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Industrial Capitalism

Industrial Capitalism

Imagine a sweeping and dramatic transition from small, local businesses to large, manager-oriented corporations! The American economy blossomed following the Civil War with an influx of immigrants, new ways of managing companies, new methods of production, and technology.

Soon, the rise of industrial capitalism created a thriving American economy. However, it also created a significant divide between social classes, a new standard of living for some Americans and poverty for others. Continue reading to see the impact of industrial capitalism on America!

Industrial Capitalism: Definition

Industrial capitalism began right after the Civil War as new technological advancements ushered in rapid mechanization.

Industrial Capitalism

Generally considered a mode of production that consists of large amounts of capital being used to finance the production of goods that will eventually be traded on the market.

The new production methods of the late 19th and early 20th centuries drastically increased production.

Industrial Capitalism Photo of a pullman sleeping car 1926, StudySmarterFig. 1 - Photo of a Pullman sleeping car 1926 Source: Wikimedia Commons

After the war, America began focusing more on large factories that were capable of producing large quantities at a faster rate. Wealthy business people started seeking new international trade markets, even though the country remained largely isolationist. Though this period became lucrative for a few business people, many Americans experienced crippling poverty. This period of American industrialization had sweeping consequences on society and the economy.

The Rise of Industrial Capitalism

Industrial Capitalism Panorama of Carnegie Steel Company, Ohio, StudySmarterFig. 2 - Panorama of Carnegie Steel Company, Ohio. Source: Wikimedia Commons

At the start of 1865, America was the fourth-largest industrial economy in the world, but moved into first place by 1898. America had moved from a largely agrarian society before the Civil War to an urban one by the 1890s. Businesses grew from small and self-paced to large corporate factories that moved at the company's pace. With this incredible transformation also came a drastic gap in social classes.

Industrial Capitalism Standard Oil in Cleveland, Ohio, StudySmarterFig. 3 - Standard Oil in Cleveland, Ohio Source: Wikimedia Commons

Towards the end of the 19th century, small, local businesses practically became obsolete due to the rise of large corporations that grew into monopolies and trusts. For example, John Rockefeller, owner of Standard Oil, forced many of his competitors to sell out to him, nearly eliminating all competition. By the late 1880s, Rockefeller controlled almost 90% of America's oil industry. Another example is Andrew Carnegie, who consolidated his steel industry vertically, buying up companies that handled all methods of steel production. America began reaching internationally for trade and would become an empire by acquiring new territories.

For the means of finding new productive employments for capital, therefore, it is necessary that the great industrial countries should turn to countries which have not felt the pulse of modern progress. Such countries have yet to be equipped with the mechanism of production and of luxury, which has been created in the progressive countries by the savings of recent generations. ... Existing commodities now imported from the interior of these countries at great cost will be swept on paths of steel to the sea-coast, with the results of reducing their cost, increasing their consumption, and benefitting at once both producer and purchaser.1

- Charles A. Conant, public intellectual and policymaker

The above quote discusses America's acquisition of the Philippines, Puerto Rico, and Hawaii. America gained access to new markets, natural resources, and trade routes when it annexed the above territories.

Did you know?

On January 16, 1893, U.S. troops invaded the Hawaiian Kingdom, which led to the surrender of Queen Lili'uokalini, its monarch. The U.S. officially annexed the Hawaiian islands on July 7, 1898.

Development of Industrial Capitalism

To understand the development of industrial capitalism, it is important to understand the socioeconomic continuities and changes that accompany the period between 1865 and 1898. The table below demonstrates these factors and the corresponding key points of each factor.

ContinuitiesKey points
Pro-Growth Government PoliciesHigh tariffs, open immigration, railroad subsidies, anti-labor, low to no taxes, limited regulation
Labor ProblemsLow wages, long working hours, unsafe working conditions, child labor
Management PowerLockouts, yellow dog contracts, government assistance
Improved Standard of LivingMany Americans saw an improved standard of living, however not all enjoyed the new standard
ChangesKey Points
New TechnologyBessemer Steel Process, refrigerated train car, internal combustion engine, typewriter, dynamite, electric motor, telephone, light bulb, X-ray, airplane
Business ConsolidationCarnegie and Steel-Vertical Integration and monopoly, Rockefeller and Oil-Created a trust
Marketing and AdvertisingHelped to expand industries throughout America and its global reach
Greater Foreign TradeIncreased imports and exports to facilitate industrial growth
Unionization and Labor conflictMany workers created labor unions, and soon labor strikes erupted between workers and management (Haymarket Riot, Homestead, and Pullman Strikes)

Laissez-Faire

Many wealthy business owners, like Rockefeller and Carnegie, could reach an extreme level of wealth through America's embracing of Laissez-Faire policies. Politicians did not agree with any government intervention with the market. Many believed that any government regulation would impede free enterprise. Corruption also played a critical role in the adoption of these policies. Monopolists like Rockefeller and others would bribe politicians to continue laissez-faire practices.

Labor

A large influx of immigrants poured into America at the turn of the twentieth century. Many settled in urban, industrial areas where factories proliferated. Therefore, business owners had a large labor force to work in their factories and businesses.

Industrial Capitalism Immigrants at Ellis Island 1900, StudySmarterFig. 4 - Immigrants at Ellis Island 1900 Source: Wikimedia Commons

Immigrant workers were paid meager wages and were treated poorly by management. Owners hired women and children because they could get away with paying them 25% less than immigrant men. These types of business practices were allowed due to the social belief in Social Darwinism.

Social Darwinism

English philosopher Herbert Spencer began applying "survival of the fittest" to societal structures where only the fit would survive. During the Gilded Age, many business magnates believed in Social Darwinism due to its support of the wealthy.

Industrial Capitalism Portrait of Herbert Spencer, StudySmarterFig. 5 - Portrait of Herbert Spencer Source: Wikimedia Commons

Social Darwinism stated that the rich (fit) deserved to be, while the poor (weak) should be allowed to die out. Therefore, according to this social principle, the world's wealth would eventually be consolidated among a select few who would be smart enough to handle it.

Did you know?

Andrew Carnegie wrote a journal excerpt, "The Gospel of Wealth," stating that it was the responsibility of the wealthy to be philanthropists and help better society. He gave away roughly $350 million to build libraries and universities.

Robber Barons vs. Captains of Industry

Wealthy business owners of the late 19th and early 20th centuries were often given the nicknames "Robber Barons" or "Captains of Industry."

Industrial Capitalism Portraits of Prominent Businessmen of the Gilded Age, StudySmarterFig. 6 - Portraits of Prominent Businessmen of the Gilded Age

The term " Robber Baron " originated in the Middle Ages and is a negative nickname. Industrialists who employed questionable business practices were often called "Robber Barons." These men ruthlessly eliminated their competition and treated their workers poorly. However, these same "Robber Barons" were often generous philanthropists, which also gave them the name "Captains of Industry." Though they may have used questionable methods to procure their fortunes, industrialists like John D. Rockefeller and Andrew Carnegie used their wealth to benefit society by building libraries and universities and creating new jobs.

Characteristics of Industrial Capitalism

Industrial capitalism is a mode of production that requires capital to produce goods that will be traded on the market. There are four main characteristics of industrial capitalism throughout this period.

Industrial Capitalism Mr. and Mrs. Andrew Carnegie, 1910, StudySmarterFig. 7 - Mr and Mrs Andrew Carnegie, 1910 Source: Wikimedia Commons

The list below explains the four main characteristics of Industrial Capitalism:

  • Large Scale Industrial Production-a massive shift in technology, international communication grew, policies directed at government growth triggered economic development and the consolidation of businesses.
  • Marketing advances were created, and a steady workforce allowed for the rapid production of goods.
  • Business owners created trusts and monopolies; Wealth became concentrated, with only a small percentage of the population controlling majority of the wealth.
  • American businesses began reaching outside the U.S. to obtain influence over international markets.

Rise of Industrial Capitalism: Summary

In Richard N. Langlois' book The Dynamics of Industrial Capitalism: Schumpeter, Chandler and the New Economy (2007), he describes how Industrial Capitalism can be divided into three distinct stages:

StageKey points
The Invisible Hand (Before 1880)Production is small-scale, local, and entrepreneurial businesses
Visible Hand(1880-1990)Large, hierarchical, multi-functional corporations
Vanishing Hand(Post-1990)The entrepreneur, small-scale businesses return to prominence with few corporations surviving

As America progressed after the Civil War, Industrial Capitalism shifted from the "Invisible Hand" to the "Visible Hand" as industry boomed and corporations became giants. This "Visible Hand" era lasted over 100 years, and originated with the Gilded Age in America. The key compromise to the rise of industrial capitalism and the booming economy can be seen at ground level, with the poor working conditions and the ever-increasing social gap between the rich and poor.

Industrial Capitalism - Key Takeaways

  • In 1865, America was the fourth-largest industrial economy in the world, but soon moved to number one by 1898:
    • America moved from an agrarian to an urban society
    • Businesses grew from small, self-paced to large corporate factories
  • Large corporations came to dominate the American economy
    • John Rockefeller controlled almost 90% of America's oil industry
    • Andrew Carnegie consolidated his business vertically, buying up companies that handled all methods of steel production
  • The key continuities and changes of the period are:
    • Continuities:
      • Pro-growth government policies
      • Labor Problems
      • Management Power
      • Improved Standard of Living
    • Changes:
      • New Technology
      • Business Consolidation
      • Marketing and Advertising
      • Greater Foreign Trade
      • Unionization and Labor Conflict
  • Three key points helped in the development of Industrial Capitalism:
    • Laissez-Faire policies - limited governmental intervention in the market
    • Labor - large labor supply from immigrants
    • Social Darwinism - "Survival of the Fittest" justified the creation of powerful industrialists and the poor conditions of the labor force.

References

  1. Charles Conant, 'Economic Basis of Imperialism', North American Review, (September 1898), pp. 338.

Frequently Asked Questions about Industrial Capitalism

The characteristics of industrial capitalism are large-scale industrial production, marketing advances, business owners created trusts and monopolies, and new markets were opened. 

Industrial capitalism in simple terms is a mode of production that requires capital to produce goods that will be traded on the market. 

An industrial capitalist economy looks like increased production through invested capital. Throughout this period, many business owners began consolidating their businesses both horizontally and vertically, creating monopolies. 

Some downsides to industrial capitalism are the wealth gap, the divide in social classes, and the poor treatment of laborers. 

Industrial capitalism is when small, local businesses became obsolete and large corporate factories began taking over. 

Final Industrial Capitalism Quiz

Question

When did industrial capitalism begin? 

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Answer

After the Civil War 

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Question

Define Industrial Capitalism: 

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Answer

A mode of production that consists of large amounts of capital being used to finance the production of goods that will eventually be traded on the market. 

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Question

Buying up all companies needed to create a particular product is known as. 

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Answer

Vertical Integration 

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Question

High tariffs, open immigration, railroad subsidies, anti-labor, low to no taxes, and limited regulation are all examples of what? 

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Answer

Pro-growth government policies

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Question

The policy that embraces limited to no government intervention in the free market is known as?

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Answer

Laissez-faire

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Question

Businesses largely acquired their labor through what group of people? 

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Answer

Immigrants

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The principle that follows the "survival of the  fittest" theory? 

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Answer

Social Darwinism 

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Question

Many immigrants settled in what type of area? 

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Answer

Urban/City 

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Question

Men who ruthlessly eliminated all competition were known as? 

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Answer

Robber Barons

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