Chapter 18 - The Ordeal of Industrialization Michael Vernon

 Civil War had hobbled American economic growth

o After war USA economy ready to grow, with Western opportunity, mass production,
immigration and receptive federal govt
o Huge increase of population hurt average wellbeing
 American factories, markets all concentrated in Northeast
o Far from Western resources and farms, hurting economy
 Economic growth per capita lagged behind Europe, despite high total production
o USA became biggest economy in world

The Railroad Empire

 Massive building of railroads after Civil War

o Everyone realized their importance, became image of era
o Dominated politics and economy

Building the Network

 Vast railroad network built during and after Civil War

o Construction boom in 1880s
 Railroad building left to private companies
o Local govts offered bonds, credit and resources to railroad companies
o Federal govt gave massive amount of free land to subsidize railroads
 Subsidies often obtained through bribery and corruption
 Let govt earn cheap shipping for mail and military goods
 4 more transcontinental lines built parallel to old one
o Inspired intense rivalry
 Eastern and Southern lines built to serve local needs, often close together
 Postwar generation had to bring together old lines into national network
o Railroad companies consolidated together
 Railroads helped develop telegraph network, and operated domestic steamship lines and urban
transportation

The Managerial Revolution

 Railroad systems grew to be the biggest businesses in the world

o Revolution in scale of business enterprises
 Railroads first to create hierarchy of professional managers, chosen meritocratically
o Before, owner would typically manage
o Later became model for all large businesses
 Railroads pioneered new technology, helping speed, reliability, price and safety
o American Railway Association divided USA into 4 time zones
o Freight rates became cheaper
Competition and Disorder

 Railway boom of 1880s meant more railroads built than needed

o Lead to competitive wars between railroads, got ugly quickly
o Used cheap, secret rates to attract shippers, overcharged highly where there was no
competition
o Used deception and juggled rates, trusted nobody else
 Railroads tried to self-regulate with treaties and agreements, but always failed
 State govts set up committees to monitor railroad activities, mediate grievances
 SCOTUS ruled in Munn v Illinois that govt could regulate railways due to public interest
o Railroads fought bitterly against legislation
 SCOTUS ruled in Wabash case of 1886 that only federal govt could regulate commerce
o Now only fed govt could regulate railways
 Senator Cullom, railroad leaders and Repub platform all pushed for federal railway regulation
 Interstate Commerce Act passed
o Railroads were banned from discriminatory practices, required to publish rates, banned
from monopolistic pooling agreements, said rates must be reasonable
o Established Interstate Commerce Commission to hear complaints and regulate railroads
 Act was too vague to enforce properly
 Commission often deferred to needs of railroads, couldn’t regulate rates well
o Act didn’t solve railroad problem but did assert right of federal govt to regulate private
enterprise

Morgan and Banker Control

 Railroads quickly returned to discrimination and anarchy

o Managers engaged in speculative looting and stock watering
o Laws and courts clearly had no teeth
 Railroads were in shaky financial position after decades of mismanagement
 Panic of 1893 caused massive foreclosures
o Caused by railroad speculation and overextension
 Railroads got funds needed to reorganize from bankers
 JP Morgan, who was biggest banker in USA, took major role in railroad reorganization
o Pared down fixed debts, issued watered down stock, installed their own presidents and
directors on railroads’ boards
o Reorganization helped curb anarchy, improve management and efficiency of railroads

Industrial Empire

Carnegie and Steel

 New industrial America needed steel

 Home market, production techniques and raw materials made USA greatest steel producer
 o Cheap way to make steel by blowing cold air through iron ore was found
o New USA ore deposits discovered
 Large number of USA iron companies
o Soon resorted to cutthroat tactics, price slashing and blackmail
o Used pools and mergers to hedge against competition
 Leading steel industrialist was Andrew Carnegie
o Sold lots of steel to railroad barons
o Owned all steps of process, from iron mines to steel plants to railroad lines
 Used monopoly to drive out competitors
o Carnegie Steel Company owned entire American steel industry, except finished steel
 JP Morgan entered steel industry
o Federal Steel Company formed when bankers merged other concerns
o Planned to consolidate both Federal Steel and Carnegie Steel into one big company
 Problem was Carnegie hated banker control
 Finished steel producers decided to make their own raw steel, cut out Carnegie
o Carnegie planned to enter finished steel
 Morgan scared of prospect of steel war, which would destroy industry like it destroyed railroads
o Morgan bought out Carnegie Steel for $0.5 billion
o United States Steel Corporation formed, owning most of USA steel industry

Rockefeller and the Trusts

 Rockefeller created Standard Oil Company, dominated USA oil industry

 Standard Oil known for dirty tactics, railroad rate discrimination, espionage and fraud
o Known for efficiency, eliminating waste, cheap oil
 Stanford Oil was largest oil refiner in country
o Created cartel of 40 leading refiners, which owned almost all of country’s refining
o Could crush any competitors at will
 Long-distance pipeline built, independent of Standard Oil
o Standard Oil built national pipeline network of their own
 Standard Oil had to centralize to take advantage of new pipeline network
o 40 companies unified into Standard Oil Trust
 Standard Oil entered production of crude oil as well
 Other industrial companies also entered into their own trusts
 Giant, monopolistic trusts encountered American suspicion
o Common target of newspapers, politicians, small businessmen
o Paranoia was not unjustified, trusts often used power against consumers’ interests
 State legislatures tried to pass antitrust legislation
o Legislation was ineffective, limited by Wabash decision of 1866
 Sherman Antitrust Act passed
o Banned trusts, monopolies and any anti-competition contract
o Not enforced during 1890s, loopholes in Act were exploited
  Public still wanted benefits of monopoly without costs
 Standard Oil reorganized as holding company, became even more profitable
 SCOTUS ruled in United States v. E C Knight Company that fed govt couldn’t regulate
manufacturing trusts, only commerce
o Struck huge blow to Sherman Antitrust Act
o Caused temporary boom in mergers
 Boom ended when SCOTUS ruled that any business combination formed to fix prices is illegal

The Technology of Centralization

 New transnational business enterprises required new communications technology

o Typewriter, stock ticker, and transatlantic cable all invented
 Alexander Graham Bell invented the telephone
 Bell Telephone Company formed, began to buy out competitors and expand
o Won hundreds of lawsuits, defended its patent successfully
 Bell directors organized American Telephone & Telegraph Company (AT&T)
o Holding company for entire phone network
 New social class of white-collar clerical workers
 Edison invented phonograph, storage battery, movie projector, electic dynamo, electric
locomotive, and the efficient electric lightbulb
 Edison’s inventions used direct current, which was inefficient
o Westinghouse invented alternating current transformer and power plant
o Tesla invented alternating current motor

Laissez-Faire Conservatism

The Gospel of Wealth

 Many new millionaires, coming from industry, trade and railroads

o Advocated for conservative economics, utopian vision of free markets
o Focus on free enterprise called “Gospel of Wealth”
 GoW synthesized classical economics and social Darwinism
o Felt free markets would lead “superior” to rise to top
o Influenced by Herbert Spencer, William Graham Sumner
 GoW ideas grew widely accepted
 SCOTUS converted to GoW ideas under Justice Stephen J Field
o Declared state regulations unconstitutional, for depriving corporations of property
o Defanged states’ attempts to protect citizens from corporate greed

Social Critics and Dissenters

 GoW had many dissenters, who believed in govt’s need to protect the poor from the rich, and
ethical wealth redistribution
 Lester Frank Ward, a founder of sociology, criticized Herbert Spencer’s social Darwinism
 o Believed in government regulation of economy
 Henry George was popular, influential social philosopher and economist
o Criticized income inequality of America
o Believed in single land tax and common ownership of all land
 Edward Bellamy wrote book “Looking Backward”
o Describes utopian future society where competition and corporate property were
eliminated, all industry nationalized
o All property owned by one big trust, all men required to serve in “industrial army”
o Attacked ideas of laissez-faire and survival of the fittest
 Nationalists advocated municipal ownership of utilities and public ownership of railroads
o Joined farmers’ parties as agrarian reform grew in 1890s
 GoW proved useful way for rich to protect their own wealth

The House of Labor

Man and the Machine

 Workers’ adjustment to industrialization often painful and slow

o Skilled artisans lost status, individuality, creative pride, bargaining power as they
became factory laborers
 Massive expansion of factory system and mechanization in 1880s
 Wages rose, but working conditions in factories were hazardous and unpleasant
o Factory laws hadn’t been written yet in most states
 Employers used armed force and detectives to stop labor unions
o Strikers usually fired
 All houses, stores, and services owned by company in “company towns”
o Gave companies great power over workers
 Sharp decline in birth rate as married women entered workforce
o Women paid less, blamed by men for taking “unneeded” jobs and lowering wages
o Unions refused to help women
 Women had no way to overcome low wages, exploitation, poor work conditions
 Wages rose after Depression of 1870s, but not all gained equally
 Laborers resisted socialism due to their wage gains, high unemployment, powerful employers
o Diversity of laborers stopped them from unifying effectively
 8-hour work day law passed for federal employees
o In private industry workers worked 10-hour days and 6-day week
 Immigrants formed large part of USA labor force, mostly from Southern and Eastern Europe
o Ethnic groups concentrated in certain industries
 Immigrants seen with scorn by native workers
o Knights of Labor and American Federation of Labor called for immigrant restriction
o Labor organizations convinced Congress to ban Chinese immigration for 10 years

Unions and Strikes

 American workers were nostalgic for individualistic past, refused to unionize
o Labor unions remained weak
 Unions originally protected interests of skilled tradesmen
 National Labor Union formed by William Sylvis, to unite the trade unions into one organization
o Focused only on 8-hour work days
 Knights of Labor union formed
o Secret fraternal order that accepted any and all workers
o Demanded federal bureau of statistics, equal pay for both sexes, 8-hour day, end of
child and prison labor
 Shared political demands with farmers’ organizations
o Both NLA and Knights of Labor frowned on use of strikes, were naïve/utopian
o Elected charismatic Powderly as leader
 Attracted many supporters before KL’s eventual decline
 American Federation of Labor founded
o Focused on realistic economic goals instead of naïve politics
o Focused on benefits for skilled workers organized on craft lines
 Loose alliance of autonomous trade unions
o Was pro-strike and pro-boycott
o Elected conservative Gompers as leader
 Attracted huge number of members as KL declined
 Huge number of strikes across country
o Often flared into violence, destruction of property
o Strikers often got into shootouts with company and federal troops
 The Depression of 1893 caused wage cuts, layoffs, and strikes
 Massive railroad strike across country, prompted by American Railway Union led by Debs
o Railroad lawyers convinced federal govt to send troops
o Mobs of looters rioted and destroyed, burned and stole property
o Several killed, Pullman strike failed
 Union leaders, including Debs, jailed
o Brought name of Debs into national consciousness as socialist leader