Podcast # 37: The Gilded Age and the Rise of Big Business Part 1

The term Gilded Age was coined by Mark Twain and was used to describe the United States from the post civil war era to the end of the 19th century or the end of the 1800s. In 1870, Mark Twain wrote “What is the chief end of man… to get rich! In what way? Dishonestly of we can; honestly if we must”. I always tried to hammer home to my students what that term Gilded meant. Using Jewelry as an example. Show them a fake piece of jewelry as opposed to an actual gold bracelet. From far away what do they notice, what happens when the inspect more closely. Now what to you realize. This notion that on the surface things appeared to beautiful but under that cheap layer of gold colored paint, what was really lurking was massive amounts of corruption. In the United States you have unprecedented growth in regards to industrialization and technological advances and then you also have all of these horrible social and economic conditions within American Society. You have a few thousand families within the United States who have an incredible amount of wealth and are living lives like those of European Aristocrats of bygone eras while at the same time, the overwhelming majority of people in the United States are living in squalor. You have most immigrant families living in tenements, these 3 room apartments where families were forced to take in boarders in order to help pay for rent all the while, they, their wives and their children are also working and trying to make ends meet. It is a tale of two different Americas. Jacob Riis hit the nail on the head in his Progressive Era novel “How the other half lives”.

This topic was always one of my favorite lessons to teach. It always led to a lively debate over whether individuals like Andrew Carnegie, John D. Rockefeller and Cornelius Vanderbilt should be considered Captains of Industry or Robber Barons.

Now to understand this time period, there are certain terms you have to know.

Laissez Faire: “French for to let alone” it was a policy of the government keeping its hands off of businesses and their practices. So No Government regulation.

Social Darwinism theory of natural selection that was used to explain the success of some groups and businesses and the failure of others. Andrew Carnegie supported the notion of social Darwinism and felt that society should do as little as possible to interfere with the process by which people succeed or fail.

Vertical Integration: is when you have control over an industry from start to finish from the raw materials to the finished product. Will talk about this concept more when we get into Andrew Carnegie.

Horizontal integration: is when you combine or consolidate a number of different companies within the same industry in order to make a monopoly

Corporation is a business owned by a number of investors.

Stocks are a share in a business.

Within the United States during this time period, there are booming Industries such as Steel, Oil, Railroads and Banking saw some people become extremely wealthy and with that wealth, extremely powerful.

When most people hear the term monopoly – most people think of the board game. The game monopoly itself has a very interesting history. Most people have played the game but very few know the real story behind it. The real creator never made much money off of it. The original game was created by a woman named Elizabeth Magie – during the early 1900s to teach about the evils of monopolies. It was originally called the Landlord game. It had two different ways to play Monopolist and Anti-Monopolist – where each player made money each time a player bought a new property. The monopolist rules were a lot like the way monopoly is played today. The Anti Monopolist rules never really caught on. After all, it’s a lot more fun when you get to shake down family and friends when they land on your property. The historical term for a monopoly is when an individual or a company controls an entire industry. To the extent that there is no competition and that individual or company can control the price and the quality of service or product that exists on the market. Just like in the game, it suddenly stops being fun when one player begins to dominate the board and there isn’t much the other players can do. In the mid 1800s, we begin to see a few individuals who were able to amass great personal wealth – the type of wealth that most people couldn’t imagine having and due to lack of government regulation, their actions, while morally questionable – were legal. Just because you CAN do something, doesn’t always mean you should.

Whenever I teach this topic I always use this 1870 quote from Mark Twain “What is the chief end of man…to get rich! In what way?...dishonestly if we can; honestly if we must” and we discuss this and we debate it – then I have my students play a little game. The class is divided into groups – each group must nominate a student to be the CEO. The CEO is then given a sealed envelope with strict instructions not to open it until I tell them to do so. We go over the rules 1. They must use the entire contents of the envelope – it is up to them to figure out how they intend to use each item. Rule 2 – no physical harm can come to anyone in the room – especially me, I show them a whistle, I tell them they don’t want me to use it. Rule 3. Each group has to get as many inflated balloons into the safe zone before the time is up. Each group has a different color of balloons to make it easy to keep track. Now when time starts it’s a frenzy – kids are blowing up balloons – who cant tie them who cant get them to stick to the safe zone ive indicated they need to be in – but ultimately, one kid in one group realizes that the paper clip I included in the envelope is to pop another groups balloon before it gets to the safe zone. When that first balloon pops, all eyes are on me to see my reaction – I do and say nothing – it is a frenzy – it is at this point that a handful of students are pleading with me to do something – I throw my hands up as if to say I have no control over this situation – its becomes more of a frenzy - their eyes are still on me , I bring a whistle to my lips – I never have had to use it – there is silence. I calm them down because you best believe that tempers are flaring. I ask the select few why they are upset – and we discuss and debate. I ask the kids who realized the proper use of the paper clip why they did what they did – I revert back to the mark twain quote – what is the chief end of man… to get rich. In what way? Dishonestly if we can honestly if we must. I ask the kids who was I in the game… after a few seconds the kids realize I am the government. WE all smile at the wonder that is my creativity and before they realize what has happened they already have the primary source documents on their desks. They are all hyped up and ready to learn about and debate the titans of industry of the late 1800s.

Cornelius Vanderbilt was born of humble means. He was born to Staten Island NY Farmers. His first job was working with his father and ferrying their products as well as people to NYC. He made money during the War of 1812 and over time, his wealth grew. He is often described as a self made man and was known as The Commodore. His involvement in the 1824 Supreme Court Case of Ogden v. Gibbons is often not discussed. The case allowed for competition in regards to transportation on US Waterways. Vanderbilt was the captain of Ogden’s steamboat. Talk about being at the right place at the right time. After the court’s decision, He is now able to compete with the very people who once owned the sole rights to transportation. He became one of the first Millionaires in the United States and made the Vanderbilt name famous. He starts off creating his own ferrying service at the age of 16, gets into steamboats, steam ships and eventually steam powered locomotives. He goes on to own a vast network of railroad lines and companies into what was known as the NY Central Lines and built a depot known as Grand Central Depot. Years later that depot would be rebuilt by someone else and would become Grand Central Station.

Andrew Carnegie

Andrew Carnegie is a very interesting character. He is the son of poor Scottish Immigrants. His father was at one point a successful weaver, but with the new technologies of the Industrial Revolution, his father’s business was ruined. It was up to his mother to figure out how to support the family. She was probably the greatest influence on his life. There was no way to support their family in their small Scottish town, so like many Europeans, they emigrated to the United States, selling all of their belongings and borrowing $20 pounds to be able to do so. They settled in Pittsburg and like many other immigrant children, Andrew Carnegie was unable to attend school and instead had to work. His first job was at a factory stoking the fires for 12 hours a day. His next job was at a telegraph office. He was a messenger and paid attention to every detail, especially the names of important business men. Always making sure to say hello to them by name. That helped him to get noticed by the powerful men he aspired to be like. It got him his next job as a private secretary to a wealthy railroad executive. Again, he watched and learned. When the Civil War broke out, he was able to hire a substitute to fight for him. If you listened to our podcast on the Civil War, we talked about how it was a rich man’s war but a poor man’s fight. During the war, the wooden railroad bridges were easily burned and destroyed. He saw the potential in the steel business. He then built the plant needed to produce the new and improved railroad bridges. New inventions like the Bessemer converter allowed for the mass production of steel. He then opened a steel plant which was named after the President of the Pennsylvania Rail road company who in turn bought steel from him. The company also got contracts for the building of the Brooklyn Bridge. His employees were expected to work 364 days a year. They were only off on the 4th of July. He figured out ways to cut costs and increase profits. This was not always done positively. Cutting wages, getting rid of any signs of unions or strikes with use of spies among the men who worked for him, black balling strike leaders and always investing in new technologies that would cut costs. He was able to force his competitors out of business by spreading rumors about the quality of their steel and by lowering his prices to drive people out of business. His motto was “watch the costs and the profits take care of themselves.” It was a motto he learned from his mother. She was such a force to be reckoned with that he didn’t marry until after her death. Andrew Carnegie used a process we refer to as vertical integration. He controlled the means of production from start to finish. From owning iron-ore mines, to the plants that produced the steel and then to the railroad lines that helped to bring the finished products where they needed to go. As he acquired more companies, he consolidated the plants under one name and company called the Carnegie Steel Company. He eventually sold his business in 1901 to JP Morgan for 480 Million dollars. JP Morgan then took his company and created US Steel.

Andrew Carnegie felt that the system that created millionaires was necessary and shouldn’t be altered. He felt that the wealthy should set an example of modest living. He felt that money should be put in a fund or a trust to be used for the benefit of the community. He looked down on direct charity and saw it is being evil. Money given through direct charity is often spent improperly. Instead he felt that the wealthy should use money to build what he called ladders. That lesser people could use to lift themselves up. Help those that will help themselves. He goes on to say in his 1889 essay The Gospel of Wealth, that men who die rich, die disgraced. It is better to give away your money while you are alive.

Andrew Carnegie practiced what he preached and gave away millions of dollars, an estimated 350 Million. He created the Carnegie Corporation of New York in 1911 and it still exists today, providing grants. Those millions of dollars helped to establish over 200 libraries, Carnegie Hall in NYC ( there are other Carnegie halls in other cities as well) and he financed the building of the World Court in the Hague in the The Netherlands, the Carnegie Institute of Technology which is now known as Carnegie Mellon University. He spent the last years of his life trying to insure world peace and avoid the outbreak of a world war which we know he was unsuccessful in doing because WWI or the Great War as it was called at the time would break out in 1914.

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