6.6 The Rise of Industrial Capitalism

Railroads and Cornelius Vanderbilt

The expansion of the railroad system in the United States after the Civil War had a significant impact on the country's economic and social development. The increase in railroad mileage made it possible to transport goods and people over long distances quickly and efficiently. This led to the creation of a national market for goods, which in turn encouraged mass production and mass consumption.

The introduction of new technologies such as air brakes, refrigerator cars, dining cars, heated cars, and electric switches transformed the railroad industry, making it safer and more comfortable for passengers and more efficient for shipping goods. The popularity of George Pullman's lavish sleeping cars also contributed to the transformation of the railroad industry, making long-distance travel more comfortable and accessible for people.

Furthermore, the expansion of the railroad system also facilitated economic specialization as it allowed for the movement of goods and people between different regions, thereby encouraging the growth of industries in areas that had access to natural resources and other advantages.

Overall, the expansion of the railroad system in the United States after the Civil War had a significant impact on the country's economic and social development, making it possible to transport goods and people over long distances quickly and efficiently, creating a national market for goods, facilitating economic specialization and making long distance travel more comfortable and accessible.

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Cornelius Vanderbilt, also known as "Commodore" Vanderbilt, was a successful businessman who used his fortune from the steamboat industry to merge local railroads into the New York Central Railroad, which ran from New York City to Chicago and operated more than 4,500 miles of track.

The federal government also played a role in the expansion of the railroad system by providing subsidies in the form of loans and land grants to railroad companies. This led to the construction of many new railroads, particularly in the western United States, which facilitated the settlement of these regions.

However, the rapid expansion of the railroad industry also led to some negative consequences. During speculative bubbles, investors often overbuilt new technologies, leading to overcapacity in the industry. Railroads also suffered from mismanagement and outright fraud, with some speculators entering the industry for quick profits and engaging in practices such as selling off assets and watering stock.

To survive, railroads competed by offering rebates and kickbacks to favored shippers while charging exorbitant freight rates to smaller customers such as farmers. This led to a financial panic in 1893, which forced a quarter of all railroads into bankruptcy. J. Pierpont Morgan and other bankers quickly moved in to take control of the bankrupt railroads and consolidate them, leading to the creation of large railroad monopolies.

Steel and Carnegie

In the 1850s, both Henry Bessemer in England and William Kelly in the US discovered that blasting air through molten iron produced high-quality steel (a more durable metal than iron).

Andrew Carnegie was the undisputed master of the industry. South of Pittsburgh, he built the J. Edgar Thomson Steel Works, named after the president of the Pennsylvania Railroad, who was his biggest customer. In 1878 he won the steel contract for the Brooklyn Bridge. He also would provide the steel for NYC’s elevated railways and skyscrapers and the Washington Monument.

In 1901 he sold the company believing that wealth brought social obligations and he wanted to devote his life to philanthropy. JP Morgan bought it as he was Carnegie's chief competition in the Federal Steel company. Carnegie sold it for a half billion dollars. Drawing other companies into the combination in 1901, Morgan announced the creation of the US Steel Corporation. 

Rockefeller and the Oil

In the 1850s, petroleum was a bothersome, smelly fluid that occasionally rose to the surface of springs and streams. Some entrepreneurs bottled it in patent medications and others burned it. Soon it was discovered that by drilling, you could reach pockets of it under the earth. John D. Rockefeller imposed order on the industry.

Rockefeller absorbed or destroyed competitors in Cleveland and elsewhere. Unlike Carnegie, he was distant. He had deep religious beliefs and taught Bible classes. 

He demanded efficiency and relentless cost cutting. He counted the stoppers in barrels, shortened barrel hoops to save metal, and reduced the number of drops of solder on kerosene cans from 40 to 39. He realized that even small reductions meant huge savings. By 1879, through his company, Standard Oil, he controlled 90% of the country’s entire oil-refining capacity.

Some people at the time viewed these men as corrupt and harmful robber barons while others saw them as brilliant and innovative captains of industry. Which is closer to the truth? Well, that’s for you to argue. 

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New Business Organization

Business leaders used new tactics to consolidate wealth and drive out competition.

Capitalism

As early as 1776, economist Adam Smith had argued in The Wealth of Nations that business should be regulated, not by government, but by the “invisible hand” of the law of supply and demand. If the government kept its hands off (laissez-faire), so the theory went, businesses would be motivated by their own self-interest to offer improved goods and services at low prices. 

Charles Darwin’s theory of natural selection in biology presented new views of economics for some. Some people argued that Social Darwinism, the belief that Darwin’s ideas of natural selection and survival of the fittest, should be applied to the marketplace. They believed that concentrating wealth in the hands of the “fit” benefited everyone.

Gospel of Wealth

John D. Rockefeller, one of the most successful industrialists and philanthropists of the 19th century, was a devout Baptist who believed that his wealth was a blessing from God. He often cited the Bible verse Proverbs 13:22, which states "A good man leaveth an inheritance to his children's children: and the wealth of the sinner is laid up for the just" as evidence that God had given him his riches as a reward for his hard work and good deeds.

Rockefeller's religious beliefs played a significant role in his business practices and philanthropy. He believed that his wealth was a responsibility and that he had a moral obligation to use it for the betterment of society. He donated millions of dollars to various charitable causes and organizations, including education, health care, and the arts. He also believed that his business practices should be guided by Christian principles such as honesty, integrity, and fairness.

Rockefeller's religious beliefs and philanthropy helped to soften the negative public perception of him and other wealthy industrialists. Many Americans viewed the wealth of the "Robber Barons" as a sign of divine favor and justification of the capitalist system. This perspective helped to legitimize the growing wealth gap in the United States and the concentration of wealth and power in the hands of a few individuals and corporations.

Andrew Carnegie's article “Wealth” argued that the wealthy had a God-given responsibility to carry out projects of civic philanthropy for the benefit of society, the idea of the Gospel of Wealth. He himself distributed more than $350 million of his fortune to support the building of libraries, universities and various public institutions.