Chapter 20: Big Business and Organized Labor

I. The rise of big business

A. Causes of business growth

1. Technological innovation – improved machinery

2. Labor shortage – led to labor-saving machinery
3. Standardization – of machinery and parts available nationwide
4. Agricultural production – fueled economy with crops
5. Railroad network – connecting East and West developed national markets and related industries
6. Inexpensive power – water, wood, coal, oil, and electricity
7. Supportive government – encouraged high tariffs on foreign manufacturers, provided land and cash to
finance railroads/internal improvements
B. Second Industrial Revolution – mid 19th century

1. Transportation – interconnected national transportation and communication facilitated growth of national

American markets. Telegraphs, railroads, steamships, undersea telegraph cable contributed.
2. Electric power – increased efficiency of industrial machinery. Spurred urban growth (subway, electric
trolley). Enhanced production of steel and chemicals.
3. Scientific research – growth in laboratories. Figured out things like refining oil and improving efficiency.
B. Railroad building – First big business. First magnet for great financial markets. First industry to develop a large-scale
management bureaucracy.

1. Functions of railroads
a. Opened western half of nation to economic development
b. Connected raw materials to factories and retailers
c. Created interconnected national market
d. Used iron, steel, lumber etc.
2. The transcontinental plan – During Civil War, Congress gave land grants to build first transcontinental
railroad to connect CA with rest of Union
a. Central Pacific – was to build westward across Great Plains (from NE)
b. Chinese labor – Charles Crocker recruited 6000 Chinese workers (lured to US by gold rush and
jobs, single men with intent to make money and go back home). Many died on job.
c. Union Pacific – was to build eastward from (from CA). Construction directed by General Grenville
Dodge. Used war veteran and Irish immigrant labor.
d. 1869, both railroads linked at UT
3. Other transcontinentals – Southern Pacific (New Orleans to LA); Atchison (Topeka to Santa Fe); Northern
Pacific (MN to WA)
4. Financing the railroads – built by private companies raised money by selling bonds to investors

a. Early federal aid to the railroads

I. 1850 Senator Stephen Douglas secured public land grant to subsidize north-south railroad
connecting Chicago and Mobile. ($355 million in land)
II. Financial aid from federal, state, and local governments ($707 million cash)
b. Government gains from the financial assistance given
I. Accomplished connecting country
II. Government land value increased
III. Hauled government freight, military and equipment, and mail inexpensively or free
IV. Economic growth = increase in gov’t revenue
c. Crédit-Mobilier fraud – bribed congressmen and charged Union Pacific $94 million for
construction project that cost no more than $44 million
2. Jay Gould – robber baron. Dishonest in railroad businesses to build massive fortune
3. Cornelius Vanderbilt – consolidated control of NY Central Railroad

C. New products and inventions

1. Refrigerated railway car = rise in meat packinghouses

2. Flour milling = Pillsbury Company controlled
3. Paper making
 4. Other improvements and innovations – barbed wire, farm tools, steam turbines, typewriter, vacuum
5. Development of the telephone – Alexander Graham Bell patented phone 1876.
6. Edison’s work with electricity – lightbulb, phonograph. Demonstrated “research and development” process
to business expansion.
7. George Westinghouse developed first alternating-current electric system. Nikola Tesla made alternating-
current motor which enabled factories to located wherever.

D. Entrepreneurs of the era

1. Rockefeller and the oil industry

a. Concentration on refining and transportation – Standard Oil Company of OH. Wanted to created
monopoly and weed out competitors. He bought out other companies. 1879, Standard Oil Company
controlled 95% of oil business.
I. “Pay nobody profit” – avoided the middlemen by getting all raw materials and made all
resources on own = Vertical Integration.
b. Railroads supported Rockefeller because he owned pipelines and oil storage.
c. Development of the trust – used to centralized control of his business. Consisted of acquired
competitors bought under one company = horizontal integration.
d. Supreme Court forced to for Standard Oil to dissolved in 1892
e. Evolution of the holding company – A company that controlled other companies by holding most of
their stock.
2. Andrew Carnegie and the “Gospel of Wealth”

a. Concentration on steel
I. Took advantage of price drops
II. Used times of recession to buy struggling companies
b. Philosophy for big business – however harsh methods, corporate leaders were public benefactors
c. “The Gospel of Wealth” – Competition insures survival of the fittest, accumulation of wealth by
those who work for it.
2. J. P. Morgan and investment banking

a. Concentration on railroad financing – Set up J.P. Morgan and Company and controlled 1/6 of
railway system.
b. Control of organizations – viewed competition as wasteful and wanted to create giant trusts.
c. Consolidation of the steel industry – Bought out Andrew Carnegies steel and iron in 1901. US Steal
Corporation first billion dollar corporation.
2. Sears and Roebuck and retailing

a. Montgomery Ward- wanted to extend commerce to farms and small towns.

b. Retail by mail as opposed to by foot – could eliminate middlemen whose services increased price of
goods. Sold goods at 40% discount. Sears, Roebuck and Company dominated mail order industry.
c. Creation of true national market made possible by widespread distribution of Sears catalogs and
retail goods and free delivery

II. Developments in labor

A. Wealth and income
1. Gilded Age – Rich getting richer, others better off.
2. Standard of living
3. Disparities between rich and poor still existed.
4. Degree of social mobility – rise from rags to riches was rare
5. Living and working conditions – poor
6. Bureaucracy’s impersonal control – ownership separate from management.
B. Child labor – 1880, 1/6 children worked full time. Received little to no education and no free time. Only a few states
passed laws to set age minimum.
C. Violence in union activity in response of grievances
1. The Molly Maguires - secret organization of Irish coal miners that used violence to intimidate mine officials
in the 1870's. Motivated by the dangerous working conditions in the mines and the owner's brutal efforts to
 suppress union activity. Pinkerton detectives stopped the moment, caused 24 members to be convicted, 10
hanged and caused a wage reduction
2. The railroad strike of 1877 - violent but ultimately unsuccessful interstate strike, which resulted in extensive
property damage and many deaths. The first major interstate strike in us history. The panic of 1873 caused
railroad lines to cut wages which caused workers to walk off the job and block the tracks- it eventually turned
violent. Federal troops finally quelled the violence. After workers turned violent, the public began to blame
them for the looting and violence and they lost all sympathy
3. “Sand Lot” incident – Chinese workers were scapegoats for the depression of 1870s and blamed for stealing
jobs. Chinese attacked. Denis Kearney organized Workingmen’s Party of CA whose platform called to end
Chinese immigration. Anti-Chinese sentiment grew. 1882, Congress voted to prohibit Chinese immigration
for 10 years.
D. Efforts at union building
1. National Labor Union - 1866, met in Baltimore, first federation of all the labor union groups. It was
composed of a congress of delegates from labor and reform groups more interested in political and social
reform than bargaining with employers. Wanted an 8-hour workday, workers' cooperatives, greenbackism
(printing paper money to inflate currency to relieve debtors), and equal rights for women and African
Americans. They were successful in persuading Congress to enact an 8-hour workday for federal employees
and to repeal the 1864 Contract labor Act which had encouraged the importation of laborers.
2. Knights of Labor – Founder Uriah Stephens.

a. Early development – 1869, grew slowy but grew during years of depression. 1878, established as a
national organization. Platform endorsed reforms like mechanic’s lien laws, elimination of convict-
labor competition, 8-hour day, and paper currency. Significant proposal was equal pay for equal
work by men and women.
b. Emphasis on the union – allowed all members regardless of race, color, gender.
c. Role of Terrence Powderly – Succeeded Stephens. Unsuited for leadership role. But Knights still
successful under his leadership.
d. Victories of the Knights – increased from 100,000 to 700,000+. Declined after failure of railroad
strike.
e. Haymarket Affair, 1886 - riot during an anarchist protests at Haymarket Square in Chicago in May
1886, over violence during the McCormick Harvester Company Strike, the deaths of 11, helped
hasten the demise of the Knights of Labor, even though they were not responsible. It grew out of
agitation for an 8-hour work day. The Anarchists had scheduled an open meeting following the
death of a striker, as the crowd began to break up violence erupted causing the affair. It caused a
widespread revulsion against labor unions
f. Lasting influence of the Knights of Labor
I. Federal Bureau of Labor Statistics 1884
II. Foran Act of 1885 – penalized employers who imported labor
III. 1880 law settling labor disputes
IV. Spread idea of unionism and union of skilled and unskilled.

3. American Federation of Labor

a. Development of craft unions – organized workers who shared special skills. Feared that joining
skilled and unskilled led to loss of craft’s identity. Federation of national organizations, each having
autonomy and some power.
b. Role of Samuel Gompers – served as president. Focused on economic gains = higher wages, shorter
hours, better conditions. Willingly used strikes to achieve favorable trade agreements: closed shops
(could only hire union workers) and union-preference shops (which could only hire others if no
union members were available).
c. Focus on the eight-hour day. Avoided politics.
d. Growth of the union – 1890, membership higher than Knights.

E. Violence in the 1890s

1. Homestead Strike, 1892 - strike at Carnegie's steelworks in Homestead, PA. When the Amalgamated
Association of Iron and Steel Workers went on strike following a wage cut, the company's manager, Henry
Clay Frick, hired strikebreakers, with Pinkerton Agency detectives to protect them. A gun battle resulted in
deaths and injured; the governor sent state militiamen to support the company. An anarchist tried to
assassinated Frick causing the strike and union to lose all public support
2. Pullman Strike, 1894

a. Causes – wage cuts and high expenses for rent and utilities
 b. strike against the Pullman Palace Car Company in the company town of Pullman, Illinois in 1894 by
the American Railway Union under Eugene V. Debs, the strike caused rail cars to stop. By attaching
federal mail cars to the Pullman cars the company made it a federal offense to obstruct the mail;
this was supported by the US attorney general who swore to keep the railroads running. The strike
was crushed by court injunctions and federal troops two months later.
c. Impact on Eugene V. Debs – Case of In re Debs (1895), upheld the decree that sent him to jail. On
broad grounds of national sovereignty: "The strong arm of the national government may be put
forth to brush away all obstructions to the freedom of interstate commerce or the transportation of
the mails."

F. Mother Jones - champion of the working poor. Advocate in the labor movement, crisscrossing the nation recruiting,
supporting strikers, raising funds and defying court injunctions. During a mine strike in West Virginia she was
arrested and convicted of conspiracy that resulted in murder. The outcry over her plight caused a senate committee to
investigate and set her free. Determined to end the exploitation of children. She lost most of the strikes but she saw
wages increase, conditions improve and child labor diminish.
G. Socialism and American labor
1. Daniel DeLeon

a. Editor of Marxist paper, The People. Dominant figure in Socialist Labor Party. Wanted to abolish
government and unions would have control.

2. Eugene Debs

a. Social Democratic Party gained more followers and turned to the Socialist Party of America.
b. Rise of the IWW
I. radical union organized in Chicago in 1905 and nicknamed the Wobblies, its opposition to
World War I led to its destruction by the federal government. It was the storm center of
violent confrontations with unyielding mine operators. They wanted the ultimate
destruction of the government and its replacement by one big union.