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American History II


Capitalism and Labor in the Post-Civil War Period

            Two general issues caused tension during the Gilded Age: The first of these was laissez faire, a doctrine opposing government interference in economic affairs beyond the minimum necessary to maintain peace and ensure property rights.  The second was growing concentration of power in the hands of government all levels. During the period following the Civil War, government assumed more authority and power, especially expanding its bureaucratic control and authority. Major areas of expansion of government power included land policy, railroad subsidies, tax and tariff policy, immigration policy, and Indian policy.  Both of these issues involve government use of power, but they dictate essentially opposite paths for government to take.

            Money may or may not be the root of all evil, but it certainly played a major role in the politics and the government activity of the Gilded Age that, on the one hand, refused to exercise power in some areas and, on the other, expanded its powers in other areas. This money that so influenced post-war politics was not coming out of thin air or growing on trees; it was contributed by those who made incredible amounts of money during the Gilded Age.  The amounts of money they made were largely due to the rise of a new form of corporation in which directors and managers exercised a great deal more control than investors.

            During the Gilded Age, names like James J. Hill, Andrew Carnegie, Cornelius Vanderbilt, and John D. Rockefeller struck terror in the hearts of millions of people; but they also inspired millions of other Americans. Between 1870 and 1900, the United States became a world industrial power, in large part because of the ingenious business practices of these individuals. But the debate over whether the business practices of the Gilded Age were corrupt and harmful or beneficial rages on even to this day. Even in our own times, corporate mergers, downsizing and mass layoffs, deregulation, examples such as the savings and loan scandals if the 1980s and the apparent predatory and monopolistic tendencies of companies like Microsoft remind us that the line between abuse of corporate power and progress is a very fine line.

            The new concept of corporations that emerged during the last half of the 19th century allowed managers and directors to make money while investors received only limited dividends. This new practices allowed a handful of managers and directors of corporations to profit enormously from using other people's money with little personal risk to themselves. In addition, combinations of corporations, which were then called "trusts," began to develop. One of the most salient characteristics of the Gilded Age--and, for the past three decades, of our own era--was the continual merging of corporations. Small corporations, merging with one another to increase efficiency and profits became "mega-corporations,"  known as "trusts" in the late 19th century. Control of a group of corporations was handed over to a small board of trustees who managed the means of production and distribution of a major segment of an entire industrial field. Though the trusts were certainly larger, more efficient, and more profitable than smaller corporations, they also destroyed the very "healthy competition" that was supposed to make capitalism not only a viable economic model, but preferable to alternative economic models.

            Standard Oil of New Jersey is a case in point. In 1879, John D. Rockefeller and a handful of associates created what became known as Standard Oil of New Jersey.  Rockefeller made Standard Oil an amazing example of consolidation and efficiency. Rockefeller was so successful that at his death, his personal fortune was estimated at between $ 800 million and $820 million. At that time, net profits of the Standard Oil trust averaged $40 million per year. The thing was, Rockefeller's methods of "persuading" smaller competing companies to join his trust were often less than admirable. Though Rockefeller often bought control of smaller oil companies publicly through the stock market, he also frequently did so surreptitiously or through a proxy to keep other investors from learning that the company would soon be absorbed by his behemoth trust. But if buying controlling stock in a smaller company either privately or publicly proved too difficult because not enough stockholders were willing to sell, Rockefeller would hire armed Pinkerton agents to "persuade" these companies, all of whom were his competitors, to relinquish control.  The Pinkerton agents of the late 1800s were famous for their club wielding ability, and many a small business owner became familiar with the wrong end of their clubs.

            The new businessmen and the new methods of doing business that became prominent during the Gilded Age were not always shining examples of either morality and legality. As the Gilded Age wore on, Americans began to realize that many of social evils of their time were being caused by untrammeled business growth.  The first federal effort to slow the growth of trusts, the Sherman Antitrust Act, was passed in 1890.  The Sherman Antitrust Act was, however, pretty much a token law, rarely invoked until after World War I and more often used against labor unions than real business trusts when it was used in its early years.  The Supreme Court upheld its use against unions.  Possibly a more important sign of the growing disillusionment with the corruption of the Gilded Age came from the American people themselves. Although many Americans still regarded men like John D. Rockefeller as "Captains of Industry," more and more people began to see him and others as the "Robber Barons," and to publicly question their tactics. As trusts grew more and more powerful and wealth became concentrated in fewer and fewer hands, animosity towards the new businessmen and the new methods of doing business increased tremendously.

            In the years leading up to and immediately after the turn of the century, corporations and the businessmen who were their recognizable heads came under increasing attack. The idea of laissez faire, which was once synonymous with individual freedom, came to signify instead the freedom of  corporations, trusts, etc., from government restraint and the unprecedented loss of individual freedom that they were able to impose on workers, smaller companies, and new ideas. American businessmen found themselves having to resort to new ideologies and emerging "scientific" terminology to defend themselves from angry Americans who felt the trusts were destroying their way of life.

            When Thomas Jefferson substituted "pursuit of happiness" for the original proposed term, "property," in the Declaration of Independence, he deliberately chose a term that many more Americans could identify with than could identify with  the term "property."   In Jefferson's vision of the future of the nation, the backbone of both the economy and democracy was to have been the yeoman farmer, the small farmer who would create the necessities for his own support and, with luck or skill, make a modest profit. The yeoman farmer's self-reliance and economic independence was to insure his liberty and freedom of action.  Jefferson did not envision an America in which wealth and property would become concentrated in the hands of a tiny fraction of the total population when he advocated a small government that stayed out of economic policy.  Indeed, he fought against Alexander Hamilton's proposals for industrial policy and national bank policy because he believed it would lead toward a concentration of wealth. By contrast, in the latter part of the 19th century, men like Rockefeller, Carnegie and the other major industrialists believed that laissez faire meant that government should do nothing to place limits on their ability to acquire property and wealth. Both of these contrasting ideals of the meaning of freedom clashed during the Gilded Age. Many Americans came to view the new corporations and trusts as evil entities that destroyed the American dream of the "pursuit of happiness."  Three important points that can help us understand the logic of those who despised the corporations:

1. There was no analogy in the past;
2. Corporations artificial creations; and
3. Corporations threatened free competition.
            An individualist ethic had permeated the American social climate since the days of the Pilgrims. The idealized images of the "American cowboy" and the "Wild West" were conspicuous symbols of the American attachment to romantic individualism. Many Americans believed that the American economy had been founded upon individual achievement and a Protestant work ethic. But after the corporation revolution, many Americans found themselves having difficulties with the new form of economic organization in which work was alienating and in which workers were often seen by owners and managers as part of the equipment.

            Corporations were artificial creations, essentially nothing more than agreements between state governments and businessmen that existed only on paper. Neither owners nor workers were a permanent group. And it often seemed that no one was responsible for the way that these artificial "persons" behaved in conducting their affairs. Americans were far more comfortable with the smaller, locally or regionally owned companies of earlier times. Corporations in the Gilded Age were also threatening to destroy competition and free trade as mergers and acquisitions pushed trusts toward monopoly. One of the great benefits of capitalism is that competition can benefit both consumers and producers by forcing people to be innovative in pursuit of efficiency. But if larger companies could and did either acquire or destroy their competition, many Americans realized, one of the major benefits of a capitalist model would be lost.

            Some Americans, of course, believed that the "pursuit of happiness" and the "pursuit of property" could easily go hand in hand. For instance, Abram S. Hewitt, a well respected businessman, philanthropist, public official, and political leader, maintained that corporations were merely a more efficient means of producing the age-old "American dream."  Most such attempts to reconcile the "pursuit of happiness" with the "pursuit of property" failed to persuade most Americans. Though men like Hewitt could claim that corporations were in fact beneficial to individual happiness, Americans could plainly see evidence in their own lives and those of their acquaintances that this was not the case. Thus, apologists for the "pursuit of property" had to resort to other tactics to persuade Americans that corporations were natural and the most effective method of doing business. Three main themes of late 19th century thought provided American businessmen with a set of terms and ideologies to justify the activities of "Robber Barons:" Social Darwinism, the idea of the self-adjusting economy, and the profit incentive as only human motive.

            Charles Darwin forever changed the intellectual climate of the world in 1859 when he published On the Origin of Species. Although theories of evolution had existed for centuries in European thought, Darwin introduced a new idea of how it worked: the idea of "natural selection." This idea was a legitimate scientific hypothesis that demanded attention. Darwin confined his own research to the animal kingdom and, for the most part, avoided discussing humans or human societies and how this theory might apply to them. But others did not.

            Two men, Herbert Spencer in England and William Graham Sumner in the United States took Darwin's theories out of the realm of biology and reworked them into a social theory. Spencer is perhaps best known for a single phrase that summarized his ideas: "survival of the fittest."  To Spencer, it seemed only logical that human society should be modeled upon "Nature." In a society modeled on nature, humans should never intentionally interfere with the processes of "nature," which, he believed, selected only the "fittest" human beings for survival into the next generation.  (Of course, all mechanical technologies are, per se, interferences with nature.)  Spencer opposed such things as programs to feed the poor, free public education, and vaccinations because they "interfered" with "nature" by helping "weak" humans to survive, thereby damaging the "purity" and "robustness" of the rest of the human race.  Spencer never did clearly define what he meant by "Nature"; nor did he clearly delineate between or explain "natural" and "unnatural" human actions. But his publications sold over 400,000 copies in the United States alone.

            William Graham Sumner was Spencer's American counterpart. Sumner considered distinctions of wealth and status among individuals to be the direct result of inherently different capacities. He believed that this stratifying tendency worked to the good of society by eliminating weaker and encouraging stronger strains. He also believed that attempts to control or alter the free interplay of economic forces and personal abilities was sentimental and unintelligent. Sumner thus became a champion of laissez faire as the only true principle of  both the economy and government. Sumner titled his works in ways that clearly demonstrated his position. He attacked budding attempts to get new welfare and social legislation and economic reform in works with titles like "The Absurd Attempt to Make the World Over" and "What Social Classes Owe Each Other."

            American businessmen were all too happy to adopt the ideology of Social Darwinism in order to defend their business practices. James J. Hill, a leading "Robber Baron" of the railroad building era, saw the chance to justify his business practices with "scientific" terminology and wrote: "The fortunes of railroad companies are determined by the law of the survival of the fittest."   There were, of course, influential Americans who did not feel that Darwin's theories could be applied to social matters. One such individual was the historian Henry Adams (the son and grandson of the Adams presidents), who said, "The progress of evolution from President Washington to President Grant is alone evidence enough to upset Darwin."

            The idea of the self-adjusting economy, probably a more effective argument in the long run, was vigorously supported by 19th century businessmen. This idea has its origin to the notion of the "invisible hand" promoted by Adam Smith as a part of his explanation of how capitalism could work in An Inquiry Into the Causes of Wealth of Nations, written about the same time the Declaration of Independence was written. Smith believed that people acted on the basis of prudent self-interest. Smith had come to believe that if self-interested people were free to pursue economic endeavor without unnecessary interference from government, the laws of supply and demand would force producers to be efficient and honest and that product improvement would create its own demand. While a dishonest merchant might get a quick sale, a rational customer would not do business with him after he found out he had been cheated. As word spread from dissatisfied customers to potential customers, the businessman's reputation and his business would be ruined. Similarly, an innovative businessman who created a better product or service would find his reputation and business expanded as word spread of the superiority of his product. Smith feared that government regulation might either protect bad business practices or stifle innovation. These protections might have been sufficient when economies were small and localized; but they proved to be inadequate when large national economies developed.

            From the time Smith published Wealth of Nations to the time of the Great Depression, Americans generally accepted four ideas:

1. Political economy is ruled by unchanging, everlasting laws (such as the law of supply and demand) which can be equated with laws of Nature or God.
2. Self-interest as the only motive for human action is not only natural but beneficial.
3. Free competition is a permanent and necessary law of economics.
4. Government is an inefficient agency and should not be involved in economic matters.
In this formulation, the "happiness" individuals are entitled by Nature and Nature's God to pursue equates to "profit."  Implicit though unstated in the notion that self interest is the only motive for human action is the idea that people will not do good for its own sake; altruism (or anything else) cannot be a motive if self-interest is the only motivation. Do you agree with this ideology?

            The wealthiest industrialists of the late 19th century came to see themselves not only as the "fittest" in the society, but also as the group that contributed the most to the society because they created jobs for others. Andrew Carnegie even argued that he (and by implication the others) had become the wealthiest Americans because God, knowing they were better equipped than most to determine how money should be spent, made them stewards of vast wealth, some of which they would dispense to the poor. If you have never read Andrew Carnegie's essay "On the Stewardship of Wealth," you should.

            Many people, of course, did not accept the "captains of industry" version of the situation that existed in the latter part of the 19th century. Obviously, those who saw Rockefeller, Carnegie, et al. as the "robber barons" did not. Large segments of the American work force also did not. There was a significant transformation in the nature of labor unions and in the nature of their activities during this period predicated on the idea that collective action by workers was necessary in order for workers to defend themselves from the "robber barons."

            Labor organizations had been relatively insignificant before the Civil War. But after the war, they established themselves as a major voice in American political discourse. Changes in the patterns and operation of the forces of industrialization and urbanization in the late nineteenth century redefined the American workplace. Mechanization led to a "de-skilling" of the workforce. Unskilled and semiskilled workers came to dominate non-agricultural production, an area of the economy in which skilled craftsmen were once dominant. This shift began in the 1870s. Thus, the emergence of mass production techniques resulted in a changed status of labor, overall a lower status than had been enjoyed by craftsmen. Mass production also required a new mode of worker-management relations.

            During the 1870s and 1880s, a migration from rural farms to the urban factories began to occur. There was also significant immigration from foreign countries, particularly countries in southern and eastern Europe, beginning in the 1870s which swelled the size of the workforce available for factory work. A substantial portion of the foreign immigrants were also people who had worked in agriculture prior to coming to this country. The workforce became increasingly composed of women and children. Most women who worked in the factories were young (18-24) and single. Many were victims of what today we would call "sexual harassment" by their supervisors. Before the development of factory machinery, children as young as five were used in factories as human assembly lines. For example, in textile factories,  after adults made thread, children wound bobbins and loaded the bobbins onto looms operated by adults. By 1910, fully one in four American children were employed full-time in the nation's factories. In her poem "The Golf Links," American  poet Sarah N. Cleghorn wrote:

The golf links lie so near the mill
   That almost every day
The laboring children can look out
   And see the men at play.    (1917)
            During that late 19th century, although the factory work day had begun to decline from its 16-18 hour high in the 1840s, most employers still believed that workers should work long hours.  They justified 14-18 hour days on the basis that it was "morally beneficial" to the workers because it left them no time in which to engage in vices such as drinking, gambling, and prostitution. This belief was something of a perversion of the Protestant work ethic, but nonetheless a convenient one for the employers because long shifts had the practical consequence of limiting the number of jobs in a period when the number of people seeking industrial jobs was rising. When the number of job seekers is significantly larger than the number of jobs available, employers can pay low wages. Most businessmen argued that low wages were also "beneficial" to the workers because it prevented workers from wasting money on vices. It was certainly beneficial to the businessmen because it increased their profits tremendously.

            Workers were beginning to find the nature of work in factories very alienating as it became closer and closer to an assembly line process. Agricultural workers planted, tilled, and harvested;  they brought their product from its start to its finish. But urban workers in factories often did only a part of the production process, never seeing a product through to completion and, thus, denied the sense of accomplishment that agricultural workers and craftsmen gained from their labor. Ultimately, factory labor was repetitive, boring, and alienating. It was also financially unrewarding. In 1890, the Census Bureau estimated that the minimum income needed for a family of four to subsist (what we would now call the "poverty line") was $530. But the 1890 census shows that the average wage for an urban family of four was only $380. So it is very clear that urban workers were working long and hard and still not making enough to have even a minimally sufficient standard of living, let alone having money to spend on the vices from which businessmen claimed to be "protecting" them.

            In order to try to do something about their problems, workers turned increasingly to organization as a means by which to try to get higher wages and better working conditions. Under conditions of a labor surplus, a single worker cannot expect to improve his position relative to a large employer by his own individual effort. The workingman's parties that existed before the Civil War were a sort of middle-class effort that organized skilled workers in individual cities; but these workers had primarily political, not economic goals and were often led by businessmen or politicians rather than the workers themselves. After the war, new kinds of unions began to develop.

            The first significant organization of the "new" union type was the Knights of Labor. The Knights of Labor was founded in 1869 as a secret order, more like a lodge, in Philadelphia by Uric S. Stephen's. In 1879 under the leadership Terrence V. Powdery, it was organized as a national industrial union under central control. Its membership was open to all but a few workers, and indeed many cowboys eventually joined this union.  Even managers were allowed to join the Knights of Labor.  (Those barred from membership were lawyers, bankers, gamblers, and liquor dealers.) The Knights of Labor was open to blacks as well as whites, and blacks came to make up about ten percent of its total membership. The national union had local chapters, as is typical of today's unions. The goal of the Knights of Labor was to bring about reforms in workers' position within their work organizations and in society at-large. But the Knights of Labor tried to be all things to all people--something it had to try to do because its members were in all sorts of industries and in both "labor" and "management." Even if it were possible to simultaneously represent the interests of all industries at once and of workers in both labor and management at the same time, the Knights of Labor never had the resources to begin to do all of that. This is probably why it declined in the face of competition from other unions with a different basis.

            One of the competitors was the American Federation of Labor (A.F. of L. or AFL). Founded in 1886 by Samuel Gompers, the AFL was also a national organization; but it was an organization of trade unions, each of which had local chapters. By promoting the idea of independent and autonomous trade unions organized in a single industry or skill area, it sought to compete with the centrally controlled unionism of the Knights of Labor in a way that it thought would work better. In its efforts to improve the economic status of wage earners the AFL used strikes and boycotts to force employers to bargaining with workers to establish what wages and working conditions would be. In terms of goals, the AFL stressed workplace issues such as better wages, shorter hours, and worker safety, not social improvement issues. The AFL was an organization of craft unions, however; unskilled laborers were not permitted to join. Gompers remained the head of the union from its founding until his death in 1924. Under his leadership, the AFL became not only the largest national union, but also effectively the "mainstream" voice of American labor.

            Unskilled workers, which included most factory workers, were to become the focus of the Industrial Workers of the World (IWW), founded in 1905 with the help of Socialist Party leaders Daniel de Leon and Eugene V. Debs, under the leadership of "Big Bill" Haywood. Unlike the Knights of Labor and the AFL, the IWW was inspired by the Marxist ideas that had been brought to the United States by European immigrants. Marx had come to believe that the single most important factor in a society was control of the means of production. Whoever controlled the means of production was in a position to also dominate the government and thus to make the rules for everyone else. Marx believed that groups with different interests were in constant conflict as each pursued the ultimate prize, the control of the means of production. He believed that capitalism was the victory of a small group, such as those known in this country as "captains of industry" or "robber barons." (Had Marx been familiar with the group, he would definitely have seen them as "robber barons.") Once this class has achieved dominance, Marx believed, they could only be dislodged from their control over both the economy and government by class warfare in which the working class, which was by far the largest class, would stage a revolution.  Marx believed that trade unions were an ideal mechanism for teaching workers what they should be entitled to because their labor produced everything of value in the society, for organizing them to carry out the revolution, and for teaching them how to govern themselves and manage their own economy.

               In the latter part of the 19th century, some of Marx's ideas were being espoused by several socialist political parties. But most of these parties believed that an armed revolution and armed class conflict were unnecessary because they thought there was a chance for workers to achieve the same result through the ballot box and by peaceful labor strikes. Only a few of the socialist groups advocated the use of violence as a primary technique. By the time the IWW was founded, there had already begun to be some violent conflicts between unions and radical socialists on the one side and factory owners on the other. Haywood himself was a veteran of several. Thus, Haywood came to believe that violent class conflict was the only means for workers to achieve what they were rightly entitled to for the work that they did and the value they created. The IWW was pretty effectively put out of business during the Red Scare that followed World War I and the Communist revolution in Russia.

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