Lecture on the Gilded Age (1877-1895) Industrial Action!

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Lecture on the Gilded Age (1877-1895)

  1. Industrial Action!

The rise of industrialism in the United States and the interplay of business and politics strike the key themes in the Gilded Age, the period from the 1870s to the 1890s. Bound closer by a network of railroads and telegraphs, with the fate of small towns linked as never before to the fortunes of big cities, America in the late 19th century became united in fact as well as in name. Industrial development transformed the lives of all Americans, from factory workers to farmers” (James L. Roark, The American Promise, 690).

    1. Big Business: The Railroads

The rise of the railroad played the key role in the transformation of the American economy in the post-Civil War period. The railroads created a national market that enabled businesses to expand from a local to a nationwide scale. Needing more and better rails to carry freight, the railroad radically changed the iron industry by speeding the transition from iron to steel. Railroads also made possible innovations in meatpacking and food processing. The railroad had what economists call a multiplier effect, speeding the pace of growth in many segments of the economy” (James L. Roark, The American Promise, 691).

In the second half of the 19th century, Americans created the world’s largest railroad network, and, in the process, the world’s first “big business,” which in turn stimulated an unprecedented industrial boom

The federal government aided the growth of the railroads by granting companies huge tracts of land, particularly out West. In fact, over the years, the federal government granted the railroad builders a total of 175 million acres, an area larger than the state of Texas!

Fierce competition characterized the railroad industry, forcing the railroad companies to expand and consolidate so much so that by the 1890s, about 5 companies dominated American rail travel.

The public were alarmed, however, by the control that new railroad companies wielded, a view that also extended to big business in general

By 1892, there were over 150,000 miles of track that stretched across the American continent!

    1. The Steel Man: Andrew Carnegie

Andrew Carnegie dominated the steel industry for three decades, building Carnegie Steel into an industrial giant, the largest steel producer in the world” (James L. Roark, The American Promise, 696).

Railroad building led directly to the huge industrial development of the steel industry (in order to build the tracks, which had previously been built out of iron)

One man came to dominate the steel industry, Andrew Carnegie.

Carnegie was a Scots immigrant who landed in New York at the age of 12 and worked his way up to the top and becoming a multimillionaire along the way, the very stuff the American dream is made from

Carnegie transformed the steel industry into America’s first manufacturing big business

Carnegie’s formula for success was simple: “Cut the prices, scoop the market, run the mills full; watch the costs and profits will take care of themselves.” By 1900, Carnegie Steel was making $40 million a year!

Carnegie pioneered vertical integration-that is, controlling all aspects of manufacturing, from extracting raw materials to selling the finished product-enabled Carnegie to achieve even greater efficiency. From iron ore fields to a huge sales force, Carnegie Steel controlled every phase of the industry. His goal was to “[never] pay a price, profit, or royalty to any outsider”

    1. Mass Marketing”

By the 1880s, the railroads made possible a national mass market for consumer goods. Manufacturers integrated methods of mass production with those of mass distribution to achieve the first big consumer business” (James L. Roark, The American Promise, 697).

What Carnegie did for steel, Gustavus Swift did for the meatpacking industry. He put together a vertically integrated meatpacking business that controlled the entire process—from the purchase of cattle for slaughter to the mass distribution of meat to retailers and consumers. Swift pioneered the use of the refrigerated railroad car and warehouse, and, through high quality, low prices, and effective advertising, he won over consumers who were worried at first because the meat he used was never purchased locally (out in the Midwest, then shipped via railroad to the east).

Just as Swift combined mass production with mass distribution to revolutionize meatpacking, Henry John Heinz transformed the processed food industry. By 1888, Heinz had become one of Pittsburgh’s wealthiest citizens, and ketchup had become an American staple.

Advertising played a key role in helping new companies win a national audience. Just as the railroads made possible a national market, newspapers made possible advertising on a national scale. The ads, however, weren’t always entirely factual, and it took time for advertising agents to become more responsible and reputable

    1. Trust in Me: John D. Rockefeller

John D. Rockefeller served as a lightning rod for the nation’s fear of industrial consolidation. Americans vilified him because they feared the vast power of the Standard Oil trust” (James L. Roark, The American Promise, 699).

Ultimately, one man came to dominate oil refining through the use of a new organizational strategy called the trust. The man, John D. Rockefeller, eventually succeeded in controlling 9/10 of the oil refining business through his Standard Oil Company (the precursor of today’s Exxon Corporation)

The concept of "trusts" was invented during the Gilded Age, as a response to the specific legal situation, which forbid corporations from owning other companies or assets in other states.

It notably appeared as the legal form, the Standard Oil alliance took in 1882, to unite its shareholders as it could not merge its constituent companies. The introduction of the holding company in New Jersey during the 1890's allowed what was formerly impossible and thereby accelerated the trust movement in corporate America during this period.

The trust was a form of horizontal integration, which differed markedly from Carnegie’s vertical approach in steel because it aimed for the consolidation of all business in the same market.

Because Standard Oil controlled so much of the market, it made a good target for people who argued that the trusts constituted a conspriacy against the public to extract private profit.

So, when the government threated to outlaw the trusts as a violation of free trade, Standard changed its tactics and in 1889 organized into a holding company which pretty much operated the same way as trusts but were legal). Instead of competing companies entering into agreements to set prices and determine territories, the holding company simply combined competing companies under one central administration.

As Standard expanded horizontally, Rockefeller sought to take more control him self and by the 1890s, Standard Oil controlled a vast, vertically integrated organization that was involved in every aspect of the petroluem business

    1. Edison and Bell

Although Americans frequently disliked industrial giants like Rockefeller, they admired inventors. At the turn of the century, Thomas Alva Edison and Alexander Graham Bell became folk heroes. But no matter how dramatic the inventors or the inventions themselves were, the new electric and telephone industries they pioneered soon eclipsed their inventors and fell under the control of the bankers and the industrialists” (James L. Roark, The American Promise, 702).

In 1876 Alexander Graham Bell unveiled his new invention at the Philadelphia Centennial Exposition—the telephone!! Soon after, Theodore N. Vail pioneered long-distance telephone service, creating American Telephone and telegraph (AT & T) to build the lines, which meant that Americans could now communicate instantly with each other.

Thomas Alva Edison developed the filament for the electric light bulb which, in 1879, ushered in the age of electricity. “By 1900, electricity had become a part of American urban life. It powered trolley cars, subways and factory machinery. It lighted homes, apartments, factories, and office buildings

However, the corporations soon got their teeth into the electricity market and in 1892, J. P. Morgan consolidated the electric industry, selling Edison General Electric out from under its inventor and dropping Edison’s name from the corporate title.

  1. The Free Market?

Even as industrial giants like Rockefeller and Carnegie built their empires, their days were numbered. Business increasingly developed into the anonymous corporate world of the twentieth century as the corporation became the dominant form of business organization and as corporate mergers restructured American industry, replacing the great business titans with faceless boards of directors” (James L. Roark, The American Promise, 706).

By the end of the 19th century, the corporation had already begun to eclipse the partnership and sole proprietorship as the dominant form of American business. Corporations had the advantage of limited liability, meaning investors didn’t stand to lose all of their own assets should the company fail; also, the corporation could outlive its owners; and ownership and management were separated, thereby placing the day-to-day running of the business in the hands of professional managers. Perhaps most importantly, corporations were regarded as a “person” and so received protection under the due process clause of the 14th amendment! Last, corporations could buy out and control other corporate entities, and it was this power that came to dominate in the early 20th century as businesses consolidated into even larger corporate giants.

    1. Finance Capitalist Extraordinaire: J. P. Morgan

The great business leaders of the era loathed competition and sought wherever possible to substitute consolidation and central control. None had a greater passion for order, predictability, and profit than J. P. Morgan, the banker who became the architect of business consolidation” (James L. Roark, The American Promise, 706).
For three decades Morgan dominated American banking and finance; he moved investment banking into the modern era, reaching out to reorganize business and transform the stock market

Morgan acted as a powerbroker in the reorganization of the railroads, as well, by bailing them out when the companies fell on hard times. He eliminated competition between the railroad companies by creating a “community of interest” among the managers, often men he had handpicked. By the time he died, seven major groups controlled 2/3 of the nation’s railroad mileage

In 1898, Morgan moved into the steel industry and his acquisition of Carnegie Steel marked the passing of one age and the coming of another: The era of the entrepreneur was ending, and in its place came the rise of the huge corporation…Carnegie was a man of the old order, Morgan a man of the new

Morgan sought to consolidate the steel industry, eventually turning it into an oligopoly—where there are several large combinations/businesses that control the market.

Other industries, such as electricity and meatpacking, were also oligopolies. Businesses in the new oligopolies seldom cut prices to compete, instead they divided up the market so they each had a comfortable share. Oligopolies did not entirely eliminate competition, but they did effectively blunt it. The era of the oligopoly continues to characterize 21st century American business.

    1. Darwinism and Society

In an age when men like Rockefeller and Carnegie amassed hundreds of millions of dollars while the average worker earned $500 a year, social Darwinism justified economic inequality” (James L. Roark, The American Promise, 709).

People used Darwin’s theory of natural selection and applied it to the business world. Later in the 19th century, people began applying Darwinism to society, concluding that progress came about as a result of the relentless competition in which the strong survived and the weak died out

In his 1883 book, What Social Classes Owe to Each Other, William Graham Sumner, a Yale professor, argued that “the drunkard in the gutter is just where he ought to be, according to the fitness and tendency of things.” Any efforts by one class to aid another only tampered with the rigid laws of nature and slowed down evolution = strong curb to reform and glorification of great wealth

For many Americans, Social Darwinism provided the rational explanation that accompanied the stark changes associated with industrialization and the mass accumulation of wealth

    1. The Supreme Court gets Involved…

Business found a strong ally in the U.S. Supreme Court. During the 1880s and 1890s, the Court increasingly reinterpreted the Constitution to protect business from taxation, regulation, labor organization, and antitrust legislation” (James L. Roark, The American Promise, 710).

The 14th Amendment declares that no state can “deprive any person of life, liberty, or property without due process of law”

In a series of landmark cases, the Supreme Court used the 14th Amendment, originally intended to protect freed slaves from state laws violating their rights, to protect corporations by defining corporations as persons under the law and saying that legislation designed to regulate corporations deprived them of “due process”

Property rights were elevated over the rights of people as the Court essentially gave the corporations a free reign as it refused to impede corporate consolidation and did nothing to curb the excesses of corporate capitalism.

  1. Politics and Economics

By the 1880s, important economic issues such as the protective tariff, the currency, and federal regulation of the trusts and the railroads moved to the forefront. The presidents, for their part, were competent though not charismatic men who worked to bring the nation together after decades of sectional strife and to create one nation with a unified political life” (James L. Roark, The American Promise, 711).

    1. Politics and Culture

Until the 1890s, few Americans seemed to think the president or the national government had any role in addressing the problems accompanying the industrial transformation of the nation….The real action took place elsewhere—in party politics on the local and state levels and in the centers of business and industry” (James L. Roark, The American Promise, 711).

Voter turnout in the three decades following the Civil War averaged an impressive 80%, compared with a turnout of 60% in 2004 (it was only 49% in 1996) because this was an age in which politics was seen as important, and political parties played a big role in people’s lives

The Democrats and the Republicans remained the two dominant forces and both vied vigorously for voter support, with most supporters demonstrating a strong party identification

After the end of Reconstruction, the old Confederate South voted Democratic in every election for the next 70 years. Labeling the Republican Party the agent of “Negro rule,” Democrats urged white Southerners to “vote the way you shot.”

Opposing the Democratic South was the Republican Northeast who had to prevent an alliance forming between the agricultural South and the West in order to maintain their grasp over the presidency

The power of the two parties remained about equally divided throughout the 1870s and 1880s and into the 1890s (Reps pretty much had the presidency but the Dems controlled congress)

During this time period, most respectable Americans saw politics as being corrupt; in fact, corruption at the ballot box and in public office was taken for granted

    1. Tariffs and Protectionism

The concept of a protective tariff to raise the price of imported goods and stimulate American industry dated back to Alexander Hamilton in the founding days of the Republic.

The Republicans had traditionally enacted tariffs for political ends; for example, they passed a tariff in 1861 designed to reward their industrial supporters who wanted protection from foreign competition. After the Civil War, the Republicans continued to revise and enlarge the tariff at the prompting of northeastern industrialists

It worked too well…there was actually too much money for the govt. that they didn’t know what to do with the surplus, which created a lot of arguments b/w politicians and the populace

The Republican Party seized on the tariff issue to forge a new national alliance. By encouraging an alliance among industrialists, labor, and western producers of raw materials, the Republicans hoped to solidify the and West against the solidly Democratic South

When the Republicans got back into the White House with Grover Cleveland in 1888 they demonstrated their new commitment to economics over ideology by abandoning their support for freed slaves at the same time they curried favor with the new industrialists.

The tariff issue would see Cleveland defeated 4 years later, only to return in 1896 on a ticket that vowed to lower the tariff

    1. Big Business and the Federal Government

American voters may have divided on the tariff, but increasingly they agreed on the need for federal regulation of the railroads and federal legislation against the trusts” (James L. Roark, The American Promise, 718).

At first the Supreme Court upheld laws regulating the railroads, but then in 1886 (Wabash, St. Louis, and Pacific Railway Co. v. Illinois) the Court reversed itself and ruled that because railroads crossed state boundaries, they fell outside state jurisdiction. With more than ¾ of railroads crossing state lines, the Supreme Court’s decision effectively quashed railroad regulation.

Anger over the Supreme Court decision finally led to the passage of the first federal law to regulate the railroads, the Interstate Commerce Act, passed in 1887

    1. Free Silver?

Although the trusts stirred up a good deal of public outrage, the most potent political issue to emerge in the 1880s had to do with the currency” (James L. Roark, The American Promise, 719).

Efforts to induce inflation into the American economy, the panacea of debtors, had been present from earliest times. Some of this enthusiasm was devoted to paper money schemes, such as the land bank ideas of colonial times and the greenback agitation of the post Civil War era. Others hoped to lessen debtors' burdens by enacting programs dealing with the nation's coinage.

In 1837, Congress established a relationship between silver and gold at the ratio of 16 to 1 (meaning that 16 ounces of silver were to be equal in value to one ounce of gold). During the war years of the 1860s, little silver was mined and the open market price rose sharply. Miners stopped selling their silver to the government and instead found buyers from the ranks of jewelers and other users of the product.

In 1873, reacting to market realities, the Grant administration demonetized silver, leaving gold as the sole standard of the nation's currency. Silver became simply another commodity whose value would be set by supply and demand. There was little reaction to this move initially and certainly no outrage.

However, following the Panic of 1873, a severe depression descended upon the country, reviving interest in the monetization of silver. Pressure was exerted from two sources.

  1. The silver miners. Ironically, at about the same time that silver was demonetized, new silver discoveries were made in the West. As the newly mined silver hit the market in ever larger quantities, the price declined. Mine operators remembered the advantage of having a ready market through government purchase and began to refer to demonetization as the "Crime of '73." The mining interests were still a small force, but they found that they could increase their clout by allying with the farmers.

  2. The farmers. Traditionally farmers were often mired in debt, depending upon banks for the funds to purchase seed and equipment in the spring and hoping for a successful harvest to pay off their debt in the fall. The 1870s saw declining farm prices that worsened the farmers' already precarious position. They eagerly latched on to the National Greenback Party and later came to support various silver remedies.

Conservative forces representing the interests of many eastern bankers and businessmen were successful in gaining passage of the Specie Resumption Act (1875), a measure that provided for the redemption of the greenbacks in gold.

The miners and farmers pressured Washington and won a partial victory in the Bland-Allison Act (1878), which restored silver as legal tender and pledged the government to purchase a minimum amount of the metal each month. Nevertheless, the government notes were still backed by gold alone. True bimetallism would have allowed redemption in either metal and established a set ratio of value between the two.

The early 1880s saw the return of farm prosperity and the resulting decline of interest in the silver coinage issue. However, hard time hit again in 1887, prompting renewed demands from farmers and miners to reinstitute the coinage of silver at the old 16:1 ratio.

Again a compromise was reached, this time in the form of the Sherman Silver Purchase Act (1890). This measure obligated the government to purchase the mines' nearly entire output each month, but these purchases were to be at market rates, not at the predetermined ratio favored by the farmers and miners. New western states had recently joined the Union and were responsible for this limited victory.

Panic and depression struck the country again in 1893. Conservative leaders pointed to the Sherman Silver Purchase Act as the root of the nation's ills, but the farmers blamed eastern economic interests. Indeed, the country had split over the silver issue. The Democratic Party, despite the prominence of Grover Cleveland, was largely in the hands of the free silver forces. The Republicans called for strict adherence to gold alone.

Public opinion, especially in the rural areas, was heavily impacted by the publication of a paperback book entitled Coin's Financial School (1894), which advanced the silver issue in everyday terms. Silver played a prominent, if ill-fated role in the presidential elections in 1892, 1896 and 1900.

By 1900, Republican forces were firmly in control and advanced the passage of the Gold Standard Act, which established gold as the sole standard for all U.S. currency.

The silver movement ultimately failed for the following reasons:

  • It was presented to a national audience in several presidential elections and failed to sway a sufficient number of voters

  • Worldwide gold discoveries increased its supply, relieving gold currency shortages

  • The depression of the 1890s ended and general prosperity returned.

  1. The Gilded Age

Mark Twain, humorist, author, and one of the shrewdest critics of his era, called the period following Reconstruction the ‘Gilded Age.’ He chose the title to ridicule the ugliness, crass materialism, and sham of a time when glitter on the outside masked what lay beneath” (James L. Roark, The American Promise, 720).

The growth of industry and a wave of immigrants marked this period in American history. The production of iron and steel rose dramatically and western resources like lumber, gold, and silver increased the demand for improved transportation. Railroad development boomed as trains moved goods from the resource-rich West to the East. Steel and oil were in great demand. All this industry produced a lot of wealth for a number of businessmen like John D. Rockefeller (in oil) and Andrew Carnegie (in steel), known as robber barons (people who got rich through ruthless business deals). The Gilded Age gets its name from the many great fortunes created during this period and the way of life this wealth supported.

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