Civil War and Industrial Expansion, 1860–1897 (Overview)

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CIVIL WAR AND INDUSTRIAL EXPANSION, 1860–1897 (OVERVIEW)

The period between the American Civil War (1861–65) and the end of the nineteenth century in the United States was marked by tremendous expansion of industry and agriculture as well as the spread of settlement across the continent. The population of the United States more than doubled during this period. In its report on the 1890 census the Bureau of the Census declared the frontier closed. Most of the economic growth was concentrated in the Northeast, Midwest, and plains states. The South remained largely agricultural, its total industrial production totaling about half that of New York State. The Northeast clearly emerged as the industrial core of the nation with 85 percent of the nation's manufacturing, processing raw materials from the Midwest and West.

For several decades prior to the Civil War, the North was forced to delay or compromise several of its national economic policy objectives due to Southern opposition and the strong position the Southern states held in the Senate. As soon as the Southern states seceded Congress began enacting this delayed agenda. The Morrill Tariff of 1861 raised rates to 20 percent on average, ending more than 30 years of declining tariffs. Funding for three transcontinental railroads was enacted in the Transcontinental Railroad Act. The Morrill Land Grant Act (1862) established agricultural and mechanical colleges by allotting each state that remained in the Union 30,000 acres of land for each member of Congress. The Homestead Act (1862) provided 160 acres (a quarter section) in western territories free to anyone who settled on it for five years and declared their intention to become a citizen. Each of these policies profoundly shaped the development of the U.S. economy for the rest of the century.

The American Civil War devastated the South. Most of the war was fought in the South and much of the region's infrastructure was destroyed. Confederate bonds and currency became worthless, depriving the region of a great proportion of its wealth. Emancipation of the slaves also destroyed a large part of the South's capital, creating the need for a new labor system. There was little capital available in the South to finance reconstruction. The sharecrop system that had replaced slavery had few incentives for innovation and the region remained capital poor and population growth was slow. The South failed to attract large numbers of immigrants because of limited opportunities. Its slowly growing population did not create a demand for expanded infrastructure, one of the factors driving the rapid expansion of the national economy outside the former Confederate states. For at least two generations after the American Civil War the South remained predominantly agricultural and largely outside the industrial expansion of the national economy. One exception was the development of the iron and steel industry around Birmingham, Alabama.

Northern control of Congress after the War led to ever higher tariffs, reaching an average of 57 percent with the Dingle Tariff of 1897. These rates remained in effect until 1913. Behind the protective wall of these tariffs U.S. industry grew and agriculture expanded westward to feed the growing populations of industrial cities. The United States was the largest free trade market in the world. Northern and Midwestern populations grew much faster than those of the South and the expansion of the nation's railroad system tied those two regions closely together. A large part of the industrial expansion during the post Civil War years was based on connecting the industrial northeast with the farm and grazing areas of the Midwest and Plains states and completing the transcontinental railroads. Railroad mileage in the United States doubled between 1865 and 1873 and increased by an additional 50 percent between 1873 and 1881. Transported freight increased from 2.16 billion ton/mile in 1865 to 7.48 billion in 1873 and 16.06 billion in 1881. The iron and steel industry was one direct beneficiary of the expansion of the railroad system. Steel production increased from 19,643 long tons in 1867 to 198,796 long tons in 1873 and 1,588,314 in 1881. In 1874 the United States was second to Great Britain in pig iron production. By 1900 the U.S. produced four times as much as Britain. Carnegie Steel alone produced more than the British. The expansion of iron and steel production led to comparable increases in iron and coal mining.

An important part of the tremendous economic growth following the Civil War was innovation. The number of patents issued by the Patent Office increased steadily. In 1815 the agency issued 173 patents, while 1,045 were issued in 1844 and 7,653 in 1860. After the Civil War the rate of innovation increased tremendously. At least 15,000 patents were issued annually during this period and 45,661 patents were issued in 1897. While not every patent represented a useful product, many of them did, such as the typewriter, cash register, calculating and adding machines, and the Kodak camera. Other patents were for improvements in industrial machinery such as faster spindles and looms in textiles, new processes for making steel, and the application of electricity to industrial production. In 1876 Alexander Graham Bell (1847–1922) patented the telephone. By 1895 there were 310,000 phones in the United States. The American Telephone and Telegraph Company (AT&T) was formed in 1885 to consolidate all of Bell's patents. Thomas Alva Edison (1847–1931) invented the electric light. He also made invention and industrial innovation a process, creating new products and improving existing ones on a regular basis. His Menlo Park, New Jersey facility was the first modern industrial research lab. Edison became a national hero. Nikola Tesla (1856–1943) developed systems for the transmission of high voltage electricity over long distances. He also developed the electric motor, which had a wide range of uses in the economy, especially in the street car and the electric railroad car. Tesla also developed the electric sewing machine for home and industrial use, and a wide array of industrial applications for electricity. Gustavus Swift developed the disassembly line, applying industrial production systems to meat processing in 1870. New products led to new industries, and new methods and techniques reshaped old industries.

The backbone of the rapid industrial growth of the U.S. economy during these years was the nation's natural resources. The United States had huge reserves of coal, iron ore, copper and other metals, petroleum, timber, and water power, as well as fertile land for agriculture. Iron reserves in northern Minnesota and along the Michigan–Wisconsin border were developed to augment those on the south shore of Lake Superior. Coal reserves in the Appalachian Mountains in West Virginia, Virginia, Kentucky, and Tennessee were developed. Silver and gold mines were developed in Nevada and Colorado. Copper found in Montana replaced that of Michigan as the main source of this increasingly important metal needed for the transport of electricity. An expanding range of uses for petroleum was discovered, its many components being used as lubricants and cleaning solvents. Its use as a fuel began only at the very end of the period. There was little in the way of raw material necessary for industrial expansion at this time that was not abundantly available in the United States.

The expanding economy needed an ever increasing work force, and large numbers of immigrants came to the United States during this period. During the first years of the Civil War immigration declined, but by 1863 it had rebounded to 176,282 new arrivals. Throughout the 1870s, 1880s, and 1890s hundreds of thousands entered the country each year, nearly 800,000 in 1882 alone. Toward the end of the period the immigration patterns changed with more immigrants coming from Scandinavia and southern and eastern Europe.

The growing scale of the economy bought several structural changes. The larger scale of industrial plants and companies and the more complex technology they used made their financing more complicated and more expensive. Investment bankers played an increasingly important role in the economy, supplying the capital that fueled growth. J. P. Morgan was among the more visible of these new players in the nation's economy. The resources banks had were a reflection of a high savings and investment rate among U.S. citizens after the Civil War. By 1880 banks held approximately $819 million in savings and by 1900 just under $2.5 billion. Foreign investment also flowed into the economy, increasing from about $1.4 billion in 1870 to $3.6 billion by 1900, much of it in railroads and utilities as well as municipal bonds.

A second change in the economy was the emergence of monopolies in major industries and the trust as a way of managing them. In the petroleum industry John D. Rockefeller (1839–1937) established the Standard Oil Company in 1863 when the industry was in its infancy. He began by consolidating control of refining through acquisition of competitors. He then moved to "vertically integrate" by controlling transportation and distribution. By 1879 he controlled 90 percent of the nation's refining capacity and in 1882 he reorganized the Standard Oil Company as a trust to operate and manage the near monopoly. When he retired from active business in 1897 Rockefeller's personal fortune was estimated at $900 million. Similar concentrations developed in nearly every industry. In each industry no more than a handful of firms dominated, often one or two. Seven companies controlled two–thirds of the railroad mileage in the country by 1900.

The economy was, on a larger scale, prone to periodic downturns due to what has been called the business cycle; periods of increased investment activity and expansion followed by periods of consolidation and slower growth. During the periods of consolidation, unemployment and business failures increased. There was a major panic (as such periods were called) from 1873 to 1879 that saw business failures double, and half the nation's capacity for producing steel remain idle. There was an even sharper drop in economic activity in 1893, but it was shorter in duration and by 1897 the economy was well into a recovery.

In the years between the American Civil War and the end of the nineteenth century the modern U.S. industrial economy developed and took a clear shape. The United States emerged as one of the major economies in the world. Its growth rate, vast reserves of natural resources, and stable political system positioned it well for continuing growth.