The Impact of Industrialization: Displacement
and ConsolidationThe new nation was formed at the start of the Industrial Revolution, as the agricul-
tural economy was gradually superseded by the new industrial economy, and new
institutions were developing to match industrial complexity (Atack, 1994). By 1860,
16 percent of the U.S. population lived in urban areas, and a third of the nation’s
income came from manufacturing. But most industries were located in the Northeast,
while the South remained rural and agricultural, dependent on unpaid slaves rather
than wage-labor employees, exporting raw materials and importing manufactured
goods. The gap between North and South is reminiscent of the gap between rich,
industrialized countries and poor, agricultural countries today.
The Civil War (1861–1865) was, in the economic sense, a clash between the two
economic systems, and the Northern victory and the abolition of slavery sealed the
industrial future of the United States. Industry surged ahead. Industrialization has also
meant the gradual displacement of small shopkeepers and artisanal craft workers.
Colonial America was a nation of small businessmen—whether farmers in the coun-
tryside or shopkeepers in the towns. Industrialization means consolidation, as big
supersized stores undercut small shops and agribusinesses gobble up small farms.
Today, the opening of a Wal-Mart, the world’s largest employer, usually means
the closing of several dozen small shops nearby. Pushed down from the lower middle
class into the working class, or impoverished, these small shopkeepers and farmers lose
more than their stores; they lose their sense of independence and economic autonomy,
which often makes them politically resentful and potentially a force for reaction.Consolidation.This impulse towards consolidation began in earnest in the late
nineteenth century, often referred to as the Gilded Age. A handful of so-called robber
barons—Rockefeller, Ford, Carnegie, Vanderbilt, Gould, and Morgan—lived the
opulent lives of royalty and exercised almost total control over the American economy
(Chernow, 1998, 1990; Schmitz and Kirby, 1995). They managed to accumulate huge
fortunes almost overnight because there were no federal regulations to limit price fixing,
false advertising, underpaying and overworking employees, or establishing monopolies:
At one point Rockefeller controlled 90 percent of the oil reserves in America, and
Carnegie controlled 25 percent of the steel (Conte and Karr, 2001). Nor was there any
shame in admitting an interest in money for its own sake: In contrast to the ideas of
European intellectuals of the day, Americans embraced money making as a virtue.
During the first decades of the new century, progressive politics created many
regulatory agencies, including the FDA (Food and Drug Administration), the FTC
(Federal Trade Commission), and the ICC (Interstate Commerce Commission),
designed to give consumers and employees an even break. But robber barons still
amassed, spent, consumed, and speculated with abandon, resulting in an unstable
stock market and a series of short-lived crashes and depressions. Then came the cat-
astrophic stock market crash of 1929, which forced hundreds of banks to close, bank-
rupted thousands of businesses, and increased the unemployment rate to 25 percent.
It seemed obvious that the federal policy of hands-off or laissez-faire economics
hadn’t worked, so President Franklin Roosevelt launched the New Deal, a huge
amount of government intervention into state and local economies. Many of the most
important laws and institutions that we take for granted in contemporary America
started with the New Deal (Gilbert and Howe, 1991; Quadagno, 1984), including:■Minimum wage, providing a floor below which wages cannot go
■Social Security, which provides pensions to the elderly and disabled based on
payments they made when part of the workforce430 CHAPTER 13ECONOMY AND WORK