The Industrial Economy: Crash Course US History #23

Episode 23: The Rise of the Industrial Economy

Hi I’m John Green this is Crash Course U.S.
History and today we’re going to discuss

economics and how a generation of-
Mr. Green, Mr. Green, is this going to be

one of those boring ones no wars or generals
who had cool last words or anything?

Alright, Me From The Past, I will give you
a smidge of Great Man history. But only a

smidge.
So today we’re gonna discuss American industrialization

in the decades after the Civil War, during
which time the U.S. went from having per capita

about a third of Great Britain’s industrial
output to becoming the richest and most industrialized

nation on earth.
Libertage

Meh, you might want to hold off on that Libertage,
Stan because this happened mostly thanks to

the Not Particularly Awesome Civil War, which
improved the finance system by forcing the

introduction of a national currency and spurred
industrialization by giving massive contracts

to arms and clothing manufacturers.
The Civil War also boosted the telegraph,

which improved communication, and gave birth
to the transcontinental railway via the Pacific

Railway Act of 1862, all of which increased
efficiency and productivity. So thanks, Civil

War!
Intro

If you want to explain America’s economic
growth in a nutshell chalk it up to G, D,

and L: Gerard, Depardieu, and Lohan. No, Geography,
Demography and Law.

However, while we’re on the topic, when
will Gerard, Depardieu, and Lindsay Lohan

have a baby? Stan, can I see it? Yes. Yes.
Geographically, the U.S. was a huge country

with all the resources necessary for an industrial
boom. Like, we had coal, and iron and, later,

oil. Initially we had water to power our factories,
later replaced by coal. And we had amber waves

of grain to feed our growing population which
leads to the Demography.

America’s population grew from 40 million
in 1870 to 76 million in 1900 and 1/3 of that

growth was due to immigration.
Which is good for economies. Many of these

immigrants flooded the burgeoning cities,
as America shifted from being an agrarian

rural nation to being an industrial, urban
one.

Like, New York City became the center of commerce
and finance and by 1898 it had a population

of 3.4 million people. And the industrial
heartland was in the Great Lakes region. Chicago

became the second largest city by 1900, Cleveland
became a leader in oil refining, and Pittsburgh

was a center of iron and steel production.
And even today, the great city of Pittsburgh

still employs 53 Steelers.
Last but not least was the Law. The Constitution

and its commerce clause made the U.S. a single
area of commerce – like a giant customs

union. And, as we’ll see in a bit the Supreme
Court interpreted the laws in a very business

friendly way.
Also, the American constitution protects patents,

which encourag4B-es invention and innovation,
or at least it used to.

And despite what Ayn Rand would tell you,
the American government played a role in American

economic growth by putting up high tariffs,
especially on steel, giving massive land grants

to railroads and by putting Native Americans
on reservations.

Also, foreigners played an important role.
They invested their capital and involved Americans

in their economic scandals like the one that
led to a depression in 1893. The U.S. was

at the time was seen by Europeans as a developing
economy; and investments in America offered

much higher returns than those available in
Europe.

And the changes we’re talking about here
were massive. In 1880, for the first time,

a majority of the workforce worked in non-farming
jobs. By 1890 2/3 of Americans worked for

wages, rather than farming or owning their
own businesses.

And, by 1913 the United States produced 1/3
of the world’s total industrial output.

NOW bring out the Libertage, Stan.
Libertage

Awesome. And even better, we now get to talk
about the perennially underrated railroads.

Let’s go to the Thought Bubble.
Although we tend to forget about them here

in the U.S., because our passenger rail system
sucks, railroads were one of the keys to America’s

19th century industrial success. Railroads
increased commerce and integrated the American

market, which allowed national brands to emerge,
like Ivory Soap and A&P Grocery Stores.

But railroads changed and improved our economy
in less obvious ways, too: For instance, they

gave us time zones, which were created by
the major railroad companies to make shipping

and passenger transport more standard. Also
because he recognized the importance of telling

time, a railroad agent named Richard Warren
Sears turned a $50 dollar investment in watches

into an enormous mail order empire, and railroads
made it possible for him--and his eventual

partner Roebuck--to ship watches, and then
jewelry, and then pretty much everything,

including unconstructed freaking houses throughout
the country.

Railroads were also the first modern corporations.
These companies were large, they had many

employees, they spanned the country. And that
meant they needed to invent organizational

methods, including the middle manager--supervisors
to supervise supervisors. And for the first

time, the owners of a company were not always
day-to-day managers, because railroads were

among the first publicly traded corporations.
They needed a lot of capital to build tracks

and stations, so they sold shares in
the company in order to raise that money,

which shares could then be bought and sold
by the public. And that is how railroads created

the first captains of industry, like Cornelius
“They Named a University after Me” Vanderbilt

and Andrew “Me Too” Carnegie (Mellon)
and Leland “I Named a University After My

Son” Stanford. The Railroad business was
also emblematic of the partnership between

the national government and industry. The
Transcontinental Railroad, after all, wouldn’t

have existed without Congressional legislation,
federal land grants, and government sponsored

bond issues.
Thanks, Thought Bubble. Apparently it’s

time for the Mystery Document.
The rules here are simple.

I guess the author of the Mystery Document
and if I’m wrong, which I usually am, I

get shocked.
Alright.

“The belief is common in America that the
day is at hand when corporations far greater

than the Erie – swaying such power as has
never in the world’s history been trusted

in the hands of mere private citizens, controlled
by single men like Vanderbilt...– will ultimately

succeed in directing government itself. Under
the American form of society, there is now

no authority capable of effective resistance.”

Corporations directing government? That’s
ridiculous.

So grateful for federal ethanol subsidies
brought to you by delicious Diet Dr. Pepper.

Mmm I can taste all 23 of the chemicals.
Anyway, Stan, I’m pretty sure that is noted

muckraker Ida Tarbell. No! Henry Adams? HOW
ARE THERE STILL ADAMSES IN AMERICAN HISTORY?

That makes me worry we’ll never escape the
Clintons. Anyway, it should’ve been Ida

Tarbell. She has a great name. She was a great
opponent of capitalism. Whatever. AH!

Indeed industrial capitalists are considered
both the greatest heroes and the greatest

villains of the era, which is why they are
known both as “captains of industry” and

as “robber barons,” depending on whether
we are mad at them.

While they often came from humble origins,
took risks and became very wealthy, their

methods were frequently unscrupulous. I mean,
they often drove competitors out of business,

and generally cared very little for their
workers.

The first of the great robber barons and/or
captains of industry was the aforementioned

Cornelius Vanderbilt who rose from humble
beginnings in Staten Island to make a fortune

in transportation, through ferries and shipping,
and then eventually through railroads, although

he once referred to trains as “them things
that go on land.”

But the poster boy of the era was John D.
Rockefeller who started out as a clerk for

a Cleveland merchant and eventually became
the richest man in the world. Ever. Yes, including

Bill Gates.
The key to Rockefeller’s success was ruthlessly

buying up so many rivals that by the late
1880s Standard Oil controlled 90% of the U.S.

oil industry.
Which lack of competition drove the price

of gasoline up to like 12 cents a gallon,
so if you had one of the 20 cars in the world

then, you were mad.
The period also saw innovation in terms of

the way industries were organized. Many of
the robber barons formed pools and trusts

to control prices and limit the negative effects
of competition.

The problem with competition is that over
time it reduces both prices and profit margins,

which makes it difficult to become super rich.
Vertical integration was another innovation

– firms bought up all aspects of the production
process – from raw materials to production

to transport and distribution.
Like, Philip Armour’s meat company bought

its own rail cars to ship meat, for instance.
It also bought things like conveyor belts

and when he found out that animal parts could
be used to make glue, he got into the glue-making

business.
It was Armour who once proclaimed to use “everything

but the squeal.”
Horizontal integration was when big firms

bought up small ones. The best example of
this was Rockefeller’s Standard Oil, which

eventually became so big incidentally that
the Supreme Court forced Standard Oil to be

broken up into more than a dozen smaller oil
companies.

Which, by the way, overtime have slowly reunited
to become the company known as Exxon-Mobil,

so that worked out.
U.S. Steel was put together by the era’s

giant of finance, J.P. Morgan, who at his
death left a fortune of only $68 million – not

counting the art that became the backbone
of the Metropolitan Museum of Art – leading

Andrew Carnegie to remark in surprise, “And
to think he was not a rich man.”[1]

Speaking of people who weren’t rich, let
us now praise the unsung heroes of industrialization:

workers.
Well, I guess you can’t really call them

unsung because Woody Guthrie. Oh! Your guitar!
And my computer! I never made that connection

before.
Anyway, then as now, the benefits of economic

growth were shared...mmm shall we say...a
smidge unevenly.

Prices did drop due to industrial competition,
which raised the standard of living for the

average American worker. In fact, it was among
the highest in the world. But due to a growing

population, particularly of immigrant workers,
there was job insecurity. And also booms and

busts meant depressions in the 1870s and 1890s,
which hit the working poor the hardest.

Also, laborers commonly worked 60 hours per
week with no pensions or injury compensation,

and the U.S. had the highest rate of industrial
injuries in the world: an average of over

35,000 people per year died on the job.
These conditions and the uncertainty of labor

markets led to unions, which were mostly local
but occasionally national.

The first national union was the Knights of
Labor, headed by Terence V. Powderly which

grew from 9 members in 1870 to 728,000 by
1884.

The Knights of Labor admitted unskilled workers,
black workers, and women, but it was irreparably

damaged by the Haymarket riot in 1886.
During a strike against McCormick Harvesting

Company, a policeman killed one of the strikers
and in response there was a rally in Chicago’s

Haymarket Square at which a bomb killed seven
police officers.

Then, firing upon the crowd, the police killed
four people. Seven anarchists were eventually

convicted of the bombing, and although Powderly
denounced anarchism, the public still associated

the Knights of Labor with violence. And by
1902, its membership had shrunk considerably--to

0.
The banner of organized labor however was

picked up by the American Federation of Labor
under Samuel L. Gompers. Do all of these guys

have great last names?
They were more moderate than the anarchists

and the socialist International Workers of
the World, and focused on bread and butter

issues like pay, hours, and safety.
Founded in 1886, the same year as the Haymarket

Riot, the AFL had about 250,000 members by
1892, almost 10% of whom were iron and steel

workers.
And now we have to pause to briefly mention

one of the most pernicious innovations of
the era: Social Darwinism: a perversion of

Darwin’s theory that would have made him
throw up. Although to be fair, almost everything

made him throw up.
Social Darwinists argued that the theory of

survival of the fittest should be applied
to people and also that corporations were

people.
Ergo, big companies were big because they

were fitter and we had nothing to fear from
monopolies.

This pseudoscience was used to argue that
government shouldn’t regulate business or

pass laws to help poor people. It assured
the rich that the poor were poor because of

some inherent evolutionary flaw, thus enabling
tycoons to sleep at night. You know, on a

big pile of money, surrounded by beautiful
women.

But, despite the apparent inborn unfitness
of workers, unions continued to grow and fight

for better conditions, sometimes violently.
There was violence at the Homestead Steel

Strike of 1892 and the Pullman Rail strike
of 1894 when strikers were killed and a great

deal of property was destroyed.
To quote the historian Michael Lind: “In

the late 1870s and early 1880s, the United
States had five times as many unionized workers

as Germany, at a time when the two nations
had similar populations.”[2]

Unions wanted the United States and its citizens
to imagine freedom more broadly, arguing that

without a more equal economic system, America
was becoming less, not more, free, even as

it became more prosperous.
If you’re thinking that this free-wheeling

age of fast growth, uneven gains in prosperity,
and corporate heroes/villains resembles the

early 21st century, you aren’t alone.
And it’s worth remembering that it was only

150 years ago that modern corporations began
to form and that American industry became

the leading driver in the global economy.
That’s a blink of an eye in world history

terms, and the ideas and technologies of post
Civil War America gave us the ideas that still

define how we--all of us, not just Americans--think
about opposites like success and failure,

or wealth and poverty.
It’s also when we people began to discuss

the ways in which inequality could be the
opposite of freedom. Thanks for watching.

I’ll see you next week.
Crash Course is produced and directed by Stan

Muller. Our script supervisor is Meredith
Danko. The associate producer is Danica Johnson.

The show is written by my high school history
teacher, Raoul Meyer, Rosianna Halse Rojas,

and myself. And our graphics team is Thought
Café.

Each week there’s a new caption for the
Libertage. You can suggest captions in comments

where you can also ask questions about today’s
video that will be answered by our team of

historians.
Thanks for watching Crash Course. Make sure

you’re subscribed. And as we say in my hometown,
don’t forget to be awesome.

Industrial Economy -
________________

[1] Brands, American Colossus p 6.
[2] Lind, Land of Promise 171