The Making of Industrial America

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The Making of Industrial America
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The Age of Capital, 1860-1929:
The Making of Industrial America
Part A: Industrialization and Urbanization
I Introduction: The Age of Capital
On the eve of Civil War, USA was a prosperous (producing a large surplus over subsistence needs) nation, characterized by commercial agriculture and merchant capitalism, but industry was still primarily organized on handicraft lines among artisans and small factories.
A growing and significant part of industry, textiles, was highly capitalized, technologically advanced, and poised to lead the world market. U.S. was still dependent on Europe for investment capital, and with a low rate of natural increase, it would continue to rely on Europe and later Asia and the rest of Western Hemisphere for labor.
However, U.S. was not a modern industrial economy yet. Heavy industry, large corporations, integrated manufacturing processes, and consumer markets had only began to emerge by 1865, but the transition was largely achieved by 1920.
Here, I can come out of the closet with my take on last units Beard-Hacker v. Cochran-Engermann debate: Civil War was destructive in lives and treasure lost. It diverted to destructive purposes resources, which might otherwise have been used productively. It was a costly method of preserving Union and abolishing slavery, the wars positive result.
Post- Civil War decades marked a period of USAs massive industrial transformation that made United States the richest (in the aggregate sense) and most industrialized country in the world, leading the world in all major modern industries: steel, coal, motor vehicles, electricity, and petroleum refinery.
In standard history books, this era usually gets divided into two somewhat overlapping periods: the Gilded Age and the Progressive Era:
a) Gilded Age
The term Gilded Age was invented by Mark Twain. He used it to describe this period that on the surface looked golden, but a more careful study revealed substantial problems underneath the surface.
The business of the era was characterized as an age of speculation and unsavory characters.
b) Progressive Era
Progressive Era was, in short, the age of professional middle-class reform of economy and political process. Progressives were driven by desire to morally uplift the nation, share its wealth, and make everybody and everything fit its white, middle-class, and Christian set of values.
These terms, while descriptive, give you no indication about the growth and shape of the economy that Age of Capital (title of Eric Hobsbawms book about world history between 1848 and 1875), gives to United States business and economic history.
II Age of Capital
Why Capital? The term has a variety of uses, but it can help us to understand Americas economic transformation. In most general terms, think of capital as value, which in an economy can circulate, accumulate, concentrate, and thus can be dispersed and grow. Capital accumulation is both a process and an object.
We have various types of capital at play here:
1. Financial capital
This is a stock of money and credit from past savings that can be used or loaned to in order bring together physical goods to be put to productive use.
2. Factors of production, i.e. physical capital
Physical capital enables the process of transformation of financial capital into commodities.
This consists of actual physical stock of man-made goods used in the production process, such as machines and machine tools, factory plant, land, distribution network, warehouses, transportation, and also natural resources when brought under production.
3. Human capital
Investment in population quality, education, training, health care, which all helped workers to be smarter, faster, more skilled and productive.
Also, accumulation of private property helped in harnessing various types of capital. Creation of a class owning a disproportionate share of societys resources helped further foster investments and economic activity.
All types of capital were increasing during this time; hence the Age of Capital becomes appropriate term when discussing the eras economy, politics, and even culture.
a) America saw a growing importance of financial capital, investment, entire economy become more monetary, further increase in national stock markets, paper money, investment schemes, rise of insurance companies.
b) The nations physical capital accumulated, with more factories, railroads, fields, and other tools for increasing economic production.
c) Human capital was growing, with population increases along with gradual improvements in education, health, housing, vocational training, public health facilities (sanitation, plumbing, draining of swamps).
d) Private property accumulated, and for the first time, smaller group of Americans acquired a disproportion share of value and power. Prior to civil war, the country had but a few phenomenally rich economic actors, but by 1900, a relatively small number of individuals gained a sizeable hold on American production, along with a small group of corporations.
Before the Civil War, U.S. was largely a rural agrarian economy, with most of its industry in processing agricultural goods. By 1920, the action has moved to the cities and industrial towns. U.S. has become the most powerful economy in the world, surpassing European nations.
1876 Philadelphia Centennial Exhibition captures this transformation. In the exhibition, Alexander Graham Bell wins Blue Ribbon for the best invention, the speaking telephone, marking a new day in telecommunication industry. Around the same time, General Custer is killed in Battle of Little Big Horn, and despite this setback, U.S was closing in on completing conquest of indigenous groups.
III Major Changes, 1865-1920
Changes were multiple, and some of the key ones include:
a) Population growth and urbanization
Prior to Civil War, most of the population lived east of Mississippi river, but by 1910, America was populated coast to coast, with the center of its population moving west- and southward
The size of American population also grew rapidly, both because of natural increase and immigration. Population numbers were:
1860 31.5 million
1910 92.5 million
1920 106 million
Urbanization also grew rapidly. The percentage of Americans living in urban places at a rapid rate:
1860 20%
1900 40%
1920 51%
From 1920s on, U.S. was a whole different kind of nation. It now had a large internal market for standardized consumer products.
U.S. was also less dependent on overseas suppliers and foreign buyers; international trade as a percentage of American GNP actually declines.
Americans living standards rise, per capita income rises. This does not happen for all groups (southern sharecroppers, for example), but on average the development is obvious.
This population purchases more and better goods and services as a result of increased efficiency in manufacturing and agriculture.
Population change is made possible by substantial progress in agriculture.
b) Agricultural sector
Agriculture was growing in an absolute sense during this period, but shrinking in a relative sense to rest of economy. It grew, but not as rapidly as industrial manufacturing. In 1860, agriculture formed 21% of overall domestic output, but by 1920, it formed 17% of overall output. However, in total numbers, agricultural output grew fivefold during this period.
Changes in agricultural sector reinforce urbanization and industrialization; i.e., urbanization and industrialization would not have been possible without solid farming sector. Farming helped industrialization and urbanization in various ways:
1. Farm production: huge proportion of USs industrial base was in farm goods (meatpacking), so agricultural was not forgotten, but still quite strong.
2. Decrease in food prices: relative decrease in food costs hurt some farmers, but it freed income for other uses. This essentially became a subsidy to urban area (today U.S. food costs are the cheapest in the world, when compared to income).
3. Decline of agricultural labor: as a large percentage of rural population moves to cities, they provide a cheap labor pool for industrialization.
4. Farm demand: farmers need fabricated goods – both farm equipment and consumer goods.
U.S. industrialization was based on a strong, efficient agricultural base
c) Manufacturing sector
U.S. experienced a massive expansion in number of firms and employees per firm. Number of manufacturing firms, size of units, and wage earners grew dramatically. In 1860, the average number of employees in a factory was 10; in 1914, it was 46.
The increase in output was astonishing, growing from two billion dollars to 60 billion dollars between 1870 and 1920.
In 1870, U.S. produced 77,000 tons of steel; in 1920, it was 46 million tons (compare to the Great Britain, which produced seven million tons, and Germany, which produced 17 million tons).
Coal production in 1870 was 20 million tons; in 1920 it was 570 million tons (the Great Britain 292 million tons, Germany 190 million tons).
Lumber production in 1869 13 billion board-feet, and in 1910 it was 40 billion board-feet.
Cotton production in 1860: 845,000 bales, 1910 it was five million bales.
Petroleum production in 1860 was 500,000 barrels, 1910 it was 209 million barrels.
d) Transportation system
Key change is further improvements in the creation of national and international transportation systems. In 1860, U.S. east of Mississippi had 30,000 miles of railroad tracks. Also, small companies, local monopolies proliferate own small non-connecting lines, using different gauge tracks. This was good for the time, but it was not yet a modern, integrated system. However, great trunk lines in New York and Pennsylvania were already in formation, giving shape to the system, allowing smaller lines to connect to national market
By 1920, U.S. had 240,000 miles of track. Creation of unified integrated national economy, made possible by extensive railroad network, complements the rise of big business. Reliable, cheap transport costs are crucial in the rise of big business. No inhabited area by 1910 was very far from a railroad.
Improvements are also qualitative. The nation moves to iron and steel tracks, creates standard gauge track, which enables the use of same cars and locomotives throughout the nation. Also, trains had better, stronger engines by 1880s. Also, telegraph and telephone networks grew alongside railroads, reaching first the urban areas, but soon spreading to rural America as well. Rise in use of automobile and trucks marked the beginning of the 1900s. It was first a local phenomenon, but with improved roads the traffic increased. However, it was not until after 1920s and 1945 that automobile traffic had fully matured.
IV The Making of Industrial America
Capital formation was the key in American industrialization. The nation had now more investment capital to pump into the economy, resulting to new plants, railroads, buildings, and other business activity. The higher the rate of capital investment, the higher the rate of economic activity and productivity and overall income.
At this time, savings is the key. During the late nineteenth century, we see a great jump in the savings rate. In the pre-Civil War era, savings formed 16-19% of GNP. By 1870s, savings rate was 30%, which kept money available and cheap, and encouraged borrowing. Capital formation was around 25-28%. (Today, our savings rate is in low single digits, so economic investment must come from other sources.)
High savings rates lead to increased rate of investment (capital formation) in domestic economy and thus to growth in the form of increased output, profits and income, and thus more savings.
Confidence in domestic economy was also strong. American and foreign investors did not hoard their profits and ship them overseas, but instead put the profits into industry. This shows confidence in growing markets, which absorbed products, increased profits and incomes, which in turn, contributed to the cycle of savings and investment. Many economists argue this was the key, particularly when investment was going into productive, leading industries.
The structure of American industry changed substantially between Civil War and World War I, shifting from light industry and agro-processing to heavy industry (iron, steel, metal-working, chemical processing):
1860 Top 10 industries
1. Flour Mills (grain production)
2. Cotton Mills/Textiles
3. Lumber
4. Boots/Shoes
5. Iron machinery
6. Clothing apparel
7. Leather
8. Woolen goods
9. Liquor
10. Steam Engines
1920
1. Meat packing
2. Iron and steel
3. Flour milling
4. Machinery
5. Lumber
6. Cotton
7. Railroad Cars
8. Automobiles (twice as big as flour milling, the leading industry in 1860)
Transformation is not merely an economic process but a social process–that changes the way management operates, work is structured, and the way the political economy (law and politics) is transformed.
Part B: Labor and the Age of Capital
I What happens to industrial workers during this process?
Some see industrialization as a boom, while some see it as a disaster. What is the truth? What is happening to the workers? Lets investigate.
Standard of Living:
This has been a controversial debate, which has quantitative (income, health, housing) and qualitative (personal freedom, individualism) aspects. However, before we discuss the life of the working class during the Age of Capital, it is good to keep in mind that life before industrialization was not a picnic either. Also, industry is not necessarily responsible of all the ills and problems in peoples lives either.
Evidence between 1860 and 1920 shows that material conditions of most workers improved, including housing, infant mortality, and wages.
But in 2010 dollars, most workers madeunder$25,000 annually, and only the most skilled workers and those in certain industries made up to $30,000. This lack of income explains why women and children were working.
Qualitative Changes:
One big problem in the minds of many industrial workers moving from farm to the cities, switching agricultural labor to industrial work, was the lack of individual freedom to work at ones own pace. Workers resented many of these changes, such as:
a) Dependency on wages:
Most workers become wage earners, with no claim to ownership of their workplace. They sell labor for a wage, so security and independence become compromised.
In some cases market forces favor workers, at other times workers were in a precarious position.
b) Shift from hand manufacturing to machine manufacturing
Workers become machine tenders. Also, specialization and division of labor leads to efficiency gains but greater monotony, routine, alienation (estrangement). For example, an old shoemaker, working with hands, made one pair of shoes in one day, from start to finish. In Lynn Shoe Factory, one machine, operated by a worker, hits nails into shoes 30,000 times a day.
The new system puts less value on skilled labor. Skilled workers resent industrialization, as they see their position decline
New work place has a greater demand for making labor routine-driven and disciplined, leading to the loss of autonomy. Individualism is crushed through routines, workers complain. Pre-industrial artisans may have worked long hours, but they could pace their own work.
c) Possibility of industrial accidents
Danger of industrialization was clear, with staggering statistics: in 1900-1917, 230,000 workers were killed (12,700 year), with two million injured. Serious accidents were commonplace.
d) Social and environmental effects
Factories were located in cities and towns, with urban problems such as crowding, crime, and pollution.
U.S. experienced a variety of changes with massive industrialization. There are horrors with industrialization, no matter what ones political persuasion or view of the process. U.S. experiences one of the most intense industrialization periods, but in comparison to other countries, things generally got better rather than worse. Nevertheless, this was a traumatic time for millions.
II Workers responses to massive industrialization
Some go for accommodation, doing their best to live with the new order of things. Other workers resisted, forced modification of the new industrial rules.
Some workers were able to retain traditional prerogatives they had enjoyed as artisans or agricultural laborers.
Management held better cards by turning to a variety of new weapons to forge model workers that the new factory demanded: punctual, efficient, sober, and disciplined to the clock and wage system. These methods included:
1. Precise work rules and personnel departments
2. Blacklisting of problematic workers
3. Time discipline, steam whistle, locked factory gates
4. Fines, docked pay for missed days or failed assignments
One French delegate who toured industrial states in 1890s marveled that work in the American shops is altogether different from what it is in France. Nobody talks, nobody sings, the most rigorous silence reigns.
Management got most of what it wanted, but not everything.
In order to confront business, workers transformed the way they confronted business. With rise of big business, first large-scale national collective organization in form of labor unions emerged.
Starting in the late nineteenth century, large umbrella organizations, such as National Labor Union, Knights of Labor, and American Federation of Labor emerged.
Not surprisingly, this led to very fierce confrontations between management and labor, including violence. In international comparison, USA has an extremely violent labor history.
Workers remedies for the situation included organizing, working to make unions and strikes legal in order to push for collective bargaining and arbitration of disputes. Workers also pushed for shorter days and higher wages, to get their share of wealth and regular payments in cash. Employers, naturally, subscribe to iron law of wages, seeking to pay as low as market situation allowed.
Some workers sought to opt out of capitalism altogether. Cooperative movement sought to develop businesses ran by workers themselves: not-for-profit stores, housing units, even factories. Others sought to return to the farm.
Some workers also sought political reform to control the industrialization, pushing for health and safety legislation, unemployment benefits, ending child and prison labor, and seeking equal pay for men and women.
Some workers also practiced informal on-the-job resistance:
1. Proponents of shop culture tried to bring old artisan work patterns to factories, pushing for worker-maintained production quotas. Only the most skilledglass blowers, iron molders and rollersmaintained these openly. However, many industries did this secretly: workers simply refused to produce more than what they saw fair. They werent always successful, but were able at least to intimidate the exceptionally fast worker.
2. Absenteeism. Companies had to keep spare hands on the payroll, up to 10-25 percent of the workforce at country mills. Many simply refused to come to work on some days, taking care of their personal business, resting, going fishing or hunting to supplement their diet, etc.
3. High turnover rates. About one-third of the employees of a typical factory held on to their jobs a year or less, and because they moved so often, annual factory turnover in normal times was at least as high as the 100 percent reported by the Armour meat company in Chicago. This number was even higher in the areas with labor shortages. Southern textiles had an annual turnover rate of 176%, and Detroit during WWI a whopping 252%. These numbers forced management to offer bonuses, require letter of recommendation, hold back wages for those who didnt give a notice before they quit. Turnover was, naturally, higher during years of prosperity than during economic downturns. Also, it showed a yearly cycle: workers quit in spring and came back to work in winter.
4. Disciplining fellow workers. Some first-generation industrial workers, greenhorns, labored harder than the norm. Eagerness for success and willingness to work characterized large numbers of new immigrants. Older workers cajoled and threatened them to maintain normal working pace, made sure that new guys dont make them look bad.
By 1920s, it appeared resistance had ended with second and third generation of factory workers. Turnover declined, cut down to 5-6%, which personnel managers accepted as normal. Fewer workers were now mobile, demonstrating less restlessness.
Many of them now accepted industrial regime. New generations were born in cities, grew up knowing and accepting the rules of industrial work.
Part C: Agriculture
I Changes in Agriculture, 1865-1920
We should not forget agriculture despite the rise of industry at this time
Agricultures share of GNP by 1920 was 17%, down from 21 percent in 1865. Still, it formed almost one-fifth of the economy.
The total size of farming business grew five times, from $1.5B to $7.5B.
Key changes included:
1. Overall expansion. Even with relative decline in importance, agriculture overall grew rapidly, with more farms, twice the acreage, and four times the improve acreage between 1865 and 1920.
2. Movement to west. Government had assisted in the movement of agriculture to the west, with Homestead Act, which gave farmers up to 160 acres. Railroads also were given or sold land cheaply to boost transit. Mining booms of 1840-1880s also led to growing population, which required growing number of farmers to feed these miners. At the beginning of Civil War, 15% of population lived west of Mississippi River, but by 1910, the number was 38%.
3. Commercialization. Fever and fever farmers were self-sufficient, producing for the markets instead.
4. Specialization. Many farms now specialized in certain segment of market production: dairy farmers, wheat farmers, chickens, hogs, vegetables for nearby industrial processing plants or urban consumers.
5. Mechanization. Farming becomes more capital intensive, as farmers need reapers, machine tools, tractors, etc.
6. Growing efficiency. The era sees a tremendous increase in agricultural productivity. Better skills, machines, fertile land made the land more productive and reduced the need for labor. In 1855, it took 39 man-hours to produce 30 bushels of corn. In 1900, the same amount took only 18 man hours. In 1860, one farmer could work 12 acres, but by 1900 he could work 34 acres, or 100 acres of the very best land.
7. Increased farm output. U.S. experiences a surge in farm output in every crop and livestock animal between 1860 and 1920. Total farm wealth increases 5-6 times. Farms produce more, but also of better quality: leaner pork, bigger chickens, more corn from the same acreage, et cetera.
II Problems arising from the change
Changes hurt a number of farmers, especially up to 1900, leading to a number of protests. Some of the key problems affecting the farmers included:
1. Falling prices. Key problem between 1860 and 1900. U.S. experienced a steep drop in prices, a period of deflation, with all prices dropping with tremendous surge in output and market integration. Supply was outstripping demand with enhanced output and international competition (globalization occurs first in agriculture), i.e. rice, cotton, tobacco, wheat, beef. Competition increases because of improvements in long-distance shipping, integration, and refrigeration. Only most efficient farmers can survive. U.S. was able to protect market only by accepting low prices, meaning lower prices for consumers, but less income to farmers. For example, corn and cotton prices fall by more than 50 percent between 1870 and 1897.
2. Debt problem. Farmers were almost always in debt, but usually this was short-term or revolving credit, which was relatively easily managed in the old system. But in order to compete with national and international markets, farmers go into deep debt in order to mechanize and modernize their production, as only most effective producers were able to survive. Structural debt put many farmers in a cost/price squeeze.
3. Deflation. Increasing value of money made it harder to repay debts. As prices fell, money became more valuable, and farmers were facing hard time.
4. Tariff problem. Republican ascendancy in late 19th century led to high tariff policies. High tariff walls hurt farmers, helped manufacturers, as American farm tool makers have a monopoly position and raise their prices accordingly, while other nations respond with their own high tariffs against U.S. farm exports
5. Transportation and marketing monopolies. Crop insurance companies, grain elevator owners, railroads, banks, merchants, food processors, meat packers increasingly enjoyed (regional) monopolies, raising the prices for their services and lowering the costs they offered to farmers for their products. Farmers felt they were gouged by high cost from these groups. In reality, this is debatable, as railroad rates were decreasing and elevator prices relatively low. I would argue that the problem was not economic but psychological, as farmers were increasingly dependent and they resented their new lower status.
6. Perishability problem. Farmers cant wait out a middleman, which adds an unfavorable time element to farmers position. You have to sell your pork/tomatoes/eggs/etc. fast, or they will rot and you are left with nothing.
7. Status problem. Agriculture was losing its hold on American imagination, farmers going against grain of national policy and culture. Before, farmers were considered the salt of the earth, the backbone of American society and economy. Now the action is in the cities, and farmers are treated as hicks and hayseeds, the backwards rednecks out of touch with the nations new direction.
To improve their situation, farmers try new approaches to new problems. This means that they must act collectively and use their position as citizen-voters to find political solutions. These highly individualistic farmers form national organizations and movements to address their issues.
III Farmers Response and Agrarian Protest
Organization of farmers is a new thing. They form associations and societies, many of them overlapping but yet distinct. Four key movements are:
1. Grangers, 1870s. The Grangers wanted to use the political process to protect the farmers from transportation and wholesale middlemen monopolies. Their primary strategy was to use state-level political machinery to regulate railroads, and they also wanted to create farmer-owned transportation and processing businesses.
2. Greenback movement, 1870s. Greenbacks wanted to inflate the economy by using silver as currency and printing more paper money, greenbacks hence their name. They promoted progressive taxation, protested foreign land ownership in the U.S. (especially British), and wanted an austere government. They were fairly successful in the Midwest and parts of the South.
3. Farmers Alliance, 1880s. Alliance created and supported local cooperative stores, cotton gins, grain mills. The movement split into localists, who wanted to focus on developing farmer-owned businesses and cooperatives, and those who promoted entry into national politics. Eventually F.A. melted into the Populist Party.
4. Populist (Peoples) Party, 1890s. Populists sought to protect traditional way of life within commercial economy, promoting lower costs of shipping and storage. The movement sought the aid of national government in inflating currency and in regulating the railroads and other trusts. The most radical part of the Populists plan was to promote a sub-treasury, where the federal government would underwrite cooperatives and issue greenbacks for crops, with federal government warehousing and controlling the distribution of crops and securing their prices. This would largely destroy the existing credit system and, in Populist rhetoric, move the finances from the banks to the people.
Scholars disagree on the character of the farmer movement. Three different positions on farm movements prevail:
1. First view says that it was a reactionary throwback, where farmers wanted to move agricultural production back to self-sufficient primeval status. They argue that farmers disliked modernity and capitalism, longing for old pre-industrial life.
2. Second group argues that farmers created a radical protest against industrial capitalism, wanting to replace it with socialism, as is evident in their sub-treasury plan and promotion of either regulation or direct state ownership of railroads.
3. Last group argues that farmers were pragmatic people who accepted changes but wanted more out of market position. They simply flirted with socialism if it benefited them, while supported market solutions if that filled their pockets. Considering many farmers current position as beneficiaries of government subsidies, yet arguing against socialism in other aspects of the government largesse/activities, I am personally prone to agree with the last interpretation. It is fair to say that most farm protesters were not radicals; they accepted capitalism, but desired better market position. Evidence is in timing, ebb and flow of protest. Protests emerge in the 1870s and end by 1897; this follows price line, as prices decline from 1870s to 1890s and rise from 1900-1919. When prices fall after World War I, protests return. Early twentieth century was the great heyday of American agriculture. If farm protests were radical, then protests would have continued.