The rise of industrial capitalism | AP US History | Khan Academy

• [Instructor] The period from the end of the Civil War to the start of the 20th Century was one of incredible economic transformation in the United States. In 1865, the United States was the 4th largest industrial economy in the world. By the 1890s, it had leapt to 1st place. At the same time, where people worked, how people worked, and how much money they made all changed drastically. During the Gilded Age, the United States went from being a nation of farmers to a nation of factory workers. The nature of work itself also changed as large corporations began to implement management techniques aimed at increasing efficiency and profit. The gap between rich and poor also increased considerably during this era.

So what caused this economic transformation? In this video, I want to explore some of the factors that contributed to these changes in work and the economy: technological advancements, new business strategies, business consolidation, and pro-growth government policies. So let's dive a little deeper into each of these.

One of the biggest factors contributing to the rise of industrial capitalism was technology. The late 19th Century was an era of innovation. Nearly half a million patents were issued between 1860 and 1900. Improvements in machinery and manufacturing processes, like the Bessemer process to make steel, increased productivity. And there were new technologies that helped business: the telephone to coordinate transactions over long distances, the typewriter to speed up record keeping, and electricity which made it possible to work safely after dark.

And the expansion of the railroad made it easy to get raw materials to factories and finished goods to markets. Corporations also devised new strategies to cope with doing business at a national scale. In this era, the first national brands emerged. Companies like Coca-Cola and Kellogg's Corn Flakes began advertising to national audiences. And mail order catalogs like Montgomery Ward and Sears sold products across the country. An integrated nation-wide system of business and shipping made it easy for customers and companies to connect.

During the Gilded Age, coordinating supplies and workers, time tables and sales became its own full-time job called management. Managers worked to increase efficiency and cut costs. They did this in a number of ways: by replacing workers with machines, increasing working hours, and decreasing wages for laborers. The titans of industry used other measures to maximize profits as well.

The Gilded Age was an era of ruthless business competition, and the magnates of each industry set out to crush their enemies. Many of the men who made fabulous fortunes during the Gilded Age started out in the railroad industry, taking advantage of government subsidies and land grants. The U.S. Government took a laissez-faire, or hands-off, approach to regulating business at this time. And there were no corporate or income taxes, so it was possible for a few individuals and companies to amass enormous wealth.

They did so by consolidating their businesses, reducing competition, and controlling markets. Steel baron Andrew Carnegie was one of the first businessmen to employ vertical integration in his companies. The goal of vertical integration is to control every part of the supply chain for a product. For example, Carnegie owned not just steel mills, but the mines that produced the iron ore and coal necessary for making steel, and the ships and railroads that transported raw materials to the factories, and finished steel from the factories.

This cut out middlemen and ensured that Carnegie never had to wait for other companies to send him supplies. Big businesses in the Gilded Age also reduced competition through holding companies, trusts, and pools. Holding companies and trusts allowed mergers that put many companies under the control of one parent company. Using these tactics, John D. Rockefeller, who owned Standard Oil, controlled 95% of the country's oil supply by the end of the 19th Century. Standard Oil became the nation's first billion-dollar company.

Some companies realized that cooperation was better than competition and simply agreed to divide markets and profits between them. These groups of supposedly competing business entities were known as pools. The rise of industrial capitalism had major consequences on American life, politics, and foreign policy. For some, this new economy meant a higher standard of living than ever before, with cheap and plentiful material comforts.

But this new way of doing business came at the expense of wages and working conditions, leading workers to begin organizing unions and advocating for political solutions to economic problems. And as the United States produced more and more, it would begin looking abroad for new markets to sell its goods and consequently, for greater influence in the world.