Economic Growth, 1870–90 (AQA A-Level History): Revision Notes

Economic Growth, 1870–90

America's industrial transformation

Between 1870 and 1890, the United States underwent an extraordinary economic transformation that reshaped its position in the global economy. In 1860, the USA remained a second-rate industrial power, trailing behind the established European nations. However, by 1890, American industrial output had surpassed Germany, Britain and France combined. The value of manufactured goods produced in the USA nearly equalled the total output of these three European powers.

This expansion occurred at a remarkable pace. Throughout the 1880s, the American economy grew at an annual rate of 3.8 per cent, and total GDP approximately doubled during this period. This growth was driven by rapid industrialisation, technological innovation, and the emergence of powerful business leaders who would come to dominate American economic life.

The rise of the 'robber barons'

Who were the robber barons?

Robber barons were wealthy industrialists and financiers whose business practices were often deemed ruthless and unscrupulous by their contemporaries and later historians. During the Gilded Age, these business leaders rather than elected politicians exercised dominant control over America's rapidly industrialising economy. They operated largely free from government oversight and pursued profit maximisation through whatever means they deemed necessary.

These industrial magnates acquired the label 'captains of industry' by their supporters and 'robber barons' by their critics. They accumulated vast fortunes and wielded considerable political influence, particularly within the Republican Party. Their control extended beyond the economic sphere into the political realm, where they influenced government policy through their connections with mass newspapers and direct lobbying of politicians.

The ideology of laissez-faire

The business practices of the robber barons found ideological justification in the doctrine of laissez-faire, an economic and political philosophy asserting that economies function most efficiently when operating free from government regulation. Advocates of laissez-faire championed individual self-interest and open competition whilst opposing taxation and commercial regulation.

This philosophy reached its zenith in the United States during the 1870s, when the age of economic expansion coincided with minimal government interference. American industrialists operated with almost complete freedom, building their empires without regulatory constraints. The prevailing political climate favoured business interests, and wealthy industrialists used their influence to ensure government policy remained hands-off regarding commercial affairs.

Social Darwinism as justification

The methods employed by the robber barons gained intellectual legitimacy through Social Darwinism, a philosophy that applied biological concepts of natural selection to human society. This doctrine emerged from the work of English journalist Herbert Spencer, who published his influential work Social Statics in 1850, nine years before Charles Darwin's revolutionary theory of evolution.

Spencer's ideas promoted laissez-faire economics and opposed state assistance to the poor. He disapproved of tariffs designed to protect struggling agriculture or industry. When Spencer toured the USA in 1882, his message resonated with wealthy American businessmen who welcomed his argument that a political system proclaiming equality for all citizens could simultaneously accommodate economic inequality.

Survival of the fittest became the catchphrase for this ideology. The concept suggested that individuals best equipped to thrive would naturally perpetuate their advantageous characteristics to future generations. Leading robber barons, inspired by biologist Charles Darwin's theories of natural selection, came to believe they had achieved wealth because they possessed inherent superiority compared to the poorer classes. The wealthy applied Darwin's biological concept to justify their economic dominance and social position.

Cornelius and William Vanderbilt: railroad empire

Cornelius Vanderbilt and his son William emerged as perhaps the most prominent railroad magnates of the era. Cornelius built his initial fortune through steamboat operations, accumulating approximately $11 million by 1862. He then redirected his entrepreneurial energy towards the expanding railroad industry. During the 1860s, he systematically purchased and consolidated numerous rail companies across the eastern United States, reducing operational costs through economies of scale.

The Vanderbilts pioneered important technical innovations. They established a standardised track gauge, which allowed trains to run more efficiently across different rail networks. They also led the transition from iron to steel rails, which proved significantly more durable and safer. These improvements transformed American railroading from a patchwork of incompatible local lines into an integrated national system.

When Cornelius died in 1877 at the age of 83, his fortune exceeded $100 million, making him the wealthiest individual in America. His son William inherited the empire and expanded it through equally aggressive tactics. William manipulated both capital markets and labour relations ruthlessly, further increasing the family fortune. By the time of his death in 1885, William had become the richest man in the world. However, his harsh treatment of striking workers earned him widespread unpopularity and contributed to growing public criticism of industrial monopolies.

Andrew Carnegie: steel magnate and philanthropist

Building a steel empire

Andrew Carnegie arrived in America as a poor Scottish immigrant and rose to become one of the era's most successful industrialists. He began his career working for a railroad company, and during the Civil War period, he sold iron and invested the profits in an ironworks. Carnegie recognised the potential of new British-invented Bessemer Converters, which could produce superior steel from iron at lower cost.

Carnegie distinguished himself by integrating all stages of steel production. He consolidated the entire manufacturing process – smelting, refining and rolling – within his Homestead Steelworks in Pennsylvania. This approach, known as vertical integration, involved a company expanding its operations to control different stages along the same production chain, from raw materials through to finished products. By controlling iron ore extraction, transportation and all manufacturing processes, Carnegie reduced costs and maximised profits.

Initially, Carnegie concentrated on manufacturing rails for the expanding railroad network. As demand for rails diminished, he adapted his production to serve new markets in urban construction and industry, producing steel for bridges, machinery, wire and skyscrapers. He also secured lucrative contracts supplying armour plating for the US navy. In 1900, Carnegie sold his entire steel empire to the banker J. P. Morgan for $480 million.

Philosophy and philanthropy

Carnegie rarely attempted to eliminate competitors through buyouts, preferring instead to outcompete them through efficient production and competitive pricing. His strategy focused on producing high-quality steel at lower cost than rivals, then selling at prices that provided him with superior market advantages whilst undermining competitors' profitability. Through vertical integration, he achieved monopolistic control over steel production by managing all related processes from ore extraction to finished goods.

In 1889, Carnegie published The Gospel of Wealth, a collection of essays outlining his philosophy regarding the responsibilities of the wealthy. Philanthropy – demonstrating concern for human welfare through donations of money, property or service – formed the cornerstone of Carnegie's public philosophy. He articulated the view that successful, self-made millionaires bore an obligation to assist those who had helped them achieve success.

Carnegie donated extensively to universities, hospitals, free libraries, public parks, swimming baths and churches. He established the Carnegie Endowment for International Peace to promote research and knowledge advancement. His charitable giving totalled approximately $350 million during his lifetime.

Nevertheless, Carnegie attracted criticism from multiple directions. Fellow businessmen accused him of socialist tendencies because he donated money to help various individuals and societies. Labour advocates, conversely, criticised him for exploiting his workforce through low wages and excessive working hours, and for ruthlessly destroying competing businesses. His critics pointed to the contradiction between his professed philanthropy and his harsh treatment of workers.

John D. Rockefeller: oil monopoly

Creating the Standard Oil empire

John D. Rockefeller first visited the Venango oil fields in 1860 whilst working as a business agent for Cleveland investors. The disorganised and chaotic state of the oil industry convinced him that genuine opportunity lay not in oil extraction but in the refining and distribution sectors. He also recognised the commercial advantage of undercutting competitors through cost-reduction strategies, particularly by securing favourable transportation rates.

These insights led to substantial public criticism, yet Rockefeller maintained strict secrecy regarding his business operations. For instance, when he consolidated competitors in Cleveland, he concealed this information so that firms associated with his organisation appeared to operate independently whilst actually functioning under his control.

Rockefeller purchased his first oil refinery in 1862. Eight years later, he established the Standard Oil Company in Ohio. He systematically eliminated competitors through a combination of tactics: offering fixed low prices, paying meticulous attention to manufacturing efficiency and negotiating favourable rates with railroads. By the 1880s, he controlled 85 per cent of American oil production. By 1899, his personal fortune reached $200 million. He diversified into iron, copper, coal, shipping and banking sectors. By 1913, he had become the world's first billionaire.

Rockefeller also embraced philanthropy, ultimately donating an estimated $550 million to medicine, African-American educational institutions and the Baptist Church during his lifetime.

Controversy and monopoly

Defenders of Rockefeller argued that his creation of an oil monopoly through Standard Oil rescued the industry from potential collapse. His systematic approach brought order to a chaotic sector, they claimed. Critics, however, maintained that his secret arrangements with railroad companies and other businesses prevented genuine competition, bringing financial ruin to those excluded from his network. The debate surrounding Rockefeller's business practices highlighted fundamental questions about the relationship between efficiency, competition and fairness in industrial capitalism.

J. P. Morgan: financial power

J. P. Morgan inherited $12 million but vastly expanded this fortune through his exceptional abilities as a financier. He became the primary force behind the creation of massive corporations, including the US Steel Corporation, which became the first billion-dollar company in history. In 1871, Morgan established his own private banking firm, which eventually became known as J. P. Morgan & Co., one of America's most powerful financial institutions.

Throughout his career, Morgan's immense wealth, power and influence attracted substantial media attention and government scrutiny. Critics accused him of creating monopolies by making it virtually impossible for any business to compete against his interests. He faced criticism for his luxurious lifestyle and his public displays of wealth, which seemed to flaunt his superiority whilst many Americans struggled in poverty. His relationship with prominent actresses also generated negative publicity.

Morgan's influence extended far beyond finance. His ability to mobilise capital and organise corporate mergers gave him effective control over vast swathes of American industry. This concentration of economic power in the hands of a single financier epitomised the concerns many Americans had about the robber barons' domination of the national economy.

Technological innovation

American technological advancement proceeded rapidly during this period, contributing substantially to further economic growth. A contemporary editor, Mark Sullivan, attributed this progress to "intellectual curiosity about the new, the instinct of the American mind to look into, examine, and experiment – a willingness to scrap not only old machinery but old formulas and ideas". This culture of innovation and experimentation characterised American industrial development.

Two inventors exemplified this innovative spirit. Thomas Edison invented the light bulb, revolutionising both industrial production and domestic life. Alexander Graham Bell invented the telephone, which transformed business communication and personal connectivity. Both inventions emerged during the 1870s (Bell patented the telephone in 1876, and Edison established the Edison Electric Company in 1878), and both technologies spread rapidly throughout American society, creating new industries and employment opportunities.

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