AP/IB American History
Mr. Blackmon
The Economy in the Gilded Age
I.
The Railroads
A.
The growth of the railroads is the most fundamental factor in the development of
the United States into an industrial giant in the period after the Civil War.
1.
Railroads permitted the efficient use of the United States' enormous
resources.
2.
Railroads created a huge demand for iron and steel, thereby creating jobs.
3.
Railroads spurred the development of collateral invention and technology,
also creating jobs.
4.
Railroads permitted the creation of truly national markets, permitted the
use of economies of scale, and the development of the domestic market.
5.
Railroads forced the creation of new corporation structures, helped
development finance capitalism, and brought about the problems of
monopoly and corruption that dominate the politics of the era and which
still challenge us today. With the railroads, we enter a market that looks
modern.
B.
Growth of the railroads is enormous.
1.
From 1865-1880, the ton-miles of freight carried on the 13 biggest lines
rose from 2.16 billion to 14.48 billion (Smith 90)
2.
Trackage increased in that same period from 35,000 miles (already the
largest rail system in the world) to 115,647 miles.
3.
From 1880 to 1890, ton-miles of freight rose from 39 billion to 79 billion.
(Smith 90)
4.
In 1890, the national railroad debt was 5 times larger than the national
debt.
5.
This growth alone would have absorbed the entire attention of most
nations, and helps explain America's relative lack of interest in foreign
issues.
C.
The Transcontinental Railroad.
1.
The Union Pacific was to build westwards from Council Bluffs.
2.
The Central Pacific was to build eastwards from Sacramento.
a.
The five men who formed this company were:
(1)
Collis Huntington
(2)
Mark Hopkins
(3)
Charles Crocker
(4)
Theodore Judah
(5)
Leland Stanford
b.
Crocker brought in several thousand Chinese workers.
c.
The dangers and conditions in the Sierra Nevada especially were
appalling.
3.
The transcontinental railroad involved fraud and corruption on a massive
scale from the very beginning.
AP/IB American History
The Gilded Age
a.
D.
E.
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Crédit Mobilier, a company set up largely to milk the government
as well as the Union Pacific stockholders, is the culminating
scandal. Congressmen were generously bribed.
4.
Both companies were given sections of land along the right-of-way to help
pay for the cost, and were also subsidized directly by the federal
government.
a.
Since the company received land in direct proportion to miles of
track laid, the race was on. Emphasis was placed on speed at the
expense of safety.
b.
Railroad construction brought a host of hangers-on: saloons,
gamblers, prostitutes, etc. Part of the legend of the Old West was
being made.
c.
You will please note that, however justified the federal aid may
have been (and a very strong case indeed can be made; the savings
to the federal government during World War I for the mandatorily
lower freight rates exceeded the cost of all federal assistance
given), this is emphatically NOT laissez-faire.
5.
The lines were linked in 1869. 1,780 miles had been laid. (Smith 92)
Rail Barons
1.
Among the men who built the systems and became wealthy (or, in some
cases, wealthy, broke, and wealthy) were:
a.
Henry Villard, a German immigrant who invented the blind trust,
controlled Northern Pacific.
b.
Leland Stanford, Collis Huntington Charles Crocker of Central
Pacific, who established a hammerlock on the economy of
California via the Central Pacific. They were not, shall we say,
notable for ethical business practices.
c.
James J. Hill of the Great Northern Railway.
2.
The Granger Lines
a.
Four lines crossed the Midwest, focusing on Chicago. The farmers
of the Midwest found themselves at the mercy of these lines, which
is important politically.
(1)
Chicago, Burlington & Quincy
(2)
Chicago, Milwaukee & St. Paul
(3)
Chicago and Northwestern
(4)
Chicago, Rock Island & Pacific.
Federal and State Assistance
1.
By 1871, the federal government gave 135,000,000 acres to the railroads
2.
States gave an additional 164,000,000 acres.
3.
"In almost every instance, railroads preceded and were essential to
statehood." (Smith 99)
a.
Wyoming, Utah, Oklahoma, New Mexico, and Arizona benefitted
in this way.
AP/IB American History
The Gilded Age
4.
F.
G.
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Railroads sold the land to settlers, and actively promoted migration.
a.
A typical arrangement was to sell for 1/6 down and the rest in 5
annual installments.
Cut-throat Competition
1.
Railroads had huge amounts of money invested in tracks, land, and
equipment, and therefore were typically heavily in debt. They fought
ruthlessly for profits.
a.
Everyone on the line was exploited to the fullest extent possible:
rates were "All the market can bear!" This effected farmers,
miners, and ranchers equally.
b.
Stockholders were exploited by "watered stock"--stock whose
prices had been artificially inflated. It is a form of theft from one's
own stockholders.
c.
The Rail Barons were in a position to manipulate bankruptcies
(which were frequent) at the expense of the smaller stockholders.
d.
In a rate war, two competing lines would lower rates below cost
until the weaker line failed. Then, armed with monopoly, the
winner would raise rates sharply to recoup losses.
(1)
Competition of this nature usually took place between lines
serving a major market, such as Chicago or San Francisco.
Such large markets had several routes available, and forced
the railroads to offer rate differentials: a lower rate for the
long haul, and then a much higher rate for the short haul
markets with no alternative source of shipment to market.
2.
Bankruptcies were common. There was a wave of bankruptcies in the
1870s, and then in the 1880s. The general tendency was to consolidate
railroads and for financial institutions to increasingly take control of the
industry. J.P. Morgan is the exemplar of this process. Morgan was
uninterested in competition; rather, he wanted stability and efficiency.
Railroads as Economic Multiplier
1.
Railroads required the construction of thousands of miles of rails,
thousands of locomotives, and cars.
2.
Railroads required huge amounts of timber for the ties, spurring the
lumber industry.
3.
Quick and reliable communications capable of handling large bulk
shipments sped the shift from traditional, small-scale multi-crop
agriculture to large-scale single-crop commercial agriculture.
a.
Large scale single-crop commercial agriculture in turn stimulated
the production of heavy farm machinery.
4.
The Rail Barons led directly to Coal Barons, Iron and Steel Barons,
Timber Barons--in short, the "Era of the Robber Barons."
5.
The need to feed rail crews (plus simple sporting blood lust) accelerated
the kill-off of the vast buffalo herds. This led to Indian trouble, but the
AP/IB American History
The Gilded Age
H.
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Indians were faced with hopeless odds.
a.
The Americans waged a systematic, total war against the Indians.
Men like William Tecumseh Sherman (who not only gave us "War
is hell," but also "The only good Indian is a dead Indian") and
Philip Sheridan practiced total war against the Confederacy-systematically attacking the civilian populace and destroying the
economic base of the society. They brought the same ruthless,
business-like approach to war. Buffalo herds, the basis of Plains
Indians' economy, were systematically slaughtered. Eventually, the
tribes were forced by hunger to come to the reservations. The
Sioux were hunted mercilessly in dead winter, when the
destruction of their winter encampments meant the death by
exposure of much of the tribe.
6.
The spanning of the West by rail permitted the West, with its millions of
cattle, to now reach the urban markets of Chicago and New York. The
first cattle drive sent cattle from Abilene to Chicago in 1867. By 1880,
4,000,000 cattle had been shipped from Kansas. (Smith 102)
7.
"In retrospect it appeared it had been the lack of adequate transportation,
above all else, that had kept civilization moving at a mere camel's pace, or
a mule's or ox's pace, prior to the railroad era." (Smith 103)
a.
For example, one by-product is that cheap transportation meant
that low grade iron, silver, copper and gold ore could be crushed,
smelted, and transported profitably. Mass production could be
applied to mining. Supplies of all these minerals were, in effect,
greatly increased.
(1)
Just the increase in money supply alone would be very
important in a world with a rapidly growing economy.
b.
"All this required labor of a kind that few native-born Americans
were willing to perform. The cry for cheap labor willing to do
backbreaking work under conditions of appalling hardship and
danger, where disease and industrial accidents decimated the work
forces, seemed insatiable." (Smith 103)
8.
The railroads became the nation's chief employer, with 749,000 in 1890.
a.
Accidents were frequent, and deaths common. 6,335 were killed
and 29,000 injured in rail accidents in 1890.
(1)
My maternal great-grandfather and paternal greatgrandfather were both killed in rail accidents. Each worked
for quite separate rail lines. My maternal grandfather was a
Pullman conductor for 40 years.
The ambiguous career of Charles Francis Adams, Jr..
1.
A descendant of John Adams (his great-grandson) and John Quincy
Adams, he entered the railroad industry consciously because he recognized
its importance. He was both a critic and scholar of the railroads, and a
AP/IB American History
The Gilded Age
II.
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practicing railroad manager.
a.
He invested heavily in railroads and related businesses, including
the Kansas City Stock Yards.
b.
He was appointed by Carl Schurz to take over the bankrupt Union
Pacific.
(1)
The Republicans among you will probably concur with his
comment, "There I had my experience in the most hopeless
and repulsive work in which I was ever engaged-transacting business with the United States Government
and trying to accomplish something through Congressional
action." (Smith 109)
c.
Adams held (correctly) that the railroads, for all the abuses,
allowed the U.S. to produce wealth on a scale never before seen.
2.
Another critic was Lester Frank Ward.
a.
Ward advocated public ownership of railroads and municipal
utilities, pointing to the example of Germany.
I.
"The railroads were primary. . . . It was the insatiable appetite of the railroads for
steel and iron and coal that was the principle stimulus to those industries.
Railroads spawned towns . . . . They made the astonishing growth of cities
possible by carrying food and fuel to them in their freight cars, and they made
large-scale agriculture possible by transporting its products, its corn and wheat
and hogs and cattle, to the cities. The railroads worked everywhere to develop
new markets, find new passengers, transport new and exotic freights, open up new
regions for exploitation. The well-being of millions of Americans came to ret, to
an alarming degree, on the decisions made by the directors of railroads strung
across the country in a network of steel." (Smith 111)
Electricity, Oil, Iron, Mining
A.
The application of electricity rivaled the railroads in importance.
1.
The telegraph, first invented by Samuel F. B. Morse during the
administration of Andrew Jackson, was essential to the function of the
railroads, and grew alongside of them. Most telegraph offices were at
train stations.
a.
Western Union successfully drove out all competitors and
monopolized the industry.
(1)
One means by which they did was to extend free use to
Congress as well as local politicians.
(2)
Their brutal suppression of a strike in 1883 helped fuel
demands for nationalization of the railroads.
2.
The telephone, invented by Alexander Graham Bell in 1876 helped to spur
developments in the electric industry.
a.
Bell had to fend off attacks on his patents. 587 lawsuits were
brought against him, with 13 reaching the Supreme Court. Bell
won them all. However, the suits were a cover: 125 companies
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The Gilded Age
B.
C.
D.
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were started and $225,000,000 of stock sold to investors, who were
thus bilked of their money. (Smith 115) Such was business ethics
in the Gilded Age.
3.
Among the most important of Thomas Alva Edison's many contributions
was the establishment of a research laboratory at Menlo Park, New Jersey.
Edison was both the last of the tinkerers and one of the first leaders of
organized research. (Smith 116) Edison was interested in applied science,
much in the tradition of Benjamin Franklin.
a.
Edison invented the phonograph, the motion picture projector, a
storage battery, the mimeograph, the incandescent light bulb, and
helped develop the dynamo.
b.
The Edison Illuminating Company in New York in 1884 sparked a
rush to get into the industry of lighting up America's cities.
(1)
George Westinghouse, who had become wealthy with the
railroad air-brake (among other inventions for the railroads)
financed the development of an alternating current dynamo
by Elihu Thomson, which eventually became standard.
4.
Electric street cars begin to transform the appearance of US cities.
The gas and oil industry showed enormous expansion in the Gilded Age.
1.
The first oil well was drilled by Edwin Drake in Pennsylvania in 1859.
2.
Production, refining, and distribution was chaotic in the extreme. Profits
could be large, however: Carnegie bought a farm with oil for $40,000 and
realized from it in one year $1,000.000. (Smith 120)
3.
I will come back to the oil industry in a discussion of John D. Rockefeller
The iron and steel industry resembled the oil industry in its chaos.
1.
In 1860, the US produced 920,000 tons of iron. In 1900, the US produced
10,300,000 tons. As early as 1884, the US produced 20% of world iron
and 25% of world steel. (Smith 123) At the time of his retirement,
Andrew Carnegie produced more steel than Great Britain.
2.
Pennsylvania and Michigan were the chief iron making areas, with
substantial production from New York and Birmingham.
3.
Huge deposits of iron ore were found at Menominee, Gogebec,
Vermillion and Mesabi ranges along the Great Lakes. This location
facilitated getting the ore to the smelters.
4.
The US, with an estimated 300,000 cubic miles of coal, had 75% of
known world reserves.) (Smith 121)
5.
The development of the Bessemer process for making steel permitted, for
the first time, the production of large quantities of good quality steel at a
cheap price. Steel begins to replace iron for building, with great
advantages in strength and durability.
6.
I will return to iron and steel with my discussion of Andrew Carnegie.
Mining saw the application of mass production techniques as well. Magnates now
needed a knowledge of geology and metallurgy. The day of the lone prospector is
AP/IB American History
The Gilded Age
over.
The mineral wealth of the American West was staggering.
1.
The Comstock Lode produced $300,000,000 in silver ore.
2.
Such wealth bred corruption and crime. The mining towns were pretty
cut-throat. Mining claims were disputed fiercely, judges and juries bought
systematically (in fact the judges actively solicited the bribes; the
complaint was not that the judges were crooked, but that they would not
stay bought once they had been bribed!)
F.
The over-all environment was one of cut-throat competition, enormous growth,
potential enormous profits, huge risks, and chaos. Some kind of order was
necessary and inevitable.
Growth of Monopoly
A.
Expansion and concentration (i.e. larger and fewer business units) are closely
related
B.
Advantages of concentration
1.
Economies of scale
a.
Downward spiral of prices make all economies important
b.
This time period saw steady deflationary pressure. This is a
fundamental economic fact, and failure to understand or remember
that will distort your understanding of the period.
c.
The world money supply, which was primarily gold, was not
adequate to the explosive growth of the US economy or the world
economy. Therefore, regardless of any other factors, money was
relatively scarce and getting scarcer, prices fell, and those with
money (bankers, investors, capitalists) were in relatively strong
positions.
d.
World money supply does not reach a balance until 1896-7, when
gold strikes in South Africa, Alaska, and Australia, coupled with
the cyanide extraction process which made more ores profitable,
coincide.
e.
Deflation put heavy pressure on everyone's profit margins.
f.
Ferocious competition often left everyone exhausted; combination
was the only alternative to mutual destruction.
C.
Classical economists like David Ricardo and Thomas Malthus held the field
intellectually
1.
They held that competition advances the public interest by keeping prices
low.
2.
Competition assures profit to the most efficient producer.
D.
The Railroad Reaction
1.
As the largest businesses, they pioneered various means of monopoly.
2.
They offered selective rate reductions to lure business
a.
Rebates were given to large shippers, such as Standard Oil
b.
Drawbacks were also offered, which are similar to rebates, but the
E.
III.
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money was taken from the rates paid by someone's competitor.
John D. Rockefeller used both rebates and drawbacks ruthlessly.
(1)
The railroads preferred not to pay either, if they could help
it. Competitors like Rockefeller gave them no choice
whenever he had an option of two competing roads for a
long haul cargo.
c.
Special passes were offered to ride the trains
d.
Special sidings were built for the convenience of favored
customers. Andrew Carnegie forced the railroads to build such a
spur to serve his Homestead Steel Plant.
3.
Unscrupulous competition was common.
a.
The Erie War is the best example. When Cornelius Vanderbilt
tried to take over the Erie Railroad in 1868, the directors of the
Erie, Daniel Drew, Jay Gould and Jim Fisk fought back at first by
issuing new stock certificates as fast as Vanderbilt could buy them.
Vanderbilt took them to court. The whole issue wound up before
the New York legislature which had to approve the stock issue.
Both groups arrived in Albany with trunk loads of cash and set out
to systematically bribe the legislature. The going price was
$15,000; one enterprising capitalist sold his vote for $75,000 to
Vanderbilt and then re-sold it to Gould for $100,000.
4.
Where ever there was no competition, the railroads hiked the rates up as
high as they could in order to make up for the losses incurred in rate wars.
Remember this cycle for your DBQ!!!
a.
Small shippers and towns with only one rail outlet suffered the
most.
Spiral of concentration
1.
Railroads are extremely expensive to build, requiring a huge capital outlay.
Consequently, they are typically carrying a lot of debt.
2.
The cost of running a railroad is the same whether the trains run empty or
full. Hence, the cut-throat competition to fill the trains.
3.
Cut-throat competition weakened the roads financially, so that if there
were a down-turn in the economy (and there was one each decade), many
went default and into bankruptcy.
a.
40% of all roads were bankrupt in 1876
4.
Stronger roads would absorb the losers.
5.
The 1880s saw the first inter-regional systems, lining lines that ran within
a region into a larger unit. These are the first giant corporations.
6.
The depression of the 1890s forced many of these into bankruptcy.
7.
This led to the development of finance capitalism rather than industrial
capitalism. Financiers (i.e. bankers) now took over lines and consolidated
them. The bankers were uninterested in competition. What they wanted
was price stability.
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The Gilded Age
a.
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The greatest and most important of these financiers was J.
Pierpont Morgan.
b.
The bankers opposed rebates, rate wars, and competitive practices
in general. They centralize the networks.
The Robber Barons: Four Case Studies.
A.
I shall describe 4 Robber Barons in more depth. They represent "typical" Robber
Barons, or are so important that they may stand as symbols and representatives of
their type.
B.
Jay Gould
1.
Gould represents the very worst of the Robber Barons.
2.
He worked as a surveyor in New York and acquired $5,000 to serve as the
basis of an investment with a leather merchant. He acquired full control of
that business when his partner committed suicide (it was rumored that the
cause was the discovery that Gould had been defrauding him of profits;
this wold be in keeping with Gould's future career.
3.
He sold the tannery and engaged in railroad speculation in the 1860s. By
1867, he had formed a partnership with 2 other notorious Robber Barons,
Jim Fisk and Daniel Drew, to control the Erie Railroad.
a.
Daniel Drew is the man who gave us the term "watered stock"
which means to inflate the price of stocks well above the actual
value of the company. In effect, this induces investors to give you
their money, since the stock isn't worth what the investors have
paid. It is a fundamentally deceptive practice from its inception.
Men like Gould were adept at selling out their stock before a crash,
or selling their own stock short (i.e. gambling that their stock will
go down). At best it is unethical. Today, it is illegal.
4.
The Erie War
a.
Commodore Cornelius Vanderbilt, having built his fortune in
steamship lines before the Civil War, turned to railroads in the
1860s. He controlled three lines running into New York City,
including the New York Central, and wanted to reach out to
Chicago. The Erie was also reaching for Chicago. Vanderbilt
decided to acquire the Erie. He started by buying up 20,000 shares,
and then kept buying.
b.
Drew kept printing more shares to meet demand. Vanderbilt bid
the price up and up. Drew also fed in 30,000 shares he held as
collateral for a loan. Drew waited until the price per share reached
95, then dumped an additional 28,000 shares on the market all at
once. The price plunged to 47. He bought back the stock he
dumped at 47 (all of this was held as collateral, and wasn't really
his to sell). This is what is meant by selling short.
c.
Vanderbilt was furious at being taken (the illegality of it doesn't
seem to have bothered him). He obtained an injunction to block
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The Gilded Age
5.
6.
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the issuing of new shares, and then started buying up Erie stock all
over again.
d.
Drew ignored the injunction and issued 50,000 more shares.
e.
The above mentioned bribery of the New York legislature was
required in order to get the legislature to approve the stock issue.
f.
Shortly after their victory over Vanderbilt, Gould and Fisk forced
him out of the Erie.
g.
Gould began to fleece the Erie Railroad of all assets he could get
away with. Instead of trying to build up a sound business that
could sustain growth, Gould regarded any company he controlled
as a sheep to be shorn. He robbed and ruined his own companies.
Cornering the Gold Market
a.
In 1869, Gould attempted to corner the gold market in the US. "by
1869 there was only $15 million worth in actual circulation in the
United States. Gould's plan was to get control of all the gold in
circulation and fix his own price for it; it did not matter to him that
this plan, if it succeeded, would not only cause severe economic
problems but would also run many businesses."
b.
He had to make some arrangement with the federal government,
however, since the government held $95 million in reserve. Gould
gave A.R. Corbin, President U.S. Grant's brother-in-law, $2
million in gold bonds, to secure administration support.
c.
U.S. Grant did not in fact give Gould the support he wanted (I
doubt if Grant understood what was going on; by refusing to take
any positive action, he effectively foiled the plot), but many people
believed that Grant did support the plot.
d.
Gould bought up large amounts of gold at high prices, but
skepticism led to a decline in gold prices.
e.
Gould and Fisk then bought a bank and issued fraudulent checks to
buy more gold than was actually in circulation. Now, businesses
and banks had to buy gold from Gould at prices he had set.
f.
At this point, Grant authorized the release of US gold reserves,
which would cause the price to drop sharply.
g.
Gould got wind of it, encouraged his partner Fisk to buy up gold
recklessly while he quietly disposed of all the gold he held at a
high price before the price dropped.
h.
Gould cleared $12 million from the scam.
i.
Gould and Fisk then bribed a judge to invalidate their contracts to
provide gold to others' thereby saving their skins and ruining all of
their customers.
j.
Such was business ethics in the Gilded Age. It is enough to turn
one into a Marxist.
Western Union and the Railroads
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The Gilded Age
a.
C.
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Gould now set out to control the telegraph system. He wanted to
control crucial choke points in the economy and then extort his
own price.
b.
His control of Western Union gave him a lot of control over
various rail lines (which depended on the telegraph to run their
operations).
c.
He also controlled the Associated Press via the telegraph, and thus
molded public opinion by controlling the types of stories that went
out over the wires.
(1)
he used his control of the AP in particular to attack the
labor movement. Stories were edited, distorted, and
fabricated. The poisonous attitude toward labor unions
taken by almost all US newspapers can be attributed to a
large degree to Gould and his control over the means of
communication.
d.
While he was doing this, he was also fleecing Western Union of
profits by creating competitors, then forcing Western union to buy
them out at high prices.
7.
Gould dropped dead in 1892, worth $72,000,000. There were few
mourners.
Andrew Carnegie
1.
Carnegie is the subject of one of your essays, and justly so. He can be
used as an exemplar of the Robber Baron--ruthless competitor and
monopolist, as well as an innovator--and as an exception--a genuine ragsto-riches story, essayist, would-be philosopher, philanthropist.
2.
Unlike Gould, Carnegie has his positive side, and, on the whole, was a
very constructive force.
3.
His careers combines intelligence, hard-work, ambition, and luck.
4.
Carnegie was born in Scotland in 1848 to a poor family. They immigrated
to America looking for a better life.
5.
He started work at a textile mill as a bobbin boy for $1.20 / week.
6.
At 14, he was up to $2.50 / week as a telegraph messenger boy. He
learned telegraphy, and became so adept that Thomas Scott, director of the
Pennsylvania Railroad, made him his personal secretary and telegrapher in
1853. This was Carnegie's big break.
7.
Carnegie stayed with the railroad for 12 years under Scott's eye. Carnegie
moved up when Scott moved up. When Scott became assistant secretary
of war in charge of transportation, Carnegie found himself in charge of the
military telegraphy system.
8.
His first big investment was in the company that owned the patents to the
Pullman sleeping car. This gave him his first big accumulation of capital.
9.
In 1873, he entered the iron and steel business. He had met Sir Henry
Bessemer on a business trip the previous year, and became convinced that
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10.
11.
12.
13.
14.
15.
16.
17.
18.
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the Bessemer process gave steel the future.
Depression in 1873-75 allowed him to buy or build factories at low cost.
Carnegie knew nothing about the technique of making steel. But he made
up for that by hiring men who did, and paying them very well indeed. And
he insisted on the very best and latest technology available. He once tore
out much of a partially built factory to put a newer technology in place.
He hired chemists and metallurgists to improve techniques. He stressed
producing high quality steel at the lowest possible cost.
Then, he could instruct his salesmen to underbid everyone. Since he was
the most efficient producer, he could underbid everyone and still make a
profit.
Carnegie became involved in vertical integration: he wanted to control
every step of steel production, from owning his own mines for coal and
iron, to the rail lines leading to his factories. His system was therefore
self-sufficient.
He organized his company as a limited partnership so that Wall Street
sharks like Gould could not attack him.
He built up large cash reserves (he plowed a very large percentage of his
profits into increased capacity and paid himself relatively low profits).
Then, when depression struck, he could buy up competitors at dirt cheap
prices.
a.
In 1893, his profits were $3,000,000. In 1900, they were
$40,000,000
He prided himself on his good treatment of his workers, granting an 8 hour
day and establishing company stores, and bi-weekly wage payments. But
he still paid wages barely enough to live on: $10-12.00 / week for skilled
workers.
His chief lieutenant, Henry Clay Frick, was notably hostile to organized
labor and his workers. That is why the Homestead Steel Strike hit
Carnegie.
Carnegie also developed a philosophy and rationale for the use of his
wealth. His best known essay is "The Gospel of Wealth," published in
1889. he was heavily influenced by Herbert Spencer and Social
Darwinism.
a.
The wealthy, he believed, had earned their place by superior talent
and industry. It was their genius that gave America the highest
material standard of living in the world, and made possible
progress. They were the "fittest" to wield wealth.
b.
The wealthy had an obligation to use their wealth wisely for the
good of society. Surplus revenue was to be regarded as a trust
fund.
c.
Carnegie disapproved of outright charity, since that would tend to
perpetuate the unfit. But he did believe that money should be
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V.
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given to libraries, museums, educational institutions, hospitals,
concert halls, parks, etc.
d.
Carnegie practiced what he preached, giving away a very large
amount of his personal wealth.
e.
"The Gospel of Wealth" fits into the popular image of the Horatio
Alger stories, pulp fiction with titles like Ragged Dick (1867) and
Tattered Tom (1871), whose characters went from rags to riches by
hard work, integrity, and thrift.
(1)
Few Robber Barons were the kind of rags to riches stories
that Carnegie was.
19.
By 1900, Carnegie was talking of retiring. One of his lieutenants, Charles
Schwab, discussed the potential for a steel trust at a dinner with J.P.
Morgan. Morgan asked Schwab to speak with him privately in the library.
When they finished, Morgan asked Schwab to ask Carnegie if he would
consider selling.
a.
Carnegie named his own price. Morgan accepted it without demur.
b.
The buyout led to the organization of United States Steel
Corporation, capitalized at $1.4 billion, the first billion dollar
corporation in history. Carnegie's personal profit (in an era before
income taxes) was $250,000,000.
20.
Carnegie gave away so much money that, at his death, he was worth
$23,000,000.
21.
Wealth on this magnitude is so great that Carnegie could not have spent it
on himself if he had tried. He couldn't even give it all away. So why does
he work so hard? These men are motivated by a desire for wealth, but
beyond a certain point, that desire is satisfied. Part of the answer is in a
desire for order and efficiency. This is especially noticeable in the next
two Robber Barons.
D.
John D. Rockefeller
E.
J. Pierpont Morgan
Social Darwinism and Reformers
A.
Despite vigorous propaganda from business interests, Americans had never
objected to assistance to business, and the United States never practically adhered
to laissez faire. Big Business wanted laissez faire with respect to labor and
wanted special privileges with respect to themselves.
1.
Examples of aid to business:
a.
banking laws
b.
protective tariffs
c.
internal improvements, esp.
d.
public land grants and subsidies given to the railroads.
2.
In this era, the U.S. government will act virtually as an arm of business
interests against the interests of all other segments of American life.
B.
Changes in attitudes
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The Gilded Age
1.
2.
3.
4.
5.
6.
7.
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James Bryce wrote in The American Commonwealth:"the very freedom of
association which men sought to secure by law . . . may, under the shelter
of the law, ripen into a new form of tyranny."
Many Americans began to equate industrial combination with monopoly
with extortion.
There was a growing fear that monopoly destroyed economic opportunity
and threatened democratic institutions (which were, after all, based upon a
rural economy).
William Cook in 1891 in The Corporation Problem, wrote "colossal
aggregations of capital" were "dangerous to the republic."
The new leaders of industrial America responded with a new form of
Conservativism. John Morton Blum puts it well: "To say that these men
were conservative is to put a strain on customary usage of the word, for
conservatives are usually opposed to change and devoted to tradition. Yet
these men flouted tradition and preached progress. To confuse customary
usage further they adopted the slogan 'laissez faire,' which was
traditionally the doctrine of Jeffersonian and Jacksonian liberals. In one of
the strangest reversals in the history of political thought, the new
conservatives of wealth took over virtually the whole liberal vocabulary of
concepts and slogans, including 'democracy,' 'liberty,' 'equality,'
'opportunity,' and 'individualism,' and turned it against the liberals. In
short, they gave an economic and material turn to ethical and idealistic
concepts. Man became economic man, democracy was identified with
capitalism, liberty with property and the use of it, equality with
opportunity for gain, and progress with economic change and the
accumulation of capital. God and nature were thus in league with the
Gospel of Wealth." (Blum 464) (emphasis added)
The conservatives coupled the classical economics of Adam Smith, David
Ricardo and Thomas Malthus with the new biology of Charles Darwin as
adapted to social organization by Herbert Spencer.
By the turn of the century, their argument ran rather like this: "(1) that the
American economy was controlled for the benefit of all by a natural
aristocracy and that these leaders were brought to the top by a competitive
struggle that weeded out the weak, the incompetent, and the unfit and
selected the strong, the able, and the wise; (2) that politicians were not
subject to rigorous natural selection and therefore could not be trusted to
the same degree as businessmen; (3) that the state should confine itself to
police activities of protecting property and maintaining order and that if it
interfered with economic affairs it would upset the beneficent effect of
natural selection; (4) that slums and poverty were the unfortunate but
inevitable negative results of the competitive struggle and that state
intervention to eliminate them was misguided; (5) that the stewardship of
wealth obliged the rich to try to ameliorate social injustice." (Blum 465)
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The Gilded Age
8.
9.
10.
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Social Darwinism was the (particularly baneful) application of Darwin's
theory of evolution and natural selection to social organization by the
English philosopher Herbert Spencer. Social Darwinism "taught that
struggle was a normal human activity, especially in economic life. The
weak went down, the strong endured and became stronger, and society was
benefitted because the unfit were eliminated and the fit survived." (Current
528)
a.
To give you an idea how deadly this philosophy is, Adolf Hitler is
a thorough-going Social Darwinist.
b.
Andrew Carnegie's "Gospel of Wealth" already discussed above,
was the best-known American contribution to this line of thought.
c.
The myth of the Horatio Alger stories also contributed.
d.
Russell Conwell, a clergyman, made a living preaching this
materialist philosophy with his "Acres of Diamonds" sermon,
which he delivered 6,000 times.
Social Darwinism posed a serious (and, in my opinion still unresolved
threat) to fundamental American values. The American government rests
on the idea that all Men are created equal and are endowed by God with
unalienable rights. Darwin's view of Man makes him an animal, no more
and no less. Man therefore does not possess any innate rights, just as a
chicken does not. Furthermore, Americans had traditionally believed that
history was the working out of God's divine plan (whether the Errand into
the Wilderness or Manifest Destiny). Now, history has no plan or purpose,
and is simply the tale of the fiercest or luckiest competitors dominated by
an essentially random process.
William Graham Sumner, one of the founders of sociology, was the most
influential American Darwinists. In works like "The Absurd Effort to
Make the World Over," What Social Classes Owe to Each Other, and
Folkways, "Sumner upheld the business ethic, laissez-faire capitalism, and
free enterprise. Just as inexorable natural laws governed the working of
the universe, he believed, so did natural laws determine man's social and
economic behavior. To attempt to change or ameliorate these forces was
folly. . . . In Sumner's opinion man had little control over his environment;
he could do nothing about the forces that were at work in society. . . .
Governmental interference, to him, was not only futile but harmful as well.
It only increased governmental weight on the individual citizen and eroded
personal liberty." (Cummins 19) He is not sentimental: "We can find no
sentiment in whatever in nature;" he wrote, "that all comes from man. We
can find no disposition at all in nature to conform her operations to man's
standards, so as to do what is pleasant or advantageous to man rather than
anything else. Before the tribunal of nature a man has no more right to
life than a rattlesnake. He has no more right to liberty than any wild
beast; his right to the pursuit of happiness is nothing but a license to
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maintain the struggle for existence if he can find within himself the
power with which to do it." (Cummins 21-22)(emphasis added)
11.
At the opposite side of the spectrum stood Lester Frank Ward, also a
founder of sociology and a Darwinist. But in Dynamic Sociology, a book
which virtually created the discipline (at publication, there were no chairs
of sociology in any American university), Ward believed that man could
actively change the environment which shaped the struggle to survive. He
believed in the application of the scientific method to solve social
problems. All institutions should be functional and relate to the greatest
good for the greatest number. The "dynamic" element in his sociology
was the positive use of government to promote and enhance the general
welfare.
12.
The economist Richard Ely, in the 1880s and 1890s, began attacking
laissez faire as well. Ely believed that classical laissez faire related to an
earlier economic era, not to the complex industrial age in which he lived.
Ely specifically rejected socialism, which the collective ownership of the
means of production, but advocated a government that intervened
positively to promote and maintain fair competition--in other words, the
idea behind the Sherman and Clayton Anti-trust Acts. Ely rejected the
untrammeled individualism of Social Darwinism, noting the need to
restore ethical restrains on individual behavior. Democracy was not
originally an economic concept, but a political one, and that politics was
always linked by early writers with public and private virtue: i.e. strong
ethical values widely held by the nation as a whole. Democracy cannot
long survive in a nation that has lost its moral and ethical compass.
Corporations, as supra-individual entities that enjoy legal status as
individuals, are inherently unrestricted by moral or ethical considerations
and therefore pose a challenge to the fabric of our democracy. (cf Tipple
article)
Railroad Regulation and Sherman Anti-Trust: the Beginnings of Control