Industrial America in the Late 19 th Century

1. Industrial America in the Late 19th Century Chapter 14

2. The Second Industrial revolution • Not unique to US, important part of European history as well • “Age of Steel”, it the most important product: Henry Bessemer invented a better refining process. Great Lakes region important b/c it has good transportation, and is near(er) ore sources. Cities like Detroit, Pittsburgh, and Cleveland have booms • Chemicals and electricity also taking off. Corporate banks allow greater capital for investment. Significant increases in consumer goods • By 1900 US is the largest, most powerful econ in the world, with 75% of our citizens working jobs OTHER than agriculture

3. Factors that encourage growth • Labor • Pop of US doubled from 1865-1900, due to natural increase and immigration- 14,000,000arrive, most become industrial workers • The Civil War/Pro Business • Had allowed the north to put many “pro-business” policies in place, like tariffs, fiscal regulation etc… and those stayed after reconstruction

4. Railroads • Gov’t subsidized building of 1st Transcontinental (Union Pacific) realizing it would be unprofitable until more people settled • Other lines: • Northern Pacific: Minneapolis to Seattle • Atchison, Topeka, Santa Fe line • Southern Pacific: New Orleans to Los Angeles • Railroad vital, linked the country, creating the largest integrated market in the world • Led to the creation of Time Zones • Supported growth of cities (ship in food) • Created the “Robber Barons”

5. New Industries Communications • Building RR helped grow Steel, Coal and lumber industry. Led to new inventions: Air Break, refrigerator cars • Telegraph invented 1844, has been transcontinental since 1861- 200,000 mi of telegraph lines by 1880 • Telephone invented 1876, but 1900 there are 1.3 million telephones in US

6. Innovation and technical Achievement :Edison • 1790-1860: 36,000 patents. • 1860-1900: 1.5 million patents • Thomas Edison: “the Wizard of Menlo Park”. Most famous “inventor” of the era. Electric light (through the light bulb), and machines to generate electricity- which is more reliable than steam. Also invented phonograph, mimeograph (copies), Dictaphone, and the 1st projector for moving pictures. Cites became “electrified” overnight- revolutionized urban living • George Westinghouse: transmission of electricity.

8. Henry Ford • Did NOT invent the automobile. (that was Karl Benz in Germany) But did improve the internal combustion engine, and most importantly, invented the Assembly Line Process for manufacturing cars, with each worker assigned a single task. Workers actually hated it, so Ford had to pay higher wages to get them to stay, $5 a day. • This cut production costs, so Ford was able to “democratize” the automobile by building the Model T (1908) which at $400 was within reach for the majority of the middle class (became a symbol of middle class lifestyle)

10. Cornelius Vanderbilt • 1st of the “Robber Barons”. Developed a near monopoly of RR lines in the east- and amasses over $100 million in his lifetime. • Used “Pools” (defensive alliances with competition to protect each others interests, divide the market). Gave rebates and kickbacks to large corporations, and squeezed others out of business- by any means necessary. • “Law! What care I about Law! I have something better- Power”.

13. Jay Gould • Controlled Western RR. • Had the ability to control agricultural prices by controlling the rates they paid for shipment. • “Stock Watering” inflated the value of his company by issuing more and more shares to force others out of business. • Involved in gov’t corruption (bribes, kickbacks etc..)

14. Sea Based Transportation and New Communication • Steam powered ships can travel faster, and go from ocean to river. • Refrigeration made it possible to send perishable food products (especially meat and dairy) worldwide- particularly important to US and Australia

15. Telegraphs Canals • By 1870s there are 650,000 miles of telegraph wire worldwide (including transatlantic cable) so communication takes minutes, not weeks • Both significant engineering feats • Suez: English completed 1869 • Panama: US completed 1914

16. Competition and Consolidation • With more and more companies involved in industry- competition grew intense. Cut expenses, undersell the competition, do what it takes. • RR first industry to work together to increase their own profits (at expense of consumer), and other major industries: oil, steel, coal, and textiles weren’t far behind. • Even as industry is growing the number of corporations is shrinking as the strong gobble up the weak (ex. There were 2000 textile mills in 1860, 1300 in 1900) • Occasional financial panics spur this along, smaller corps tend to go bankrupt

17. Pools and Trusts • Obviously eliminating competition allows corporations to make more $$. The ultimate goal for many; monopoly. • Pools: divide the market- giving a share to specific “competing” corporations- which allows them to charge higher prices • Trusts: “Rival” companies are actually owned by the same person/corporation- so it “looks” like there is competition where there is none

18. Supreme Court • Robber Barons initially supported by gov’t, after all, they were making America $$. But econ troubles in 1870s (during which many smaller businesses went bankrupt and were swallowed) changed thinking – esp in regards to RR • Wabash Case 1886: said states could not regulate corporations engaged in interstate trade, that would have to be the federal government. Leads to • Interstate Commerce Act 1887: which created Interstate commerce commission to monitor trade. Forbid pools and trusts, required RR to publish rates (so they would be the same for all customers). Unfortunately not a very effective law- has no “teeth”.

19. Inter locking Directorates • So businesses look for new ways. JP Morgan (US Steel) pioneered having people from various companies serve on each others boards of directors. That way, they could ensure communication and smooth business without violating rules • Also used “Holding Companies” set up dummy corporations which would buy controlling interests in other companies, and maintain them separately, but work them together

20. New Industrialists • Robber Barons were controversial. They were definitely looking out for #1, but their companies provided millions of jobs, and thousands of new consumer products. • Also represent the idea of the American Dream. Not all were from privileged backgrounds, “anyone” could end up a millionaire.

21. Steel • Cornerstone of the Second IR- typified “Heavy Industry” which concentrates on making capital goods rather than consumer goods. • Steel will create the RR and Skyscrapers. • By 1900, the US will produce as much steel as Great Britain and Germany combined

22. Andrew Carnegie • A classic “rags to riches” story. Immigrated as a teen with poor parents, began work in a textile mill for $1.20 a week, and rose from there • 1872 He met Henry Bessemer in England, and quickly realized the potential of the Bessemer steel process. • He didn’t like trusts and pools, so he found a different way to organize….

23. Vertical Integration • Carnegie set up his company so that it controlled, or held and interest in all the phases of production: raw materials, transportation, manufacturing and distribution. Carnegie bought iron fields, coal mines, limestone quarries, and coke factories to make sure he had materials he needed • By 1890 Carnegie produced ¼ of the steel in the US. Henry Frick ran the steel business, Carnegie focused on promotion, expansion, and organization • Eventually sold his company (Carnegie Steel) to JP Morgan (US Steel) for $400 million, and spent the rest of his life giving his $$ away to build libraries, schools etc…

25. JD Rockefeller • From Cleveland OH  Interesting combination of religion and greed (God helps those who help themselves) Gets into the oil industry after the war- which was just beginning, and actually centered in Western PA at the time (shale oil) • Use Horizontal Integration: Buy out the competition. Rockefeller would sell at a loss to drive others out of business.

28. Trusts (change outline heading) • Rockefeller wants a monopoly on oil- and that’s illegal, so it’s time to get creative…. • Trust: stockholders in various oil companies sell their shares, and authority to board of directors from Rockefeller’s Standard Oil Co. Though they are still “owners”, Rockefeller’s group has the power, and he ends up controlling 95% of the oil industry in the US. • Died in 1897 with a company worth $900 million, BEFORE the auto industry…. Like Carnegie, Rockefeller gave away over $500 million- part of the paradox of the Robber Barrons.

29. JP Morgan • The only one of the “Big 3” born rich- and his specialty is investment banking and deals (rather than an actual product or single company) • Used the econ crisis of 1893 to buy weak companies, sell of pieces, and make them profitable (hostile takeover) • Used Interlocking Directorates to get around burgeoning anti-trust legislation- holding companies and same people on boards of directors of different companies. • Also liked consolidating industries, he bought steel companies until he was big enough to rival Carnegie, made him an offer he couldn’t refuse, and made US Steel the first billion dollar company in the world (and more than the wealth of the entire nation in 1800)

31. The Philosophy of Business • Industrialization came from Capitalism- the idea is an economy where you pursue your own goals for your own gains….and if you are successful great, if you are not…..too bad so sad • This is not a new idea- Europeans/Americans have been using it since 16th century. This is just on a gigantic scale.

32. Free Market Economics • Adam Smith didn’t invent capitalism- he defined it in “The Wealth of Nations” 1776. Mercantilism had defined the earth’s wealth as limited by land, that why you needed colonies etc… so you could have a bigger share. Smith said no, infinite resources were available • The “invisible hand” (make it stop….so creepy) is the force behind the economy. Gov’t should provide schools, army/navy, roads, and $$ to invest in things too big (like transcontinental RR)

33. Laissez Faire • Free Market is a cycle- it will have ups and downs, and that’s natural. • When there are problems, gov’t needs to resist temptation of jump in and fix, which might help short term, but in the long run, Smith said the free market will create more wealth (but for whom?) if left alone • David Ricardo and Thomas Malthus had agreed in their Iron Laws- saying you can’t fix social problems, leave them alone

34. Social DarwinismHerbert Spencer • Charles Darwin’s theories of evolution and survival of the fittest were widely discussed in the 19th century. Darwin himself focused purely on the biological, but others took things in a different direction. • Herbert Spencer: applied survival of the fittest to humans, to justify the wealth of industrialists, they have risen to the top to dominate those the weak to help themselves.(as with those like Carnegie or Rockefeller who were from modest backgrounds) Also used to justify the racism of European Imperialism • Interesting ties to the concept of “Divine Right of Kings”

36. Social Impacts of Industrialization • There have been wealthy people in US since beginning- but in early generations the bulk of $$ was reinvested, in land, in the business, whatever. • Now there were more people with massive incomes who wanted to show their wealth, using it to impress and improve their social standing- represents a change in attitude

37. Conspicuous Consumption • The idea that you want people to SEE your wealth, to impress. 1st defined by Thorstein Veblen (great name) in The Theory of the Leisure Class. The trappings of wealth became visible, and idea was anyone can reach that level with work. • Acres of Diamonds: A popular book of stories of ordinary people who gained into enormous fortunes often through blind luck (along with purity and hard work- Horatio Alger: also Famous for rags to riches stories.) • The idea that it could happen to “anyone” kept many blind to the gap between rich and poor.

39. Gospel of Wealth • Another justification of wealth of industrialists- exemplified by Andrew Carnegie and JD Rockefeller. • Their $$ was a reward from God for their work and skills- but should be used primarily for the betterment of mankind.(rather than conspicuous consumption) Did not advocate “handouts” as that would stifle initiative, but donating to allow underclasses to help themselves. Donations for libraries, museums, universities, scholarships for deserving, halls for music/lecture etc….

41. Sherman Anti-Trust Act (not on outline) • 1890- there is beginning to be a public outcry against the power of trusts. • Law forbids businesses to operate in “restraint of trade”. Unfortunately, doesn’t full designate what that is. Became known as “paper tiger” b/c it sounded good, but had no teeth- lots of ways around, actually more trusts were created in the decade AFTER this law created that before! • Actually most effective when used to curb the power of early labor unions (saying strikes restrained trade etc…)

42. Social Class Distinctions • Traditionally, wealth came from, and was tied up in land- people who were “rich” didn’t always have bunches of cash. But industry requires Capital- $$ to start, and it could be risky, it could disappear. (which land didn’t) • As Industry became the driving force of the econ, the $$ based society it created changed on many levels

43. Factory Workers • Unskilled laborer. Their work is dirty and tedious, with no accident protection. Everyone in family works, and still up to ¾ of wages earned needed for food. • No job security, can be fired at any time, for any reason- and bosses justified actions with Social Darwinism, seeing the workers as just a cog in the wheel of industrialization.

44. Assembly Line Manufacturing • Interchangeable parts and assembly lines made workers jobs boring- which actually increased accident rates, as workers might zone out. Anyone could do the job, which gave individual workers little bargaining power. Immigrants/unemployed literally stood outside factories waiting for an opportunity….so who cared what current workers thought/needed

45. Working Women (not on Outline) • Cities gave women greater career opportunities- there were over 5 million female workers in 1900. Middle and upper class women did not work (esp after marriage) not socially acceptable, but “might” before married in top of 3 tiers of “women’s work” • 1. Service Jobs. Teachers/Nurses, most “respected” jobs. Clerk/secretary, shop girl, seamstress, telephone operator also respectable- generally open only to “American” girls, not immigrants • 2. Factory work- had variations, could be/become respectable and allow social mobility, or could be sweatshop horrible • 3. Domestic Servant. Represented 40% of working women. Again, there were respectable positions (Governess, Cook, etc…) but generally the bottom class. Most likely to be foreign born or African American.

47. Industry/Farming • 3/5 of American lived outside major cities in 1900, but their lives were impacted by industrialization as well • Great plains farmers needed machinery to make $$. And food prices were falling in late 1800s (due in part to increased competition from places like Australia and Canada, which came from RR and Steamships) • Many farmers in debt for machinery, and at mercy of RR storage and shipping rates. • Farmers also losing status in society- the idea of the “country bumpkin” compared to the sophisticated city dweller.

48. Gap between Rich and Poor • Factory workers lived in the shadow of econ insecurity (millions lost jobs every year) or possible disaster- 35,000 a year die in work accidents- highest rate in world • On other hand, richest 1% of Americans Control 50% of the wealth in the nation(today they still have 40%) if you take the “poorest” 40% of the population, they controlled 1.2% of the wealth • Middle classes are moving to the suburbs, and wealthy to the enclaves (Nob Hill, Newport RI, “millionaire’s row”)

49. Nouveau Riche • Robber Barons were the the apex of a new “leisure class” that began to emerge in America after the Civil War, people who had been born rich, and would never NEED to work. • Older American aristocracy deeply resentful b/c they felt econ power gained by this group was not being used for good (public service etc) Many, like the Roosevelt's, became anti-trust crusaders • Deepening class divides, but overall, the stand of living in the US is rising, and in large part b/c of the econ created by Barons- despite monopolies, consumer goods getting cheaper, and they employed millions

50. Life of the Wealthy • Rich led increasingly separate lives from the “great unwashed” of normal humanity. Had private schools and clubs, travelled to Europe (Grand Tour) Owned multiple houses, employed dozens of servants • Believe that each class has their place in the social order, shouldn’t challenge, shouldn’t mingle, but also allows social mobility.