1.9 The Effects on Labor

Panicked business leaders and friendly political officials reacted quickly. When local police forces would not or could not suppress the strikes, governors called out state militias to break them and restore rail service. Many strikers destroyed rail property rather than allow militias to reopen the rails. The protests approached a class war. The governor of Maryland deployed the state’s militia. In Baltimore, the militia fired into a crowd of striking workers, killing eleven and wounding many more. Strikes convulsed towns and cities across Pennsylvania. The head of the Pennsylvania Railroad, Thomas Andrew Scott, suggested that if workers were unhappy with their wages, they should be given “a rifle diet for a few days and see how they like that kind of bread.”¹ Law enforcement in Pittsburgh refused to put down the protests, so the governor called out the state militia, who killed twenty strikers with bayonets and rifle fire. A month of chaos erupted. Strikers set fire to the city, destroying dozens of buildings, over a hundred engines, and over a thousand cars. In Reading, strikers destroyed rail property and an angry crowd bombarded militiamen with rocks and bottles. The militia fired into the crowd, killing ten. A general strike erupted in St. Louis, and strikers seized rail depots and declared for the eight-hour day and the abolition of child labor. Federal troops and vigilantes fought their way into the depot, killing eighteen and breaking the strike. Rail lines were shut down all across neighboring Illinois, where coal miners struck in sympathy, tens of thousands gathered to protest under the aegis of the Workingmen’s Party, and twenty protesters were killed in Chicago by special police and militiamen.

Courts, police, and state militias suppressed the strikes, but it was federal troops that finally defeated them. When Pennsylvania militiamen were unable to contain the strikes, federal troops stepped in. When militia in West Virginia refused to break the strike, federal troops broke it instead. On the orders of the president, American soldiers were deployed all across northern rail lines. Soldiers moved from town to town, suppressing protests and reopening rail lines. Six weeks after it had begun, the strike had been crushed. Nearly 100 Americans died in “The Great Upheaval.” Workers destroyed nearly $40 million worth of property. The strike galvanized the country. It convinced laborers of the need for institutionalized unions, persuaded businesses of the need for even greater political influence and government aid, and foretold a half century of labor conflict in the United States.²

March of Capital

Growing labor unrest accompanied industrialization. The greatest strikes first hit the railroads only because no other industry had so effectively marshaled together capital, government support, and bureaucratic management. Many workers perceived their new powerlessness in the coming industrial order. Skills mattered less and less in an industrialized, mass-producing economy, and their strength as individuals seemed ever smaller and more insignificant when companies grew in size and power and managers grew flush with wealth and influence. Long hours, dangerous working conditions, and the difficulty of supporting a family on meager and unpredictable wages compelled armies of labor to organize and battle against the power of capital.

The post–Civil War era saw revolutions in American industry. Technological innovations and national investments slashed the costs of production and distribution. New administrative frameworks sustained the weight of vast firms. National credit agencies eased the uncertainties surrounding rapid movement of capital between investors, manufacturers, and retailers. Plummeting transportation and communication costs opened new national media, which advertising agencies used to nationalize various products.

By the turn of the century, corporate leaders and wealthy industrialists embraced the new principles of scientific management, or Taylorism, after its noted proponent, Frederick Taylor. The precision of steel parts, the harnessing of electricity, the innovations of machine tools, and the mass markets wrought by the railroads offered new avenues for efficiency. To match the demands of the machine age, Taylor said, firms needed a scientific organization of production. He urged all manufacturers to increase efficiency by subdividing tasks. Rather than having thirty mechanics individually making thirty machines, for instance, a manufacturer could assign thirty laborers to perform thirty distinct tasks. Such a shift would not only make workers as interchangeable as the parts they were using, it would also dramatically speed up the process of production. If managed by trained experts, specific tasks could be done quicker and more efficiently. Taylorism increased the scale and scope of manufacturing and allowed for the flowering of mass production. Building on the use of interchangeable parts in Civil War–era weapons manufacturing, American firms advanced mass production techniques and technologies. Singer sewing machines, Chicago packers’ “disassembly” lines, McCormick grain reapers, Duke cigarette rollers: all realized unprecedented efficiencies and achieved unheard-of levels of production that propelled their companies into the forefront of American business. Henry Ford made the assembly line famous, allowing the production of automobiles to skyrocket as their cost plummeted, but various American firms had been paving the way for decades.³

Cyrus McCormick had overseen the construction of mechanical reapers (used for harvesting wheat) for decades. He had relied on skilled blacksmiths, skilled machinists, and skilled woodworkers to handcraft horse-drawn machines. But production was slow and the machines were expensive. The reapers still enabled massive efficiency gains in grain farming, but their high cost and slow production times put them out of reach of most American wheat farmers. But then, in 1880, McCormick hired a production manager who had overseen the manufacturing of Colt firearms to transform his system of production. The Chicago plant introduced new jigs, steel gauges, and pattern machines that could make precise duplicates of new, interchangeable parts. The company had produced twenty-one thousand machines in 1880. It made twice as many in 1885, and by 1889, less than a decade later, it was producing over one hundred thousand a year.⁴

Industrialization and mass production pushed the United States into the forefront of the world. The American economy had lagged behind Britain, Germany, and France as recently as the 1860s, but by 1900 the United States was the world’s leading manufacturing nation. Thirteen years later, by 1913, the United States produced one third of the world’s industrial output—more than Britain, France, and Germany combined.⁵

Firms such as McCormick’s realized massive economies of scale: after accounting for their initial massive investments in machines and marketing, each additional product lost the company relatively little in production costs. The bigger the production, then, the bigger the profits. New industrial companies therefore hungered for markets to keep their high-volume production facilities operating. Retailers and advertisers sustained the massive markets needed for mass production, and corporate bureaucracies meanwhile allowed for the management of giant new firms. A new class of managers—comprising what one prominent economic historian called the “visible hand”—operated between the worlds of workers and owners and ensured the efficient operation and administration of mass production and mass distribution. Even more important to the growth and maintenance of these new companies, however, were the legal creations used to protect investors and sustain the power of massed capital.⁶

The costs of mass production were prohibitive for all but the very wealthiest individuals, and, even then, the risks would be too great to bear individually. The corporation itself was ages old, but the actual right to incorporate had generally been reserved for public works projects or government-sponsored monopolies. After the Civil War, however, the corporation, using new state incorporation laws passed during the Market Revolution of the early nineteenth century, became a legal mechanism for nearly any enterprise to marshal vast amounts of capital while limiting the liability of shareholders. By washing their hands of legal and financial obligations while still retaining the right to profit massively, investors flooded corporations with the capital needed to industrialize.

But a competitive marketplace threatened the promise of investments. Once the efficiency gains of mass production were realized, profit margins could be undone by cutthroat competition, which kept costs low as price cutting sank into profits. Companies rose and fell—and investors suffered losses—as manufacturing firms struggled to maintain supremacy in their particular industries. Economies of scale were a double-edged sword: while additional production provided immense profits, the high fixed costs of operating expensive factories dictated that even modest losses from selling underpriced goods were preferable to not selling profitably priced goods at all. And as market share was won and lost, profits proved unstable. American industrial firms tried everything to avoid competition: they formed informal pools and trusts, they entered price-fixing agreements, they divided markets, and, when blocked by antitrust laws and renegade price cutting, merged into consolidations. Rather than suffer from ruinous competition, firms combined and bypassed it altogether.

Between 1895 and 1904, and particularly in the four years between 1898 and 1902, a wave of mergers rocked the American economy. Competition melted away in what is known as “the great merger movement.” In nine years, four thousand companies—nearly 20 percent of the American economy—were folded into rival firms. In nearly every major industry, newly consolidated firms such as General Electric and DuPont utterly dominated their market. Forty-one separate consolidations each controlled over 70 percent of the market in their respective industries. In 1901, financier J. P. Morgan oversaw the formation of United States Steel, built from eight leading steel companies. Industrialization was built on steel, and one firm—the world’s first billion-dollar company—controlled the market. Monopoly had arrived.⁷

Entrepreneurs

Several post-Civil War entrepreneurs stand out both for their achievements, and for their contributions: John D. Rockefeller and Andrew Carnegie for their innovations in organization, and J. Pierpont Morgan for his development of investment banking.

Rockefeller and the Oil Trust

John D. Rockefeller was obsessed with precision order and tidiness. Early on, he decided to bring order and rationality to the chaotic oil industry. Cleveland’s railroad and ship connections made it a strategic location for servicing the oil fields of western Pennsylvania. Rockefeller recognized the potential profits in refining oil and backed a refinery in Cleveland started by a friend. In 1870, Rockefeller incorporated his various investments into the Standard Oil Company of Ohio.

Although Rockefeller was the largest refiner, he decided to weed out the competition, which he believed were flooding the with too much refined oil, bringing down prices and reducing profits. He bought out his competitors. Those who resisted were forced out. In less than 6 weeks, Rockefeller took over 22 of his 26 competitors. By 1879, Standard Oil controlled 90 to 95% of the oil refining in the country.

Eventually, in order to consolidate scattered business interests under more efficient control, Rockefeller and his friends resorted to a new legal device: the trust. Long established in law to enable one or more people to manage property belonging to others, such as children or the mentally incompetent, the trust was not used to centralize control of business.

Carnegie and the Steel Industry

Like Rockefeller, Andrew Carnegie experienced the atypical rise from poverty to riches that came to be known as the “American success story.” Born in Scotland, he migrated to the United States in 1848 and settled in Allegheny, Pennsylvania. In his early adulthood, Carnegie worked for the railroads to help his family survive. In 1865, following the Civil War, Carnegie quit the railroad to devote his attention to his own interests full time. These interests were mainly in iron and bridge building, but the versatile engineer also invested and made money in oil and railroad bonds. In 1873, he decided to focus his concentration on steel. Carnegie created his own Steel Works and then began buying out others.

Carnegie stood out from other businessmen, however, as a thinker who fashioned and publicized a philosophy of big business, a conservative rationale that became deeply implanted in the conventional wisdom of some Americans. He believed that however harsh their methods at times, he and other captains of industry were, on the whole, public benefactors. In his best-remembered essay, “The Gospel of Wealth,” published in 1889, he argued that in the evolution of society, the contrast between the millionaire and the laborer measures the distance society has come. As Carnegie wrote, “Not evil, but good, has come to the race from the accumulation of wealth by those who have the ability and energy that produces it.”⁸ Carnegie further argued that the law of competition ensured that Darwin’s theory of evolution applied to business as well as the evolution of species. In other words, survival of the fittest controlled business as well.⁹

Carnegie was not simply an accumulator or wealth, however. When he retired at 65, Carnegie devoted himself to dispensing his fortune for the public good, out of a sincere desire to promote social welfare and further world peace. He called this being a distributor of wealth as he disliked the term philanthropy. He gave money to universities, libraries, hospitals, parks, meeting and concert halls, swimming pools, and church buildings.

Rockefeller also gave many gifts, mostly to education and medicine, become the world’s leading philanthropist. He donated more than $500 million during his 98-year life. Late in his life he is quoted as saying that he considered making and giving money a religious duty.

J. Pierpont Morgan

Unlike the other two entrepreneurs discussed, J. Pierpont Morgan was born to wealth. His father was a partner in a London banking house. Morgan himself was an investment banker. He would buy corporate stocks and bonds wholesale and then sell them at a profit. He also acquired and reorganized one railroad line after another. To Morgan, the stability brought by his operations helped the economy and the public.

Morgan’s crowning triumph was consolidation of the steel industry, to which he was led by his interests in railroads. After a rapid series of mergers in the iron and steel industry, he bought out Carnegies huge steel and iron holdings in 1901.

For more information on Industrialization in the United States and the “second” Industrial Revolution, please watch the following videos:

Saylor Academy. Saylor.org HIST212: “Impact of the Second Industrial Revolution.” Produced by Saylor Academy. 2011. Video, 16:09.

Notes

1. David T. Burbank, Reign of the Rabble: The St. Louis General Strike of 1877 (New York: Kelley, 1966), 11.
2. Robert V. Bruce, 1877: Year of Violence (New York: Dee, 1957); Philip S. Foner, The Great Labor Uprising of 1877 (New York: Monad Press, 1977); David Omar Stowell, ed., The Great Strikes of 1877 (Champaign: University of Illinois Press, 2008).
3. Alfred D. Chandler Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, MA: Belknap Press, 1977); David A. Hounshell, From the American System to Mass Production, 1800–1932 (Baltimore: Johns Hopkins University Press, 1984).
4. Hounshell, From the American System, 153–188.
5. Alfred D. Chandler Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, MA: Harvard University Press, 1990), 52.
6. Chandler, The Visible Hand.
7. Naomi R. Lamoreaux, The Great Merger Movement in American Business, 1895–1904 (New York: Cambridge University Press, 1985).
8. Andrew Carnegie, “Wealth, June 1889,” at American History from Revolution to Reconstruction and Beyond, University of Groningen, http://www.let.rug.nl/usa/documents/1876-1900/andrew-carnegie-wealth-june-1889.php.
9. Carnegie.