Download The Ordeal of Industrialization (from: The National Experience)

The Ordeal of Industrialization (from: The National Experience)
I. In 1860 the United States was a second-rate industrial country, lagging behind the
United Kingdom and perhaps Germany and France. But by 1890 the United States had
stepped into first place, and the value of its manufactured good almost equaled the
combined production of all the three former leaders. Between the eve of the Civil War
and the First World War, American manufacturing production multiplied twelve times
over.
A. The Railroad Empire1865
1870s
1880s
1900
53,000 miles of rail
40,000 miles laid
70,000 miles laid
Over 200,000 miles total
The growth of railroads was almost entirely a private endeavor, as opposed to
Europe, where it was often government directed. I think this is an interesting
insight into the American phobia and often hatred of socialism. Post Civil War
Gov’t aid to RRs came in the form of
 Provided Land
 Broken strikes
 Redistributed Indian land
 Fought off Indians
 Loaned money for the transcontinental railroad.
1. The Transcontinental Railroad was completed by 1869, by 1900 there
were three others flanking it to the north and south.
2. The railroad industry rapidly consolidated. By 1906 2/3s of the nation’s
mileage was concentrated under 7 groups.
3. Bi-products- the development of the Western Union Telegraph
Company and the modern postal system.
Railroads led to:
 Oil Production
 Iron
 Financing
 Copper
schemes
 Coal
 Machine tools
 Steel (Bessemer
 Timber for ties
Process)
4. Standardization of railroad technology- steel rails, air brakes, double
tracks, track gauges.
a. Nov. 1883, the American Railway Association split the country
into four different time zones.
5. William Seward, long committed to the Pacific Railroad, wrote of the
impending labor: “When this shall have been done disunion will be
rendered forever after impossible. There will be no fulcrum for the lever
of treason to rest upon.
B. The Managerial Revolution- the rise of railroads marked the beginning of the
modern corporate structure. The creation of a hierarchical structure where
management and ownership were split, thus creating the modern corporate
structure.
“Management has no stake in the company!”
“I am not a destroyer of companies! I am a liberator of them!”
-Oliver Stone, Wall Street
C. Regulation- The construction boom of the 1880s created more rail than
necessary. Therefore destructive competition ensued. Managers resorted to
fantastic rebates, secret rates, and ineffective “pools”, where competition existed
and then gouging customers where monopolies existed.
1. Munn v. Illinois (1877)- The Supreme Court Upheld the
constitutionality of state regulation. The court declared that when private
property was affected with a public interest, it must submit to be
controlled by the public for the common good and that in the absence of
federal policy states could lay down regulations.
2. . These scattered state efforts screeched to a halt in 1886. In the famed
Wabash, St. Louis, and Pacific Railway Co. v. Illinois case, decreed that
individual states had no power to regulate interstate commerce. The court
used the 14th Amendment to protect the rights of corporations.
3. U.S. vs. E.C. Knight Co.- the Sherman Anti-Trust Act was interpreted
to make it useless. It said a monopoly of sugar refiners was a monopoly
in manufacturing, not commerce, and so could not be regulated by
Congress through the Sherman Act. The Court also said the act could be
used to break up interstate strikes.
4. The Interstate Commerce Act (1887)The concentration of industry aroused "deep feelings of unrest," said Supreme Court Justice John Marshall
Harlan, a conservative Republican:
The conviction was universal that the country was in real danger from another form of slavery...that would
result from the aggregation of capital in the hands of a few individuals controlling, for their own profit and
advantage exclusively, the entire business of the country.
A national consensus emerged that monopolies were dangerous to democracy. The
Interstate Commerce Act of 1887, which applied only to railroads passing through more
than one state, declared that railroads could only charge just and reason rates. It required
railroads to post their rates, provide 10-day notice before raising rates, prohibited
railroads from charging less for a long haul than a short haul over the same line. The act
also set up the first federal regulatory commission, the Interstate Commerce Commission
(ICC) had authority to investigate the railroads. Railroad operators found ways to
circumvent the law, and many of the ICC's decisions were reversed by the Supreme
Court.
passed by both houses and signed by Cleveland. Forbade railroads to
engage in discriminatory practices, required them to publish their rate
schedules, prohibited them from entering pooling agreements for the
purpose of maintaining high rates, and declared that rates should be
reasonable and just. The act placed enforcement in the hands of an
Interstate Commerce Commission of five members, who were to hear
complaints and issue orders to the railroads to “cease and desist.” The act
was often ineffective. There were only five commissioners to deal with the
entire country.
5. Sherman Anti-Trust Act- (1890)D. Horizontal and Vertical Integration1.Andrew Carnegie became the pioneer of vertical integration. From
the mining of iron ore to shipping on the Great Lakes, to the railroads that
delivered the ore to his plants in Pittsburgh, Carnegie controlled every step
of the production process. He made the production process more reliable
by controlling the quality of his product at all steps in the production, and
eliminating middlemen’s fees.
2. Less justifiable on grounds of efficiency was the technique of
horizontal integration which meant allying with competitors to
monopolize a given market. Rockefeller was the master of the stratagem.
Rockefellers perfected the “trust.” Stockholders in various smaller oil
companies assigned their stock to the board of directors of his Standard
Oil Company, which was then formed in 1870.
3. JP Morgan perfected the idea of the “interlocking directorate.”
Depression of the 1890s sent many companies into his fold. Morgan
consolidated the firms and appointed his bankers to many of the boards of
directors to ensure cooperation between the largest firms.
E. Corruption in Railroads- “Stock Watering” named after the practice of
making cattle thirsty by feeding them salt and then having themselves bloat
themselves with water before they were weighed in for sale. Using a variation of
this technique, railroad stock promoters grossly inflated their claims about a line’s
assets and profitability.
1. Credit Mobilier- The Union Pacific was given 12 million free acres of
land and $27 million in government bonds. The Union Pacific created the
Credit Mobilier company and gave them $94 million for construction
when the actual cost was $44 million. Shares were sold cheaply to
Congressmen to prevent investigation.
2. T.A. Edison paid each N.J. politician $1,000 for favorable legislation.
3. Jay Gould spent $1 million in bribes to the NY State legislature to
secure an $8 million dollar stock issue.
F. Social Darwinism-Cornelius Vanderbilt- The Public be damned
- Carnegie- the Gospel of Wealth