Do you save money at big box stores?

456

In 2010 Walmart, with 2.1 million employees, was the

largest corporation in the history of the world. Its rev-

enues of $405 billion exceeded the gross domestic prod-

uct of Sweden and Saudi Arabia. The company’s clout

made it a frequent target of popular satire. A 2008

episode of The Simpsons was set at “Sprawl-Mart,”

where Homer was offered a job as Executive Greeter. “Is

there a chance for advancement?” he asks. “No,” the

manager says. “You get to work overtime without us

paying you extra.” In 2006 Saturday Night Live ran a

satirical advertisement for “Sale-Mart,” a big-box store

that was “all about low prices.” Toothless employees

expressed satisfaction with the company’s dental plan.

The announcer told shoppers to hurry to the pharmacy,

“where generic prescription drugs are two handfuls for

a dollar.”

Real-world critics of Walmart leveled similar charges.

A labor union website described Walmart as a “death

star” that “destroys all other economic activity in its

path.” Others complained that many Walmart employees

qualified for public assistance.

In 2009 Walmart, whose motto is “Save Money Live

Better,” claimed that it saved $3,100 per American

household. Former CEO Lee Scott credited Walmart with

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An Industrial Giant EmergesAn Industrial Giant Emerges 17C

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having “democratized consumption” in the United States

by enabling “working-class families to buy former luxu-

ries like inexpensive flat-screen televisions, down com-

forters and porterhouse steaks.” A retailer helps society

best by lowering prices, or so the company contended.

The debate over the human costs of corporate effi-

ciencies echoes the one that accompanied the rise of

powerful industrial combinations during the last third of

the nineteenth century. Then, the power of the railroads

enabled them to bring substantial benefits to thousands

of communities; but this power also enabled the rail-

roads to ruin those who opposed their will. Industrial

corporations followed suit, especially in steel, iron, oil,

and electricity, providing millions with new and

improved products at lower prices. But the industrial

behemoths also controlled political processes and often

subjected workers to unsafe and exploitative conditions.

Reformers and labor leaders denounced this concentra-

tion of wealth and power. Some advocated regulation;

others called for revolution. Then as now, defenders of

big business pointed out its benefits: new technology,

better products, lower prices.

The question remains: Does the efficiency gener-

ated by economic concentration justify its threat to

smaller businesses and communities—and to democra-

tic institutions? ■

■ Essentials of Industrial Growth

■ Railroads: The First Big Business

■ Iron, Oil, and Electricity

■ Competition and Monopoly:The Railroads

■ Competition and Monopoly: Steel

■ Competition and Monopoly: Oil

■ Competition and Monopoly:Retailing and Utilities

■ American Ambivalence to Big Business

■ Reformers: George, Bellamy, Lloyd

■ Reformers: The Marxists

■ The Government Reacts toBig Business: RailroadRegulation

■ The Government Reacts toBig Business: The ShermanAntitrust Act

■ The Labor Union Movement

■ The American Federation of Labor

■ Labor Militancy Rebuffed

■ Whither America, WhitherDemocracy?

■ Mapping the Past:Were the RailroadsIndispensable?

■ John A. Roebling's design for the Brooklyn Bridge, then the longestsuspension bridge in the world, was widely hailed as an artistic masterpiece,an illustration of the beauty of functional engineering.Source: © 1993 E. Michael Beard www.errolgraphics.com.

Chapter 17 at www.myhistorylab.comHear the Audio

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458 Chapter 17 An Industrial Giant Emerges

Essentials of Industrial GrowthWhen the Civil War began, the country’s industrialoutput, while important and increasing, did notapproach that of major European powers. By the endof the century the United States had become far andaway the colossus among world manufacturers, dwarf-ing the production of Great Britain and Germany. Theworld had never seen such a remarkable example ofrapid economic growth. The value of American manu-factured products rose from $1.8 billion in 1859 toover $13 billion in 1899.

American manufacturing flourished for many rea-sons. New natural resources were discovered andexploited steadily, thereby increasing opportunities.These opportunities, in turn, attracted the brightestand most energetic of a vigorous and expanding pop-ulation. The growth of the country added constantlyto the size of the national market, and protective tar-iffs shielded that market from foreign competition.Foreign capital, however, entered the market freely, inpart because tariffs kept out so many foreign goods.

The dominant spirit of the time encouraged busi-nessmen to maximum effort by emphasizing progress,yet it also produced a generation of Robber Barons.The energetic search for wealth led to corrupt businesspractices such as stock manipulation, bribery, and cut-throat competition and ultimately to “combinations inrestraint of trade,” a kind of American euphemism formonopoly. European immigrants provided the addi-tional labor needed by expandingindustry; 2.5 million arrived in the1870s, twice that number in the1880s. These immigrants saw Americaas a land of opportunity, and for many,probably most, it was that indeed. Butfor others, emigrating to the UnitedStates meant a constant struggle forsurvival; dreary, often unhealthy livingconditions; and grinding poverty.

The period witnessed rapidadvances in basic science, and techni-cians created a bountiful harvest ofnew machines, processes, and powersources that increased productivity inmany industries and created newindustries as well. Agriculture wastransformed by improved harvestersand binding machines, and combinescapable of threshing and bagging450 pounds of grain a minute. An1886 report of the Illinois Bureau ofLabor Statistics claimed that “newmachinery has displaced fully 50 per-cent of the muscular labor formerly

required to do a given amount of work in the manu-facture of agricultural implements.” Of course thatalso meant that many farm families were “displaced”from their homes and livelihoods, and it made farmersdependent on the vagaries of distant markets andpowerful economic forces they could not control.

As a result of improvements in the milling of grain,packaged cereals appeared on the American breakfasttable. The commercial canning of food, spurred by the“automatic line” canning factory, expanded so rapidlythat by 1887 a writer in Good Housekeeping could say,“Housekeeping is getting to be ready made, as well asclothing.” The Bonsack cigarette-rolling machine cre-ated a new industry that changed the habits of mil-lions. George B. Eastman created still another with hisdevelopment of mass-produced, roll photographic filmand the simple but efficient Kodak camera. The perfec-tion of the typewriter by the Remington company inthe 1880s revolutionized office work. But even someof these inventions were mixed blessings. The harmdone by cigarettes, for example, needs no explanation.

Railroads: The First Big BusinessIn 1866, returning from his honeymoon in Europe,thirty-year-old Charles Francis Adams Jr., (great-grandson of John Adams and grandson of JohnQuincy Adams), full of ambition and ready, as he putit, to confront the world “face to face,” looked aboutin search of a career. “Surveying the whole field,” he

The daily passenger train of the Union Pacific on its transcontinental line, crosses the RockyMountains. In 1869, just after the transcontinental line was completed, travel from New YorkCity to San Francisco took nearly a week. First-class passengers, who rode in special cars suchas those pictured, paid a fare of $150. Second-class passengers paid less than half as much,but they were crowded into cars that were attached to freight trains.

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Railroads: The First Big Business 459

later explained, “I fixed on the railroad system as themost developing force and the largest field of the day,and determined to attach myself to it.” Adams’s judg-ment was acute: For the next twenty-five years therailroads were probably the most significant elementin American economic development, railroad execu-tives the most powerful people in the country.

Railroads were important first as an industry inthemselves. Fewer than 35,000 miles of track existedwhen Lee laid down his sword at Appomattox. In 1875railroad mileage exceeded 74,000 and the skeleton ofthe network was complete. Over the next two decadesthe skeleton was fleshed out. In 1890 the mature butstill-growing system took in over $1 billion in passen-ger and freight revenues. (The federal government’sincome in 1890 was only $403 million.) The value ofrailroad properties and equipment was more than$8.7 billion. The national railroad debt of $5.1 billionwas almost five times the national debt of $1.1 billion!By 1900 the nation had 193,000 miles of track.

The emphasis in railroad construction after 1865was on organizing integrated systems. The lines hadhigh fixed costs: taxes, interest on their bonds, main-tenance of track and rolling stock, and salaries ofoffice personnel. A short train with half-empty carsrequired almost as many workers and as much fuel to

operate as a long one jammed with freight or passen-gers. To earn profits the railroads had to carry as muchtraffic as possible. They therefore spread out feederlines to draw business to their main lines the way theroot network of a tree draws water into its trunk.

Before the Civil War, passengers and freight couldtravel by rail from beyond Chicago and St. Louis to theAtlantic coast, but only after the war did true interre-gional trunk lines appear. In 1861, for example, theNew York Central ran from Albany to Buffalo. Onecould proceed from Buffalo to Chicago, but on a differ-ent company’s trains. In 1867 the New York Centralpassed into the hands of “Commodore” CorneliusVanderbilt, who had made a large fortune in the ship-ping business. Vanderbilt already controlled lines run-ning from Albany to New York City; now he mergedthese properties with the New York Central. In 1873 heintegrated the Lake Shore and Michigan Southern intohis empire and two years later the Michigan Central. Athis death in 1877 the New York Central operated a net-work of over 4,500 miles of track between New YorkCity and most of the principal cities of the Midwest.

While Vanderbilt was putting together the NewYork Central complex, Thomas A. Scott was fusingroads to Cincinnati, Indianapolis, St. Louis, andChicago to his Pennsylvania Railroad, which linked

The Union Railroad Station in Montgomery, Alabama, was designed by Henry Hobson Richardson, the nation’s foremost architect in thelate nineteenth century. Richardson borrowed ideas from the past, including arches that evoked ancient Rome. The building’smassiveness and horizontal lines suggested the power and reach of the railroads: the American empire as built on steel rails.

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460 Chapter 17 An Industrial Giant Emerges

Pittsburgh and Philadelphia. In 1871 the Pennsylvanialine obtained access to New York; soon it reachedBaltimore and Washington. By 1869 another impor-tant system, the Erie, extended from New York toCleveland, Cincinnati, and St. Louis. Soon thereafterit too tapped the markets of Chicago and other cities.In 1874 the Baltimore and Ohio rail line also obtainedaccess to Chicago.

The transcontinentals were trunk lines from thestart; the emptiness of the western country would havemade short lines unprofitable, and builders quicklygrasped the need for direct connections to easternmarkets and thorough integration of feeder lines.

The dominant system builder of the Southwestwas Jay Gould, a soft-spoken, unostentatious-lookingman who was in fact ruthless, cynical, and aggressive.Another railroad president once called Gould a “per-fect eel.” Gould took over the Kansas Pacific, runningfrom Denver to Kansas City, and consolidated it withthe Union Pacific and the Missouri Pacific, a linefrom Kansas City to St. Louis. Often he put togethersuch properties merely to unload them on other rail-roads at a profit, but his grasp of the importance ofintegration was sound.

In the Northwest, Henry Villard, a German-bornformer newspaperman, constructed another greatcomplex based on his control of the Northern Pacific.James J. Hill controlled the Great Northern system,still another western network.

The Civil War had highlighted the need for thor-ough railroad connections in the South. Shortly afterthe conflict the Chesapeake and Ohio opened a directline from Norfolk, Virginia, to Cincinnati, Ohio. Bythe late 1880s, the Richmond and West PointTerminal Company controlled an 8,558-mile net-work. Like other southern trunk lines such as theLouisville and Nashville and the Atlantic Coast Line,this system was controlled by northern capitalists.

The trunk lines interconnected and thus had tostandardize many of their activities. This in turn ledto the standardization of other aspects of life. Thepresent system of time zones was developed in 1883by the railroads. The standard track gauge (four feeteight and one-half inches) was established in 1886.Standardized car coupling and braking mechanisms,standard signal systems, even standard methods ofaccounting were essential to the effective functioningof the network.

The lines sought to work out fixed rates for car-rying different types of freight, charge more for valu-able manufactured goods than for bulky products likecoal or wheat, and they agreed to permit rate conces-sions to shippers when necessary to avoid haulingempty cars. In other words, they charged what thetraffic would bear. However, by the 1880s the men

who ran the railroads had come to recognize theadvantages of cooperating with one another to avoid“senseless” competition. Railroad management wasbecoming a kind of profession, with certain standardways of doing things, its own professional journals,and with regional organizations such as the EasternTrunk Line Association and the Western TrafficAssociation.

Because of their voracious appetite for traffic,railroads in sparsely settled regions and in areas withundeveloped resources devoted much money andeffort to stimulating local economic growth. TheLouisville and Nashville railroad, for instance, was aprime mover in the expansion of the iron industry inAlabama in the 1880s.

To speed the settlement of new regions, the land-grant railroads sold land cheaply and on easy terms,for sales meant future business as well as currentincome. They offered reduced rates to travelers inter-ested in buying farms and set up “bureaus of immi-gration” that distributed brochures describing thewonders of the new country. Their agents greetedimmigrants at the eastern ports and tried to steerthem to railroad property. They sent agents who wereusually themselves immigrants—often ministers—allover Europe to recruit prospective settlers.

Technological advances in railroading acceleratedeconomic development in complex ways. In 1869George Westinghouse invented the air brake. Byenabling an engineer to apply the brakes to all carssimultaneously (formerly each car had to be brakedseparately by its own conductor or brakeman), thisinvention made possible revolutionary increases in thesize of trains and the speed at which they could safelyoperate. The sleeping car, invented in 1864 by GeorgePullman, now came into its own.

To pull the heavier trains, more powerful loco-motives were needed. They in turn produced a callfor stronger and more durable rails to bear the addi-tional weight. Steel, itself reduced in cost because oftechnological developments, supplied the answer, forsteel rails outlasted iron by many years despite the useof much heavier equipment.

A close tie developed between the railroads andthe nation’s telegraph network, dominated by theWestern Union Company. Commonly the railroadsallowed Western Union to string wires along theirrights-of-way, and they transported telegraphers andtheir equipment without charge. In return theyreceived free telegraphic service, important for effi-ciency and safety.

Railroads & New Transportation Systems at www.myhistorylab.com

J.P. Morgan at www.myhistorylab.comView the Image

See the Map

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Iron, Oil, and Electricity 461

Iron, Oil, and ElectricityThe transformation of iron manufacturingaffected the nation almost as much as rail-road development. Output rose from920,000 tons in 1860 to 10.3 million tonsin 1900, but the big change came in thedevelopment of ways to mass-producesteel. In its pure form (wrought iron) themetal is tough but relatively pliable: Itbends under great stresses. Ordinary castiron, which contains large amounts of car-bon and other impurities, is hard but brit-tle. Steel, which contains 1 or 2 percentcarbon, combines the hardness of cast ironwith the toughness of wrought iron. Fornearly every purpose—structural girdersfor bridges and buildings, railroad track,machine tools, boiler plate, barbed wire—steel is immensely superior to other kindsof iron.

But steel was so expensive that itcould not be used for bulky products until the inven-tion in the 1850s of the Bessemer process, perfectedindependently by Henry Bessemer, an Englishman,and William Kelly of Kentucky. Bessemer and Kellydiscovered that a stream of air directed into a mass ofmolten iron caused the carbon and other impurities tocombine with oxygen and burn off. When measured

amounts of carbon, silicon, and manganese were thenadded, the brew became steel. What had been a raremetal could now be produced by the hundreds andthousands of tons. The Bessemer process and theopen-hearth method, a slower but more precise tech-nique that enabled producers to sample the moltenmass and thus control quality closely, were introduced

This 1900 photograph of steel factories at night in Duquesne, near Pittsburgh, was tinted by hand.Source: North Wind Picture Archives.

Electric companies advertised the advantages of electric lights at regional exhibitions,such as these electrified renderings at the 1897 Tennessee Centennial Exposition. Thelights evoke the Parthenon of ancient Athens and the pyramids of Egypt.

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462

area needed to import massive amounts of grain—milledwheat and corn—to feed its people.The map also indicates thatthe main grain-growing regions were in the Midwest, the north-ern plains,and the South.The nation’s basic economic geogra-phy presumed a transportation system to ship grain from theMidwest and South to the cities of the industrial Northeast.

By 1890, the map also suggests that the nation’s railwaysystem served this purpose. Railroads linked the major wheatmarkets of the upper Great Plains (principally Minneapolis andDuluth) and corn markets of the central Midwest (Chicago,St. Louis, and Kansas City) to the industrial cities of Ohio andPennsylvania and the urban region along the Atlantic coastextending from Washington DC to Maine.The dense web ofcompeting railway lines should have kept freight charges low,and it often did. Attempts to “pool”the available traffic and fixhigh rates usually collapsed. One reason the railways were thefocus of much criticism was their centrality to the economy.

But in 1964 in Railroads and AmericanEconomic Growth, economic historian RobertFogel challenged the assumption that thelate nineteenth-century rail system was“indispensable” to economic growth. Heasserted that if the nation had insteadinvested in building more canals and dredg-ing more rivers, a water-based transporta-tion system could have functioned nearly aseffectively as the railways.

Counterfactual premises are often usedby historians to examine the validity ofcausal statements. In this instance, Fogelargued that, in the absence of railroads, theeconomy still would have grown rapidly.

The map entitled “A Hypothetical Water-Based Transportation System, 1890”showshow the nation’s navigable rivers, supple-mented by existing and new canals, couldhave collected cereals from agriculturalregions and moved them to eastern markets.This map also suggests how a water-basedtransportation system would have alteredthe relationship among regions. In theabsence of the railroads, the dry upper GreatPlains would have remained nearly undevel-oped, while commercial agriculture wouldhave been concentrated in the Mississippi,Ohio, and Missouri River valleys, and alongthe rivers that empty into the Gulf of Mexicoand the Atlantic seaboard.The major centersof grain shipment would have been NewOrleans, St. Louis, Cincinnati, Memphis, andCharleston. Minneapolis, Duluth, Chicago,and Kansas City would not have becomemajor economic centers.

In 1891 financier Sidney Dillon credited the railroads for thenation’s impressive economic growth during the previous

half century.Without them, he claimed, most of the nation’snatural resources would have remained untouched, civiliza-tion would have “crept slowly” on, and the immense spacesfrom the Appalachians to the Pacific would have remained“an unknown and unproductive wilderness.”

That the railroads were indispensable to the nation’seconomy during the nineteenth century has long been acommonplace of historical writing. One of the main reasonsfor it is summarized in the accompanying map,“The Railroads:Moving Agricultural Products to Eastern Markets, 1890.”

This map shows that the urban areas of the nation,with apopulation density of over ninety people per square mile(shaded in blue),were chiefly located in New England,theMiddle Atlantic seaboard,and the industrial regions surround-ing Pittsburgh,Cleveland,Cincinnati,Detroit,and Chicago.This

MAPPING THE PAST

Were the RailroadsIndispensable?

ATLANTIC

OCEAN

L. Superior

L. M

ichi

gan

L. Huron

L. Erie

L.Ontario

C A N A D A

Boston

New York

Philadelphia

Washington

Buffalo

Detroit

Duluth

Minneapolis

Chicago

St LouisKansas City

Cleveland

Pittsburgh

Cincinnati

Savannah

Over 90 people per sq mile

Wheat growing

Corn growing

Railroad

Wheat

Corn

Shipment of grain, 1890,In thousand tons:

3450

3801500

The Railroads: Moving Agricultural Products to Eastern Markets, 1890 The railroad weblinks the grain-producing regions of the Midwest with the population centers of the Northeast.

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This “hypothetical” water-based transportation systemmight have been as efficient as the railroads. In 1890, the costof transporting wheat from Chicago to New York City was 5.2 cents per ton-mile by rail, but only 1.4 cents by water.Fogel estimated that a water-based transportation systemwould have saved $38 million in carrying costs annually,though there would have been additional costs in ware-house construction and spoilage (boats are slower thantrains).The railroads, in short, were not “indispensable” tomove foodstuffs to eastern cities.

For decades, Fogel’s argument was regarded by mosthistorians as mathematical trickery: the fact is that railroadsand industry emerged nearly simultaneously in all industrialnations: Is that not proof of the centrality of railroads to indus-trial development? In 2003, however, historian Richard Whiteshowed that in the late nineteenth century the railroad com-panies were engaged in massive fraud and deception—including controlling the news media in order to persuadeinvestors to buy their stocks.This ensured enormous wasteand inefficiency.

Yet the railroads stimulated economic development inother ways.Their demand for iron and steel jump-started the

iron and steel industries, crucial for manufacturing and urbanconstruction.The development of powerful locomotivesgave rise to advances in steam and machine technology.Perhaps most important, the railroads promoted effectivesystems of corporate organization that stimulated economicdevelopment throughout the economy.

ATLANTIC

OCEAN

L. Superior

L. M

ichi

gan

L. Huron

L. Erie

L.Ontario

C A N A D A

Boston

New York

Philadelphia

Washington

BuffaloDetroit

Minneapolis

Chicago

St Louis

Memphis

New Orleans

Charleston

Kansas City

ClevelandToledo

Pittsburgh

Cincinnati

Savannah

Feasible commercial agriculture

Navigable river

Existing canal

Proposed canal

Probable major centerof grain shipment

A Hypothetical Water-Based Transportation System, 1890 If the nation’s transportation system had beenbased on canal construction, the Mississippi River basin would have been the nation’s breadbasket, and thecentral plains would have been less significant.

Questions for Discussion

■ Why was Chicago the largest center of grain shipmentin 1890?

■ Why was Chicago not included as a “probable majorcenter” of grain shipment in a “hypothetical water-based transportation system?”

■ Interior North Carolina, an important source of wheatand corn in 1890, would not have figured in a water-based system.Why?

■ How do counterfactual assertions promote historicalunderstanding?

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commercially in the 1860s. In 1870, 77,000 tons ofsteel were manufactured; by 1890, that had expandedto nearly 5 million tons. Such growth would have beenimpossible without the huge supplies of iron ore in theUnited States and the coal necessary to fire the furnacesthat refined it. In the 1870s the great iron fields rim-ming Lake Superior began to yield their treasures. Theenormous iron concentrations of the Mesabi regionmade a compass needle spin like a top. Mesabi orescould be mined with steam shovels, almost like gravel.

Pittsburgh, surrounded by vast coal deposits,became the iron and steel capital of the country, theMinnesota ores reaching it by way of steamers on theGreat Lakes and rail lines from Cleveland. Other citiesin Pennsylvania and Ohio were important producers,and a separate complex, centering on Birmingham,Alabama, developed to exploit local iron and coal fields.

The petroleum industry expanded even more spec-tacularly than iron and steel. Edwin L. Drake drilledthe first successful well in Pennsylvania in 1859. Duringthe Civil War, production ranged between 2 millionand 3 million barrels a year. By 1890 the figure hadleaped to about 50 million barrels.

Before the invention of the gasoline engine andthe automobile, the most important petroleum prod-uct was kerosene, which was burned in lamps.Refiners heated crude oil in large kettles and, after thevolatile elements had escaped, condensed thekerosene in coils cooled by water. The heavier petro-leum tars were discarded.

Technological advances came rapidly. By the early1870s, refiners had learned how to “crack” petroleumby applying high temperatures to the crude oil in orderto rearrange its molecular structure, thereby increasingthe percentage of kerosene yielded. By-products suchas naphtha, gasoline (used in vaporized form as an illu-minating gas), rhigolene (a local anesthetic), cymogene(a coolant for refrigerating machines), and many lubri-cants and waxes began to appear on the market. At the

same time a great increase in the supply of crude oil—especially after the German-born chemist HermanFrasch perfected a method for removing sulfur fromlow-quality petroleum—drove prices down.

These circumstances put a premium on refiningefficiency. Larger plants using expensive machinery andemploying skilled technicians became more important.In the mid-1860s only three refineries in the countrycould process 2,000 barrels of crude oil a week; adecade later plants capable of handling 1,000 barrels aday were common.

Two other important new industries were thetelephone and electric light businesses. Both weretypical of the period, being products of technicaladvances and intimately related to the growth of ahigh-speed, urban civilization that put great stress oncommunication. The telephone was invented in 1876by Alexander Graham Bell, who had been led to thestudy of acoustics through his interest in the educa-tion of the deaf. The invention soon proved its value.By 1900 there were almost 800,000 telephones in thecountry, twice the total for all Europe. The AmericanTelephone and Telegraph Company, a consolidationof over 100 local systems, dominated the business.

When Western Union realized the importance ofthe telephone, it tried for a time to compete with Bellby developing a machine of its own. The man it com-missioned to devise this machine was Thomas A.Edison, but Bell’s patents proved unassailable. Edisonhad already made a number of contributions towardsolving what he called the “mysteries of electricalforce,” including a multiplex telegraph capable ofsending four messages over a single wire at the sametime. At Menlo Park, New Jersey, he built the proto-type of the modern research laboratory, where spe-cific problems could be attacked on a mass scale by ateam of trained specialists. During his lifetime he tookout more than 1,000 patents dealing with machinesas varied as the phonograph, the motion-picture pro-jector, the storage battery, and the mimeograph.

Edison’s most significant achievement was theincandescent lamp, or electric lightbulb. Othersbefore him had experimented with the idea of pro-ducing light by passing electricity through a filamentin a vacuum. Always, however, the filaments quicklyburned out. Edison tried hundreds of fibers beforeproducing, in 1879, a carbonized filament thatwould glow brightly in a vacuum tube for as long as170 hours without crumbling. At Christmastime hedecorated the grounds about his laboratory with afew dozen of the new lights. People flocked by thethousands to see this miracle of the “Wizard ofMenlo Park.” The inventor boasted that soon hewould be able to illuminate entire towns, even greatcities like New York.

In this 1900 cartoon, oil baron John D. Rockefeller holds the WhiteHouse in the palm of his hand while the U.S. Capitol building—labeled Standard Oil Refinery—belches smoke.

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He was true to his promise. In 1882 his EdisonIlluminating Company opened a power station inNew York City and began to supply current for light-ing to eighty-five consumers, including the New YorkTimes and the banking house of J.P. Morgan andCompany. Soon central stations were springing upeverywhere until, by 1898, there were about 3,000 inthe country.

The substitution of electric for steam power in fac-tories was as liberating as that of steam for waterpowerbefore the Civil War. Small, safe electric motorsreplaced dangerous and cumbersome mazes of beltsand wheels. The electric power industry expandedrapidly. By the early years of the twentieth centuryalmost 6 billion kilowatt-hours of electricity were beingproduced annually. Yet this was only the beginning.

Edison, The Success of the Electric Light atwww.myhistorylab.com

Competition and Monopoly: TheRailroadsDuring the post–Civil War era, expansion in industrywent hand in hand with concentration. The principalcause of this trend, aside from the obvious economiesresulting from large-scale production and the growingimportance of expensive machinery, was the down-ward trend of prices after 1873. The deflation, whichresulted mainly from the failure of the money supplyto keep pace with the rapid increase in the volume ofgoods produced, affected agricultural goods as well asmanufactures, and it lasted until 1896 or 1897.

Contemporaries believed that they were livingthrough a “great depression.” That label is mislead-ing, for output expanded almost continuously, and ata rapid rate, until 1893, when production slumpedand a true depression struck the country. Fallingprices, however, kept a steady pressure on profit mar-gins, and this led to increased production and thus tointense competition for markets.

According to the classical economists, competi-tion advanced the public interest by keeping priceslow and ensuring the most efficient producer thelargest profit. Up to a point it accomplished thesepurposes in the years after 1865, but it also causedside effects that injured both the economy and societyas a whole. Railroad managers, for instance, found itimpossible to enforce “official” rate schedules andmaintain their regional associations once competitivepressures mounted. In 1865 it had cost from ninety-six cents to $2.15 per 100 pounds, depending on theclass of freight, to ship goods from New York toChicago. In 1888 rates ranged from thirty-five centsto seventy-five cents.

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Competition cut deeply into railroad profits, caus-ing the lines to seek desperately to increase volume. Itdid so chiefly by reducing rates still more, on a selec-tive basis. The competition gave rebates (secret reduc-tions below the published rates) to large shippers inorder to capture their business. Giving discounts tothose who shipped in volume made economic sense: Itwas easier to handle freight in carload lots than insmaller units. So intense was the battle for business,however, that the railroads often made concessions tobig customers far beyond what the economics of bulkshipment justified. In the 1870s the New York Centralregularly reduced the rates charged to important ship-pers by 50–80 percent. One large Utica dry-goodsmerchant received a rate of nine cents while otherspaid thirty-three cents. Two big New York City grainmerchants paid so little that they soon controlled thegrain business of the entire city.

Railroad officials disliked rebating but found noway to avoid the practice. “Notwithstanding my hor-ror of rebates,” the president of a New England trunkline told one of his executives in discussing the case ofa brick manufacturer, “bill at the usual rate, andrebate Mr. Cole 25 cents a thousand.” In extremecases the railroads even gave large shippers drawbacks,which were rebates on the business of the shippers’competitors. (For example, the same New Englandtrunk line not only made Cole’s competitors payhigher freight rates but also returned a percentage ofthe income from those rates to Mr. Cole!) Besidesrebating, railroads issued passes to favored shippers,built sidings at the plants of important companieswithout charge, and gave freely of their landholdingsto attract businesses to their territory.

To make up for losses forced on them by competi-tive pressures, railroads charged higher rates at way-points along their tracks where no competition existed.Frequently it cost more to ship a product a short dis-tance than a longer one. Rochester, New York, wasserved only by the New York Central. In the 1870s itcost thrity cents to transport a barrel of flour fromRochester to New York City, a distance of 350 miles. Atthe same time flour could be shipped from Minneapolisto New York, a distance of well over 1,000 miles, foronly twenty cents a barrel. One Rochester businessmantold a state investigating committee that he could saveeighteen cents a hundredweight by sending goods toSt. Louis by way of New York, where several carrierscompeted for the traffic, even though, in fact, thegoods might come back through Rochester over thesame tracks on the way to St. Louis!

Although cheap transportation stimulated theeconomy, few people benefited from cutthroat com-petition. Small shippers—and all businessmen in citiesand towns with limited rail outlets—suffered; railroad

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discrimination speeded the concentration of industryin large corporations located in major centers. Theinstability of rates even troubled interests like the mid-western flour millers who benefited from the competi-tive situation, for it hampered planning. Nor couldmanufacturers who received rebates be entirely happy,since few could be sure that some other producer wasnot getting a larger reduction.

Probably the worst sufferers were the railroadsthemselves. The loss of revenue resulting from ratecutting, combined with inflated debts, put most ofthem in grave difficulty when faced with a downturnin the business cycle. In 1876 two-fifths of all railroadbonds were in default; three years later sixty-five lineswere bankrupt. Wits called Samuel J. Tilden, the1876 Democratic presidential candidate, “the GreatForecloser” because of his work reorganizing bank-rupt railroads at this time.

Since the public would not countenance bank-rupt railroads going out of business, these companieswere placed in the hands of court-appointedreceivers. The receivers, however, seldom providedefficient management and had no funds at their dis-posal for new equipment.

During the 1880s the major railroads respondedto these pressures by building or buying lines inorder to create interregional systems. These were thefirst giant corporations, capitalized in the hundreds

of millions of dollars. Their enormous cost led toanother wave of bankruptcies when a true depressionstruck in the 1890s.

The consequent reorganizations brought most ofthe big systems under the control of financiers, notablyJ. Pierpont Morgan and such other private bankers as Kuhn, Loeb of New York and Lee, Higginson of Boston.

Critics called the reorganizations “Morganizations.”Representatives of the bankers sat on the board ofevery line they saved and their influence was predomi-nant. They consistently opposed rate wars, rebating,and other competitive practices. In effect, control ofthe railroad network became centralized, even thoughthe companies maintained their separate existencesand operated in a seemingly independent manner.When Morgan died in 1913, “Morgan men” domi-nated the boards of the New York Central; the Erie;the New York, New Haven, and Hartford; theSouthern; the Pere Marquette; the Atchison, Topeka,and Santa Fe; and many other lines.

Competition and Monopoly: SteelThe iron and steel industry was also intensely com-petitive. Despite the trend toward higher production,demand varied erratically from year to year, even frommonth to month. In good times producers built new

This early 1900 photograph shows how steel mills spread along the riverfront of Pittsburgh, Pennsylvania.

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facilities, only to suffer heavy losses when demanddeclined. The forward rush of technology put atremendous emphasis on efficiency; expensive plantsquickly became obsolete. Improved transportationfacilities allowed manufacturers in widely separatedplaces to compete with one another.

The kingpin of the industry was AndrewCarnegie. Carnegie was born in Scotland and came tothe United States in 1848 at the age of twelve. Hisfirst job, as a bobbin boy in a cotton mill, broughthim $1.20 a week, but his talents perfectly fitted thetimes and he rose rapidly: to Western Union messen-ger boy, to telegrapher, to private secretary, to rail-road manager. He saved his money, made someshrewd investments, and by 1868 had an income of$50,000 a year.

At about this time he decided to specialize inthe iron business. Carnegie possessed great talent asa salesman, boundless faith in the future of thecountry, an uncanny knack of choosing topflightsubordinates, and enough ruthlessness to survive inthe iron and steel jungle. Where other steel menbuilt new plants in good times, he preferred toexpand in bad times, when it cost far less to do so.During the 1870s, he later recalled, “many of myfriends needed money. . . . I bought out five or six ofthem. That is what gave me my leading interest inthis steel business.”

Carnegie grasped the importance of technologi-cal improvements. Slightly skeptical of the Bessemerprocess at first, once he became convinced of its prac-ticality he adopted it enthusiastically. In 1875 he builtthe J. Edgar Thomson Steel Works, named after apresident of the Pennsylvania Railroad, his biggestcustomer. He employed chemists and other specialistsand was soon making steel from iron oxides thatother manufacturers had discarded as waste. He was amerciless competitor. When a plant managerannounced, “We broke all records for making steellast week,” Carnegie replied, “Congratulations! Whynot do it every week?” Carnegie sold rails by paying“commissions” to railroad purchasing agents, and hewas not above reneging on a contract if he thought itprofitable and safe to do so.

By 1890 the Carnegie Steel Company domi-nated the industry, and its output increased nearlytenfold during the next decade. Profits soared.Alarmed by his increasing control of the industry, themakers of finished steel products such as barbed wireand tubing considered pooling their resources andmaking steel themselves. Carnegie, his competitivetemper aroused, threatened to manufacture wire,pipes, and other finished products. A colossal steelwar seemed imminent.

However, Carnegie longed to retire in order todevote himself to philanthropic work. He believedthat great wealth entailed social responsibilities andthat it was a disgrace to die rich. When J.P. Morganapproached him through an intermediary with anoffer to buy him out, he assented readily. In 1901Morgan put together United States Steel, the “world’sfirst billion-dollar corporation.” (See the map on p. 468.) This combination included all the Carnegieproperties, the Federal Steel Company (Carnegie’slargest competitor), and such important fabricators offinished products as the American Steel and WireCompany, the American Tin Plate Company, and theNational Tube Company. Vast reserves of Minnesotairon ore and a fleet of Great Lakes ore steamers werealso included. U.S. Steel was capitalized at $1.4 bil-lion, about twice the value of its component proper-ties but not necessarily an overestimation of itsprofit-earning capacity. The owners of Carnegie Steelreceived $492 million, of which $250 million went toCarnegie himself.

J.P. Morgan, the financial genius, staved off ruinous competitionamong steel firms by combining most companies into a single hugefirm, United States Steel.

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Competition and Monopoly: OilThe pattern of fierce competition leading to combi-nation and monopoly is well illustrated by the historyof the petroleum industry. Irresistible pressurespushed the refiners into a brutal struggle to dominatethe business. Production of crude oil, subject to theuncertainties of prospecting and drilling, fluctuatedconstantly and without regard for need. In general,output surged far ahead of demand.

By the 1870s the chief oil-refining centers wereCleveland, Pittsburgh, Baltimore, and the New York

City area. Of these Cleveland was the fastest growing,chiefly because the New York Central and Erie rail-roads competed fiercely for its oil trade and the ErieCanal offered an alternative route.

The Standard Oil Company of Cleveland,founded in 1870 by a thirty-one-year-old merchantnamed John D. Rockefeller, emerged as the giantamong the refiners. Rockefeller exploited every pos-sible technical advance and employed fair means andfoul to persuade competitors either to sell out or tojoin forces. By 1879 he controlled 90 percent of thenation’s oil-refining capacity along with a network

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Pittsburgh

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Type of Plants:

Blast furnace

Rolling mill, steel work

Bridge building plant

Companies:

The Carnegie Co.

Federal Steel Co.

National Steel Co.

National Tube Co.

American Steel and Wire Co. of New Jersey

American Tin Plate Co.

American Steel Hoop Co.

American Sheet Steel Co.

American Bridge Co.

Lake Superior Iron Mines

Independent Firms:

Blast furnace

Rolling mill

Companies:

Bethlehem Steel Co.

Republic Iron and Steel Co.

Lackawana Iron and Steel Co.

Pennsylvania Steel Co. of New Jersey

Cambria Steel Co.

Crucible Steel Co. of AmericaTennessee Coal, Iron, and Railroad Company

Jones and Laughlins Ltd

Firms Incorporated into U. S. Steel J.P. Morgan’s consolidation that created U.S. Steel.

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Competition and Monopoly: Oil 469

of oil pipelines and large reserves of petroleum inthe ground.

Standard Oil emerged victorious from the com-petitive wars because Rockefeller and his associateswere the toughest and most imaginative fighters aswell as the most efficient refiners in the business. Inaddition to obtaining from the railroads a 10 per-cent rebate and drawbacks on its competitors’ ship-ments, Standard Oil cut prices locally to force smallindependents to sell out or face ruin. Since kerosenewas sold in grocery stores, Standard supplied its ownoutlets with meat, sugar, and other products at arti-ficially low prices to help crush the stores that han-dled other brands of kerosene. The companyemployed spies to track down the customers of inde-pendents and offer them oil at bargain prices.Bribery was also a Standard practice; the reformerHenry Demarest Lloyd quipped that the companyhad done everything to the Pennsylvania legislatureexcept refine it.

Although a bold planner and a daring taker ofnecessary risks, Rockefeller was far too orderly andastute to enjoy the free-swinging battles that plaguedhis industry. Born in an upstate New York village in1839, he settled in Cleveland in 1855 and became aproduce merchant. During the Civil War he investedin a local refinery and by 1865 was engaged full timein the oil business.

Like Carnegie, Rockefeller was an organizer; heknew little about the technology of petroleum. Hisforte was meticulous attention to detail: Stories aretold of his ordering the number of drops of solderused to seal oil cans reduced from forty to thirty-nineand of his insisting that the manager of one of hisrefineries account for 750 missing barrel caps. Notmiserliness but a profound grasp of the economies oflarge-scale production explain this behavior.

Rockefeller competed ruthlessly not primarily tocrush other refiners but to persuade them to join withhim, to share the business peaceably and rationally sothat all could profit. Competition was obsolescent, heargued, though no more effective competitor than heever lived.

Having achieved his monopoly, Rockefeller stabi-lized and structured it by creating a new type of busi-ness organization, the trust. Standard Oil was an Ohiocorporation, prohibited by local law from owningplants in other states or holding stock in out-of-statecorporations. As Rockefeller and his associates tookover dozens of companies with facilities scatteredacross the country, serious legal and managerial diffi-culties arose. How could these many organizations beintegrated with Standard Oil of Ohio?

A rotund, genial little Pennsylvania lawyer namedSamuel C. T. Dodd came up with an answer to this

question in 1879.1 The stock of Standard of Ohioand of all the other companies that the Rockefellerinterests had swallowed up was turned over to ninetrustees, who were empowered to “exercise generalsupervision” over all the properties. In exchange,stockholders received trust certificates, on which divi-dends were paid. This seemingly simple devicebrought order to the petroleum business. Competitionalmost disappeared, prices steadied, and profits sky-rocketed. By 1892 John D. Rockefeller was worthover $800 million.

The Standard Oil Trust was not a corporation. Ithad no charter, indeed no legal existence at all. Formany years few people outside the organization knewthat it existed. The form they chose persuaded

A regally attired John D. Rockefeller poses on top of a barrel from hisStandard Oil refinery, his crown encircled by the railroads he controlled.Rockefeller’s actual clothing was considerably less conspicuous.Source: © Collection of The New-York Historical Society.

1The trust formula was not “perfected” until 1882.

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Rockefeller and other Standard Oil offi-cials that without violating their con-sciences, they could deny under oath thatStandard Oil of Ohio owned or controlledother corporations “directly or indirectlythrough its officers or agents.” Thetrustees controlled these organizations—and Standard of Ohio too!

After Standard Oil’s duplicity wasrevealed during a New York investigation in1888, the word trust, formerly signifying afiduciary arrangement for the protection ofthe interests of individuals incompetent orunwilling to guard them themselves,became a synonym for monopoly. However,from the company’s point of view, monop-oly was not the purpose of the trust—thathad been achieved before the device wasinvented. Centralization of the managementof diverse and far-flung operations in theinterest of efficiency was its chief function.Standard Oil headquarters in New Yorkbecame the brain of a complex networkwhere information from salaried managersin the field was collected and digested,where top managerial decisions were made,and whence orders went out to armies ofdrillers, refiners, scientists, and salesmen.

Competition and Monopoly:Retailing and UtilitiesThat utilities such as the telephone andelectric lighting industries tended to formmonopolies is not difficult to explain, forin such fields competition involved costlyduplication of equipment and, particu-larly in the case of the telephone, loss ofservice efficiency. However, competitivepressures were strong in the early stages of theirdevelopment. Since these industries depended onpatents, Bell and Edison had to fight mighty battlesin the courts with rivals seeking to infringe on theirrights. A patent, Edison said bitterly, was “simply aninvitation to a lawsuit.”

Competition in the electric lighting business ragedfor some years among Edison, Westinghouse, andanother corporation, the Thomson-Houston ElectricCompany, which was operating 870 central lightingstations by 1890. In 1892 the Edison and Thomson-Houston companies merged, forming General Electric,a $35 million corporation. Thereafter, General Electricand Westinghouse maintained their dominance in themanufacture of bulbs and electrical equipment as wellas in the distribution of electrical power.

A sneeze is captured on film—the first copyrighted movie (1894). In 1889 Thomas A.Edison conceived of a machine that would do for the eye what the phonograph didfor the ear. Over the next two years, Edison invented two separate devices—a camerato take a rapid sequence of pictures and a machine to view them, called akinetoscope. In 1893 he developed reliable film for his camera. The motion pictureindustry was born.

The pattern of competition leading to dominanceby a few great companies was repeated in many busi-nesses. In life insurance an immense expansion tookplace after the Civil War. High-pressure salesmanshipprevailed; agents gave rebates to customers by shav-ing their own commissions; companies stole crackagents from their rivals and raided new territories.They sometimes invested as much as 96 percent ofthe first year’s premiums in obtaining new business.By 1900, after three decades of fierce competition,three giants dominated the industry—Equitable, NewYork Life, and Mutual Life, each with approximately$1 billion of insurance in force.

In retailing, the period saw the growth of urbandepartment stores. In 1862 Alexander T. Stewart hadbuilt an eight-story emporium in New York City that

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American Ambivalence to Big Business 471

covered an entire block and employed 2,000 persons.John Wanamaker in Philadelphia and Marshall Fieldin Chicago headed similar establishments by the1880s, and there were others. These departmentstores advertised heavily, stressing low prices, efficientservice, and money-back guarantees. High volumemade for large profits. Here is how one of Field’sbiographers described his methods:

His was a one-price store, with the price plainlymarked on the merchandise. Goods were not mis-represented, and a reputation for quality merchan-dise and for fair and honest dealing was built up. . . .Courtesy toward customers was an unfailing rule.

Rural Free Delivery Mail atwww.myhistorylab.com

American Ambivalence to Big BusinessThe expansion of industry and its concentration infewer and fewer hands changed the way many peoplefelt about the role of government in economic andsocial affairs. On the one hand, they professed to believe

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strongly in a government policy of noninterference, orlaissez-faire. “‘Things regulate themselves’ . . . means,of course, that God regulates them by his general laws,”Professor Francis Bowen of Harvard wrote in hisAmerican Political Economy (1870).

Certain intellectual currents encouraged thistype of thinking. Charles Darwin’s The Origin ofSpecies was published in 1859, and by the 1870s histheory of evolution was beginning to influence opin-ion in the United States. That nature had ordained akind of inevitable progress, governed by the naturalselection of those individual organisms best adaptedto survive in a particular environment, seemed emi-nently reasonable to most Americans, for it fittedwell with their own experiences. “Let the buyerbeware; that covers the whole business,” the sugarmagnate Henry O. Havemeyer explained to an inves-tigating committee. “You cannot wet-nurse peoplefrom the time they are born until the time they die.They have to wade and get stuck, and that is the waymen are educated.”

This reasoning was similar to that of the classicaleconomists and was thus at least as old as AdamSmith’s Wealth of Nations (1776). But it appeared to

The Biltmore Estate in Asheville, North Carolina was built by George Vanderbilt, grandson of “The Commodore.” Over 1,000 laborersworked on the mansion. With 250 rooms and 175,000 square feet, the Biltmore is the largest privately built home in the United States.Critics found the mansion ostentatious and offensive.

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supply a hard scientific substitute for Smith’s “invisi-ble hand” as an explanation of why free competitionadvanced the common good.

Yale professor William Graham Sumner some-times used the survival-of-the-fittest analogy in teach-ing undergraduates. “Professor,” one student askedSumner, “don’t you believe in any government aid toindustries?” “No!” Sumner replied, “It’s root, hog,or die.” The student persisted: “Suppose some pro-fessor of political science came along and took yourjob away from you. Wouldn’t you be sore?” “Anyother professor is welcome to try,” Sumner answeredpromptly. “If he gets my job, it is my fault. My busi-ness is to teach the subject so well that no one cantake the job away from me.” Sumner’s argumentdescribed what came to be known as socialDarwinism, the belief that the activities of people,that is, their business and social relationships, weregoverned by the Darwinian principle that “the fittest”will always “survive” if allowed to exercise theircapacities without restriction.

But the fact that Americans disliked powerful gov-ernments in general and strict regulation of the econ-omy in particular had never meant that they objectedto all government activity in the economic sphere.Banking laws, tariffs, internal-improvement legisla-tion, and the granting of public land to railroads are

only the most obvious of the economic regulationsenforced in the nineteenth century by both the federalgovernment and the states. Americans saw no contra-diction between government activities of this type andthe free enterprise philosophy, for such laws wereintended to release human energy and thus increasethe area in which freedom could operate. Tariffs stim-ulated industry and created new jobs, railroad grantsopened up new regions for development, and so on.

The growth of huge industrial and financial orga-nizations and the increasing complexity of economicrelations frightened people yet made them at thesame time greedy for more of the goods and servicesthe new society was turning out. To many, the greatnew corporations and trusts resembled Frankenstein’smonster—marvelous and powerful but a grave threatto society.

To some extent public fear of the industrial giantsreflected concern about monopoly—much as somepeople today worry that Walmart may drive otherretailers out of business. If Standard Oil dominatedoil refining, it might raise prices inordinately at vastcost to consumers. Charles Francis Adams Jr.,expressed this feeling in the 1870s: “In the minds ofthe great majority, and not without reason, the idea ofany industrial combination is closely connected withthat of monopoly, and monopoly with extortion.”

In his classic autobiography The Education of Henry Adams, Adams said that he was staggered by the immense machines ondisplay at the Columbian Exhibition in Chicago in 1893, such as this electricity-generating dynamo. The power of religiousfaith and works of art and literature had yielded to mechanical power. His world was a thing of the past.

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Reformers: George, Bellamy, Lloyd 473

Although in isolated cases monopolists did raiseprices unreasonably, generally they did not. On thecontrary, prices tended to fall until by the 1890s a ver-itable “consumer’s millennium” had arrived. Far moreimportant in causing resentment was the fear that themonopolists were destroying economic opportunityand threatening democratic institutions. It was not thewealth of tycoons like Carnegie and Rockefeller andMorgan so much as their influence that worried peo-ple. In the face of the growing disparity between richand poor, could republican institutions survive? “Thebelief is common,” wrote Charles Francis Adams’sbrother Henry as early as 1870, “that the day is athand when corporations . . . will ultimately succeed indirecting government itself.”

As criticism mounted, business leaders rose totheir own defense. Rockefeller described in graphicterms the chaotic conditions that plagued the oilindustry before the rise of Standard Oil: “It seemedabsolutely necessary to extend the market for oil . . .and also greatly improve the process of refining so thatoil could be made and sold cheaply, yet with a profit.We proceeded to buy the largest and best refiningconcerns and centralized the administration of themwith a view to securing greater economy and effi-ciency.” Carnegie, in an essay published in 1889,insisted that the concentration of wealth was necessaryif humanity was to progress, softening this “Gospel ofWealth” by insisting that the rich must use theirmoney “in the manner which . . . is best calculated toproduce the most beneficial results for the commu-nity.” The rich man was merely a trustee for his“poorer brethren,” Carnegie said, “bringing to theirservice his superior wisdom, experience, and ability toadminister.” Lesser tycoons echoed these arguments.

The voices of the critics were louder if not necessar-ily more influential. Many clergymen denounced unrestrained competition, which they considered un-Christian. The new class of professional economists(the American Economic Association was founded in1885) tended to repudiate laissez-faire. State aid,Richard T. Ely of Johns Hopkins University wrote, “isan indispensable condition of human progress.”

Carnegie, Wealth at www.myhistorylab.com

Reformers: George, Bellamy, LloydThe popularity of a number of radical theoristsreflects public feeling in the period. In 1879 HenryGeorge, a California journalist, published Progressand Poverty, a forthright attack on the uneven distri-bution of wealth in the United States. Georgeargued that labor was the true and only source of

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capital. Observing the speculative fever of the West,which enabled landowners to reap profits merely byholding property while population increased, Georgeproposed a property tax that would confiscate this“unearned increment.” The value of land dependedon society and should belong to society; allowingindividuals to keep this wealth was the major causeof the growing disparity between rich and poor,George believed.

George’s “single tax,” as others called it, wouldbring in so much money that no other taxes would benecessary, and the government would have plenty offunds to establish new schools, museums, theaters,and other badly needed social and cultural services.While the single tax on property was never adopted,George’s ideas attracted enthusiastic attention. Singletax clubs sprang up throughout the nation, andProgress and Poverty became a best-seller.

Even more spectacular was the reception affordedLooking Backward, 2000–1887, a utopian novel written

Edward Bellamy, author of the utopian novel Looking Backward (1888).Bellamy’s socialism worried many. The Household Encyclopedia (1892)included this photograph of Bellamy in a section on phrenology, the“science” of ascertaining a person’s character and intellectual traitsfrom the shape of his or her cranium. Referring to Bellamy’s, itconcluded, “Large perceptive faculties; defective reasoning powers.”

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in 1888 by Edward Bellamy. This book, which soldover a million copies in its first few years, described afuture America that was completely socialized, all eco-nomic activity carefully planned. Bellamy comparednineteenth-century society to a lumbering stagecoachupon which the favored few rode in comfort while themass of the people hauled them along life’s route.Occasionally one of the toilers managed to fight hisway onto the coach; whenever a rider fell from it, hehad to join the multitude dragging it along.

Such, Bellamy wrote, was the working of thevaunted American competitive system. He suggestedthat the ideal socialist state, in which all citizensshared equally, would arrive without revolution orviolence. The trend toward consolidation would con-tinue, he predicted, until one monster trust con-trolled all economic activity. At this point everyonewould realize that nationalization was essential.

A third influential attack on monopoly was thatof Henry Demarest Lloyd, whose Wealth AgainstCommonwealth appeared in 1894. Lloyd, a journalistof independent means, devoted years to preparing adenunciation of the Standard Oil Company.Marshaling masses of facts and vivid examples ofStandard’s evildoing, he assaulted the trust at everypoint. In his zeal, Lloyd sometimes distorted andexaggerated the evidence to make his indictmentmore effective. “Every important man in the oil, coaland many other trusts ought today to be in some oneof our penitentiaries,” he wrote in a typical overstate-ment—as a polemic his book was peerless. His force-ful but uncomplicated arguments and his copiousreferences to official documents made WealthAgainst Commonwealth utterly convincing to thou-sands. The book was more than an attack onStandard Oil. Lloyd denounced the application ofDarwin’s concept of survival of the fittest to eco-nomic and social affairs, and he condemned laissez-faire policies as leading directly to monopoly.

The popularity of these books indicates that thetrend toward monopoly in the United States worried

many. But despite the drastic changes suggested intheir pages, none of these writers questioned theunderlying values of the middle-class majority. Theyinsisted that reform could be accomplished withoutserious inconvenience to any individual or class. InLooking Backward Bellamy pictured the socialists ofthe future gathered around a radio-like gadget in awell-furnished parlor listening to a minister deliveringan inspiring sermon.

Nor did most of their millions of readers seriouslyconsider trying to apply the reformers’ ideas. HenryGeorge ran for mayor of New York City in 1886 andlost narrowly to Abram S. Hewitt, a wealthy ironmanufacturer, but even if he had won, he would havebeen powerless to apply the single tax to metropolitanproperty. The national discontent was apparently notas profound as the popularity of these works mightsuggest. If John D. Rockefeller became the bogey-man of American industry because of Lloyd’s attack,no one prevented him from also becoming the richestman in the United States.

Bellamy, from Looking Backward at www.myhistorylab.com

Reformers: The MarxistsBy the 1870s the ideas of European socialists werebeginning to penetrate the United States, and in1877 a Socialist Labor party was founded. The firstserious attempt to explain the ideas of German politi-cal philosopher Karl Marx to Americans was LaurenceGronlund’s The Cooperative Commonwealth, whichwas published in 1884, two years before Marx’s DasKapital was translated into English.

Capitalism, Gronlund claimed, contained theseeds of its own destruction. The state ought to ownall the means of production. Competition was“Established Anarchy,” middlemen were “parasites,”speculators “vampires.” “Capital and Labor,” hewrote in one of the rare humorous lines in his book,

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Table 17.1 Defenders of Economic Consolidation

Defenders Occupation Argument

J. PierpontMorgan

Wall Streetfinancier

Excessive competition was wasteful and unstable; stable growth and efficiency requiredlarge business combinations

William GrahamSumner

Yale professor Large corporations were those that were “fittest”—best-suited to prevail in theDarwinian world of capitalism

AndrewCarnegie

Steelmanufacturer

Large corporations generated wealth, which could be channeled into charitable andother worthy causes

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The Government Reacts to Big Business: Railroad Regulation 475

“are just as harmonious as roast beef and a hungrystomach.” Yet like other harsh critics of that day,Gronlund expected the millennium to arrive in apeaceful, indeed orderly manner. The red flag ofsocialism, he said, “has no relation to blood.” Themovement could accommodate “representatives of allclasses,” even “thoughtful” middlemen parasites.

The leading voice of the Socialist Labor party,Daniel De Leon, editor of the party’s weekly publi-cation, The People, was a different type. He was bornin the West Indies, son of a Dutch army doctor sta-tioned in Curaçao, and educated in Europe. He emi-grated to the United States in the 1870s, where hewas progressively attracted by the ideas of HenryGeorge, then Edward Bellamy and the Knights ofLabor, and finally Marx. While personally mild-man-nered and kindly, when he put pen to paper hebecame a doctrinaire revolutionary. He excoriatedAmerican labor unions in the People, insisting thatindustrial workers could improve their lot only byadopting socialism and joining the Socialist Laborparty. He paid scant attention, however, to the prac-tical needs or even to the opinions of rank-and-fileworking people. In 1891 he was the Socialist Laborparty’s candidate for governor of New York.

The Government Reacts to BigBusiness: Railroad RegulationPolitical action related to the growth of big businesscame first on the state level and dealt chiefly with theregulation of railroads. Even before the Civil War, anumber of New England states established railroad

commissions to supervise lines within their borders;by the end of the century, twenty-eight states hadsuch boards.

Strict regulation was largely the result of agita-tion by the National Grange of the Patrons ofHusbandry. The Grange, founded in 1867 byOliver H. Kelley, was created to provide social andcultural benefits for isolated rural communities. As itspread and grew in influence—fourteen states hadGranges by 1872 and membership reached 800,000in 1874—the movement became political too.“Granger” candidates, often not themselves farmers(many local businessmen resented such railroadpractices as rebating), won control of a number ofstate legislatures in the West and South. Granger-controlled legislatures established “reasonable”maximum rates and outlawed “unjust” discrimina-tion. The legislature also set up a commission toenforce the laws and punish violators.

The railroads protested, insisting that they werebeing deprived of property without due process of law.In Munn v. Illinois (1877), a case that involved a grainelevator whose owner had refused to comply with astate warehouse act, the Supreme Court upheld theconstitutionality of this kind of act. Any business thatserved a public interest, such as a railroad or a grainwarehouse, was subject to state control, the justicesruled. Legislatures might fix maximum charges; if thecharges seemed unreasonable to the parties concerned,they should direct their complaints to the legislaturesor to the voters, not to the courts.

Regulation of the railroad network by the indi-vidual states was inefficient, and in some cases the

Table 17.2 Reformers Oppose Economic Consolidation

Reformers Publication Argument

Henry George Author, Progress andPoverty (1879)

Labor was the source of wealth; but investors made money from capital andproperty. Governments should tax property, to help redistribute the unearnedincome of the wealthy.

Edward Bellamy Author, Looking Backward (1888)

The trend toward industrial concentration would culminate in the governmentowning everything: an era of prosperity, stability, and cooperative planningwould ensue.

Henry DemarestLloyd

Author, Wealth AgainstCommonwealth (1894)

Concentration of power in corporations inevitably led to monopoly; the govern-ment must step in to prevent corporations from becoming behemoths.

LaurenceGronlund

Author, The CooperativeCommonwealth (1884)

Capitalism, including corporations, was doomed, as Marx had predicted; but thecollapse of capitalism would not require a violent revolution.

Daniel De Leon Editor, Socialist Labor,The Weekly

Capitalism, though doomed, would not fall without a fight; violent revolutionwas inevitable.

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commissions were incompetent and even corrupt.When the Supreme Court, in the case of Wabash, St. Louis & Pacific Railroad v. Illinois (1886),declared unconstitutional an Illinois regulation out-lawing the long-and-short-haul evil, federal actionbecame necessary. The railroad had charged twenty-five cents per 100 pounds for shipping goods fromGilman, Illinois, to New York City but only fifteencents to ship goods from Peoria, which was eighty-sixmiles farther from New York. Illinois judges had heldthis to be illegal, but the Supreme Court decided thatIllinois could not regulate interstate shipments.

Congress filled the gap created by the Wabashdecision in 1887 by passing the InterstateCommerce Act. All charges made by railroads “shallbe reasonable and just,” the act stated. Rebates,drawbacks, the long-and-short-haul evil, and othercompetitive practices were declared unlawful, and sowere their monopolistic counterparts—pools andtraffic-sharing agreements. Railroads were requiredto publish schedules of rates and forbidden to

change them without due publicnotice. Most important, the lawestablished an Interstate CommerceCommission (ICC), the first federalregulatory board, to supervise theaffairs of railroads, investigatecomplaints, and issue cease anddesist orders when the roadsacted illegally.

The Interstate Commerce Actbroke new ground, yet it was nei-ther a radical nor a particularlyeffective measure. Its terms contra-dicted one another, some beingdesigned to stimulate, others topenalize, competition. The chair-man of the commission soon char-acterized the law as an “anomaly.”It sought, he said, to “enforcecompetition” at the same time thatit outlawed “the acts and induce-ments by which competition isordinarily effected.”

The new commission had lesspower than the law seemed to giveit. It could not fix rates; it couldonly bring the roads to court whenit considered rates unreasonablyhigh. Such cases could be extremelycomplicated; applying the law“was like cutting a path through ajungle.” With the truth so hard todetermine and the burden of proof

on the commission, the courts in nearly everyinstance decided in favor of the railroads.

Nevertheless, by describing so clearly the right ofCongress to regulate private corporations engaged ininterstate commerce, the Interstate Commerce Actchallenged the philosophy of laissez-faire. Later legis-lation made the commission more effective. Thecommission also served as the model for a host ofsimilar federal administrative authorities, such as theFederal Communications Commission (1934).

Interstate Commerce Act at www.myhistorylab.com

The Government Reacts to BigBusiness: The Sherman Antitrust ActAs with railroad legislation, the first antitrust lawsoriginated in the states, but they were southern andwestern states with relatively little industry, and mostof the statutes were vaguely worded and ill-enforced.

Read the Document

A farmer with a pitchfork, wearing a hat identifying him as a Granger, warns of an oncomingrailroad train. But the American people—one reads a newspaper, another smokes a cigar, butmost doze—are oblivious of the danger that will soon crush them.

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The Government Reacts to Big Business: The Sherman Antitrust Act 477

Federal action came in 1890 with the passage of theSherman Antitrust Act. Any combination “in theform of trust or otherwise” that was “in restraint oftrade or commerce among the several states, or withforeign nations” was declared illegal. Persons form-ing such combinations were subject to fines of$5,000 and a year in jail. Individuals and businessessuffering losses because of actions that violated thelaw were authorized to sue in the federal courts fortriple damages.

Where the Interstate Commerce Act sought tooutlaw the excesses of competition, the Sherman Actwas supposed to restore competition. If businessmenjoined together to “restrain” (monopolize) trade in aparticular field, they should be punished and theirdeeds undone. “The great thing this bill does,” SenatorGeorge Frisbie Hoar of Massachusetts explained, “isto extend the common-law principle . . . to interna-tional and interstate commerce.” This was importantbecause the states ran into legal difficulties when theytried to use the common law to restrict corporationsengaged in interstate activities.

But the Sherman Act was rather looselyworded—Thurman Arnold, a modern authority,once said that it made it “a crime to violate a vaguelystated economic policy.” Critics have argued that thecongressmen were more interested in quieting thepublic clamor for action against the trusts than inactually breaking up any of the new combinations.Quieting the clamor was certainly one of their objec-tives. However, they were trying to solve a newproblem and were not sure how to proceed. A lawwith teeth too sharp might do more harm than

good. Most Americans assumed that the courtswould deal with the details, as they always had incommon law matters.

In fact, the Supreme Court quickly emasculatedthe Sherman Act. In United States v. E. C. KnightCompany (1895) it held that the American SugarRefining Company had not violated the law by takingover a number of important competitors. Althoughthe Sugar Trust now controlled about 98 percent ofall sugar refining in the United States, it was notrestraining trade. “Doubtless the power to controlthe manufacture of a given thing involves in a certainsense the control of its disposition,” the Court said inone of the greatest feats of judicial understatement ofall time. “Although the exercise of that power mayresult in bringing the operation of commerce intoplay, it does not control it, and affects it only inciden-tally and indirectly.”

If the creation of the Sugar Trust did not violatethe Sherman Act, it seemed unlikely that any othercombination of manufacturers could be convictedunder the law. However, in several cases in 1898 and1899 the Supreme Court ruled that agreements to fixprices or divide markets did violate the Sherman Act.These decisions precipitated a wave of outright merg-ers in which a handful of large companies swallowedup hundreds of smaller ones. Presumably mergerswere not illegal. When, some years after his retire-ment, Andrew Carnegie was asked by a committee ofthe House of Representatives to explain how he haddared participate in the formation of the U.S. SteelCorporation, he replied, “Nobody ever mentionedthe Sherman Act to me that I remember.”

Table 17.3 Major Congressional and Supreme Court Decisions Concerning Corporations

Case/Act Year Decision/Action Consequence

Munn v. Illinois 1877 State legislatures can regulate economic enterprises Expansion of state powers against powerful corporations and trusts

Wabash, St. Louis & Pacific Railroadv. Illinois

1886 State legislatures can NOT regulate interstate economic activity; only federal government can do that

Congress passes Interstate CommerceAct 1887, regulating railroad behavior

InterstateCommerce Act

1887 Federal government can regulate railroad rates andpractices

Sets precedent for federal interventionin national economic matters

Sherman Antitrust Act

1890 The federal government can break up economicenterprises that are so big and powerful that theyhave monopoly power

Originally used to weaken labor unions; eventually allows governmentto break up large corporations

United States v.E. C. Knight

1895 Huge corporations that dominated markets can not be broken up if they do not also behave badly

Weakens Sherman Antitrust Act

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The Labor Union MovementAt the time of the Civil War only a small percentageof the American workforce was organized, and mostunion members were cigarmakers, printers, carpen-ters, and other skilled artisans, not factory hands.Aside from ironworkers, railroad workers, and min-ers, few industrial laborers belonged to unions.Nevertheless the union was the workers’ response tothe big corporation: a combination designed toeliminate competition for jobs and to provide effi-cient organization for labor.

After 1865 the growth of national craft unions,which had been stimulated by labor dissatisfactionduring the Civil War, quickened perceptibly. In 1866 afederation of these organizations, the National LaborUnion, was founded and by the early 1870s many newtrades, notably in railroading, had been unionized.

Most of the leaders of these unions were vision-aries who were out of touch with the practical needsand aspirations of workers. They opposed the wagesystem, strikes, and anything that increased thelaborers’ sense of being members of the workingclass. A major objective was the formation of worker-owned cooperatives.

Far more remarkable was the Knights of Labor,a curious organization founded in 1869 by a group ofPhiladelphia garment workers headed by Uriah S.Stephens. Like so many labor organizers of theperiod, Stephens was a reformer of wide interestsrather than a man dedicated to the specific problemsof industrial workers. He, his successor Terence V.Powderly, and many other leaders of the Knightswould have been thoroughly at home in the labororganizations of the Jacksonian era. Like theJacksonians, they supported political objectives thathad no direct connection with working conditions,such as currency reform and the curbing of land spec-ulation. They rejected the idea that workers mustresign themselves to remaining wage earners. Bypooling their resources, working people couldadvance up the economic ladder and enter the capital-ist class. “There is no good reason,” Powderly wrotein his autobiography, The Path I Trod, “why laborcannot, through cooperation, own and operatemines, factories, and railroads.” The leading Knightssaw no contradiction between their denunciation of“soulless” monopolies and “drones” like bankers andlawyers and their talk of “combining all branches oftrade in one common brotherhood.” Such muddledthinking led the Knights to attack the wage systemand to frown on strikes as “acts of private warfare.”

If the Knights had one foot in the past, they alsohad one foot in the future. They supported some star-tlingly advanced ideas. Rejecting the traditional

grouping of workers by crafts, they developed a con-cept closely resembling modern industrial unionism.They welcomed blacks (though mostly in segregatedlocals), women, and immigrants, and they acceptedunskilled workers as well as artisans. The eight-hourday was one of their basic demands, their argumentbeing that increased leisure would give workers timeto develop more cultivated tastes and higher aspira-tions. Higher pay would inevitably follow.

The growth of the union, however, had little todo with ideology. Stephens had made the Knights asecret organization with an elaborate initiatory ritual.Under his leadership, as late as 1879 it had fewer than10,000 members. Under Powderly, secrecy was dis-carded. Between 1882 and 1886 successful strikes bylocal “assemblies” against western railroads, includingone against the hated Jay Gould’s Missouri Pacific,brought recruits by the thousands. The membershippassed 42,000 in 1882, 110,000 in 1885, and in1886 it soared beyond the 700,000 mark. Alas, sud-den prosperity was too much for the Knights. Itsnational leadership was unable to control localgroups. A number of poorly planned strikes failed dis-mally, and the public was alienated by sporadic acts ofviolence and intimidation. Disillusioned recruitsbegan to drift away.

Circumstances largely fortuitous caused the col-lapse of the organization. By 1886 the movement forthe eight-hour day had gained wide support amongworkers, including many who did not belong tounions. Several hundred thousand (estimates vary)were on strike in various parts of the country by Mayof that year. In Chicago, a center of the eight-hourmovement, about 80,000 workers were involved, anda small group of anarchists was trying to take advan-tage of the excitement to win support.

When a striker was killed in a fracas at theMcCormick Harvesting Machine Company, the anar-chists called a protest meeting on May 4, at HaymarketSquare. Police intervened to break up the meeting, andsomeone—his identity was never established—hurled abomb into their ranks. Seven policemen were killedand many others injured.

Terence Powderly at Knights of Labor Conventionat www.myhistorylab.com

The American Federation of LaborAlthough the anarchists were the immediate victimsof the resulting public indignation and hysteria—seven were condemned to death and four eventuallyexecuted—organized labor, especially the Knights,suffered heavily. No tie between the Knights and thebombing could be established, but the union had

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Labor Militancy Rebuffed 479

the sense of belonging to a group. Inother words, despite statements such asStrasser’s, unions, in and out of the AFL,were a kind of club as well as a means ofdefending and advancing their members’material interests.

The chief weapon of the federation wasthe strike, which it used to win concessionsfrom employers and to attract recruits.Gompers, president of the AFL almost con-tinuously from 1886 until his death in1924, encouraged workers to make “intelli-gent use of the ballot” in order to advancetheir interests. The federation worked forsuch things as eight-hour days, employers’liability, and mine-safety laws, but it avoideddirect involvement in politics. “I have myown philosophy and my own dreams,”Gompers once told a left-wing Frenchpolitician, “but first and foremost I want toincrease the workingman’s welfare year byyear. . . . The French workers waste theireconomic force by their political divisions.”

Gompers’s approach to labor problems pro-duced solid, if unspectacular, growth for the AFL.Unions with a total of about 150,000 membersformed the federation in 1886. By 1892 the mem-bership had reached 250,000, and in 1901 it passedthe million mark.

Labor Militancy RebuffedThe stress of the AFL on the strike weapon reflectedrather than caused the increasing militancy of labor.Workers felt themselves threatened from all sides: thegrowing size and power of their corporate employers;the substitution of machines for human skills; theinvasion of foreign workers willing to accept substan-dard wages. At the same time they had tasted some ofthe material benefits of industrialization and hadlearned the advantages of concerted action.

The average employer behaved like a tyrant whendealing with his workers: He discharged them arbi-trarily when they tried to organize unions; he hiredscabs to replace strikers; he frequently failed to pro-vide the most rudimentary protection against injuryon the job. Some employers, Carnegie for example,professed to approve of unions, but almost nonewould bargain with labor collectively. To do so, theyargued, would be to deprive workers of their freedomto contract for their own labor in any way they saw fit.

The industrialists of the period were not allogres; they were as alarmed by the rapid changes ofthe times as their workers, and since they had more

been closely connected with the eight-hour agitation,and the public tended to associate it with violence andradicalism. Its membership declined as suddenly as ithad risen, and soon it ceased to exist as a force in thelabor movement.

The Knights’ place was taken by the AmericanFederation of Labor (AFL), a combination ofnational craft unions established in 1886. In a sensethe AFL was a reactionary organization. Its principalleaders, Adolph Strasser and Samuel Gompers of theCigarmakers Union, were, like the founders of theKnights of Labor, originally interested in utopiansocial reforms. They even toyed with the idea offorming a workers’ political party. Experience, how-ever, soon led them to concentrate on organizingskilled workers and fighting for “bread-and-butter”issues such as higher wages and shorter hours. “Ourorganization does not consist of idealists,” Strasserexplained to a congressional committee. “We do notcontrol the production of the world. That is con-trolled by the employers. . . . I look first to cigars.”

The AFL accepted the fact that most workerswould remain wage earners all their lives and tried todevelop in them a sense of common purpose andpride in their skills and station. Strasser and Gomperspaid great attention to building a strong organiza-tion of dues-paying members committed to union-ism as a way of improving their lot. Rank-and-fileAFL members were naturally eager to win wageincreases and other benefits, but most also valuedtheir unions for the companionship they provided,

On November 11, 1887, four anarchists were hanged in Chicago on charges they hadthrown a bomb that had killed policemen at the Haymarket demonstration. TheChicago Tribune reported that after nooses were placed around the men’s necks, andwhite hoods over their heads, “for a moment or two the men stood like ghosts.” “Longlive anarchy” one shouted.

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Baltimore and Ohio system in response to a wagecut and spread to other eastern lines and thenthroughout the West until about two-thirds of therailroad mileage of the country had been shutdown. Violence broke out, rail yards were put tothe torch, and dismayed and frightened business-men formed militia companies to patrol the streetsof Chicago and other cities. Eventually PresidentHayes sent federal troops to the trouble spots torestore order, and the strike collapsed. There hadbeen no real danger of revolution, but the violenceand destruction of the strike had been withoutprecedent in America.

The disturbances of 1877 were a response to abusiness slump, those of the next decade a responseto good times. Twice as many strikes occurred in1886 as in any previous year. Even before theHaymarket bombing centered the country’s atten-tion on labor problems, the situation had become sodisturbing that President Grover Cleveland, in thefirst presidential message devoted to labor problems,had urged Congress to create a voluntary arbitrationboard to aid in settling labor disputes—a remarkable

at stake materially, they were probably more fright-ened by the uncertainties. Deflation, technologicalchange, and intense competition kept even the mostsuccessful under constant pressure.

The thinking of most employers was remarkablyconfused. They considered workers who joinedunions “disloyal,” and at the same time they treatedlabor as a commodity to be purchased as cheaply aspossible. “If I wanted boiler iron,” Henry B. Stone, arailroad official, explained, “I would go out on themarket and buy it where I could get it cheapest, and ifI wanted to employ men, I would do the same.” YetStone was furious when the men he had “bought”joined a union. When labor was scarce, employersresisted demands for higher wages by arguing that theprice of labor was controlled by its productivity; whenit was plentiful, they justified reducing wages by refer-ring to the law of supply and demand.

Thus capital and labor were often spoiling for afight, frequently without fully understanding why.When labor troubles developed, they tended to bebitter, even violent. In 1877 a great railroad strikeconvulsed much of the nation. It began on the

During the Pullman strike in Chicago, workers protesting wage cuts did $340,000 in property damage, chiefly by burning freight cars.

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suggestion for a man of Cleveland’s conservative,laissez-faire approach to economic issues.

In 1892 a violent strike broke out among silverminers at Coeur d’Alene, Idaho, and a far moreimportant clash shook Andrew Carnegie’sHomestead steel plant near Pittsburgh when strik-ers attacked 300 private guards brought in to pro-tect strikebreakers. Seven guards were killed atHomestead and the rest forced to “surrender” andmarch off ignominiously. The Homestead affair waspart of a struggle between capital and labor in thesteel industry. Steel producers insisted that theworkers were holding back progress by resistingtechnological advances, while the workers believedthat the company was refusing to share the fruits ofmore efficient operation fairly. The strike was pre-cipitated by the decision of company officials tocrush the union at all costs. The final defeat, after afive-month walkout, of the 24,000-memberAmalgamated Association of Iron and SteelWorkers, one of the most important elements in theAFL, destroyed unionism as an effective force inthe steel industry and set back the progress of orga-nized labor all over the country.

As in the case of the Haymarket bombing, theactivities of radicals on the fringe of the disputeturned the public against the steelworkers. The bossof Homestead was Henry Clay Frick, a tough-minded foe of unions who was determined to“teach our employees a lesson.” Frick made thedecision to bring in strikebreakers and to employPinkerton detectives to protect them. During thecourse of the strike, Alexander Berkman, an anar-chist, burst into Frick’s office and attempted toassassinate him. Frick was only slightly wounded,but the attack brought him much sympathy andunjustly discredited the strikers.

The most important strike of the period tookplace in 1894. It began when the workers at GeorgePullman’s Palace Car factory outside Chicago walkedout in protest against wage cuts. (While reducingwages, Pullman insisted on holding the line on rentsin the company town of Pullman; when a delegationcalled on him to remonstrate, he refused to give inand had three of the leaders fired.) Some Pullmanworkers belonged to the American Railway Union,headed by Eugene V. Debs. After the strike haddragged along for weeks, the union voted to refuse tohandle trains with Pullman cars. The union was per-fectly willing to handle mail trains, but the ownersrefused to run trains unless they were made up of afull complement of cars.

When Pullman cars were added to mail trains,the workers refused to move them. The resulting

railroad strike tied up trunk lines running in and outof Chicago. The railroad owners appealed toPresident Cleveland to send troops to preserveorder. On the pretext that the soldiers were neededto ensure the movement of the mails, Clevelandagreed. When Debs defied a federal injunction toend the walkout, he was jailed for contempt and thestrike was broken.

Whither America, Whither Democracy?Each year more of the nation’s wealth and powerseemed to fall into fewer hands. As with the railroads,other industries were being influenced, if not com-pletely dominated, by bankers. The firm of J.P.Morgan and Company controlled many railroads; thelargest steel, electrical, agricultural machinery, rubber,and shipping companies; two life insurance compa-nies; and a number of banks. By 1913 Morgan andthe Rockefeller National City Bank group betweenthem could name 341 directors to 112 corporationsworth over $22.2 billion. The “Money Trust,” aloose but potent fraternity of financiers, seemed fatedto become the ultimate monopoly.

Centralization unquestionably increased effi-ciency, at least in industries that used a great deal ofexpensive machinery to turn out goods for the massmarket, and in those where close coordination of out-put, distribution, and sales was important. The publicbenefited immensely from the productive efficiency ofthe new empires. Living standards rose.

But the trend toward giantism raised doubts. Withownership falling into fewer hands, what would be theultimate effect of big business on American democ-racy? What did it mean for ordinary people when a fewtycoons possessed huge fortunes and commanded suchinfluence even on Congress and the courts?

The crushing of the Pullman strike demon-strated the power of the courts to break strikes byissuing injunctions. And the courts seemed onlyconcerned with protecting the interests of the richand powerful. Particularly ominous for organizedlabor was the fact that the federal government basedits request for the injunction that broke the strike onthe Sherman Antitrust Act, arguing that theAmerican Railway Union was a combination inrestraint of trade. An indirect result of the Pullmanstrike was that while serving his sentence for con-tempt, Eugene Debs was visited by a number ofprominent socialists who sought to convert him totheir cause. One gave him a copy of Karl Marx’sCapital, which he found too dull to finish, but hedid read Looking Backward and Wealth AgainstCommonwealth. In 1897 he became a socialist.

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Key TermsAmerican Federation of Labor (AFL) A union,

formed in 1886, that organized skilled workersalong craft lines. It focused on workplace issuesrather than political or social reform, 479

Interstate Commerce Act Federal law establishingthe Interstate Commerce Commission in 1887,the nation’s first regulatory agency, 476

Knights of Labor A national labor organization,formed in 1869 and headed by Uriah Stephensand Terence Powderly, that promoted union soli-darity, political reform, and sociability amongmembers. Its advocacy of the eight-hour day ledto violent strikes in 1886 and the organization’ssubsequent decline, 478

laissez-faire A French term—literally, “to letalone”—used in economic contexts to signify theabsence of governmental interference in or regula-tion of economic matters, 471

National Grange of the Patrons of Husbandry A farmers’ organization, founded in 1867 byOliver H. Kelley, that initially provided social andcultural benefits but then supported legislation,known as the Granger laws, providing for railroadregulation, 475

Sherman Antitrust Act A federal law, passed in1890, that outlawed monopolistic organizationsthat functioned to restrain trade, 477

social Darwinism A belief that Charles Darwin’stheory of the evolution of species also applied tosocial and economic institutions and practices:The “fittest” enterprises or individuals prevailed,while those that were defective naturally fadedaway; society thus progressed most surely whencompetition was unrestricted by government, 472

1859 First oil well is drilled in PennsylvaniaCharles Darwin publishes The Origin of Species

1868 Carnegie Steel Company is formed1869 George Westinghouse invents air brake

Garment workers found Knights of Labor1870– Railroad trunk lines are completed18901876 Alexander Graham Bell invents telephone1877 Great railroad strike convulses nation

Munn v. Illinois upholds state regulatory laws1879 Thomas Edison invents electric light bulb

Reformer Henry George publishes Progress and Poverty

1884 Marxist Laurence Gronlund publishes TheCooperative Commonwealth

1886 Anarchists clash with police in Chicago’sHaymarket bombing

Craft unions found American Federation of Labor (AFL)

1887 Interstate Commerce Act regulates railroads1888 Edward Bellamy publishes utopian Looking

Backward1889 Philanthropist Andrew Carnegie publishes

“Gospel of Wealth”1890 Sherman Antitrust Act outlaws monopolies1892 Seven Pinkerton guards are killed in Homestead

steel strikeGeneral Electric Company is formed

1894 Eugene V. Debs leads American Railway Union inPullman strike

Henry Demarest Lloyd condemns laissez-faire inWealth Against the Commonwealth

1895 U.S. v. E.C. Knight Company weakens Sherman Act

1901 J.P. Morgan forms U.S. Steel, “world’s firstbillion-dollar corporation”

Milestones

Chapter Review

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Chapter Review 483

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Railroads & New TransportationSystems, p. 460

J.P. Morgan, p. 460

Edison, The Success of theElectric Light, p. 465

Carnegie, Wealth, p. 473

Bellamy, from LookingBackward, p. 474

Terence Powderly at Knights ofLabor Convention, p. 478

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Research and ExploreRural Free Delivery Mail, p. 471

Interstate Commerce Act,p. 476

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Connections

Review Questions1. The introduction asked whether the benefits of

economic concentration outweighed its social andpolitical costs. List the benefits and costs: Whichargument is stronger?

2. What factors contributed to the nation’s extraordi-narily rapid industrial growth during the last thirdof the nineteenth century?

3. What technological developments had the greatesteconomic impact? Greatest social impact?

4. Who were the major critics of economic concen-tration in the late nineteenth century and how didthey differ?

5. How did Congress respond to critics of mono-poly? How did the Supreme Court respond toattempts to regulate the economy?

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