The Rise of Industrial Capitalism in two minutes
- Railroads were the first big businesses, and their stock sales, rate wars, rebates, and pools in the 1860s and 1870s showed how large corporations could squeeze competitors and customers.
- John D. Rockefeller incorporated Standard Oil in 1870, joined a secret railroad rebate scheme, the South Improvement Company, in 1872, and by 1879 Standard refined about 90 percent of America's oil.
- Horizontal integration meant buying competitors in one business, as Rockefeller did, and vertical integration meant controlling every step from raw materials to sale, as Carnegie and the meatpacker Gustavus Swift did.
- In 1882 Standard Oil placed its shares in a trust run by nine trustees, other industries copied it, and in 1889 New Jersey legalized the holding company.
- J. P. Morgan's bank reorganized failing railroads after the Panic of 1893, and his partners sat on the boards of rival lines, which let investment bankers shape competition between them.
- Kerosene, steel, and beef got cheaper, but owners crushed rivals with secret deals, and one 1896 estimate found the richest 1 percent of families held more wealth than the other 99 percent.
- On the exam: expect causation questions and the debate over captains of industry versus robber barons, linked to the Gospel of Wealth, the Sherman Antitrust Act, and Progressive trustbusting.
Topic 6.6 key terms
- Investment bank
A bank that raises money for big businesses by selling their stocks and bonds to investors. Bankers like J. P. Morgan's firm financed Edison's electric company.
- Kerosene
Lamp fuel refined from crude oil. It cost less than whale oil, so ordinary families could afford light after dark.
- Standard Oil (1870)
Refining company John D. Rockefeller and his partners incorporated in Cleveland on January 10, 1870, with $1 million in capital. Within a decade it controlled most of U.S. oil refining.
- Context
Oil swung from boom to bust: too many wells, too many small refiners, prices that crashed without warning. Context explains why a person acted. It doesn't settle whether the act was right.
- Drawback
Here, a payment a railroad made to the South Improvement Company out of the freight its rivals paid. A rebate cut a member's own rate. A drawback paid the member part of a rival's.
- Vertical integration
One company controls every stage of making a product, from raw material to finished goods. Example: Carnegie Steel's mines, ore ships, railroad and mills.
- Horizontal integration
One company takes control of its competitors at the same stage of production, until it dominates the whole industry. Example: Standard Oil buying Cleveland's refineries.
- Consolidation
Merging many separate businesses into one large company, to cut costs and end competition between them.
- Trust
Stockholders of many companies hand their shares to one board of trustees, which runs them all as one.
- Holding company
A corporation formed to own a controlling share of other corporations' stock. New Jersey allowed it in 1889.
- Interlocking directorates
The same people sitting on the boards of competing companies.
- Refrigerated railroad car
A freight car cooled with blocks of ice in its roof, so fresh meat could travel for days without spoiling.
- Brand name
One company name, sold nationally with advertising, so buyers trust it anywhere.
- Reciprocity Treaty (1875)
A treaty that let Hawaiian sugar into the United States duty-free, and American goods into Hawaii the same way.
- Guano Islands Act (1856)
A law that let Americans claim islands with guano nobody else held, and treated them as U.S. possessions.
- Captains of industry
A name for business leaders seen as builders who made goods cheaper and the economy bigger. Thomas Carlyle used it in Past and Present (1843). Later writers used it as praise for America's tycoons.
- Robber barons
A critics' name for rich business leaders who won through pressure, secret deals and swindles. The Atlantic Monthly made the comparison in 1870. Matthew Josephson's 1934 book, The Robber Barons, made the name stick.
- Contextualization
Explaining a source by what was happening around it. In 1883, Puck's readers remembered the 1877 railroad strikes and knew Jay Gould from the stock pages. The cartoon spoke to things they already knew.
- Industrial capitalism
An economy where private owners run huge factories, railroads and banks for profit and hire wage workers. From 1865 to 1898 it grew fast, made goods cheaper and gathered wealth in a few hands.
- Connection: bobbin boy → steel mill
Showing how one development relates to another. Carnegie started in a cotton mill, the kind of factory the Market Revolution built. At Braddock, that model reached a scale no 1830s mill owner could have pictured.
Transcript
Quotes are from the historical record and name their source. Lines marked Dramatized are reconstructions.
Cheaper Than Water
1859–1872
Key terms: Kerosene, Standard Oil (1870), Context, Drawback
In 1859, Edwin Drake struck oil near Titusville, Pennsylvania. Thousands rushed in. Wells came in faster than anyone could find barrels.
By December 1861, crude had fallen to ten cents a barrel. A barrel could cost more than the oil in it.
The money was in kerosene. It lit farm kitchens that once went dark at sundown.
Henry Demarest Lloyd, in 1881:
Henry Demarest Lloyd
We use more kerosene lamps than Bibles.
In 1855, sixteen-year-old John D. Rockefeller became a Cleveland bookkeeper.
John D. Rockefeller
This was September 26, 1855. I joyfully went to work.
He marked that date every year, more cheerfully than his birthday. He called it Job Day.
In 1863, he invested in a Cleveland oil refinery. By 1870, his Standard Oil Company was the city's biggest.
Oil was chaos: gushers, fires, gluts, and dozens of small refiners undercutting one another. To Rockefeller, that was waste.
In early 1872, Rockefeller joined big refiners in a secret deal with the railroads: the South Improvement Company.
Members got a rebate on their own barrels. And a payment on every barrel their rivals shipped. Forty cents each way, to Cleveland.
When the secret leaked, the oil towns erupted. Three thousand men packed a Titusville opera house. Within weeks, Pennsylvania revoked the company's charter.
One of Titusville's watchers was fourteen: Ida Tarbell, an oil man's daughter. She'll be back. But Rockefeller had already moved on Cleveland.
Two Ways to Own an Industry
1872 / 1896–1899
Key terms: Vertical integration, Horizontal integration, Consolidation
There are two ways to own an industry. Own every step, from the mine to the customer.
Vertical integration. Own a link, and you keep the middleman's profit. Even Carnegie's ore rode Rockefeller's boats until 1899.
The other way is older. Cleveland, 1872. Own every company doing the same step.
Horizontal integration. Twenty-two of twenty-six rivals, in about six weeks. By 1879, Standard refined about ninety percent of America's oil.
Both ways cut costs. Both ways cut out competitors. Prices fell for families. Two fortunes rose to roughly two hundred million dollars each.
Paper
1872–1906
Key terms: Trust, Holding company, Investment bank, Interlocking directorates
Not every big invention of the age had gears. Some were made of paper.
Rockefeller hunted waste. Each can took forty drops of solder. Thirty-eight leaked. Thirty-nine held.
John D. Rockefeller
That one drop of solder … saved $2,500 the first year.
Standard made its own barrels. It bought pipelines and tank cars. By 1879 it refined about ninety percent of America's oil. Kerosene fell from 26 cents to 5.
In 1881, Chicago journalist Henry Demarest Lloyd made the case against it.
Henry Demarest Lloyd
The Standard has done everything with the Pennsylvania legislature, except refine it.
Decades later, Rockefeller answered critics like Lloyd.
John D. Rockefeller
The day of combination is here to stay. Individualism has gone, never to return.
State law made it hard for one company to own another. So in 1882, shareholders of Standard and forty others handed their stock to nine trustees.
By 1887, sugar, whiskey and lead had trusts too. In 1889, New Jersey allowed the holding company: one corporation owning others' stock.
J. Pierpont Morgan made nothing at all. He was a banker who rarely explained himself in public.
Henry Clews
He has the driving powers of a locomotive.
When Clews asked for Morgan's portrait, Morgan recommended his handsome partner instead.
In 1892, Morgan's bank merged Edison General Electric with its rival, Thomson-Houston. The new name left Edison out: General Electric.
After the Panic of 1893 sank a quarter of the railroads, Morgan's bank reorganized many. His partners sat on the boards of rival lines. By 1906, seven systems ran about two-thirds of the track.
New ledger entries: cheaper kerosene, one drop of solder, rescued railroads. Then rivals' freight payments, that legislature, and trusts built around state law.
Ice, Sugar and Guano
1878–1898
Key terms: Refrigerated railroad car, Brand name, Reciprocity Treaty (1875), Guano Islands Act (1856)
Beef had a distance problem. The cattle were in the West. The customers were in the East.
Railroads hauled the animals alive, nearly a thousand miles, and charged freight on the parts nobody would eat.
Gustavus Swift, a Chicago packer, shipped meat instead: slaughtered in Chicago, chilled in iced cars.
Eastern railroads lived on live cattle and refused him a fair rate. So he shipped through Canada, on the Grand Trunk, which had almost no cattle business to protect.
Local butchers refused his beef. Swift opened his own branch houses, and families bought it because it was cheaper.
By 1899 his cars were rolling billboards. This one advertises breakfast bacon, cured just right.
American business kept going past the water's edge. In the 1870s and 1880s, kerosene exports alone equaled over half of America's oil output.
An 1875 treaty let Hawaii's sugar into the United States duty-free. Castle & Cooke, founded by two missionaries in 1851, was one of five firms that controlled the trade.
The workers came on contracts from China, Japan and Portugal. The land had belonged to Native Hawaiians. What happened to their kingdom is Unit 7's story.
On Navassa, a Caribbean island, a Baltimore company dug guano, hardened bird droppings, for fertilizer. Its workers were about 140 Black men, paid eight dollars a month.
They dug from dawn to dusk under armed white overseers. Men who refused were hung up by their wrists.
September 14, 1889
On September 14, 1889, the workers rose up. Five overseers were killed.
Black Baltimoreans raised money and hired lawyers for the defense. Three men were sentenced to hang.
The Supreme Court ruled that the United States could try crimes on such islands. In May 1891, President Harrison commuted the death sentences.
Harrison's message to Congress quoted a naval board:
the discipline maintained on the island seems to be that of a convict establishment without its comforts and cleanliness.
Captains or Robber Barons?
1843–1901
Key terms: Captains of industry, Robber barons, Contextualization, Industrial capitalism, Connection: bobbin boy → steel mill
Both names were arguments.
Thomas Carlyle coined 'captains of industry' in 1843. In 1870, the Atlantic Monthly said medieval robber barons were more honest than the new millionaires.
In 1883, the magazine Puck drew four millionaires on money bags, carried by workers. Its readers remembered the railroad strikes of 1877 and knew Gould from the stock pages.
In 1896, the economist Charles Spahr estimated who owned what:
Charles B. Spahr
…one per cent of the families hold more than the remaining ninety-nine.
So which were they? The evidence fills both columns. They built a national economy, and made light, steel, kerosene and beef cheap.
They also used secret deals, tariffs and friendly lawmakers to crush rivals. The context: a national market, almost no rules, and governments that helped business and rarely checked it.
Carnegie really was a bobbin boy. Most of the era's business leaders grew up comfortable.
At Braddock, the night shift walks out at dawn. The day shift walks in, for twelve hours. Light got cheap. The people who paid for it are next.