|The Industrial Revolution in the USA
The word “revolution” implies a rapid change and is usually used to describe a political event like the American or the French Revolutions. The term also can be used to describe an economic change. In an “industrial revolution,” there is a rapid change from a society in which most people live on farms to one where most people live in towns or cities. For example, when George Washington was president, nine out of ten Americans made their living by planting and harvesting; today, fewer than three out of 100 people live on farms.
Sometime during the years between 1800 and 1920, the U.S. experienced an industrial
revolution that caused many changes in the ways people thought, spent their free time, dressed, traveled, talked to one another, and earned their living. It is difficult to point out the exact years in which these changes took place. Most historians, however, would agree that the smaller changes occurred slowly during the 1790s, picked up during the years before the Civil War, and gathered speed after the war. By 1920, the U.S. had completed its change from a nation of farmers to an industrialized society.
England was the first country to industrialize, but France and Germany soon followed. Across the Atlantic Ocean, the United States was also beginning to industrialize. Always rich in natural resources, the former British colonies possessed a huge supply of fertile land. Dense forests throughout the country supplied wood for building and heating. In the Northeast, many swift rivers provided the power to turn water wheels. Huge deposits of coal were discovered in the Allegheny Mountains around the time of the Civil War. The Mesabi Mountain Range in Minnesota provided the ore needed to make iron and steel. Rich deposits of copper were found in the West. Reserves of crude oil were discovered in Pennsylvania and Ohio, and when these ran out, new ones were found in Oklahoma and Texas.
Although many of the machines needed for industrialization were devised in England, it was not long before Americans added to the world’s list of important inventions. Eli Whitney made a machine that separated cotton fiber from cotton seeds at a rate 50 times faster than it took one man to clean a pound of cotton. Years later Whitney was able to demonstrate the principle of making interchangeable parts. He showed a government committee how each of the different parts of a rifle –the stocks, triggers, rifle barrels, etc.- could be made exactly alike. Even a worker with no training could pick any part from a series of piles and assemble them into a working gun.
James Watt, a Scot, is credited with inventing the steam engine that was first used in factories in England. Robert Fuller, an American, revolutionized water transportation by attaching a steam engine to paddlewheels and was able to send ships “steaming” up America’s rivers. Not long afterwards, Watt’s basic invention was mounted on wheels, creating the first American railroad. The Baltimore and Ohio started in 1828, at about the same time that the British began building their first railroad. Many minor inventions were needed to make the railroad safe and efficient, including the cowcatcher, which swept animals off the track, and George Westinghouse’s air brakes. Railroad mileage in the U.S. expanded quickly in the 1840s and reached 30,000 miles by 1860.
Many other American inventors contributed to the industrialization of the U.S. as well as Western Europe. Elias Howe invented the sewing machine in 1846 and Isaac Singer perfected it. An African American by the name of Jan Matzelinger made a machine that could sew the sole to the top of the shoe. Samuel Morris’s telegraph used a series of dots and dashes to sent messages along lines across the country. Colt invented a revolver that fired bullets in a matter of seconds. In 1839, Charles Goodyear turned spongy rubber into hardened surfaces by a process called vulcanization. In the 1850s, William Kelly invented a process for turning iron into steel. By 1860, the U.S. Patent Office had granted 36,000 applications, and 30 years later, 440,000 patents had been issued.
The workforce for America’s Industrial Revolution came from two sources. First, inventions such as the mechanical reaper meant that machines could do much of the work on farms that people used to do. With less labor needed to run farms, hundreds of thousands of people decided to move to the city, where they found jobs in the new factories and offices built during this industrial age. Women found work as typists, salespersons, and clerks, as well as in teaching, cleaning, and nursing. By 1900, there were a total of 5 million women working outside of the home, representing 17% of the work force. Their pay was barely half the amount paid to men. Over 1.7 million children under 16 years of age had also entered the workforce by 1900 and were paid even less than women.
Meanwhile, millions of immigrants left England, Germany, Italy, Poland, Romania, Russia, Greece, and dozens of other countries and came to the United Sates, where they hoped to find jobs created by the Industrial Revolution.
The infrastructure that included a system of transportation was also constructed during the Industrial Revolution. By the time of the Civil War, there were nearly 30,000 miles of railroads spanning America. This was just the start. Another 200,000 miles of railroads were built between 1865 and 1910. Steel rails covered the country, connecting East to West, North to South, and all regions in between. Certain captains of industry, like Cornelius Vanderbilt and James J. Hill, played leading roles in this feat. The most notable accomplishment was completing the transcontinental railroad in 1869. The occasion was celebrated by hammering the famous golden spike into the ground where track coming from the east met track coming from the west. Millions of dollars and over 400,000,000 acres of land were granted to the corporations that built these railroads. Built in a hurry, the railroad track needed was often torn up later and replaced in order to make travel safer.
Then of course there was money. The American Industrial Revolution was financed by two sources: first, profits from previous commerce, such as New England’s famous “China trade” of the 1840s and later from the profits made by industrialists like Andrew Carnegie and John D. Rockefeller; second, from investors from foreign countries, particularly the British. Foreigners invested over 500,000,000 dollars in American businesses before the Civil War. America’s stable society and rule of law, in addition to an ever-expanding economy, gave investors a reasonable chance of large profits.
The Industrial Revolution in the U.S. may never have occurred without the contributions of a small group of talented and hardworking men. They applied their intelligence, daring, energy, and special skills to making money by creating huge industrial empires. Their contributions had both positive and negative effects.
Cornelius Vanderbilt (1794-1877): With a $100 loan from his father, Vanderbilt began his business career by opening a local ferry service. He repaid his dad tenfold within a year. Known for his confession “I have been insane on the subject of making money all my life,” Vanderbilt started in earnest by running sailboats along the Hudson River before moving up to the paddlewheel steamer. His bold business practices soon put Robert Fulton out of business and allowed him to capture the Hudson River trade halfway up to Albany. Vanderbilt then switched to the profitable coastal trade between New York and New England, and in the 1850s he ran ships to Nicaragua to make money on the gold rush. At the age of 70, Vanderbilt switched to building and buying railroads. He gained control of the New York Central Railroad, extended its reaches to Chicago, and built Grand Central Station in New York City.
Andrew Carnegie (1835-1919): Carnegie’s family left their native Scotland when Andrew was 13. He soon went to work in a cotton mill, taught himself to read, and continued to educate himself all of his life. He held a number of different jobs before learning Morse code and finding work as private secretary to Tom Scott, director of the Pennsylvania Railroad’s western division. After making several shrewd investments, Carnegie entered the iron and steel-making business at the age of 26. He started his own company four years later. By introducing new technology, cutting costs, making careful purchases, hiring capable assistants, and using convincing salesmanship, Carnegie was able to control one-fourth of the U.S. steel-making capacity. He sold his company for $700,000,000 (over $10 billion in year 2008 dollars) to JP Morgan, who combined it with other companies in 1901 to form U.S. Steel, which was valued at $1.4 billion. Believing it was wrong for a person to die rich, Carnegie devoted the rest of his life and much of his fortune to making charitable contributions which included many libraries.
John Pierpont (JP) Morgan (1837-1913): J.P. Morgan played a leading role in his father’s investment firm before taking full control in 1890. He quickly became the world’s most influential banker. He lent money to Thomas Edison, bought out Andrew Carnegie to form the world’s first billion-dollar corporation, financed dozens of railroad mergers, and controlled numerous banks, mines, and insurance companies. He even lent money to the U.S. government at a considerable personal profit in order to maintain the gold standard. He used his own money to support the stock market in 1907. His money helped big businesses control entire industries by buying out smaller companies. Morgan, however, always claimed that being honest and trustworthy were the reasons for his success. (Chart A)
The Theories of Laissez-Faire and Survival of the Fittest
Beginning with Alexander Hamilton’s proposals for a federal bank, a protective tariff, and government-financed internal improvements, the U.S. government played an important part in encouraging industrial development. However, the real assistance for industrial growth came after the Civil War, when the North managed to get high protective tariffs to shield American businesses from foreign competition. An open immigration policy guaranteed a plentiful supply of people willing to work for long hours at low wages. The national government, as well as state and local ones, discouraged and often suppressed strikes by workers seeking higher wages. A sound money policy encouraged creditors to lend money because they would be repaid with dollars worth as much or more than the dollars they lent. The government gave millions of dollars and acres of land to corporations in order to get them to lay more railroad track to connect and bring the different regions of the country closer.
Another important government policy regarding businesses was to leave them alone and unregulated. That way businessmen did not have to worry about government interfering with their activities, and they had the freedom to make money in any way they could. This policy was based on a belief in “laissez-faire” and “survival of the fittest.”
The words “laissez-faire” are an abbreviation of a phrase that originally read, “don’t interfere; the world will take care of itself.” This advice was directed at the French government well over 250 years ago. At that time, there were laws dealing with nearly every aspect of business: for example, tanners could be told when they could slaughter their cattle, and weavers were told how many strands of thread must be woven into each square inch of cloth. Those who broke the rules could be prevented from staying in business; if they continued to break them; they could lose a finger, hand, or even an arm.
The businessmen of France felt that they would be much better off if left alone and were free of rules they thought were ridiculous. Philosophers who agreed began to write essays that called for “laissez-faire,” but it was a Scotsman, Adam Smith, who made the idea famous. In his book, The Wealth of Nations, he argued that all limits on business should be removed. One of the most important ideas in Adam Smith’s book was the idea of the “invisible hand.” Smith believed that some invisible force would always guide the selfish acts of individuals and ultimately help the country. He urged trust in the invisible hand and not in the government.
The philosophy of laissez-faire was given unexpected support from a famous English scientist, Charles Darwin. Darwin’s book, The Origins of the Species, appeared in 1859. It made quite a stir because it argued that humans were a branch of species that had evolved from primates. He claimed evolution worked because more animals in any species are born than can possibly survive. Only those whose particular features allowed them to adapt to their environments lived long enough to produce off-spring. These off-springs will probably inherit the characteristics that made their parents more fit. Charles Darwin never intended to apply his theory of evolution by “natural selection” to human society. Others, however, could not resist. Philosophers rather than scientists adopted the theory of natural selection and survival of the fittest to explain social relations. These men were called Social Darwinists, and their philosophy was called Social Darwinism. William Graham Sumner, who became America’s leading philosopher of Social Darwinism, argued: “Competition, therefore, is a law of nature. Nature is entirely neutral. She gives her rewards to the fittest. Men get from nature just what they deserve; what they have and enjoy is always a result of what they can and do. This is the system of nature. If we do not like it and try to change it, there is only one way we can do it. We can take from the better and give to the worse. We can give the rewards to those who have failed in life. This might lessen the inequalities. But, it shall favor the survival of the less fit, and shall be accomplished by destroying liberty, and this would be foolish.”
Successful businessmen quite naturally were attracted to the philosophy of laissez-faire and survival of the fittest. They say they won success in business as a result of the laws of nature. Businesses destroyed in competition and men unable to support their families were considered as unfit for survival as the short-necked giraffe. Helpings losers instead of rewarding winners, according to Social Darwinists, would only encourage the lazy and continue the traits that did not equip people for survival. Thus, government help-no matter how well intended-would only weaken society.
One of the early critics of the philosophy of Social Darwinism was Henry Demarest Lloyd, author of Wealth against Commonwealth. Writing in 1894, Lloyd claimed that:
“There is no other field of human associations in which any such rule of action as Survival of the Fittest is allowed. The man who should apply in his family or his citizenship this “survival of the fittest” theory as it is practically professed and operated in business would be a monster, and would be speedily be made extinct, as we do with monsters. To divide the supply of food between himself and his children according to their relative powers…to follow his conception (idea) of his own self-interest in any manner which the self-interest of all had taken charge of…would be a short road to the penitentiary or the gallows…In trade business men have not yet risen to the level of the family life of the animals. The true law of business is that all must pursue the interest of all. In the law, the highest product of civilization, this has long been a commonplace. The safety of the people is the supreme law.” Lloyd also argued, “…our industries, from railroads to workingmen are being organized to prevent milk, nails, lumber, freights, labor, soothing syrup, and all other things from becoming too cheap. The majority have never yet been able to buy enough of anything. The minority have too much of everything to sell…Society is letting these combinations become institutions without compelling them to adjust their charges to the cost of production, which used to be the universal rule of price.”
The ideas preached by Adam Smith, William Graham Sumner, and John Rockefeller could be backed with some important statistics. During the great age of laissez-faire, between 1860 and 1915, production in the United States increased 1200 percent. During this period, America moved from a second-rate industrial power, behind England and France, to the world’s leading economic giant. By 1915, America produced more than one-third of the world’s steel and built almost one-half of its railroads. Entrepreneurs made fortunes in oil, steel, meatpacking, shoemaking, and hundreds of other industries. Businessmen who had started with hardly a penny rose to command industrial empires richer than many companies. Poor peddlers became millionaires, hardworking immigrants made fortunes, workers rose to become bosses, and the sons of peasant farmers became the fathers of successful lawyers, doctors, salesmen, and accountants.
Success, however, was not uniform. While some millionaires spent fortunes in wild displays of their wealth, millions went to bed hungry every night. Many thousands were killed or seriously injured in industrial accidents. Farmers were driven off their lands, immigrants were unable to get jobs, residents of cities could not educate their children, and youngsters aged 10 and 11 were forced to work for a few cents per hour. Forests were stripped, waters polluted, and natural resources were wasted and depleted. Politicians were bribed, workers were underpaid, and the standard of living for the average family hardly improved.
Those who did not profit from laissez-faire-the so-called “unfit,” as well as socially conscious members of the middle class, including clergymen, teachers, lawyers, and even a number of businessmen-did not agree with this philosophy. They eventually applied enough pressure to introduce government regulation of business to protect the unfortunate. (Questions and chart B)
The Gospel of Wealth
With a fortune rivaling John D. Rockefeller’s, steel magnate Andrew Carnegie embraced a belief in survival of the fittest. However, he was not satisfied with merely accumulating money-he felt it was the duty of the man who created wealth to share the rewards of his hard work and shrewd business practices. In a well-known essay, The Gospel of Wealth, Carnegie explained his philosophy. (Ask yourself whether the responsible redistribution of personal wealth is a good substitute for measures such as a graduated income tax, laws requiring payment of a living wage, unemployment insurance, and public housing.)
Competition is best: “The price which society pays for the law of competition, like the price it pays for cheap comforts and luxuries, is also great; but the advantages of this law are also greater still, for it is to this law that we owe our wonderful material development, which brings improved conditions in its train. But, whether the law be benign or not, we must say of it, as we say of the change in the conditions of men to which we have referred: It is here; we cannot evade it; no substitutes for it have been found; and while the law may be sometimes hard for the individual, it is best for the race, because it insures the survival of the fittest in every department. We accept and welcome, therefore, as conditions to which we must accommodate ourselves, great inequality of environment, the concentration of business, industrial and commercial, in the hands of the few, and the law of competition between these, as being not only beneficial, but essential for the future progress of the race.”
Avoid Socialism. “The Socialist or Anarchist who seeks to overturn present conditions is to be regarded as attacking the foundation upon which civilization itself rests, for the civilization took its start from the day that the capable, industrious workman said to his incompetent and lazy fellow, ‘If thou dost not sow, thou shalt not reap,’ and thus ended primitive Communism by separating the drones from the bees… To those who propose to substitute Communism for this intense Individualism the answer, therefore, is: The race has tried that. All progress from that barbarous day to the present time has resulted from its displacement. Not evil, but good, has come to the race from the accumulation of wealth by those who have the ability and energy that produce it. Our duty is with what is practicable now; with the next stop possible in our day and generation. It is criminal to waste our energies in endeavoring to uproot, when all we can profitably or possibly accomplish is to bend the universal tree of humanity a little in the direction most favorable to the production of good fruit under existing circumstances…”
No charity: “One of the serious obstacles to the improvement of our race is indiscriminate charity…Of every thousand dollars spent in so called charity today, it is probable that $950 is unwisely spent; so spent, indeed, as to produce the very evils which it proposed to mitigate or cure. A well-known writer of philosophic books admitted the other day that he had given a quarter of a dollar to a man who approached him as he was coming to visit the house of his friend. He knew nothing of the habits of this beggar; knew not the use that would be made of this money, although he had every reason to suspect that it would be spent improperly…The quarter-dollar given that night will probably work more injury than all the money which its thoughtless donor will ever be able to give in true charity will do good.”
Duty of the man of wealth: “Poor and restricted are our opportunities in this life; narrow our horizon; our best work most imperfect; but rich men should be thankful for one inestimable boon. They have it in their power during their lives to busy themselves in organizing benefactions from which the masses of their fellows will derive lasting advantage, and thus dignify their own lives. This, then, is held to be the duty of the man of Wealth: First: to set an example of modest, unostentatious living, shunning display of extravagance; to provide moderately for the legitimate wants of those dependent upon him; and after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in such a manner which, in his judgment, is best calculated to produce the most beneficial results for the community—the man of wealth thus becoming the mere agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could do for themselves.” (Write a paragraph explaining why you do or do not agree with Carnegie. Address whether that the responsible redistribution of personal wealth is more productive than charity or some form of legislation that helps the poor.)
Rockefeller and Standard Oil
In the 1840s, ships from New England sailed the oceans for years at a time searching for whales. Blubber taken from these giant creatures provided the oil used to light millions of homes. However, these long voyages came to an end when a Canadian discovered that a black liquid that oozed up to the earth’s surface could be refined into kerosene, which would eventually replace whale oil. As a result, the search for whales was rapidly replaced by a search for oil.
Oil had often been found leaking into farmers’ fields in the western parts of Pennsylvania. In August 1859, Colonel Edwin Drake became the first person to drill for and strike oil. Drake was eventually able to extract, store, and sell some $500 worth of the black gold every day, an amount equal to the average man’s yearly salary. Drake’s success led to an oil boom in Pennsylvania just ten years after gold was discovered in California. The Civil War, which lasted from 1861 to 1865, did not interrupt this oil boom. Attracted by stories of easy riches, hundreds of men flocked into the western parts of Pennsylvania to seek their fortune.
As hundreds of prospectors swarmed into Pennsylvania, a state of lawlessness prevailed and shady practices became common. Shrewd farmers charged thousands of dollars for the privilege of drilling wells on their land. Some filled empty holes with oil and sold them as good wells. Men drilled at an angle in order to draw oil from underground pools beneath their neighbors’ property. Teamsters charged hundreds of dollars to haul heavy barrels of oil to the railroads. When pipelines were constructed during the day to reduce transportation costs, teamsters tore them up at night. Soon, armed guards were hired to protect private property. The price of oil rose and fell. A 42-gallon barrel of oil once sold for $20; two years later, the same barrel sold for $12.00, and six months later for 10 cents. When prices fell, hundreds of prospectors were forced out of business. Those still in business made quick fortunes when prices recovered.
John D. Rockefeller’s success in business made him the richest man in America. He was born in 1839, the son of a religious woman who attended church every Sunday and insisted her children do the same. His father was a cheerful bigamist who lived by his wits and had children with different women. A jovial and charming man, he disappeared from his family’s home for months at a time. Bill Rockefeller supported his family by earning enough money in such questionable ways as selling mineral water to cure cancer. The father sharpened his sons’ wits by lending them money at 10 percent interest. He enjoyed cheating them and taught them to trust no one, not even him. John had hoped to become a minister, but the family did not have the money to send him to college; so, he stopped attending school when he was 16. He went to work as a bookkeeper for $25 a month and began making donations to the church that he attended regularly. While still a young man, Rockefeller taught Sunday school, gave one-tenth of his salary to religious causes, and saved as much as he could. Over his lifetime, Rockefeller became the richest man in America, gave away $530 million and at one time was worth $900 million.
In the same year that Colonel Drake drilled his first oil well, John D. Rockefeller and a partner began buying and selling farm products. Rockefeller avoided serving in the U.S. army during the Civil War by paying someone $300 to take his place. Instead of soldiering, Rockefeller and a partner made a small fortune selling flour to the Union army. By 1863, he was ready to go into a new business. After careful investigation, he decided to start refining crude oil into kerosene that people could use to burn in their lamps and stoves. At that time, unrefined oil was selling at 40 cents a 43-gallon barrel, but kerosene was sold for 40 cents a gallon. Rockefeller thought that he could make his fortune by refining the crude oil into kerosene.
He decided that his business would not be a shoestring operation and planned to build an efficient and modern factory equipped with the best machinery money could buy. He cut expenses in every way possible. Rather than buy oil barrels at high prices, he hired workmen to make them. Rather than buy the wood needed to make the barrels, he bought an entire forest. When he learned the cost of hauling green wood into his barrel-making shop, he built kilns to dry the wood and make it easier to transport. Rockefeller himself arrived at his shop at 6:30 every workday morning to supervise his workers. To speed up production, he did as much of the heavy lifting as was needed. He took great pains to see that there was no waste. No detail was too small to escape his sharp eyes. Savings of only a few cents per barrel could eventually be translated into thousands of dollars in profits.
His care and shrewdness soon paid off. In 1865, he was able to buy out one of his partners for $72,000. Five years later, together with his brother William and two other partners, he formed a corporation called Standard Oil. It was worth $1 million at the time of its founding and was later reorganized as Eastern Seaboard Standard Oil (Esso). Today, it is known as Exxon Mobile and its profits in 2005 set a world record of $36.1 billion. (Questions C)
At first, Rockefeller and his partners concentrated in refining oil in Cleveland. Then, in conjunction with Tom Scott, the president of Pennsylvania Railroad, he came up with a plan to combine the city’s largest refineries under the control of one company-theirs. They formed a new corporation, the South Improvement Company, by combining 13 different refineries and issuing 2000 shares of stock. Along with his partners, Rockefeller bought 900 shares, giving Standard Oil a controlling interest in the Company. The South Improvement Company directors knew that there were three railroads running from Cleveland to New York City: the Erie, the Central, and the Pennsylvania. They also knew that these railroads were hurting themselves by competing with one another to carry oil to New York. Under Rockefeller’s leadership, the SIC made an agreement with the railroads. It guaranteed the railroads regular business, an end to competition between them, and a supply of railroad cars and loading docks. In exchange, the railroads would give the SIC special low prices and secret information on the plans of other refineries.
The official rate per barrel of oil shipped from Cleveland to New York City would be $2.56.
The Erie, Central, and Pennsylvania Railroads, however, would pay the SIC a rebate (refund) of $1.06 for every barrel of oil they shipped.
In addition, the three railroads would pay SIC a drawback (someone else’s rebate) of $1.06 for every barrel of oil shipped by refiners not part of the SIC deal.
The three railroads would also supply SIC with detailed information on the customers, destinations, prices, and delivery dates of oil shipped by Rockefeller’s competitors.
The SIC would divide all of its shipments among the three railroads and give them a regular amount of business each month.
The SIC promised to provide loading platforms for the oil, as well as insurance, railroad tank cars, and barrels as needed.
The terms of this deal would remain secret.
With a copy of his deal in hand, Rockefeller and his partners paid calls to the refineries that were not a part of the SIC. They told them that they could continue to compete with Standard Oil if they wished, but that Standard Oil had a special arrangement with the railroads that effectively shut them out. Rockefeller and his partners offered to buy refineries for about 45 percent of what their owners thought they were worth. They said that they would not pay more than the value of the company to Standard Oil, and that they would pay with Standard Oil stock or with cash. In less than a year, all of the independent refineries in the Cleveland area had either sold out to Rockefeller or gone out of business. Many believed they had no choice. Rockefeller justified this when he said, “Because the Standard Oil Company was located in Cleveland, Ohio, it could use any of three railroads. I took advantage of that situation and made the best possible deal for Standard. Other companies tried to do the same thing. Standard Oil was always able to offer the railroad many cost reducing savings. It offered to provide loading platforms, and freight in large carloads and trainloads. It provided regular business which allowed the railroads to use its own hauling capacities to its best advantage and not have to wait until the refinery was ready. Standard carried its own insurance and saved the railroads from paying for losses caused by theft or fire. For these many services the Standard Oil Company received some special favors. But even so, the railroads made much more money in their dealings with Standard Oil than by the smaller and irregular traffic from other companies that might have paid the higher rate.” (Questions D)