Big Business in the Industrial Age
Big Business in the Industrial Age
Business ruled during the years after the Civil War. Just before the Civil War, Congress passed legislation allowing businesses to form corporations without a charter from the U.S. government. After the Civil War, these corporations came to dominate much of American business, and, in the process, to define American life.
The era of Big Business began when entrepreneurs in search of profits consolidated their businesses into massive corporations, which were so large that they could force out competition and gain control of a market. Control of a market allowed a corporation to set prices for a product at whatever level it wanted. These corporations, and the businessmen who ran them, became exceedingly wealthy and powerful, often at the expense of many poor workers. Some of the most powerful corporations were John D. Rockefeller’s Standard Oil Company, Andrew Carnegie’s Carnegie Steel, Cornelius Vanderbilt’s New York Central Railroad System, and J.P. Morgan’s banking house. These corporations dominated almost all aspects of their respective industries: by 1879, for example, Rockefeller controlled 90 percent of the country’s oil refining capacity. Much of the public saw the leaders of big business as “robber barons” who exploited workers in order to amass vast fortunes.
In 1882, Rockefeller further solidified this control by establishing a monopoly or trust, which centralized control of a number of oil-related companies under one board of trustees. As a result, Rockefeller owned nearly the entire oil business in the United States, and he could set prices at will. Companies in other industries quickly imitated this trust model and used their broad market control to push prices higher.
Trusts integrated control of many companies, both horizontally by combining similar companies, and vertically by combining companies involved in all stages of production. Trusts were used to gain control of markets and force out competition.
The Government and Big Business
In the early years of the Industrial Revolution, the government maintained a hands-off attitude toward business. The government, and much of the nation, believed in the principles of laissez-faire economics, which dictated that the economic market should run freely without government interference. According to the theory, free, unregulated markets led to competition, which in turn led to fair prices of goods for consumers. The government did not want to interfere in the free market.
Any concern for the plight of the poor during this time was minimized by the tenets of social Darwinism, which became popular in the late 1800s. Social Darwinism adapted Charles Darwin’s theory of evolution, “survival of the fittest,” to the business world, arguing that competition was necessary to foster the healthiest economy (just as competition in the natural world was necessary to foster the healthiest, or fittest, species). Proponents of social Darwinism adhered to a “help those who help themselves” philosophy: government shouldn’t invest in programs for the poor, because the poor had no positive impact on the nation’s financial health. The rich, meanwhile, were strong, hard working citizens who contributed to national progress, and, as such, should not be subject to government regulation. Prominent social Darwinists included Herbert Spencer and Andrew Carnegie, whose essay promoting free market economy, “The Gospel of Wealth,” was published in 1889.
The Move Toward Regulation
By the 1880s, however, it was beginning to become clear that markets were not free. Corporations had grown so big and powerful that they controlled markets entirely. Consumers grew enraged over the high prices that monopolies had set, while small businesses demanded protection from being squeezed out of the market. Railroad monopolies were overcharging small-time customers, especially farmers, while giving rebates to powerful politicians and favored clients.
State legislatures tried to limit the abuses of the railroads by issuing maximum rate laws, which set a ceiling on the prices a railroad could charge. Congress struck these laws down, claiming they were unconstitutional. But as public anger continued to grow over the practices of corporations, the federal government began to change its tune. Congress passed the Interstate Commerce Act in 1887 to try to stop railroads from price discrimination. Later, in 1888, legislative committees in Congress began investigations into the business practices of the “robber barons.”
Two years later, Congress passed the Sherman Antitrust Act, which outlawed trusts and any other contracts that restrained free trade. Though this act eventually became extremely important in regulating business, in its early years it was rarely enforced. In fact, the act was so loosely phrased that it sometimes had the opposite of its intended effect: instead of regulating business monopolies, it regulated the labor unions that challenged these monopolies. In the 1890s, courts invoked the Sherman Antitrust Act to restrain laborers’ right to strike, ruling that strikes violated the act’s prohibition against “a conspiracy in restraint of trade.” Big business thus benefited from the judiciary’s (in particular the Supreme Court’s) pro-business stance and its unwillingness to restrict commercial behavior. It was not until the early 1900s that government began to enforce the Sherman Antitrust regulatory policies in full.
The Growth of Unions
Although labor unions began forming in the early 1800s, they did not gain any significant membership base or bargaining power until the 1860s and 1870s. The harsh, even hazardous, working conditions arising from industrialization drove laborers to organize into unions. One of the first major unions was the Knights of Labor, founded in 1869. The Knights demanded equal pay for women, an end to child labor, and a progressive income tax, among other reforms. The union claimed a substantial membership, including women, blacks, and immigrants. In 1885, the group staged a successful strike against railroad “robber baron” Jay Gould. The strike so severely crippled Gould’s operation that he had no choice but to fold. On the strength of this victory, the Knights’ membership and political power grew. The Knights successfully supported a number of politicians for election and forced laws favorable to workers through Congress.
The Knights’ power waned, however, after the leadership lost control of the local chapters and a series of unauthorized strikes grew violent. The bloody Haymarket riot in Chicago in 1886 sounded the union’s death knell. The riot, intended to protest police cruelty against strikers, got out of hand when one member of the Knights of Labor threw a bomb, killing a police officer. In the resultant chaos, nine people were killed and close to sixty injured. Prominent leaders of the Knights of Labor were convicted of inciting the riot, and public support for the union plummeted.
To salvage the labor movement, craft laborers who had been members of the Knights of Labor broke off and formed the American Federation of Labor (AFL). Whereas the Knights of Labor had boasted an open membership policy and sweeping labor goals, the AFL catered exclusively to skilled laborers and focused on smaller, more practical issues: increasing wages, reducing hours, and imposing safety measures. Samuel Gompers, the AFL’s leader from 1886 to 1924, proved a master tactician who united many labor groups in a federation of trade unions.
More radical labor organizations also emerged, most notably the Industrial Workers of the World, nicknamed the Wobblies, founded in 1905. More famous for their militant anticapitalism than for being large or influential, the Wobblies never grew to more than 30,000 members before fading away in about 1920.
Between 1880 and 1905, union activity in the the United States led to well over 35,000 strikes. As evidenced by the Haymarket riot, these demonstrations at times erupted in violence. This violence alienated much of the American public and the popular support for unions plunged, and employers were free to exact severe retribution on striking workers. As a result, strikes proved largely ineffective at advancing the labor cause.
Major strikes and outbreaks of stike-related violence during the later nineteenth century tended to impair the labor cause instead of advance it. Public sympathy for unions plummeted, companies imposed anti-union hiring policies, and the Supreme Court authorized the use of injunctions against strikers.
In addition to the Haymarket riot, some of the more notable strikes include:
  • The railroad strike followed the onset of a national economic recession in 1877. Railroad workers for nearly every rail line struck, provoking widespread violence and requiring federal troops to subdue the angry mobs. The strike prompted many employers to get tough on labor by imposing an antiunion policy: they required workers to sign contracts barring them from striking or joining a union. Some employers even hired private detectives to root out labor agitators and private armies to suppress strikes.
  • Workers staged the 1892 Homestead strike against Carnegie Steel Company to protest a pay cut and seventy-hour workweek. Ten workers were killed in the riot. Federal troops were called in to suppress the violence, and non-union workers were hired to break the strike.
  • In the 1894 Pullman strike, Eugene Debs led thousands of workers in a strike against the Pullman Palace Car Company after wages were slashed. The courts ruled that the strikers violated the Sherman Antitrust Act and issued an injunction against them. When the strikers refused to obey the injunction, Debs was arrested and federal troops marched in to crush the strike. In the ensuing frenzy, thirteen died and fifty-three were injured. The Supreme Court later upheld the use of injunctions against labor unions, giving businesses a powerful new weapon to suppress strikes. Organized labor began to fade in strength, and did not resurge until the 1930s.
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