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Episode 23: The Rise of the Industrial Economy
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Hi I’m John Green this is Crash Course U.S. History and today we’re going to discuss
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economics and how a generation of- Mr. Green, Mr. Green, is this going to be
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one of those boring ones no wars or generals who had cool last words or anything?
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Alright, Me From The Past, I will give you a smidge of Great Man history. But only a
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smidge. So today we’re gonna discuss American industrialization
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in the decades after the Civil War, during which time the U.S. went from having per capita
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about a third of Great Britain’s industrial output to becoming the richest and most industrialized
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nation on earth. Libertage
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Meh, you might want to hold off on that Libertage, Stan because this happened mostly thanks to
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the Not Particularly Awesome Civil War, which improved the finance system by forcing the
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introduction of a national currency and spurred industrialization by giving massive contracts
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to arms and clothing manufacturers. The Civil War also boosted the telegraph,
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which improved communication, and gave birth to the transcontinental railway via the Pacific
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Railway Act of 1862, all of which increased efficiency and productivity. So thanks, Civil
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War! Intro
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If you want to explain America’s economic growth in a nutshell chalk it up to G, D,
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and L: Gerard, Depardieu, and Lohan. No, Geography, Demography and Law.
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However, while we’re on the topic, when will Gerard, Depardieu, and Lindsay Lohan
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have a baby? Stan, can I see it? Yes. Yes. Geographically, the U.S. was a huge country
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with all the resources necessary for an industrial boom. Like, we had coal, and iron and, later,
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oil. Initially we had water to power our factories, later replaced by coal. And we had amber waves
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of grain to feed our growing population which leads to the Demography.
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America’s population grew from 40 million in 1870 to 76 million in 1900 and 1/3 of that
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growth was due to immigration. Which is good for economies. Many of these
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immigrants flooded the burgeoning cities, as America shifted from being an agrarian
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rural nation to being an industrial, urban one.
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Like, New York City became the center of commerce and finance and by 1898 it had a population
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of 3.4 million people. And the industrial heartland was in the Great Lakes region. Chicago
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became the second largest city by 1900, Cleveland became a leader in oil refining, and Pittsburgh
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was a center of iron and steel production. And even today, the great city of Pittsburgh
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still employs 53 Steelers. Last but not least was the Law. The Constitution
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and its commerce clause made the U.S. a single area of commerce – like a giant customs
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union. And, as we’ll see in a bit the Supreme Court interpreted the laws in a very business
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friendly way. Also, the American constitution protects patents,
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which encourag4B-es invention and innovation, or at least it used to.
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And despite what Ayn Rand would tell you, the American government played a role in American
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economic growth by putting up high tariffs, especially on steel, giving massive land grants
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to railroads and by putting Native Americans on reservations.
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Also, foreigners played an important role. They invested their capital and involved Americans
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in their economic scandals like the one that led to a depression in 1893. The U.S. was
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at the time was seen by Europeans as a developing economy; and investments in America offered
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much higher returns than those available in Europe.
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And the changes we’re talking about here were massive. In 1880, for the first time,
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a majority of the workforce worked in non-farming jobs. By 1890 2/3 of Americans worked for
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wages, rather than farming or owning their own businesses.
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And, by 1913 the United States produced 1/3 of the world’s total industrial output.
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NOW bring out the Libertage, Stan. Libertage
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Awesome. And even better, we now get to talk about the perennially underrated railroads.
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Let’s go to the Thought Bubble. Although we tend to forget about them here
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in the U.S., because our passenger rail system sucks, railroads were one of the keys to America’s
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19th century industrial success. Railroads increased commerce and integrated the American
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market, which allowed national brands to emerge, like Ivory Soap and A&P Grocery Stores.
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But railroads changed and improved our economy in less obvious ways, too: For instance, they
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gave us time zones, which were created by the major railroad companies to make shipping
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and passenger transport more standard. Also because he recognized the importance of telling
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time, a railroad agent named Richard Warren Sears turned a $50 dollar investment in watches
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into an enormous mail order empire, and railroads made it possible for him--and his eventual
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partner Roebuck--to ship watches, and then jewelry, and then pretty much everything,
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including unconstructed freaking houses throughout the country.
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Railroads were also the first modern corporations. These companies were large, they had many
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employees, they spanned the country. And that meant they needed to invent organizational
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methods, including the middle manager--supervisors to supervise supervisors. And for the first
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time, the owners of a company were not always day-to-day managers, because railroads were
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among the first publicly traded corporations. They needed a lot of capital to build tracks
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and stations, so they sold shares in the company in order to raise that money,
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which shares could then be bought and sold by the public. And that is how railroads created
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the first captains of industry, like Cornelius “They Named a University after Me” Vanderbilt
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and Andrew “Me Too” Carnegie (Mellon) and Leland “I Named a University After My
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Son” Stanford. The Railroad business was also emblematic of the partnership between
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the national government and industry. The Transcontinental Railroad, after all, wouldn’t
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have existed without Congressional legislation, federal land grants, and government sponsored
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bond issues. Thanks, Thought Bubble. Apparently it’s
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time for the Mystery Document. The rules here are simple.
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I guess the author of the Mystery Document and if I’m wrong, which I usually am, I
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get shocked. Alright.
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“The belief is common in America that the day is at hand when corporations far greater
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than the Erie – swaying such power as has never in the world’s history been trusted
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in the hands of mere private citizens, controlled by single men like Vanderbilt...– will ultimately
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succeed in directing government itself. Under the American form of society, there is now
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no authority capable of effective resistance.”
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Corporations directing government? That’s ridiculous.
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So grateful for federal ethanol subsidies brought to you by delicious Diet Dr. Pepper.
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Mmm I can taste all 23 of the chemicals. Anyway, Stan, I’m pretty sure that is noted
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muckraker Ida Tarbell. No! Henry Adams? HOW ARE THERE STILL ADAMSES IN AMERICAN HISTORY?
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That makes me worry we’ll never escape the Clintons. Anyway, it should’ve been Ida
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Tarbell. She has a great name. She was a great opponent of capitalism. Whatever. AH!
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Indeed industrial capitalists are considered both the greatest heroes and the greatest
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villains of the era, which is why they are known both as “captains of industry” and
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as “robber barons,” depending on whether we are mad at them.
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While they often came from humble origins, took risks and became very wealthy, their
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methods were frequently unscrupulous. I mean, they often drove competitors out of business,
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and generally cared very little for their workers.
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The first of the great robber barons and/or captains of industry was the aforementioned
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Cornelius Vanderbilt who rose from humble beginnings in Staten Island to make a fortune
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in transportation, through ferries and shipping, and then eventually through railroads, although
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he once referred to trains as “them things that go on land.”
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But the poster boy of the era was John D. Rockefeller who started out as a clerk for
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a Cleveland merchant and eventually became the richest man in the world. Ever. Yes, including
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Bill Gates. The key to Rockefeller’s success was ruthlessly
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buying up so many rivals that by the late 1880s Standard Oil controlled 90% of the U.S.
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oil industry. Which lack of competition drove the price
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of gasoline up to like 12 cents a gallon, so if you had one of the 20 cars in the world
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then, you were mad. The period also saw innovation in terms of
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the way industries were organized. Many of the robber barons formed pools and trusts
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to control prices and limit the negative effects of competition.
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The problem with competition is that over time it reduces both prices and profit margins,
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which makes it difficult to become super rich. Vertical integration was another innovation
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– firms bought up all aspects of the production process – from raw materials to production
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to transport and distribution. Like, Philip Armour’s meat company bought
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its own rail cars to ship meat, for instance. It also bought things like conveyor belts
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and when he found out that animal parts could be used to make glue, he got into the glue-making
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business. It was Armour who once proclaimed to use “everything
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but the squeal.” Horizontal integration was when big firms
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bought up small ones. The best example of this was Rockefeller’s Standard Oil, which
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eventually became so big incidentally that the Supreme Court forced Standard Oil to be
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broken up into more than a dozen smaller oil companies.
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Which, by the way, overtime have slowly reunited to become the company known as Exxon-Mobil,
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so that worked out. U.S. Steel was put together by the era’s
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giant of finance, J.P. Morgan, who at his death left a fortune of only $68 million – not
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counting the art that became the backbone of the Metropolitan Museum of Art – leading
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Andrew Carnegie to remark in surprise, “And to think he was not a rich man.”[1]
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Speaking of people who weren’t rich, let us now praise the unsung heroes of industrialization:
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workers. Well, I guess you can’t really call them
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unsung because Woody Guthrie. Oh! Your guitar! And my computer! I never made that connection
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before. Anyway, then as now, the benefits of economic
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growth were shared...mmm shall we say...a smidge unevenly.
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Prices did drop due to industrial competition, which raised the standard of living for the
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average American worker. In fact, it was among the highest in the world. But due to a growing
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population, particularly of immigrant workers, there was job insecurity. And also booms and
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busts meant depressions in the 1870s and 1890s, which hit the working poor the hardest.
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Also, laborers commonly worked 60 hours per week with no pensions or injury compensation,
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and the U.S. had the highest rate of industrial injuries in the world: an average of over
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35,000 people per year died on the job. These conditions and the uncertainty of labor
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markets led to unions, which were mostly local but occasionally national.
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The first national union was the Knights of Labor, headed by Terence V. Powderly which
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grew from 9 members in 1870 to 728,000 by 1884.
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The Knights of Labor admitted unskilled workers, black workers, and women, but it was irreparably
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damaged by the Haymarket riot in 1886. During a strike against McCormick Harvesting
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Company, a policeman killed one of the strikers and in response there was a rally in Chicago’s
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Haymarket Square at which a bomb killed seven police officers.
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Then, firing upon the crowd, the police killed four people. Seven anarchists were eventually
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convicted of the bombing, and although Powderly denounced anarchism, the public still associated
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the Knights of Labor with violence. And by 1902, its membership had shrunk considerably--to
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0. The banner of organized labor however was
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picked up by the American Federation of Labor under Samuel L. Gompers. Do all of these guys
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have great last names? They were more moderate than the anarchists
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and the socialist International Workers of the World, and focused on bread and butter
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issues like pay, hours, and safety. Founded in 1886, the same year as the Haymarket
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Riot, the AFL had about 250,000 members by 1892, almost 10% of whom were iron and steel
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workers. And now we have to pause to briefly mention
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one of the most pernicious innovations of the era: Social Darwinism: a perversion of
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Darwin’s theory that would have made him throw up. Although to be fair, almost everything
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made him throw up. Social Darwinists argued that the theory of
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survival of the fittest should be applied to people and also that corporations were
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people. Ergo, big companies were big because they
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were fitter and we had nothing to fear from monopolies.
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This pseudoscience was used to argue that government shouldn’t regulate business or
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pass laws to help poor people. It assured the rich that the poor were poor because of
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some inherent evolutionary flaw, thus enabling tycoons to sleep at night. You know, on a
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big pile of money, surrounded by beautiful women.
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But, despite the apparent inborn unfitness of workers, unions continued to grow and fight
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for better conditions, sometimes violently. There was violence at the Homestead Steel
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Strike of 1892 and the Pullman Rail strike of 1894 when strikers were killed and a great
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deal of property was destroyed. To quote the historian Michael Lind: “In
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the late 1870s and early 1880s, the United States had five times as many unionized workers
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as Germany, at a time when the two nations had similar populations.”[2]
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Unions wanted the United States and its citizens to imagine freedom more broadly, arguing that
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without a more equal economic system, America was becoming less, not more, free, even as
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it became more prosperous. If you’re thinking that this free-wheeling
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age of fast growth, uneven gains in prosperity, and corporate heroes/villains resembles the
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early 21st century, you aren’t alone. And it’s worth remembering that it was only
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150 years ago that modern corporations began to form and that American industry became
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the leading driver in the global economy. That’s a blink of an eye in world history
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terms, and the ideas and technologies of post Civil War America gave us the ideas that still
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define how we--all of us, not just Americans--think about opposites like success and failure,
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or wealth and poverty. It’s also when we people began to discuss
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the ways in which inequality could be the opposite of freedom. Thanks for watching.
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I’ll see you next week. Crash Course is produced and directed by Stan
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Muller. Our script supervisor is Meredith Danko. The associate producer is Danica Johnson.
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The show is written by my high school history teacher, Raoul Meyer, Rosianna Halse Rojas,
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and myself. And our graphics team is Thought Café.
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Each week there’s a new caption for the Libertage. You can suggest captions in comments
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where you can also ask questions about today’s video that will be answered by our team of
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historians. Thanks for watching Crash Course. Make sure
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you’re subscribed. And as we say in my hometown, don’t forget to be awesome.
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Industrial Economy - ________________
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[1] Brands, American Colossus p 6. [2] Lind, Land of Promise 171