Economic Developments (AQA A-Level History): Revision Notes
Economic Developments
The 1890s and first decade of the twentieth century witnessed continued industrial expansion alongside a major economic crisis in 1893. This period saw the consolidation of industrial power through trusts, growing agricultural discontent, and increasing labour militancy. These economic developments would reshape American society and contribute to the rise of reform movements.
Industrial growth
American industry expanded throughout this period, though the nation experienced a second major depression in 1893. The growth was particularly pronounced in iron, steel, and oil production.
The period from 1890 to 1912 represented a critical transformation in American industry. While overall growth was impressive, this expansion was uneven and accompanied by significant economic instability, ultimately contributing to calls for reform and regulation.
Iron and steel production
Iron production increased dramatically from 920,000 tons in 1860 to 10.3 million tons by 1900. Pittsburgh in Pennsylvania emerged as the centre of the iron industry, becoming highly centralised with 38 steel plants located along 42 km of navigable rivers. This concentration allowed for efficient transportation of raw materials and finished products.
Oil industry development
Modern oil production commenced in January 1901 with the Lucas Well at Spindlehop, Texas. This well initially produced between 70,000 and 110,000 barrels per day for nine days before being capped. Additional oil reserves were discovered throughout the Southwest. By 1907, Oklahoma had become the leading oil-producing state, and six years later was producing 25% of the nation's oil supply.
Trusts and monopolies
The concentration of economic power accelerated during this period. By 1904, the largest 4% of US companies produced 57% of the nation's total industrial output. Between 1898 and 1902 alone, 319 major consolidations took place. The firm of Dupont gained control of 85% of the nation's electric power supply. The Carnegie Steel Corporation, established by Andrew Carnegie, was sold to J.P. Morgan in 1901. Morgan renamed it US Steel, and it became the world's first billion-dollar corporation.
The Depression of 1893
The Depression of 1893 sparked a stock market crash that developed into the worst depression in American history up to that time. The financial panic began when the Reading Railroad declared bankruptcy. Shortly afterwards, 'Industrial Black Friday' arrived, and 24 businesses were failing per day in May alone.
The Scale of the Crisis
The crisis sparked a four-year depression during which 15,000 companies and 600 banks closed. National unemployment approached 20%. The unemployment rate in Pennsylvania hit 25%, in New York 35%, and in Michigan 43%. Soup kitchens were opened to help feed the destitute.
This was the worst economic crisis America had experienced to that point, fundamentally shaking confidence in the unregulated industrial economy.
Government response
President Grover Cleveland was among the last of the conservative Democrats who supported limited federal government. Like most people of both major parties at the time, Cleveland believed that the business cycle was a natural occurrence and should not be tampered with by politicians. He supported a sound monetary system based on gold. Cleveland opposed many in his party by calling for the repeal of the Silver Purchase Act. He persuaded enough members of Congress to pass the Repeal of the Silver Purchase Act in October 1893. This helped restore business confidence and gradually reduced unemployment.
Consequences
The panic of 1893 and the subsequent depression alienated many people from both the economy and the political process, leading to the rise of Progressivism. The panic of 1893 and other factors had a lasting impact. The effects of the Depression lasted until 1897. One response to the series of failures and bankruptcies was an upsurge in business consolidations. Poorer elements of society believed they had been ignored during the hard times and then were left at the mercy of the trusts. This encouraged the rise of Progressivism.
The connection between economic crisis and political reform became a defining pattern in American history. The suffering of the 1893 depression convinced many Americans that unregulated capitalism needed government oversight and intervention to protect ordinary citizens.
Agricultural discontent
Farmers in the South and West did not share the prosperity and expansion experienced by industry. They objected to the power of bankers and corporations. Farmers traditionally saw themselves as independent and self-sufficient, but many relied on loans to get them through the farming year. However, falling agricultural prices, together with higher prices charged for grain storage and transportation, meant less income for repaying loans. Many farmers blamed the railroads and bankers for their problems.
Farmers joined together into Farmers' Alliances, creating unity for themselves through co-operation and mutual self-respect. These Alliances led to the Populist Party and support for the Democrats in the presidential election of 1896.
The Farmers' Perspective
While industrialists celebrated record profits and the creation of billion-dollar corporations, farmers found themselves squeezed between falling prices for their crops and rising costs for essential services. They increasingly saw themselves as victims of a rigged system controlled by distant bankers and railroad corporations who profited at their expense.
Trade unions
Labour unions US term for a trade union formed to look after the interests of its members.
Labour unions representing different crafts were established in the years following the Civil War. In 1885, The American Federation of Labour (AFL) was created to represent these labour unions, speaking on behalf of all member unions and encouraging mutual support between unions. The AFL tried to bring about better working conditions and improved wages, with its main weapon being strike action. In 1886, there were 1,400 strikes involving 500,000 members.
Employers were generally hostile to trade unions and would often sack workers who joined trade unions. They used blackleg labour (strike-breakers) to break strikes, as shown during two major labour conflicts of the 1890s.
The Pittsburgh Steelworkers' Strike of 1892
At Carnegie's Homestead Steelworks plant, the manager, Henry Clay Frick, cut wages in 1892 and refused to accept union negotiation. In an attempt to break the power of the union, the Amalgamated Association of Iron and Steel Workers, private detectives were used to smuggle in strike-breakers, who were then attacked by the strikers.
The Company called in the militia, armed with rifles and machine guns. However, after five months without wages, the strikers were starving and their action collapsed. This defeat set back union power considerably.
The Pullman Strike of 1894
This was the first national strike in the USA and it paralysed the railway system. The Pullman company had cut wages but refused to lower rents for the houses where employees were required to live. When the workers went on strike, the American Railway Union (ARU) run by Eugene Debs refused to handle any trains carrying Pullman cars including mail trains.
The railway owners asked President Cleveland for support and he agreed to send in troops to keep the trains running. Rioting was followed by the troops firing into the crowd and killing four people. The strike gradually ended in failure with the rents remaining as they were.
The federal government had shown itself hostile to unions and willing to shoot its own citizens. The Omnibus Indictment Act, used against the ARU, permitted the legal banning of strikes and remained in force until the 1930s.
It was this belief that federal government did not care about the less well off in society that was to turn many of the industrial classes towards the more radical ideas of the Populist Party.
Key Points to Remember:
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Industrial expansion continued with iron production reaching 10.3 million tons by 1900, oil production beginning in Texas in 1901, and the formation of US Steel as the world's first billion-dollar corporation in 1901.
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The Depression of 1893, triggered by the Reading Railroad bankruptcy, saw 15,000 companies and 600 banks close, with national unemployment approaching 20% and lasting until 1897.
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Agricultural discontent grew as farmers faced falling prices and rising costs, leading them to form Farmers' Alliances and support the Populist Party.
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Labour unions, particularly the AFL formed in 1885, faced hostile employers who used blackleg labour to break strikes, with major defeats at Pittsburgh in 1892 and Pullman in 1894 demonstrating federal government opposition to organised labour.
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Economic hardship during this period alienated both farmers and industrial workers from the political process, contributing to the rise of Progressivism and support for more radical political movements.