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The Business of Railroads
Railroads were pivotal in the industrial growth of the United States, embodying the combination of business leadership, capital, technology, markets, labor, and government support. After the Civil War, railroad mileage expanded dramatically, supported by federal subsidies, which included low-interest loans and land grants. Railroads created a national market, encouraging mass production and consumption, and promoting the growth of industries like coal and steel. The American Railroad Association standardized time across the country, enhancing coordination and efficiency.
Source: Currier & Ives, The Library of Congress.
Source: Locomotive, The Cooper Collection of U.S. Railroad History, John B. Silvis.
Competition and Consolidation
The early railroads were fragmented, with different gauges and incompatible equipment. Post-Civil War, consolidation efforts led by figures like Cornelius Vanderbilt integrated these railroads into more efficient trunk lines. Vanderbilt, using wealth from his steamboat business, merged local railroads into the New York Central Railroad, creating a more extensive and efficient system. Vanderbilt is often viewed as a "robber baron" due to his ruthless business tactics.
Problems and Corruption
Railroads faced issues of overbuilding, mismanagement, and fraud. Speculators like Jay Gould engaged in "watering stock" by inflating asset values before selling shares. Railroads offered rebates to favored shippers and formed pools to fix rates, disadvantaging smaller customers and contributing to widespread corruption.
Concentration of Railroad Ownership
The financial panic of 1893 led to the bankruptcy of many railroads. Bankers like J.P. Morgan intervened, consolidating bankrupt railroads to stabilize rates and reduce debts. By 1900, a few powerful men controlled the majority of the nation’s railroads, creating regional monopolies through interlocking directorates.
Andrew Carnegie and the Steel Industry
Andrew Carnegie, a Scottish immigrant, revolutionized the steel industry using vertical integration, controlling every stage from raw materials to transportation. By 1900, Carnegie Steel was the largest in the world. Carnegie later sold his company to J.P. Morgan, creating U.S. Steel, the first billion-dollar corporation. Carnegie, known for his philanthropy, donated millions to build libraries, universities, and various public institutions. This commitment to giving back to society has led many to view him as both a "captain of industry" and a "robber baron."
Rockefeller and the Oil Industry
John D. Rockefeller founded Standard Oil, which became a monopoly by controlling 90% of U.S. oil refineries through horizontal integration and aggressive business tactics. Rockefeller's use of rebates and price cutting forced competitors to sell out, making him one of the wealthiest men in history. He is often labeled a "robber baron" due to his monopolistic practices.
Source: Standard Oil depicted as an octopus, parodying its status as a monopoly, Public Domain.
Controversy over Corporate Power
The rise of corporate giants led to the creation of trusts, horizontal and vertical integration, and holding companies, which consolidated market control. Critics argued these monopolies stifle competition, innovation, and fairness in the market. Key terms include:
Trust: An organization managing the assets of other companies.
Horizontal integration: Controlling all former competitors in a specific industry.
Vertical integration: Controlling all stages of production.
Holding company: Owning and controlling diverse companies.
Laissez-Faire Capitalism
Laissez-faire capitalism is an economic system where the government has minimal intervention in business affairs.
The philosophy is based on the belief that businesses should be free to operate in a competitive market, guided by the "invisible hand" of supply and demand.
This approach aims to ensure efficiency and innovation by allowing natural economic forces to prevail.
Conservative Economics
In 1776, economist Adam Smith argued in "The Wealth of Nations" that government regulation was less efficient than allowing businesses to operate freely.
He believed that businesses motivated by self-interest would naturally offer better goods and services at lower prices, benefiting society as a whole.
Smith supported some government regulations but generally favored minimal interference in business operations.
Social Darwinism
Social Darwinism applied Charles Darwin's theory of natural selection to the marketplace, suggesting that only the fittest businesses would survive and prosper.
Herbert Spencer and William Graham Sumner were key proponents, arguing that aiding the poor interfered with natural economic evolution.
They believed that wealth concentration was beneficial for society, as it placed resources in the hands of the most capable individuals.
The Concentration of Wealth
By the 1890s, the richest 10 percent of the U.S. population controlled 90 percent of the nation's wealth.
This era saw the rise of a new class of millionaires who often flaunted their wealth by living in lavish mansions and hosting extravagant parties.
Despite the growing economic disparity, the idea of the "self-made man," exemplified by figures like Andrew Carnegie, offered hope for upward mobility.
However, such success stories were rare, with most wealthy businesspeople coming from privileged backgrounds.
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