Industry Comes of Age, 1865-1900

Chapter 24

Why Railroads? Prior to the railroad it was difficult

for companies to move products to distant locations.

A transportation system was needed to efficiently and cheaply move both raw materials to the factories and the finished goods to the consumers.

River and canal transportation were limited to areas near water routes. In addition, frozen water prevented their use during the winter.

Railroads solved the problems and within a few decades of development, railroads became the most important method of moving goods and people.

Innovations The width of the rail tracts (gauge)

was standardized which allowed trains from different railroads to switch tracks.

Four standardized time zones were created for the entire nation in 1883. This made it possible to

create train arrival and departure times across the country.

Steel rails replaced iron rails, which could carry heavier loads.

The state and federal governments gave railroads huge grants of land amounting to over 180 million acres. This provided an incentive to build more lines and encouraged settlement.

George Westinghouse patented the first automatic air brake, which made train travel much safer.

Land Issues The land granted to the

railroad companies was often times occupied by Native Americans.

Indian raiding parties would attack construction workers, pull up rails, and other forms of sabotage.

Native Americans were upset by the hunting of buffalo and occupation of their land.

Ultimately this struggle was won by the railroad companies.

Chinese Laborers A few factors led to the

need for more labor on the Central Pacific line.

First, a silver rush in Nevada drew away many workers. Second, the white workers often went on strike for higher wages. Third, the completion deadline was rapidly approaching.

Charles Crocker convinced his partners to hire the Chinese, many of whom had emigrated during the Gold Rush in the 1840s.

Philosophy: Laissez-Faire Term originated in France during the

Enlightenment Based on the idea that the government

should not intervene in business or the economy; instead natural law or market forces would regulate

Adam Smith popularized the term and concept in his book Wealth of Nations in 1776

This approach was embraced by industrialists during this era who did not want the government to regulate them in any way

Philosophy: Social Darwinism Philosopher Herbert Spencer

applied Darwin’s theory of evolution and natural selection to human society› Darwin had argued that

plants and animals had evolved throughout the years and that weaker species would die out

› Many Christians were outraged at the conclusions Darwin made about the origin of the species

Spencer argued that society evolved through competition and the idea of “Survival of the Fittest”

Individualism The idea that a person

should not rely upon others for success

This philosophy was evident from the beginning of United States history

Author Horatio Alger made this concept the theme of his books in which a poor young man is able to create wealth and success through his hard work

Later the term “rugged individualism” becomes popular

The Rise of Big Business Big businesses came to be because they

could produce goods more cheaply and efficiently than small businesses

This forced many small companies out of business

Oil was discovered in Pennsylvania and Rockefeller created Standard Oil Co. to cash in on the discovery

Steel became profitable because of the Bessemer Process and the demand for railroads

The Self Made Man Andrew Carnegie

emigrated to the US from Scotland in 1848

He worked his way from bobbin boy in a textile factory making $1.20 a week to making $50,000 a year with a railroad company and creating his own business investing in the steel industry

Preached a “gospel of wealth”: make as much money as you can, but give it away

Billionaires in 1900

Robber Barons vs. Bill Gates

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100120140160180200

$ billions $

RockefellerCarnegieVanderbiltBill GatesJay GouldJP MorganJames H. Hill

Cornelius Vanderbilt Borrowed money from parents to buy a boat that

took passengers between Staten Island and New York City when he was a teen

Commissioned during the War of 1812 to transport items for the government around New City› made him enough money to buy several more

ships 1829: Formed a steamship company on the

Hudson River and charged lower fares than his competitors› Became the most powerful shipping tycoon in the

region and made him a millionaire by 1846, earning the nickname "Commodore"

1860s: Began investing in railroads and eventually built the first line connecting New York City and Chicago › Also built New York’s Grand Central station

Most historians estimate that when he died he was worth $100 million ($1.7 billion in today’s dollars)

John D. Rockefeller Sold farm implements, fertilizers and

household goods with partner In 1862 met and went into business with

Samuel Andrews who had developed a better and cheaper way of refining crude petroleum › Named the company Standard Oil

Negotiated first major deal to lower his cost of transporting oil and refined oil by guaranteeing the railway company sixty carloads a day› This allowed him to lower the prices he

charged for oil, his sales skyrocketed, and in less than a year some of his competitors went out of business

› Rockefeller bought out Andrews for a million dollars and eventually monopolized oil refining in Cleveland

Dominated the oil industry across the nation by putting local companies out of business

By 1890 Standard Oil was a monopoly that could fix its own prices and terms of business

Rockefeller was worth about $9 billion dollars ($190 billion in 2002 dollars)

“If you have to ask how much it costs you can’t afford it”-John Piermont Morgan

Born into a wealthy family 1857: he worked as an accountant in his father’s firm in London After returning to the U.S. worked for several New York banking firms

until he became a partner in Drexel, Morgan and Company in 1871 › In 1895 he reorganized the company into J.P. Morgan and Company

Made a huge amount of money by financing railroad companies that were in financial trouble

Hated competition and instability in the economy and dedicated his career to brokering and financing deals that yielded consolidations in the electric and steel industries

1901: created U.S. Steel, the world's first billion-dollar corporation By the early 1900s, Morgan controlled almost all of the major

industries in the U.S. and had a large stake in the financial and insurance industries

Morgan was an avid art and book collector

Vertical and Horizontal

Integration

Vertical IntegrationHorizontal Integration

Buying all of the different businesses that the operation of a company depends upon

Example:› A clothing company would own the

trucks to distribute, the factory, the cotton farm, etc.

Buying several small businesses to create one large business

Example:› Independent oil companies combine to create the US

Oil Company When a single company controls an entire

market it becomes a monopoly Many Americans feared monopolies because

they could charge whatever price they wanted to

Working in the United States Working conditions

were not very regulated› Workers breathed

in toxic fumes, lint, and dust

› The average industrial worker in 1900 made 22 ¢ per hour and worked 59 hours per week

% of world manufacturing by nations 1870-1913. “Other Nations” means every other country in the world combined.

Inventions and Innovations Alexander Graham Bell

– Telephone Christopher Latham

Sholes – Typewriter Thomas Edison – DC

(Direct Current) electric generator, phonograph, incandescent light bulb

Nicola Tesla – AC (Alternating Current) electric generator, hydroelectric power

Edison First patent was in 1868 for an

Electrical Vote Recorder 1869: Received patents for an

improved stock ticker and several other devices

Between 1872 and 1876 he invented the motograph, automatic telegraph systems, paraffin paper, the electric pen (mimeograph machine), and many other useful machines

1876-1877 he invented the carbon telephone transmitter "button", which made telephony a commercial success

First phonograph was made in Edison’s lab

1879 he invented the first commercially practical incandescent electric lamp and later invented the machinery for the commercial use of electricity

Altogether Edison obtained almost 1100 patents and developed the first research lab at Menlo Park, NJ

Trusts

Business entity designed to create a monopoly over an industry Some formally organized under the law

› They were created when corporate leaders convinced, often through coercion, the shareholders of all the companies in one industry to turn over their shares of a corporation to a board of trustees, in exchange for dividend-paying certificates

› The board would then manage all the companies in "trust" for the shareholders › This translated to an emphasis on the elimination of competition in the process

of managing all of the companies in order to maximize profits Eventually the term was used to refer to monopolies in general

Early Unions Many workers thought the way to improve

working conditions was to form unions and bargain for better working conditions and higher wages

Unions were opposed by company owners because they saw them as illegitimate conspiracies that interfered with their property rights

To prevent unions from forming companies required workers to sign contracts against unions, hired detectives to identify union organizers, and blacklisted workers who tried to unionize

Companies would lock workers out of their property and refuse to pay them until they broke up the union

Marxism Marxism (a set of ideas

of Karl Marx) started to scare people in the capitalist US

Marx believed that workers would revolt and seize control of factories

Many European immigrants had heard the ideas of Marx and when they came to the US nativism (anti-immigrant feelings) started to spread

The Struggle to Organize The recession that

started in 1873 continued into 1877› Railroad workers

across the country walked onto the tracks and refused to move

› After property had been destroyed and people killed, President Hayes sent the army out to stop the strike

The Haymarket Riot and the Pullman Strike Haymarket Riot

› Movement for 8 hour workday gained support

› A nationwide strike took place on May 1, 1886

› In Chicago, a clash between strikers and police left one striker dead. The next day a protest was organized in Haymarket Square

› Police entered the square and someone threw a bomb

› Police opened fire and workers shot back

› 8 German men were arrested, though the evidence was weak, and 4 were executed

Pullman Strike› Workers at the Pullman

Factory who had been required to live in a company town went on strike because of slashed wages and the firing of 3 workers who complained

› Workers across the country boycotted Pullman cars and refused to handle them, tying up railroads and threatening to paralyze the economy

› Railroad managers arranged for US mail cars to be attached to Pullman cars because the workers would then be interfering with the US mail (violation of federal law) and President Grover Cleveland sent in troops