The Character of Industrial Progress
1861, agriculture = leading economic source 40 years later, replaced by manufacturing
From New England to Midwest stretched industrial heartland: NE = light industry, MW = processing natural resources, Far West = natural resources, South = textile
The Contribution of Technology
Before Civil War, workers used slow, expensive process to produce soft iron (rails wore out easily)
Bessemer converter – transformed iron into steel by forcing air through the liquid iron, reducing the carbon
Facilitated rapid expansion of steel industry
Reduced need for highly paid skilled workers
Andrew Carnegie acquired access to raw materials and markets, bringing all stages of steel manufacturing into one mill
Output soared, prices fell
Experimentation with open hearth process yielded steel usable by bridge and ship builders, engineers, etc. steel use increased dramatically
1869, about half of nation’s industrial power came from water
Then, opening of new anthracite deposits made coal cheaper industry converted to steam (1900, steam engines generated 80% of energy supply)
Electricity replaced steam as power source – Thomas Edison, 1878
Decided to solve problem of electric lighting
Believed that professional collaboration fostered successful innovation
From these beginnings came the electric light, the generator, then the electric machine
Railroads: Pioneers of Big Business
Railroads owed much to the largess of both federal + states gov’ts that granted railroads lands from the public domain
First transcontinental railroad finished 1869; four more in 70s and 80s with telegraph lines
Transportation and communications worked to create national market that supported mass production and mass marketing
1854, Erie Railroad hired engineer and inventor Daniel McCallum to discover how to make managers and employees more accountable
Divided responsibilities, separated management from operations, and ensured a regular flow of information
High costs + indebtedness of railroads encouraged aggressive business practices
Slashing wages resulted in worker unrest
Fierce competition led companies to offer customers lower rates or secret rebates (cheaper fares in exchange for all of a company’s traffic) to secure business
Instigated rate wars – customers benefit, but railroads go bankrupt
To bring order to railroad business in 70s, leaders set up “pools” – informal agreements that set uniform rates or divided up the traffic (never succeeded completely, companies broke them)
Growth in Other Industries
Huge size of workforce combined with subdivision of work contributed to increasing production
Vertical integration (Andrew Carnegie)
Adding operations before or after the production process
Carnegie acquired own sources of pig iron, coal, and coke to avoid dependence on suppliers – “backward” integration
Gained control of steamships and railroads to transport finished products – “forward”
Horizontal integration (railroads, John D. Rockefeller)
Combining similar businesses to gain a monopoly of the market, eliminating competition and stabilizing prices
Rockefeller used it to control oil market – bought or drove out competitors of Standard Oil of NJ
Never achieved complete monopoly, but 1898 refined 84% of nation’s oil
As giant businesses competed, they absorbed/eliminated smaller producers – business ownership became increasingly concentrated
Businesses recognized advantages of legal corporation
Corporation can raise money to finance large-scale operations by selling stock
Legal identity = surviving the death of original + subsequent shareholders while principle of limited liability protects the personal assets of both shareholders and investor
Financing Postwar Growth
Foreign investors contributed a third of capital for railroads ($10 billion for national railroad)
Investment banking houses like Morgan & Co. played role in transferring resources to economic enterprises
Acquired
