US Economic History 5 — Economic Growth in the Gilded Age
In the Gilded Age (the 1870s and 1880s), the US economy grew faster than ever. Video created with the Bill of Rights Institute to help students ace their exams.
This is the fifth video in a series of nine with Professor Brian Domitrovic, which aim to be a resource for students studying for US History exams and to provide a survey of different (and sometimes opposing) viewpoints on key episodes in U.S. economic history.
- Regulating Monopolies: A History of Electricity Regulation - Learn Liberty (video): Professor Lynne Kiesling explains the motivations behind regulating Gilded Age monopolies and the results of those regulations.
- The robber barons weren’t robbers. Here’s why. (blog post): Lawrence Reed argues that Standard Oil shouldn’t be seen as an argument against free markets, but an argument for them.
- How Capitalism Freed Victorian Women - Learn Liberty (video): Dr. Thaddeus Russell explains how the booming economy of the Gilded Age allowed women to find their own jobs, money, and freedom.
The United States economy expanded mightily in the years after the Civil War. The greatest decades of economic growth in all of American history remain the 1870s and 1880s, an era known as the Gilded Age, a term coined by Mark Twain, when the United States became the largest economy in the world. This is a premier position it has maintained to this day.
Critics of the great businesses of this epic era contend that wealthy industrialists were greedy robber barons who manipulated markets, safeguarded monopolies, and mistreated their workers. This few, of the era of a century and a quarter ago was dominated by rich plutocrats, remains the dominant few among some historians who believe in the importance of government heavily regulating businesses in order to discourage their bad behavior.
However, there is also evidence that lends credence to a different view, that competition between businesses was intense in this period and workers saw their standard of living rise substantially. Other historians have adopted this more positive view of the Gilded Age, arguing that the extraordinary economic growth lifted people out of poverty, and that heavy government regulations stifle such growth and worsens outcomes.
Debates over business and regulation in the Gilded Age among historians mirror such debates in politics today, but all historians agree that the size and scope of businesses expanded dramatically in the second half of the 19th century. Railroads were the first capital heavy business to spread up nationally. This even before the Civil War, requiring the services of a new class of professional managers. Mass production and factories also became widespread in the latter half of the 19th century.
These huge, new manufacturers became the nation's first widely held public stock corporations. Management techniques perfected in this period included both horizontal integration, which is merging with competitors and vertical integration, which is buying up all aspects of the production process, from raw materials to the marketing of the finished good.
The two businessmen, along with the banker J.P. Morgan, who embodied the business success of the post 1865 period, were Andrew Carnegie and John D. Rockefeller. Carnegie, the steel magnate, bought out competitors as he equipped his factories with the latest technologies and innovative processes that enabled him to cut costs and set prices below that of his remaining competition. Rockefeller made similar moves in what became the dominant company in its industry, Standard Oil.
After the Civil War era, inflation died out in the 1860s. Prices gently fell by about a percent per year until the 1890s. This was a boon to savers who saw their nest eggs grow, and to consumers, who could buy ever cheaper consumable goods every year. Some farmers were hit hard by the deflation of this time because they had borrowed to buy land and equipment. However, the engineering revolution of this period also led to enormous leaps in farm productivity, enabling many workers to leave the farm and seek out better opportunities in urban areas.
Small businesses also prospered in this era. The typical large scale business of this period did not have the ability to market to all niches. Therefore, small businesses filled the gap. For example, small steel companies in Pittsburgh, Pennsylvania manufactured nails, nuts and bolts, barbed wire, and other items that Carnegie Steel in the same town did not make. By modern standards, workers toiled for long hours in dangerous conditions. For example, the average steel factory worker worked 72 hours a week. However, the standard of living and disposable income of these working families also increased.
This was especially true of new factory workers, such as immigrants and former farm laborers. A farm laborer in that era worked extremely long, difficult hours, while being exposed to the elements at low pay. For many, factory work seemed like a great opportunity by comparison. Unskilled workers saw their wages increase 44% from the Civil War all the way until World War I. Skilled workers, those who knew a craft, such as carpentry, plumbing, steel rolling, or even how to work with new electricity, did even better.
This era is also remarkable for the millions of immigrants who came to the United States, particularly from Eastern and Southern Europe. They came in such huge numbers because of the increasing opportunity that the United States offered in this profound era of economic growth and industrialization.