Industrialization

The United States experienced an explosion of growth in business and industry in the latter half of the nineteenth century. The year 1890 marked the first time the United States had produced a greater value of industrial products than of agricultural products. The country was no longer a predominantly agrarian nation. Why did the nation experience such tremendous industrial growth during this period?

The Civil War

The Civil War proved good for business in the North and the Midwest. The United States government, which needed to supply and maintain a massive army, was the biggest customer. Huge government expenditures stimulated industries necessary for war, which included iron, textiles, and railroads. These industries proved vital, giving industrialization a boost.

Peaceful political climate

The last several decades of the nineteenth century were free from large-scale political strife and from major wars. There were no hostile political boundaries (such as North vs. South), allowing commerce to move freely across the nation.

New Immigration and Labor

The stable political situation also proved attractive to the near 20 million immigrants that came to the United States during the period. Many of these immigrants went to work in industrial jobs, providing the labor needed for large-scale industrialization. These people came in search of economic opportunity, looking for the “American Dream.” Some were fleeing political or religious persecution, while others sought more economic opportunity. From 1865 to 1915, approximately 25 million immigrants entered the United States. Most of the immigrants came from eastern and southern Europe, with the largest group coming from Italy. Many did not speak English. Most were illiterate, poor, and either Jewish or Catholic. These people seemed very different from the German, British, and Irish immigrants who had flooded in the country in the “old immigration” of the 1840s. They often faced discrimination and segregation in the United States.

Most immigrants settled in large cities and went to work in factories, having a big impact on industrialization. Industry now had an abundant labor supply to exploit. These millions of new Americans played a vital role in the rapid industrialization experienced in the United States. Play the Old versus New Immigration interactive to learn more about these immigrants.

Abundance of Resources

Since the days of exploration, Europeans had recognized the abundance of useful resources offered by the land in North America. Iron ore, coal, lumber, and copper—all essential for industrial activity—were readily available. With the improvements in technology and transportation, as well as a peaceful political situation, these resources were now more readily accessible.

Railroads

The main revolution in transportation came from the rapid growth of the nation’s railroad system. Rail transportation had been introduced in the United States in 1837 with the construction of a short-line track in Baltimore. By 1860, more than 30,000 miles of track had been constructed. Postwar construction benefited from the increasing availability of steel for tracks, locomotives, and various parts. Railroads also increased safety with the development of the Westinghouse air b, as well as increased comfort with specialty cars like the sleeping cars manufactured by George Pullman. Additionally the standardization of track gauge—the distance between tracks—made it possible to ship goods great distances without unloading and reloading rail cars.

After 1865, railroads focused on creating organized and integrated systems with main “trunk lines” supplemented by networks of smaller “feeder lines.” A number of the smaller rail lines in the East consolidated into larger systems, such as Cornelius Vanderbilt’s New York Central Railroad. Rail lines in the South destroyed during the war were rebuilt and a north-south line from Chicago to New Orleans was finally opened.

 

American Ideals

Most Americans believed in the idea of the American Dream. The average worker believed that upward mobility was possible and this idea was encouraged by a series of extremely popular, cheap paperback novels written by Protestant minister Horatio Alger. All his books had the same idea: poor boy comes to the big city, works hard, and eventually owns his own business and becomes a millionaire.

Inventions

In the 1850s, there were a thousand patents for new inventions each year. By the turn of the twentieth century, that number had increased dramatically. In the year 1890 alone, 25,000 patents were granted. Advances in technology and transportation changed the United States, and the world, forever. Steel replaced iron, steam power and electricity replaced human power, and oil lubricated machines and lighted homes, streets, and factories. Refrigerated train cars changed the transportation of food and the way people ate. The industry of meatpacking emerged, bringing meat to millions. Meatpacking and refrigeration allowed goods to be shipped around the nation. The invention of the electric light bulb, the invention of the telegraph and telephone, and hundreds of other inventions changed the way people lived. Match the inventor to their invention in the drag-and-drop “Match the Inventor.”

Government Incentives

During the Gilded Age, businesses wanted government to help them succeed. The government obliged, offering incentives to promote industrial growth. As seen in Lesson 17, railroads particularly benefitted from the government largesse through the use of land grants and bonds.

Another government incentive for American businesses came in the form of the protective tariff. Tariffs, which are taxes on imported goods, are considered protective when they are high enough to raise the price on those products and prevent them from competing with similar American products.  Early in United States history advocates of the protective tariff wanted to help give young American industries a chance to grow and become competitive. Although most American businesses were well developed, many still wanted the benefit of tariff protection.

Captains of Industry

All these factors helping promote rapid industrialization would likely have meant little without the risk-taking entrepreneurs who had big ideas and plans. These leaders of mammoth corporations were known as “captains of industry” to those who approved, and as “robber barons” to those who did not. The industry leaders believed in the capitalist system, but they wanted to work within it to establish dominance and even monopolies in their fields. They believed in Social Darwinism—the idea that there is competition in business, and that the smartest, strongest, and most adaptable survive. The ranks of the captains of industry included:

• John Jacob Astor—furs
• Cornelius Vanderbilt—steamboats, then railroads
• Andrew Carnegie—steel
• John D. Rockefeller—oil
• James Buchanan Duke—tobacco

Monopolies

The rapid and expansive industrialization that took place during this period was not without problems. The development of monopolies—also called “trusts”—proved a major concern for many. A monopoly destroys competition, can control prices, and can produce inferior products because it does not have to worry about competing with goods produced by other companies. The “captains of industry” led the list of monopolists during the Gilded Age. No one exemplified this more than John D. Rockefeller and his Standard Oil.

Standard Oil

During the Civil War, Rockefeller invested $4,000 in an oil refinery. By 1900, he controlled 90% of all oil refineries in the United States. Rockefeller had a “horizontal monopoly,” meaning he controlled all of one part of the refining process. In this case, he owned almost all the refineries. He later obtained a “vertical monopoly,” controlling every part of the oil process. He owned oil fields, pipelines, refineries, and filling stations. Rockefeller did everything he could to eliminate competition. Sometimes he would lower prices and take a loss just to drive out the competition. Rockefeller’s aggressive tactics brought him tremendous wealth. He became the first American billionaire. Rockefeller tops the list of wealthiest people in history, with an estimated wealth (in 2007 dollars) of over $318 billion. Play the interactive on horizontal and vertical integration to learn more about these economic and management concepts first put in use during the Gilded Age.

Federal Response

A laissez faire philosophy prevailed at the end of Reconstruction, and the government largely left business alone. Realizing, however, that the federal government was the only entity with a strong enough power to regulate or control monopolies, Congress began to take action. In 1887, Congress passed the Interstate Commerce Act. This act, designed to regulate competition, created the Interstate Commerce Commission (ICC)—the first federal regulatory commission. Aimed primarily at railroads, the ICC outlawed rebates, which were secret shipping-cost reductions below normal rates given to major product shippers, like Rockefeller.

Sherman Anti-Trust Act

In 1890, Congress passed the Sherman Anti-Trust Act. Designed to restore competition where it no longer existed, this act gave the Department of Justice the right to break up trusts. The act stated that “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal.” In 1910, the government used the Sherman Act to break up Standard Oil.