Railroads, Economics, and Labor Unions

1. Railroads, Economics, and Labor Unions Ap US HIstory

2. Railroads 1860-1900 • The Civil War greatly increased the need for the industrial revolution • This had the effect of stimulating railroad development • Specifically it led to the selection of the central route for the 1st transcontinental railroad • Dramatic railroad expansion follows that • 1860 – 30,000 miles • 1870 – 52,000 miles • 1880 – 93,000 miles • 1890 – 163,000 miles • 1900 – 193,000 miles • “The generation between 1865-1895 was already mortgaged to the railroads, and nobody knew it better than the generation itself.”

3. Transcontinental Railroad • The Union Pacific starts west • The Central Pacific starts east • Unlike European railroads, US railroads were privately owned and operated though they received tremendous subsidies from the federal government • Generous government support • $16,000 per mile of flatlands track • $48,000 per mile of mountainous track

4. Transcontinental • Total government spending on railroads • Local governments 300 million • State governments 228 million • Federal government 65 million

5. Land grants to Railroads • Land grants to railroads amounted to 20 square miles of land for every mile of track • Awarded in a checkerboard pattern • 155.5 million acres granted by the federal government – 131 million actually received by railroads • 49 million acres awarded by the states • Total amounts to a larger land area than the state of Texas • Value of land – sold for an average of $5 per acre – remember typical land prices of time period

6. Labor for the transcontinental railroad • Union Pacific relied on Irish • Central Pacific on Chinese • Transcontinental railroad completed on May 10, 1869 in Promontory Point, Utah • Union Pacific wins the race to build the most track • Four more transcontinentals completed before 1900 • Northern Pacific • Great Northern • Santa Fe • Southern Pacific

7. Consolidation • Consolidation is the key to railroad growth in the period • 1880 – 115 railroads had merged into larger companies • Between 1880-1888 425 more railroads brought under the control of larger companies

8. Technological advances • Technological advances also stimulate growth • Conversion to steel rails – more flexible and durable • Movement toward standard gauge track • Westinghouse’s development of air brakes • Development of Pullman cars • Creation of time zones within the US

9. Results of railroad building • Sets the standard for consolidation and business organization (the corporation) • Establishes an initial pro-business relationship with governments at all levels – relatively lasting • Business and government form almost a partnership to accomplish goal • Relate subsidies and land grants to a laissez faire position • Railroads further stimulate industrial development and heavy industry (steel, coal, etc) • Opens new markets for manufactured goods • Gave easier access to raw materials • Encouraged agricultural and mining expansion • Gave remote fertile land easy access to urban markets • Allowed untapped resources to be exploited • Tapped a new source of labor • Increased the trend toward urbanization and physical mobility • Increased the stimulation for immigration – not for labor through land sales • Created the first great “robber barons” – and the robber baron philosophy of business

10. Railroad wrongdoing • Credit Moblier • Primary complaint against the railroads was that they charged – particularly important to Midwestern farmers who were at the mercy of the railroads to transport crops to market • Pooling – prearranged price fixing agreements dividing business or profits in a given region – they were designed to eliminate competition • Rebates – favored large shippers over small ones – small shippers thus had to pay higher freight rates to underwrite the cost of the kickbackers • Long haul/ short haul differentials • Free passes to Congressmen, Senators, Governors

11. Government attempts to regulation • Regulation was first attempted at the state level – this is very important concept – in the laissez faire attitude of the day, grassroots support for regulation must be demonstrated before the govt will act - in what states was that most likely to occur? • Midwestern states were first to act (particularly IL)

12. Granger Movement • Granger Movement was the start for reform in the Midwest • State legislatures pass Granger Laws • Designed to regulate big business (particularly railroads) and to benefit farmers • IL law regulating railroads is challenged in Munn v IL (1877) • At issue is whether a state can regulate interstate commerce in the absence of federal legislation • Supreme Court upholds IL act • 1886 Wabash, St. Louis, and Pacific Railway Co (Wabash case) the court reverses itself – rules that federal regulatory power over interstate commerce is exclusive – that is – even in the absence of federal legislation – state govts may not act

13. Interstate Commerce Act 1887 • First major governmental attempt to regulate big business • Forbade discriminatory practices • Rates had to be published and “reasonable and just” • The Interstate Commerce Commission was established to oversee enactment – had the power to issue cease and desist orders • It was extremely weak early on – some historians contend that it was established without teeth to soothe public sentiment without greatly restricting big business • The right of appeal to the Supreme Court negated the effectiveness of the Interstate Commerce Commission because the Supreme Court was the most conservative branch of government throughout the period and consistently supported big business • Despite its weaknesses – the Interstate Commerce Act establishes the principle of government regulation of business

14. Railroad problems late in the period • Overexpansion and poor business practices left the railroads vulnerable • Panic of 1893 severely damages railroads • By 1894 – 192 railroads were in the hands of receivers • By 1898- 67,000 miles of track had been foreclosed on – 1/3 of the total mileage • This tended to further the consolidation of railroads into fewer hands • Railroads were rescued and put on a sound footing by JP Morgan • Banking comes to supplant railroads as the dominant industry by the turn of the century.

15. Economic Changes

16. Category • See chart

17. Patents • In 1833, the head of the US Patent Office resigned “Everything seems to have been done. I just don’t see how anything else can be invented” • Between 1860 and 1890 – 440,000 new patents are granted • Why are patents a sign of industrial development? • US moves from 4th in industrial production in 1860 to 1st in 1894

18. Causes of Industrial Growth • Plentiful raw materials • Available capital • Available labor • American ingenuity • Expanding markets • Encouragement of government

19. Plentiful raw materials • Iron and coal • Necessary for development of industry (location of raw materials and transportation alternatives) • Why did the industry develop near Pittsburgh rather than upper MI or MN • Oil • 1859 Drakes Folly near Titusville, PA • Increased settlement and railroad expansion led to greater discoveries

20. Available Capital • Since the US had unfavorable balance of trade through the early 19th century foreign investment in the US totaled 3.3 billion by 1900 • Amassed fortunes during the Civil war increase the pool of capital • Domestic capital available due to a declining role of the US merchant marine • 1860 66% of US exports carried in US ships • 1900 9%

21. Available Labor • Increased agriculture technology freed farm workers for jobs in industry • 1830 – 183 minutes to produce one bushel of wheat • 1900 – 10 minutes • Between 1870-1890 4.4 million workers freed from farms • Immigration • 1860 – 1900 14 million immigrants come to the US • New immigrants were much poorer than old immigrants • They therefore sought industrial jobs near their port of entry rather than settling on farms in the interior • Increased tapping of the women’s labor source – particularly after the invention of the telephone (Bell) and typewriter (Shoales)

22. American Ingenuity • Mass production techniques expand rapidly after the Civil War and there is a distinctive trend toward consolidation • Increased inventions

23. Expanding markets • Lack of internal trade barriers (no internal tariff restrictions • Improved standard of living (more money to spend) • Railroad building – increased markets for some products – accessibility to others • Efficiencies of scale led to US products to be cheap thus increasing the US share of the world market

24. Encouragement of government • Laissez faire approach to regulation • Subsidies and land grants to railroads • Protective tariff policy • Federal governments pro business attitude regarding state regulation and labor unions • Attraction of superior talent into the business community

25. Steel Industry

26. Steel is King • 1860 – 100,000 tons produced; 1901 – 25 million • In 1870 when Vanderbilt converted to steel rails they had to be imported from England • Steel first had to become cheap • Henry Bessemer and William Kelly independently hit upon the same idea • Process was to blow cold air through molten iron ore to burn off impurities – result was high quality and low cost steel • Advantages of steel over iron – strength and durability • Raw materials and markets led to its location near Pittsburg

27. Andrew Carnegie • He began as a bobbin boy at 2 cents per hour – 60 hours per week • Associated himself with Thomas Scott of PA Railroad • Made shrewd investments as he came up through the ranks • By 1901 Carnegie controlled ¼ of the nation’s steel • Dividends were 40 million per year – Carnegies share 25 million – would have to spend $68,493 per day to not get richer

28. Carnegie and Vertical integration • He wanted to own everything necessary for production of steel – how is that competitive? • Carnegie owned iron mines, shipping companies, rail lines, coke companies, and etc • Through eliminating the middle man – he was able to sell steel cheaper than his competitors • He will eventually sell out to JP Morgan 400 million • US Steel capitalized at 1.5 billion • Philanthropic Carnegie • Wrote the Gospel of Wealth • “He who dies rich, dies disgraced” • Slant of his charitable contributions – never direct aid – always pointing toward self – help – established libraries and other public goods

29. The Oil Industry

30. John D Rockefeller • Humble beginnings like Carnegie • Use of the corporate structure and the “trust” • Sought horizontal integration (though some vertical used as well) • Sought control of the final outlet of refined oil • By 1877, Rockefeller controls 95% of all the refined oil in the US

31. Rockefeller • He used ruthless, cutthroat tactics to eliminate the competition – “He broke no laws, but a lot of laws were passed because of him” • He was powerful enough to coerce rebates from railroads • Could off supply of the refined oil • Financial clout • American Beauty Rose theory – in order to have the finest American Beauty Rose – all of the buds need to be cut off except for one which is to receive all of the nourishment • Rockefeller believed that competition detracted from efficiency – economies of scale would be realized only when the competition ceased to exist • By the turn of the century, Rockefeller was worth over a billion dollars

32. Robber barons

33. Robber barons • This is a term coined for these multi-millionaries • Some like Carnegie lived restrained lives • Some like Vanderbiltslived extravagantly • Rockefeller was middle of the road

34. The trust • The trust - one companies ownership of the stock of competing companies – designed to eliminate competition • The function of competition in economy – lower prices and better quality • Economies of scale • Money saving techniques are more easily developed • Mass production and marketing are possible • Modern day consolidation – horizontal, vertical, and conglomerate

35. Early attempts at control • 1890 – total value of all US property 65 billion; corporation own 25 billion • 1887 - ICC attempts to regulate railroads – largely ineffective • 1890 – Sherman Anti-Trust Act is passed – made any combination in restraint of trade or commerce illegal • Government brings only 14 cases before 1901 • Seven of the first 8 found in favor of business • In some cases – the act is used to prevent strikes by labor unions • EC Knight and Co – 1895 – controlled the manufacture of 98% of the refined sugar in the US • Found not guilty because the court saw a distinction between commerce and manufacturing • More trusts formed under McKinley than any President until that time • Nevertheless – it demonstrates a greater willingness on the part of the govt to at least recognize that a problem exists

36. Impact of the Economic Revolution

37. Impact of Economic Revolution • Increased the wealth of the country • Increased the trend toward urbanization • Creates the final transformation to an industrial based economy • Increased opportunities for women (tend to delay marriage; smaller families) • Accentuated class differences – by 1900 1/10 of the population owned 9/10 of the wealth • Creates a force of change in foreign policy – with the increased need for foreign markets – the US became more aggressively involved in world affairs • Creates the beginning of a change in attitude about the function of government – moves slightly toward a benefactor of the people concept

38. Impacts of industrialization process • Social and intellectual readjustments • Economic changes • Political changes

39. Social and intellectual changes • Decline in individualism • Consolidation into larger units reduced the role of the individual • Mass production techniques decreased individual ownership of the finished product and pride in workmanship j • Urbanization also stifled individuality • Decline of laissez faire philosophy

40. Economic changes • Decline in importance of farms • Psychological impact of declining impact of declining importance in agriculture to the antebellum South • Agrarian discontent to accelerate as the urban lifestyle supplants the social foundations of the farm • Increased importance of labor unions • Force of change for humanitarian reforms because of a variety of problems each with economic roots

41. Political changes • Rising importance of cities as political forces – the increased need of parties to address the problems of the urban masses • Degradation in politics • Rise of imperialism