Chapter 17: Capital and Labor in the Age of Enterprise, 1877-1900

Industrial Capitalism Triumphant
- Historians speak of the late nineteenth century as the age of the Great Deflation, and in most places
around the world, such as Europe, it marked an era of economic decline.
-
However, this was not the case for the United States, and during this time period…
- American’s annual income (on average) increased by nearly 50 percent (from $388 to $573)
from 1877 to 1900.
-
This industrializing economy was a wealth making machine unseen by the world to this point.

The Age of Steel
- Factories were a familiar facet to the American Industrial Revolution; however, they soon
began to change from only producing goods that had previously been produced by specialized
artisans, to producing capitol goods.
-
Capital goods are goods that add to the nation’s productive capacity.
- One such business was the steel business, which replaced that of iron, which proved
ineffective in its use in railroads and industrial usage.
- This was made possible because of the Bessemer converter, which was invented by
Henry Bessemer, and was a furnace designed to refine raw pig iron into steel.
-
Andrew Carnegie was the American who fully exploited its potential.

Andrew Carnegie and American Steel
-
Carnegie was the first “great American success story.”
-
He arrived in 1848 from Scotland at the age of 12.
- He became a telegraph operator  worked for the Pennsylvania Railroad  quickly
climbed the managerial ladder  amassed a fortune in wartime speculation  struck out
on his own as an iron manufacturer.
-
In 1872 he established a massive steel mill outside Pittsburgh.
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This mill was the precedent for every other steel mill at the time.
- It utilized the Bessemer converted as its centerpiece and was advanced so far as it ran
constantly.
- Because American was blessed with an abundance of minerals these steel mills were
possible.
-
They were gigantic iron ranges in northern Minnesota, and extensive coal deposits
were found near the Appalachians.
- Soon, steam engines became the nation’s energy workhorse, and this meant that huge
amounts of coal were consumed by railroads and factories.
- The turbine, utilizing continuous rotation rather than the steam engine’s back-andforth motion, was a further energy advance in the 1880s.
- With the coupling of a steam turbine to the electric generator, the nation’s energy
revolution was completed.

The Railroad Boom
-
Before the Civil War, the nation did not see the need for expanding past water travel.
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However, when the railroad came along, they fell in love with the railroad system.
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They enjoyed the faster travel, and also that they could travel year-round.

Constructing the Railroads
-
The major question concerning the railroads, however, was who would pay for it.
- Unlike canals, the US Federal Government decided for railroad building to be free
enterprise, although the government played a big role.
- Both federal and state governments would offer financial aid, mainly via buying
railroad bonds or offering land grants.
-
The corporation was also developed from the construction of the railroad system.
- This was a legal form of organization that enabled private capital to be raised in huge
amounts.
- The new twist was that investors only had a limited liability, because they could only
lose the money they had invested.
- The majority of the time, railroad building was handed over to construction companies,
who during this time, were notoriously corrupt.
- About half the construction funds for the Union Pacific’s Credit Mobilizer were
pocketed by the promoters that worked for the company.
-
The most successful promoters were…
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John Murray Forbes
- A “great Boston merchant in the China trade who developed the Chicago,
Burlington, and Quincy Railroad in the Midwest.”
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Cornelius Vanderbilt
-
He “started with the fortune he had made in the steamboat business.”
- From there, he linked “previously independent lines and ultimately, via his New
York Central,” connected New York City and Chicago through a series of railways.
-
James G. Hill
- This man, “who without federal subsidy made the Great Northern into the best of
the transcontinental railroads, was certainly the nation’s champion railroad builder.”
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Jay Gould
- Gould controlled, at various times, the “Erie, Wabash, Union Pacific, and
Missouri Pacific railroads, [but] always remained a stock market speculator at heart.”
-
He was also an early promoter of integrated railroads.
- By 1900, the railway system in the United States was more complex than the rest of the
world combined, and there was virtually no corner of the country that lacked rail service.

The Railway System
-
Along with the large scale growth, railway efficiency increased.
-
Initially, there were several problems with the current railway system…
- Freight cars had often to be emptied and their contents transferred to other cars
across a river or at a different terminal.
- The width between the rails (the track gauge) varied widely, and at terminal points
railroads were not even connected.
-
In 1883, the railroads began to fix these problems…
- They “rebelled against the jumble of local times” and created the standard time zones
still in use today to make scheduling easier.
-
They adopted a standard track gauge (4 feet, 8½ inches).
- “Fast freight firms and standard accounting procedures enabled shippers to move
goods without breaks in transit, transfers between cars, or the other delays that had once
bedeviled them.”
- Simultaneously, railroad technology was advancing so fast so that heavier traffic was
permitted.
-
To enable this, inventor George Westinghouse perfected…
-
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The automatic coupler.
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The air brake.
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The friction gear for starting and stopping a long line of cars.
This dropped the cost per ton-mile fell by 50%.
- When the economy went bad in 1893, a third of the railroad industry went into
bankruptcy.
-
Out of “the rubble came a massive railroad reorganization.”
- This was primarily the work of huge Wall Street investment banks, such as “J.P.
Morgan and Co.” and “Kuhn, Loeb, & Co.”
- They stepped into pick up the pieces of the railroad industry, and persuaded
investors to accept lower interest rates or put up more money.
- Through these practices, the nerve center of American railroading moved to Wall
Street.

Large Scale Enterprise
-
Before the civil war, producing on a small scale was the norm.
- After, however, big business arrived, and as economist David A. Wells said in 1889, he
could see “no other way in which the work of production and distribution can be prosecuted.”
-
Why was big business inevitable in America?
- Because of the vast markets available (which were impeded by borders in other places
such as Europe).

Gustavus Swift and Vertical Integration
- As early as the 1860s, Chicago had become the cattle market for the country, with
livestock being shipped there, and then being sent to the east to slaughter houses and meatpacking plants.
- Gustavus F. Swift had a different idea, however, and created the idea of vertical
integration.
- He acquired a cooling system  invested in a fleet of refrigerator cars and
constructed a central packing plant next to the Chicago stock yards  built his own
network of branch houses and a fleet of delivery wagons for the meats delivery 
constructed facilities to process the fertilizer, chemicals, and other usable by-products 
expanded to other stockyard centers (i.e. Kansas City, Fort Worth and Omaha).
-
His idea of a vertically integrated firm was capable of handing within its own
structure, all the functions of an industry.
- By 1900, four other firms had followed his path, and together they produced nearly
90% of the meat shipped in interstate commerce.
-
The term that describes this is oligopoly, or market dominance by the few.
- In this industry, the oligopoly was a result of vertical integration, which was seen as
a radical idea.
-

They drove out competition because…
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No player started with any particular advantage.
-
The market was especially chaotic, as, for example, petroleum.
John D. Rockefeller and Monopoly Power
- Before the 1850s, the scattered pools of petroleum that oozed up mysteriously from the
ground were mostly a nuisance.
- However, once the 1850s came and Americans learned how to extract kerosene
which was excellent for domestic heating and lighting, the potential market was vast.
- Cleveland, Ohio, soon became a big refining city because of its rail connection to the PA
oil fields in 1863.
- In Cleveland could be found John D. Rockefeller, who was an up-and-coming grain
dealer, 24 years old, and doing nicely thanks to the Civil War (which he didn’t participate
in).
-
As the crude oil business came to Ohio, he jumped onboard.
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He had a sharp eye for able partners, a genius for finance, and strong nerves.
- By borrowing heavily, he started his firm – Standard Oil of Ohio – and within a
few years it was Cleveland’s leading refiner.
- Rockefeller’s natural allies were the railroads, with whom he made under-the-table deals
with.
- Because of this already established relationship, when the 1870s oil bust came,
Rockefeller and other key refiners with partnership to multiple railroad companies,
founded the South Improvement Company.
-
This company worked as follows…
-
Participants would cease competing and instead divide up traffic and production.
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Refineries now not only received rebates on their own oil from the railroads, but
from former rivals oil as well.
- Soon, news of this conspiracy leaker, but it was too late, as Rockefeller had taken
over the Cleveland industry.
- By the 1880s, Standard Oil controlled 95% of the nation’s refining capacity, and was so
dominant that Congress considered legislation intended to rein in Rockefeller’s monopoly.
- He was not satisfied, however, and soon utilized vertical integration to increase
efficiency.
-
He purchased oil pipe lines and tankers, and even huge stakes in oil fields.

The Birth of Consumer Marketing
-
The lure of a mass market brought comparable changes in retailing.
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Many companies developed huge mail-order enterprises for rural consumers.
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The department store was created.
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Companies opened chains of stores to reach customers.
- Foreign visitors noted the fact that ready-made clothing made it difficult to tell salesgirls
from debutantes on the street.
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This is because there were no clear class-specific ways of dressing.
However, often times, there were local protests to these nationally marketed goods.
- These could come from local stores, or local buyers who found it hard to believe that
“Swift’s Chicago beef” could still be wholesome weeks later in Boston or Philadelphia.
- Modern advertising was born during the late nineteenth century, and by 1900, $90
million a year were being spent for space in newspapers and magazines.

The Managerial Revolution
- The task of controlling these far-flung enterprises became ever more difficult, and thus a
managerial revolution was needed for these new industries.
- They used the railroad managerial revolution, which had taken place decades earlier, as a
model.
-
This system…
-
Separated the overall management from day-to-day operations,
- Departmentalized operations by function (maintenance of railway, rolling stock,
traffic, etc.)
-
Defined lines of communication.
- Perfected cost-accounting methods enabling managers to assess performance of
operating units.
-
The industrial managerial revolution used them as a model.
-
Their system…
-
Vertically integrated firms had…
-
A main office housing top executives.
- Departments covering specific areas of activity – purchasing, auditing,
production, transportation, or sales.
- Those departments offered “middle management”, which had not been
seen in America up to this point.
- By 1900, the hundred largest companies controlled roughly a third of the nation’s total
productive capacity.
- Whilst the small-scale industries still flourished in some places, the dominant form
of industrial organization had become, and would long remain, large-scale enterprise.

The World of Work
- In a free-enterprise system, profit drives the entrepreneur and produces, the multimillionaire
Carnegies and Rockefellers.
- However, during the late nineteenth century, the wage earners were affected by this economic
change in ways unlike ever before, or ever since.

Labor Recruits
- As industrialization pulled rural folk to cities, people began to reject more and more the idea
of working in a factory.
- While they lacked the skills for the higher-paid jobs as puddlers, rollers, molders, and
machinists, they had other “skills – language, basic literacy, a cultural ease – that made them
employable in the multiplying white-collar jobs in offices and retail stores.”

Southern Labor
-
Textile mills moved to the south for multitudes of reasons…
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They hired families.
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As much as 40% lower labor costs then in the north in 1897.
- These textile mills could be found in “mill villages” where “close-knit, supportive
communities” were built, “but for whites only.”
-
Blacks were also not hired in James B. Duke’s cigarette factories.
- However, in the South’s extractive natural resource industries (i.e. logging, mining, etc.)
race did not play a factor, and whites and blacks made up roughly the same percentage of that
labor force.
- Even the blacks who migrated out of the south, of which there were few, were hardpressed to find work elsewhere, because of the immigrant workers who already supplied the
cheap labor that was in such high demand.

Immigrant Workers
- The flux of immigrants to America began in the 1840s when over a million Irish fled the
potato famine.
-
Seeking to utilize skills they already possessed…
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Welsh labored as tin-plate workers.
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English as miners.
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Germans as machinists and tradition artisans (i.e. bakers and carpenters.)
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Belgians as glass workers.
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Scandinavians as seamen.
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Irish as “common laborers”.
- As mechanization advanced, the demand for ordinary labor skyrocketed, and immigrants
found their niche in heavy, low-paid labor.
- Whilst the majority of European immigrants came to America to make a quick buck, and
then planned on returning to Europe, about half changed their mind and decided to stay once
arriving.
- The other half did eventually return, leaving in great numbers during depression
years.
- No one is sure how many left because they had earned what they wanted to or
because of lack of work.
- What was clear, was that the immigrants took the worst jobs and were always available
when they were wanted – they were the ideal labor source.

Working Women and the Family Economy
- Over 4 million women worked for wages in 1900 and they made up 25% of the nonfarm
labor force and played a vital part in the industrial economy.
- Traditionally, wives were not “supposed” to work outside the home, and fewer then 5%
of did so in 1890.
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Only among blacks was this trend broken, with 30% of wives working for wages.
- A “family wage” was a term that described the amount of money a man would have to
earn so that his wife could stay at home and not have to work.
-
By 1900, women’s work fell into 3 categories (33% each)…
1. Domestic servants.
2. “Female” white collar jobs – teaching, nursing, sales, and office work.
3. Industry, mostly in the garment trades and textile mills, but also in many other
industries as inspectors, packers, assemblers, and other “light” occupations.
- Once a job was determined to be “women’s work”, it was no longer suitable or
respectable for a man to do the same job that may have been considered “men’s work”
naught but a month ago.
- It was incredibly hard to live on a single income for all but the most well off families,
however.

Thus, in 1900, 20% of children under the age of 16 had a job.
Autonomous Labor
- Some examples of autonomous laborers, who were laborers that controlled how much work
they did each day, are…
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Mule spinners in cotton mills.
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Puddlers and rollers in iron works.
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Molders in stove making.
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Machinists, glass blowers, and skilled workers in many other industries.
- While working, they abided by the stint, which was a self-imposed limit on how much
they would produce each day.
- Many independent communities were formed through similar work, such as a hatter’s
community/culture, or that of women wage earners.
-
Dispersal of authority was characteristic of nineteenth-century industry.
- The aristocracy of the workers – the craftsmen, inside contractors, and foremen –
enjoyed a high level of autonomy, but their subordinates often paid dearly for it.

Systems of Control
- As time went on, this control offered by Autonomous labor was lost to a new system of
manufacture, which was dubbed “mass production” by Henry Ford.
- Mechanization made it easier to control workers, but that was only an incidental benefit;
employers favored automatic machinery because it increased output.
- However, soon the idea that getting them to work or more efficiently might itself be a
way to reduce the cost production.
- Frederick W. Taylor was the pioneer in this field; with his development of the method he
dubbed “scientific management.”
- “To get the maximum work from the individual worker, Taylor suggested two basic
reforms.”
1. Eliminate the brain work from the individual worker.
2. Withdraw the authority that workers had exercised on the shop floor.
- However, this method was a failure, and it only succeeded it embittering relations on the
shop floor even more.
- But Taylor achieved something fundamentally, and others followed in his footsteps with
their own methods, of which many were successful.
- And so with each advance the quest for efficiency took, it eroded the ever-so-cherished
autonomy, diminished them and cutting them down to fit the industrial system.
-
It came soonest to textile workers.
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Then to Miners and ironworkers, who felt it more slowly.
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Construction workers, however, escaped almost entirely unscathed.
- However, “increasing numbers of workers found themselves in an environment that
crushed any sense of mastery or even understanding.”

The Labor Movement
-
Wherever it travelled, industrialization spurred workers to organize and form labor unions.
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Finally, in the 1880s, workers settled on a labor movement that was distinctively American.
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That is, collective bargaining.

Reformers and Unionists
-
Thomas B. McGuire was a New York wage driver, and he sought to become a capitalist.
- However, much like millions of other independent American workers, he had his aspirations
crushed.

The Knights of Labor
- The Noble and Holy Order of the Knights of Labor was an organization that founded in
hopes that all laborers world producers “laboring together” for the “cooperative
commonwealth.”
- It was founded in 1869 as a secret society of garment workers in Philadelphia, soon it
began to spread.
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By 1878, it emerged as a national movement.
- Their goal was to “give voice to the grand undercurrent of mighty though, which is
today [1880] crystallizing in the hearts of men, and urging them on to perfect
organization through which to gain the power to make labor emancipation possible.”
-
How was this emancipation to be achieved? Through cooperation...
- They intended to set up factories and shops that would be owned and run by the
employees.
- As these cooperatives flourished, American society would be transformed into a
cooperative commonwealth.
-
-
However, little was actually done.
Instead, the Knights focused mainly on “education.”
- Their leader, Grant Master Workman Terence V. Powderly, regarded the
organization as a vast labor college open to all but lawyers and saloonkeepers.
- They believed that the cooperative commonwealth would arrive on its own once
enough “producers” had joined the movement.

Trade Unionism
- The labor reformers, exemplified by the knights, expressed the grander aspirations of
American workers.
-
The idea of a closed shop – which reserved all jobs for union members – became a
popular idea and a common occurrence across America.
-
These closed shops also helped defend the craft worker’s traditional skills and rights.
- The earliest unions were local craft organizations, sometimes limited to a single ethnic
group.
- The practical job interests that trade unions espoused might have seemed a far cry from
the idealism of the Knights of Labor, but both had motives arise from a single worker’s
culture.
- Seeing no conflict, many workers were members of both the Knights and a trade
union.
- Trade unions generally barred women from joining, and so the Knights until 1881, when
women shoe workers in Philadelphia struck in support of their male coworkers and won the
right to form their own local assembly.

Similarly, the Knights of Labor “grudgingly opened the door for black workers.”
The Emergence of the AFL
- In the 1880s, the Knights began to act more like trade unions, negotiation over wages and
hours and going on strike to win their demands.
- They had a huge win over Jay Gould’s Southwestern railway system in 1885, and soon after
its membership jumped from 100,000 to 700,000.
- This rapid growth scared many a national trade union, who called for a clear separation of
roles, with the Knights being confined to labor reform activities.

Samuel Gompers and Pure-and-Simple Unionism
- Samuel Gompers was the key figure on the union side, and he was a Dutch-Jewish cigar
maker whose family had emigrated to NY in 1863.
-
He hammered out a doctrine that he called “pure-and-simple” unionism.
- “Pure” – meant that membership was strictly limited to workers, organized by craft
and occupation, with no participation by middle-class reformers.
- “Simple” – referred to goals: only what immediately benefitted workers – wages,
hours, and working conditions.
- It aimed for collective bargaining with employers, and for Gompers, the key word
was power.
- In December of 1886, having failed to persuade the Knights of Labor to desist, the
national trade unions formed the American Federation of Labor (AFL), with Gompers as
president.
- The AFL in effect locked into place the trade-union structure as it had evolved by the
1880s.
- The underlying principle was that workers had to take the world as it was, not as they
dreamed it might be.

Haymarket
-
The biggest issue between the Knights and the AFL was the length of the workday.
- The AFL sought to have an eight-hour workday, which they argued that nothing
would do more to improve the everyday lives of American workers.
- The Knights’ leaders, however, regarded the shorter hours as a secondary issue and a
distraction from higher goals.
- However, thousands of members of the Knights supported the eight-hour
workday, and despite their leaders’ feelings, strikes sprung up across the nation.
- At one such strike in Chicago, things turned violent in this hotbed of anarchism – the
revolutionary advocacy of a stateless society – and local anarchists (mostly German
immigrants), called for a protest in Haymarket Square.
- When police came to break it up, someone threw a bomb that killed or wounded
several of the police who responded with wild gunfire.
- Despite the lack of evidence, the anarchists were found guilty of murder and criminal
conspiracy, and 4 were executed, 1 committed suicide, while the rest served long prison
sentences.
-
After this affair, employers went on the offensive…
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Breaking up strikes violently.
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Compiling blacklists of strikers.
- Forcing workers to sign yellow-dog contracts, in which, as a condition of
employment, workers pledged not to join labor organizations.
- The Knights of Labor were never able to recover after Haymarket square and soon were
disbanded permanently.
- On the other hand, the AFL survived it, but they failed to realize the genius of the
Knights, their inclusiveness.
- The AFL failed to include women and blacks, which would eventually come
back to haunt them.

Industrial War
-
Pure-and-simple unionism was, in effect, a conservative movement, simply asking for a
larger share for working people.
- But it was this that employers did not want to concede, so in the 1890s, they unleashed a
fierce counterattack on the trade union movement.

The Homestead Strike
- The Homestead Strike was a labor strike at Andrew Carnegie’s steelworks in
Homestead, PA, in July of 1892.
- When the Amalgamated Association of Iron and Steel Workers went on strike following
a wage cut, the company's manager, Henry Clay Frick, hired strikebreakers, with Pinkerton
Agency detectives to protect them.
- A gun battle resulted in which several people were killed and many injured; the governor
sent state militiamen to support the company.
- The broken strike represented a major setback to the union movement that was felt
for decades.

The Great Pullman Boycott
- The Pullman Strike was a nationwide conflict between labor unions and railroads that
occurred in the United States in 1894.
- The conflict began in the town of Pullman, Illinois on May 11 when approximately
3,000 employees of the Pullman Palace Car Company began a wildcat strike in response to
recent reductions in wages, bringing traffic west of Chicago to a halt.
- The American Railway Union, the nation's first industry-wide union, led by Eugene V.
Debs, subsequently became embroiled in what The New York Times described as "a struggle
between the greatest and most important labor organization and the entire railroad capital"
that involved some 250,000 workers in 27 states at its peak

American Radicalism in the Making
- During the depression of the 1890s, the main forces of 20th century American radicalism
emerged.

Eugene V. Debs and American Socialism
- Eugene V. Debs had humble beginnings, and many did not expect him to become the
nation’s leading socialist someday.
- At the age of 25, he was elected national secretary-treasurer of the Brotherhood of
Locomotive Firemen, which was a craft union that represented the skilled operating trades on
the railroads.
- However, he was shocked at the union’s indifference to the low-paid track and yard
laborers.
- Thus he left his comfortable post to join the American Railway Union, an industrial
union, which was open to all railroad workers, regardless of skill.
- After his six months in federal prison because of the Pullman strike, he moved to the
Socialist camp.
- Marxist socialism slowly garnered support in places such as Chicago and New York
City, with the most ardent supports being German immigrants.
- When Debs joined them in 1897, they were in disarray, and blaming each other for not
taking advantage of the opportunity that had just presented itself as American capitalism had
just gone through its worst crisis.
- Soon Debs joined the movement to oust the current party’s leader and attract Americanborn votes.
- After that, in TX, OK, and MN, socialism exerted a powerful appeal among
distressed farmers, and they also were successful at attracting female supporters.
- The Socialist Party had official become a force to be reckoned with in American
politics.

Western Radicalism
-
Farther west, a different kind of radicalism was taking shape.
- Spurred on by unfair conditions in mining camps, etc, miners formed the Western
Federation of Miners (WFM), which caused strikes to occur, and those took an unexpectedly
violent turn.
- When strikes turned into gun battles, martial law was declared, the strikers were
imprisoned in stockades, and the strike was broken.
-
In subsequent strikes, government intervention was equally naked and unrestrained.
- Soon after, led by the fiery Ed Boyce (president of WFM) and “Big Bill” Haywood, the
WFM joined in 1905 with left-wing Socialists to create a new movement, the Industrial
Workers of the World (IWW).
- The Wobblies, or IWW members, fervently supported the Marxist class struggle –
but at the workplace rather than in politics.
-
Via general strikes, they believed that the workers would bring about a revolution.
-
Syndicalism describes this bran of workers’ radicalism.
- In both its major forms – politically-oriented Socialism and the syndicalist IWW –
American radicalism flourished after the crisis of the 1890s.
- American radicalism, by its sheer vitality, bore witness to what was exploitative and
unjust in the new industrial order.