The Gilded Age

The foundations of industrialism (the social system that results from an economy based on large-scale industries) were established in the United States during the first wave of industrialization, or the development of industry, which occurred between the American Revolution (1775–83; the American colonists' fight for independence from England) and the American Civil War (1861–65). Even by the time of the Civil War, however, these advances were limited to only a few sections of the country. Eighty percent of the nation's factories and 70 percent of its railroad mileage were in the northern states, while the South, with its economy built around slave labor and exporting farm products, had maintained a far more rural culture, that is, a culture based on farming and country life. Even in the northeastern United States most industries were family owned and catered to a local market rather than operating nationally. The nation remained primarily rural; in fact five out of every six Americans lived in rural areas and the vast majority of Americans were farmers. Only a few U.S. cities had populations over one hundred thousand. Nonetheless, in 1860 the United States stood poised and ready to begin an era of remarkably rapid industrialization, that would transform the country into an urban society that relied heavily on industry.

The second wave of industrialization occurred between the Civil War and the turn of the century. People living in that era were well aware that the nation was changing dramatically and some had trouble accepting the direction it seemed to be taking. Though rapid industrialization made the United States the richest and most powerful nation in the world, it was not always viewed as a positive thing. For the American public, the least appealing aspect of industrialization was probably the corresponding rise of big business on a dramatic scale. Businesses working to gain massive profits found ways to control politicians and crush competitors. A new class of millionaires paraded their wealth, while industrial workers earned only a small salary for their hard labor. The facts of daily life conflicted with the democratic ideals instilled during the American Revolution—that all men are created equal. During the late nineteenth century the power of money gained what seemed to be unlimited influence over the nation.

The era of rapid industrialization came to be known as the "Gilded Age." The term was coined by American writer Mark Twain (1835–1910) and his coauthor Charles Dudley Warner (1829–1900) in their satirical 1873 novel The Gilded Age: A Tale of Today. The novel's characters set out to get rich quick through questionable railroad and land deals in an age presented by Twain and Warner as "gilded" or glittering on the surface but corrupt underneath. The use of the term Gilded Age labels the era of industrialization as a time when democratic values appeared to give way to the power of money, corporations, and unprincipled political machines, or groups of unelected leaders that control political parties.

The Gilded Age presents only one view of the era. Many observers at the time argued that, despite the extreme poverty that existed during the era, the country remained true to its ideals by presenting opportunities for personal advancement to all its citizens. Writer Horatio Alger (1832–1899) gained a large popular following with books portraying "rags to riches" themes, in which poor young men rose from poverty to wealth through determination and hard work. Other defenders of the era argued that the unrestrained activities of some immoral business tycoons may have been a crucial factor in the United States's rise as the world's industrial leader.

Words to Know

bond:

A certificate of debt issued by a government or corporation that guarantees repayment of the original investment with interest by a specified date.

bureaucratic structure:

An organization with many levels of authority, in which people specialize in their jobs and follow set rules of operation.

capital:

Accumulated wealth or goods devoted to the production of other goods.

capitalism:

An economic system in which the means of production and distribution are privately owned by individuals or groups and competition for business establishes the price of goods and services.

corporation:

A company, or organization of employers and employees that is permitted by law, usually owned by a group of shareholders and established to carry out a business or industry as a body. Corporations have legal rights usually reserved for individuals, such as the right to sue and be sued and to borrow or loan money.

entrepreneur:

A person who organizes a new business.

factory:

A building or group of buildings in which manufactured goods are made from raw materials on a large scale.

industrialism:

The social system that results from an economy based on large-scale industries.

industrialization:

The development of industry.

industry:

A distinct group of profit-making enterprises that manufacture a certain product, such as the textile or steel industry.

laissez-faire

An economic doctrine that opposes government regulation of commerce and industry beyond the minimum necessary.

manufacture:

To make something from raw materials, usually as part of a large-scale system of production using machinery.

monopoly:

The exclusive possession or right to produce a particular good or service.

speculator:

A person who takes a business risk in the hope of making a profit, particularly when buying or selling stocks or commodities (economic goods) in order to profit from shifts in the market.

stock:

An element of ownership of a corporation that has been divided up into shares that can be bought and sold.

stock market:

A system for trade in companies, ventures, and other investments through the buying and selling of stocks, bonds, mutual funds, limited partnerships, and other securities.

tariffs:

Government-imposed fees on imported goods.

transcontinental:

Spanning the continent from one coast to the other.

Republican legislation during the Civil War

The era of rapid industrialization started at the same time that the American Civil War began. In 1860 bitter conflicts between the North and South led the Southern states to secede, or withdraw, from the Union. Slavery was only one issue of disagreement between the regions; the southern farming economy and the northeastern manufacturing economy had many conflicting political and economic interests. Each group fought to promote its own interests. The Southerners in the Democratic Party backed an agricultural and slave-based economy, and the Northerners in the Republican Party, which stood firmly against slavery, supported business and industrial interests. When the South seceded from the Union, the Republican Party was suddenly free to promote its interests without the restraints of the Democrats in Congress. Some of the bills passed during the war provided necessary stimulation for the industrialization process.

In 1861 Congress authorized an increase in tariffs (government-imposed fees on imported goods) for the first time in two decades. The tariffs made goods imported from Europe more expensive than American-made goods, allowing U.S. manufacturers to set their own prices. Though tariffs were a great help to U.S. industry, Southerners had long fought tariff increases, fearing that foreign markets would respond by placing tariffs on imports of U.S. cotton. The United States passed several other bills that were favorable to businesses during the war years. The Homestead Act of 1862 provided small pieces of public land to settlers in the West for farming, and industry soon expanded into these new territories as well. Although it was intended to help poor families, the Homestead Act sometimes placed land in the hands of speculators (people who take business risks in the hope of making a large profit, particularly when buying or selling in order to profit from shifts in the market) who then sold it to incoming farmers for a profit. This was just one of many instances in which government assistance led to fraud and corruption.

Legislation of the railroads and big business

In 1862 President Abraham Lincoln (1809–1865; served 1861–65) signed a bill that authorized the federal government to assist railroad companies in the massive project of building a transcontinental railroad, which spanned the continent from one coast to the other (see Chapter 6). Over the next ten years the federal government gave railroads millions of dollars in aid and more than one hundred million acres of land to advance construction. Railroad expansion began at a rapid pace. In 1860, only about thirty-three thousand miles of track had been available for use, but by 1900, two hundred thousand miles of track covered the United States—more than existed in all of Europe. Railroad service enabled businesses to sell to a national rather than a local market, greatly stimulating industry of all types.

As the railroad network expanded, the individual rail companies found the scale of their business and financial structures growing as well. Starting in the 1850s railroad companies became the biggest businesses the country had ever known, funded by hundreds of millions of dollars and employing tens of thousands of workers nationwide. The railroad companies formed the first systems of sophisticated industrial management, developing a large, bureaucratic structure. A bureaucratic structure is an organization with many levels of authority, in which people specialize in their jobs, and there are set rules for operation. This highly organized business structure was quickly adopted by other basic industries such as steel, oil refining, meatpacking, food processing, and electrical machinery.

The National Bank Act of 1863

The United States became engulfed in a financial crisis as soon as it entered the Civil War. The treasury, where government funds are kept, was almost empty and there was not enough money to cover the heavy expenses of the war. At that time there were no national banks, and if the government needed to borrow money it offered government bonds to private bankers. A bond is a certificate of debt issued by a government or corporation that guarantees repayment of the original investment with interest by a specified date. In 1861, however, bankers were reluctant to commit their money to government bonds, as they were unsure whether the Union would survive to pay the debt. Financier Jay Cooke (1821–1905) solved the crisis when he proposed that the government borrow money directly from the American people by marketing its bonds to the public. He and his business associates were largely responsible for the sale of over one billion dollars in government bonds that paid interest to American investors and helped finance the war years.

This federal financial crisis pointed to a need for a national bank system. In 1862 there were more than fifteen hundred state banks in operation, all of them issuing their own bank notes, which formed the majority of currency circulating in the United States. The value of the notes varied and doing business on a national level was difficult. A national banking system was proposed to provide the country with a truly national currency and to facilitate federal loans. A bill to provide for such a banking system was introduced into the Senate in January 1863. Many people objected, fearing that the national government would gain too much control by stepping into local government roles. Still, the national banking system was created and it was a distinct improvement over the uncontrollable state banking systems. The national banking system provided much-needed financial stability in the age of industrial expansion.

Immigration legislation

In 1864 Congress passed the Contract Labor Law to encourage people from other countries to immigrate to the United States and join the country's industrial labor force. The law stated that immigrants could enter the country under contracts with potential employers in which they pledged their first year's wages in return for passage to the United States. Between 1860 and 1900 about fourteen million immigrants, many with little or no money, arrived in the country in search of a better life. Many wound up working in factories for low wages. The rush of new immigrants swelled the populations of the eastern cities, where over-crowding produced slums and unsanitary living conditions. For a variety of reasons, second- and third-generation citizens of the United States often treated the new immigrants with contempt. Much of their attitude was based on prejudice. The new immigrants often arrived poor and needy. Some were from different religions or looked different or spoke a different language than the earlier settlers. Because immigrants were often desperate for work, they usually accepted lower wages than people who had been working in the country for many years. This raised a powerful fear that the immigrants would lower wages for everyone. Yet this was also the reason businesses welcomed the new Americans.

Laissez-faire policy

The Republican policy toward businesses and corporations changed during the Civil War years. During the war, the government stopped interfering with industries, at times even looking the other way when it was clear that companies had acted illegally. Many of the country's leaders adopted the views of British economist Adam Smith (1723–1790), who, in his book An Inquiry into the Nature and Causes of the Wealth of Nations (1776), reasoned that economies operated best under the "natural law" of free competition without the disruption of government intervention. The proper role of the national government, he felt, was to protect society from foreign invasion, control crime, and provide some public services. Smith believed that government involvement in economic matters restrained the natural human self-interest and desire to profit. Because free competition on the market is based on that self-interest, Smith argued, nations become wealthy when they allow self-interest to take its course in the marketplace. The hands-off policy of the government was called laissez-faire, an economic doctrine that opposes government regulation of commerce and industry beyond the minimum necessary.

New industry

The Civil War slowed the overall advances of industrialism somewhat, but some of the large northeastern industries were thrust into large-scale production by war needs. For example, the textile, ready-made clothing, and shoe industries provided Union soldiers with their uniforms and the gun industry armed them. Many of these industries maintained the large-scale production methods they developed for the war after it was over, and served as an example that other industries followed. Some new industries in the western territories, such as mining, lumber, and range cattle, were also stimulated into growth by war demands.

In the eastern states new industries were emerging that would have significant effects after the war. In 1859 a successful effort to drill for oil in Pennsylvania sparked the creation of the oil industry. In the mid-1860s steel production dramatically increased as new technologies allowed manufacturers to produce higher-quality grades of steel. Blessed with abundant iron ore fields in the Great Lakes region, the United States stood ready to become the world's leading steel producer.

Capital

Many key factors of industrial expansion were in place in 1860, including advanced technology, abundant natural resources, a large labor force, and a friendly government. But industrialism on a national scale required massive amounts of capital—much more than even the largest of the earlier enterprises like the canals or steamboats had needed. The national corporations had to meet the high costs of building and maintaining plants, machinery, new technologies, and large workforces. It took many millions of dollars to establish a large industrial company, and several million more to maintain it.

By the postwar years, the major U.S. industrialists no longer viewed their roles as those of entrepreneurs (people who organize and manage new businesses) who were responsible for running their companies and providing an adequate life for their employees. Instead they saw themselves as money-movers, or capitalists. Capitalism is an economic system in which wealth is put to use in order to create more capital. In a capitalist system, the means of production (labor, land, and factories) and distribution (trains and ships) are privately owned by individuals or groups and competition for business establishes the price of goods as well as workers' wages. Profit is the key consideration when making economic decisions.

The renowned capitalists of the postwar years made tremendous personal profits as they built large industries. Though praised by some for expanding and modernizing the capitalist system, these businessmen were also viewed by many as greedy, dishonest, and unethical. These business tycoons included banker and financier J. P. Morgan (1837–1913); oil industrialist John D. Rockefeller (1839–1937); steel mogul Andrew Carnegie (1835–1919); financiers James J. Hill (1838–1916), James Fisk (1834–1872), and Jay Gould (1836–1892); and railroad magnates Cornelius Vanderbilt (1794–1877) and Collis Huntington (1821–1900).

The new, larger, factory-based manufacturers used some underhanded methods to suppress their competition, and they were greatly aided by the government's laissez-faire system. The monopolies (exclusive possession or right to produce a particular good or service) led to a concentration of capital in just a few huge corporations, especially in transportation and other large industries. They enabled the businessmen to eliminate potential competitors, raise prices, and subsequently realize huge profits that were pumped back into their businesses. Many businessmen converted their business skills into political might, buying the favors of elected officials and ensuring limited regulation of their activities and few taxes on their profits. Their monopolies dominated the American economy for several decades after the Civil War.

The changing nation

Many Americans reaped the benefits of the new industrial economy. Along with the very wealthy class of industrialists and money professionals, a large new middle class arose. The standard of living in the United States was higher than it had ever been. American industry provided consumers with a wide array of products and, in the first years after the war, jobs were plentiful.

The New York Stock Exchange

As big businesses began to dominate the economy, the United States developed new ways of investing. One of the ways to invest included the stock market, a system for trade in companies, ventures, and other investments through the buying and selling of stocks (shares of part ownership in the company), bonds, mutual funds, limited partnerships, and other securities. The New York Stock Exchange (NYSE) was the first stock market established in the United States. It began operations on a very minor scale in New York in 1792. In 1825 the NYSE opened its new headquarters at 11 Wall Street in New York City. In these early years most shares traded were in canal, turnpike, mining, and gaslight companies. As the U.S. economy expanded in the nineteenth century, businesses found it harder to fund ambitious new undertakings like railroad construction by relying only on their own resources or loans from banks. To raise the needed capital, companies turned to the stock market, where they sold stock to the public. After the Civil War, industries began to dominate the NYSE trading floor as the nation became increasingly oriented toward manufacturing.

While many Americans were content to leave business and industry to the forces of the market, others were not so sure. A long list of grievances arose, beginning with the plight of working people who suffered long hours of labor at low pay and the fate of American farmers who were being destroyed by low crop prices and high transportation costs. Moreover, many citizens were concerned that the new industrial economy was not compatible with American beliefs in democracy and equality. Their concern grew as the stories of excess and dishonest practices in railroad construction were reported in the postwar years. It was clear that the United States was changing and taking a new direction over which the majority of Americans had no control. In his 1869 article "A Chapter of Erie," writer and railroad executive Charles Francis Adams (1835–1915) summed up the nation's fears of a government controlled by big business: "It is a new power, for which our language contains no name. We know what aristocracy, autocracy, democracy are; but we have no word to express government by moneyed corporations."

Black Friday

During the post-Civil War years, many people were driven to get rich quick during the nation's booming but largely unregulated expansion. Two notorious Wall Street speculators, James Fisk (1834–1872) and Jay Gould (1836–1892), developed a scheme to dominate the market on gold by buying up most of the gold available on the U.S. market. Buying so much gold would drive up its price by creating the appearance of increased demand in the market. Before this false rise in gold prices could collapse, Fisk and Gould intended to sell their gold to other speculators and make a substantial profit. They found a valuable ally in this scheme in New York financier Abel R. Corbin, the brother-in-law of President Ulysses S. Grant (1822–1885; served 1869–77). In the summer of 1869 the unsuspecting Grant mentioned to Corbin that he was planning to decrease government sales of gold. Corbin informed Fisk and Gould and the three began buying up as much gold as they could. This drove the price of gold from $140 to $162 per ounce. By summer's end Grant began to suspect the conspiracy. Fisk and Gould learned of Grant's suspicions and, before he could take action, began to sell huge quantities of gold to investors at the top price. On Friday, September 24, 1869, the president instructed the secretary of the treasury to sell $5 million of gold. After the government's sale, gold fell to $135 an ounce. Fisk and Gould made huge fortunes, but the rapid fall in the value of gold wiped out the speculators who had bought gold from them and caused many banks and businesses to fail. For this reason the day was referred to as "Black Friday."

From the Civil War years to the turn of the twentieth century, the United States transformed from an agricultural to an industrial economy, and from a rural to an urban society. The number of industrial workers jumped from 1.3 million to 5.3 million. By 1900 the United States was no longer primarily a farming nation and the country was producing manufactured goods worth twice as much as its agricultural goods. Whether the remarkable advances in industry were due to the greed of dishonest businessmen or to an ideal combination of abundant resources, a large labor force, advanced technology, and sophisticated systems of business management, the United States rapidly became the richest and most powerful industrial nation in the world. But the struggling groups of Americans did not all share in the wealth of industrialism, and many of the problems, as well as the successes, that originated in the Gilded Age remain with the nation today.

For More Information

Books

Brogan, Hugh. The Penguin History of the USA. 2nd ed. London and New York: Penguin Books, 2001.

DeSantis, Vincent P. The Shaping of Modern America: 1877–1916. Boston, MA: Allyn and Bacon, 1973.

Murphy, Richard R. The Nation Reunited: War's Aftermath. Alexandria, VA: Time-Life Books, 1987.

Porter, Glenn. "Industrialization and the Rise of Big Business." In The Gilded Age: Essays on the Origins of Modern America. Edited by Charles W. Calhoun. Wilmington, DE: Scholarly Resources, 1996.

Smith, Page. The Rise of Industrial America: A People's History of the Post-Reconstruction Era. Vol. 6. New York: McGraw-Hill, 1984.

Web Sites

Adams, Charles Francis. "A Chapter of Erie." Chapters of Erie and Other Essays. Boston, MA: James R. Osgood and Co., 1871. http://yamaguchy.netfirms.com/adams/erie_01.html (accessed on June 30, 2005).

Smith, Adam. An Inquiry into the Nature and Causes of the Wealth of Nations. Published 1776. http://www.wsu.edu:8080/∼wldciv/world_civ_reader/world_civ_reader_2/adam_smith.html (accessed on June 30, 2005).