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Chapter 8: The Rise of American Business, Labor, and Agriculture Objectives: To understand how industrialization in the United States was part of a worldwide economic revolution. To know the ways in which American business changed from 1865 to 1920. To understand the response of the federal government to industrialization and business growth. To recognize the struggle of labor and labor organizations to achieve improved working conditions. To explain the causes of farmers’ discontent and evaluate their political program. Economic Transformation of the United States Manufacture- To make something by hand (before the Industrial Revolution), now means to process raw materials into finished goods, usually on a large scale (mass production) Mass production- making large quantities of a product quickly and cheaply. Industrial Revolution- extended period of economic change, starting in Great Britain around 1750 and continuing today, in which people invented new machines and processes to mass produce products in large factories for mass markets, fundamentally changing the way we think and live by creating national and international markets. United States Advantages for Industrial Growth (late 1800s – Present) 1. Raw materials (land, natural resources) 2. Labor (human energy, skill, talent) 3. Capital (money for investment) and capital goods (tools, machinery, and factories) 4. Capitalist System- private citizens own and manage businesses, (not the government) and they compete with other businesses. 5. Businesses who profit invest in risky new ventures, perpetuating more business growth. 6. The U.S. Constitution provides patents to inventors, enabling them to create new machines and gadgets to further the Industrial Revolution. Patent- Government document allowing the creator of a new object the exclusive right to make and sell that object for profit for a set amount of time Henry Ford- introduced the assembly line, which greatly reduced the time needed to build a car, and allowed for the mass production of cars, which dropped the prices of a car and allowed more Americans to be able to afford them. 1 Assembly line- method of production in which workers add parts to a product as it moves along on a conveyor belt, increasing productivity. Productivity- the ability to produce more in a given amount of time. Proprietorship- single owner of a business who shoulders the financial risks and profits of that business, even privately-held property. Partnership- business set up by two or more people who put capital into the business and share the financial risks and profits, even privately-held property. Corporation- Business that is chartered by state law and that is owned by investors who buy the corporation’s stock, sharing in the financial risks and profits. If the corporation goes bankrupt, the individual stockholders are only responsible for the amount they invested in the corporation’s stock, not their privately-held property. Laissez-faire- principle or policy created by Adam Smith that means “leave alone” in French, referring to the absence of government regulations or laws that would restrict business. Argument for laissez-faire Any government attempt to regulate business will only reduce the economic benefits to be gained from competition. Arguments against laissez-faire The final result of unrestricted competition would be a monopoly Monopoly- Company that controls all or nearly all the business of an industry. Changes Brought About in the United States Due to the Industrial Revolution 1) National Market Expands a) Railroads provide transportation for products and moving population b) Telegraph and later the telephone enable quicker communication and orders c) Cities grew due to demand for products, immigration, rural population migration d) Rapid growth of new regions in the West due to the ease of transportation 2) International Markets Expand a) Competition with European nations and Japan to sell textiles, steel, machinery, and ships provides for jobs and immigration on a massive scale. 2 b) Imperialism led to an increase in demand for finished products and raw materials around the world, increasing U.S. exports. c) New inventions turned consumer goods created an international demand for U.S. products, and further increased U.S. exports. 3) Merchandising is Born a) Department stores- middle class customers could now window shop for items in huge stores in major cities, starting with A.T. Stewart in new York City in 1862 b) Mail-order catalogs- Montgomery Ward reached out to rural customers with a catalog he mailed to them that pictured his merchandise. Customers then mailed back orders starting in 1871. Richard Sears and Alvah Roebuck did the same in the 1890s. 4) Railroads Grew a) United the nation with a huge network of standardized tracks, from 35,000 miles of track in 1865 to 260,000 miles in 1900 b) Small towns were linked or created due to the growth of railroads. c) The U.S. had more miles of railroad tracks in 1900 than all of Europe and Russia combined 5) Steel Industry is Born a) Iron was less costly and easier to make than steel until Henry Bessemer developed a process to blow cold air into molten iron, removing the impurities. b) Andrew Carnegie brought the Bessemer process for making steel to the U.S. from Great Britain in 1867. c) By 1901, the U.S. was the world’s leader in steel production, with 13.5 million tons produced that year. 6) Sources of Energy Harnessed a) Coal was used for fuel as well as energy, replacing wood to power trains in the early 1800s. It was mined from Pennsylvania to Alabama, growing from 30 million tons in 1870 to more than 200 million tons by 1900. b) Oil replaced whale and vegetable oil in lamps with the refining of kerosene in the 1850s and Edwin Drake’s strike of oil in Titusville, Pennsylvania in 1859. c) Electricity was utilized after Thomas Edison invented the light bulb in 1879, starting in the cities and spreading into the countryside over the following decades. 7) Communication Improve a) Electricity was used to send messages by telegraph in the mid-1800s. b) The invention of the telephone by Alexander Graham Bell in 1874-1876 led to the use of 1.3 million phones by 1900. 3 Thomas Edison- inventor who opened a research laboratory in 1876 in Menlo Park, New Jersey to create a minor invention every 10 days and one big invention every 6 months, inventing the light bulb (1879), the phonograph (1877), moving pictures (1893), and the electric power plant (1882) Alexander Graham Bell- Scottish immigrant who invented the telephone in 1874-1876, which allowed people to talk with each other long distances and greatly sped up the exchange of news and business. Questions (p 207 #1-3) 1) Define Industrial Revolution, capital, corporation, and laissez faire. 2) What advantages did the United States have in its ability to industrialize? 3) What were effects of railroads on the United States industrial growth? Railroads used large amounts of steel for new tracks and engines, lumber for wooden railroad ties, and coal to fuel the engines. They expanded and united the nation due to the creation of networks, which standardized track gauges and created standard time zones. 4) What inventions improved communication in the 1800s? The telegraph and the telephone allowed for instant communication over great distances, the telephone by voice. This greatly sped up the exchange of news and business. 5) Why was Menlo Park called an “invention factory?” Menlo Park was called an “invention factory” because Edison turned inventing into a system. He had his team of 15 experts refine his ideas and translate them into practical inventions. 4 Captains of Industry or Robber Barons? John D. Rockefeller (1839-1937) – Cleveland, Ohio native who bought an oil refining company in 1865, then organized the Standard Oil Company in 1870 to compete against 200 other oil companies. Standard Oil Company- Monopoly created by 1880 that accounted for over 90 percent of the oil refined in the United States. Methods of Monopoly Used by Rockefeller 1) Railroad rebated enabled him to undercut his competitor’s oil prices to force them out of business 2) Rockefeller used the hostile takeover method by offering to buy out his competitors when they were struggling 3) If railroads did not offer him large enough rebates, he built oil pipelines to ship his oil more cheaply Rebate- Returning a portion of the railroad freight charges to a customer. Andrew Carnegie (1835-1919)- Scottish-born businessman who started out as cotton mill worker, railroad engineer, and later steel company owner in the 1870’s who sold his steel monopoly to J.P. Morgan and a group of bankers in 1901 for almost $500 million. Origins of the Work Ethic in the United States Work Ethic- belief in the moral value of hard work Cotton Mather- Boston minister in the late 17th and early 18th centuries who, among others, preached and wrote about the Pilgrim and Puritan beliefs of predestination and the importance of good behavior and a strong work ethic. Predestination- Belief held by John Calvin and later the Pilgrims and Puritans of New England that the afterlife of each individual was predetermined before a person’s birth, and that their hard work and material success in life was a sign that they were predestined for a good afterlife. Horatio Alger- wrote popular books in the post-Civil War era that were “rags to riches” stories about poor boys who became successful through hard work and luck Public Good or Private Gain? The public good was advanced by Carnegie and Rockefeller because: 1) they provided many jobs 2) their respective industries grew 3) their respective industries became more productive 5 4) they risked their own money with no guarantee of success 5) they became philanthropists who donated large amounts of money to build libraries, schools, hospitals, and other institutions from their profits Private gain made Carnegie and Rockefeller: 1) unfair in how they conducted business 2) pay their workers low wages 3) not tolerate strikes or negotiate with their workers or unions 4) put competitors out of business with unfair tactics, such as rebates or prices cuts Fourteenth Amendment Applied to Laissez-Faire The Supreme Court interpreted the Fourteenth Amendment as favoring business during this era instead of simply providing citizenship to the freed slaves after the Civil War. They used the phrase that no state could “deprive any person of life, liberty, or property without due process of law” to broaden the protections offered to individuals and extend those same protections to corporations. Many corporations received favorable court decisions because they were offered the same protections as individuals through this interpretation. Pooling- secret agreement between rival railroad companies to charge the same high fares as their competitors (also known as prices-fixing) Other Methods Railroads Used to Reduce Competition 1) Divided the total market for their transportation services evenly between each other 2) Charged more for shorter hauls than they charged for long hauls where there were no other competitors. Consolidate- join together From Competition to Monopoly Merger- the joining of two or more businesses into a single, larger business Trust certificate- offered in trade by monopolists to their weaker competitors in order to gain a majority of the weaker competitor’s stock certificates, usually through hostile threat of driving them out of business. The trust certificate created a super-corporation called a trust controlled by the monopolist Trust- group of corporations run by a single board of directors who had a lot of influence over representatives in both the federal government and state governments Holding Company- Corporation that existed solely to hold the stocks of several companies in the same industry, controlling a majority of company’s stock and having the power to dictate a common policy for all 6 Government Attempts to Break Trusts Sherman Antitrust Act (1890) - poorly and vaguely written law which stated “every contract, combination in the form of a trust or otherwise, conspiracy, in restraint of trade or commerce… is hereby declared to be illegal.” Since terms such as trust, conspiracy, and restraint were not defined by law, attempts to prosecute trusts were unsuccessful in the 1890s, but the precedent for the government to work to break up monopolies and trusts was established. United States v. E.C. Knight (1895) - Supreme Court ruling in a case against the sugar trust that was led by the E.C. Knight and Company, who controlled over 95 percent of the sugar-refining industry in the United States. The ruling said that the United States federal government had no right to break up the sugar monopoly, stating interstate commerce was not applicable because the activities of the refinery were within one state’s borders and therefore not interstate commerce but the Tenth Amendment that applied to the situation. Questions (pg 213 #1-3) 1) Define pooling, mergers, trusts, holding companies. 2) What methods did John D. Rockefeller use to maximize profits, reduce costs, and eliminate competition? 3) How did Supreme Court rulings affect efforts to regulate business? 7 Problems for Industrial Workers and the Reason for the Growth of Labor Unions 1) Low wages 2) 60 or 70 hour work week 3) Cold winter and hot summer conditions in the factories 4) Poor ventilation 5) Few safeguards on machinery to prevent accidents 6) If an accident injured or killed a worker, they were the one blamed, not the employer Knights of Labor- First union to become a major economic force that was formed in 1869, eventually included both skilled and unskilled workers of all backgrounds, and who met in secret because employers fired workers who joined unions. Their main goal was to win the consent of employers to giving their workers an eight-hour workday. Skilled Workers- craft workers who are specialized with some training Unskilled Workers- industrial workers without specialization Terence Powderly- chosen president by Knights of Labor members in 1879, he strengthened the union by allowing immigrants, African Americans, women, and unskilled workers to become members and by using arbitration to settle labor disputes until 1885, when he abandoned his antistrike policy. Arbitration- the judging of a dispute by an impartial person Haymarket Riot- Bombing and violence that broke out in the crowded Haymarket Square during a strike at the McCormick Harvester Company in Chicago on may 4, 1886, where strikers were protesting the previous say’s violence with strikebreakers, police, and anarchists. Because one of the bomb throwers was a member of the Knights of Labor, the union was unfairly blamed for the violence, causing the public to distrust the union and membership dwindled as a result. Anarchist- person who opposes organized government and capitalism, saying it cannot be reformed and advocating the use of violence to end both institutions. Strikebreaker- worker hired as a replacement for a striking worker, often African Americans. Reasons for the Demise of the Knights of Labor 1) Prejudices amongst members (skilled versus unskilled workers, whites versus blacks, men versus women.) 2) Leaders of the union focused too much on political goals (graduated income tax) instead of the workers’ goals (bread-and-butter economic issues such as higher wages and better working conditions. 3) The Haymarket Riot 8 American Federation of Labor (A.F. of L.)- Columbus, Ohio based union which was open to skilled workers only and headed by Samuel Gompers. One had to join a trade union for a specific trade, and that trade union joined other unions in the larger AFL organization. By 1900, over half a million workers belonged to the trade unions that were a part of the A.F. of L. In altered form it still exists today. Federation- loose association Samuel Gompers- teenage British immigrant to New York City who became the leader of a cigar maker union and later organizer of the federation of unions known as the AFL in 1886 Bread and Butter Goals of the A.F. of L. 1) Higher wages 2) Shorter working hours 3) Better working conditions African Americans and women were both routinely discriminated against, segregated, or denied membership to the A.F. of L. Racial discrimination grew between white A.F.L. members and African Americans because oftentimes employers would use African Americans as strikebreakers against the A.F. of L. Sweatshop- workplace where people labor long hours in poor conditions for low pay. Mary Kenney O’Sullivan- energetic Irish American woman who encouraged women garment workers to join local unions in New York City and Troy NY and later founded the national organization for women known as the National Women’s Trade Union League (NWTUL) to help working and middle class women get improved wages and working conditions in industries where women were employed in large numbers. International Ladies’ Garment Workers union (ILGWU) - trade union of women garment workers that formed in 1900 to protest low pay, long hours, and unsafe working conditions. They went on strike in 1909 with over 20,000 members and won a pay raise and a reduction of hours, then launched another successful strike in 1910 with over 50,000 members for better pay, shorter working hours, and paid holidays. They later became a key member of the AFL. Triangle Fire- sweatshop fire in New York City in 1911 at the Triangle Shirtwaist Factory in which 146 people died after being locked in their factory to keep them at their jobs. The tragedy led to new safety laws to help protect factory workers in New York State. Collective Bargaining- Right of unions to negotiate with management for workers as a group. 9 Major Strikes by Unions against Corporations Homestead Strike (1892) 1) One of the most violent strikes in U.S. history 2) Amalgamated Association of Iron and Steel versus the Homestead, PA steel plant owned by Andrew Carnegie 3) Union refused to accept a wage reduction 4) Henry Clay Frick, chairman of Carnegie Steel, called in guards from the Pinkerton National Detective Agency to break up the strike and protect the plant and the strikebreakers 5) Fighting broke out between the two groups, and many on both sides were killed 6) Pennsylvania’s governor called out the state militia and broke up the strike 7) Workers returned to work at the reduced wage, and their steel workers’ union was weak until the 1930s Pullman Strike (1894) 1) George Pullman invented and manufactured sleeping cars for railroad travel 2) He announced a 25 percent reduction in wages in 1894, but did not lower the rents or grocery prices in the company town 3) Workers went on strike and were supported by their union, the American Railway Union led by Eugene V. Debs 4) The workers not only picketed the Chicago railways to prevent the use of the Pullman cars, but they also called for a nationwide boycott of all Pullman cars 5) Many railway workers took part, and effectively stopped interstate commerce 6) Some of the cars carried U.S. mail 7) Pullman was granted an injunction by a federal court against the union picketing 8) President Grover Cleveland sent federal troops to end the strike 9) When Debs and the union refused the court order, he and other officers of the union were convicted and jailed, ending the strike. 10) An 1895 Supreme Court decision, known as In Re Debs, upheld the injunction by ruling that the federal government could prevent “all obstructions to the freedom of interstate commerce or the transportation of the mails.” Company Town- community established by a corporation that provides most or all its workers and their families needs, such as housing, employment, and stores. Injunction- court order to do or not to do something Lawrence Strike (1912) 1) One of the largest woolen textile centers in the U.S. during the second half of the 1800s 2) The Industrial Workers of the World (IWW) went on strike against the American Woolen Company 3) The IWW was founded as a radical labor union in 1905, and advocated the end of capitalism and the promotion of socialism, saying the national government should own and operate all major industries 10 4) Low wages were being opposed, and the effort was led by Joseph Ettor, “Big Bill” Haywood, and Elizabeth Gurley Flynn 5) Massachusetts’ governor called in the state militia to protect strikebreakers and keep order 6) The American Woolen Company ended the strike by offered raises and no punishment to those who had been on strike. Socialism- economic and political system whose adherents believe that the national government should own and operate all major industries Most Americans at the time generally were against strikes, and supported the government’s use of federal troops to break up strikes because they considered strikers revolutionaries who were challenging capitalism, democracy, and freedom A growing minority of Americans, however, sympathized with workers and the unions they belonged to because of the long hours, low wages, and unsafe or unsanitary working conditions they worked in. Questions (pg. 218 #1-3) 1) Explain how the growth of labor unions was a response to the growth of business 2) How did the Knights of Labor and the American Federation of Labor differ? 3) For the following three strikes, prepare a chart listing the (a) conditions that led to the strike, (b) tactics used by both sides (c) union leadership, (d) role of state or federal government, and (e) outcome of the strike: (1) Homestead, (2) Pullman, and (3) Lawrence. 11 4) How did the role of the worker change in the new industrial age? Workers had a new role in which they were less valued than in the previously small factories before the Civil War. Their working conditions were dangerous and filthy, often leading to many printable deaths and diseases. 5) What were the goals of early unions? Early unions sought to end child labor, shorten the workday, gain higher wages, improve working conditions, and receive equal pay for both men and women. 6) Why was progress slow for labor? Most Americans believed that hard work was rewarded. They felt that workers who went on strike were often times foreign radicals who were not interested in improving the working man’s situation, but rather in destroying the United States and its government. They feared that strikes only led to violence. 12