goods — for people with money — and displaced some farmers, who were available for city jobs, like the 2.5 million foreign immigrants who arrived in 1870, and the 5 million that arrived in 1880.

Railroads, the First Big Business

In 1866 America had railroads but not any vast interconnecting railway system. The next 25 years were "probably the most significant element in American development" both as an industry itself and a method of transportation. In 1890 the railroads took in $1 billion, more than the $403 million taken by the federal government. (Later politicians would soon assure this imbalance would be corrected and that they, as federal politicians, would have more money to spend than railroad owners.) After 1865 the emphasis was on profitability for the railroads. Large fixed costs meant the trains needed to be fully loaded. Feeder lines were developed.

Cornelius Vanderbilt, who had run water shipping companies, entered the railroad business and created an integrated rail carrier, adding in 1867 his own NYC to Albany line to the New York Central's Albany to Buffalo line and — in 1873 — adding Lake Shore and Michigan Southern and — in 1875 — adding the Michigan Central. By his death in 1877 his Central had 4,500 miles of track linking NYC to most of the principle cities in the Middle West. Thomas A. Scott was

building his Pennsylvania Railroad to connect to Cincinnati, Indianapolis, St. Louis and Chicago.

In 1871 the Pennsylvania gained access to NYC and soon Baltimore and Washington. The Erie also connected from NYC to Cleveland, Cincinnati and St. Louis. In 1874 the Baltimore-Ohio obtained access to Chicago. The prominent Southwest railroad system builder was known as "the perfect eel" to at least one competitor. The "eel" was Jay Gould who took over the Kansas Pacific

running from Denver to Kansas City, and consolidated it with a Kansas City to St. Louis line, the Union Pacific and the Missouri Pacific. The Northern Pacific, controlled by Henry Villard, was dominant in the Northwest. The Chesapeake and Ohio opened a direct link from Richmond, Virginia to Cincinnati. A standard track gauge (4 feet 8.5 inches) was established in 1886. Coupling, braking, signaling and standard methods of accounting were also developed by the railroad industry. The lines quickly understood they should avoid "senseless" competition, that only helped their customers. Profits before customers wants seemed a good idea ti the railroad owners. Organizations of railroad companies developed, like the Eastern Trunk Line Association and the Western Traffic Association. Railroad growth helped the economy through direct purchases and the multiplier effect. To stimulate traffic, railroads in sparse areas would provide help to start new businesses, giving loans, selling land cheaply and prospecting for new settlers. George Westinghouse's airbrake led to the development of longer trains and George Pullman cars.

More power engines were needed and this meant steel — stronger than iron. Western Union developed a telegraph line running along the railroad's right of ways.

Iron, Oil and Electricity

Steel could not be widely used, due to its cost, prior to the invention of the Bessemer Process in the 1850's, developed by Englishman Henry Bessemer and William Kelly of Kentucky, which helped to open Lake Superior's iron regions, like the Mesabi region. Pittsburgh, with giant coal reserves, became the steel making capital.

Edwin I. Drake drilled the first oil well in 1859 and this business grew faster than steel, since oil — in this pre car era — was needed as kerosene for lights. By 1870 oil was being cracked (rearranged molecularly through heat) and used as naphtha, gasoline, rhigoline (an anesthetic) and cymogene (a coolant). More crude oil production and Herman Frasch's method for reducing sulfur in poorer quality oil, caused prices to drop. This put a premium of refining processes that required big money.

Other new businesses at this time included the business of the telephone (invented by Alexander Graham Bell in 1876, there were 800,000 phones in the country by 1900) and the electric light (invented as a useful item by Thomas Edison in 1879 when he employed a carbonized element that could last for 170 hours). The Edison Illuminating Company was created in 1882 and by 1898 there were about 3,000 in the country. Western Union dearly wanted the phone to itself and tried to overcome the growing power of the small phone companies who had come together under the American Telephone and Telegraph Company. They hired Thomas Edison, but the Bell patents proved to be unassailable.

Competition and Monopoly: The Railroads

After 1873 prices went down as a result of manufacturers being able to build things less expensively. Shipping prices dropped. In 1865 it had cost from $0.96 to $2.15 per hundred pounds of weight to railroad ship from NY to Chicago. By 1888 rates had dropped to a range of $0.35 to $.075. Competition worked so well that railroads became profitless and bankrupt. At the same time, not all people benefitted from the competition. It was the large corporations in the areas of the large cities who got the rebates. By 1876 2/5 of the railroads were defaulting on payments and a few years later 65 lines were bankrupt. Samuel Tilden, the 1876 Democratic nominee was known as the great forecloser. During the 1980's the larger lines tried to stay profitable by buying smaller lines and creating interregional railroads. Great railroad corporations were formed, but the cost to do this further more bankruptcies when a true depression hit in the 1890's. Railroads were reorganized and brought under the control of financiers, such as J. Pierpont Morgan and Kuhn, Loeb (NY) and Lee, Higginson (Boston). When Morgan died in 1913 Morgan men dominated the New York Central; the Erie; the New York, New Haven and Hartford; The Southern; The Atchinson, Topeka and Santa Fe and the Pere Marquette. Competition was discouraged. Bond holders took less, stock owners contributed more, funds for improving the railways were secured, and the independent railroads, now being run by financiers, stayed in business.

Competition and Monopoly: Steel

The iron and steel industry was also very competitive, but it suffered due to rapid obsolescence and fluctuating demands. Andrew Carnegie was an immigrant who came to the USA from Scotland in 1848 at the age of 12. He earned $1.20 a week as a bobbin boy and worked himself up the ladder to become a railroad manager. He saved his money, invested wisely and, 20 years after immigrating, he had an income of $50,000 a year. He decided to enter the iron business, buying plants and expanding when the steel business was down --- and productive capacity was, therefore, cheaper. He recognized the importance of advancing technology and built the J. Edgar Thomson Steel Works (named after his biggest railroad customer) around the Bessemer process. He sold rails by paying "commissions" to railway buyers, and would renege on unprofitable deals when he could get away with it. Carnegie sold out to J.P. Morgan for $250 million to devote himself to philanthropic deals, and Morgan founded the United States Steel company, just as steel users — alarmed at Carnegie's steel dominance, might have gotten into a steel war with Andrew.

Competition and Monopoly: Oil

The Standard Oil Company of Cleveland, founded by 31 year old John D. Rockefeller in 1870, became the dominant oil company, using fair and foul means to buy out others — or get their cooperation. By 1879 he controlled 90 percent of the nation's oil refining capacity as well as oil pipelines and reserves. Standard Oil got a 10% rebate on its railroad shipments plus drawbacks on the oil shipments of their competitors. Standard cut prices in various areas to drive out independent competition. They used spies to find -- and sell more cheaply to -- customers of other suppliers. He always worked towards organizing the industry. Once having created his monopoly he stabilized it by creating an 1879 trust, designed by C.T. Dodd, that enabled Rockefeller and his allies to evade Ohio laws and control non Ohio petroleum businesses. By 1892 Rockefeller was worth over $800 million. Standard Oil's duplicity was revealed in 1899, and the word trust became synonymous with monopoly.

Competition and Monopoly: Utilities and Retailing

There were three companies competing in the electric utilities business, Westinghouse, Edison and Thomas-Houston. Edison and Thomas-United merged to form General Electric. Once more, competition yielded to mergers that were the basis of monopolies. Three giant insurance companies came into being, Equitable, New York Life and Mutual Life. In the retail business there was a growth of big department stores. In 1862 Alexander T. Stewart built a block sized building of 8 floors as a store. Similar large stores were established in Chicago (Marshall Field) and Philadelphia (John Wanamaker). These large stores had visible, low prices and returns policies and money back guarantees.

Americans React to Big Business

While the larger companies usually maintained low prices, and prices actually dropped until the 1890's, many Americans started to worry. Maybe, they thought, the monopolies would raise prices. Americans replaced earlier reverence for the wealthy with a new distaste for other's wealth. Publications -- with writers apparently unaware of the founding of America -- began to write about the evils that might occur if rich men were to rule the government and develop a new tyranny. The aggregation of money was declared in 1892 to be a danger to the Republic, by William Cook, a New York lawyer, in The Corporation Problem. Ignorant citizens allowed the 1900 kidnaping of rich people like Eddie Cudahy, son of a member of the Beef Trust. Clergy men joined the cause and denounced unrestrained competition. Rockefeller and Carnegie tried to explain the benefits of large business, but to no avail.

Reformers, George, Bellamy, Lord

In 1879 Henry George, a newspaper writer, published Progress and Poverty, attacking the distribution of America's wealth. George, ignoring the realty of America's growth, insisted that only labor had "true and honest" capital. He denounced, for example, Western landowners who had risked capital to buy land in the hopes of selling it in the future to an increasing population. He wanted to confiscate such profits with land taxes. The value of land, he claimed, belonged to society. Some especially good people representing "society" would dispense this land fairly to new members of society when they needed it. In many ways good old Henry wanted to send America down the road of proletariat ownership of everything. A scheme that was tried and failed in Russia, because it required some supposedly good guys to magically appear, control wealth, and work selflessly only for the good of all. George would have his single land tax pay for everything, like schools — while punishing the rich landowners. Revenge and a future America victory for the people would occur. His book was a best seller.

Looking Backward 2000-1887, was written in 1888 by Edward Bellamy who saw a future America where some really good guys would run a planned economy — for the benefit of all.

Millions of these books were sold. Unsophisticated people did not seem to understand that Bellamy's vision required the one remaining giant corporate not only become nationalized, but be run by altruistic individuals who would not use their control of wealth for their own desires.

.

Henry Demarest Lloyd wrote Wealth Against Commonwealth in 1894, which was a diatribe against Standard Oil. He said that "every important man in the oil, coal and many other trusts ought today to be in some one of our penitentiaries. He claimed that laissez-faire led to monopolies, although he apparently failed to explain why big businesses were necessarily bad for Americans. All of these impractical writers apparently thought that ending the profit motive would have no effect on America's increasingly improving lifestyle. None seemed to realize, for example, that Edison invented the lightbulb so he could make money and become wealthy.

Reformers, The Marxists

Not all shallow thinkers were American. A Marxist Party started in the USA in 1877. Laurence Gronlund's The Cooperative Commonwealth tried to explain Marxism to Americans, two years before Das Kapital was translated into English. The state would own everything (Marx and Gronlund did not seem to realize that this would mean government bureaucrats — no better and probably worse than financial risk-takers — would become the real "owners" determining what should be done with the state confiscated property. Competition was "Established Anarchy." Risk takers who took ownership of goods temporarily, were "parasites," and "vampires." Daniel De Leon was the leading voice of the Socialist Labor party, as editor of The People.

The Government Reacts to Big Business — Railroad Regulation

The National Grange of the Patrons of Husbandry, founded in 1867 by Oliver H. Kelley to provide cultural and social benefits to small rural communities, successfully pushed for state railroad regulation. By 1874 they had 800,000 members and were electing their own candidates to office, especially in the South and West, where Grange politicians wrote laws establishing fairer railroad rate structures by outlawing discriminatory railroad pricing practices. In Munn v. Illinois (1877) businesses that owned a public interest were found to be subject to state rules, but inefficiency and corruption at the state level and the Wabash Case (1886), declaring an Illinois Law on long-and-short-haul evils — as interstate commerce regulation beyond the scope of state law — made it necessary for wise and honest federal government politicians and employees to get involved. In 1887 Congress passed the Interstate Commerce Act requiring all railroad charges to be "reasonable and just," and establishing the Interstate Commerce Commission (ICC), the first of many future wise and honest federal regulatory agencies, which was to supervise and investigate complaints about the Railroads and issue cease and desist orders when the railroads behaved badly. The federal commission (surprise!) Did not do well. It had conflicting concepts — promoting competition while eliminating the railroads tools of competition. State regulatory agencies, towards the end of the century fared almost as badly in the federal courts as did the blacks. Parts of Munn v. Illinois were overruled in Milwaukee, Chicago and St. Paul Railroad Company v. Minnesota (1897), insisting that the judge-lawyers of the court were to be responsible for determining the reasonableness of rates. In Reagan v. Farmer's Loan and Trust Company (1894) the lawyer-judges insisted on this power — even when it was the State legislature that had established the rates. Federal lawyer-judges, even in the 1890's, instinctively knew they were smarter than anyone else, particularly those people in backward states like Texas and Minnesota.

Of course, the judges decisions also gave the honest and fair Washington politicians a chance to write laws restricting laissez-faire. Thus, even more grand federal regulation committees appeared to make life better for Americans, including the FCC who managed to give away the electromagnetic spectrum to corporations in the 20th Century.

The Government Reacts to Big Business — The Sherman Antitrust Act

Federal inaction again made it necessary for the states to control monopolistic practices. The federal government enacted Sherman in 1890 and declared illegal any combination "in restraint of trade or commerce among the several states, or with foreign nations." Thus, it became a crime to violate this loosely worded law, unless it was possible to hire good lawyers to defend against it. The lawyer-politicians succeeded in creating a law making work for their brethren lawyers who had corporate clients. The all white supreme court lawyer-judges quickly emasculated Sherman in the United States v. E.C. Knight Company (1895)., finding that the American Sugar Company wasn't really restraining the sugar trade, just because it had bought up its competitors and now had 98% of the market. The Supreme Court did rule that companies getting together to fix prices was illegal — which rapidly led to big companies taking over small companies.

Labor Organizes

Americans responded to the big businesses that arose, especially after 1865, with labor unions, designed to prevent competition for their member's jobs and provide an organization for labor's voice. The National Labor Union was organized, as was the Knights of Labor, headed by Uriah S. Stephens, a Philadelphia garment workers union. Both Unions were run by out of touch folks who frowned on strikes and attacked the wage system. Stephen's successor, Powderly, opened the organization. Several strikes were successful, especially one against Jay Gould's Missouri Pacific. But, the leadership could not control the union. Some ill advised strikes failed, there was violence and the public as well as workers turned away from the union, although the organizations demand for an 8 hour day survived.

The American Federation of Labor

Anarchists were held responsible for the death of policeman by a bomb, as the police in Chicago tried to break up a May 4, 1886 meeting of supporters for an 8 hour working day, who were protesting the death of a striker at the McCormick Harvesting Machine Company. The Knights were hurt, and they were replaced by the AFL, formed in 1886. Its leaders, Samuel Gompers and Adolph Strasser also had ideas of a utopia administered by magical men. But, experience led them to fight for the worker on "bread and butter" issues. Between 1886 and 1901 the union grew from 150,000 to more than one million members.

Labor Militancy Rebuffed

The AFL used the strike to control employers. Employers felt threatened. Employers felt they were being limited in finding the best and cheapest labor. Workers were fearful of losing jobs to newer and better machines. The stage was set for a fight. In 1877 a great railway strike hit the nation, beginning on the Baltimore and Ohio system as a response to a wage cut. It spread until 2/3 rd's of America's rail tracks were idled. Violence broke out. Companies formed militias to patrol the streets of Chicago and other cities. President Hayes sent federal troops to places of violence. The strike failed, but such worker violence had never been seen before in the USA. In 1892 another violent strike broke out, among silver miners at Coeur d'Alene, Idaho, and 300 private guards were attacked at Carnegie's Homestead Steel Plant near Pittsburgh. Seven were killed. The eventual loss of this five month strike by AFL's 24,000-member union — the Amalgamated Association of Iron and Steel Workers — set unionism back, as did an anarchist Alexander Berkman's attempt to assassinate the local Homestead manger, Henry Clay Frick. Another important 1894 strike was at George Pullman's Palace Car factory, outside of Chicago. Eugene Deb's American Railway Workers went off their jobs when their wages were cut, but not their company controlled cost of living. They were willing to move mail trains, until Pullman attached other cars to the trains. President Grover Cleveland came to the aid of the corporate side by sending in troops to end the strike, pretending troops were needed to move the mail. Deb's was jailed for failure to honor a federal injunction to end the strike.

Whither America, Whither Democracy

By 1913 the "Money Trust" of Rockefeller and Morganites and others, seemed destined to own the nation. While the economic advantages of bigness were very obvious, there continued to be festering fears about business falling into the hands of a few. The courts seemed to be only interested in protecting the rich.

If you have any questions, or want to submit information for this page click here Customer Service

Welcome to Dick's Guides

Resource Library