Railroad Innovations

A.P. US Artem Kholodenko Mods 6/7/8 0109 Notes for pgs. 587 – 594 Introduction - On Oct. 21, 1892 the Chicago World’s Fair represented the 30 years of industrialization - During these years the USA was built into the world’s most industrialized country - Manufacturing output went from $1.8bil. in 1860 to $13bil. In 1900 The Character of - Interest rates went up because of the lack of Industrial Change proportionality of the money supply to productivity - Three other factors were at work: rapid spread of innovation and factory system; competition of firms to cut prices & eliminate rivals; constant drops in price levels - All of these were linked, with technological innovations increasing productivity and cutting costs, with cheap unskilled or semiskilled labor - Almost everyone suffered form the depression years - Steel became the nation’s driving economic force - Before 1870s, a company of 110 making 18,000 shirts and other clothes a year to be a large business, but this was nothing by 1900 with mass-productivity working - In 1905 Singer Sewing Machine Co. had 8 factories w/over 90,000 employees who bought and sold 1.25mil. sewing machines Railroad Innovations - By 1900 193,000 miles or railroad crossed the US – more than Europe & Russia - The railroad companies began the crucial aspects of corporate enterprise, with stocks and separation of ownership from management, diversification of production facilities, and national distribution and marketing Starting a Railroad - It was extremely expensive to start a railroad company Company - A large line needed around $35mil, like the Pennsylvania line - The companies got enormous land and loan submissions from the federal, state, and local government - By 1900 all US railroads owed $5.1bil - While stock holders owned the railroad, daily operations were controlled by company officials - To coordinate the track schedules, railroad relied on the telegraph, which was invented in 1837 and spread over 44,000 miles over the union by the end of the Civil War - Railroads were split up into units with superintendents, and accounting systems were set-up to calculate the rate of fares - These ideas became the ideal for many other businesses looking for national markets Creativity, Cooperation, - Contemporaries depicted people like Collis P. Huntington, and Competition Jay Gould, and James J. Hill as robbers due to their reorganization and expansion of the railroads - Recent historians showed that while thieves did appear, by far many were honest - The expansion showed both creativity and dishonesty - By 1870s railroads replaced a lot of the canal and stagecoach jobs, but the industry was in chaos: a large # of companies used different carts and rail width - In the north 4 large companies emerged and in the south 400 small companies with less than 40 miles of track each on the average became 5 major systems The Railroads - West of Mississippi: Union pacific (1869), Northern pacific (1883), Atchison, Topeka, and Santa FE (1883); Southern Pacific (1883), and Great Northern (1893) controlled most of the track by 1893 - Systems of carts, connectors, tracks, engines, and other were adopted for standard - The government developed the 4 time zones and tracks were made to be 4’ 8½” - This new cooperation of railroads gave other companies access to the national market, where they can buy raw materials and sell goods Negative Aspects of - Competition became to brutal that some were in great Railroads debt - In 1879 Gould, the force behind the Union Pacific got control of the Kansas Pacific and ran his lines parallel to his competition in the south, but lowered the prices, causing one company to go bankrupt - Competition included cutting rates for large shippers, free passes for politicians, and gave rebates to favored clients, but none of these worked to improve the financial position of the railroads - Farmers and small business owners, who were stuck in the middle of the warring railroads turned to the government - Mid-west legislatures outlawed rate discrimination Interstate Commerce Act - Passed by congress in 1887, it established the ICC and banner monopolistic activity like poling or rebates - The railroads sued and by 1905 the decision was made in their favor - During the depression of 1893 some railroads were forced into the hands of their loan banks, on which they depended and J. Pierpont Morgan took over their control - He reorganized the administration, refinanced their debts, and built intersystem alliances by purchasing a lot of stock in competing roads - By 1906 7 giant networks had 2/3 of the rail mileage in the USA - The corrupt businesses created some of the best accounting and management techniques to their day - But the roads were still unstable because of inflating rates and corruption Applying the Lessons of - A man named Andrew Carnegie took the ideas of Gould the Railroads to Steel and Barnum and put them towards the steel industry - He came from Scotland and worked his way up - At 17 he worked as a secretary for Tom Scott of Penn. Railroad in 1852 - When Scott became VP, Carnegie took over the western division - He dramatically increased business for the company - He worked around wrecks and 24 hours, slashed fares and used other cutting techniques to keep business coming Carnegie Builds a Steel - In 1870s he decided to build his own steel mill Mill - Starting during the depression when prices were low, he built the J. Edgar Thomson Mill, named after the Penn. RR pres. - The mill used new technology and special scales - He sold rails to RR’s at 1st $5, then $20 cheaper than competition - As production climbed he saw the greatness of controlling the entire production, including raw materials The Frick Partnership - He made a partnership with Henry Clay Frick of Frick Coke Co. in 1889 and in 1892 bought into an ore company - Under Frick, the profits rose every year, reaching $40mil in 1900 - By 1900 Carnegie was producing steel at a cost of $11.50/ton - By his 30s, Carnegie had Frick taking care of daily events, and thought to donate a lot of his money to great projects seeing how fortunes corrupt their holders - He set-up a foundation and donated overall over $300mil for libraries, universities, and world peace causes - The company was the largest steel producer in the world by 1900 Frick Gets Kicked Out - In Jan. 1900 Frick, who was selling him coke at lower prices tried to raise them and Carnegie forced him out - Competition came from Federal Steel & Illinois Steel - But Carnegie patented his new innovations, forcing the other two to compromise - Carnegie sold out to his President for ½ billion dollars, and then the company was combines with Federal to make United States Steel, the largest and priciest in the world - To the world, Carnegie’s success showed the openness of economic success in the USA