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The Rise of Industrial Capitalism

The Business of Railroads

Development

• Railroads emerged as the first major big business in the U.S.

• Post-Civil War, railroad mileage grew from 35,000 miles (1865) to 193,000 miles (1900).

• Federal government support included low-interest loans and public land grants.

• Railroads created a national market for goods, promoting mass production and consumption.

• Stimulated growth in related industries, particularly coal and steel.

Impact on Daily Life

• Before 1883, local noon times depended on sun position across 144 different time zones.

• In 1883, the American Railroad Association established four standard time zones for uniformity.

Corporate Innovation

• Railroads pioneered the modern stockholder corporation model, due to high investment needs and competition regulation.

Competition and Consolidation

Inefficiencies

• Early railroad development resulted in varied gauges and incompatible systems due to numerous local lines (1830-1860).

• Post-Civil War, consolidation occurred to form major trunk lines connecting larger cities (e.g., New York Central Railroad).

Leaders in Consolidation

• Cornelius Vanderbilt: Transformed and integrated numerous railroads across New York City and Chicago.

• Other significant trunk lines included the Baltimore and Ohio Railroad and Pennsylvania Railroad, demonstrating efficiency.

Problems and Corruption

Overbuilding and Mismanagement

• Excessive building led to financial difficulties during the 1870s and 1880s.

• Mismanagement and fraud, exemplified by speculators like Jay Gould, marred the reputation.

• Railroads offered rebates to privileged shippers while charging higher rates to less favored customers.

• Formed pools to fix rates and share traffic among competitors.

Concentration of Ownership

• A financial panic in 1893 resulted in many railroads going bankrupt.

• Banks, led by J. Pierpont Morgan, consolidated bankrupt railroads, eliminating competition and stabilizing rates.

• By 1900, just seven systems dominated two-thirds of U.S. railroads, creating regional monopolies through interlocking directorates.

Public Perception

• Railroads captured the American imagination, but many customers felt exploited by unfair practices.

• Early regulations (e.g., Granger laws, Interstate Commerce Act) were often ineffective until Progressive reforms raised federal powers.

Industrial Empires

Shift in Production

• Late 19th century saw a pivot from textiles and leather to large-scale industries (steel, petroleum, and electricity).

Key Figures

• Andrew Carnegie: Transformed the steel industry through vertical integration, controlling every process from raw material to distribution. His company was producing more steel than all British mills combined by 1900.

  • Sold his company in 1900 for over $400 million; this company became United States Steel, valued as the first billion-dollar corporation.

• John D. Rockefeller: Established Standard Oil, taking control of 90% of oil refineries by employing efficient management and technologies, leading to monopoly status.

  • Faced criticisms for extorting railroad rebates and eliminating competition through price manipulation.

Corporate Structures

• Corporations restructured into trusts and holding companies to consolidate and manage multiple entities.

• Horizontal Integration: Acquiring competitors in the same industry.

• Vertical Integration: Controlling all production stages, exemplified by Carnegie Steel.

Economic Theories and Practices

Laissez-Faire Capitalism

• Late 19th century American businesses relied on laissez-faire policies, opposing government regulation on business practices.

• Adam Smith's principles promoted unregulated trade governed by supply and demand.

Social Darwinism

• The debate on wealth distribution included Social Darwinism, suggesting that business competition mirrored natural selection.

• Promoted by philosophers like Herbert Spencer and William Graham Sumner who justified socioeconomic disparities.

Protestant Work Ethic

• Wealth was often seen as God's favor, driving motivations for success in business, with figures like Rockefeller embodying this belief.

The Concentration of Wealth

Economic Disparities

• By the 1890s, the top 10% of Americans held 90% of wealth.

• Lavish lifestyles of the wealthy contrasted with poverty faced by the majority.

Rags-to-Riches Myth

• Optimism persisted through narratives of self-made men but reflected a scarce reality of social mobility.

Business Influence Beyond U.S. Borders

Global Aspirations

• U.S. corporations sought to expand into Latin America and Asia to access raw materials and markets for finished goods.

• By 1900, the U.S. accounted for 15% of global exports despite representing only 5% of the world population.

The Rise of Industrial Capitalism

The Business of Railroads

Development

• Railroads were the first major big business in the U.S., with mileage growing from 35,000 miles (1865) to 193,000 miles (1900) due to federal support like low-interest loans and land grants.

• Created a national market for goods, promoting mass production and related industries (coal and steel).

Impact on Daily Life

• Local noon times varied across 144 time zones until 1883 when four standard time zones were established by the American Railroad Association.

Corporate Innovation

• Railroads pioneered the stockholder corporation model to address high investment needs and competition.

Competition and Consolidation

Inefficiencies

• Early railroad development led to varied gauges and incompatible systems; post-Civil War consolidation formed major trunk lines (e.g., New York Central).

Leaders in Consolidation

• Cornelius Vanderbilt integrated multiple railroads in New York City and Chicago; other significant lines included Baltimore and Ohio and Pennsylvania Railroads.

Problems and Corruption

• Overbuilding led to financial issues in the 1870s; mismanagement and fraud, notably from figures like Jay Gould, tarnished the industry's reputation.

• Railroads charged higher rates to less favored customers while offering rebates to select shippers and formed pools to fix rates.

Concentration of Ownership

• The 1893 financial panic led to significant bankruptcies; banks consolidated railroads, stabilizing rates with seven systems dominating two-thirds of U.S. railroads by 1900.

Public Perception

• Despite captivating the American imagination, many felt exploited by unfair practices, leading to early regulations being largely ineffective until Progressive reforms.

Industrial Empires

Shift in Production

• Late 19th century saw a transition from textiles to large-scale industries (steel, petroleum, electricity).

Key Figures

• Andrew Carnegie: Revolutionized steel through vertical integration, leading to the creation of United States Steel, valued over $1 billion in 1900.

• John D. Rockefeller: Controlled 90% of oil refineries with Standard Oil, criticized for unfair practices and competition elimination.

Corporate Structures

• Companies merged into trusts and holding companies, using horizontal and vertical integration strategies.

Economic Theories and Practices

Laissez-Faire Capitalism

• Businesses operated under laissez-faire principles, resisting government regulation, influenced by Adam Smith.

Social Darwinism

• Competition was likened to natural selection, justifying socioeconomic disparities.

Protestant Work Ethic

• Wealth was viewed as a sign of divine favor, motivating business success, as exemplified by Rockefeller.

The Concentration of Wealth

Economic Disparities

• By the 1890s, the top 10% held 90% of wealth, contrasting with widespread poverty.

Rags-to-Riches Myth

• Narratives of self-made men persisted despite scarce social mobility.

Business Influence Beyond U.S. Borders

Global Aspirations

• U.S. corporations expanded into Latin America and Asia for resources and markets, with the U.S. accounting for 15% of global exports by 1900.