Industry Comes of Age

I. Railroads

a. Why Were the Best Men Not In Politics?

i. Because during this era the private economy was booming

ii. America became the leader in industry and agriculture during this era

iii. Talented men wanted profits, not the presidency

b. Growth of Railroads

i. 1865 – 35,000 miles; 1900 – 192,556

ii. Transcontinental railroad building was risky and required government subsidies. The extension of rails into thinly populated regions was unprofitable until the areas could be built up

iii. Congress began to advance loans to two favored cross-continent companies. They were impressed by arguments over military and postal transportational needs

iv. Washington gave the railroads over 155 million acres and the western States contributed 49 million more

c. Advantages and Disadvantages To Congress Giving Away Land

i. Disadvantages –

1. Criticized that their land was a birthright

2. Blackmail and arguments over which town would have a railroad built through it occurred

ii. Advantages –

1. Postal and military traffic could use it

2. Cheap way to subsidize transportation because the railroad company would use mostly their money, they would be in charge of building and operating

3. Railroads could use the land as collateral for loans or by selling the land surrounding it

4. Frontier towns because flourishing cities

II. Spanning the Continent With Rails

a. Transcontinental Railroad

i. The deadlock over where to build the transcontinental railroad was ended when the South succeeded during the Civil War

ii. One argument for urgency was to secure unity between the Union and CA (and western States)

b. Union Pacific Railroad

i. Was to go from Omaha to the west coast

ii. The company was granted 20 square miles of land

iii. For each mile, the builders were also to receive a federal loan ranging from:

1. $16,000 – flat prairie land

2. $48,000 – mountainous country

iv. Insiders of the Credit Mobilier construction company pocketed $73 million. The track only cost $50 million, but congressional bribes caused them to look the other way

v. Irish Paddies who had fought in the Union army worked on the railroad

c. Native Americans and the Railroad

i. Indians attacked in futile efforts to protect what was their land

ii. Many Indians and laborers lost their lives

d. Central Pacific Railroad

i. Western end started at Sacramento

ii. Four men, called the Big Four, were the chief financial backers –

1. Leland Stanford (ex-governor of CA)

2. Collis Huntington (a good lobbyist)

iii. They made tens of millions in profits and kept relatively clean from bribes of congressmen

iv. They were granted the same subsidies as the Union Pacific

v. 10,000 Chinese laborers worked on the railroad

e. Completion of the Railroad

i. The line, which had started in 1865, was completed in 1869

ii. This line:

1. Connected the West Coast more firmly to the Union

2. Increased trade with Asia

3. Paved the way for the growth of the West

III. Binding the Country With Railroad Ties

a. Four More Transcontinental Lines

i. Were completed before the end of the century

ii. Didn’t secure loans from the federal government, but received land grants

iii. Here are the lines:

1. Northern Pacific Railroad –

a. Went from Lake Superior to Puget Sound (1883)

2. Atchison, Topeka and Santa Fe, New Mexico Railroad –

a. Completed in 1884

3. Southern Pacific Railroad –

a. Went from New Orleans to San Francisco (1884)

4. Great Northern Railroad –

a. Went from Duluth, Minnesota to Seattle (1893)

b. James Hill was the builder of this railroad and one of the best of them all

c. He perceived that the prosperity of his railroad depended on the prosperity of the area that it served. He even imported bulls from England and gave them to farmers

d. This enabled his railroad to withstand financial troubles that occurred later

b. Overoptimism

i. Build tracks too quickly (7,000 miles per year)

ii. Some went through long stretches of barren less land

iii. Many faced bankruptcy, mergers, or reorganizations

IV. Railroad Consolidation and Mechanization

a. Cornelius Vanderbuilt

i. The success of the western lines depended on the eastern lines

ii. Vanderbuilt originally amassed his millions in steamboats, but now he offered railway service at lower rates, gaining more millions

iii. Built a New York Central rail line to Chicago

iv. Donated $1 million to the founding of Vanderbuilt University in TN

b. New Improvements To Railroads

i. Steel Rail –

1. Vanderbuilt helped to popularize

2. It was a tougher metal, safer, and more economical because it could bear a heavier load

ii. Standard Track Width –

1. This eliminated the expense and inconvenience of numerous changes from one line to another

iii. Air Brake –

1. Adopted in the 1870s

2. Increased efficiency and safety

iv. Pullman Palace Cars –

1. Luxurious passenger cars

2. However, they were wooden and had kerosene lamps

V. Revolution By Railways

a. Uniting the Country

i. Country was truly connected

ii. Created an enormous market for goods

iii. Attracted domestic and foreign investors

b. Industrialization

i. Opened up new markets for manufactured goods

ii. Sped raw materials to factories

iii. Need for railroads increased the steel industry

c. Mining and Agriculture

i. Allowed farmers to spread west

ii. Carried their goods to market

iii. Brought them manufactured goods

d. Population of Cities

i. Rails could carry large amounts of food to support a city

ii. Provided cities with materials and markets

e. Immigration

i. Land grants could be sold to them at a profit

f. Land

i. Prairies were plowed up

ii. Cornfields were planted

iii. Cattle replaced buffalo, who were hunted to near extinction

iv. Forest lumber were shipped by rail to farmers who used it to build houses and fences

g. Time Zones

i. Until the 1880s, every town in the U.S. had its own “local” time, dictated by the sun’s position

ii. For railroad operators worried about keeping schedules and avoiding wrecks, this was a nightmare

iii. In November 1883, the major rail lines decreed that the continent would be divided into 4 time zones

h. Millionaires

i. Replaced the plantation owners and merchants

VI. Wrongdoing in Railroading

a. Stock Watering

i. Originally referred to the practice of making cattle thirsty by feeding them salt and then havingt them bloat themselves with water before they were weighed in for sale

ii. Railroad stock promoters grossly inflated their claims about a given line’s assets and profitability to sell stocks and bonds far in excess of the railroad’s actual value

iii. This caused railroad managers to charge high rates to pay off the exaggerated value of stocks

b. Bribing

i. Railroad promoters bribed judges and legislatures

ii. Employed lobbyists

iii. Elected their own to high office

iv. Gave free passes to journalists and politicians

c. Other Wrongdoing

i. Pool – cooperate with one another to create a monopoly and share the profits

ii. Granted secret rebates or kickbacks to powerful shippers in return for steady and assured traffic

iii. Slashed rates on competing lines, but made up for them on noncompeting ones, where they might actually charge more for a short haul than for a long one

VII. Government Bridles the Iron Horse

a. Why Did Economic Injustice Continue?

i. People were dedicated to free enterprise and competition

ii. Believed in the American dream – anyone might become a millionaire

b. Regulating the Railroads

i. The depression of the 1870s led to an outcry to regulate the industry

ii. Wabash Case –

1. Scattered State efforts came to a halt in 1886 with the Supreme Court’s Wabash case

2. Case challenged legislation made by the State of Illinois against railroads; the State was trying to appease the demands of farmers for lower railroad rates

3. They ruled that individual State had no power to regulate interstate commerce

iii. If the industry was to be curtailed, it would have to be done by the federal government

c. Interstate Commerce Act of 1887

i. Prohibited rebates and pools

ii. Required the railroads to publish their rates openly

iii. Forbade unfair discrimination against shippers

iv. Outlawed charging more for a short haul than for a long one over the same line

v. Set up the Interstate Commerce Commission –

1. Would administer and enforce the new legislation

d. Results of the Interstate Commerce Commission

i. Opened competition, the goal of which was to preserve equality and spur innovation

ii. It didn’t revolutionize the business of railroads, but it did stabilize them because it provided an orderly forum where competing business interests could resolve their conflicts in peaceful ways (no more rate wars or threats of State legislatures taking them over)

iii. It was the first large-scale attempt by Washington to regulate business in the interest of society at large. Many new independent regulatory commissions would follow which would monitor and guide the private economy

VIII. Miracles of Mechanization

a. Why Did America Become the Leading Manufacturing Nation By 1894?

i. Natural Resources

1. Railroads and steam innovations allowed America’s vast natural resources to be exploited

2. For example, the Mesabi Range (in the Minnesota area) had ore that could be used for steel

ii. Massive Immigration

1. Helped make unskilled labor cheap and plentiful

2. The steel industry built its strength from low-priced immigrants who would work 12 hour shifts 7 days a week

iii. American Ingenuity

1. Between 1860-1890, 440,000 patents were issued

2. Alexander Graham Bell –

a. Teacher of the deaf (given a dead man’s ear to experiment with)

b. A gigantic communications network was built on his invention

c. Women were used as telephone switchboard operators

3. Thomas Edison –

a. Was considered so dumb that he was taken out of school

b. Was very deaf

c. He invented:

i. Phonograph – record player

ii. Mimeograph – old ditto machine

iii. Dictaphone – tape recorder

iv. Moving picture

v. Electric lightbulb

1. He experimented with 60,000 filaments

2. People went from sleeping 9 hours a night to 7 hours

4. Cash register

5. Typewriter

6. Refrigerator car

7. Electric railway (displaced animal-drawn cars)

IX. The Trust Titan

a. Andrew Carnegie & Vertical Integration

i. He and other tycoons (a wealthy businessman or industrialist) found ways to circumvent competition. For example:

1. His miners dug steel in the Mesabi Range

2. His ships floated it across the Great Lakes

3. His railroads delivered it to the blast furnaces of Pittsburgh

ii. This is called vertical integration – combining into one organization all phases of manufacturing

iii. He wanted to use this method to:

1. Make supplies more reliable (if he controlled all the supplies, then he could get them and didn’t have to compete with others for them)

2. Control the quality of the product at all stages of production

3. Eliminate middlemen’s fees

b. John D. Rockefeller & Horizontal Integration

i. Trust – Allying with competitors to monopolize a given market

ii. Stockholders in various smaller oil companies assigned their stock to the board of his Standard Oil Company. Soon, nearly all the oil market was under the company

iii. Weaker competitors were forced to join the trust

c. J.P. Morgan & Interlocking Directorates

i. Shrink the number of rival enterprises by accepting them into his banking syndicate

ii. Ensure harmony by placing officers of his own banking syndicate on their various boards of directors

X. Supremacy of Steel

a. Importance of Steel

i. Early on it was expensive and rare

ii. It was only used for cutlery

iii. Iron was in its place

iv. Used for:

1. Railroads

2. Skyscrapers

v. Provided food, shelter, and transportation

b. By 1900, How Did America Produce As Much As Britain and Germany Combined?

i. Bessemer-Kelly Process (1850s)

1. A British inventor, Bessemer, had discovered the process a few years earlier

2. William Kelly, a Kentucky manufacturer of iron kettles, discovered that cold air blown on red-hot iron caused the metal to became white-hot by igniting the carbon and thus eliminating impurities

3. He applied the new “air-boiling” technique to his own product

4. Eventually, this method led to the increased use in steel

ii. American was one of the few places in the world where one could find relatively close together coal for fuel, iron ore for smelting, and other essential ingredients for making steel

iii. Also had an abundant labor supply and good industrial leaders

XI. Carnegie and Other Steelmasters

a. Andrew Carnegie Growing Up

i. Parents were poor

ii. Towheaded = blond

iii. Bobbin boy as a youngster = spooled tread

iv. After working hard and gaining money, he entered the steel business in Pittsburgh

b. Carnegie & Steel

i. Succeeded by eliminating middlemen

ii. He didn’t like monopolies

iii. Produced ¼ of the nation’s Bessemer steel

iv. Profits of $40 million per year

c. J.P. Morgan

i. Made a legend out of himself and his Wall Street banking house by financing the reorganization of railroads, insurance companies, and banks

ii. Established a reputation for integrity

d. Morgan & Carnegie

i. By 1900, Carnegie got tired of the steel business and was eager to sell

ii. Morgan was investing heavily in the manufacture of steel pipe tubing, but Carnegie was threatening to go into the same business and ruin Morgan if he didn’t accept the sale of his steel business

iii. Morgan agreed to buy out Carnegie for $400 million

iv. Carnegie gave $350 million of this money to:

1. Public libraries

2. Pensions for professors

3. Carnegie Hall

4. Other philanthropic purposes

e. Morgan & the United States Steel Corporation

i. Added other holdings to Carnegie’s

ii. Watered the stock

iii. Launched the enlarged U.S. Steel Corporation

iv. Was America’s first billion-dollar corporation - $1.4 billion

XII. John D. Rockefeller

a. Oil Industry

i. Oil was originally used for medicines

ii. Drake’s Folly (1859) in PA the first well was dug

iii. Kerosene was the first major product of the oil industry (it produced a brighter flame than whale oil)

iv. 1870s – Kerosene was America’s 4^th valuable export (whaling industry became extinct)

b. Oil Industry Shrinks, Then Booms

i. 1885 – 250,000 electric lightbulbs were sold

ii. 1900 – 15 million were sold

iii. Electric industry replaced kerosene oil lamps – were just used overseas

iv. Automobile industry prevented the downfall of the industry

v. Gas engine was the best (over steam and electricity)

c. John D. Rockefeller and the Standard Oil Company

i. Established in 1870

ii. He sought to eliminate the middlemen and squeeze out competitors

iii. Flourished in an era of completely free enterprise

iv. He wanted rule or ruin – he showed little mercy

v. His business ethics were close to illegal (employed spies and extorted rebates from railroads)

vi. 1877 – He controlled 95% of all the oil refineries in the country

vii. However, his monopoly did turn out a superior product at a relatively cheap price

viii. Focused on philanthropy toward the end of his life, including the Rockefeller Foundation and the University of Chicago

d. Other Trusts

i. Trust – a combination of firms or businesses for the purpose of reducing competition and controlling prices throughout a business or industry

ii. Sugar, tobacco, and leather trusts (combined 200 competitors)

e. New Rich

i. Old American aristocracy was modestly successful merchants (antitrust crusaders were from this breed)

ii. Now there was an arrogant class that was scrambling for power and prestige

XIII. The Wealthy

a. Gospel of Wealth

i. Carnegie wrote this article for the North American Review

ii. It offered the belief that the wealthy were just trustees of their money and that they must use their efforts to benefit society

b. Survival of the Fittest

i. Theory that wealth was based on the survival of the fittest; associated with Charles Darwin’s work

ii. Wealthy industrial leaders used the doctrines to justify vast differences in classes

iii. Supporters included English philosopher Herbert Spencer and Yale professor William Graham Sumner

c. Robber Barons or Captains of Industry

i. Leaders of large, efficient corporations (Rockefeller and Carnegie)

ii. Often gained wealth through questionable business means

iii. Monopolies by these large companies led to demands by small businessmen and laborers for government regulation

d. Contempt For the Poor

i. Many of the rich had pulled themselves up to that status on their own through hard work, so they concluded that those who stayed poor must be lazy

ii. Reverend Russell Conwell of Philadelphia delivered his lecture “Acres of Diamonds” many times. In it, he claimed that the poor are poor because of their own problems

e. Trusts and Protection From the Constitution

i. Commerce clause in the Constitution trumped any State law trying to restrict it

ii. 14^th Amendment, which had been originally designed to protect the rights of ex-slaves as persons interpreted a “person” to include corporations. As a result, the courts declared that they could not be deprived of its property by a State without “due process of law”

iii. Many businesses were incorporated in States in which the laws against them were easy

XIV. Government Tackles the Trust Evil

a. Sherman Anti-Trust Act of 1890

i. After failing to stop trusts through State legislation, activists turned to the federal government

ii. This act did the following:

1. Declared every contract, combination, or conspiracy in which interstate trade was restricted to be illegal

2. Corporate monopolies were exposed to federal prosecution if found to conspire in restraining trade

iii. It was used to restrain both labor unions and labor combinations

b. New Trusts

i. The Court ruled against the government on many of the first cases brought after the act was passed

ii. This led to new trusts being formed in the 1890s

iii. However, monopolies were now finally being threatened, but it wouldn’t be until 1914 when they would be totally stopped

XV. The South in the Age of Industry

a. South and Agriculture/Manufacturing After the Civil War

i. Was either sharecropping

ii. Tenant farmers

b. Cigarettes

i. Southern agriculture received a boost in the 1880s when a machine-made cigarette producer replaced the make-your-own

ii. James Buchanan Duke absorbed his main competitors into the American Tobacco Company

iii. He eventually contributed heavily to Trinity College, near his birthplace in Durham, NC. They changed the name of the college in honor of him – Duke University

c. Southern Industrialization

i. Remained rural

ii. Obstacles:

1. Rate-setting system – railroads gave preferential rates to manufactured goods moving southward from the North, but in the opposite direction they discriminated in favor of southern raw materials

2. Pittsburgh plus pricing system – rich deposits of coal and iron ore in Birmingham, AL was charged a fee by railroad companies as if it had been shipped from Pittsburgh

d. Cotton Textiles

i. Textiles thrived in the South

ii. Became more industrialized through them, but hired cheap labor because this was attractive to potential investors. The intense struggle to find cheap labor caused them to be paid at half the rate of their northern counterparts and often received their compensation in the form of credit at a company store, to which they were always in debt

iii. Blacks were excluded from all but the most menial jobs. Women and children could stay together by working in the mills

iv. Many southerners, despite the poor conditions and pay, saw employment in the mills as a steady job and the only wages they had ever known

XVI. The Impact of the New Industrial Revolution on America

a. What Was the Impact of Industrialization?

i. Standard of living rose sharply

ii. Cities rose in size

iii. Immigrants swarmed to new jobs

iv. Agriculture declined in relation to manufacturing

v. Federal authority was needed to regulate business (unlike Jefferson’s thoughts that it wasn’t needed)

vi. People now worked by the clock, not by the sun

b. Women

i. Started in industry because of the typewriter and telephone switchboard

ii. Gibson Girl – a magazine image of an independent and athletic “new woman” created in the 1890s by Charles Dana Gibson, became the romantic ideal of the age

iii. Middle class women – careers meant getting married at an older age and smaller families

iv. Women earned less than men

v. Worked for money, not independence or glamour

c. Wealthy

i. Displayed and bragged about their wealth publicly

ii. 1/10 of the people owned 9/10 of the nation’s wealth

d. Self-Employment To Wage Earners

i. 1860 – Half of all workers were self-employed; 1900 – 2/3 were wage earners

ii. Dependence on wages made people more vulnerable to the economy and employer – the fear of unemployment was constant

iii. Reformers tried to introduce a measure of security:

1. Job and wage protection

2. Provision for temporary unemployment

e. Foreign Trade

i. As a result of industrialism, American products were shipped all over the world

XVII. Unions

a. Workers Then and Now

i. Now worked machines; there was no originality or creativity

ii. Back then the worker would’ve been know by the boss by name; now it was depersonalized corporations

iii. New machines displaced employees; in the long run more jobs were created than destroyed

iv. Employers could now take advantage of the vast new railroad network and bring in unemployed workers to lower down high wage levels; several hundred thousand unskilled workers came from Europe

b. Organization of Workers

i. Individual workers were powerless against industry. They were forced to organize and fight for basic rights

ii. The corporation could dispense with the individual worker much more easily than the worker could dispense with the corporation

1. Employers could pool their wealth through stockholders and hire high-priced lawyers

2. They could import strike-breakers (“scabs”)

3. Could employ thugs to beat up labor organizers

4. Could request State or federal authorities to break up strikes

5. Lockout – lock their doors against strikers and not pay them

6. Ironclad oaths or yellow-dog contracts – agreements not to join a labor union

7. Black list – put names of agitators on a list and circulate it among fellow employers

8. Company town – corporation might own grocery stores, shelter, and banks

iii. Under these conditions, workers often went into debt

c. Why Weren’t the Needs of the Worker Addressed?

i. Many strikes was like crying wolf

ii. American wages were the highest in the world

iii. Rich had worked their way to the top, so many thought that workers could do that as well

iv. Striking seemed socialistic and unpatriotic

XVIII. Labor Limps Along

a. Labor Unions Begin

i. Two factors led to the formation of labor unions:

1. Civil War draining human resources – it was at a premium

2. The mounting cost of living

ii. 1872 – 32 national unions

b. National Labor Union

i. Organized in 1866

ii. Represented all types of workers

iii. Lasted 6 years and had 600,000 members

iv. It excluded Chinese and made small efforts to include women and blacks

v. Worked for:

1. Arbitration of industrial disputes

2. 8-hour workday (which was won)

c. Colored National Labor Union

i. Formed by African American, but racism of whites caused them not to work together

d. Knights of Labor

i. Began in 1869 as a secret society. This could prevent reprisals

ii. Slogan was “An injury to one is the concern of all”

iii. 90,000 joined

iv. Barred “nonproducers” – professional gamblers, lawyers, bankers, and stockbrokers

v. Campaigned for economic and social reform, including codes for safety and health as well as an 8-hour workday

vi. When they won a victory over Jay Gould’s Wabash Railroad in 1885, membership went up to 250,000

XIX. Unhorsing the Knights of Labor

a. Haymarket Square (May 1886)

i. Strike that was organized by the Knights of Labor in Chicago

ii. Chicago had many Knights members and anarchists, who advocated the violent overthrow of government

iii. In May 1886, Chicago police advanced on a meeting called to protest brutalities by authorities

iv. A dynamite bomb was thrown that killed 11 and injured over 100 people, including police

v. 8 were arrested, but didn’t have anything to do with the bombing. However, because they advocated for the violent overthrow of government, 5 were sentenced to death and 3 were given long prison terms

b. John P. Altgeld

i. Governor of Illinois who pardoned the three arrested survivors from the Haymarket Square incident

ii. He received a lot of criticism, but displayed courage in opposing what he regarded as a gross injustice

c. Results of the Haymarket Square Incident

i. Knights of Labor became associated with anarchists

ii. Movement for an 8-hour day suffered

iii. Strikes met with little success

iv. Downfall was also caused by emergence of AFL

d. Beginnings of the AFL

i. Knights included both skilled and unskilled laborers

ii. Unskilled laborers could be replaced easily by “scabs,” lowering the bargaining position of the Knights

iii. Skilled workers sought to organize into their own union – the American Federation of Labor (AFL)

iv. Gradually, the Knights fused with other groups

XX. The AFL

a. American Federation of Labor (1886)

i. Created by Samuel Gompers, a cigar maker who was born in London

ii. He was elected president of the AFL every year except one from 1886-1924

iii. Consisted of a federation (or association) of self-governing national unions, each of which kept its independence. The AFL would unify its overall strategy and pool funds, enabling them to ride out prolonged strikes

b. Gomper’s Beliefs

i. Liked capitalism, but demanded a fairer share for labor

ii. Sought a better working life (“pure and simple unionism”):

1. Better wages

2. Better hours

3. Better working conditions

iii. Chief weapons were:

1. Walkout

2. Boycott

c. Results of the AFL

i. Attempted to speak for all workers, but it fell short

1. It was willing to let unskilled laborers, including women and blacks, fend for themselves

2. Embraced only a small minority of all workingpeople – 3%

ii. Was non-political, but it did attempt to persuade members to reward friends and punish foes at the polls

iii. From 1881-1900, they had over 23,000 strikes, involving over 6.5 million workers, and with a total loss to both employers and employees of $450 million

iv. Strikers won half their strikes

d. Attitudes Toward Labor Change

i. Public was beginning to concede the right of workers to organize, bargain collectively, and to strike

ii. Labor Day was made a legal holiday by an act of Congress in 1894

iii. Some industrialists saw the advantage of avoiding costly economic warfare by bargaining with the unions

iv. Most employers continued to fight organized labor