September 5 Key Concepts: Industrial Growth, Regulation, and Social Darwinism (Late 19th Century)

The Steel Industry

• Bessemer converter enabled mass steel production; invented in England; a similar process developed in Kentucky by William Kelly.

• Rich deposits of iron ore in Northern Michigan developed; by $1900$, American steel production surpassed the combined output of England and Germany.

• Andrew Carnegie (Scottish immigrant) dominated the steel industry in the 1870s–80s; by $1900$ his mills produced about $3{,}000{,}000$ tons per year.

• JP Morgan expanded steel interests in the 1890s; in $1900$ Carnegie sold his stake to Morgan for close to $5\times 10^8$ dollars; Morgan then consolidated major American steelmakers.

• In $1901$, US Steel (United States Steel Corporation) was created; it controlled about $60\%$ of U.S. steel production with an estimated worth of $1{,}400{,}000{,}000$; the first billion-dollar corporation.

The Oil Industry and Trusts

• 1859: Edwin Drake drilled America’s first oil well near Titusville, PA.

• 1870: John D. Rockefeller dominated the oil industry; established Standard Oil Company.

• Within a few years, Standard Oil controlled about $90\%$ of America’s oil refining.

• 1880: Standard Oil Trust formed; stockholders of about 40 corporations assigned voting rights to nine trustees headed by Rockefeller; trust certificates paid dividends but carried no voting power; trustees controlled the 40 corporations and pipelines; trust provided a model for holding companies and semi-trusts.

• Trusts sparked public suspicion; late 1880s lawsuits weakened trusts; holding companies became popular in the 1890s; Rockefeller used a holding company chartered in New Jersey to maintain dominance.

Antitrust and Regulation

• 1890: Sherman Antitrust Act declared contracts, combinations in restraint of trade, and conspiracies in restraint of trade illegal; aimed to break up monopolies and promote competition.

• Penalties: maximum $5{,}000$ fine and/or jail; enforcement weak; definitions left to courts sympathetic to big business.

• 1895: United States v. E. C. Knight Co. (Sugar). Supreme Court ruled that the American Sugar Refining Company’s dominance (roughly 99% of refining) did not violate the Act; act sometimes used against labor unions; enforcement limitations persisted.

Railroads and Regulation

• By $1900$, roughly $200{,}000$ miles of track—more than all of Europe; 1860–1890 added about $135{,}000$ miles.

• Innovations: heavier steel rails, larger locomotives, livestock tanks, refrigerated cars; Pullman Palace Car Company (founded in $1867$) marketed luxury passenger cars; four national time zones (adopted in $1883$) to standardize scheduling; Westinghouse air brake ($1887$); automatic couplers.

• Railroads helped unify the U.S. and spurred westward settlement; railroads were major consumers of coal and steel; rates fell with competition, but western farmers faced discriminatory increases.

• Granger Laws: beginning with Massachusetts ($1869$) to regulate railroads; Illinois passed rate-regulation laws ($1871$, $1873$).

• Munn v. Illinois ($1877$) upheld state regulation of grain warehouses and storage rates.

• Wabash v. Illinois ($1886$) limited state regulation of interstate railroads, citing federal commerce power; states could not regulate interstate railroads.

• McCrary Bill ($1874$) proposed federal railroad regulation but failed; Senate formed Cohen Committee to study regulation, leading to the Interstate Commerce Act (ICA) of $1887$.

• ICA: signed by President Grover Cleveland; required railroads to publish rate schedules; rates had to be reasonable and just; prohibited discriminatory pricing; enforcement vested in the Interstate Commerce Commission (ICC).

• ICC comprised five presidential appointees; could not set rates directly; had to prove reasonableness in court; courts often favored big business.

• Railroad overexpansion and speculation contributed to financial panics in the late 19th century; Panic of $1893$ followed the Philadelphia and Reading Railroad bankruptcy; JP Morgan intervened to reorganize and stabilize railroads from $1894$ to $1898$.

Social Darwinism

• Laissez-faire advocates argued government should stay out of business; success came from natural competition.

• Survival of the fittest extended from biology to society; the most fit prospered as power and wealth.

• Herbert Spencer argued that social evolution results from competition; government interference would hinder natural development (book: Social Statics).

• William Graham Sumner, Yale professor, championed freedom to compete and self-interest; used religious language to support laissez-faire.

• These ideas became influential in the late $1870s$–$1880s$ and shaped debates over regulation vs. laissez-faire.