1K - Economic growth and the rise of corporations: railways
Learn how railways, oil companies, agricultural development and growing cities transformed the American economy from 1865 to 1890. Explain how rising production and national markets strengthened corporations while bringing uneven benefits to workers, farmers and regions.
Capital and corporate growth
The United States combined abundant resources, expanding population and territory, technological development and access to investment capital. Coal and iron supported industry; agricultural land supplied food and exports; migrants enlarged both the workforce and the market. Growth required organisation as well as resources: useful deposits could not produce steel without mines, transport, machinery, labour and finance.
A corporation raised capital by selling shares and continued to exist independently of any one owner. Limited liability usually restricted an investor's exposure to the money invested. This made it easier to collect large sums from many investors for projects which an individual proprietor could not finance.
Economies of scale
Reductions in the average cost of production as an enterprise operates on a larger scale, for example by spreading the cost of machinery or administration over more output.
Large firms could invest in equipment, employ specialist managers and coordinate production across locations. Andrew Carnegie's steel business illustrated how efficient machinery and control of supplies could lower costs. But size also gave an enterprise more power over competitors and workers. Increased efficiency and increased inequality could occur together.
The economy remained unstable. Overexpansion, speculative investment and failures in finance helped produce the Panic of 1873 and a prolonged depression. A national railway market could spread both prosperity and disruption. Rapid growth should therefore be assessed through production, organisation and distribution, not imagined as an uninterrupted improvement in everyone's living standards.
Railways and national markets
Railways connected previously separate markets and stimulated industries supplying their construction. The first transcontinental railway was completed at Promontory, Utah, in May 1869, linking the Union Pacific and Central Pacific. Federal land grants and loans had helped make construction possible; private companies and immigrant workers carried it out. Chinese labour was especially important on the Central Pacific. National Archives: transcontinental railway.
The consequences followed several routes. Manufacturers could sell beyond a local district. Farmers could send grain or livestock to distant consumers. Railways demanded steel, coal, timber and engineering, creating work in connected industries. Towns grew around junctions, while settlements bypassed by a line could struggle to attract trade.
Operating a large network required timetables, accounting and managerial hierarchies. Corporate railway organisation thus helped develop techniques used by other national businesses. However, tracks were expensive fixed investments. Fierce competition over heavily used routes could encourage companies to coordinate rates or form combinations rather than continually undercut one another.
Benefits depended on bargaining power. A large shipper might obtain a rebate, a discount from the published freight charge. A farmer with only one usable railway could pay more and have little alternative. The same railway which opened a market could become a source of resentment. Federal support for construction and later demands for regulation show how government helped create the national economy before attempting to restrain some of its abuses.
Oil and Standard Oil
Oil became a major industry through demand for kerosene used in lighting and for lubricants used in machinery. During this period, its growth should not be explained principally through mass motor-car ownership, which belonged to later developments. Refining, transport and reliable distribution were essential to turning crude petroleum into profitable products.
John D. Rockefeller established Standard Oil in 1870. His enterprise bought competitors and negotiated favourable transport terms. Acquiring rival refineries is horizontal integration, because it combines businesses at the same stage of production. Controlling related stages, such as pipelines, storage, distribution or barrel manufacture, is vertical integration. Both could reduce costs and dependence on outside suppliers.
In 1882 Standard Oil adopted a trust arrangement: shareholders in separate companies placed shares under a common board of trustees and received trust certificates. Separate legal businesses could consequently be directed as one organisation. This was useful when individual state corporation laws complicated operation across state boundaries. Library of Congress: Rockefeller and Standard Oil.
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