Chapter 18

Rise of Corporate America

Early 19th century Corporate business used to

raise capital for transportation Separated manager from

owner Sold stock and bonds to raise

capital

After Civil War New forms of business

organization Combined innovative

technology, creative management structures, and limited liability

Depression years 1873-1879 1893-1897

Character of Industrial Change 6 features dominated large-scale

manufacturing after Civil War○ Exploitation of Coal deposits= cheap

energy○ Increase in pollution

○ Rapid spread of technological innovation in transportation, communication, and factory systems

○ Need for enormous # of workers○ Constant pressure on firms to

compete by cutting costs and prices○ Drive to maximize efficiency

○ Relentless drop in price levels○ Avalanche of consumer goods

○ Failure of money supply to keep pace with productivity○ Cost of living not = paid wages

Railroad Innovations Federal land grants

New internal market Created national market for goods Encouraged mass production, mass

consumption, and economic specialization Created new internal market

Promoted growth of iron and steel

Corporate enterprise Issuance of stock National distribution and marketing

systems New organizational and management

structures

Use of technology Telegraph Accounting systems

Consolidating the Rail Industry

1870s a state of chaos for Railroads No set standards for small companies 4 lines in NE 5 lines in West

Industry expansion (1870s-1880s) Huntington and Gould Robber barons Manipulated stock market “Trunk” systems

○ Largest business enterprises in world

Costs and Consequences Overextended systems Crooked business practices Farmers/ small business caught in the

middle○ Rate discrimination outlawed○ Interstate Commerce Act (ICC)

○ Oversee practices, challenged in court

○ Hepburn Act 1906○ Strengthened ICC, fixed prices

Depression of 1873 Rail industry plagued Lines shut down J.P. Morgan

○ Bought up bankrupt lines○ Reorganized administration○ Refinanced debts○ Built interstate alliances

Consequences By 1900 7 giant systems controlled

2/3 of railways Created modern stockholder

corporation Development of complex structures

in finance, business management, and regulation of competition

Example for other industries

Steel Close connection with rail

industry Abundance of Iron Ore in Great

Lakes

Andrew Carnegie 1870s built steel mill Used Bessemer’s technology

and cost-analysis approach Created vertical integration

Every stage of process controlled By 1900 Carnegie Steel

employed 20,000 people World’s largest at time

1901 bought by J.P. Morgan for $500 million○ U.S. Steel Corporation○ First Billion dollar business

○ New scale for industrial enterprise

○ Employed 168,000

The Trust

○ Other industries followed Created Oligarchy

○ Limited # of sellers influence price Public outcry

○ Sherman Anti-Trust Act 1890 Outlawed trusts and monopolies that fixed

prices Feared unchecked power

Too vague in wording

○ U.S. v. E.C. Knight Company Sherman Anti-Trust could ONLY be

applied to commerce, not manufacturing

Fierce competition led to consolidation in:

Oil, salt, sugar, tobacco, meat-packing industries

= lower prices, reduced costs

New organizational methods Oil- 1st drilled 1859 by Edwin Drake J.D. Rockefeller

○ Standard Oil Company 1873○ Small changes save thousands

of $

○ Horizontal integration○ 1882 created new type of

organization: Standard Oil Trust Trust: Created umbrella

corporation to run all companies

- Exchanged stock for trust certificates

- Stockholders retained share of profits, trust controlled production

Stimulating Economic Growth Specialty Production

Small, specialized businesses○ Jewelry○ Women’s clothes○ Still not mass produced

Advertising/ Marketing Output exceeded what market could

absorb Two kinds of businesses

○ Manufacturing devices for personal use Sewing machines

○ Mass produced consumer goods Flour, soap)

Needed marketing/advertising○ Brand names, trademarks, guarantees○ Packaged Foods

Kellogg, Post○ Department Stores

Macy’s, Marshall Fields○ Dime Stores

Woolworth’s○ Home-Shopping○ Sears, Roebuck, and Montgomery

Ward○ America now a “shopping population”

Economic growth Costs

High cost for workers○ Low wages○ Unreliable employment due to

technological innovations○ Encouraged sweatshops○ Long hours○ Rags to riches “myth”

Concentration of wealth○ 1890s- 10% richest controlled

9/10ths of nation’s wealth

Devastated environment○ Oil, chemical waste○ Air pollution

Benefits Social

○ Labor-saving products○ Lower prices

Advances in transportation and communication

Created thousands of jobs○ Middle-class administrative jobs

Accountants, clerks, etc.

Wider variety of clothing

New South Industrialization delayed

Physical devastation Scarcity of towns and cities Lack of capital

Southern banking destroyed Illiteracy Northern control of markets and

patents Low rate of technological

innovation “lost cause myth” Federal policies that limited growth

High tariffs

New southern creed Championed by Henry Grady and

Henry Watterson Newspaper editors

“natural” for industrial development Rich iron, coal, timber resources

and cheap labor

Southern mill economy Represented shift from agricultural economy Catalysts for villages and towns

Mainly in Piedmont

Opened new markets Augusta, GA “Lowell” of the South

Hired poor white workers Also exploited them

Dominated community○ Church○ School○ Mill community strong

Industrial lag Smaller scale and slower than in North Southerners paid higher prices despite

cheaper production costs Poorly educated white population unskilled

in modern technology

Factories and the Work Force

1860-1900 From 885,000 to 3.2 millions workers

From workshop to factory Transition series of jolts

Varied in strength and duration Impact on artisans and unskilled

laborers○ Example: Shoe industry

Hardships Unprecedented demand for unskilled

workers (wage earners)○ Subcontractors○ Pushers (foreman)○ Hazardous work○ Child labor○ No disability○ No safety and health standards

Immigrant Labor Plenty of unskilled labor

Darker, southern immigrants paid less

Horrible conditions

Women Shaped by marital status, social

class, and race White, married women accepted

“separate spheres” Single working-class women saw

factory work as an opportunity○ Hated “domestic” service

Rise in employment○ Changes in agriculture○ Immigrant families needed $○ Inexpensive, unskilled labor

Did not foster independence Didn’t make enough to live alone

Office work in 1890s Often considered temporary

One in 5 women working for wages by 1900

Hard Work and “Gospel of Success”

Any man can achieve success Ex. Andrew Carnegie

Mark Twain Success only to those who

lied and cheated 95% of leaders came from

good backgrounds

Rise in real wages 31% for unskilled labor 74% for skilled labor Overall economic mobility

complex

Labor Unions and Industrial Conflict

Needed a broad-based, national organization to protect workers and resist corporate power

Problems: Ethnic racial divisions within workplace Division between skilled/unskilled

workers Labor the new “slave power”

Three major unions: National Labor Union Knights of Labor

Against labor contracts and Social Darwinism

American Federation of Labor

Intolerable conditions led to violence

Terms: lockout, blacklist, yellowdog contracts

Organizing Workers Began during civil war

William H. Sylvis President of Iron Molders’ International

Union Endorsed 8 hour workday Wanted end of convict labor, currency

and banking reform, and restriction on immigration to increase wages

National Labor Union 1st attempt to organize nationally Founded 1866 Broad social program

○ Equal rights for women and blacks○ Monetary reform

8hr workday Lost support after Depression of 1873

Knights of Labor 1869 Started by 9 Philadelphia Tailors Led by Uriah H. Stevens

Molded on secretive societies, i.e. Masons○ Demanded equal pay for women ,end

child/ convict labor, a tax on all earnings

Boomed after Terrence Powderly took charge in 1881○ Went public○ Urged temperance, opposed strikes○ Advocated admission for blacks and

women○ Restrictions on immigrants, esp.

Chinese○ Peak 1886 = 730,000 workers○ Declined in late 1880’s due to failed

riots Change in public opinion

Unions and Violence

American Federation of Labor 1886 Craft unions from KOL (25) Samuel Gompers

○ Trade unionism○ High wages= respectable working

class families○ Skilled workers had bargaining

power○ Wanted to attract all trades

Solution a “federation” Each controlled by own members but

linked by executive council

○ Focused on short-term improvements 8 hr workday, injury disability, mine-

safety laws NO women (separate spheres!!)

○ 1.6 million members by 1904 Still only 5% of workforce

Strikes 1881-1905 = 37,000 Strikes

○ 7 million workers

1st wave○ 1877 Wildcat Railroad Strike (July)

Ignited by wage reduction

- During economic depression Baltimore & Ohio RR Spread throughout country

- 11 states President Hayes forced to call in

troops 2/3 railroad idle for 2 weeks Stunned middle-class America

- Terrified of corporate abuse of power and mob violence

Resulted in crackdown

- Pinkertons

- 100 killed

Strikes Continue May Day Movement

May 1, 1886○ Called for general strike to

achieve 8hr workday

340,000 workers Shut down Cincinnati for a

month

Haymarket Riot 1886 McCormick Plant

○ Chicago

May 3: 4 workers die May 4: Bomb killed 7

policemen, police opened fire killed 8 protesters (martyrs)○ 8 tried and sentenced to death

Public response Turn against labor unions

○ Thought was radical

Anti-labor Linked riots to immigrants

2nd Wave West

Idaho 1892○ Wages cut○ Protesters blew up mill and

captured guards○ Idaho National Guard called in

Homestead Strikes 1892 Carnegie’s plant

○ Henry Clay Frink

Cut wages 20%, locked out union workers

Protesters fired on Pinkertons 10 died, National Guard called in Set back Union movement

○ Failure, lasted 5 months

1894 Pullman Strikes (Chicago) Wages slashed due to depression Thousands went on strike Led by Eugene V. Debs

○ Leader of American Railroad Union

Paralyzed rail traffic General Manager’s Association responded

○ Hired strikebreakers○ Asked Attorney General for an injunction

Interrupted mail service Appealed to President

Attorney General Richard Olney○ Cited Sherman Anti-Trust Act○ Debs arrested, troops arrived

For not responding to injunction

○ 700 rail cars burned○ 13 died, 53 wounded

1895 Supreme Court Case In re Debs○ Upheld prison sentence○ Legalized injunctions

Government hampered development of Union

Social Alternatives Working class poverty

unsettling

Should government become mechanism for helping poor and regulating big business?

Defenders of Capitalism “Liberals”

Most Americans viewed the concentration of wealth as inevitable, natural, and justified by progress

Adam Smith Wealth of Nations Laissez-faire argument Self-interest “invisible hand”

regulated market

Andrew Carnegie Gospel of Wealth Applied Darwinism “god’s favor”

Rev. Russell Conwell Acre of Diamonds Everyone has duty to be rich Civic philanthropy a necessity

Social Darwinism Herbert Spencer= most influential

Believed concentration of wealth in hands of the “fit” a benefit to future of human race

William Graham What Social Classes Owe Each

Other Natural laws controlled social order

Social Darwinism

State owed citizens nothing but the law, order, and basic political rights

Thought interference with poor weakened them

Survival of the fittest

Socialists Lester Frank Ward

Laws of nature could be circumvented by human will Government could regulate big business, of natural

resources protect society's weak, and prevent exploitation

Henry George Progress and Poverty 1879 Solve uneven wealth with a single tax Tax on speculators Very popular Rejected land = freedom

Edward Bellamy Looking Backward 1888 Utopian novel Centralized, state-run economy for common good Cooperation replaces class strife, excessive

individualism, and cutthroat competition Inspired local organizations

Karl Marx Das Kapital 1867 Stratified society= unrest Basis of Socialism

Conclusion Industrialization

propelled U.S. to major world powerNew technology and

innovationsVertically integrated

companies

Cost highExploited workersPollutionviolence