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Factors That Helped to Accelerate Economic Growth After the Civil War
All of this manufacturing and the introduction of new inventions helped the economy grow in the second half of the 1800s, especially in the North and West. High tariffs protected American manufacturing. The expansion of the railroad system tied the regions of the country together so that food from the West, cotton from the South, and manufactured goods from the North could be transported. Railroad building stimulated other industries, like coal, steel, and iron. Innovations resulted in the issue of 15,000 patents for inventions every year.
Arguably the most significant factor that led to economic growth was the economic philosophy of laissez-faire, which is French for “let it be” or “leave it alone.” When applied to economics, this essentially meant that the government would not interfere in the economy. For example, it would not pass laws to prevent monopolies from forming or to require employers to treat their workers a certain way. (Strangely, this theory did not seem to apply to tariffs, which were in place since the early 1800s.)
Some Beneficiaries of Laissez-Faire
John D. Rockefeller, the founder of Standard Oil, formed trusts to gain control of other oil companies to get around state monopoly laws. In a trust, participants turned their stock over to trustees, who ran the separate companies as one large corporation. The trustees then earned money from the trusts’ profits. A trust is a sneaky way to have a monopoly. By 1870, using trusts, Standard Oil Company controlled 90 percent of the country’s oil refining business. Rockefeller reaped huge profits by paying employees extremely low wages, driving competitors out of business by selling his oil at a really low price, and then hiking prices again once he controlled the market.
Another entrepreneur who benefited from laissez-faire government policies was industrialist Andrew Carnegie, who had gained control of 25 percent of the global output of steel by 1889. He did this by using techniques called horizontal and vertical integration. In horizontal integration, companies that produce similar products merge. Carnegie bought out almost all of the competing steel producers in the United States. Vertical integration entailed buying out all of a company’s suppliers. Carnegie bought coal fields, iron mines, ore freighters, and railroads, which allowed him to control access to raw materials and transportation systems. (Rockefeller also used both horizontal and vertical integration.)
Justification of Laissez-Faire Capitalism
To justify this abuse of laissez-faire capitalism, entrepreneurs looked to the theory of Social Darwinism. This was the application of Charles Darwin’s idea of natural selection to society. According to Social Darwinists, the poor in society represented the “less fit,” and the rich represented the “more fit.” If it was natural for the fittest animals to be at the top of the food chain, then by application to human society, it was natural for the rich to control the poor. The Social Darwinists portrayed the poor as either immoral or somehow naturally inferior. Many businessmen found the theory appealing because it supported the idea that the rich and successful had earned their success by being responsible and hardworking. Conversely, poor people must be lazy or inferior and thus deserve to be poor.
