Economics & the Gilded Age APUSH

The Gilded Age  The term “Gilded Age” was first used by Mark Twain and Charles Dudley Warner as the title of a book that satirized the ostentatious and conspicuous shows of wealth prominent in the U.S. from the Civil War until the turn of the century ( ). To “gild” something means to coat or paint with gold or a gold-colored substance; in effect, it takes something that may not be very valuable and makes it seem like it is.

Size of American Businesses  Before the Civil War Small and independent firms Limited size = limited potential Workers didn’t see themselves as disadvantaged; no real sense of class consciousness  Resulting from the Civil War… Standardized, mechanized mass production De-skilling & long hours for the labor force Urbanization (immigrants…)  Economies of Scale (Bigger = better) More produced = cheaper to produce Advantage: large firms w/ lots of $$$ All part of American capitalism…

Causes of American Industrial Growth  Western Mining  Immigration  Gov’t subsidies & tax concessions to RRs  Advances in communication  Corporation charters  Laissez Faire attitude of gov’t  Bessemer process  New sources of power  High tariffs  Yankee ingenuity & entrepreneurship  National Markets

Adam Smith “invented” the theory of capitalism back in 1776…  “Smith was among the first to make a clear and convincing case that when individuals follow their own self-interest, it automatically works to the benefit of society as a whole. As individual competitors pursue their own maximum profit, they are all thus forced to be more efficient. This results in cheaper goods in the long run. Free competition in all markets and with all goods and services is thus to be encouraged; government intervention serves only to make operations less efficient and is thus to be avoided. The same principles apply to international trade. There should be a minimum of government interference in the way of duties, quotas and tariffs. Smith’s is the classical argument in support of free trade.” Gerald F. Cavanagh, American Business Values in Transition (Englewood Cliffs, New Jersey: Prentice-Hall, 1976), pp

However, along with capitalism grew up the idea of Survival of the Fittest  “Herbert Spencer ( ) proposed a harsh “survival of the fittest” philosophy. The bright and able contribute most to society, and so are to be encouraged and rewarded. The poor, the weak, and the handicapped demand more than they contribute, and so should not be supported but rather allowed to die a natural death. Contact with harsh and demanding reality is a maturing experience that should not be diluted be well- intentioned but in reality destructive charities and handouts. If “natural” principles were followed, evolution and the survival of the fittest in the competition of human life would be the result. Spencer did not set out to examine any particular society and its values; rather, his critique was proposed as “culture free.” According to Spencer, it applied to all people for it was derived from basic, organic principles of growth and development. Spencer applied to society the same principles that Charles Darwin saw in biological life—hence the name, Social Darwinism.” Cavanaugh, American Business Values in Transition, p.11

People like J.D. Rockefeller really liked this theory…  Used Horizontal Integration Firms merge or take over one another in the same market Concentrates capital, eliminates competition  Used Vertical Integration Merge or buy out businesses at different levels of production in one market More control over process, consolidates capital John D. Rockefeller & his son, also JDR, in 1915

Rockefeller in Action  “The growth of a large business is merely survival of the fittest…. The American Beauty Rose can be produced in the splendor and fragrance which bring cheer to its beholder only by sacrificing the early buds which grow up around it. This is not an evil tendency in business. It is merely the working-out of a law of nature and a law of God.” J.D. Rockefeller’s statement to his Sunday School class quoted in William H. Ghent, Our Benevolent Feudalism (New York: MacMillan, 1903), p.29

Rockefeller also consolidated his business…  Monopoly (first he tried this…) Control of one industry by one firm Ex: US West Communications/ATT  Trust (then he invented this…) Stockholders entrust stocks to one central organizer. Acts as a monopoly but bypasses monopoly laws  Cartel (he never did this) Organization of all major players in the market Control production in order to control prices Ex: OPEC

Others, like Andrew Carnegie followed the “Gospel of Wealth”  “This then, is held to be the duty of the man of Wealth; First, to set an example of modest, unostentatious living, shunning display or extravagance; to provide moderately for the legitimate wants of those dependent upon him; and after doing so to consider all surplus revenues which come to him simply as trust funds, which he is called upon to administer, and strictly bound as a matter of duty to administer in the manner which, in his judgment, is best calculated to produce the most beneficial results for the community—the man of wealth thus becoming the mere agent and trustee for his poorer brethren, bringing to their service his superior wisdom, experience, and ability to administer, doing for them better than they would or could do for themselves….” Andrew Carnegie, 1913 Andrew Carnegie, “Wealth,” North American Review, CXLVIII (June 1889), pp

Good intentions, poor follow- through at times?  Notice, the GOW is pretty much: “I’m better than you…”  He was pretty ruthless getting to the top… Worked employees hard Kept wages as low as possible (see Homestead: The Town and the Mill, pp.529 a & b)  He used Vertical Integration  RRs & steel  But, once at the top, he started giving his money away… The Homestead Strike, 1892

$350 million for Libraries, Concert halls, Universities Left: Seattle Public “Carnegie” Library, 1919 (Seattle has a total of 7 Carnegie libraries) The Gospel of Wealth. Cartoon from Judge, New York Public Library Carnegie Hall was built in 1891 & is one of the most prestigious venues in the world for classical & popular music For a complete list of Carnegie libraries in Washington state, click HEREHERE

Rockefeller’s Charities  Rockefeller gave his money away, too. He gave over $500 million, from his one-time peak of over $900 million. This made him WAY MORE wealthy than Bill Gates ($43 billion in 2010). According to Forbes Magazine, in 2008 dollars, John D. Rockefeller was worth $318.3 billion.  He gave money to Rockefeller University (NYC research university) & the Rockefeller Foundation  Rockefeller Center is not just the ice skating rink seen in all romantic comedies set in NYC in the winter, it’s actually a 19 building office complex (money maker).

Other “Robber Barons” (or should we call them “Captains of Industry”?  John Jacob Astor (real estate, fur) – New York City  Jay Cooke (finance) – Philadelphia, Pennsylvania  Charles Crocker (railroads) - California  Daniel Drew (finance) – New York state  James Buchanan Duke (tobacco) – near Durham, North Carolina  James Fisk (finance) – New York state  Henry Morrison Flagler (RRs, oil, Standard Oil – NYC & Palm Beach  Henry Clay Frick (steel) – Pittsburgh and New York City  John Warne Gates (steel)  Jay Gould (railroads)  Edward Henry Harriman (railroads) – New York state[6]  Milton S. Hershey (Chocolate)  Mark Hopkins (railroads) - California  J. P. Morgan (banking, finance, steel, industrial consolidation) New York City  Henry B. Plant (railroads) – Florida  Leland Stanford (railroads) – Sacramento, California and San Francisco, California  Cornelius Vanderbilt (railroads) Okay, shoot me. I got this list from Wikipedia.com; the graph is from Robber Barons, J. Bradford DeLong University of California at Berkeley, January 1, 1998

Government Response to the Consolidation of Business  1887 Interstate Commerce Act Regulated RRs travelling between states Outlawed monopolies (i.e. pooling & predatory rate cutting)  Sherman Anti-Trust Act of 1890 Poorly worded, weak and ineffective Challenged by the Supreme Court Groundwork for later ant-trust legislation  Hepburn Act, 1906 Fed government to set RR rates (based on ICC)

Other Responses to the Consolidation of Business  Rise of Labor Unions We’ll talk more about specific unions & strikes later… Socialism and Marxism gain momentum worldwide… Labor unions demonstrating a strike in NYC, 1914

Marxism’s Main Tenets  History = “haves” vs. “have nots” French Revolution 1848 European Revolutions  Social/economic equality follows civil/legal equality Iron Law of Wages  The “end of history” is the creation of a classless society… Workers must always be fighting the war Bourgeoisie uses small wins to weaken the workers’ resolve Individuals eventually lose themselves to their class Karl Marx

Content- The Communist Manifesto  “The worker is deprived of the wealth he has himself created! The state is a committee of bourgeoisie for the exploitation of the people! Religion is a drug to keep the workingman quietly dreaming upon imaginary heavenly rewards! The worker’s family, his wife and children, have been prostituted and brutalized by the bourgeoisie!”  “Let the ruling classes tremble at a communist revolution. The proletarians have nothing to lose but their chains. They have a world to win. Workingmen of all countries, unite!”  Can you see how people in the US might be wary of industrial laborers working together?

Reflection Qs (discuss with your table partner, then write your answers) 1. In your own words, explain horizontal and vertical integration, and then give an example of each 2. Do you think that Carnegie & Rockefeller are better labeled as “Robber Barons” or as “Captains of Industry?” Explain. 3. List two things that you learned that were interesting &/or that you will remember easily a month from now.