HISTORY 1DD3 Chapter Notes - Chapter 18: Invisible Hand, Typewriter, Sharecropping
22 Jun 2018
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Chp 18 Identifications
large-scale manufacturing after the Civil War
● The following features dominated large-scale manufacturing after the Civil War:
1) Exploitation of coal deposits as a source of cheap energy (PA, WV, KY).
2) Technological advances in transportation, communication, and factory systems.
3) Need for many new workers.
4) Constant pressure from competition and an impulse to create monopolies
5) Deflation, a result of cost reduction, technology, and fierce competition.
6) A failure of the money supply to keep pace, restricting credit availability.
● Almost everyone suffered from the depression years. Business leaders’ drive to
maximize efficiency made the rich richer, and pushed the poor to the brink.
● Along with RRs, the corporations that manufactured capital goods, petroleum, or
steel became the driving forces of American economic growth.
Jay Gould, Collis P. Huntington, James J. Hill, and railroad entrepreneurship
● Background Info: By 1900, railroads connected every state in the US and covered
more ground than all of EU/RUS. These lines opened a new internal market.
● Railroad entrepreneurs such as Gould, Huntington, and Hill faced enormous financial
and organizational problems. Even after subsidies, the RRs had to sell stocks and
bonds to the public. By 1900, all US RRs debt was fivefold that of the federal govt.
● The RRs also created new systems of communication, relying heavily on the
magnetic telegraph. To improve efficiency, they created hierarchical structures and
divided their lines by geographic units. Also, by using reports that documented
costs, officials were able to set rates and predict profits accurately as early as the
1860s.
● Entrepreneurs issued stock to meet their capital needs, separated ownership from
management in the process, and created national marketing systems. With such
ideas, the railroad companies pioneered crucial aspects of large-scale enterprising.
The Railroad Industry
● The RR industry was in chaos in the 1870s, a time when hundreds of small
companies used custom made rails, cars, and engines for their railroads and trains.
By 1893, thanks to men like Gould, five great lines controlled most of the American
tracks.
● The large RRs pioneered the most advanced methods of accounting and national
organization. They also standardized the basic equipment, facilities, and engines.
● Independently, the RRs also corrected the long-standing scheduling problem by
dividing the US into four time zones and shifting to the new standard as a group.
● Some saw men like Gould as villains and robber barons who manipulated markets
and policies for their personal benefit. Although some were unscrupulous, there
were upright businessmen as well.
● Either way, projects incurred heavy debt, and the RRs made sure not to fall into
bankruptcy by offering kickbacks to partners and politicians. Farmers appealed to
state govts., and many mid-western states outlawed rate discrimination, only to
have the Supreme Court overrule the decision (states can’t regulate interstate
commerce).
● Congress passed the Interstate Commerce Act (1887), which banned monopolistic
activity (incl. short-distance discriminatory rates) and established the Interstate
Commerce Commission (ICC) that would oversee practices of RRs.
● RRs challenged the ICC in courts, essentially nullifying the ICC’s regulation powers.
● Years later, the Hepburn Act (1906) would finally empower ICC to set rates.
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● The RRs’ vicious competition did not cool until a recession in 1893, in which a
number of RRs fell into J. Pierpont Morgan and other investment banks. Thanks to
bankers’ centralized mgmt., 7 giant RRs were able to control ⅔ of US rail mileage!
Andrew Carnegie and the steel industry
● Carnegie was a diminutive 5’3” tall Scot, who immigrated in 1848 at the age of 12.
● Ambitious and hard-working, Carnegie worked 60 hours a week and simultaneously
studied book-keeping at night. A year later, he became a messenger boy, and soon
after the fastest telegraph operator. Here, he gained an insider’s view of major
businesses as he decoded the messages.
● In 1852, Tom Scott, the superintendent of the PA RR’s western division, hired
Carnegie as a secretary and telegrapher. Scott became VP in 1859, and Carnegie
took over the western division, using complex cost-analysis techniques to double
mileage and quadruple traffic. By 1868, Carnegie earned a substantial fortune from
his programs that cut costs to keep traffic at capacity.
● Using RR experience, Carnegie built his own steel mill in the early 1870s. Combining
new techniques, connections with RRs, and cost-analysis approach, Carnegie became
the first steelmaker to know the actual production cost of each ton of steel!
● As his cost cutting policy saw output climb, Carnegie also discovered the benefits of
vertical integration (controlling all aspects/stages of manufacturing).
● Carnegie Steel became the classic example of technology and management
combining to create a mass production system that could slash prices.
● Carnegie, to keep up popularity, also resolved to donate money to charitable
projects.
● By 1900, Carnegie Steel was the largest industrial corporation in the world.
● Worried competitors decided to buy him out. In 1901, JP Morgan, bought Carnegie
Steel close to a staggering ½ billion dollars, and merged it with his own Federal
Steel to form the United States Steel Corporation, marking a new scale in
enterprise.
● Unaware of Carnegie’s ingenious methods, public onlookers rejoiced Carnegie’s
success as reaffirmation of the openness of the American economic system (“rags to
riches”).
John D. Rockefeller and the oil industry
● Background Info: Competition, large capital, and cost reductions to drive out rivals
also swept the oil, salt, sugar, tobacco, and meatpacking industries. Petroleum
became the leading fuel for households and the leading lubricant for machines.
● Sometimes, lowering costs failed to drive out rivals. The evolution of the oil industry
illustrates the process by which new corporate structures evolved.
● Rockefeller gradually achieved dominance. Although not outgoing, he had similar
beliefs as Carnegie, and had a passion for cost cutting and efficiency.
● Rockefeller became the head of the Standard Oil Company in 1873, and realized
that in a mass production enterprise, small changes could save thousands of dollars.
● Like Carnegie, Rockefeller also quickly learned of the benefits of vertical integration.
● Rockefeller also aggressively forced out his competitors. He bought them out, or
strangled their businesses. When competitors joined together, he set up a pool
(agreement among several companies) that established fixed prices.
● In 1882, Rockefeller decided to eliminate competition completely by establishing the
Standard Oil Trust. This new form of organization would see the trust control
prices and markets for all the corporations under its “umbrella” (horizontal
integration). Within three years, Rockefeller controlled every aspect of the oil
industry.
● Following Rockefeller, companies in other industries soon formed their own trusts.
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● (continued below)
Fighting the Trust
● The public responded strongly against trusts’ rapacious tactics. Beginning in NY in
1879 and progressing to federal level, legislations exposed unscrupulous practices of
the trusts and both parties denounced them in 1887.
● Fearful that trusts would eliminate all competition, Congress passed the Sherman
Anti-Trust Act in 1890, outlawing trusts and other monopolies. However, trusts
such as the Standard Oil simply reorganized the trust into a holding company, which
indirectly controlled companies by controlling shares of stock.
● The Supreme Court’s decision in United States v. E. C. Knight Company (1895)
also weakened efforts. The court ruled that manufacturing was not interstate
commerce.
● Thus, corporate mergers surged from 1895-1899. By 1900, huge firms accounted
for nearly 40% of the capital invested in the US manufacturing sector.
Singer Sewing Machines and Alexander Graham Bell’s telephone
● Background Info: Many of the major inventions such as refrigerated rail-cars that
stimulated industrial output were hidden from public view, and went by
unrecognized.
● However, people did see ones that changed the patterns of everyday life.
● The Singer Sewing Machine, begin in the 1860s, relieved women from sewing by
hand.
● Inexpensive mass-produced clothing led to an expansion in personal wardrobes.
● Similarly, the Bell Telephone Company had installed almost 800k telephones in
the US by 1900. (Bell had invented telephone in 1876)
● By allowing an alternative method that did not involve face-to-face or written
exchanges, the telephone also undermined social conventions for polite behavior.
Thomas A. Edison
● To many, Edison topped the inventive impulse and the capacity for new creations.
● Like Carnegie, he had little education to begin with, but was a born salesman and
self-promoter. Edison also believed in technological innovation in industrial systems.
● Edison’s first major invention, a stock-quotation printer (1868), allowed Edison to
use this money to set up his first invention factory in NJ. He hired a staff that
boasted university-trained scientists. His phonograph followed in 1877.
● With the help of Morgan, Edison set up the Edison Illuminating Company and
furnished lighting for 85 buildings with the famous incandescent light bulbs in 1882.
● Competitors rushed to the electrical field. Edison relinquished control in the late
1880s after losing more than $2m in legal battles with competitors.
● With the help of Morgan, Edison’s company merged with a major competitor in 1892,
to form the General Electric Company (GE).
● Edison and his researchers continued to pump out invention after invention, including
the microphone, motion-picture camera and film, and storage battery.
● When he died in 1931, he had amassed $6m and made over 1000 inventions.
● Edison’s greatest achievement remained in his research lab, which became a model
for later companies Kodak, GE, and Du Pont. Edison had made invention big
business.
Custom-Made Products
● Alongside tycoons, smaller specialized manufacturers (of machinery, jewelry,
furniture, women’s clothes, etc.) hired skilled laborers and attuned to innovations to
create custom-made products the individual buyers demanded.
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Document Summary
Chp 18 identifications large-scale manufacturing after the civil war. Almost everyone suffered from the depression years. Business leaders" drive to maximize efficiency made the rich richer, and pushed the poor to the brink. Along with rrs, the corporations that manufactured capital goods, petroleum, or steel became the driving forces of american economic growth. Jay gould, collis p. huntington, james j. hill, and railroad entrepreneurship. Background info: by 1900, railroads connected every state in the us and covered more ground than all of eu/rus. Railroad entrepreneurs such as gould, huntington, and hill faced enormous financial and organizational problems. Even after subsidies, the rrs had to sell stocks and bonds to the public. By 1900, all us rrs debt was fivefold that of the federal govt. The rrs also created new systems of communication, relying heavily on the magnetic telegraph. To improve efficiency, they created hierarchical structures and divided their lines by geographic units.
