Gilded Age industrialization had its roots in the Civil War, which spurred Congress and the northern states to build more railroads and increased demand for a variety of manufactured goods. The forward-looking Congress of 1862 authorized construction of the first transcontinental railroad, connecting the Pacific and Atlantic lines. Originally, because railroading was such an expensive enterprise at the time, the federal government provided subsidies by the mile to railroad companies in exchange for discounted rates. Congress also provided federal land grants to railroad companies so that they could lay down more track.
With this free land and tens of thousands of dollars per mile in subsidies, railroading became a highly profitable business venture. The Union Pacific Railroad company began construction on the transcontinental line in Nebraska during the Civil War and pushed westward, while Leland Stanford’s Central Pacific Railroad pushed eastward from Sacramento. Tens of thousands of Irish and Chinese laborers laid the track, and the two lines finally met near Promontory, Utah, in 1869.
Big businessmen, not politicians, controlled the new industrialized America of the Gilded Age. Whereas past generations sent their best men into public service, in the last decades of the 1800s, young men were enticed by the private sector, where with a little persistence, hard work, and ruthlessness, one could reap enormous profits. These so-called “captains of industry” were not regulated by the government and did whatever they could to make as much money as possible. These industrialists’ business practices were sometimes so unscrupulous that they were given the name “robber barons.”
As the railroad boom accelerated, railroads began to crisscross the West. Some of the major companies included the Southern Pacific Railroad, the Santa Fe Railroad, and the North Pacific Railroad. Federal subsidies and land grants made railroading such a profitable business that a class of “new money” millionaires emerged.
Cornelius Vanderbilt and his son William were perhaps the most famous railroad tycoons. During the era, they bought out and consolidated many of the rail companies in the East, enabling them to cut operations costs. The Vanderbilts also established a standard track gauge and were among the first railroaders to replace iron rails with lighter, more durable steel. The Vanderbilt fortune swelled to more than $100 million during these boom years.
As the railroad industry grew, it became filled with corrupt practices. Unhindered by government regulation, railroaders could turn enormous profits using any method to get results, however unethical. Union Pacific officials, for example, formed the dummy Crédit Mobilier construction company and hired themselves out as contractors at enormous rates for huge profits. Several U.S. congressmen were implicated in the scandal after an investigation uncovered that the company bribed them to keep quiet about the corruption. Railroads also inflated the prices of their stocks and gave out noncompetitive rebates to favored companies.
Moreover, tycoons such as the Vanderbilts were notorious for their lack of regard for the common worker. Although some states passed laws to regulate corrupt railroads, the Supreme Court made regulation on a state level impossible with the 1886 Wabash case ruling, which stated that only the federal government could regulate interstate commerce.
Among the wealthiest and most famous captains of industry in the late 1800s was Andrew Carnegie. A Scottish immigrant, Carnegie turned his one Pennsylvanian production plant into a veritable steel empire through a business tactic called vertical integration. Rather than rely on expensive middlemen, Carnegie vertically integrated his production process by buying out all of the companies—coal, iron ore, and so on—needed to produce his steel, as well as the companies that produced the steel, shipped it, and sold it. Eventually, Carnegie sold his company to banker J. P. Morgan, who used the company as the foundation for the U.S. Steel Corporation. By the end of his life, Carnegie was one of the richest men in America, with a fortune of nearly $500 million.
Oil was another lucrative business during the Gilded Age. Although there was very little need for oil prior to the Civil War, demand surged during the machine age of the 1880s, 1890s, and early 1900s. Seemingly everything required oil during this era: factory machines, ships, and, later, automobiles.
The biggest names in the oil industry were John D. Rockefeller and his Standard Oil Company—in fact, they were the only names in the industry. Whereas Carnegie employed vertical integration to create his steel empire, Rockefeller used horizontal integration, essentially buying out all the other oil companies so that he had no competition left. In doing so, Rockefeller created one of America’s first monopolies, or trusts, that cornered the market of a single product.
In time, many wealthy American businessmen, inspired by biologist Charles Darwin’s new theories of natural selection, began to believe that they had become rich because they were literally superior human beings compared to the poorer classes. The wealthy applied Darwin’s idea of “survival of the fittest” to society; in the words of one Social Darwinist, as they became known, “The millionaires are the product of natural selection.” Pious plutocrats preached the “Gospel of Wealth,” which was similar to Social Darwinism but explained a person’s great riches as a gift from God
Without any form of government regulation, big business owners were able to create monopolies—companies that control all aspects of production for certain products. Economists agree that monopolies are rarely good for the market, as they often stifle competition, inflate prices, and hurt consumers.
In the late 1880s and early 1890s, the U.S. government stepped in and tried to start regulating the growing number of monopolies. In 1887, Congress passed the Interstate Commerce Act, which outlawed railroad rebates and kickbacks and also established the Interstate Commerce Commission to ensure that the railroad companies obeyed the new laws. The bill was riddled with loopholes, however, and had very little effect. In 1890, Congress also passed the Sherman Anti-Trust Act in an attempt to ban trusts, but this, too, was an ineffective piece of legislation and was replaced with revised legislation in the early 1900s.