Growth of Cities and Titans of Industry

Growth of Cities and Titans of Industry

The scale of industrial development expanded dramatically following the Civil War as entrepreneurs such as Andrew Carnegie and John D. Rockefeller used the corporate framework to construct empires. These men, along with innovations as simple as barbed wire or as elaborate as the dynamo, each fueled economic growth and changed the landscape of America. Alexander Graham Bell’s telephone revolutionized communications, while Thomas Edison’s pioneering work in the uses of electricity would transform US factories. However, each of these inventions of the 1870s, with the exception of barbed wire, would not drastically alter American life until the turn of the century. In the meantime, the proliferation of the steam engine and other previous inventions accelerated the transformation of work on farms and within factories. In addition, new ways of structuring production, such as the assembly line, reduced the need for skilled laborers by breaking down the work of craftsmen into simple motions that could be taught to any able bodied man, woman, or child.

Figure 2.21

Standard Oil was often presented as an aggressive monopoly in the press. In this image, the company appears as an octopus whose tentacles are wrapped around other industries such as steel and shipping. The beast is also in control of Congress and is reaching for the White House.

America’s industrial output increased 70 percent between the Civil War and 1873, an economic upsurge without precedent in an era of global scarcity. Fueling the rapid growth of US productivity was the labor of a quarter-million immigrants who arrived every year with hopes of finding work in America’s cities. Urban life in America was seldom the long-term goal for these immigrants, most of who hoped to earn money and eventually return to their homelands. For this reason, few immigrants saw any reason to learn English or assimilate into what they viewed, at least initially, as a foreign nation. Even those who considered making America their home usually saw urban life as a temporary way station on their way toward saving money and purchasing a farm somewhere in the nation’s interior.

Standing between the immigrant’s dream of returning home or buying land was the fact that many of these immigrants borrowed money to finance their voyage. Even those who did not enter the nation in debt rarely earned more money than they needed for their daily survival. In this way, many immigrants experienced a state of financial dependency that was not unlike that of the sharecropper. However, the rapid growth of the US economy allowed many of these immigrants the opportunity to eventually escape the cycle of debt that was becoming a permanent feature of the rural South. Unfortunately, low wages and insecurity of employment left most of them trapped in the ethnic enclaves of America’s cities where they worked for wages rather than achieving their dream of financial independence.

Along with the creation of corporate finance and the growing landless population of potential laborers, new innovations in corporate management such as the trust permitted the growth of industrial America. By the end of the Reconstruction, John D. RockefellerThe founder of Standard Oil, John D. Rockefeller revolutionized US industry by organizing a number of nominally independent oil companies into a trust. had run his local competitors out of business and controlled most of the oil refineries in Cleveland. His methods were both ruthless and ingenious, as he made secret deals with suppliers and the railroads that allowed him to lower prices until his competitors agreed to sell their refineries to Rockefeller’s Standard Oil Company. Rockefeller now hoped to expand his holdings to become the largest oil company in the United States. Unfortunately for Rockefeller, hundreds of other oil refineries existed at this time. The gasoline-fueled internal combustion engine was just being developed and would not become widespread until the early 1900s. As a result, the oil business at this time produced mostly lubricants and fuel for heating lamps—products that were relatively easy to create from crude oil. In addition to the large number of simple refineries, Ohio and other states prevented those who owned oil refineries in one locality from buying their competitors or expanding their businesses to other states.

Rockefeller designed a method of sidestepping the law by creating a new form of corporate management/ownership called the trustA group that controls the stock and therefore effectively owns and controls a number of companies. Trusts were established to get around laws intended to prevent monopolies.. Rockefeller’s Standard Oil Trust was simply a group of investors controlled by Rockefeller who bought the stock of various “independent” oil companies in various states. This stock was then held “in trust” for Standard’s stockholders. Although it would have been illegal for Rockefeller or Standard Oil to own all of these oil companies directly, it was not illegal to purchase publicly traded stock. As long as Rockefeller’s trustees owned the majority of shares, they could control the decisions made by each “independent” oil company and reap the majority of the profits. And it was all completely legal.

Rockefeller used the trust and the methods that had permitted him to corner the refinery business in Cleveland to expand his holdings and control of the oil industry. As Standard Oil grew, it became harder for other oil companies to match Rockefeller’s prices because he demanded and received discounts from suppliers and shippers. Rockefeller’s competitors were simply too small to demand similar concessions, and shareholders were all too willing to sell their declining stock to Rockefeller’s trust at higher-than-market prices. By the 1890s, Standard Oil controlled 90 percent of the nation’s oil refineries. Titans within other industries followed suit by creating trusts that soon controlled the stock of many corporations. In addition, many of the trustees who effectively controlled each of these industries sat on dozens of corporate boards and made “gentleman’s agreements” with one another to avoid what they believed would be excessive competition.

Steel production required more investment than the early oil refineries, which in turn required government intervention. Railroad development and federal tariffs barring the importation of steel from more developed industrial nations in Europe permitted US entrepreneurs to create a domestic steel industry. Demand for steel was high throughout the nation as the navy expanded and railroad mileage doubled every decade between the Civil War and 1890. A Scottish immigrant by the name of Andrew CarnegieRose from humble origins to become the leading steel producer in the world, Andrew Carnegie sought to control every aspect of steel production and lower costs by direct ownership of mines, foundries, and railroads. Carnegie became a philanthropist in later life, gifting his enormous fortune to construct libraries, schools, and institutions of higher education. had risen through the ranks of corporate America, his talent and ambition being noticed by every supervisor from his boyhood years in a telegraph office. Some of these men even loaned money to the ambitious Carnegie, which he invested wisely. Using these proceeds as collateral, Carnegie began investing in steel production. Between his modest fortune and his exceptional connections, Carnegie financed the creation of a modern steel mill based on new technologies he had observed in Britain. With domestic financing and international technology, Carnegie was soon able to make better steel for lower prices than his competitors.

Rather than attempt to indirectly purchase and control competing firms, as Rockefeller had done, Carnegie believed the secret to the steel industry was to control every aspect of the steel-making process. Rather than pay suppliers for raw materials and transportation companies for shipping costs, Carnegie sought to purchase his own mines and own a controlling interest in shipping companies and railroads. As a result, Carnegie controlled every aspect of steel production and distributions and could offer his products at better prices than any other manufacturer. While Britain had been the birthplace of the Bessemer process on which Carnegie based his production methods, Carnegie’s US Steel corporation produced more steel than the entire British Empire by the turn of the century. His methods were just as brutal as Rockefeller’s were, but he would later become one of the most beloved men in the nation when he donated most of his personal fortune of $300 million to charitable causes.