The Industrialization of America
The Industrialization of America
During and prior to the American Civil War (1861–65), men's roles in society were limited to statesman, farmer, slave, and soldier. But the society that survived the Reconstruction (1865–77) and development of the New South became more diverse. The focus of economic development shifted to business, and the promise of America's future was to be found in industrialism (an economy based on business and industry rather than agriculture). This time period in American history is known as the Industrial Revolution, and it roughly spans from 1877 to 1900.
Industrialism in the Gilded Age was a period of transition. The Gilded Age was the period in history following the Civil War and Reconstruction (roughly the final twenty-three years of the nineteenth century), characterized by a ruthless pursuit of profit, an exterior of showiness and grandeur, and immeasurable political corruption. The country found itself having to adapt to a way of life that no longer centered on agriculture. In 1800, three-quarters of the workforce was in agriculture. By 1900, only four of every ten workers labored in the agrarian (agricultural) sector. The most intense changes took place in the New South, which once depended on a plantation economy (an economy dependent upon agricultural mass production; plantations were huge farms centered around one specific crop, such as tobacco or cotton). Traditionally, Southerners grew crops that were picked by slaves and then shipped to the North and across the oceans to other countries. With the dawn of industrialism, the South could now be directly involved in manufacturing goods. Improved modes of transportation (such as the railroad) and means of communication (such as the telegraph) increased the South's chances for success.
Progress, but at what cost?
Industrial development was not new to the American way of life. Factories already dotted the landscape of New England and the mid-Atlantic states. What made the industrialization of the Gilded Age different from the manufacturing that was already in place at the time was the influence of new technological innovations. The transcontinental railroad, which was completed in 1869, now allowed goods to be shipped all over the country. The telegraph, which preceded the invention of the telephone, opened communication lines and instantly increased the size of the American marketplace. Now it no longer mattered if the manufacturer's plant was located in the East. Within days, the product could be transported across the country to buyers on the West coast. Although trade with Britain continued, the industrialization of America secured its national independence: With or without Britain's business, the country would thrive.
WORDS TO KNOW
- Against the formation of monopolies or trusts.
- Gilded Age:
- The period in history following the Civil War and Reconstruction (roughly the final twenty-three years of the nineteenth century), characterized by a ruthless pursuit of profit, an exterior of showiness and grandeur, and immeasurable political corruption.
- horizontal integration:
- A business strategy in which one company buys out the competition; commonly known as a merger.
- Interstate Commerce Act:
- Passed in 1887, this law created the Interstate Commerce Commission (ICC), the first federal regulatory agency. It was designed to address railroad abuse and discrimination issues.
- A condition created when one company dominates a sector of business, leaving the consumer no choices and other businesses no possibility of success.
- Journalists who exposed scandal in Gilded Age society. These scandals usually involved public figures and established institutions and businesses, and focused on social issues such as child labor, political corruption, and corporate crime. The term was coined by President Theodore Roosevelt in 1906.
- robber barons:
- The negative label given to powerful industrialists who amassed personal fortunes during the late nineteenth century, generally through corrupt and unethical business practices.
- The concept of several companies banding together to form an organization that limits competition by controlling the production and distribution of a product or service.
- vertical integration:
- A business strategy in which one person or company is involved in more than one phase of production of a product or service, making the production process more efficient and, thereby, increasing the amount of production and level of profit.
Other factors contributed to the birth of industrialism in the late nineteenth century. Machinery was made to be more durable. Some of the sturdy, long-lasting machines being built were specialized, that is, made to do just one thing. These new machines allowed manufacturers to produce goods in larger quantities than once was possible. This method of manufacturing became known as the "American System." This system introduced into the economy goods such as sewing machines, bicycles, and cars.
In addition to changes in manufacturing, new ideas about how to market products helped increase consumers' interest in the products. For the first time ever, advertising was a business all its own. Companies used advertising to build brand-name recognition in society and alert consumers to new products on the market.
Metalwork as an industry flourished. Advances in metal production and improvements in cutting and shaping techniques helped usher in the age of industry. The invention of electricity presented Americans with the promise of unlimited power. Ways of working changed inside the factories, too. Engineers reorganized work processes and applied the concept of scientific management. This concept relies on the idea of minimum input or effort for maximum output. Scientific management requires specially designed tools and machinery that work together to develop a product.
Each of these factors added together was responsible for the greatest expansion of industry in American history up to that time. Most people considered this expansion progress, but it did not come without a price. Agrarian workers found their way of life threatened by the newfound technology and industry. The economy no longer depended upon them for survival. These men found themselves out of work, with no hope of finding factory work because they lacked the skills required to run the machinery or manage the factories.
Nevertheless, cities became overcrowded as families moved away from the country to be closer to work. Cities soon became infested by disease and poor living conditions, as Americans and immigrants settled into tenement housing. (See Chapter 8.) Tenement housing was similar in appearance to modern-day apartment buildings, except that the units were incredibly small and had little to no ventilation (fresh air). It was not uncommon for a large family to live in one two-room apartment. Disease developed and spread rapidly through these housing units.
In addition to the dirt and disease found in tenement housing, many Americans thought cities in general were full of sin and corruption. European and Chinese immigrants had settled alongside Americans in these cities. Alcohol consumption, gambling, dancing, and fighting were popular pastimes for city dwellers who worked ten-to twelve-hour days and needed some relaxation in their lives. Although such activities were accepted as a part of the city lifestyle, Americans who enjoyed a higher quality of life or a higher standard of living neither approved of nor understood such behavior.
As evidenced by the necessity of tenement housing, not everyone enjoyed the wealth brought on by industrialism. The distribution of wealth was uneven; most of it went to the already well-to-do white men of the nation. Groups that were already marginalized (part of a lower social standard)—women, African Americans, Native Americans—remained so.
For the most part, Americans came to accept industrialization and all its evils because they enjoyed the benefits it brought them. They had a wider variety of choices as consumers. Products were manufactured more quickly. Household appliances made domestic chores easier and gave women a leisure time they never had before. Jobs were created on a regular basis. Even if life was still not perfect, it was better for many than it had ever been before.
Who really led the Industrial Age?
Although companies such as Standard Oil and Carnegie Steel are largely credited with the industrial expansion of the Gilded Age, their role in the Industrial Revolution is overemphasized. Their place in history is extraordinary mostly for the business strategies used by their owners, John D. Rockefeller (1839–1937) and Andrew Carnegie (1835–1919). The fact is, most industrial firms of the Gilded Age were not large businesses, but smaller organizations. These smaller firms did not attract as much attention because there was nothing outstanding or unusual about them. Their owners were not multimillionaires; the companies were not corrupt on any grand scale.
The smaller firms relied on a manufacturing strategy known as custom and batch production. This type of production is the concept of specialty goods made in small lots; this was different from the giant corporations, who manufactured their products in bulk (large quantities). Sometimes these goods were products with short lives that had to be replaced on a regular basis. Other goods were at the mercy of fashion and the latest trends. Examples of these products include jewelry, clothing, furniture, and fabrics.
Because of the ever-changing societal attitudes toward fashion and design, these smaller firms had to be flexible. They were not able to produce their goods ahead of demand but had to be able to keep up with trends. For these companies, there was little room for error. If they made a product that did not match what was popular or selling at the moment, they were stuck with it and had to suffer a monetary loss.
Women in Industry
Industrialization gave birth to consumerism (the idea that the more goods and products a society buys, the better off its economy will be), and women were the primary consumers. The Gilded Age population was 48 percent women. Unlike women in the twenty-first century, there was such a thing as a "typical" woman of the Gilded Age. She was white, middle class, and American born. She was Protestant (Christian, but not Catholic), married, and lived in a small town.
Women were assumed to be morally superior to men and closer to God. This assumption led to double standards in terms of societal values. For example, it was socially acceptable for men to smoke. Women who smoked were looked upon as morally deficient. Men could frequent saloons without being judged; women had no business setting foot inside a bar. Women of the Gilded Age stayed home except to be involved in church functions. They were not allowed to be seen in public alone or together, but rather, only with their husbands.
This difference in the lives of men and women is called the "separate sphere," because women's lives were led separately from men. Women belonged in the home; men had their place in business. Industrialization began to change the concept of the separate sphere by changing domestic work. This occurred for two reasons: Household appliances such as the washing machine and vacuum cleaner made housework easier than it had ever been, and chores that once took hours to complete now could be finished in minutes. This gave women some new-found free time.
Industrialization also created jobs outside the home. By 1900, one in seven women worked outside the home, a statistic that was never even measured before the twentieth century. Most of these jobs were in social reform such as women's and children's rights, education, and housing. (See Chapter 8 for more on the women's movement.)
These custom and batch production firms did not enjoy the remarkable power of the big business firms like Standard Oil and Carnegie Steel, but they had something those giants lacked: the trust of the American people. The smaller companies still fit within the framework of traditional American values. They seemed, on the surface, at least, to be more concerned with providing a desired product than with making huge profits. They were often run by several generations of the same family. These companies did not dictate the kind of product or the quality of the product to consumers; consumers made the demands and these firms responded.
America's Robber Barons
The term "robber barons" dates back to the twelfth and thirteenth centuries. It described the feudal lords of land who used corruption to increase their wealth and power. Feudalism was a class system of medieval Europe. Only those in the upper class could own land. Citizens of the lower classes could live on and work the land as long as they pledged their loyalty and services to the feudal landlords. The term was revived in the late nineteenth century and used to describe a handful of industrialists who used questionable means to build up personal fortunes. Today, these men would be called billionaires; they had seemingly unlimited amounts of money and were not afraid to let people know it. These business owners used modern strategies like vertical integration (the involvement of a business in all aspects of the production of a product) to increase their wealth and put competitors out of business.
Cornelius Vanderbilt (1794–1877) was considered to be the first robber baron. He quit school at age eleven to help his father make money to support the family. At sixteen, the native New Yorker bought a sailing ship for $100 and began a ferry service from Staten Island to New York City. Vanderbilt eventually established a line of steamboats and became a millionaire before the age of fifty. His net worth increased to $11 million before his sixtieth birthday. In 1857, Vanderbilt invested in the New York & Harlem Railroad. Within six years, he was the company's president. By 1875, the railroad king merged several lines so that his empire served all of the country. Vanderbilt was known to be loud, hardheaded, and somewhat crude. He rarely gave away his money, and when he died in 1877, his $100 million estate was left to William Vanderbilt (1821–1885), one of his thirteen children.
Another robber baron was Andrew Carnegie (1835–1919), a Scottish immigrant who created unimaginable wealth in the American steel industry. Another believer in vertical integration, Carnegie overworked and underpaid his employees, a practice that kept his operating costs to a minimum. He was able to supply his product at a cost less than that of his competitors. As a result, he became one of the world's wealthiest men when he sold his company to U.S. Steel in 1901 for $250 million. Unlike some of his infamous colleagues, Carnegie gave away much of his money to build thousands of library buildings as well as the well-known Carnegie Hall in New York. He also donated to colleges and universities to set up scholarships. When Carnegie died at the age of eighty-three, he had given away most of his wealth.
Among the robber barons was John D. Rockefeller (1839–1937), the man responsible for the establishment of the Standard Oil Company and the American petroleum industry. Rockefeller built his first oil refinery in 1863. By 1877, he controlled 90 percent of the American oil industry. His business became so large that he found it difficult to manage. Rockefeller's response was to form the first "trust." A trust is an organization of several businesses in the same industry. By banding together, the trust can control the production and distribution of a product or service, thereby limiting competition.
Many considered Jay Gould (1836–1892) to be the prototype (original example) of the robber baron. Viewed in some circles as more corrupt than Carnegie, Rockefeller, and Vanderbilt combined, Gould became a railroad financier who engaged in a battle with Cornelius Vanderbilt over the Erie Railroad. As soon as Vanderbilt bought stock in the railroad, Gould issued more, illegally. When he was arrested for this act, Gould bribed the New York state legislature to change the laws. By 1872, he was the director of seventeen major railroads and the president of five others. Most of Gould's success was the result of dishonest behavior and corruption. When he died at fifty-seven, his fortune was worth $77 million.
How big business
Big business represented the harshest side of the Industrial Revolution in America. Americans felt pride at the progress their nation was making, but there was also an underlying fear of the power behind these huge corporations. For many people, the concept of big business was equal to greed and corruption. The very men who built their reputations on and made their livelihood in big business were eventually nicknamed the "robber barons" (see box).
Several strategies made big business what it was: big. The first and most obvious difference between big business and batch and custom firms was size. Big business companies involved such large quantities of money that the concepts of stock markets and investment banking were created to help manage and control the financing of and for these companies.
Whereas the smaller firms were run by one person or a few people, big business was structured using a hierarchy (chain of command) of salaried executives, each of whom had his own special responsibilities and a corresponding salary. Traditional businesses operated in one geographical location, usually a city. These businesses generally had one product to offer, although there could be many styles of that product, as was the case for jewelers, textile manufacturers, and furniture makers. Big businesses may have had one location known to be its central headquarters, but they also had smaller offices or factories elsewhere.
The railroad: leading
The best example of big business was the railroad, which was considered the pioneer of big business and became an almost immediate symbol of industrialization in America. Every American, regardless of income level or social class, could identify with the railroad. Since around 1860, the railroad was the center of the national market. It transported not just goods but also people and information. Restrictions on transportation that existed prior to the Civil War, such as weather conditions and geographical distance, no longer factored into trade and commerce.
Size alone put the railroad in a class all by itself. Never had there been a business in which so much money was invested. The fact that the railroad's business took place across an entire country was another first. Management structures and strategies that worked for traditional businesses would not do for the railroad. Its efficiency and safety would depend on a continuous stream of information and accurate recordkeeping. The railroad's success relied on expensive equipment that had to be constantly maintained in safe, working condition. People were required to do that job, while others were needed in areas of accounting, purchasing, customer service, and train operation. In custom and batch firms, one person might handle purchasing and customer service while another took care of the bookkeeping and shop maintenance. This doubling-up of responsibilities was not an option with a company the size and nature of the railroad.
The railroad found that the most efficient means of operation was to divide management into geographical regions, with one central office staff. Each region operated independently but still had to report to the central office. This management structure offered a degree of freedom for each region but also ensured the security of having one staff that enforced the general rules and regulations.
America paid attention to how the railroad conducted business. Since big business was obviously a cornerstone of the Gilded Age society, it was important to determine what worked and what did not work in governing it. The railroad soon experienced a phenomenon that was new to commerce: large-scale competition. Although the railroad was considered one entity, in reality, there were several companies and lines. As soon as a geographic region was served by more than one line, the question became how to be the line most often chosen for transportation of goods and passengers. The obvious solution was to offer the lowest fare.
Competition leads to corruption
On the surface, it made sense to lower fares. But as soon as one railroad line did that, the others did, too. However, an operation as large in scale as a railroad had numerous fixed costs just to keep the business going. If fares were lowered, that money had to be compensated for somewhere else; otherwise, profits decreased, and eventually the line would go bankrupt.
Some competitors began reducing prices secretly. They negotiated with large shipping companies, firms the railroads knew could take their business elsewhere. The deal usually included what was called a kickback. The shipper would promise to work with just one particular railroad company, no matter how low the competitors' prices were. In return, the railroad gave the shipper kickbacks in the form of money. This way, the railroad line was guaranteed a certain amount of business, and it had only to provide a rebate—often a percentage of the total bill—to the shipper. This was an unethical way to conduct business, but most railroads were guilty of such practices.
One unforeseen consequence of these kickbacks and competitive pricing schemes was a rapid decline in shipping rates. Near the end of the nineteenth century, rates got so low that railroads were claiming bankruptcy on a regular basis. Management from competing railroads came up with the idea to develop pools. These pools were ways in which competing railroads could cooperate to share business. With pools in place, rates became fixed, as competing railroads agreed they would not go below a specific price. The problem with this solution was that the railroad shipping rates got out of hand. Farmers and other businesses that relied on shipping protested the astronomical rates demanded by the railroads. These protests, in turn, led to government regulatory commissions. Never before in the American economy did the government judge the situation serious enough to step in and limit the power of commerce.
Government to the rescue?
When state governments realized the railroads were taking advantage of the public's need for their services, regulatory commissions were formed. These commissions publicized information about railroad operations in the hopes of educating the public. The theory was that if the public had knowledge of how the railroads operated, citizens and business owners could make more informed choices.
Throughout the 1870s, many states attempted to regulate the power of the railroads. Hesitant to tread where federal government had never gone before, President Ulysses S. Grant (1822–1885; served 1869–77) and the U.S. Supreme Court rarely upheld the ruling of these state-level commissions. Not until 1886 did the U.S. Supreme Court rule that only Congress had the power to regulate commerce between the states. This ruling led to a national movement for federal regulations regarding interstate commerce.
In 1887, under the leadership of President Grover Cleveland (1837–1908; served 1885–89 and 1893–97), Congress passed the Interstate Commerce Act. This act created the Interstate Commerce Commission (ICC), the first federal regulatory agency. The sole purpose of the Commission was to address railroad abuses. The Commission declared that shipping rates had to be "reasonable and just" and that the rates had to be publicly published. Kickbacks and secret rebates were made illegal, and price discrimination against small markets was outlawed.
The last of these four requirements was the hardest to enforce. Railroads traditionally offered lower rates for longer hauls, a practice that worked against many farmers and smaller companies. The ICC had the authority to investigate such discriminatory tactics, but it became immediately clear that determining which prices were discriminatory was hard. The ICC had no specific measures or standards, making the determination politically difficult. The idea of having an ICC was logical, but the reality was not helpful to many of those who relied on the railroads to do business; they continued to be charged unfair rates.
The ICC started out with five members; by 1920, there were eleven members, each of whom served a six-year term. The U.S. president elected members, but he could not remove them. Although the ICC was created to ensure fair play, the reforms it claimed to uphold only went so far, as later presidents appointed commissioners who were pro-railroad.
Big business: I'll do
In addition to management structure, another difference between the batch and custom firms and big business was the actual business strategy itself. The smaller firms usually specialized in one aspect of production. For example, in furniture making, one company supplied the wood, whereas another was responsible for assembling or building the pieces.
Almost without exception, big business owners found success using a strategy called vertical integration. This strategy requires one company to become involved in all aspects of production. This practice cuts costs and allows for better production control. One of the most famous examples of a company that embraced vertical integration was the Carnegie Steel Company. Founded by robber baron Andrew Carnegie (see "America's Robber Barons" box), Carnegie Steel dominated the steel industry. Not only did Carnegie own all the steel mills but also he controlled the iron ore barges, the coal and iron fields, and part of the railroads. His desire to keep operating costs down led him to sell directly to the user whenever possible, rather than to a sales person or a middleman.
Singer, the sewing machine manufacturer, was another company that successfully implemented vertical integration. When Isaac Singer (1811–1875) sold his first sewing machines in 1853 under the company name Singer Manufacturing Company, he knew he had a machine that was considered expensive ($100) by many consumers' standards. To get his machines into the hands of the average housewife, he needed to make it affordable. He set up an installment plan, in which money could be paid toward the account on a regular basis until it was completely paid off. Because the sewing machine was new, Singer's employees had to be ready to give demonstrations to potential buyers and teach them how to use it. Singer recognized the importance of having replacement parts and repairmen readily available.
Rather than rely on other firms to take care of sales and maintenance or to provide instruction to consumers on how to use the sewing machine, Singer took control of all aspects of getting this product into the hands of the Americans who would benefit most from it. His company advertised heavily to build brand-name recognition. The company mass-produced the machines to save on production costs, and it provided its own sales and service personnel. By the 1870s, Singer had sales operations outside North America. Singer was one
Carnegie's Gospel of Wealth
In June 1889, Andrew Carnegie published an article titled "Wealth" in the magazine North American Review. Carnegie's philosophy was that men of great wealth were not robber barons but rather trustees of wealth whose duty it was to use their power and good fortune to advance the common good. He believed some men attained wealth because it was God's will. Carnegie claimed, "The man who dies thus rich dies disgraced." Carnegie obviously lived out his beliefs, as by the time of his death, he had given away 95 percent of his wealth.
The Gospel of Wealth was not the first philosophy of its kind. It was actually a more acceptable and politically correct version of an earlier philosophy promoted by social philosopher Herbert Spencer (1820–1903) in 1857. Spencer proposed his philosophy two years before Charles Darwin (1809–1882) publicly presented his theory of evolution. Darwin's proclamation greatly supported Spencer's philosophy, which said that the strong and mighty in society should survive and thrive while the poor and weak be allowed to die. Spencer's idea became known as Social Darwinism.
Social Darwinism upheld the elitist view that colonialism was just; native peoples were naturally weaker and less fit to survive, so white men were doing them a favor by confiscating their land and putting them to work. The theory was applied to military action: The mightiest militaries would be victorious, and the casualties on the losing side were a result of the losers' inability to survive. In the first half of the twentieth century, Social Darwinism was used to uphold the concept of eugenics, in which millions of mentally and physically disabled people were sterilized so that they could not contribute to the national gene pool and produce offspring.
Carnegie's Gospel of Wealth differed from Social Darwinism in that it called on the wealthy to give back to the society that made them rich. Because Carnegie represented the American Dream—a boy born into poverty who worked his way up to society's elite class through hard work and determination—his philosophy was popular throughout the Gilded Age. That is not to say all wealthy men were philanthropists (men who give their money away to worthy causes); nothing could be further from the truth. But his was a rags-to-riches story, and people respected Carnegie's wisdom.
of the first companies to achieve that degree of expansion.
If you can't beat 'em,
With competition becoming a major factor of doing business in the early years of the Gilded Age, some corporations determined that vertical integration was not going to give them the power they needed to turn the highest profit. The way to conduct business, then, was to merge companies (bring different companies together as one company). This practice became known as horizontal integration. The Standard Oil Company set the pattern for business mergers. By the late 1870s, Standard owned 90 percent of America's oil refineries. By buying out the competition, Standard overwhelmingly dominated the market.
Standard Oil: an American
Prior to the Civil War, there was little need for oil. But the Industrial Revolution created a high demand for oil to run factories' machines, ships, and eventually, automobiles. Oil became a profitable industry. John D. Rockefeller became involved in the oil business in 1863, when he and two partners built a refinery in Cleveland, Ohio. Two years later, Rockefeller bought out his partners and founded Rockefeller & Andrew, Cleveland's largest refinery.
In 1868, Rockefeller negotiated a deal with Jay Gould, owner of the Erie Railroad. Rockefeller guaranteed Gould his business in exchange for rebates (money given back to businesses who used particular railroad companies for all their shipping needs; the money, in effect, acted as a refund of shipping fees), a practice that was eventually outlawed. This was the first of many such deals Rockefeller would make throughout his years as the oil king.
With one million dollars in capital, Rockefeller established Standard Oil Company in 1870. He now owned the largest corporation in the world as well as 10 percent of American oil refineries. Within two years, he was involved in a scandal called the South Improvement Company scheme. This was a secret alliance between the major refiners and the railroads. Although his reputation suffered, Rockefeller took advantage of the scandal to convince other Cleveland refiners to sell him their companies. When the scandal had died down, Rockefeller owned twenty-two of the twenty-six refineries located in Cleveland.
The year 1873 was a disaster for businessmen in America. September 18 of that year was known as Black Thursday, the day thestock exchange crashed and began an economic depression that lasted six years. On that day, the nation's largest financing operation, Jay Cooke & Company, failed due to problems financing the Northern Pacific Railroad. When it failed, fifty-seven more companies involved in stocks and bonds also failed. Millions of people lost millions of dollars in the crash. Rockefeller managed to come out of the nationwide tragedy wealthier than he was when it began. Depending on his colleagues' misfortune, the oil magnate bought refineries throughout Pennsylvania and New York.
By 1877, Rockefeller owned nearly 90 percent of America's oil refineries. In 1879, the forty-year-old was among the country's twenty richest men.
In 1881, journalist/activist Henry Demarest Lloyd (1847–1903) wrote an article for the Atlantic Monthly entitled "Story of a Great Monopoly." In it, Lloyd criticized the business strategies and ethics of Rockefeller. A monopoly is created when one company or person controls an entire industry, as Rockefeller basically did in America's oil industry. Monopolies prohibit smaller businesses and companies from operating because they cannot compete with the giant industrialists. Nobody profits from a monopoly except for the company or person in control. Lloyd's article led to a book called Wealth against Commonwealth (1894).
Rockefeller created Standard Oil trust in 1882. The trust was incredibly powerful, but the legalities of its existence were shaky at best. A handful of men invested in the trust, thereby becoming trustees. These trustees held all the stock at Standard Oil and so reaped all the profits. Like monopolies, trusts did not work in the favor of consumers. Trusts were built on mergers and fixed prices. Because oil was necessary for daily living at all levels, consumers were forced to pay the prices demanded by Standard.
Americans were quickly becoming disenchanted and distrustful of monopolies. The topic was a major issue in the platforms of both candidates in the 1888 presidential campaign. Both the Democratic candidate, President Grover Cleveland, and the ultimate victor, Republican Benjamin Harrison (1833–1901; served 1889–1893), condemned the creation of monopolies. It would be two years before a law was passed making monopolies and trusts illegal.
The year 1888 also saw a state investigation into Standard Oil and its business practices. Rockefeller was called to the witness stand by the state of New York, but his testimony was evasive. The state could not prove, based on evidence and testimony, that Rockefeller was actually involved in any illegal activity. As a result, Rockefeller continued to conduct business as he always had, despite the fact that his dishonesty and unethical behavior were common knowledge. The following year, Rockefeller made his first charitable donation when he agreed to help found the University of Chicago.
or Fair Play?
Antitrust laws are still aggressively pursued in America's modern economy. In May 1998, the United States filed a suit against Microsoft Corporation. The United States charged that the computer software company abused monopoly legislation in the way it handled its operating system and web browser sales. After two years of litigation, Microsoft was found guilty of violating the Sherman Act. The judge in charge of the case ordered Microsoft to divide itself into two units: one to produce the operating system, the other to produce software.
Microsoft appealed the verdict, and in November 2001 reached a settlement with the U.S. Department of Justice. Instead of dividing the company into two separate units of operation, Microsoft was ordered to share its application programming interfaces with third-party companies. It would also be required to appoint a panel of three people who would have unlimited access to Microsoft's systems, records, and source code for five years in order to ensure that the company complied (acted in agreement) with the settlement. Nine states and the District of Columbia fought against this settlement, claiming that it did not go far enough to fight the Microsoft monopoly. But on June 30, 2004, the U.S. appeals court approved the settlement. The case has been publicly criticized for not imposing harsher consequences. Others criticized the government for even pursuing Microsoft on terms of business monopoly. They claimed the suit was the result of government joining with smaller competitors against Microsoft to obstruct the bigger company's ability to profit. These critics believe antitrust laws go against the concept of a free marketplace, where all businesses share an equal chance to succeed.
On July 2, 1890, U.S. Congress passed the Sherman Antitrust Act, named after U.S. senator John Sherman (1823–1900) of Ohio, the Republican who introduced it. Prior to the Sherman Act, several states had already passed laws restricting the use of trusts. The laws, however, applied to business conducted only within those states. The Sherman Act declared it illegal to form trusts and monopolies both within states and when dealing with foreign trade. Like many of the laws passed in the Gilded Age, the theory was more promising than reality. With a maximum fine of just $5,000 and one year imprisonment, the consequence of building a trust was not so harsh as to detract those who would be inclined to do so. Although the federal government was now authorized to dissolve trusts, Supreme Court rulings kept them from implementing the Act for years. It was not until Theodore Roosevelt (1858–1919; served 1901–9) was president and enforced his "trust-busting" campaigns that the Sherman Act actually did any good. Future presidents enacted further antitrust legislation. In 1914, President Woodrow Wilson (1856–1924; served 1913–21) established theFederal Trade Commission (FTC), a government department designed solely to protect the public from unfair business practices.
John D. Rockefeller decided to retire from Standard Oil in 1895. He did so on a gradual basis (it would take years) and without announcing it publicly. He did not want the public or the press to know of his retirement so that business could continue as usual. Retirement did not keep Rockefeller from being involved in his oil business. In 1896, he contributed $250,000 to the presidential campaign of the Republican candidate, Ohio governor William McKinley (1843–1901). McKinley's Democratic opponent, U.S. representative William Jennings Bryan (1860–1925) of Nebraska, was a staunch supporter of antitrust legislation. The candidates' views on the issue of trusts divided public opinion on the issue as well. In general, Democrats favored antitrust legislation and Republicans were against it. McKinley won the election with 271 electoral votes, leaving the Democrats with just 176.
Between 1898 and 1902, 198 trusts were formed in sugar, coal, and other industries. One of the biggest trusts formed was U.S. Steel, the first billion-dollar corporation. J. P. Morgan bought Carnegie Steel and took over the steel industry.
Rockefeller exposed by muckraker
Ida M. Tarbell (1857–1944) was a journalist for McClure's Magazine. During the Gilded Age, journalism was a field dominated by men, but Tarbell won acclaim as a muckraker. Newspapers and magazines competed with one another to see who could print the most outrageous stories. During this time, big business was in the habit of ignoring laws that prohibited them from expanding. These two factors led to the development of a type of journalism called muckraking. Muckrakers were writers who made it their job to expose scandals, usually involving public figures such as politicians and businessmen. Muckraking was a major type of journalism from 1902 through 1912.
Robber Baron with Integrity
J. P. Morgan (1837–1913) was the most powerful force in the business of financing in his lifetime. Morgan was born into a wealthy family. From an early age, he was exposed to international banking. Unlike some of the other robber barons, Morgan was a man of character who considered personal integrity more important than financial success. He opened his own financial services firm on New York's Wall Street in 1862 and joined with the Drexel financing firm nine years later. The new firm was called Drexel, Morgan and Co. Today, Morgan's company is known as JPMorgan, and it owns Chase Bank.
Morgan's bank was responsible for keeping many of the railroads in business when competition began forcing some of them into bankruptcy. Morgan saved, among others, the Baltimore and Ohio, Chesapeake and Ohio, and the Erie lines. Because he conducted business honestly and with a natural sense of authority, people trusted him and took his advice without question. By the time of the Industrial Revolution, Morgan was the man business owners turned to for financing. His list of clients included General Electric and U.S. Steel. Morgan became the leader in America's financial community. When a banking panic threatened the security of big business in 1907, it was Morgan who took control and restored order.
Although President Theodore Roosevelt was not in favor of muckraking and publicly denounced it, Tarbell and others like her continued the practice. Tarbell had already earned a solid reputation as a journalist for a series of articles she wrote for the magazine on the late president Abraham Lincoln (1809–1865; served 1861–65) shortly after she was hired in 1894. That series alone doubled the circulation of McClure's. Realizing the power of the press, Tarbell went after Standard Oil with a determination to expose Rockefeller for the sort of businessman many consumers believed him to be but which no one had been able to prove.
For two years, Tarbell researched Standard Oil through court documents, newspapers, and state and federal reports. Through her research, she got an idea of how Rockefeller did business, both publicly and in private. As impressive as her detailed research was, what was even more remarkable was her ability to translate those documents and the information they revealed in terms that the average American consumer could not only understand but find interesting.
"The History of the Standard Oil Company" was a nineteen-part series published over the course of two years, from 1902 to 1904. Tarbell exposed Rockefeller's unethical business tactics while at the same time showing what a brilliant businessman he was. She ended her study of Rockefeller and his empire with a two-part personal exposé. In it, she accused him of being a money-mad hypocrite. "Our national life is on every side distinctly poorer, uglier, meaner, for the kind of influence he exercises," she wrote. Rockefeller was offended by Tarbell's personal attack, but he refused to issue a public response.
Tarbell's series is considered a landmark of investigative journalism. It was among the top five on a 1999 list of the top one hundred works of twentieth-century American journalism.
The beginning of the end
Although President Roosevelt may not have appreciated Tarbell's muckraking, he was in favor of dismantling trusts. By 1906, his public attacks on Standard Oil were increasing in both number and intensity. Public anti-Rockefeller sentiment was also at a peak. People had had enough of Rockefeller's bullying. By 1907, the U.S. government had seven lawsuits pending against Standard Oil. At that time, the company was more than twenty times the size of its nearest competitor. The next year, the government launched its largest antitrust suit to date. Standard Oil was the defendant. It took two years, but in 1911, the U.S. Supreme Court demanded the dismantling of Standard Oil. The company was ordered to rid itself of its subsidiaries (smaller companies owned by Standard) within six months.
By this time, Rockefeller had left the company completely. His worth in 1913 reached its peak at $900 million, due in part to the selling of Standard Oil.
Although Rockefeller's business heyday was past, he continued to be burdened by problems. The later years would find him in another lawsuit, this time regarding the deaths of miners at one of the mines he owned in Colorado (see Chapter 3). Rockefeller died in 1937, leaving the bulk of his wealth to his son, John D. Rockefeller Jr. (1874–1960).
A tragic and uncertain future
Although some progress had been made in regulating big business, the government tended to stay out of the business of running a business in the late nineteenth century. The term for this concept of nonintervention is laissez faire, a French expression that means "to leave alone."
Laissez faire clearly was not working during this time of great transition. For the first time in history, industry had taken over the American way of life. Billion-dollar corporations were taking hold and taking over. Products were being mass-produced at a rate never imagined. With the growth in industry and opportunity came an increase in the incidence of corruption and greed. Big business owners soon learned that competition was something to overcome and trample. At a time when government should have been thinking about how to best usher in this new movement of a wage-earning society, it was, instead, turning its collective head and ignoring the escalating economic crisis.
People can be ignored only for so long before taking matters into their own hands. It was only a matter of time before violence would erupt as workers and management pitted against one another in what has become known as the Labor Movement.
For More Information
Baker, James T. Andrew Carnegie: Robber Baron as American Hero. Belmont, CA: Wadsworth Publishing, 2002.
Calhoun, Charles W. The Gilded Age: Essays on the Origins of Modern America. Wilmington, DE: Scholarly Resources, 1996.
Painter, Nell Irvin. Standing at Armageddon: The United States, 1877–1919. New York: W. W. Norton & Co., 1987.
"Andrew Carnegie: The Gilded Age." PBS.org.http://www.pbs.org/wgbh/amex/carnegie/gildedage.html (accessed on April 3, 2006).
Carnegie, Andrew. "Wealth." Internet Modern History Sourcebook.http://www.fordham.edu/halsall/mod/1889carnegie.html (accessed on April 3, 2006).
"History." Singer: At Home Worldwide.http://www.singerco.com/company/history.html (accessed on April 3, 2006).
"The Rockefellers: People & Events: Ida Tarbell, 1857–1944." PBS.org.http://www.pbs.org/wgbh/amex/rockefellers/peopleevents/p_tarbell.html (accessed on April 3, 2006).
"The Rockefellers: Rockefellers Timeline." PBS.org.http://www.pbs.org/wgbh/amex/rockefellers/timeline/index.html (accessed on April 3, 2006).
Spencer, Herbert. "Progress: Its Law and Causes."
Internet Modern History Sourcebook.http://www.fordham.edu/halsall/mod/spencer-darwin.html (accessed on April 3, 2006).
Tarbell, Ida M. The History of the Standard Oil Company.http://www.history.rochester.edu/fuels/tarbell/MAIN.HTM (accessed on April 3, 2006).