Economy in The Gilded AgeLooking at the Past Through the Lens of Economy

Key Points

America's economy grew by more than 400% between 1860 and 1900 Technological advances, expanding population, improved transportation, financial

innovation, and new business practices combined to fuel this economic growth "Titans of Industry" like John D. Rockefeller, Andrew Carnegie, and J.P. Morgan built

monopolies and revolutionized business practices Laissez faire ideology called for little or no government regulation of economic affairs Unskilled urban workers did not share in economic gains, instead enduring great poverty

Understanding the Gilded Age Economy

New technologies improved industrial and agricultural productivity Growing cities provided markets and workers for industrial businesses Improved rail transportation allowed products to reach distant markets Financial innovations allocated capital more efficiently New forms of business organization facilitated rapid growth

Many argue that America's extraordinary economic development during the Gilded Age can be summarized by a handful of statistics. In 1860, the nation's total wealth was $16 billion; by 1900, it was $88 billion. This translated into a per capita increase from $500 to $1100. Driving this growth was an explosion in American manufacturing—in 1869, the manufacturing sector of the economy generated $3 billion, a figure which rose to $13 billion by 1900. This was accompanied by an increase in America's labor force from 13 million to 19 million people.7

Similarly, many economic historians suggest that America's economic development can also be reduced to a rather simple formula—the convergence of a handful of critical ingredients.

For starters, there was an unprecedented explosion of new industrial and agricultural technology. The United States patent office issued 440,000 patents between 1860 and 1900—twelve times more than during the preceding 70 years. On the farms, steam tractors and mechanical reapers, harvesters, and combines all greatly increased agricultural productivity. By 1900, it required only 15 man-hours per acre to raise wheat; a century earlier, it had taken 56 man-hours per acre.8 In the factories, the Bessemer blast furnace and the Siemens-Martin open hearth process radically changed steelmaking. In America's office buildings, cash registers, adding machines, and typewriters transformed the way people did business. Alexander Graham Bell's telephone, developed in 1876, revolutionized business communication, while Thomas Edison's work with electricity lit homes and powered factories. John D. Rockefeller employed new oil refining methods, while somewhat less famously, Charles Pillsbury and Cadwallader Washburn (Gold

Medal Flour) developed technologies that delivered inexpensive high-quality flour to American kitchens.

Second, these growing industries generated goods for growing urban markets. During the Gilded Age, America's cities exploded. By 1900, America's 30 million city dwellers represented 40% of the American population—up from 20% in 1860. About half of these new urban residents were immigrants, the vast majority of them from Europe. During the 1880s, five million people came to America from overseas. During the 1890s, immigration slowed—but there was still a net arrival of 3.7 million people from abroad.9

The other half of this new urban population migrated to the cities from America's rural areas. Contrary to the popular myth that the American West would provide a safety valve for America's overcrowded cities, migration actually flowed in the opposite direction, from the country to the city. The new residents came for a variety of reasons—some came for the jobs offered by the expanding manufacturing sector, while others came for the conveniences and excitement city life offered. The 68,000 African-Americans who moved to northern cities from the South during the 1870s came for their own more complex and distinctive reasons.10

Third, America's expanding infrastructure brought new goods and a growing population together. America's railroad network grew from 35,000 miles of track in 1865 to 242,000 in 1900.11 In addition, Pullman Palace sleeper cars made travel more comfortable, and refrigerated boxcars enabled meat, vegetables, and fruits to be transported across the country. In order to make this rail system more efficient, railroad companies switched to a standard rail gauge of 4' 8.5" between 1880 and 1890, allowing different railroads to use the same equipment. In the name of efficiency, the railroads even used standardized time; at the stroke of noon (Eastern Standard Time) on 18 November 1883, the railroads introduced a carefully devised system of new time zones, ending centuries of human experience in which each town set its own clocks to a slightly different time according to the position of the sun in the sky.

Fourth, financing for all of this came from an increased supply of capital—and from capital derived from new, more extended sources. Earlier in the century, most capital used for industrial expansion had come from the expanding companies themselves. But in the decades after the Civil War, individual personal savings increased and a whole new batch of institutions were created to capture and make available those savings to business borrowers—commercial banks, savings banks, and insurance companies all provided new vehicles for accumulating and dispensing the capital needed to fuel American economic growth.

And finally, new forms of business organization were devised that supported economic growth. Confronted by the ragged cycles of an immature industrial economy—volatile periods of boom and bust, overproduction and then contraction in individual industries—industrialists experimented with new forms of organization. They began by forming pools or cartels. In these loose associations, former competitors became informal partners and tried to smooth out the market through the adoption of "gentlemen's agreements" on production levels and prices. Soon these informal alliances evolved into more formal cooperative ventures among owners. By forming "trusts" and "holding companies," they avoided state laws forbidding monopolies while reaping the benefits of unified control over entire industries. In these associations, the stock

certificates from several companies were exchanged for trust certificates, and then a board of trustees exercised governance over all of the theoretically independent companies within the trust.

The final step in this movement toward centralization was the merger movement of the late 1890s. Abandoning altogether the appearance of competition, industrial leaders simply absorbed their competitors. The movement began in 1897 with a record 69 mergers, and then accelerated. In 1898 there were 303 mergers, in 1899 a whopping 1208 mergers.12

Technology, markets, infrastructure, capital, organization—the unprecedented economic growth of the Gilded Age can be attributed to textbook ingredients for economic development, a series of large structural transformations in the economy.

The Importance of Culture

Laissez faire ideology opposed government interference in the economy Courts struck down laws that involved government in economic regulation

Other economic historians, however, insist that this sort of analysis neglects equally critical ideological contributors to Gilded Age growth. For starters, economic development was facilitated by a supportive culture—one which placed confidence in industrialists and businessmen and refused to permit government to interfere in their efforts. Most Americans embraced the principles of laissez faire economics, which argued that economic forces should be allowed to work themselves out with maximum freedom and minimal government interference. Part of the logic was purely economic—it was believed that government involvement tended to hinder, or even prevent, economic development. But part of the argument was ethical. Laissez faire advocates argued that government interference distorted the natural and equitable forces of economic development. Government intervention was considered tantamount to "class legislation"—an unjust and artificial reallocation of economic resources and power from one group to another.

Laissez faire ideals enabled industrialists and entrepreneurs to operate with public support and without government interference. In addition, the philosophy was translated by the courts into a set of practical rules that enabled businesses to operate with even greater autonomy. For example, during the last decades of the nineteenth century, the court strengthened rules increasing the sanctity of the contract. State laws that attempted to regulate the workplace, such as restrictions on work hours and safety requirements, were repeatedly struck down by state courts with the argument that they violated the rights of employers and employees to enter into contracts freely. Courts also increasingly applied the "fellow servant" rule, which relieved employers of responsibility for workplace injury if a contributing cause was the negligence of another employee. And the courts weakened unions by insisting that employers had a right to replace striking workers while at the same time denying that strikers had a right to organize boycotts.

For many historians, America's economic history during the Gilded Age cannot be explained without reference to this philosophical and legal culture, which was so supportive of unregulated

economic growth. Yet still others insist that acknowledging the importance of this culture does not complete the story. These scholars insist that a handful of key players were critical to the particular way that America's economy unfolded. They argue that the skills and strategies of a handful of individual industrial giants were essential to America's extraordinary economic growth.

John D. Rockefeller

Leader of Standard Oil Company Created monopoly through horizontal integration

John D. Rockefeller, trained as a bookkeeper, built a monopoly over the oil business in less than a decade and brought order to a chaotic vital industry. When he entered the oil business, it was an industry subject to violent jags in production and prices. Each discovery of a new oilfield led to rapid overproduction by wealth-seeking adventurers. But invariably markets were soon glutted, prices collapsed, and producers went bust. Rockefeller's bean-counting sensibilities were repulsed by this disorder. And he recognized that control, and order, could be achieved by dominating a single bottleneck in the production process. Therefore he began to acquire refineries.

In 1868, when he formed Standard Oil, the company was just one of thirty oil refining companies in Cleveland, processing only 5% of the nation's total oil. Over the next decade, Rockefeller built his monopoly by cultivating preferential treatment from the railroads that hauled his product. He negotiated secret contracts in which he leveraged his growing market share for lower transportation rates. These "rebates" enabled him to ship oil at a lower cost, allowing him to undercut his competitors by selling at a lower price. But rebates were just the first step in his scheme. As his share of the oil refining business grew even larger, he was able to demand "drawbacks" from the railroads that desperately wanted his business—that is, a percentage of the hauling fees paid to them by other refineries. In other words, Rockefeller made money off the shipment of other refineries' oil.

By the mid-1880s, Rockefeller refined 90% of the nation's oil. By controlling this vital bottleneck in the production process, he had established a virtual monopoly over the entire industry. With almost every drop of the country's oil flowing through his refineries, he was able to shape price structures and production decisions at every other phase of the process, from the oil wells to consumers' homes. His method of controlling one aspect of the production process—labeled horizontal integration—was soon imitated by other industrialists also anxious to eliminate their competitors and to bring a similar stability (and profitability) to their industries.

Andrew Carnegie

Leader of Carnegie Steel Built near-monopoly through vertical integration

Andrew Carnegie did for steel what Rockefeller did for oil. In the early 1870s, he realized that the steel rails being introduced in England were superior to the iron rails used in America, and

that it was only a matter of time before American railroads imitated their English cousins. And so he set about investing in steel. Utilizing the newest technologies, such as the Bessemer blast furnace and the Siemens-Martin open hearth, he built the largest steel company in America.

Carnegie could be as deliberate as Rockefeller in crushing his competitors—and more aggressive in crushing his workers' attempt to unionize. After first supporting the right of workers to unionize, he gave his plant manager, Henry Frick, a free hand in beating back the fledgling American Association of Iron and Steel Workers when the union tried to organize his Homestead steel plant outside Pittsburgh. Despite the violence at Homestead, the public was generally more forgiving of Carnegie than they were of Rockefeller. One reason was because people found his industrial methods more defensible. Carnegie used "vertical integration" to bring stability to the steel industry—he worked to control the entire production process, from the iron mines through steel production and distribution. By the time he retired, Carnegie's holdings were enormous; they included pig iron works, coke refineries, and a line of steamships, as well as steel works. But the public was more accepting of this sort of industrial monopoly than they were of Rockefeller's creation of a market bottleneck through horizontal integration; it seemed better to honor the spirit of market competition.

John Pierpont Morgan

Leading financier, founder of J.P. Morgan & Co. Led merger movement, creating giant industrial corporations

J. P. Morgan completed the triad of America's great Gilded Age industrial giants. He similarly pursued monopoly-like control over his sector of the economy—but he ultimately established a more varied set of holdings than either Rockefeller or Carnegie. Even his contemporaries disapproved of his earliest business deals—during the Civil War he sold defective guns to the Union army at inflated prices, and he installed a telegraph line in his office so he could buy and sell gold based on battle news from the front. After the war, he brought the same shrewd instinct to his goal of monopolizing the railroads. As a result, by the end of the century, his assets included the South Atlantic, Reading, Erie, and Northern Pacific Railroads, and he held major stakes in the B&O, and the Atchison, Topeka, and Santa Fe Railroads as well. But not content with controlling just the railroads, Morgan also built General Electric into a great industrial conglomerate by merging the Edison General and Thompson-Houston Electric Companies. And in 1901, he forged a merger between Carnegie Steel and several other companies to form U.S. Steel. Morgan's financial moves built the great industrial corporations that would lead the American economy's charge into the twentieth century.

What's Missing?

Unskilled workers in industrial factories mostly did not share in Gilded Age prosperity Hours were long, wages were low, conditions were dangerous Many workers lived in miserable urban slums

It is hard to ignore the contributions of these industrial giants to the development of the American economy. But some historians suggest that focusing on these sorts of individuals still

fails to capture the full character of the emerging industrial economy. Like the statistical portrait, or the reduction of the economy to a list of abstract ingredients, this focus on just a handful of powerful individuals fails to capture the character of the economy for the vast majority of America's 75 million people. In particular, these approaches fail to reveal the impact of this particular form of economic growth on those at the bottom of the economic ladder. The same economy that gave Carnegie, Rockefeller, and Morgan the opportunity to amass the largest fortunes in the history of the world also required unskilled industrial laborers to work an average of 60 hours per week for 10 cents an hour. (Accounting for inflation, 10 cents in 1880 was worth about as much as $2 today.)

A complete economic history of the Gilded Age thus requires an understanding of the nation's expanding underclass. But as these people left fewer records, historians have had to patch together the character of their existence by constructing a different sort of snapshot. Their lives were lived in America's growing urban slums, places most middle-class and wealthy Americans tried to avoid. More than a million people were crammed into New York's 32,000 infamous dumbbell tenements—overcrowded, poorly ventilated fire traps. Chicago's slums were three times more densely packed than Calcutta's.13

In these living conditions, disease ran rampant—cholera, typhoid, tuberculosis, consumption. Nor did it help that city governments could not build water and sewage facilities fast enough to serve their rapidly swelling populations. In New Orleans, the census reported that pedestrians sank in the mud made by the "oozing of foul privy vaults." In Philadelphia, the city's water supply, the Delaware River, was replenished daily with 13,000 gallons of untreated sewage.14

The economic history of the late nineteenth century thus cannot be too narrowly summarized. The period's label, "Gilded Age," comes close to capturing the juxtaposition of enormous wealth alongside crushing poverty. But even this only hints at the underside of America's booming economy. Therefore, to complete the picture, you should look at some pictures. In 1890, Jacob Riis, a police reporter for the New York Tribune, published How the Other Half Lives, a stark portrait of urban slum life. His classic work, complete with text and photographs, is available here.

Labor in The Gilded AgeLooking at the Past Through the Lens of Labor

Key Points

The Gilded Age was a period of horrific labor violence, as industrialists and workers literally fought over control of the workplace

Workers organized the first large American labor unions during the Gilded Age Employers were generally just as determined to stop unionization as workers were to

organize unions, leading to frequent conflict Constant strikes and violence eventually caused the middle class to become fed up with

both union and businessmen

Key events: Railway Strike of 1877, Haymarket Riot of 1886, Homestead Strike of 1892, Pullman Strike of 1893

Steel's Iron Man

Carnegie Steel plant manager Henry Frick survived assassination attempt in 1892 Attack against Frick came during troubled Homestead Steel strike

On 23 July 1892, Henry Frick—the plant manager of Andrew Carnegie's steel yard in Homestead, Pennsylvania—was working at his desk when a man, claiming to be a labor representative, entered his office. As Frick rose to greet him, the man shot him twice in the neck. Frick lunged at his attacker and wrestled him to the ground, but as the two men thrashed about on the floor Frick's assailant stabbed him several times with a steel file. Despite bleeding profusely from his many wounds, Frick managed to subdue the would-be assassin until police arrived. Frick's co-workers wrapped his wounds the best they could and urged him to go see a doctor immediately. But, according to legend, he refused to leave his office. It was only mid-afternoon—not yet quitting time—and Frick would go seek medical care only when the workday ended.

The episode won Frick accolades; the "iron man" of the steel industry was heralded as a model of heroic industriousness. When it was discovered that his attacker, Alexander Berkman, was an anarchist, sympathetic with the steel workers currently engaged in a bitter strike against the Homestead plant, Frick was celebrated by many Americans for standing firm against dangerous labor radicalism—a model of the toughness needed to bring order to America's turbulent factories. But many others were more ambivalent in their attitudes towards Frick. While they condemned his would-be murderer, they also argued that Frick himself had provoked the strike in the first place by trying to crush the labor union recently formed by the workers. Berkman had clearly gone too far—but perhaps, in his own way, Frick had as well. For two decades, America's industries had faced a seemingly endless series of strikes that often turned violent. Perhaps, critics suggested, industrialists needed to take a more tempered approach to their workers' complaints rather than relying always upon an uncompromising steely resolve.

The Great Railroad Strike of 1877

Gilded Age conflicts between businesses and unions often turned violent Great railroad strike of 1877 began period of serious industrial conflict Railroad strike ended when federal troops attacked workers

The widespread labor violence that threatened, by 1890, to spin out of control had exploded onto the national scene in 1877 with a railroad strike that crippled transportation throughout the northeast. There had been strikes before in America—but nothing that matched the scope and violence of this one. In retrospect, it is not surprising that this period of tumultuous labor unrest began with the railroads. In many ways railroads provided the model for the new industrial economy; they required vast capital investment and relied on large management bureaucracies.

Railroad companies also competed ruthlessly against one another. Rival companies built extraordinarily expensive lines, sometimes parallel to those of their competitors, and then fought for business by promising faster and cheaper service. The competition and costs within the industry led to harsh labor practices—fifteen-hour days, low wages, and extremely hazardous work conditions—as companies struggled to gain any advantage in the market. The life of a railroad operator was so dangerous that life insurance companies routinely refused to provide coverage—in fact, the first labor organizations among railroad workers were really insurance cooperatives, brotherhoods that provided funeral funds and life insurance to their short-lived members.

The railroads were thus a combustible industry. In 1877, when the owners of the Baltimore and Ohio (B&O) Railroad announced a pay cut—the fourth in as many years—workers walked off the job. They walked off first in Camden Junction, Maryland, but as word spread up and down the line, other B&O employees, workers from rival railroads, and even workers from entirely different industries abandoned their jobs in sympathy. Together, this growing mass of workers attacked railroad yards, burning trains and tearing up tracks. The violence was the worst in Pittsburgh, where a crowd of some 5000 workers fought 650 federal troops in a pitched battle. The workers laid waste to the railroad yard, burning more than 500 cars, 104 locomotives, and 39 buildings. The troops exacted a more deadly toll—25 people were killed when they fired into the rioting crowd. The entire bloody scene seemed to portend a bleak future of labor violence or even outright class warfare.17

Military force eventually restored order along the nation's railroad lines, but not before strikers had destroyed more than $10 million worth of property and terrified middle-class observers of the events.18 Throughout the northeast, the middle class had witnessed workers band together to confront industrialists and even federal troops. Local militia, moreover—supposedly the enforcers of law and order—had in many cases joined up with the strikers rather than fighting against them to protect railroad property. (Perhaps this shouldn't have been surprising; most militiamen were working people themselves, subject to the same low wages and dangerous conditions.) And the most sophisticated observers realized that this amazing outpouring of working-class anger had occurred spontaneously, without any sort of union organization coordinating the action. This had been a "wildcat" strike, a spontaneous explosion of worker discontent. And many realized that it spoke volumes about the depth of worker dissatisfaction—and an emerging collective awareness among workers that they shared a common plight in the new industrial economy.

The railroad strike of 1877 was therefore a terrifying shock to most Americans. For middle-class urbanites and small-town residents removed from many of the harsh realities of the new industrial order, the size, the rapid spread, the worker unity, and the extreme violence of the strike raised a horrible specter of social warfare just a decade after the end of the Civil War. For the workers and industrialists at the center of the strike, the events were less shocking than educative. Both sides realized that this was the beginning, not the end—and that steps needed to be taken to prepare for future battles.

What Workers Learned

After 1877, workers began forming large union organizations

Workers learned that they needed to organize; they had no chance to prevail in a power struggle against the combined forces of industrial owners and the United States government unless they built stronger unions. Before 1877, union organization had been sporadic and largely local. Small craft unions organized local workers around local concerns. The great exception was the National Labor Union, formed in 1866. Seventy-seven delegates representing 60,000 workers gathered at Baltimore to launch this national organization and adopt a platform focused on securing legislation protecting the eight-hour day. But the union was short-lived. Its foray into direct political action failed miserably when its 1872 candidate for president tallied fewer than 30,000 votes nationwide. And more critically, the economic depression of 1873 drove millions of workers into unemployment and out of their unions. By 1877, the nation's total union membership had fallen from a peak of 300,000 in 1872 to just 50,000.19

The Knights of Labor

Knights of Labor were first large national union Sought to organize all workers in all industries and to form labor-management

cooperative businesses Grew rapidly in 1880s, led successful rail strike in 1885 Collapsed after violent Haymarket Riot in Chicago in 1886 turned public opinion against

labor

But in the decade following the railroad strike, unions grew rapidly. The most ambitious of these was the Knights of Labor. Founded in 1869, the Knights sought to build a comprehensive organization uniting workers of all races, genders, ethnicities, and occupations. The Knights were equally expansive in their objectives. They lobbied government for the eight-hour day and child labor restrictions. They also campaigned for the initiative and referendum—electoral processes through which common citizens could draft and vote upon laws. But most fundamentally, and most radically, they sought to build more cooperative labor-management relations; they envisioned industries governed by councils of workers and managers within genuinely democratic, and ultimately collectively owned enterprises.

During the 1880s, the Knights grew rapidly. By 1885, the organization claimed 100,000 members. And in that year it experienced its greatest success. When the Wabash Railroad, one of the railroads within Jay Gould's Southwest System, tried to break a local union, the Knights walked out in sympathy. Within days, the entire Southwest System was paralyzed and the Wabash was forced to negotiate with its workers. Flush with victory, the Knights drew in thousands of new members; within a year, 750,000 workers were united under the comprehensive umbrella of the Knights of Labor.20

But to a certain extant, the Knights' rapid success was also the cause of their downfall. In 1886, tens of thousands of newly-joined workers initiated labor actions—but only occasionally were the other members willing to walk out in support. Even more damaging, when an eight-hour-day rally in Chicago's Haymarket Square turned violent, all supporters of the eight-hour day were blamed. Who threw the bomb that killed six policemen at Haymarket has never been clearly

established. A group of anarchists—unaffiliated with the Knights—was eventually tried and convicted for organizing the ill-fated rally. But all labor organizations were found guilty by association. The Knights of Labor, because of their size and visibility, were condemned the most vehemently. Within a year of the Haymarket riot, the Knights' membership had been cut in half; within a decade, the Knights were all but extinct.21

Craft and Industrial Unions

Craft unions: organize skilled tradesmen into many small unions according to trade Industrial unions: organize all workers in one industry, regardless of craft, into a single

union American Federation of Labor, a federation of craft unions, became largest labor

organization following Knights' decline American Railway Union, first successful industrial union, organized railroad workers

after fall of Knights of Labor

More enduring gains were made by unions that sought to organize only a particular craft or industry. The American Federation of Labor (AFL), led by Samuel Gompers, was the most successful of these. Less a single union than a federation of semi-independent craft associations, the AFL admitted only skilled, white men. Its objectives were also comparatively limited; the federation focused only on achieving higher wages and shorter workdays for its members, forsaking the larger social objectives that had motivated the Knights. But the AFL did grow—by 1892 it claimed more than a quarter million members.22

After the collapse of the Knights of Labor, railroad workers formed their own labor organization, the American Railways Union. It adopted an organizational strategy somewhere in between that of the Knights and the AFL. The ARU organized all railroad workers, regardless of craft or specific job, within this one union. More inclusive than the AFL, but less comprehensive than the Knights of Labor, the ARU was America's first industrial union. And just a year after its founding, it achieved a major victory. When, in August 1893, the Great Northern Railroad cut workers' wages, the ARU called a strike; within three weeks, the railroad relented and restored wages to their former levels.

What Industrialists Learned

Violence of strikes convinced many businessmen that labor conflict was inevitable Most big industrialists thus sought to crush unions, through force if necessary, rather than

seeking compromise

But workers were not the only ones to organize during these years. Industry owners also walked away with some lessons from the railroad strike of 1877. But the question we might ask is whether the conclusions they drew best served their interests.

Factory pay was extremely low, and living conditions in urban slums were horrific. The rapid mechanization of American industries had transformed work and the role of work in people's lives. In the records left by workers, what jumps off the page are the complex reasons why

workers were so unhappy with their lives in the factories. It was not just the pay, the hours, or the conditions; it was also the loss of satisfaction and status that they had formerly found through their work. One worker explained that he used to call himself a "mechanic"; he considered himself "above the average working man." But with the introduction of more machinery, and the subdivision of the manufacturing process in such a way that an individual worker understood only one tiny part of that process, this once proud "mechanic" had been reduced to a "laborer." He was no longer a skilled craftsman, in possession of a useful and respected body of knowledge, he was just an "ordinary laborer . . . the same as the others . . . no more and no less."23

Other workers complained that their opportunities for advancement were diminishing, that fading prospects of improving their occupational or social status had left them "demoralized." The new manufacturing processes left them with no transportable skill; in fact, they often had no real skills at all. The work had been so thoroughly subdivided that a child could do it. In fact, one man described how a co-worker had been laid off and then replaced by his own young son at half the wage.24

Much of this may have been unavoidable, the "collateral damage" that accompanies every major economic transition. But by the 1920s, industrialists would decide that they could improve factory morale and productivity—and profits—by addressing some of their workers' material needs. (In 1914, Henry Ford famously decided to offer his assembly-line workers a massive wage increase to $5 a day; the move paid for itself because absenteeism and employee turnover both decreased by orders of magnitude, increasing productivity, and the wage hike also helped Ford stay union-free for decades.) But in the aftermath of the 1877 strike, most industrial leaders concluded only that they should close ranks and hunker down. Class conflict—perhaps violent class conflict—seemed inevitable. Therefore they refused to raise wages, shorten hours, or improve conditions; instead they developed private security forces, or hired agencies like the Pinkerton Guards, and prepared for future battles.

The stage was therefore set for the major labor conflicts of the 1890s. While most industrial workers were not members of unions, they had learned the potential value of organization and they had made some inroads in critical industries. Meanwhile, industry owners had come to believe that unions represented a mortal threat to their own interests, and resolved to organize themselves just as resolutely to take timely action to crush the workers' nascent organizational efforts before they altered the balance of power within America's industries.

The stage was set for Homestead.

Homestead Steel

1892 strike at Carnegie's Homestead Steel plant outside Pittsburgh turned violent Pitched battle between workers and armed security left 12 men dead 8000 state militia intervened to crush strike Steel industry remained union-free until 1930s

This background shaped events at Homestead, Pennsylvania, the site of one of Andrew Carnegie's steel plants, in 1892. The Amalgamated Association of Iron and Steel Workers had managed to establish a footing at Homestead. The union represented about one-fourth of the plant's workers and had successfully negotiated a pay scale that paid workers between 14 and 20 cents per hour. But Henry Frick, the man Carnegie had left in charge of his steel empire while he semi-retired to his native Scotland, believed that this union represented a costly and dangerous precedent. Therefore when the existing agreement between Carnegie Steel and the union expired in 1892, Frick announced pay cuts of 18 to 26 percent.25 When union leaders objected and called a strike, Frick shut down the plant, locking out the workers in an attempt to break their union.

In the weeks that followed, Homestead became an armed camp. Frick brought boatloads of armed Pinkerton Guards down the Monongahela River to defend the pant. But even though they arrived in the dead of night, sentries deployed by the strikers summoned workers from their sleep to prevent the guards from landing. The resulting pitched battle was horrifyingly intense. Striking workers hurled dynamite at the barges filled with Pinkertons and poured oil into the river, then set it on fire. By the next afternoon, the Pinkertons had surrendered—but three guards and nine workers were dead. And the battle only delayed the inevitable. Pennsylvania's governor quickly dispatched 8000 state militia, equipped with Gatling guns, to restore order while Frick brought in 1000 replacement workers to take the jobs of the strikers. Facing an overwhelming disadvantage in military muscle and financial resources, the vast majority of the strikers surrendered and returned to work on Frick's terms—lower wages and no union membership.26

It was in the midst of this strike that Alexander Berkman—a leader in the anarchist movement and an associate of the famous radical leader Emma Goldman—resolved to kill Henry Frick. Believing that events in Homestead represented a revolutionary moment, he hoped to inspire further resistance on the part of the strikers and other labor sympathizers. He failed utterly to do so. Instead, to the vast majority of Americans, reading about the strike in their daily papers, Berkman's assassination attempt fed growing anxieties about the dire state of industrial labor relations. By 1892, Americans had witnessed fifteen years of labor violence. Their initial shock had given way to a different sort of fear—and a more complex assessment of blame. During the railroad strike of 1877, most newspaper editorials had blamed the workers (especially after they destroyed company property), primarily because most Americans in 1877 still retained a confidence in the ability of the economic system to allow upward mobility for those who sought it; in other words, they viewed poverty and occupational stagnation as personal failings, not failings of the system. But by 1892, the analysis offered in newspapers and Sunday sermons had grown more complex. Journalists and ministers still condemned all acts of violence, but they increasingly tended also to criticize the new industrial order's seemingly declining opportunities for mobility. And many began to see labor unions less as radical and suspiciously foreign, and more as legitimate answers to the labor challenges of the new economic era. Within this new, more balanced assessment, Frick's decision to destroy the fledgling steelworkers' union seemed unwise. And his decision to lock out workers and use strikebreakers and Pinkerton Guards to deny men access to their livelihoods struck many as unnecessarily hard-hearted and provocative.

Pullman: Paradise or Prison

George Pullman ran railroad-car factory in Chicago

Pullman built an entire city for his workers in pursuit of "industrial paternalism" But rents in Pullman Town were high and workers were unhappy there

It was with this growing sense of anxiety that middle-class observers greeted the efforts of George Pullman in Chicago. Pullman built railroad cars at a plant just outside the city. And, as he was equally worried about the direction of industrial labor conditions, he introduced a set of innovative practices labeled "industrial paternalism." Pullman argued that industry owners had an obligation to treat their workers fairly—and that well-treated workers would reward their employers with compliant hard work. Pullman therefore surrounded his factory with a company-owned community complete with houses, parks, schools, and churches.

To middle-class observers, Pullman Town represented an enlightened alternative to the bare-knuckle union-busting methods of Henry Frick. In Pullman's little village, they saw the end of labor violence and the dawning of a new era of harmonious social relations. But what they did not see was the discontent and exploitation that actually filled the community. Rents in the village were high, about 25% higher than comparable housing outside the village. Utility prices were also billed at above-market rates.27 Workers resented the high prices, especially since they were required to live in company housing if they wanted to work at Pullman's factory. But they were equally resentful of the social control that Pullman exercised over their lives outside work. Alcohol was expressly forbidden in the town. And company agents, not an elected town council, controlled everything from the books in the library to the shows performed at the community theater. Far from an idyllic village, Pullman town seemed to its inhabitants to be an exploitive prison. As one resident complained, "we are born in a Pullman house. We are fed from a Pullman shop, taught in a Pullman school, catechized in the Pullman church and when we die we shall be buried in a Pullman cemetery and go to a Pullman hell."28

The Pullman Strike

In 1894, Pullman cut wages at his factory but did not reduce rents for workers living in Pullman Town

Workers went on strike, gained support of national American Railways Union Strike ended in failure after government troops intervened and courts ruled it illegal

The limitations of Pullman's paternalism were revealed in 1894 when workers struck after Pullman reduced their wages. Pullman had defended the wage cuts as a necessity forced by the economic depression of 1893. But when employee negotiators demanded that Pullman also reduce the rents he charged for company housing, he fired them. And so on 11 May, the workers went on strike. Just like in 1877, news of the Pullman strike spread quickly up and down the nation's rail lines—and just like in 1877, railroad workers across the country walked off the job in droves. But this time their efforts were coordinated by the American Railways Union and its charismatic leader Eugene Debs.

Debs instructed union members not to handle any Pullman cars; railroad managers retaliated by firing employees who complied with Debs' instructions. By the end of June, virtually every railroad in the midwestern United States was operating at a fraction of its capacity. Total freight tonnage fell to about one-fourth its pre-strike levels.29

But even though more effectively organized than the strike of 1877, the strike of 1894 eventually collapsed. Railroad owners brought in replacement workers from Canada and hired more than 3000 private guards. President Grover Cleveland dispatched federal troops to Chicago with predictably violent results—a three-day battle between soldiers and rioting strikers in early July left 30 people dead. The final blow to the strikers came when the federal government sued, arguing that the strike was interfering with the delivery of the United States mail. A federal court agreed, and declared illegal all efforts on the part of union leaders to discourage railroad workers from doing their jobs. When Debs and other leaders refused to comply, they were arrested—and within weeks the strike collapsed.

What Middle-Class Observers Finally Learned

Middle-class Americans were terrified by violent labor conflict of Gilded Age By end of 19th century, middle-class reformers were pursuing Progressive policies aimed

at forcing workers and businessmen to compromise

For workers, the Pullman strike may have seemed just another major defeat. But for many in the general public, this latest crisis prompted a noticeable shift in opinion. As in the past, violence against private property was swiftly and almost universally condemned. But the failure of yet another approach to labor relations—Pullman's paternalism—led many to believe that some sort of higher intervention was necessary. Industrialists and workers had proven themselves completely incapable of preserving labor peace—their efforts had yielded only a seemingly endless string of violent, terrifying strikes. These strikes brought the economy to a standstill and seemed to threaten the fabric of society in more profound ways. Gun battles in the streets of Homestead, train yards in flames, government troops marching against American citizens on American soil—it was all too much.

By the end of the nineteenth century, America's large middle class had crystallized as the demographic center of the American populace and the critical mass that shaped American politics. By the end of the century, that critical mass had moved toward the belief that the federal government needed to play a more even-handed part in mediating the labor conflicts that plagued the nation. Up to this point, the federal government had always intervened on the side of the owners in breaking strikes—but the middle class began to question the justice of this approach.

In 1901, an assassin's bullet would kill President William McKinley, elevating Vice-President Theodore Roosevelt to the Oval Office. Roosevelt was not a nostalgic economic reformer. He applauded the rise of American industries as a critical bastion of American power. Nor was he a social leveler; he was not interested in transforming the basic social or economic structures of America. But he believed that these new industrial powers had to play fair—and that the federal government was responsible for ensuring that they did. As the nineteenth century gave way to the twentieth, as the Gilded Age gave way to the Progressive Era, a new president and a new public mood would combine to usher in a new era in industrial relations.

Industrialization: 1869–1901

Events1869 Transcontinental Railroad is completed

1870 Standard Oil Company forms

1886 Supreme Court issues verdict in Wabash case

1887 Congress passes Interstate Commerce Act

1890 Congress passes Sherman Anti-Trust Act

1901 U.S. Steel Corporation forms

Transcontinental Railroads

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.

Captains of Industry

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.”

Vanderbilt and the Railroads

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.

Carnegie, Morgan, and U.S. Steel

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.

Rockefeller and Standard Oil

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.