LOREM IPSUM Book Title - Mr. Snyder's Website · One of the best examples of a monopoly was the oil industry (to this day, it’s actually still a good example--research OPEC to learn

Book Title

DOLOR SET AMET

LOREM IPSUM

CHAPTER 3∏

INDUSTRY IN THE GILDED AGE

In 1865, the United States was a second-rate economic power behind countries like Great Britain and France. But over the course of the next half-century, numerous events took place that would lead America to the top of the economic world. In this chapter, we’ll take a look at how a second-rate country became a superpower.

IN THIS SECTION, YOU WILL...

• Understand how the railroad industry affected the eastern portion of the United States.

• Recognize how iron and steel revolutionized industry in the United States.

• Learn about competition and monopolies, including Americans’ responses to them

CHAPTER 3, SECTION 1∏

Three things took the United States to the top economic power in the world including the discovery of new natural resources, a new influx of immigrants, and most important, the institution of high tariffs that protected domestic industry. The combination of these elements created a potent mixture which allowed the United States to overflow with wealth.

Railroads, again, were critically important to the development in the east. They became the center of the technological world. Nobody around the world would even come close to rivaling the American system. In 1865, the U.S. had 35,000 miles of track in the country. By

1900, there were around 200,000 miles of railroad and $1 billion of new revenue in the country. Just to give you a comparison point, the federal government only brought in $400 million in 1890. Think about that! The railroads were almost three times more prosperous than the entire government. Pretty incredible.

One leader of the industry was Cornelius Vanderbilt (above). He was the president of the New York Central Railroad Company. These tracks linked New York City to the Midwest, and covered 5,000 miles around various parts of the

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Railroads, Iron, and Steel

country. Vanderbilt’s company, along with others at the time, were very important. Not only were they extremely profitable, but they were also job creators. Railroads also stimulated other industries such as iron, steel, and coal. All in all, they created thousands of new jobs all over the country in multiple industries.

As previously stated, iron and steel were crucial to the development of the railroad industry. Steel became the primary construction material for our society (iron is the base resource for making steel). We use steel for nearly everything, including girders for buildings, bridges, and railroad tracks. People knew for a long time and understood that steel could be made from iron, but that was not happening. This was because there were only a few, expensive processes for producing it. In the late 1850s,

though, the Bessemer Process changed allowed iron to be made into steel more quickly and cheaply.

In the late 19th century Ohio, western Pennsylvania (Pittsburgh area), and West Virginia emerged into what we call the steel belt. This region of the country was renown for its iron and coal deposits, and steel production became fast and furious. Railroad pioneers like Vanderbilt couldn’t get enough of it, and their desire for wealth fueled the industrial growth of all these industries.

During the latter part of the 1800s, every industry (railroads, coal, iron & steel) became larger and more profitable. You might think, “hey, isn’t that a good thing?” Well, not quite. The power of industry became concentrated in the hands of a fewer and fewer people. This is how a monopoly develops. Monopolies occur because of intense, unregulated competition among businesses. Let’s put this into a different context.

Have you ever played Monopoly? The point of the game is to essentially control the entire board, and own all the properties and put your fellow players out of business. A real monopoly does the same thing. While it might seem like a good thing that people are becoming rich, the problem is that only a few men are actually accumulating that wealth. Consequently, smaller businesses go broke and cannot compete against the Vanderbilts of the world.

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Henry Bessemer, inventor of the Bessemer Process

One of the best examples of a monopoly was the oil industry (to this day, it’s actually still a good example--research OPEC to learn how/why). The oil business boomed in the United States in the same way railroads did. In 1860, the U.S. only produced two million barrels of oil. By 1900, that number grew to 60 million barrels. The man responsible for this was John D. Rockefeller. Rockefeller was a ruthless, unethical businessman that cleverly mastered driving his competitors out of business. He owned Standard Oil, a powerful company centered in Cleveland, Ohio. By 1880, this company achieved a working monopoly in the oil business.

Rockefeller would undercut his competitors and offer cheaper prices to local buyers and sellers. This forced others to sell their companies to him, and/or file for bankruptcy. He was even infamous for hiring private investigators to gain inside information on his competitors. He then used this information to develop his own strategies against them.

Unfortunately, there was no legal power to protect things like this from happening. Having created this monopoly, Rockefeller created what is known as a trust. And by 1890, he

Cornelius Vanderbilt

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John D. Rockefeller

Standard Oil’s 1st refinery in Cleveland, Ohio

was the richest man in the world, worth approximately $800 million. That’s billions in today’s terms.

The key principle to know about the late 19th century was that it was an age of big business. They grew, expanded, and took advantage of everything and everyone in sight. Legally, there were no checks and balances on businesses. Men like Rockefeller were out of control, and eventually the government had to step in. That’s what the next section will cover.

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IN THIS SECTION, YOU WILL...

• Learn about why Americans feared monopolies

• Read about the government’s response to monopolies.

CHAPTER 3, SECTION 2∏

Americans had traditionally held the idea that the private economy was sacred. Economic freedom and the ability to grow your own business was something we valued since our country’s inception. But the rise of big corporations challenged views that Americans had held for a very long time. By 1880, there was a growing fear in our society about monopolies and trusts.

Why did Americans fear monopolies?

1. Many thought that monopolies gouged consumers. In the short run, competition would drive down prices. But as you look down the road, only one company would stand. They could then raise prices and there would be nobody to keep them in check. Consequently, large corporations control all the prices for a certain product, and the consumer would pay more than necessary.

2. Monopolies and trusts were un-American. Ultimately, they restricted economic opportunity and freedom. Because of monopolies, there was no way for middle-class Americans to create their own businesses because they couldn’t compete against the wealthy.

3. The presence of trusts and monopolies could disrupt American society. People feared that corporations would become too powerful and overtake the middle-class, causing everyone to be poor.

So by 1885, the public was reaching the point where they felt something needed to be done to check the rise in big business. The only institution that could handle this

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Checks and Balances on Monopolies

was the federal government. Many Americans saw them as the “referee” that could bring about some fairness to the private economy. So, the government passed two pieces of legislation to help curb this problem. The first law they passed was the Interstate Commerce Act in 1887. The ICC was designed to regulate rates (specifically for railroads) so they would be fair for everyone. On average, prices were four times higher west of the Mississippi River than they were east of it. Big businesses also gave their bigger customers discounts on rates to ship items. Consequently, smaller businesses (i.e. farmers) would have to pay more to make up for the difference in profit. So this law was trying to make sure that everyone paid the same amount, regardless of where they lived.

The second law that was passed to restrain monopolies was the Sherman Antitrust Act passed in 1890. This law basically outlawed monopolies. When they became too powerful, the government would be allowed to step in and break up the company.

By passing these laws, Congress made the statement that a company can actually become too large and powerful. It was difficult to break up these corporations. However, the government was laying the groundwork for people to realize that other things could happen in the future to bring about major changes.

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IN THIS SECTION, YOU WILL...

• Understand the development and original purpose(s) of labor unions in America.

• Learn how management practices by bosses led to labor strikes/protests.

CHAPTER 3, SECTION 3∏

Labor unions were very important (and still are) in our country, especially in the 20th century. Today, we see labor unions (depending on who you ask) as being too political, or even evil. But their original purpose was very important. In this section, you’ll see why.

Two of the most important labor unions were the Knights of Labor and the American Federation of Labor (A.F.L.). The Knights of Labor formed in 1869 and quickly became the largest in the country until their decline in 1886. Their founder, Terence Powderly (below), made them very powerful. By 1886, they had over 700,000 members. After the Knights of Labor went into decline, the A.F.L.

formed. From 1886 and deep into the 20th century, the A.F.L. was one of the most powerful and largest unions in the U.S.A. Samuel Gompers (above) was the president of the A.F.L., with its membership reaching over 1 million people by 1900. Most A.F.L. laborers were miners or textile workers. They were

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The Rise of Labor Unions

the first union to create a family atmosphere. Gompers and others wanted to instill the idea of brotherhood and loyalty among workers so that they’d “have each others’ backs.”

When both unions began, they were actually pretty modest. They were built around conservative business ideologies, which means workers should save their own money in order to begin their own businesses. However, soon after the unions began to merge together, they became more aggressive in what they asked for. They strove to work for higher wages, shorter work days, a safer work environment, and workman’s compensation. Now, those things don’t sound so horrible to ask for, right?

Well, to the bosses in business, unions were a nightmare. Management in the late 19th century wanted to defeat the power of labor unions. They were viewed as dangerous, and to a certain extent, revolutionary organizations. Unions were attempting to go against everything that management had built. Nearly all the business principles of this time period were very conservative and all the labor union principles went against this. For example, if a business wanted to increase their profit, they would maximize production (have longer work days) and hold down the cost of labor (small wages for workers). Unions, though, wanted shorter workdays and higher pay.

So, a level of hatred between management and business escalated. There were a number of strikes, and nearly every time, unions lost and management won. Some strikes even

became violent. The Homestead Strike of 1892 was one such strike. Workers in Carnegie’s plant decided that they wanted higher pay, and walked out on the job to protest their lower wages. They took up arms, and basically barricaded the plant, attempting to paralyze the steel mill in order to have Carnegie pay them more money. The plant shut down for several months. At one point during the strike, Carnegie tried to higher replacement workers, and one day when they were being escorted in, seven of them were shot. In the end, the strike was broken and workers returned to their jobs (turns out they needed money to survive!). Carnegie’s management won the battle, and wages were not increased.

The Pullman Strike in 1894 would be just as bad (if not worse in its overall effect) than the Homestead Strike. Workers from George Pullman’s palace car factory received a pay cut. In an effort for the American Railway Union to stand behind their workers (the union which these workers belonged to), all major railroads in the Midwest were stopped. Because of this, the entire nation’s transportation system in the Midwest came to a halt, paralyzing the economy and transportation in the region. In this case, the federal government got involved. Grover Cleveland (president at the time) organized the military and order the union to end the strike (Cleveland justified involvement because the railroads carried the mail). At first, the workers did not end their strike. A few people were arrested for disobeying the president, but they did end the protest shortly

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thereafter. After it was all said and done, the workers did not get a wage increase.

Looking at the age of labor unions, it’s clear that this was an era when management ruled. Workers and unions did not have much power versus “the boss.” Over time, unions continued to gain more power. Today, they hold much more power. Unions earned collective bargaining rights, and when they strike, management and workers attempt to work out a deal to please both sides.

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