America's Industrial Age: Big Business & Modern Corporations

The Rise of Big Business in America

The rise of big business in America saw the emergence of the modern corporation, complete with shareholders, distinct operating units, a national network of suppliers, and professional salaried managers. In the 19th century, a revolutionary idea took hold. Previously, the bulk of economic activity was conducted through single-unit businesses run and owned by independent tradespeople. This changed with increased economic activity and new business models, exemplified by figures ranging from local merchants to industrial giants like Henry Ford. By 1840, business people expected the coordination of their activities across a region as vast as the United States to be handled by the markets themselves.

Railroads: Catalysts for Modern Business

Then came the railroads, offering cheap transportation, expanding markets, and increasing customer bases. Railroads provided a fundamental structure for business, and modern enterprises quickly built extensive railroad networks. Indeed, railroads were the first truly modern businesses.

The Invisible Hand of Management

Alfred Chandler argued that the modern business enterprise became viable only when the invisible hand of management proved more efficient than the invisible hand of market forces. For this to happen, a new transportation system was essential. Alfred Fink, for instance, devised the accounting and information systems needed to control train movements and traffic, determining profits and losses for various operating units.

Financial Markets and Infrastructure

The period between the Civil War and 1890 saw the creation of Wall Street. Jay Cooke's failure to sell bonds for the Northern Pacific Railroad led to the collapse of his bank, triggering Black Thursday on September 18, 1873. Early railroad lines often lacked interconnection. By 1890, railroads were so integral that companies used their infrastructure to provide essential services like light, heat, and water in cities like Chicago and New York. This concentration of power caused a backlash but also helped build the infrastructures of a modern economy.

By 1914, America was exporting 600 million bushels of wheat to Europe, a testament to its growing industrial capacity.

Evolution of Retail and Industrial Giants

Between 1850 and 1860, huge wholesalers emerged, buying directly from producers and selling to retailers. The 1870s and 1880s witnessed the birth of modern mass retailers.

Pioneers of Efficiency and Scale

• Julius Rosenwald: Mastered strategies for reducing costs while improving choice, enabling his businesses to turn over stock at a far greater speed than their smaller rivals.
• Andrew Carnegie (1835-1919): Represented the ideal of the self-made man. He understood that the more steel he could produce, the lower his costs would be, and the more he could sell. Carnegie's employees were organized in layers, with managers from foremen directing their gangs of workers.
• Henry Ford: Improved machinery, introducing conveyor belts to move parts past workers on the assembly line – a system famously criticized in Charlie Chaplin's Modern Times. Ford's key to success was owning as much of the production process as possible.
• James Buchanan Duke: His tobacco business, producing more cigarettes than the underdeveloped market could absorb, pioneered the use of cigarette machines.
• John D. Rockefeller: Exemplified the importance of scale. In 1882, Standard Oil was established as a loose federation of 40 companies, legally and administratively structured.