The rise of industrial capitalism in the U.S. from 1870-1920 was not due to a free market, but significant government intervention. The government subsidized railroads, passed laws allowing incorporation with limited liability, helped crush labor strikes, enacted high tariffs, and used the military to remove Native Americans from lands - all to encourage business growth. Industrialization transformed the economy, with manufacturing jobs rising from 29% to 44% of the workforce over this period. New technologies revolutionized industries like steel, oil, automobiles, and more. However, the myth that industries developed freely in a free market is untrue, as the government played a major role in stimulating industrial and economic development.

1. The Rise of Industrial Capitalism and
the Myth of the “Free Market”

2. Economic Change, U.S., 1870-1920
1870 1900 1920
Farms (millions) 2.7 5.7 6.4
Land in Farms
(million acres) 408 841 956
Employment in
Manufacturing
(millions) 2.5 5.9 11.2
% in Agricultural
Workforce 52 27
% in Industrial
Workforce 29 44
Railroad Track
(miles) 53 258 407
GNP (billions $) 7.4 18.7 91.5
Life expectancy 42 47 54

3. Industrialization
• Process by which goods are made (most often
in factories)
• Often = a segmentation of tasks and labor
• By 1900 2/3 of American workers = wage
workers
– Owning farm/artisan shop = economic
independence
– Working for wages = economic dependence

4. Capitalism
• An economic system that encourages private
enterprise
– Countries do not have to be capitalist to be
industrialized
– In the U.S. industrialization and capitalism
developed together

5. The “Free Market”
• Idea that companies and individuals do (or
should) compete free from government
influence
• A MYTH in the U.S. because GOVERNMENT
HAS ALWAYS BEEN AN INFLUENCE!!!!!!!!
– Business owners = greatest proponents of
government interference in the market, especially
for tax breaks
– They welcome the interference even if they don’t
“believe” in it.

6. Where does the Myth begin?
• Roots in 19th
century America as it became
industrialized
– Large, growing industrial labor force
– New technologies and industries
• 1890-1910: typewriter, hand-held cameras,
telephones, electricity, steel industry, oil industry, air
travel, automobiles—all brought radical changes to
people’s lives

9. Taylorism
– New ways of Producing goods:
• Taylorism: a new system of organization and
segmentation of labor
– Deskilled the workforce, made skilled workers obsolete
– Made hiring easier
– Made labor strikes difficult

10. Expansion of Railroads
• East to West to connect to the transcontinental
railroad
– Created jobs
– Shipped large volume of goods
– connected new areas of commercial farming and
industrializing cities to a national market
• DEPENDENT ON FEDERAL AND STATE SUBSIDIES
» Funding
» Tax breaks and high tariffs
» Land grants
» Indian removal via federal and state military

11. U.S. Rail Network, 1880

12. Corporate Consolidation
• Required to build large industries with
multiple investors
• 1830s-1840s: Laws of Incorporation passed
– Allowed the selling of stocks to build businesses
– Allowed for “Limited Liability”
• Guarded stock owners from paying for business losses
• The Government provided these laws to
encourage investment and the growth of
companies. The number of corporations
increased dramatically.

13. Corporate Consolidation
• Business owners depended on consolidation
to compete in a volatile market
– Horizontal integration: buy like businesses
– Vertical integration: buy up all things that
business depended on to make a product
– Each of these methods were employed to
eliminate competition! Created monopolies

14. Justifications for Corporate
Consolidation
• “American Dream”
• “Survival of the Fittest”
• Individual wealth would be used on behalf of
the community
• Many people criticized monopolies as immoral

15. Conclusion
• The US did not become an industrialized
nation because of the “free market.” The
government was very involved.
– Subsidized railroads
– Passed limited liability laws
– Crushed labor strikes
– Enacted high tariffs
– Used army to remove Indians from western lands