🇺🇸ap us history review
6.6 The Rise of Industrial Capitalism
Verified for the 2025 AP US History exam•Citation:MLA
The Transformation of American Business
After the Civil War, American business underwent a dramatic transformation from small companies to massive corporations. New technology, expanded transportation networks, and innovative business practices drove this change. The government generally supported big business through favorable policies and limited regulation. This period saw unprecedented economic growth but also growing concentration of wealth and power.
- Factors Driving Business Growth:
- Post-Civil War industrial expansion
- New technologies enabling mass production
- National transportation networks (especially railroads)
- Abundance of natural resources
- Growing urban population creating markets
- Influx of immigrant labor
- Government policies favoring business development
Railroad Expansion and Consolidation
Railroads were America's first big businesses and set patterns that other industries would follow. Railroad companies pioneered large-scale business organization and management techniques while creating a nationwide transportation network. Their expansion connected markets and resources across the country but also led to financial problems and unfair practices.
- Growth of the Railroad Network:
- Massive expansion: 35,000 miles of track in 1865 to nearly 200,000 miles by 1900
- Transcontinental lines connected East and West (first completed 1869)
- Technical improvements made railroads faster, safer, and more efficient:
- Steel rails replaced iron
- Air brakes improved safety
- Standard gauge tracks allowed trains to connect between lines
- Refrigerated cars enabled shipping perishable goods
- Created first truly national market for goods
- Connected different regions, allowing areas to specialize in particular products
- Railroad Consolidation:
- Cornelius Vanderbilt combined smaller railroads into New York Central
- By 1900, seven major companies controlled two-thirds of all rail lines
- J.P. Morgan reorganized troubled railroads, further concentrating ownership
- Small companies absorbed into larger systems through mergers and acquisitions
- Railroad Problems and Practices:
- Overbuilding led to financial instability
- Discriminatory pricing hurt small customers:
- Secret rebates for large shippers
- Long-haul/short-haul price differences
- Higher rates where competition was limited
- Stock watering (inflating company value) and financial manipulation
- Corruption of government officials through bribes and free passes
- Public backlash eventually led to government regulation
Industrial Giants and Mass Production
New production technologies and business practices allowed manufacturers to create goods on a previously unimaginable scale. Industrial leaders like Carnegie and Rockefeller built massive enterprises that dominated their industries. Their companies transformed how products were made and sold while dramatically reducing costs.
- Steel Industry Transformation:
- Bessemer process (1850s) revolutionized steel production
- Andrew Carnegie built dominant position:
- Started as railroad telegraph operator and investor
- Built massive steel works near Pittsburgh
- Applied scientific management principles
- Vertically integrated from mining to manufacturing
- Relentlessly focused on efficiency and cost-cutting
- Sold company to J.P. Morgan in 1901 for $480 million
- U.S. Steel became America's first billion-dollar corporation (1901)
- By 1900, U.S. produced more steel than Britain and Germany combined
- Oil Industry Development:
- Edwin Drake drilled first commercial oil well (1859)
- Initially focused on kerosene for lighting
- John D. Rockefeller transformed the industry:
- Founded Standard Oil in Cleveland (1870)
- Negotiated secret railroad rebates
- Bought out or forced out competitors
- Created Standard Oil Trust (1882)
- Controlled 90% of U.S. oil refining by 1879
- Expanded into drilling, pipelines, and marketing
- Later expanded into gasoline as automobiles developed
- Created first truly national business organization
- Other Major Industries:
- Meatpacking: Swift and Armour used refrigeration to transform meat distribution
- Electricity: Edison Electric (later General Electric) and Westinghouse
- Automobiles: Early development in 1890s before exploding in early 1900s
- Agricultural machinery: McCormick Harvesting Machine Company (later International Harvester)
- Chemicals: DuPont expanded from gunpowder to diverse chemical products
New Business Structures and Practices
Businesses developed innovative organizational forms to grow larger and control their markets. These new structures allowed companies to achieve economies of scale, reduce competition, and increase profits. The result was unprecedented business consolidation and concentration of economic power in fewer hands.
- Vertical Integration:
- Control of all stages from raw materials to retail sales
- Reduced costs by eliminating middlemen
- Ensured steady supply of materials and distribution
- Examples:
- Carnegie Steel (owned mines, ships, railroads)
- Standard Oil (wells, refineries, pipelines, marketing)
- Singer Manufacturing (made components, assembled machines, sold worldwide)
- Horizontal Integration:
- Buying out or merging with competitors
- Created market dominance in single industry
- Eliminated price competition
- Examples:
- Standard Oil absorbing rival refiners
- American Tobacco taking over cigarette makers
- U.S. Steel combining major steel producers
- Trust Formation:
- Legal arrangement where stockholders transferred voting rights to trustees
- Created centralized management while avoiding corporate ownership laws
- Allowed effective monopoly while technically remaining separate companies
- Examples:
- Standard Oil Trust (1882)
- American Sugar Refining Company (controlled 98% of sugar market)
- American Tobacco Trust
- Holding Companies:
- Parent corporation that owned controlling stock in other companies
- Created after New Jersey changed incorporation laws (1889)
- Easier to manage than trusts while achieving same goals
- Examples:
- Standard Oil Company of New Jersey
- United States Steel Corporation
- International Harvester
- Management Innovations:
- Scientific management (Frederick Taylor)
- Professional managers rather than owner-operators
- Systematic accounting and cost analysis
- Modern marketing and advertising techniques
- Research and development departments
Economic Theories and Social Justifications
Business leaders and their supporters developed theories to justify the concentration of wealth and power. These ideas shaped government policy and public attitudes toward big business. They provided intellectual and moral arguments against regulation and in favor of laissez-faire capitalism.
- Laissez-Faire Economics:
- Based on Adam Smith's ideas in The Wealth of Nations (1776)
- Advocated minimal government interference in economy
- Believed free markets would naturally:
- Lower prices through competition
- Distribute resources efficiently
- Maximize overall prosperity
- Used to oppose business regulation and labor protections
- Promoted by economists like William Graham Sumner
- Social Darwinism:
- Applied Darwin's "survival of the fittest" to economics and society
- Promoted by Herbert Spencer and William Graham Sumner
- Argued wealthy were naturally superior or more "fit"
- Claimed poverty resulted from natural inferiority
- Opposed government assistance as interfering with natural selection
- Used to justify inequality as inevitable and beneficial
- Gospel of Wealth:
- Promoted by Andrew Carnegie in his essay "Wealth" (1889)
- Argued accumulation of wealth was positive for society
- Wealthy had responsibility to use money for public good
- Rich should be "trustees" for their wealth during lifetime
- Led to philanthropy funding libraries, universities, and foundations
- Justified wealth concentration while encouraging charitable giving
- Government Support:
- High protective tariffs shielded American manufacturers from foreign competition
- Land grants to railroads and mining companies
- Contract enforcement and protection of property rights
- Military and police protection during labor disputes
- Limited regulation until Progressive Era reforms
International Economic Expansion
American businesses increasingly looked beyond U.S. borders for new markets and resources. This economic expansion influenced U.S. foreign policy and set the stage for American imperialism. Businesses sought government support to protect their overseas interests and open new markets.
- Motivations for International Expansion:
- Productive capacity exceeded domestic demand
- Need for new markets to sell surplus goods
- Search for raw materials not available domestically
- Competition with European industrial powers
- Belief in America's "civilizing" influence through trade
- Key Target Regions:
- Latin America: geographic proximity and raw materials
- Pacific islands: strategic locations for shipping and naval bases
- China: potential massive market for American goods
- Canada: natural resources and proximity
- Business-Government Partnership:
- Businesses pressured government for favorable foreign policies
- "Open Door" policy in China sought equal trading access
- Military interventions protected American business interests
- Diplomatic efforts focused on securing commercial opportunities
- Naval expansion to protect trade routes and project power
- Acquisition of territories following Spanish-American War (1898)
- Results of Economic Expansion:
- Increased American exports (doubled between 1865-1900)
- American business presence around the world
- Growth of multinational corporations
- Spreading American business practices and culture
- Growing U.S. influence in world affairs
- Tensions with other imperial powers
The Impact of Industrial Capitalism
Industrial capitalism transformed American society, creating both opportunity and hardship. While the economy grew dramatically and living standards improved for many, serious problems developed. These contradictions would eventually lead to reform movements and calls for greater regulation.
- Economic Growth:
- U.S. became world's leading industrial power by 1900
- Manufacturing output increased 7 times between 1865-1900
- Per capita income doubled despite population growth
- New consumer goods improved quality of life
- Created millions of new jobs and opportunities
- Consequences of Business Consolidation:
- By 1904, 318 trusts controlled 40% of U.S. manufacturing
- Growing gap between rich and poor
- 1% of population owned more wealth than other 99% combined
- Power concentrated in few corporate hands
- Small businesses squeezed out by large corporations
- Consumers sometimes faced higher prices from monopolies
- Growing Discontent:
- Labor unrest increased as workers organized
- Farmers protested railroad rates and crop prices
- Small business owners resented dominance of large corporations
- Progressive reformers criticized corruption and inequality
- Anti-trust sentiment grew among general public
- Set stage for reform era of early 20th century
Comparison of Major Industrial Leaders
| Industrial Leader | Industry | Major Companies | Key Business Tactics | Legacy |
|---|---|---|---|---|
| Andrew Carnegie | Steel | Carnegie Steel Company | Vertical integration, Cost-cutting, Latest technology | Sold company for $480 million; funded libraries, universities, and foundations |
| John D. Rockefeller | Oil | Standard Oil | Horizontal integration, Trusts, Secret rebates | Created world's largest oil monopoly; established major philanthropic foundations |
| J.P. Morgan | Banking & Finance | J.P. Morgan & Co., U.S. Steel | Consolidation, Reorganization, Investment banking | Created many major corporations through mergers; stabilized financial markets |
| Cornelius Vanderbilt | Railroads | New York Central | Railroad consolidation, Cutthroat competition | Built transportation empire; established Vanderbilt University |
| Jay Gould | Railroads & Telegraph | Union Pacific, Western Union | Stock manipulation, Corporate raiding | Known as ruthless "robber baron"; made and lost several fortunes |
The rise of industrial capitalism between 1865 and 1898 fundamentally transformed the American economy and society. Massive technological change, expanding transportation networks, new management structures, and pro-growth government policies generated unprecedented economic growth and business consolidation. While these changes created enormous wealth and improved living standards for many, they also concentrated economic power in fewer hands and generated significant social problems. As businesses increasingly looked beyond American borders for markets and resources, economic expansion became intertwined with American foreign policy and imperial ambitions.**
Key Terms to Review (27)
Adam Smith: Adam Smith was an 18th-century Scottish economist and philosopher, best known for his work 'The Wealth of Nations,' which laid the foundation for classical economics and introduced concepts such as the division of labor and the invisible hand. His ideas were pivotal in the rise of industrial capitalism, promoting free markets and minimal government intervention, which fueled economic growth and innovation during the Industrial Revolution.
Andrew Carnegie: Andrew Carnegie was a Scottish-American industrialist and philanthropist who led the expansion of the American steel industry in the late 19th century. His success and wealth epitomized the rise of industrial capitalism, while his later philanthropic efforts reflected the moral dilemmas and social responsibilities associated with immense wealth during a time of significant social change.
Berkshire Hathaway: Berkshire Hathaway is a multinational conglomerate holding company led by renowned investor Warren Buffett, known for its diverse range of owned businesses and significant investments in various industries. The company symbolizes the rise of industrial capitalism by showcasing how strategic investments and management can lead to massive growth and profitability, particularly during the late 20th century as the economy shifted towards corporate expansion and market-driven principles.
Brooklyn Bridge: The Brooklyn Bridge is a suspension bridge that connects the boroughs of Manhattan and Brooklyn in New York City, completed in 1883. It stands as a monumental feat of engineering from the era of industrial capitalism, symbolizing the rapid urbanization and technological advancements of the time while facilitating commerce and transportation between the two boroughs.
Charles Darwin: Charles Darwin was a British naturalist and geologist, best known for his contributions to the understanding of evolution through natural selection. His ideas on the survival of the fittest and the adaptation of species helped to shape modern biological science, and influenced various fields beyond biology, including social thought during the rise of industrial capitalism.
Cornelius Vanderbilt: Cornelius Vanderbilt was a prominent American businessman and philanthropist who played a crucial role in the development of the transportation industry in the 19th century. He is best known for his work in railroads and shipping, which contributed significantly to the rise of industrial capitalism in the United States. Vanderbilt's business practices, particularly his use of aggressive competition and consolidation, helped shape the landscape of American industry during this transformative era.
Federal Steel Company: Federal Steel Company was a major steel manufacturer in the early 20th century, known for its significant contributions to the burgeoning industrial landscape of the United States. It played a crucial role in the rise of industrial capitalism by supplying steel for infrastructure projects and manufacturing, which fueled economic growth and urbanization during this period.
George Pullman: George Pullman was an American industrialist and inventor best known for founding the Pullman Company, which manufactured railroad cars and revolutionized luxury travel in the 19th century. His innovative designs, including the famous Pullman sleeping car, played a pivotal role in the rise of industrial capitalism by enhancing the comfort of long-distance travel and expanding the railroad industry’s influence on the economy and society.
Gospel of Wealth: The Gospel of Wealth is a philosophy proposed by Andrew Carnegie that advocates the responsibility of the wealthy to use their fortunes for the greater good of society. This idea emerged during the late 19th century, when industrial capitalism was rapidly expanding and creating a significant gap between the rich and the poor. Carnegie believed that those who amassed great wealth had an obligation to promote social welfare and contribute to public causes, thus shaping the ethical considerations around philanthropy in a time of rising middle class aspirations and economic inequality.
Henry Bessemer: Henry Bessemer was an English engineer and inventor best known for developing the Bessemer process, a revolutionary method for mass-producing steel from molten pig iron. His invention played a crucial role in the rise of industrial capitalism by significantly lowering the cost of steel production, which in turn spurred advancements in various industries such as construction, transportation, and machinery. Bessemer's innovations made steel more accessible, fueling the rapid growth of industrialization during the 19th century.
Holding Companies: A holding company is a corporation that owns enough voting stock in another company to control its policies and oversee its management. This type of company does not produce goods or services itself; instead, it exists primarily to hold shares of other companies, allowing for centralized control of various businesses. Holding companies played a significant role in the rise of industrial capitalism by enabling the consolidation of industries and the creation of monopolies.
Horizontal Integration: Horizontal integration is a business strategy where a company acquires or merges with other companies at the same level of the supply chain, effectively increasing its market share and reducing competition. This practice became prominent during the era of industrialization and the Gilded Age, as businesses sought to maximize efficiency, cut costs, and dominate their industries by consolidating their power.
John D. Rockefeller: John D. Rockefeller was an American industrialist and philanthropist who founded the Standard Oil Company, which dominated the oil industry and became one of the first multinational corporations in the world. His business practices and strategies, particularly his use of horizontal integration, made him a key figure during the period of industrialization and the Gilded Age, symbolizing the rise of industrial capitalism and the significant economic power that came with it.
J. Edgar Thomson Steel Works: The J. Edgar Thomson Steel Works was one of the first large-scale steel mills in the United States, established in 1872 in Braddock, Pennsylvania. It played a crucial role in the rise of industrial capitalism by contributing significantly to the steel production that fueled America’s industrial growth during the late 19th and early 20th centuries, shaping the economic landscape and urban development of the nation.
Laissez-faire: Laissez-faire is an economic philosophy that advocates for minimal government intervention in the marketplace, allowing supply and demand to dictate prices and production. This principle promotes individual entrepreneurial freedom, suggesting that when businesses operate without excessive regulation, it leads to economic growth and prosperity. It is a foundational concept in capitalist economies, especially during periods of rapid industrialization and economic expansion.
New York Central Railroad: The New York Central Railroad was a major American railroad that operated from the 1820s to the 1960s, primarily serving the northeastern United States. It played a crucial role in the rise of industrial capitalism by facilitating transportation of goods and people, fostering economic growth, and shaping the development of cities along its routes.
Railroads: Railroads are a system of tracks and trains designed for the transportation of goods and people over long distances. They played a crucial role in connecting different regions, promoting economic growth, and facilitating westward expansion, while also significantly influencing industrialization and technological advancements.
Robber Barons: Robber Barons refers to a group of powerful industrialists and businessmen in the late 19th century who were accused of using exploitative practices to amass their wealth during the period of rapid industrialization and economic expansion. These figures were often criticized for monopolizing industries, manipulating markets, and exploiting labor, which reflected the broader themes of economic inequality and corruption in the Gilded Age.
Social Darwinism: Social Darwinism is a social theory that applies the concept of 'survival of the fittest' from Charles Darwin's theory of evolution to human societies. It argues that social and economic inequalities are natural and justified, promoting the idea that certain races and classes are superior to others, which influences various aspects of society including economics, politics, and imperialism.
Standard Oil: Standard Oil was an American oil producing, refining, and marketing company founded by John D. Rockefeller in 1870. It became a symbol of the rise of industrial capitalism and monopolistic practices in the late 19th century, playing a crucial role in transforming the energy sector and shaping the modern economy.
The Wealth of Nations: The Wealth of Nations is a foundational economic text written by Adam Smith, published in 1776, that lays the groundwork for classical economics and free market principles. In this work, Smith argues for the benefits of competition and the division of labor, which lead to increased productivity and economic growth. His ideas on the 'invisible hand' suggest that individuals pursuing their own self-interest inadvertently benefit society as a whole, making this text essential in understanding the rise of industrial capitalism.
Trusts: Trusts are legal arrangements where one party holds property or assets for the benefit of another, often used in business to consolidate control and limit competition. In the context of industrialization and the Gilded Age, trusts played a significant role in shaping the economy by allowing corporations to monopolize industries, thereby reducing competition and raising prices. The rise of these entities during the late 19th century sparked debates over economic power and led to significant regulatory reforms in response to their influence.
United States Steel Corporation: The United States Steel Corporation (U.S. Steel) is an American integrated steel producer that was formed in 1901 by the merger of several major steel companies, making it one of the largest steel manufacturers in the world. This corporation emerged during a time of rapid industrialization and economic expansion known as the Gilded Age, representing the rise of big business and industrial capitalism in the United States.
US Steel Corporation: The US Steel Corporation, established in 1901, was the first billion-dollar corporation in the United States and a major player in the steel industry. It was formed by the merger of several steel companies, including Andrew Carnegie's Carnegie Steel Company, and became a symbol of the rise of industrial capitalism during the early 20th century. Its creation marked a shift towards large-scale production and monopolization in American industry, impacting labor practices, economic growth, and the overall landscape of American capitalism.
Vertical Integration: Vertical integration is a business strategy where a company controls multiple stages of production or distribution within the same industry. This approach allows companies to reduce costs, increase efficiency, and enhance control over the supply chain. By owning everything from raw materials to manufacturing to distribution, firms can streamline operations and improve profitability, which became a hallmark of industrial capitalism during periods of rapid technological innovation.
Washington Monument: The Washington Monument is an iconic obelisk located in Washington, D.C., built to honor George Washington, the first president of the United States. Completed in 1884, it symbolizes the nation's respect for Washington's leadership and is a key landmark reflecting the values of American exceptionalism during the rise of industrial capitalism, a period marked by significant economic growth and technological advancement.
William Kelly: William Kelly was an American inventor and engineer who developed the Bessemer process for steel manufacturing in the mid-19th century. This innovative method significantly increased the efficiency of steel production, contributing to the rapid growth of industrial capitalism in the United States by allowing for cheaper and mass-produced steel, which was vital for building infrastructure and machinery.