Unit 2: Birth of Modern America

Chapter 3

Industrialization

I. Introduction to Industrialization

A. Industrial Revolution

1. Definition: the movement from small-scale manufacturing to the production of

heavy industry, using machines to replace human laborers

2. In the US, this occurred 1865-1901

3. By end of 1800s, US was the most industrialized nation in the world

II. Rise of IndustryB. Factors that contributed to rapid industrialization

1. Natural Resources

a. Western Minerals (access to these thanks to settlement of West!), iron, coal, timber, copper, water power, etc.

b. Could be obtained cheaply

c. Little need for imports

2. Innovations in transportation and communication - Infrastructure

a. Telegraph, Telephone: allowed biz to be conducted quickly across long

distance

b. Roads, Canals, RRs: allowed mass distribution of raw materials, farm

produce and products of manufacture

3. New Energy Sources

a. Steam Engine

- drove textile mill spindles, sewing etc. Steam came from burning coal

b. Petroleum power

1) initially in demand as Kerosene, for lanterns and stoves (replacing whale oil), and machine lubrication

2) oil fields opened from PA to TX

3) Internal Combustion Engine (late 1800s): used gasoline refined from oil

to run cars and the 1st airplane

4) growth of oil industry led to expansion of the economy

c. Electricity:

1) Used initially for communication across long distances: telegraph, telephone

2) Edison’s electric light bulb

3) drove machinery in factories

4) by 1900: powered streetcars and subway trains

5) by 1920: electric refrigerators

4. Economic Stimuli

a. Lots of investment Capital ($) – from Europe, Americans, Western minerals

b. Increased immigration (20m btwn1870-1910) + high birth rate and large families ( thanks to advances in medical technology, better nutrition, infrastructure = lower infant mortality rate) = A Population boom that stimulated the economy by providing industry with…

1) Large workforce/cheap labor2) created demand (lots of customers!)

for consumer goods produced by factories

c. New ways of selling/organizing

1) 1st dept store: Macy’s in NY• lots of products in huge, elegant

building• Made shopping glamorous

2) 1st chain store: A & P• a group of similar stores owned by

the same company• Focused on thrift & low prices

instead of elaborate service or decor

Macy’s NY

A & P

3) 1st mail order catalog: Ward’s• Attractive to rural shoppers who

lived far from chain or dept stores• Used enticing illustrations and

descriptions to advertise items for sale

4) advertising/packaging to attract consumers

• Lots of new products forced retailers to look for new ways to market and sell goods

5. New Technologies - you name it, somebody invented it!

a. Textile Industry:1) Factory System = Samuel Slater

- built the 1st successful water-powered textile mill in America

2) Sewing Machine = Elias Howe & Isaac Singer (competed for patent)

- switch from home-made to machine- made clothes

- sold on installment plan (a form of credit)

Rise of the Sewing Machine Industry

Buy it on the installment plan – buy now, pay later!

b. Railroads:

1) Standardized Gauges = John Stevens- width btwn rails = 56 ½ “ contributes to completion of Transcontinental RR

2) Air Brakes = George Westinghouse- more precise stopping of trains

3) Sleeping Car = George Pullman- comfortable, luxurious travel

Pullman Car

• Beveled mirrors, ornate carvings, and polished brass were the hallmarks of travel in a Pullman parlor car, such as the one depicted here from 1893.

• First-class passengers enjoyed plush swivel seats and could eat their meals in equaling lavish dining cars.

• The wealthiest owned their own luxuriously appointed private cars.

c. Steel:

1) Bessemer Process = Henry Bessemer, (William Kelly)

- mass production of steel: heat iron ore to liquid state, blast w/ hot air to burn out

impurities, end product = steel

- Iron RR tracks replaced by steel tracks

- Birth of Skyscrapers

Bessemer Process

2) Elevator = Elisha Otis- Skyscrapers made practical

3) Suspension Bridge = John Roebling

- uses steel cables

- London Bridge 1st

- Brooklyn Bridge 1st in US

4) Trolley Car = Frank Sprague - early mass transit

- runs on steel cables

Thomas Edison

d. Oil:

- Oil Well & Pump = Edwin Drake- launched an oil boom nationwide

- cheap source of fuel for autos (future)

e. Thomas Edison

1) Light Bulb- uses a dynamo (primitive electric generator)- factories can be built away from natural source of power - can work longer hrs

2) Menlo Park Research Lab- model for current research labs

f. Business Industry:1)Telegraph = Samuel Morse

- Morse code

- allows biz to communicate quickly across long distances

2)Telephone = Alexander Graham

Bell- communication revolution

- allows biz to communicate quickly across long distances

3) Transatlantic Cable = Cyrus

Fields - uses telegraph to send impulses -

communicate with Europe

4) Typewriter = Christopher Sholes

5) Cash Register = James Ritty

g. Food Industry

1) Mechanical Reaper = Cyrus McCormick

- harvest grain quickly using machines

2) Steel Plow = John Deere

3) Evaporated Milk = Gail Borden

4) Food Preservation (w/o canning) = HJ Heinz

5) Refrigerated RR Car = Gustavus Swift- can ship slaughtered meat across long

distances safely

- leads to growth of meatpacking industry in Chicago

6) Dried Flake Cereal = John Kellogg

- More cereal = CW Post

- leads to cereal wars and use of gimmicks to sell products

h. Miscellaneous Inventions

1) Kodak Camera = George Eastman

2) Airplane = Orville & Wilbur Wright- revolution in transportation

- revolution in warfare

First flight at Kitty Hawk, NC on December 17, 1903

6. A Business-Friendly Government

a. Mini Economics Lesson: Economic Systems

- every society must answer three basic economic questions to determine how

to use its limited resources:

What to make?How much to make?Who to make it for?

1. Traditional (Tribal) Economy

a. Decisions made by: head of family or tribe

b. Survival drives economic decisions

c. Prices and Wages undetermined as very little surplus or trade

d. Found in developing countries, mostly in rural areas

e. Also known as a subsistence economy

f. Most goods & services produced & consumed by the family/for family

2. Market (Demand) Economya. Decisions made by Individual or

Privately owned businessesb. Desire for Profit drives economic

decisionsc. Prices and Wages determined by the

laws of supply and demandd. This type of economy is found in the

USA! e. It is also known as Free Enterprise

and Capitalism f. Competition is valued to provide

consumers with the best quality product at the best possible price

g. Gov’t role in a market economy: to provide some services and impose certain regulations

3. Command Economy (Communism)

a. Decisions made by the Government

b. Social goals drive economic decisions

c. Prices and Wages determined by the Gov’t

d. Found in countries like Cuba and North Korea today + the former USSR

e. Also known as COMMUNISM – gov’t owns, operates all major farms, factories, utilities, stores

f. Production doesn’t necessarily reflect consumer demand

D. Mixed Economy – Combo of Market and Command Economy

a. Gov’t owns/operates some basic industries while allowing private enterprise in other parts of economy

b. Decisions driven by Profit and Social Goals

c. Prices and Wages determined by Supply and Demand and the Gov’t

d. Found in many European countries (UK, France etc)

e. Also known as Socialism

f. characterized by HIGH TAXES (to pay for the many social services like housing, health care, child care, pensions)

g. Belief that wealth should be distributed more equally through

entitlements

b. Biz-Friendly Gov’t was Republican Dominated

1) supported many Laissez-Faire principles

2) supported the free enterprise system by letting privately owned business firms

operate with minimal gov’t control

3) became known as Party of Big Business

c. Biz-Friendly Gov’t largely supported Laissez-Faire Capitalism: policy that the gov’t should interfere as little as possible in the nation’s economy

Laissez-Faire Principles

1) role of gov’t : protect private property + keep the peace

2) prices and wages determined by the laws of supply

& demand – not the gov’t

3) gov’t should limit costly regulations that lead to increased prices

- regulation: gov’t imposed rule or law

4) gov’t should keep taxes and spending low

5) gov’t should keep debt to minimum: (if gov’t borrows from banks, then $ not available for

individuals for their own use)

d. Costs and Benefits of Laissez-Faire

1) Benefits:• Free market makes the most of efficient use

of resources (without government interventions, how resources are used is decided by the way people choose to spend their money, thus increasing efficiency overall)

• Avoids people becoming reliant on the gov’t (because individuals are forced to become more productive or make better decisions in order to do well financially)

• Encourages creativity and growth (the need for people to be economically self-reliant will give added incentive to come up with creative ideas and processes that wind up benefiting everyone)

• Competition determines which industries succeed or fail – and society prospers if the economy is left in the hands of those who can compete

d. Costs and Benefits of Laissez-Faire

1) Costs:• If a person falls on hard times under laissez-

faire there is no government programs ensuring a minimum standard of living

• Firms may ignore issues such as pollution, unsafe working conditions, without regulations from gov’t

• Firms may form monopolies where they can effect the market price and cause a welfare loss for consumers

• Businesses that may be essential (like the financial giants) may fail causing commerce to be affected.

e. Gov’t intervention that promoted growth of business and industry (against Laissez-

Faire principles)

1) Protective Tariffs

tariff: tax on imported goods

- due to fear that new US industries could not compete with established European industries

2) Subsidies in land and money (land grants to RRs etc)

subsidy: monetary assistance granted by a gov’t to a person or group in support of an enterprise thought to be in the public

interest

3) provided a system of laws to protect competition, property and enforce contracts – this encouraged entrepreneurship

entrepreneur: one who organizes, manages, and assumes the risks of a business or enterprise

4) established a system of patents which encouraged new inventions

patent: an official document that gives a person or company the right to be the only one that makes or sells a product for a certain period of time

III. Railroads A. Linking the Nation

1. Pacific Railway Act (1862) – authorized construction of Transcontinental RR

2. 1st Transcontinental RR – completed 1869 by 2 RR companies

a. Central Pacific: built from CA east using many Chinese laborers

b. Union Pacific: built from Omaha, NE west using Irish immigrants, ex-cons, veterans

Transcontinental RR

B. RRs contribution to Industrial Growth 1. Development of a National Market

a. TC RRs increased market for many products by linking the nation (along with canals, telegraphs and telephones – now biz can be done quickly across long distances)

b. Manufacturers could sell the same goods throughout the country (recall the news

ways of selling goods + role advertising)

c. United Americans from different regions

2. RRs Impact on the Economy a. stimulated economy by spending lots of $ on

steel, coal, timber etc.

b. shipping raw materials and finished goods became less expensive

3. Challenges to creating a National RR System a. problem: lots of unconnected RR lines

- solution: RR consolidation. Large RRs take over small – eventually 7 main systems with terminals in major cities

with branches into the country

- Cornelius Vanderbilt: successful RR consolidator. Merged NY RRs and opened the 1st service from NYC to Chicago

Consolidate: unite

Railroad Consolidation

b. problem: scheduling and passenger safety issues because clocks set by sun’s position in the sky at high noon (ex. at 12:00 noon in Chicago, already 12:50 in DC). 2 trains on same track could collide from scheduling errors caused bytime variations

- solution: 4 Time Zones

- made rail travel safer and more reliable

Time Zones

C. Land Grant System1. Land Grants given to RRs by gov’t to encourage RR construction

2. RR companies able to cover their construction costs by selling land to settlers, real estate agencies & other biz

Gov’t Land Grants to RRs

D. Robber Barons1. Some RR entrepreneurs engaged in

corrupt practices that led to the acquisition of great wealth. They were called Robber Barons

Robber Barons: a wealthy person who tries to get land, businesses, or more money in a way that is dishonest or wrong

- often used ruthless tactics to drive out the competition

- often exploited workers and kept wages low to enrich themselves

- sometimes bribed public officials

2. Credit Mobilier Scandal – 1872

a. Stockholders from Union Pacific RR set up Credit Mobilier – a construction co.

b. Credit Mobilier overcharged Union Pacific

c. Since same investors controlled both, Union Pacific RR paid bills

d. Investors made millions, RR almost bankrupt

3. More corruption: RR investors realized they could make more money selling land than operating a RR

- bribed Congressmen to vote for more land grants to RRs

IV. Big BusinessA. Shift from individually owned businesses to

Large Corporations

1. Corporation: an organization owned by many people but treated by law as if it were a single person

a. people who own the corporation are known as stockholders

b. Stockholders own shares of the company called stock

- the more stock a person owns, the larger their share of the corporation

c. Why incorporate?

1) can raise $ from sale of stock; invest in new tech, hire workforce, buy machines to increase

efficiency

2) limit liability – spread out financial risk

d. Role of Big Corporations

1) people pool $ together to raise vast sums of money – enough to build RRs, steel mills etc – made modern industrial production possible

2) produce goods cheaply & efficiently thanks to economies of scale: the reduction in the cost of a good brought about by increased production at large manufacturing facilities

3) could negotiate deals/rebates to lower operating costs further

e. Effect on Small Biz?

- some couldn’t complete against big biz – forced out of biz

B. Consolidation of Industry

consolidation = the uniting of separate companies into a single one

1. The Panic of 1873 (an economic depression)

a. companies suffered loss of sales and falling prices

b. some large producers began driving smaller companies out of business or purchasing them

c. Some hoped to eliminate the competition by establishing a monopoly

monopoly: total control of a type of industry by a single person or one company

1) The problem with monopolies: free to charge whatever they wanted! Quality not

guaranteed!

2) leads to gov’t intervention and laws to prevent anti-competitive practices of business

2. Still some businesses sought to better consolidate industries to bring efficiency and

reduce “cutthroat” competition – tried to get around anti-monopoly lawsa. some companies organized Pools.

Pools: agreements between companies to maintain prices at a certain level

- Usually broke apart when 1 member would try to lower prices to steal biz away from another

b. some companies formed Trusts

Trust: a group of companies whose stock is controlled by a central board of directors

1) instead of buying another co. outright, company gives stock to board of trustees. These

stockholders receive a portion of trust’s profits.

2) Since they just managed the stock, didn’t own it, they were not violating the law

c. some companies Vertically Integrated

Vertical Integration: the combining of companies that supply equipment and services needed for a particular industry

1) owns all stages of production the different businesses on which a company depends for its operation

2) allows businesses to save $

3) allows big business to get bigger

4) Andrew Carnegie and Steel

- idea to make $ by investing in companies that served the

RRs - invested in iron mills, sleeping cars, RR bridges

- Opened a Steel company ( US Steel) and customized his

mills to use the new Bessemer process

e. Some companies Horizontally Integrated

Horizontal Integration: the combining of competing firms into one corporation

1) eliminates the competition

2) allows big businesses to get bigger

3) John D Rockefeller and Standard Oil

- Standard Oil controlled 26 similar companies and gained control of

90% of the world oil refining industry

Standard Oil: A cartoonists view

C. The Pros and Cons of Big Business

1. The Pros a. large companies are efficient, leading to lower pricesb. they can hire large # of workersc. can produce goods in large quantitiesd. Have resources to support expensive research and invent new items

1. The Consa. unfair competitive advantage against

smaller businessesb. They sometimes exploit workersc. They are less concerned with where they

do business and pollute the aread. They have an unfair influence over government policies affecting them

Gov’t Corruption in the Industrialization Era

V. Unions (aka Labor Unions, or just Labor)

A. Working in the US in the Industrial Era 1. Problems faced by workers:

a. unhealthy & dangerous working conditions (lint, dust, toxic fumes in the air; lack of safety devices)

b. low pay, repetitive tasks

c. lack of job security- workers easily replaced by new immigrants

d. child labor

2. While there was a rise in standard of living for all Americans (thanks to all of the new technology in ag and industry) – there was a growing division of income between wealthy & working class

standard of living: a person’s or group’s level of material well-being, as measured by education, housing, health care and nutrition

3. Deflation (1865-1897) – a rise in value of $

a. Caused prices to fall – so companies cut wages (that were already low)

b. This results in a call for Unionization

Union: An organization of workers formed for the purpose of advancing its members’ interests in respect to wages, benefits, and working conditions

1) historically unions fight for:

- higher wages

- shorter hours

- better working conditions

2) today unions fight for all of the above

+ more benefits

B. Early Unions1. Type of industrial workers in 1800s: skilled

(craft) workers vs. unskilled (common) labor

a. skilled workers = special skills & training.

- higher wages

- control of time

- formed trade unions. trade union: an organization of workers with

the same trade or skill

b. unskilled labor = few skills

- lower wages

2. Industry owners and management oppose unions…

a. regard them as conspiracies that interfered w/ property rights

b. Actions taken to prevent unions from forming:

1) sign oath/contract promising not to join union

2) undercover agents identify union organizers

3) workers blacklisted – list of troublemakers, made it difficult to get another job

4) lockouts: locked union members out of property – refused to pay them

5) if strike? Hired strikebreakers (replacement workers

3. Political & Social Opposition to Unions

a. Courts often ruled against them and sided with business owners in legal battles

b. Many Americans saw them as threats to our institutions - seen as MARXIST

- Marxism: belief that the basic force shaping capitalist society was the

class struggle between workers & owners

- Marx believed workers would eventually revolt, take over factories, seize the gov’t, seize private property, divide wealth evenly.

- result? A classless society

c. some workers advocated anarchism anarchism: belief that there should be no gov’t

d. Marxism/Anarchism spreading in Europe. At same time, Europeans immigrating to US

- American workers are uniting in Unions, and Marxism calls for workers to unite… so Unions are SCARY!

C. Struggle to Organize1. Great Railroad Strike of 1877

a. Panic of 1873 – led to wage cuts followed by NATIONWIDE labor protest – biggest in the US to date

b. RR workers across country walked off jobs

- involved 80,000 workers in 11 states & affected 2/3 of US RRs

c. Workers smashed equip., tore up tracks, blocked rail service

d. States send militias. Gun battles erupted

e. President Hayes sent Army troops. Restored order, but 100 people dead & property destroyed

The Great Railroad Strike of 1877

July 21- 22, 1877, rioters destruction in Pittsburgh, PA

2. The Knights of Labor

a. 1st nationwide industrial union Industrial Union: an organization (union) of skilled

AND unskilled workers

b. demands:

- 8 hr workday

- equal pay for women

- abolition of child labor

- creation of worker-owned factories

c. Supported arbitration (impartial 3rd party workers and mgmt reach agreement

d. Began using strikes by 1880

- successful at first

- membership rose

3. The Haymarket Riot – Chicago, Haymarket Square May 1886

a. demanded 8 hr workday – organizers called strike to show support for it on May Day

b. strikers & police clash – 1 striker killed

c. Anarchists organize meeting, 3000 people. Police come, bomb is thrown, police fire, workers fire,

- 7 police dead

- 4 workers dead

d. 8 arrested. 7 are German immigrants who support anarchism

e. All 8 convicted, 4 executed

f. 1 convicted was Knights of Labor member – reputation ruined

4. The Pullman Strike

a. American Railway Union (ARU) organized in 1893

b. Pullman Co – made Pullman RR cars – forced workers to live in Pullman, IL

and buy goods from company stores

c. Depression of 1893. Pullman slashed wages. Workers had trouble paying rent & paying high prices at the company stores

Pullman, IL (George Pullman’s company town)

d. workers who complained were fired. Strike began

e. ARU members nationwide stopped handling Pullman cars. Threatened to paralyze US economy

f. US Mail cars attached to Pullmans: to interfere w/ mail is violation of

federal law

g. Court ordered halt to boycott. Strike & ARU

collapsed

D. American Federation of Labor1. organized 20 + trade unions (skilled workers

only), led by Samuel Gompers

a. believed unions should stay out of politics

b. rejected socialist/communist ideas c. Fought for higher wages/better

working conditions

d. Strikes ok, negotiate better

2. Goals:

a. recognize unions/agree to collective bargaining

b. push for closed shops – companies hire only union workers

c. 8 hr workday

American Federation of

Labor

Samuel Gompers

E. Working Women1. by 1900, women = 18% of labor force

a. 1/3 = domestic servants; 1/3 = nurses, teachers; 1/3 = industrial

(garment/food processing)

b. wages less than men for same job (men had to support the family)

2. Women’s Trade Union League (WTUL) organized to promote women’s labor

issues

a. 8 hr day

b. Create minimum wage

c. No evening work for women

d. Abolish child labor

F. Early Labor Unions Fail1. Too many strikes

2. Too much violence associated with strikes

3. Early unions were disorganized

4. Gov’t/Courts usually sided with Biz leaders.

5. Effectiveness of blacklisting, lockouts etc.

6. Associated with Radicalism: Marxism/Anarchy