Reasons for Industrial Growth (AQA A-Level History): Revision Notes

Reasons for Industrial Growth

The USA underwent swift expansion in manufacturing and industry during the 1860s and 1870s. This transformation resulted from multiple interconnected factors that accelerated the country's economic development and reshaped American society.

The impact of the Civil War

The Civil War (1861-1865) provided the initial momentum for large-scale industrial expansion. The conflict increased the need for factory-produced items as the Union army required guns, clothing, and transport equipment. This demand necessitated the development of mass production techniques and new distribution methods.

The war also created the financial infrastructure needed to support industrial growth. To fund the war effort, the government had to raise substantial sums of money, which led to the creation of an advanced system for raising investment funds centred on Wall Street in New York. During the conflict, the government introduced paper currency known as the United States Note, a form of money that was not backed by gold or silver. This development forced the banking system to evolve to handle both the increased money supply in circulation and the government's financing requirements.

Tariffs (taxes on imported goods) were introduced partly to generate government revenue. These duties provided protection for American-made products by making them cheaper than imports from industrialised competitors such as Britain. This protectionist policy reduced foreign competition and gave domestic manufacturers a substantial advantage in the home market.

Availability of land

American territory expanded considerably through westward settlement during this period. This geographical expansion stimulated economic development by creating new markets for factory-produced goods and encouraging further railroad construction. Much of the newly settled land proved highly fertile, enabling the mass production of wheat. This agricultural abundance ensured adequate food supplies for the population, particularly the expanding industrial cities.

Rising demand for food—both domestically and in export markets—encouraged greater mechanisation in agriculture. This, in turn, increased the need for manufactured farming equipment and tools, creating a reinforcing cycle of industrial demand.

Population growth

The American population expanded rapidly between 1860 and 1880. In 1860, the population stood at 31.5 million; by 1880, it had reached 50 million. This growth provided an abundant supply of inexpensive labour that fuelled economic expansion.

Two main factors drove this population increase:

Rising living standards: Increased incomes enabled better nutrition and housing. Simultaneously, improvements in public health measures and medical knowledge reduced death rates, allowing more people to survive into adulthood.

Mass immigration: Approximately 2.8 million people migrated to the USA during the 1870s. These immigrants came primarily from Europe and Asia, seeking improved living conditions. Most immigrants from eastern and southern Europe headed for the cities, where they formed the cheap labour force that the industrial revolution required. As consumers, immigrants also stimulated additional demand for coal, clothing, and food.

Transport revolution

The USA experienced a transformation in transport infrastructure, particularly through railroad expansion. Railroads provided fast and efficient means of moving raw materials such as coal from the West Virginia coalfields to New England factories. They also enabled the distribution of finished goods and transported cattle from Texas to the Chicago meatpacking plants.

In 1869, the First Transcontinental Railroad opened, connecting the far-west mining and ranching regions to eastern markets. Travel from New York to San Francisco, which had previously taken six months, now required only six days. Railroad track mileage tripled between 1860 and 1880. Between 1868 and 1873 alone, 53,000 km of new track was laid across the country.

Railroads stimulated economic growth through several mechanisms:

• They employed thousands of workers (reaching 1 million by 1900), all of whom were consumers who purchased goods and services
• They created substantial demand as railroad construction required large quantities of steel, which necessitated coal. Manufacturers were encouraged to produce engines and railroad vehicles, whilst the building industry provided railroad stations
• Competition between railroad companies drove prices down and spurred technological improvements that enhanced quality and efficiency
• Rail centres required road connections to outlying areas, which stimulated further infrastructure development and economic activity

The availability of capital

Entrepreneurs (individuals who establish businesses whilst accepting financial risks in pursuit of profit) required access to borrowed funds to develop their enterprises. The substantial profits generated during the Civil War encouraged the emergence of a highly developed stock market where these profits could be invested. By 1865, the New York Stock Exchange recorded an annual turnover exceeding $6 billion. By 1890, it had become the world's second-largest money market. Businessmen could raise necessary investment capital through this stock exchange.

The role of government

A long-standing tradition of minimal government intervention in the economy shaped industrial development. The Constitution granted the federal government virtually no authority in economic management. Consequently, businessmen enjoyed considerable freedom in operating their enterprises. No laws restricted working hours for employees, no taxes were levied on profits, and no regulations dictated how businesses should be run.

Congress and State governments were dominated by business interests, resulting in minimal national or local legislation that might have constrained business and industry. The federal government's commercial policy actively supported expansion. Congress readily imposed protective tariffs to ensure that foreign-manufactured goods cost more than home-produced items. These duties could reach as high as 50 per cent of the imported goods' value. Tariffs ensured that American-made products remained cheaper than foreign alternatives.

Businesses did not face trade unions and could manage their workforce as they wished. No established trade union tradition existed, and those unions that did exist were generally weak and fragmented. During industrial disputes, employers often received support from state and federal authorities, who would deploy troops to suppress workers' demands for improved pay or reduced working hours.

Corporations and trusts

New business structures encouraged economic growth, including the corporation and the trust, both of which emerged due to the absence of government regulation. The corporation proved an ideal model for expanding large industries in the USA. This business structure could own multiple enterprises and could hire whatever management it required to operate the corporation. Additionally, it could buy, sell, and own property, and could acquire other companies.

The other favoured structure for large-scale expansion was the trust. Trusts emerged because some states had laws preventing individuals from owning shares in more than one state or in multiple companies. Henry Flagler, secretary of Standard Oil, devised a method to circumvent these restrictions. He appointed himself as 'trustee' for stocks and property that the company was not permitted to own directly. Eventually, John D. Rockefeller, who had established the Standard Oil Company in 1870, instructed three employees to act as trustees for all property and assets of the company located outside their home state. Rockefeller created the Standard Oil Company, which dominated the American oil industry and made him the first American billionaire. Other companies subsequently adopted the Rockefeller model and established trusts as a legally acceptable method of avoiding state laws.

Technological innovation

Industrial growth also resulted from important technological advances and business methods introduced by individuals such as Andrew Carnegie. Carnegie, born in 1835, began his working life as a messenger boy but eventually came to dominate the American steel industry (see separate profile for more on Carnegie).

Steel had been expensive to produce, but in Britain a new process, the Bessemer Converter, made production considerably cheaper. Carnegie introduced this process to the USA and employed it in his steel mills. His business expanded rapidly. Carnegie maintained low prices whilst constantly reinvesting in new manufacturing plants and equipment. He was completely hostile to trade unions and refused to allow any to operate in his factories, employing his own armed guards to suppress any union activities.

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