Chapter 18: The Ordeal of Industrialization

The Railroad Empire

Building the Network: Railroads = built in fits and starts. While European governments undertook to build their railroads, it = done under private enterprise here. Still, US govt helped somewhat in the building, especially when railroad enthusiasm pea ked. Transcontinental railroads and competition. Many railroads used different guages, and it = one of great tasks of postwar generation to integrate railroads into a national network. Almost 2/3 of railroads = absorbed by the other third. Raliroads = als o closely tied with development of nation's first telegraph network, dominated by Western Union.

The Managerial Revolution: Before, business = small enough that it could = operated by members of one family. But now, railroads, huge in expanse and expense, required armies of workers. Great railroad systems needed more workers and handled more $ th an most complicated government organizations of the time. Great need for qualified professional managers outside of the founding family. Thus, management = increasingly separate from ownership. Managers came to control a very large and important part of t he American economy. Benefits to economy and lifestyle = enormous.

Competition and Disorder: But railroads = in big trouble. Construction boom of 80s left railroads with more track than was needed. Managers resorted to competitive wars, undercutting each others' prices and entering into secret contracts with customer s where there was competition, and overcharging outrageously where there wasn't. Thus, railroads proved a curse to both industry and society. Demoralization of the industry = a serious threat. State governments tried to regulate, with the support of the S upreme Court (Munn vs. Illinois, 1877). Still, railroads tried to defeat such legislation, and in Wabash case of 1886, Supreme Court reversed Munn on grounds that Congress had sole power to regulate interstate commerce. In 1887, Congress passed Interstate Commerce Act: forbade railroads from engaging in discriminatory practices, required them to publish their rate schedules, prohibited them from entering pooling agreements for jack up rates, and required that rates be fair and just. But act = vague and ob scure on many points, and hard to enforce. Thus, was largely ineffective practically, but served as a precedent for more efficient measures in the future.

Morgan and Banker Control: Law = then outright evaded: railroads returned to discrimination. It = obvious that law had no teeth. After decades of abuse, industry = tottering, and in no condition for hard times. First sign of depression of 1893 = a rai lroad's bankruptcy. About 1/3 of USA's mileage = subject to foreclosure by 1898. To get $ for reorganization, railroads turned to bankers, under whom they = now under some control. Morgan = premier investment banker of his time. From 94-98, Morgan reorgan ized most of the big railroads. Although not ideal, banker control helped curb prevailing anarchy of the system, improve management and efficiency.

The Industrial Empire

Carnegie and Steel: New industrial order = based on steel. USA = now world's greatest steel producer, with plenty of natural resources to support the industry. Like railroads, suffered from great uncertainty and ruthlessness. Resorted to cutthroat pri cing, price slashing, and blackmail. But out of the mess, Carnegie emerged. From poor backgrounds. Superb salesman with knack for picking subordinates. Carnegie refused to let his company become a corporation, but kept most of the shares to himself. Used profits to expand, or compete ruthlessly with competitors or labor.

--In the meantime, Morgan turned from railroads to steel, and bankers = gaining control of the industry. Morgan formed Federal Steel Company with other bankers, second only to Carnegie's. Next project = to unite with Carnegie. When Federal decided to go into making raw steel, Carnegie declared war, and went into finished steel. But eventually, Morgan determined to buy Carnegie, which he did for $1/2 bill. Union = US Steel.

Rockefeller and the Trusts: Did for oil what Carnegie did for steel. Also, had a gift for choosing subordinates and abhorred waste and gambling. Although he made ruthless use of the abuses of the age, Standard Oil also improved and lowered prices of p roducts, eliminated waste, and increased efficiency of distribution. Hated free competition, thought monopoly = wave of the future. By 1881, Standard controlled 90% of USA's refining capacity.

--Introduction of pipelines made Standard Oil alliance solidify legal control and centralize management. Alliance built its own pipelines. Alliance = turned into a trust, by which a board of nine trustees = given power to exercise general supervision over the several Standard Oil Companies. Standard also entered into production of crude oil. Several other trusts = formed on the Standard model, and soon became fully integrated enterprises dominating their industries for decades.

--But trusts = against American creed of opportunity and open competition. Trusts seemed an evil plot born of greed: trusts often used their huge power to detriment of both manufacturers and consumers. Thus, big business rejected mergers and trusts a s answer to unstable industry. State legislatures tried to control them, but laws = again ineffective, later limited by the Wabash decision. Then Congress issued the Sherman Antitrust Act

--Act proclaimed any combination with intent to restrain commerce among the States or internationally = illegal. Also, monopoly = a punishable misdemeanor. But clever lawyers found loopholes. Some trusts reorganized as huge corporations or turned to holding companies. Most trusts easily evaded the law. But then, near end of century, Supreme Court ruled that any business action to fix prices = in violation of Sherman anti-trust.

The Technology of Centralization: The typical inventor. Sholes: typewriter. Bell: telephone. White-collar working class. Edison: light bulb, phonograph, storage battery, motion picture, electic dynamo, electric locomotive. Westinghouse: air-brake and A.C. electricity. Tesla: A.C. motor.

Laissez-Faire Conservatism

The Gospel of Wealth: Many new millionaires, mostly in industry and commerce. Gave economic tincture to ethical and idealistic concepts. Capitalism = democratic, etc. God = for Gospel of Wealth. Thus, liberal in that flouted tradition and preached pro gress. But also conservative in that was bent on defending status quo, conserving privileges of wealth, and preventing government interference with these privileges. Classical economists and Charles Darwin = united in Herbert Spenser who took survival of fittest into human society. These new millionaires = especially receptive to this doctrine.

--The Gospel of Wealth: 1) American economy = controlled for benefit of all by a natural aristocracy and that these leaders = brought to the top through competition that weeded out the weaker. 2) politicians = not subject to the same natural selectio n and therefore could not be trusted as much as businessmen 3) state should confine itself to protecting property and maintaining order; otherwise, would hurt natural selection. 4) slums and poverty = inevitable result of the selective process, and interv ention = misguided. 5) stewardship of wealth obliges rich to use their wealth to help society. Given great support and prestige in person of Justice Stephen J. Field of the Supreme Court, who converted the Court to Spenser.

Social Critics and Dissenters: Acceptance = not universal.

--Ward: There is a difference between natural and human world. In nature, rule of law = rule of force. It must not be so in the human world, for rule of force = very wasteful and sometimes arbitrary in its choice. For competition to survive, there mus t be governmetn regulation. Social planning.

--Henry George: a sort of labor theory of value applied to land. Progress and Poverty, 1879.

--Bellamy: Looking Backward, 1888. Utopian vision of society in 2000 AD, and their vision of society in 1888.

The House of Laborj

Man and Machine: Although increased standards of living in the long run, machines brought great suffering in the short. Loss of status and independence, impersonality, absence of pride. Mechanization = swift in 1880s, and the transition, harsh. Manufa cturers, seeking rapid returns on their new machines, often hurt their employees. More women entered work force, lowering birth rates since women then had less time to take care of children. But still, real wages rose steadily after the 70s, so people = u ninterested in socialism. Still, conditions = harsh in workplace. Great variety of workers ==> a work force fragmented along race or ethnic lines. Increasing immigration, and tension.

Unions and Strikes: Knights of Labor founded, 1869: elaborate rituals, high titles. Secret fraternity welcoming all sorts of workers. Very idealistic, utopian, nostalgic, not suited for realities of the workplace. But did grasp one key fact: that cons olidation of industry ==> consolidation of labor. In 1878, founded a General Assembly to centralize control over labor of different industries. Quickly died out after upheavals of 1886.

--AFL = formed, 1881, with much more realistic labor philosophy. AFL gave up political goals for economic, devoted itself to gaining concrete goals for its members along craft lines, rather than for all workers at once. Loose alliance of national tra de unions, each of which held some autonomy. Used the strike willingly. First president = Samuel Gompers, who felt that labor should try to gain for itself a place within the system as respectable as any other. Many strikes, some violent, especially durin g depressions: 1886: Haymarket riot: the bomb-throwing incident. 1892: Coeur d'Alene miner riot, Carnegie steel riot. 1893: Pullman riot: almost all railroads = immobilized, a national problem. Repressed on grounds of securing US mail.