Ch. 18 The Enduring Vision (PDF)

18 The Rise of Industrial America, 1865–1900 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deeme...

18 The Rise of Industrial America, 1865–1900 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  ON OCTOBER 21, 1892, before a crowd of more than two hundred thousand onlookers, presidential candidate Grover Cleveland proudly opened the World’s Columbian The Rise of Corporate America (p. 536) Exposition in Chicago. Grasping a The Character of Industrial Change 536 Railroad Innovations 537 small electric key connected to a Consolidating the Railroad Industry 537 two-thousand-horsepower engine, Applying the Lessons of the Railroads to Steel 539 he proclaimed, “As by a touch the The Trust: Creating New Forms of Corporate machinery that gives life to this vast Organization 540 Exposition is now set in motion, so in Stimulating Economic ISABELLE GARLAND, 1880 the same instant let our hopes and Growth (p. 542) (University of Southern California The Triumph of Technology 542 Libraries) aspirations awaken forces which in Specialized Production 543 Advertising and Marketing 546 all time to come shall influence the Social and Environmental Costs and welfare, the dignity, and the freedom of mankind.” A moment later, Benefits 547 electric fountains shot streams of water high into the air, officially The New South (p. 548) Obstacles to Economic Development 548 marking the exposition’s start. The New South Creed and Southern Industrialization 548 The Southern Mill Economy 549 The Chicago world’s fair represented the triumph of fifty years of industrial develop- The Southern Industrial Lag 550 ment. The country’s largest corporations displayed their newest products: Westinghouse Company’s dynamos mysteriously lit a tower of incandescent light bulbs; American Bell Factories and the Work Telephone offered the first long-distance telephone calls to the East Coast; and inventor Force (p. 550) Thomas A. Edison exhibited his latest phonograph. The fair dazzled its more than 25 mil- From Workshop to Factory 551 lion visitors. But Isabelle Garland, mother of writer Hamlin Garland, who visited the fair The Hardships of Industrial Labor 551 from a small midwestern farm community, was simply stunned. “[M]y mother sat in her Immigrant Labor 552 chair, visioning it all yet comprehending little of its meaning,” Garland later observed. Women and Work in Industrial America 553 “Her life had been spent among homely small things, and these gorgeous scenes dazzled Hard Work and the Gospel of Success 554 her,... letting in upon her in one mighty flood a thousand stupefying suggestions of art and history and poetry of the world.... At last utterly overcome, she leaned her head Labor Unions and Industrial against my arm, closed her eyes and said, ‘Take me home, I can’t stand any more of it.’” Conflict (p. 555) Organizing Workers 557 Isabelle Garland’s emotional reaction captured the ambivalence of many late- Strikes and Labor Unrest 559 nineteenth-century Americans who found themselves both unsettled and exhilarated Social Thinkers Probe for Alternatives 561 as the nation was transformed by industrialization. At midcentury, the United States had played a minor role in the world economy. Five decades later, innovations in man- agement, technology, production, and transportation, together with the settlement of the trans-Mississippi West, had expanded manufacturing output fivefold. The United States now produced 35 percent of the world’s manufactured goods—more than England, Germany, and France combined. It had become one of the world’s greatest industrial powers. Driving this prodigious growth was the rise of giant corporations that mass-produced oil, steel, and a variety of consumer products. Business leaders and inventors in count- less small industries also introduced new technologies and innovative advertising COURT OF HONOR, WORLD’S COLUMBIAN EXPOSITION, 1893 The Chicago World’s Fair was seen as “the most significant and grandest spectacle of modern times.” The monumental neoclassical buildings announced that the United States, like Greece and Rome before it, had become one of the world’s most powerful economies. (Granger Collection) 535 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  campaigns to swell produc- separated the company’s managers, who guided its “The sufferings of the tion and increase sales. By day-to-day operation, from its owners. After the 1900, new enterprises both Civil War, American business leaders pioneered working classes are daily large and small, supported new forms of corporate organization that com- increasing, Famine has by investment bankers and bined innovative technologies, creative manage- using a nationwide railroad ment structures, and limited liability should the broken into the home of distribution system, offered enterprise fail. The rise of the giant corporation is many of us, and is at the a vast array of goods for a story of risk-taking and innovation as well as of national and international conspiracy and corruption. door of all.” markets. This stunning industrial growth came at a high cost. The Character of Industrial Change New manufacturing processes transformed the Six features dominated the world of large-scale nature of work, undercut skilled labor, and created manufacturing after the Civil War: (1) the exploi- mind-numbing, assembly-line routines. Large- tation of immense coal deposits as a source of scale manufacturing companies often polluted the cheap energy; (2) the rapid spread of technological environment, spewing noxious smoke into the air innovation in transportation, communication, and and dumping toxic waste into nearby rivers. The factory systems; (3) the demand for workers who challenges of new business practices made the could be carefully controlled; (4) the constant pres- American economy difficult to control. Rather than sure on firms to compete tooth-and-nail by cutting smoothly rolling forward, it lurched between booms costs and prices, eliminating rivals, and creating and busts in business cycles that produced labor monopolies; (5) the relentless drop in prices (a stark unrest and crippling depressions in 1873–1879 and contrast to the inflation of other eras); and (6) the 1893–1897. failure of the money supply to keep pace with pro- ductivity, a development that drove up interest rates and restricted the availability of credit. All six factors were closely related. The great coal deposits in Pennsylvania, West Virginia, and FOCUS Questions Kentucky provided cheap energy to fuel railroad and factory growth. New technologies stimulated What innovations in technology and productivity and catalyzed breathtaking indus- business drove increases in industrial trial expansion. Technological innovation enabled production after 1865? manufacturers to cut costs and hire cheap unskilled How did Carnegie, Rockefeller, and other labor. Cost cutting enabled firms to undersell one corporate leaders consolidate control over another, destroy weaker competitors, and con- their industries? solidate themselves into more efficient and more Why did the South’s experience with ruthless firms. At least until the mid-1890s, cheap industrialization differ from that of the energy, cost reduction, new technology, and fierce North and the Midwest? competition forced down overall price levels. How did the changing nature of work But almost everyone struggled terribly dur- affect factory workers’ lives, and how did ing the depression years, when the government they respond? did nothing to relieve distress. “The sufferings of the working classes are daily increasing,” wrote a How did corporations undercut labor’s Philadelphia worker in 1874. “Famine has broken bargaining power in the 1890s? into the home of many of us, and is at the door of all.” Above all, business leaders’ unflagging drive to reduce costs both created colossal fortunes at the top of the economic ladder and forced millions of wage earners to live near the subsistence level. The Rise of Corporate Out of the new industrial system poured clouds America of haze and soot, as well as the first tantalizing trickle of what would become an avalanche of consumer In the early nineteenth century, the corporate form goods. In turn, mounting demands for consumer of business organization had been used to raise goods stimulated heavy industry’s production of large amounts of start-up capital for transportation capital goods—machines to boost farm and fac- enterprises such as turnpikes and canals. By selling tory output even further. Together with the rail- stocks and bonds to raise money, the corporation roads, the corporations that manufactured capital 536 Chapter 18 The Rise of Industrial America, 1865–1900 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  6000 US UK Germany France Japan GDP (Gross Domestic Product) 5000 Geary-Khamis dollars* in 1990 international 4000 3000 2000 1000 0 1870 1880 1890 1900 1910 Year * 1990 international Geary-Khamis dollars represent the monetary values of the output of the final goods and services produced in a country in one year converted into 1990 dollars at the exchange rate which would pertain if the goods and services had the same prices in all countries (purchasing power parity). See the statistical definition at the UN site: http://unstats.un.org/unsd/methods/icp/ipc7_htm.htm FIGURE 18.1 LATE NINETEENTH-CENTURY ECONOMIC GROWTH IN GLOBAL PERSPECTIVE goods, refined petroleum, and made steel became In addition to raising large amounts of capital, driving forces in the nation’s economic growth (see the railroads created new systems for collecting Figure 18.1). and using information. To coordinate the complex flow of cars across the country, they relied on the magnetic telegraph, invented in 1837. To improve Railroad Innovations efficiency, they set up clearly defined, hierarchical Competition among the capitalists who headed organizational structures and divided their lines American heavy industry was most intense among into separate divisions, each with its own superin- the nation’s railroads. By 1900, 193,000 miles of tendent. Elaborate accounting systems documented railroad track crisscrossed the United States—more the cost of every operation for each division, from than in all of Europe including Russia. These rail coal consumption to the repair of engines and cars. lines connected every state in the Union, opened Using these reports, railroad officials could set up an immense new internal market, and pioneered rates and accurately predict profits as early as the new forms of large-scale corporate enterprise. They 1860s, a time when most businesses had no idea created national distribution and marketing sys- of their total profit until they closed their books at tems, and perfected new organizational and man- year’s end. Railroad management innovations thus agement structures. became a model for many other businesses seeking Railroad entrepreneurs such as Collis P. a national market. Huntington of the Central Pacific Railroad, Jay Gould of the Union Pacific, and James J. Hill of the Northern Pacific faced enormous financial Consolidating the Railroad Industry and organizational problems. To raise the stagger- The expansion and consolidation of railroading ing sums necessary for laying track and building reflected both the ingenuity and the dishonesty engines, railroads obtained generous land and loan flourishing on the corporate management scene. subsidies from federal, state, and local governments Despite their organizational innovations, the indus- (see Chapter 17). Even so, they had to borrow heav- try remained chaotic in the 1870s. Hundreds of ily by selling stocks and bonds to the public. Bond small companies used different standards for track holders earned a fixed rate of interest; stockholders width and engine size. Financed by large eastern received dividends only when the company earned and British banks, Huntington, Gould, and others a profit. By 1900, the yearly interest repayments devoured these smaller lines to create large, inte- required by the combined debt of all U.S. railroads grated track networks. In the Northeast, four major (which stood at an astounding $5.1 billion—nearly trunk lines were completed. West of the Mississippi, five times that of the federal government) cut heav- five great companies controlled most of the track ily into their earnings. by 1893. The Rise of Corporate America 537 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  Huntington, Gould, and the other corporate The massive railroad systems created by these leaders who reorganized and expanded the railroad entrepreneurs became the largest business enter- industry in the 1870s and 1880s often were depicted prises in the world. As they consolidated small by their contemporaries as villains and robber bar- railroads into a few interlocking systems, these ons who manipulated stock markets to line their masterminds standardized all basic equipment and own pockets. Newspaper publisher Joseph Pulitzer facilities, from engines and cars to automatic cou- called Jay Gould, the short, secretive president of plers, air brakes, and signal systems. In 1883, inde- the Union Pacific, “one of the most sinister figures pendently of the federal government, the railroads that have ever flitted batlike across the vision of corrected scheduling problems by dividing the the American people.” Recent historians, however, country into four time zones (see Map 17.3). In May have pointed out that the great industrialists were 1886, all railroads shifted simultaneously to the new a diverse group. Some were indeed corrupt pirates; standard 4'8_12 " gauge track. Finally, cooperative bill- others managed their companies with daring and ing arrangements enabled the railroads to ship cars innovation. Indeed, some of their ideas were star- from other roads at uniform rates nationwide. tling in their originality and inventiveness. But the systemization and consolidation of the railroads had its costs. Heavy indebtedness, over- extended systems, and crooked business practices forced the railroads to compete recklessly with each other for traffic. They cut rates for large shippers, showered free passes on politicians, and granted substantial rebates and kickbacks to favored clients. None of these tactics, however, shored up the rail- roads’ precarious financial position. Ruthless com- petition and fraudulent business practices drove some overbuilt lines into bankruptcy. Stung by exorbitant rates and secret kickbacks, farmers and small business owners turned to state governments for help. In the 1870s, midwestern state legislatures responded by outlawing rate dis- crimination. Initially upheld by the Supreme Court, these and other decisions were negated in the 1880s when the Court ruled that states could not regulate interstate commerce. In response in 1887, Congress passed the Interstate Commerce Act. A five-member Interstate Commerce Commission (ICC) was established to oversee the practices of interstate railroads. The law banned monopolistic activity like pooling, rebates, and discriminatory short-distance rates. The railroads challenged the commission’s rul- ings in the federal courts. Of the sixteen cases brought to the Supreme Court before 1905, the jus- tices found in favor of the railroads in all but one, essentially nullifying the ICC’s regulatory clout. The Hepburn Act (covered in Chapter 21), passed in 1906, strengthened the ICC by finally empower- ing it to set rates. The railroads’ vicious competition weakened in 1893 when a national depression forced a number of roads into the hands of J. Pierpont Morgan and ABUSIVE MONOPOLY POWER This Puck cartoon depicts other investment bankers. Morgan, a massively financiers Jay Gould (left) and Cornelius Vanderbilt (right) and built man with piercing eyes and a commanding suggests that their manipulation of markets and their ownership presence, took over the weakened systems, reorga- of railroads, telegraph companies, and newspapers is powerful nized their administration, refinanced their debts, enough to strangle Uncle Sam. (Frank & Marie-Therese Wood Print and built intersystem alliances. By 1906, under Collections, Alexandria, VA) the bankers’ centralized management, seven giant 538 Chapter 18 The Rise of Industrial America, 1865–1900 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. networks controlled two-thirds of the nation’s rail mileage. Applying the Lessons of the Railroads to Steel The close connections between railroad expansion, which absorbed millions of tons of steel for tracks, and the growth of corporate organization and man- agement are well illustrated in the career of Andrew Carnegie. Born in Scotland, Carnegie immigrated to America in 1848 at the age of twelve. His first job as a bobbin boy in a Pittsburgh textile mill paid only $1.20 a week. The following year, Carnegie became a Western Union messenger boy. Taking over when the telegraph operators wanted a break, he soon became the city’s fastest telegraph operator. Because he had to decode the messages for every major business in Pittsburgh, Carnegie gained an insider’s view of their operations. Carnegie’s big break came in 1852 when Tom Scott, superintendent of the Pennsylvania Railroad’s western division, hired him as his secretary and per- sonal telegrapher. Later promoted to division chief, Carnegie cut costs while more than doubling the road’s mileage. Having invested his earnings in the railroads, by 1868 Carnegie was earning more than $56,000 a year from his investments, a substantial fortune in that era. In the early 1870s, Carnegie decided to build ANDREW CARNEGIE Although his contemporaries called him his own steel mill. His connections within the rail- “the world’s richest man,” Andrew Carnegie was careful to deflect road industry ensured his success. Carnegie’s mill criticism by focusing on his philanthropic and educational activities. produced high grade steel using a new technology (Library of Congress) named after its English inventor, Henry Bessemer, which shot a blast of air through an enormous cruci- ble of molten iron to burn off carbon and impurities. Combining this new technology with the cost-anal- ysis approach learned from his railroad experience, Andrew Carnegie Sums Up the Cost Savings of Vertical Integration Carnegie became the first steelmaker to know the actual production cost of each ton of steel. The eighth wonder of the world is this: two pounds of Carnegie’s philosophy was deceptively simple: iron-stone purchased on the shores of Lake Superior and “Watch the costs, and the profits will take care of transported to Pittsburgh; themselves.” Using rigorous cost accounting and two pounds of coal mined in Connellsville and manufactured limiting wage increases to his workers, he lowered into coke and brought to Pittsburgh; his production costs and prices below those of his one half pound of limestone mined east of the Alleghenies competitors. When these tactics did not drive them and brought to Pittsburgh; out of business, he asked for favors from his rail- road-president friends and gave “commissions” to a little manganese ore, railroad purchasing agents to win business. mined in Virginia and brought to Pittsburgh. As output climbed, Carnegie discovered the And these four and one half pounds of material benefits of vertical integration, that is, control- manufactured into one pound of solid steel and sold for ling all aspects of manufacturing, from extracting one cent. raw materials to selling the finished product. In Carnegie’s case, this control embraced every stage That’s all that need be said about the steel business. from the mining and smelting of ore to the selling Source: Harold C. Livesay, Andrew Carnegie and the Rise of Big Business of steel rails. Carnegie Steel thus became the classic (Boston: Little, Brown, 1975), 189. The Rise of Corporate America 539 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  example of how sophisti- work. The full story was more complex. Carnegie “So much oil is produced cated new technology could did not mention his uncanny ability to see the larger be combined with innovative picture, his cleverness in hiring talented associates that it is impossible management (and brutally who would drive themselves (and the company’s to care for it, and low wages) to create a mass- factory workers) mercilessly, his ingenuity in trans- production system that could ferring organizational systems and cost accounting thousands of barrels are dramatically increase pro- methods from railroads to steel, and his callous- running into the creek; duction and slash consumer ness in keeping wages as low as possible. To a pub- prices (see Figure 18.2). lic unaware of corporate management techniques, the surface of the river The management of daily however, Carnegie’s success gave credence to the is covered with oil for operations by his close asso- idea that anyone might rise from rags to riches. ciates left Carnegie free to miles.” pursue philanthropic activi- The Trust: Creating New Forms of ties. While still in his early thirties, Carnegie donated Corporate Organization money to charitable projects. In his lifetime, he Between 1870 and 1900, the same fierce competi- gave more than $300 million to libraries, universi- tion that had stimulated consolidation in the rail- ties, and international-peace causes. road and steel industries (see Table 18.1) also swept By 1900, Carnegie Steel, employing twenty thou- the oil, salt, sugar, tobacco, and meat-packing indus- sand people, had become the world’s largest indus- tries. Like steel, these highly competitive businesses trial corporation. Carnegie’s competitors, worried required large capital investments. Entrepreneurs in about his domination of the market, decided to buy each industry therefore raced to reduce costs, lower him out. In 1901, J. Pierpont Morgan purchased prices, and drive their rivals out of the market. Carnegie’s companies and set up the United States The evolution of the oil industry illustrates the Steel Corporation, the first business capitalized at process by which new corporate structures evolved. more than $1 billion. The corporation, made up of After Edwin L. Drake drilled the first success- two hundred member companies employing 168,000 ful petroleum (or “crude-oil”) well in 1859 near people, marked a new scale in industrial enterprise. Titusville, Pennsylvania, competitors rushed into A systematic self-publicist, Carnegie portrayed the business. Petroleum was distilled into oil, which his success as the result of self-discipline and hard soon replaced animal tallow as the major lubricant, and into kerosene, which became the leading fuel 40,000 for household and public lighting. By the 1870s, the landscape near Pittsburgh and Cleveland, the sites of the first discoveries, was lit- 35,000 tered with rickety drilling rigs, assorted collection tanks, and ramshackle refineries. Oil spills were 30,000 Total raw steel in 1,000 tons a constant problem. “So much oil is produced,” reported one Pennsylvania newspaper in 1861, 25,000 “that it is impossible to care for it, and thousands of barrels are running into the creek; the surface of the 20,000 river is covered with oil for miles.” In this rush for riches, John D. Rockefeller, a 15,000 young Cleveland merchant, gradually achieved dominance. Like Andrew Carnegie, the solemn 10,000 Rockefeller had a passion for cost cutting and effi- ciency. In one case, he insisted a manager find 750 5,000 missing barrel stoppers. He realized that in a mass- production enterprise, small changes could save thousands of dollars. 0 Rockefeller resembled Carnegie, too, in his abil- 5 0 5 0 5 0 5 0 5 7 8 8 9 9 0 0 1 1 18 18 18 18 18 19 19 19 19 ity to understand the inner workings of an entire FIGURE 18.2 IRON AND STEEL PRODUCTION, 1875–1915 industry and the benefits of vertical integration. The New technologies, improved plant organization, economies firm that controlled the shipment of oil between of scale, and the vertical integration of production brought the well and the refinery and between the refinery a dramatic spurt in iron and steel production. Note: short and the retailers, he realized, could dominate the ton = 2,000 pounds. industry. In 1872, he purchased his own tanker cars Source: Historical Statistics of the United States. and obtained not only a 10 percent rebate from the 540 Chapter 18 The Rise of Industrial America, 1865–1900 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  for ensuring continuous use. To gain access to even TABLE 18.1 INDUSTRIAL CONSOLIDATION: bigger markets, Duke purchased controlling inter- IRON AND STEEL FIRMS, 1870 AND 1900 ests in tobacco companies in England and Japan. 1870 1900 Taking a leaf from Duke and Rockefeller’s book, Number of 808 669 companies in the copper, sugar, whiskey, lead, and firms other industries established their own trust arrange- Number of 78,000 272,000 ments. By limiting the number of competitors, the employees Output (tons) 3,200,000 29,500,000 Capital $121,000,000 $590,000,000 invested Source: Robert L. Heilbroner and Aaron Singer, The Eco- nomic Transformation of America: 1600 to Present, 2nd ed. (San Diego: Harcourt Brace Jovanovich, 1984), 92. railroads for hauling his oil but also a kickback on his competitors’ shipments. When new pipeline technology became available, Rockefeller set up his own massive interregional pipeline network. Like Carnegie, Rockefeller aggressively forced out his competitors. If local refineries rejected his offers to buy them out, he priced his products below cost and strangled their businesses. When rival firms teamed up against him, Rockefeller set up a pool—an agreement among several companies— that established production quotas and fixed prices. By 1879, Rockefeller had seized control of 90 per- cent of the country’s oil-refining capacity. Worried about competition, Rockefeller in 1882 decided to eliminate it by establishing a new form of corporate organization, the Standard Oil Trust. In place of the “pool” or verbal agreement among com- panies to control prices and markets, which lacked legal status, the trust created an umbrella corporation that ran them all. To implement his trust, Rockefeller and his associates persuaded the stockholders of forty companies to exchange their stock for trust certifi- cates. Under this arrangement, stockholders retained their share of the trust’s profits while enabling the trust to control production. Within three years, the Standard Oil Trust had consolidated crude-oil buy- ing throughout its member firms and slashed the number of refineries in half. In this way, Rockefeller integrated the petroleum industry both vertically, by controlling every function from production to local retailing, and horizontally, by merging the compet- ing oil companies into one giant system. While Standard Oil justified its trust organization by pointing to the public usefulness of inexpensive heating and cooking fuels, other monopolies did not provide such benefits. James B. “Buck” Duke’s American Tobacco trust, for example, targeted BASEBALL TRADING CARD To encourage boys and young men to smoke youths with trading cards and prizes to persuade cigarettes, the American Tobacco Company included in the cigarette package them to smoke cigarettes. For addictive products collectable cards with pictures of baseball heroes such as Ty Cobb. (Library of such as cigarettes, targeting children became a means Congress) The Rise of Corporate America 541 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  trusts created an oligopoly, the market condition The Triumph of Technology that exists when a small number of sellers can greatly influence prices. But their unscrupulous tac- New inventions not only streamlined the manu- tics, semimonopolistic control, and sky-high earn- facture of traditional products but also stimulated ings provoked a public outcry. Both major political consumer demand by creating entirely new prod- parties denounced them in the presidential election uct lines. The development of a safe, practical way of 1888. to generate electricity, for example, made possible a Fearful that the trusts would stamp out all compe- vast number of electrical motors, household appli- tition, Congress, under the leadership of Senator John ances, and lighting systems. Sherman of Ohio, passed the Sherman Anti-Trust Many of the major inventions that stimulated Act in 1890. The Sherman Act outlawed trusts and industrial output and underlay mass production in any other monopolies that fixed prices in restraint of these years were largely hidden from public view. Few trade and slapped violators with fines of up to $5,000 Americans had heard of the improved technologies and a year in jail. But the act failed to define clearly that facilitated bottle making and glassmaking, can- either trust or restraint of trade. The government ning, flour milling, match production, and petroleum prosecuted only eighteen antitrust suits between refining. Fewer still knew much about the refriger- 1890 and 1904. When Standard Oil’s structure was ated railcars that enabled Gustavus Swift’s company challenged in 1892, its lawyers simply reorganized to slaughter beef in Chicago and ship it east. the trust as an enormous holding company. Unlike a The inventions people did see were the ones that trust, which literally owned other businesses, a hold- changed the patterns of everyday life: the sewing ing company simply owned a controlling share of the machine, mass-produced by the Singer Sewing Mac- stock of one or more firms. The new board of direc- hine Company beginning in the 1860s; the telephone, tors for Standard Oil (New Jersey), the new holding developed by Alexander Graham Bell in 1876; and the company, made more money than ever. light bulb, perfected by Thomas A. Edison in 1879. The Supreme Court further hamstrung congres- These new inventions eased household drudg- sional antitrust efforts by interpreting the Sherman ery and reshaped social interactions. The sew- Act in ways sympathetic to big business. In 1895, ing machine, which relieved the tedium of sewing for example, the federal government brought suit apparel by hand, expanded personal wardrobes. The against the sugar trust in United States v. E C. Knight spread of telephones—by 1900, the Bell Telephone Company. It argued that the Knight firm, which con- Company had installed almost eight hundred thou- trolled more than 90 percent of all U.S. sugar refin- sand in the United States—not only transformed ing, operated in illegal restraint of trade. Asserting communication but also undermined social con- that manufacturing was not interstate commerce ventions for polite behavior that had been premised and ignoring the company’s vast distribution net- on face-to-face or written exchanges. The light bulb, work that enabled it to dominate the market, the by freeing people from dependence on daylight, Court threw out the suit. Thus vindicated, corpo- made it possible to shop after work. rate mergers and consolidations surged ahead at In the eyes of many, Thomas A. Edison epito- the turn of the century. By 1900, these mammoth mized the inventive impulse and the capacity for firms accounted for nearly two-fifths of the capital creating new consumer products. Born in 1847 in invested in the nation’s manufacturing sector. Milan, Ohio, Edison, like Andrew Carnegie, had lit- tle formal education and worked in the telegraphic industry. A born salesman and self-promoter, Edison Stimulating Economic shared Carnegie’s vision of a large, interconnected Growth industrial system resting on a foundation of techno- logical innovation (see Technology and Culture). Large-scale corporate enterprise did not alone Edison’s first major invention, a stock-quotation account for the colossal growth of the U.S. economy printer, in 1868 earned enough money to finance in the late nineteenth-century. Other factors proved Edison’s first “invention factory” in Newark, New equally important, including new inventions, spe- Jersey, a research facility he moved to nearby Menlo cialty production, and innovations in advertising Park in 1876. Assembling a staff that included and marketing. In fact, the resourcefulness of small university-trained scientists, Edison boastfully pre- enterprises, which combined innovative technology dicted “a minor invention every ten days, and a big with new methods of advertising and merchandis- one every six months.” ing, enabled many sectors of the economy to grow Buoyed by the success and popularity of his dramatically by adapting quickly to changing fash- invention in 1877 of a phonograph, or “sound ions and consumer preferences. writer” (phono: “sound”; graph: “writer”), Edison set 542 Chapter 18 The Rise of Industrial America, 1865–1900 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. THOMAS EDISON’S LABORATORIES IN MENLO PARK, NEW JERSEY, CA. 1881 Always a self-promoter, Edison used this depiction of his “invention factory” to suggest that his development of a durable light bulb in 1879 would have an impact on life around the globe. (U.S. Department of the Interior, National Park Service, Edison National Historic Site) out to develop a new filament for incandescent light technology paid large dividends. Invention had bulbs. Characteristically, he announced his plans for become big business. an electricity-generation process before he perfected his inventions and then worked feverishly, testing hundreds of materials before he found a carbon fila- Specialized Production ment that would glow dependably in a vacuum. Along with inventors, manufacturers of custom Edison realized that practical electrical lighting and specialized products such as machinery, jew- had to be part of a complete system containing gen- elry, furniture, and women’s clothes dramatically erators, voltage regulators, electric meters, and insu- expanded economic output. Using skilled labor, lated wiring and that the system needed to be easy to these companies crafted one-of-a-kind or small install and repair. It also had to be cheaper and more batches of articles that ranged in size from large convenient than kerosene or natural gas lighting, its steam engines and machine tools to silverware, fur- main competitors. In 1882, having built this sys- niture, and custom-made dresses. Keenly attuned tem with the support of banker J. Pierpont Morgan, to innovations in technology and design, they con- the Edison Illuminating Company opened a power stantly created new products tailored to the needs plant in the heart of New York City’s financial dis- of individual buyers. trict, furnishing lighting for eighty-five buildings. Small dressmaking shops were typical of flex- In the following years, Edison and his research- ible specialization displayed by small batch proces- ers pumped out invention after invention, includ- sors. Until the turn of the twentieth century, when ing the mimeograph machine, the microphone, the ready to-wear clothes came to dominate the market, motion picture camera and film, and the storage most women’s apparel was custom produced in small battery. By the time of his death in 1931, he had shops run by female proprietors. Unlike the tenement patented 1,093 inventions and amassed an estate sweatshops that produced men’s shirts and pants, worth more than $6 million. Yet Edison’s great- dressmakers and milliners (a term derived from est achievement remained his laboratory at Menlo fancy goods vendors in sixteenth-and seventeenth- Park. A model for the industrial research labs later century Milan, Italy) paid good wages to highly established by Kodak, General Electric, and Du skilled seamstresses. The small size of the shops Pont, Edison’s laboratory demonstrated that the together with the skill of the workers enabled them systematic use of science in support of industrial to shift styles quickly to follow the latest fashions. Stimulating Economic Growth 543 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it. Technology&Culture Electricity Of all the technological achievements of the nineteenth century, none seemed more inspiring or mysterious than the ability to generate electricity. Using Alessandro Volta’s discovery that chemical reactions in batteries produced a weak electric current, Samuel F.B. Morse had used batter- ies to power his telegraph in 1837. Alexander Graham Bell followed suit with his telephone in 1876. But higher voltages were needed to run lighting systems and motors. Michael Faraday in England and Joseph Henry in America discov- ered in 1831 that a rotating magnet surrounded by a con- ducting wire would produce a continuous flow of electric current. After the Civil War, American inventors used this dis- covery to develop powerful generators to run incandescent lights (1879), to power motors to run trolley cars (1888), and to drive machines in factories. For many Americans, the abil- ity to harness electricity marked the subjugation of nature and indicated the progress of American civilization. CREATION OF THE EDISON SYSTEM, MENLO PARK Frank Leslie’s Weekly Nowhere did the knowledge of electricity seem more in 1880 illustrated Thomas Edison’s process of making electric light bulbs using glass-blowers and vacuum machines in his Menlo Park laboratory. impressive than its promise to reveal the secrets of the human (Library of Congress) body. X-rays, discovered in 1895 by the German physicist Wilhelm Roentgen and developed into a practical hospital machine a year later by Thomas Edison, enabled doctors to Westinghouse Company. With electric current now stan- see inside the body. Physicians discovered that the workings dardized as 110 volts AC at 60 Hertz (60 cycles per second), of the nervous system and the brain itself depended on electri- dozens of other inventors developed electric motors, spot- cal impulses. In short, electrical science, given the breadth of lights, electric signs, water pumps, elevators, and household its applications and its power to provide insights into nature, appliances—all drawing power from the same power grid. seemed close to being the embodiment of supernatural power. Only twenty years after the first power station had been built, It was no accident that Edison was known as the “wizard of electrification had started to transform everyday life. Menlo Park,” where his research laboratory was located. By 1898, when the city of London had sixty-two different util- The spread of electric lighting illustrates how technologi- ities that produced thirty-two different voltage levels, American cal advances pushed innovation. Thomas Edison’s vision companies had created a unified national electrical system with went far beyond the development of a practical light bulb. standardized voltages, and the United States had established He conceived of an interrelated system of power plants, itself as a world leader in electrical technology. The remarkable transmission lines, and light fixtures, all to be produced by achievements of the American electrical industry resulted from companies he had established. Edison’s system of direct a combination of factors. Skilled inventors such as Edison, current lighting (DC—which flowed in only one direction in Westinghouse, and Frank Sprague, who developed electric the wires) required that users be located near power plants. motors for trolley and subway cars, were critical. But the efforts But in 1886, George Westinghouse set up a competing com- might never have made it out of the laboratories without finan- pany that used the Italian inventor Nikola Tesla’s discovery ciers, such as J.P. Morgan and Henry Villard, who funded the that alternating current (AC—which cycled back and forth enormous investment in electric generators, power plants, and within the wires) could send high voltage electricity efficiently transmission lines. A third factor was the independence of large over long distances. Competition between the two systems corporations like General Electric and Westinghouse, which was finally resolved in 1896 when Edison’s successor com- were able to operate nationally and avoid conflicting state regu- pany, General Electric, agreed to share its patents with the lations. Operating as regional monopolies, these corporations 544 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  THE NIAGARA FALLS POWER COMPANY As this diagram of the power station at Niagara Falls reveals, the early transmission of electric power was closely tied to large manufacturers who had the funds to support large investments in generating equipment and power lines. (From Adams, Niagara Power) standardized voltage, alternating current, and electrical fixtures first constructed as private monopolies between 1880 and nationwide. Finally, the pooling of patents was crucial. The 1932, made them vulnerable to failure when a subsystem American patent system, by granting inventors property rights problem cascaded throughout the network. The private own- in their inventions and by publicly identifying how the discover- ership of power companies, now called utility companies, ies worked, stimulated technological innovation in general. has enabled them at times to inflate energy prices for their At first, electricity was very expensive, and the general public own profit. Most electrical power in the United States today is could not afford the cost of wiring homes. Still, even confined produced from coal, a nonrenewable resource that also pro- to the public sphere, the establishment of a national electrical duces acid rain and air pollution. Nevertheless, the creation system was one of the greatest technological innovations of of a national system of electrical power generation paved the the century. Electric streetcars and subways, public lighting way for remarkable innovations—from lighting to televisions systems, and electric elevators transformed urban America, and computers—that remain today closely tied to America’s allowing the construction of skyscrapers and the quick trans- sense of progress and material advancement. portation of millions of people. The electrification of factories extended the workday into the night and made work safer. In QUESTIONS FOR ANALYSIS the following decades, electrification made possible the inven- Why did the early electrical inventions seem to mark the tion of lighting systems, fans, washing machines, and a host of subjugation of nature? other devices to ease the drudgery of everyday life. What technological breakthroughs paved the way for In the twentieth century, some shortcomings in Americans’ the widespread use of electricity for street lighting and love affair with electricity became obvious. In the early years, transportation? urban electrification accentuated the differences between city Why did the standardization and consolidation of the elec- and country life. After World War II, massive power failures tric industry take place more quickly in the United States showed that the centralization of power distribution systems, than in England? 545 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  SKILLED WOMEN DRESSMAKERS, 1890 As these dressmakers in Mary Malloy’s shop in St. Paul, Minnesota, indicate, industrialization did not displace all skilled workers. In this case, hand work and machine work continued together. Women’s dressmaking persisted as a skilled occupation into the 1890s and gave women entrepreneurs an opportunity to run their own businesses. (© Minnesota Historical Society/Corbis) Thus, alongside of the increasingly rationalized differentiating one product from another repre- and bureaucratic big businesses like steel and oil sented a critical component of industrial expansion in the late nineteenth century, American produc- in the post–Civil War era. tivity was also stimulated by small producers who The growth of the flour industry illustrates both provided a variety of goods that supplemented the the spread of mass production and the emergence bulk-manufactured staples of everyday life. of new marketing concepts. In the 1870s, the nation’s flour mills adopted new continuous-pro- cess machines that graded, cleaned, hulled, ground, Advertising and Marketing and packaged the product in one rapid operation. As small and large factories alike spewed out an Since they now produced more flour than they amazing array of new products, business leaders could sell, the companies developed new products often discovered that their output exceeded what such as cake mixes and breakfast cereals and sold the market could absorb. This was particularly them using easy-to-remember brand names like true for mass-produced consumer goods such as Quaker Oats. matches, flour, soap, and canned foods. Not sur- Through the use of brand names, trademarks, prisingly, these industries were trailblazers in guarantees, slogans, endorsements, and other gim- developing advertising and marketing techniques. micks, manufacturers built demand for their prod- Strategies for whetting consumer demand and for ucts and won enduring consumer loyalty. Americans 546 Chapter 18 The Rise of Industrial America, 1865–1900 Copyright 2011 Cengage Learning. All Rights Reserved. May not be copied, scanned, or duplicated, in whole or in part. Due to electronic rights, some third party content may be suppressed from the eBook and/or eChapter(s). Editorial review has deemed that any suppressed content does not materially affect the overall learning experience. Cengage Learning reserves the right to remove additional content at any time if subsequent rights restrictions require it.  most productive economy in the world, supported by a legion of small, specialized companies and dominated by a few enormous ones. An industrial transformation that had originated in railroading and expanded to steel and petroleum had spread to every nook and cranny of American business and raised the United States to a position of world leadership. The vast expansion of economic output brought social benefits in the form of labor-saving