ECONOMY IN THE GILDED AGE
Key Points

America's economy grew by more than 400% between 1860 and 1900

Technological advances, expanding population, improved transportation, financial innovation,
and new business practices combined to fuel this economic growth

"Titans of Industry" like John D. Rockefeller, Andrew Carnegie, and J.P. Morgan built monopolies
and revolutionized business practices

Laissez faire ideology called for little or no government regulation of economic affairs

Unskilled urban workers did not share in economic gains, instead enduring great poverty
Understanding the Gilded Age Economy
Many argue that America's extraordinary economic development during the Gilded Age can be
summarized by the following statistic: In 1860, the nation's total wealth was $16 billion; by 1900, it was
$88 billion. This translated into a per capita (per person) increase from $500 to $1100.
But what caused this dramatic growth of our economy? Many economic historians suggest that
America's economic development can also be reduced to the convergence of a handful of critical
ingredients.
For starters, there was an unprecedented explosion of new industrial and agricultural technology. The
United States patent office issued 440,000 patents between 1860 and 1900—twelve times more than
during the preceding 70 years. On the farms, steam tractors and mechanical reapers, and harvesters all
greatly increased agricultural productivity. By 1900, it required only 15 man-hours per acre to raise
wheat; a century earlier, it had taken 56 man-hours per acre. In America's office buildings, cash
registers, adding machines, and typewriters transformed the way people did business. Alexander
Graham Bell's telephone, developed in 1876, revolutionized business communication, while Thomas
Edison's work with electricity lit homes and powered factories. Similarly, John D. Rockefeller employed
new oil refining methods that dramatically improved the dependability of Kerosene.
Additionally, new forms of business organization were devised that supported economic growth.
Industrialists experimented by forming pools or cartels. In these loose associations, former competitors
became informal partners and tried to smooth out the market through the adoption of "gentlemen's
agreements" on production levels and prices. Soon these informal alliances evolved into more formal
cooperative ventures among owners. By forming "trusts" and "holding companies," they avoided state
laws forbidding monopolies while reaping the benefits of unified control over entire industries.
The final step in this movement toward centralization was the merger movement of the late 1890s.
Abandoning altogether the appearance of competition, industrial leaders simply absorbed their
competitors. The movement began in 1897 with a record 69 mergers, and then accelerated. In 1898
there were 303 mergers, in 1899 a whopping 1208 mergers.
The Importance of Laissez Faire Ideology
Gilded Age growth did not just occur due to economic innovation alone. This development was
facilitated by a supportive culture—one which placed confidence in industrialists and businessmen and
refused to permit government to interfere in their efforts. Most Americans embraced the principles
of laissez faire economics, which argued that economic forces should be allowed to work themselves out
with maximum freedom and minimal government interference. The logic of this ideology was purely
economic—it was believed that government involvement tended to hinder, or even prevent, economic
development.
Laissez faire ideals enabled industrialists and entrepreneurs to operate with public support and without
government interference. In addition, the philosophy was translated by the courts into a set of practical
rules that enabled businesses to operate with even greater autonomy. For example, during the last
decades of the nineteenth century, state laws that attempted to regulate the workplace, such as
restrictions on work hours and safety requirements, were repeatedly struck down by state courts.
Courts also weakened unions by insisting that employers had a right to replace striking workers while at
the same time denying that strikers had a right to organize boycotts.
This laissez faire policy, while unsupportive of workers, allowed for unregulated economic growth. Out
of this environment, America saw a handful of individual industrial giants transform the Gilded Age.
John D. Rockefeller
 Leader of Standard Oil Company
 Created monopoly through horizontal integration
John D. Rockefeller built a monopoly over the oil business in less than a decade and brought order to a
chaotic vital industry. In 1868, when he formed Standard Oil, the company was just one of thirty oil
refining companies in Cleveland, processing only 5% of the nation's total oil. By the mid-1880s,
Rockefeller refined 90% of the nation's oil. His method of horizontal integration- the merger of
companies at the same stage of the production process— helped him to establish a virtual monopoly
over the entire industry. By uniting almost all of America’s oil refining companies in the Standard Oil
Trust, Rockefeller was able wield wide control over the price and supply of the nation’s oil.
Andrew Carnegie
 Leader of Carnegie Steel
 Built near-monopoly through vertical integration
Andrew Carnegie did for steel what Rockefeller did for oil. In the early 1870s, he realized that the steel
rails being introduced in England were superior to the iron rails used in America, and that it was only a
matter of time before American railroads imitated their English cousins. And so he set about investing
in steel. Utilizing the newest technologies, such as the Bessemer blast furnace and the Siemens-Martin
open hearth, he built the largest steel company in America.
Carnegie could be as deliberate as Rockefeller in crushing his competitors. Like Rockefeller, Carnegie
also formed a monopoly, but this time through vertical integration- the merger of companies at
different stages of the production process in the same industry. By controlling the entire production
process, from the iron mines, to steel manufacturing, to distribution, Carnegie’s monopoly built him a
massive fortune and brought stability to the steel industry.
John Pierpont Morgan
 Leading financier, founder of J.P. Morgan & Co.
 Led merger movement, creating giant industrial corporations
J. P. Morgan completed the triad of America's great Gilded Age industrial giants. He similarly pursued
monopoly-like control over his sector of the economy—but he ultimately established a more varied set
of holdings than either Rockefeller or Carnegie. Even his contemporaries disapproved of his earliest
business deals—during the Civil War he sold defective guns to the Union army at inflated prices. After
the war, he brought the same shrewd instinct to his goal of monopolizing the railroads. As a result, by
the end of the century, his assets included the South Atlantic, Reading, Erie, and Northern Pacific
Railroads, and many more. But not content with controlling just the railroads, Morgan also built General
Electric into a great industrial conglomerate by merging the Edison General and Thompson-Houston
Electric Companies. And in 1901, he forged a merger between Carnegie Steel and several other
companies to form U.S. Steel. Morgan's financial moves built the great industrial corporations that
would lead the American economy's charge into the twentieth century.
Why call this the Gilded Age?
Mark Twain called the late 19th century the "Gilded Age." By this, he meant that the period was
glittering on the surface but corrupt underneath. The Gilded Age saw great economic progress through
the actions of industrial giants. Yet, the same economy that gave Carnegie, Rockefeller, and Morgan the
opportunity to amass the largest fortunes in the history of the world also required unskilled industrial
laborers to work an average of 60 hours per week for 10 cents an hour. (Accounting for inflation, 10
cents in 1880 was worth about as much as $2 today.)
With petty wages, these laborers lived in growing urban slums. More than a million people were
crammed into New York's 32,000 infamous dumbbell tenements—overcrowded, poorly ventilated fire
traps. In these living conditions, disease ran rampant—cholera, typhoid, tuberculosis, consumption. Nor
did it help that city governments could not build water and sewage facilities fast enough to serve their
rapidly swelling populations. In New Orleans, the census reported that pedestrians sank in the mud
made by the "oozing of foul privy vaults." In Philadelphia, the city's water supply, the Delaware River,
was replenished daily with 13,000 gallons of untreated sewage.14
The economic history of the late nineteenth century thus cannot be too narrowly summarized. The
period's label, "Gilded Age," comes close to capturing the juxtaposition of enormous wealth alongside
crushing poverty. But by the twentieth century, the rise of big business and the large migration of
Americans from the countryside to the cities caused a shift in political awareness, as elected officials
saw the need to address the growing economic and social problems that developed along with the
urban boom. So started the Progressive movement. Progressives believed that the government needed
to take a strong, proactive role in the economy and that through using legislation such as the Sherman
Anti-Trust Act, they could regulate big business and pass effective legislation to protect consumers,
organized labor, and minorities.