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The Industrialization

of America

Unit 6 Part 1

The Causes of Industrialization


-

Following the Civil War the United States will experience


a massive industrialization, beyond anything the world
has seen before.
This is driven by several unique factors:
-

Massive natural resource reserves - coal, iron, oil, etc.


A huge supply of low cost labor, fueled by rapid immigration.
An advanced transportation network which grew year after year.
Plentiful capital for investment.
Technological advancement.
A highly pro-business government.
Talented entrepreneurs.

Cont.
-

The Second Industrial Revolution (SIR from here on) was


not just an American event but a global transformation.
-

It has lasting and profound effects on the United States


- It will encourage ever increasing immigration to the US.
- It will cause mass internal migration from farmland to cities.
Businesses will be reorganized to accommodate this growth,
leading to the management revolution.
- A whole new class of jobs is created - middle management.
The United States will shift towards a fossil fuel economy, having
vast consequence for the environment (destruction of natural
habitats, even global warming today.)

The Railroad Boom


-

By 1900 the United States will have more railroad than


any other nation. This is will the GREATEST factor
causing the SIR.
Massive expansion following the Civil War is hampered
by irregularities in railroad construction.
-

Cornelius Vanderbilt (known for his steamboats) will seek to solve


this issue by consolidating many small railroads into a larger
corporation - The New York Central Railroad.
- Their greatest impact will be the standardization of the width
between railroad tracks. (Gauge)

Cont.
-

Western Railroad Expansion


-

The Transcontinental Railroad


- Congress will pass legislation creating financial incentives (between 16 - 40 thousand per mile of track
laid) to encourage the construction of a railroad connecting the east to the west coast.
- The railroad will be completed in 1869.
Corruption and accusations of greed accompany the railroads.
- The Federal government will give land around the tracks to the builder, who is the allowed to sell them
to settlers at a profit. However by the 1880s more than half of some western states are owned by the
railroads.

Competition and Consolidation


-

The immense opportunity for growth leads the business


community to often speculate - ie gamble by continuing
to build (things like railroads) because they expect
demand will eventually meet supply.
-

Jay Gould will enter the market by purchasing and then selling off
assets from railroad companies.
To stay competitive other companies will begin offering kickbacks
and rebates to preferred customers, which will raise prices for small
shippers - mostly farmers.

The SIR sees a massive increase in non-competitive


practices and business consolidation.

Cont.

Many railroads would also begin


colluding to fix prices.
These business practices will
lead to a financial panic in 1893
that will bankrupt more than
25% of railroads.
-

JP Morgan and other bankers will


step in, purchase the railroads and
consolidate them.
Consolidation has two effects.
- Better efficiency
- Regional monopolies monopolies are a problem
because it allows the
company to dictate prices,
rather than the free market.

Cont.
-

Several legal and legislative challenges are made against


these monopolies.
-

Farmers will band together into a group called the Grange. They will
push state legislators to pass laws that prevent pricing abuse.
These laws will be tested in court and in a landmark decision,
Wabash v. Illinois, the Supreme Court will rule that the states cannot
regulate the railroads because they are interstate commerce.
- Who controls interstate commerce? What case decided that?
Congress will attempt to intervene with Interstate Commerce Act
- It prohibited kickbacks, rebates and required that railroads
must publish their rates.
- However, it lacks enforcement and is ineffective.

Industrial
Empires

Developing Large Scale Production


- Early industrial production in the United States had focused on soft production
such as textiles. During the SIR production will shift dramatically towards heavy
industry - steel, petroleum products, heavy machinery, etc.
- Steel Production
-

Steel production had been a part of the US economy for years, however it was time consuming and
expensive.
This changes with the invention of the Bessemer Process. By blasting air through liquid steel
impurities could be removed.
- Allows for the cheap production of high quality steel.
- The Great Lakes region has abundant iron ore and coal and becomes the center of US steel
production.

Cont.
- Andrew Carnegie - born in Scotland, he arrived in the US penniless. He will work
his way up to the superintendent of railroads in Pennsylvania.
-

He will use his earnings to open a steel plant in Pittsburg.


Carnegie will be the first to use the new Bessemer Process is large scale production and is able to
outprice his competitors.
Carnegie shrewdly uses Vertical Integration to reduce operating costs which help him push his
prices so low his competitors go out of business.
- Vertical Integration is the purchasing of all steps of the production process, eliminating
middlemen and increasing efficiency while reducing operating costs.
- He will be so successful that by 1900 he is producing more steel than every mill in Great
Britain.
Carnegie will retire and sell his company to JP Morgan. This new company will be known as US Steel
and will be the largest enterprise in the world.

Cont.
- Andrew Rockefeller
-

Oil Refining - Standard Oil Company


Controlled 95% of all refineries in the US by 1877.
Believed in economies of scale.
Absolutely ruthless in business.
- Used rebates, drawbacks, spies, and secret info from RR to learn about competitors and force
them out of business.
Treated his workers well.
- First to offer pensions and tried to retain workers during downturns.
Rockefeller was notorious for his hatred of waste.
He believed that only the strong survive
- Social Darwinism
His dominance comes from Horizontal Integration
- By acquiring all of his competitors he can control the market and prices.

Cont.
- These major trusts will face opposition from reformers and legislators.
-

Middle class workers feared their influence and the old wealth of America resented the newly
wealthy.
Congress will respond by passing the Sherman Antitrust Act, however it was vague and difficult to
enforce.
United States v. E.C. Knight Co.will further weaken it after the incredibly pro business Supreme Court
rules that the Act applied only to interstate commerce and manufacturing was intrAstate.

Economic
Theory of the
SIR

Laissez Faire Economics


- A theory by economist Adam Smith - it postulates that the economy is controlled
by an invisible hand guided by supply and demand.
-

Businesses would compete with each other, therefore lowering prices and increasing the variety and
quality of products.
This belief in non-regulation is undercut by the growing power of the trusts and monopolies, who
are by nature anti-competitive.

Conservative Economic Theory


- Social Darwinism
-

an extension of Charles Darwins theory of evolution.


- Companies that survived and grew should not be hindered because they were the most fit to
survive. Other companies should be allowed to die.
- The rich were wealthy because they were the strongest and most intelligent in society.

- Gospel of Wealth
-

Written by Andrew Carnegie. Applied religion to the gathering of wealth.


The wealthy were simply hard workers and favored by God.
It was our God given responsibility to acquire as much wealth as possible.
The wealthy should use their fortunes to better the lives of the less fortunate through civic
philanthropy.
- Money should not be given to the poor, but it should be used to build schools and libraries.

- These beliefs will lead to a number of social programs to aid the poor but will be
used as justification by the rich to get richer.

Innovation Drives Growth


- The Telegraph
-

Allows immediate communication almost anywhere in the world.


Globalized markets and prices.

- Other Key Inventions


-

The Lightbulb - Thomas Edison - Allows 24 hour business operation


The Air Brake - George Westinghouse - greatly increased the load carried by trains.
Consumer Marketing
- The first sales catalogs and mail-order magazines appear to market new goods to consumers.
- Prepackaged and mass distributed food.
- Leads to the creation of a consumer culture.