Capital & Labor: The American Yawp - Chapter 16
The March of Capital: Industrialization Begins
Railroads led the way in pioneering modern capital markets and management strategies.
Telegraph lines and railroads connected distant markets, leading to a national economy.
Standardization of parts facilitated interchangeability.
Mass production techniques emerged across industries like meatpacking, sewing machines, and bicycles.
Monopolies/Trusts Form
Firms aggressively consolidated to stabilize markets and control competition.
Trusts formed, gaining monopolistic control over industries like oil, sugar, tobacco, whiskey, lead, and beef.
Laissez-Faire
Laissez-faire, meaning "hands off," suggested that the economy would self-regulate if the government didn't interfere.
Myth: The American government adhered strictly to laissez-faire ideology before the Great Depression.
Truth: The government favored businesses, implementing laissez-faire only when it benefited them.
Big Business Tycoons
Many business owners exploited the American government's laissez-faire policies, but some notably knew how to exploit politicians for their own gain.
Andrew Carnegie (American Steel): Eventually, US Steel became the first billion-dollar business in the U.S.
John D. Rockefeller (Standard Oil Co.): Eliminated competition ruthlessly to establish a monopoly and became the wealthiest man in American history.
Cornelius Vanderbilt (NY Central Railroad): Controlled most railroads from New York to Chicago and built Grand Central Station.
J.P. Morgan (JP Morgan & Company): Bought competitor banks to create one of the largest banks in American history. His bank purchased American Steel from Carnegie in 1901 to create US Steel. Today his bank is known as Chase Bank.
The Great Merger Movement
Massive mergers occurred from 1895-1904.
Companies merged to eliminate competition.
Over 4,000 companies consolidated into giant trusts.
This was seen as a way for companies to bypass instability and low profits from competition.
U.S. Steel, formed by merging Carnegie Steel and other producers in 1901, became the first billion-dollar company.
Just 41 consolidations controlled over 70% of the market in their respective industries.
Model of Vertical & Horizontal Integration
Vertical Integration: A single organization controls all stages of production within an industry.
They set prices at every stage but still have competition at every stage of production.
Horizontal Integration: A single organization controls an entire stage of production with no competition.
They set prices for their stage of production with no competitor to challenge their pricing.
Extreme Inequality Becomes the Norm
New mega fortunes accumulated among industrial titans and Wall Street bankers.
The wealth gap reached unprecedented levels during the Gilded Age.
By the 1890s, the wealthiest 1% owned a quarter of all household wealth.
The wealthiest 10% owned over 70% of all assets.
Industrial workers faced long hours, dangerous conditions, and unpredictable pay.
Farmers struggled with falling commodity prices and reliance on banks/railroads.
This set the stage for major labor organizing and populist backlash movements.
Social Darwinism
Laissez-faire business leaders used newly popular theories to frame economic success as a sign of natural superiority.
Herbert Spencer applied Darwin's evolution theories to human society with the term "survival of the fittest."
This was used to argue against government economic intervention as interfering with natural selection.
The idea is that if the government stays out of business, natural competition will create the best economy naturally.
Champions included industrialists like Carnegie, Rockefeller, and inventor Edison.
This was challenged by rising labor and populist reform movements.
The Great Railroad Strike of 1877
Railroads cut wages while reaping generous aid and profits from speculation.
The strike began in Baltimore over a 10% pay cut and spread to rail workers nationwide.
Strikers halted national rail traffic and destroyed trains/tracks rather than let them run.
After violent clashes, including 11 killed in Baltimore, federal troops were dispatched.
The strike was crushed after 6 weeks, with nearly 100 dead and in damage.
This foreshadowed five decades of labor conflict to come.
Labor Unions Emerge
The Great Railroad Strike showed the need for labor organizing in the face of wage cuts.
The Knights of Labor quickly grew as an early labor union that welcomed unskilled workers.
A mass national strike began May 1, 1886, for the universal adoption of an 8-hour day.
It ended tragically in the Chicago Haymarket Riot with violence after police killed protesters.
The American Federation of Labor (AFL) formed as a more conservative union alternative.
Homestead & Pullman Strikes
One of Carnegie's steel mills faced a strike at Homestead, Pennsylvania, in 1892.
After a lockout and failed negotiations, workers barricaded the plant and armed themselves.
The governor sent in the PA state militia to reopen the plant with violence after battles.
This year was seen as a year of general labor unrest with strikes nationwide.
The Pullman Strike of 1894
George Pullman owned the town and provided housing for railroad workers but cut wages by 25%.
Rents and utilities remained unchanged in company-owned housing.
The American Railway Union launched a boycott, refusing to handle Pullman cars.
125,000 workers struck, halting railroad traffic across Chicago and nationwide.
A federal injunction was issued, and President Cleveland sent 2,500 troops to intervene.
Strike leadership, including Eugene V. Debs, was arrested, and the labor action collapsed.
This showed increasing government intervention against unions.
The Populist Movement
Farmers organized into Farmers Alliances to fight falling crop prices.
Millions joined sub-alliances, educating members on cooperatives/politics.
The Alliance formed the People's Party to counter railroad exploitation and tight money.
Populists demanded expanded federal power, postal savings banks, silver inflation, progressive income tax, and other reforms.
They had political success but struggled against Democratic rule/voter suppression in the South.
Panic of 1893
A severe nationwide economic depression struck after the 1893 financial panic.
500 banks and 15,000 companies collapsed, and unemployment approached 20%.
Mass destitution and unrest followed across industrial and agrarian sectors.
Populists gained traction by blaming the crisis on big business greed and corruption.
Conservative Democratic president Grover Cleveland dispatched troops against strikes 29 times.
William Jennings Bryan – 1896 Election
William Jennings Bryan gave a dramatic "Cross of Gold" speech railing against Eastern banking interests to the thrill of the 1896 Democratic convention.
He tapped into Populist fervor with a call for silver inflation against the restrictive gold standard.
Bryan believed silver coinage would inflate the economy and make it easier for farmers to pay off debts.
He won the Democratic nomination for president as a young 36-year-old figure.
He lost in 1896 and 1900 to Republican William McKinley.
This established the rising influence of the prairie Populist wing within the Democratic Party.
The Socialist Movement
Socialists, led by Eugene Debs, gained traction by tying exploited industrial workers and farmers together against the capitalist system.
They argued that public/worker ownership of the means of production was the only way to guarantee fair wages and dignity.
Socialist mayors were elected in over 30 cities, and Victor Berger and Meyer London were elected to Congress.
However, government oppression, especially during World War I/Red Scare, and internal divisions undermined the Party.
According to socialist organizer and newspaper editor Oscar Ameringer, socialists wanted “ownership of the trust by the government, and the ownership of the government by the people.”
Significance of Eugene Debs
Debs gained notoriety leading the American Railway Union during the violent 1894 Pullman strike.
He was jailed for violating a federal injunction.
He became a leading figure within the Socialist Party upon release.
He ran for president 5 times between 1900-1920, winning nearly 1 million votes in 1912 on the Socialist Party ticket.
He was sentenced to ten years in prison again under the Sedition Act in 1918 for an anti-war speech.
The Socialist Party Falters
The Socialist Party struggled against repression during World War I and the subsequent Red Scare.
Membership plummeted from 150,000 to 26,000 amid the jailing of activists and propaganda.
Factions also feuded over ideological purity vs. electability.
Legacy of Resistance
Though violently suppressed, the reform ideas persisted and gradually gained mainstream traction.
The Progressive Era saw the later adoption of many populist and labor demands.
By pointing out harsh inequality and exploitation, these movements paved the way for future reform.
Key Terms
Industrialization - The process of developing industries like manufacturing, railroads, steel etc. that transformed the American economy in the late 1800s.
Mass Production - Using machinery, division of labor and interchangeable parts to produce goods in high volumes efficiently. Pioneered in industries like sewing machines, meat packing, and later autos.
Monopoly - When a company dominates an entire industry. Many emerged through combinations and mergers towards the end of the 19th century.
Robber Barons - Term for powerful industrialists and financiers like Rockefeller, Carnegie, Vanderbilt who built massive fortunes and empires.
Laissez-Faire - Policy of minimal government intervention in the economy associated with industrial leaders and their supporters.
Social Darwinism - Belief used by business leaders that success or failure in capitalism showed natural superiority, justifying inequality.
Labor Union - An organization of workers formed to advocate for better wages, hours, and conditions. The Knights of Labor and AFL were prominent examples.
Strike - A work stoppage or refusal to work organized by a labor union, often for better wages or conditions.
Haymarket Riot - 1886 clash in Chicago between police and workers striking for 8-hour day that turned violent after a bomb exploded.
Populists - Political party in the 1890s that wanted to expand federal power and currency inflation to help distressed farmers. Part of a broader farmers movement.
Bimetalism - Use of both gold and silver to back currency instead of the gold standard, meant to expand money supply.
Bibliography
Locke, Joseph and Ben Wright, editors. The American Yawp. Stanford, CA:
Stanford University Press, 2023. americanyawp.com