Essay 2, Unit I

Essay 2, Unit I

Describe the role played by railroads, steel, and oil in industrializing America, noting major leaders and developments in each of these key industries.

    During the last quarter of the 19th century the United States experienced an industrial revolution which would help it become a major world power. Several factors coalesced to bring about this economic transformation, including discovery of rich natural resources, population growth, immigrant labor, new sources of investment capital, entrepeneurship, transportation, increased consumer demand,technology, encouragement by the federal government, and a conscious decision by the American people to become an industrial

    The two industries that played the leading role in this economic revolution were railroads and steel. Railroad development illustrated a number of the elements that lit the fuse of the economic explosion. Two immigrant groups, the Chinese and the Irish, provided the bulk of the labor for railroad construction, while all levels of government as well as American and foreign private investors provided the needed capital. And the railroads not only provided the needed transportation of raw materials to the factories, but of finished products out to the markets. Additionally the railroads provided a stimulus for the steel, oil, lumber, and coal industries by virtue of the railroads' need for the products of those industries - steel for rails, oil for lubrication, lumber for railroad ties, and coal for fuel.

    Steel, by virtue of providing the material needed for all heavy equipment and machinery, was the other bellweather industry. The technological breakthrough of the Bessemer process stimulated all industries by enabling the steel companies to produce a higher quality, more durable steel. The leading steel company of the period was that owned by Andrew Carnegie, one of the major entrepeneurs and industrial magnates of the time. Carnegie was the epitome of the Horatio Alger "rags to riches" American success story. A poor Scottish immigrant boy, he rose to prominence because he understood how to organize steel industry management and its financial structure to his advantage. This talent, coupled with his frequently "cut-throat" competitive practices, led to his becoming the leading steel baron.

    Even the rise of Carnegie's steel company to preeminence was not sufficient to satisfy J. P. Morgan's dream of consolidating control of the industry. Morgan was an investment banker rather than a steel manufacturer. He sought more and more consolidation of industries because he believed that competiton was inefficient, and that "orderly consolidation" (euphemism for eliminating competiton) would lend stability to the entire economy. Morgan purchased five of the nation's largest steel companies and then approached Carnegie. After setting what was then an exorbitant price ($500 million) for his company Carnegie sold to Morgan who then created the first billion dollar coporation in U.S. history, the United States Steel Company.

    Nor did consolidation of the railroads meet the standard that J.P. Morgan set for that industry. Under the leadership of magnates like Cornelius Vanderbilt in the East, James J. Hill in the Northwest, and Jay Gould in the Southwest, about six major networks controlled the rail transportation of the United States at the turn of the century. Morgan took the next step by establishing a legal entity to control the policies and practices of most of these companies - the Northern Securities Holding Company. Thus integration into regional networks and consolidation into one national network was the dominant trend in the railroad industry.

    Not all railroad magnates, unfortunately, were as interested in building well-run, service-oriented companies as Vanderbilt and Hill. Three ambitious and ruthless "entrepeneurs" engaged in stock manipulation to wrest control of the Erie railroad from Vanderbilt. This "terrible triumvirate" of Daniel Drew, Jim Fisk, and Jay Gould so mismanaged the company in order to line their own pockets that this once highly-successful and very efficient railroad was thrown into bankruptcy. Indeed, for almost thirty years following the take-over by Drew, Fisk, and Gould the line which became known as the "scarlet lady of Wall Street" did not pay any dividends to its stockholders. Only its reorganization by J.P. Morgan in the mid 1890s rescued it from collapse.

    John D. Rockefeller was the central figure in the development and consolidation of the oil industry. Rockefeller, like Carnegie, used a variety of techniques to drive out competition including threats and bribery, spying and harassment, hiring the competition's top management, as well as providing high quality goods at low prices. After establishing a virtual monopoly over the refining process, Rockefeller then acquired oil lands, built his own transportation facilities, and set up retail outlets. This led to his making Standard Oil trust a vertically integrated industry - one in which one company controls all aspects of production from raw materials to sale of finished products.

    Trusts like the Standard Oil trust were among the legal devices formed in the late 19th century by tycoons like Rockefeller and Morgan to do away with that they felt was wasteful competition. Just as industrial statesmen like Rockefeller, Morgan and Carnegie shared a common goal of consolidating their industries they also shared the talent, ambition and ability to achieve that goal by producing high quiality goods at low prices and to attract qualified subordinates by providing economic incentives. These leaders, however, also shared an apparent inability to understand the rights of workers or to provide an atmosphere conducive to adequate wages, safe working conditions, and such "fringe benefits" as vacations or unemployment compensation.

    Whether one focuses on the entrepeneurial abilities or the lack of social conscience of these industrial leaders of the period, two facts about the economic transformation stand out clearly. One is the rapid increase in the nation's productive capacity and gross national income. The other is the plight of industrial workers whose conditions were perceived as so unsatisfactory that they began to form unions to seek redress of their employment grievances. Unionization is, then, another major development of the industrial revolution of the late 19th century. This is illustrated by the emergence of organizations like the Knights of Labor, which sought broad national reforms, and the American Federation of Labor, with its emphasis on "bread and butter issues."

    The federal government, reflecting the national commitment to industrialization, contributed to industrial growth by providing incentives like high protective tariffs on imported manufactured goods. Thus the government did not follow a laissez-faire policy of "hands-off the economy but a very supportive one. By the same token the government's pro-business attitude meant a less than sympathetic and supportive approach to the activities of unions. The last quarter of the 19th century was characterized by governmental intervention to "break strikes" and discourage collective bargaining. The classic examples of the government's attitude were the uses of federal troops to break up strikes by railroad workers.

(End of Essay 2. Try the practice test.)