NATURE AND INDUSTRIAL CAPITALISM I. The Origins of Big Business. A. Characteristics of Big Business.B. The Corporate Structure.C. Vertical and Horizontal Integration. D. Economic Forces.

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Nov 29, 2013 (3 years and 4 months ago)

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NATURE AND INDUSTRIAL CAPITALISM


I. The Origins of Big Business.


A. Characteristics of Big Business.

B. The Corporate Structure.

C. Vertical and Horizontal Integration.

D. Economic Forces.


I
I. Carboniferous Capitalism.

A. Killing for Coal.

B. Steel
Rails.

C. Petroleum.




I. The Origins of Big Business.


A. CHARACTERISTICS OF BIG BUSINESS: Between the depression of the 1870s and
the turn of the century American business underwent a major shift. The transformation
can best be described as a move from
small, localized markets to a national urban market.


-
Before the 1870s:

1. Industries tend to be small.

2. Agriculturally based
-

i.e. process crops or sell to farmers.

3. Production is for a local market, which means there are many producers
nationwide.

4. The entrepreneurial middle class generally owns and operates these business
es
,
although there is some distinction between production and business.

5. Rochester in the 1830s
-
1840s is a good example of all this.


-
By 1900:

1. May still make consumer goods

or be agriculturally based, but more likely to
make producer goods. Examples are the big three heavy industries
-

railroads,
steel and oil.

2. Large scale production aimed at a national market means fewer producers.

3. These corporation tend to be central
ized and vertically integrated.

4. Ownership and management are separated.


B. THE CORPORATE STRUCTURE: The corporate structure provides the basic model
for modern organizational society. Both are viewed as logical and orderly. A
corporation

is defined as

an association of individuals created by law and having an existence
apart from its members as well as distinct and inherent powers and liabilities
.”

1.
Concentration of authority
. Authority is centralized usually at one
headquarters and often with one
man. Major decision making and planning move
up.


2

2.
Diffusion of responsibility
. There is too much to know so people specialize
even more. Marketing, accounting, acquisitions, production, shipping, etc.
"Experts" manage each area.

3. This is the streamlini
ng of business just as businesses are streamlining nature!


C. VERTICAL AND HORIZONTAL INTEGRATION: Are two ways to organize large
-
scale business. Both have their advantages but in the long run the biggest corporations
will seek to vertically integrate.

1.

Explain differences.

2. Vertical Integration happens first in new industries.


D. ECONOMIC FORCES: Major forces were at work in the economy since 1815 that led
to the rise of big business.

1. Westward migration (1815
-
1850) leads to expanding internal mark
et and
access to raw materials.

2. Railroads create a "national" urban market and speed westward expansion
(1850s to 1870s)

a. Creates large cities

b. Railroads create a major producer market because they consume 75% of
the steel and much of the oil.

3. Sm
all companies cannot meet the demands of national and urban markets after
the 1870s.

4. New sources of power and new technology


The US enters the “
Paleotechnic
phase
.”

5. Application of science in management and research

6. Productivity in agriculture.

a. Mechanization frees workers.

b. Creates market for consumer goods
-
farm specialization.

c. Brings in foreign capital.

7. Inflow of foreign capital. European investment is a major source of capital.


II. Carboniferous Capitalism.


-
The rise of industrial
capitalism in the years after the Civil War not only saw the
emergence of the corporation as the dominant form of business organization, it was based
on a shift of enormous consequence for human relationships to the environment


the
move toward burning fo
ssil fuels to power industry. Lewis Mumford called this the age
of “carboniferous capitalism” and decried both its environmental impacts and degradation
of labor.


-

Thomas Andrews defines this as a
move from an organic energy economy to a
mineral intensi
ve economy
. As easy as it is to criticize the effects after the fact it is
important to understand the economic/ecological advantages of fossil fuels for the
capitalists.

1. Organic sources of energy


essentially wood, water, wind, and muscle


can
fluctu
ate and ultimately are linked to finite surface of the Earth and the flow of
solar energy to the earth in a given year.


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2. Organic energy economies could and did expand through expansion into
marginal lands and improved efficiency, but that expansion was a
lways moderate.
David Ricardo’s “
law of diminishing marginal returns
.”

3. Mineral intensive economies literally mined the accumulated solar capital
stretching back hundreds of millions of years.

4. Mineral intensive economies also mitigated the effects of
seasonal fluctuations
in power, enjoying constant flow of energy.


A. KILLING FOR COAL: Coal was the first great fossil fuel of industrialization and
remains today the most important in terms of producing electrical energy worldwide. It
was not a new disco
very. Humans had used coal for thousands of years, but it was not
until the rise of industrialization and the resulting deforestation that coal supplanted wood
as the major source of heat and power.


-
Coal is a sedimentary rock formed by the burial and com
pression of decaying
vegetation. Much of the Coal of Europe and the Eastern United States dates to the
Carboniferous Period (360
-
300 MYA) but coal deposits in Colorado and other places
only date the Cretaceous Period (70 MYA)

1. Plants use the sun’s energy

to transform water and carbon dioxide into oxygen
and carbohydrates. This becomes the base of the food chain and “sequesters”
most of the Earth’s carbon.

2. As plants die, decompose, and are buried under layers of sediment some of
those carbohydrates are
trapped and become coal.

3. After bacteria consume approximately half of the organic matter the rest sank
into the swamps where the weight of later material first formed mats of peat.

4. If sediments bury this peat and completely shut off the sun, biologic
al
processes come to a halt, and physical processes, heat and compression, take over.


Lignite:

Increased pressures and heat from overlying strata caused buried peat to dry
and harden into lignite. Lignite is a brownish
-
black coal with generally high moi
sture and
ash content and lower heating value. Geologically, is the youngest and the lowest ranked
coal, containing 25 to 35 percent carbon and the lowest heating value

-

4,000 to 8,300
BTU
s per pound. However, it is an important form of energy for generat
ing electricity,
particularly in the American Southwest, and to produce synthetic natural gas and liquids.
Lignite is found in the Gulf Coast and Northern Plains of the United States. Lignite
reserves account for 9 percent of the United States' coal reserv
es.


Subbituminous:

Under still more pressure, some lignite was changed into the next rank
of coal: subbituminous. This coal is a combustible mineral formed from the remains of
trees, ferns and other plants that existed and died during the time of the
dinosaurs. A dull
black coal with a hi
gher heating value than lignite, it
is used primarily for generating
electricity and for space heating. It contains about 35 to 45 percent carbon and has a
heating v
alue between 8,300 to 11,500 BTU
s per pound. Subbitum
inous coal is
predominately found in Montana, Wyoming,
UTAH
, Colorado, New Mexico,
Washington, and Alaska. Subbituminous coal accounts for about 37 percent of the coal
reserves in the United States.


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Bituminous:

Sometimes called "soft coal" it is the mos
t common type of coal found in
the United States. It is 45 to 86 percent carbon, softer than anthracite, and has a heat
ing
value between 10,500 and 14,000 BTU
s per pound. This is the type most commonly used
for electric power generation in the U.S. and for

producing coke for the steel industry.
About 52 percent of the United States' coal reserves are bituminous coal.


Anthracite:

Sometimes called “hard coal,”

anthracite was formed from bituminous coal
when great pressures developed in folded rock strata
during the creation of mountain
ranges. Anthracite has the highest energy content of all coals. It contains 86 to 97 percent
carbon, and
has a heat content of nearly 15,000 BTU
s
per pound. It is used for space
heating and generating electricity. There are
about 7.3 billion tons of anthracite reserves,
located in 11 counties of northeastern Pennsylvania. Anthracite accounts for about 2
percent of the coal reserves in the United States.


-
Ironically the production of coal


which allowed the escape from organ
ic energy
systems and the increased mechanization of other industries


remained largely a hand
-
craft into the early twentieth century.

1. Coal mining techniques developed in the British Isles made there way to
America. Welsh, British, and British
-
American

miners dominated the industry
early on.

2. Initial development required tunneling through to the coal seam, followed by
the establishment of a grid system of tunnels to haul out the coal.

3. Room and Pillar system used throughout the mine.

4. Colliers the
n chipped away at the base of the coal face and then drilled holes to
place explosives.

5. After the blast the coals was loaded into carts that were take to the surface or a
lift via mule power.


-
The “
workscape
” of a coal mine was an alien environment for

any living thing and was
extremely dangerous.

1.
Collapses

were a common threat as once coal is exposed to oxygen it weathers
rapidly. Miners used wooden timbers to prop up the ceiling and left pillars of coal
in place for stability.

2.
Deforestation

was a common effect


especially in the West where wood was
scarce.

3. Miners were paid on the
tonnage system

so they were not paid for this safety
work and some took chances by removing pillars


mention “retreat mining” and
the Crandall Canyon mine disa
ster of 2007.

4.
Water
posed a constant problem and stream pumps were employed to keep
water out of the mines.

5.
Ventilation

was another constant concern as deadly carbon monoxide and
methane could lead to suffocation or explosions. “
Stinkdamp, blackdamp,

afterdamp, firedamp
.”

6. Finally, chronic exposure to coal dust lead to pneumoconiosis or “
Black Lung
Disease
.”


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7. Spectacular mine disasters could kill dozens or hundreds of men. The Winter
Quarters Mine in Scofield, Utah exploded on May 1, 1900 killing
200 (about half
from the poisonous afterdamp) making it the most deadly mining disaster in
American history to that date. In December 1907, 362 men died in Monongah,
WV, in the worst mining disaster in American history.

8. In large part due to the conditio
ns in the mines the coal industry saw chronic
labor unrest including the Bituminous Coal Miners Strike of 1894 and the
Colorado Coalfield War of 1913
-
1914.


-
Today underground mining continues and results in deadly accidents such as the Upper
Big Branch mi
ne disaster that killed 29 in 2010. Increasingly, however, strip mining
became the method of choice with
“mountain
-
top” removal

being the most
controversial modern variant.



B. STEEL RAILS: The greatest consumers of coal were the intertwined industries of

railroads and steel.


-
More than any other technology the railroad represented the attempt to standardize and
mitigate the unevenness, the “naturalness,” of nature.

1. By allowing the transportation of commodities via direct routes in all seasons,
railro
ads were essential in the rise of industrial capitalism.

2. As railroads came to dominate American transportation systems they became
the largest of all “producer industries” spurring the growth of coal, steel, and
petroleum production.

In the west railroa
ds developed the major coalfields.



-
The development of railroads was a result of the physics of transport


rolling along a
hard even surface is a lot easier than along rough uneven ground because of the decrease
in friction.

1. Various wagonways and tra
mways date back hundreds of years. Coal miners
had used wooden rails to ease the travel of ore carts.

2. Steam power was first applied to locomotives in England in 1780s and the
United States in the 1790s. The first steam railroad was operating in Britain
in
1812.

3. The B&O Railroad was chartered in 1827 as a direct response to New York’s
Erie Canal.

4. The period between 1840 and 1860 saw a railroad building boom in the United
States


26,000 miles of tracks.

5. By 1860, American railroads were consuming,

800,000 tons of iron a year and
the US remained an iron importing nation.


-
The iron and steel industry in America grew as a direct result of the rise of the railroads.

1.
Iron

forms most of the Earth’s core and is one of the most common elements in
the E
arth’s crust.


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2. Iron ore can be refined through smelting


a process of heating accompanied by
the introduction of a reducing agent (coke) and a flux (limestone)


which
removes oxygen and other impurities. The process first produces pig iron that can
be
further refined into cast iron and eventually steel.
Steel

is stronger and more
resistant to oxidation.

3. The production of steel dates back thousands of years, but it was not until the
introduction of the
Bessemer process

in the 1850s that industrial mas
s production
of steel became inexpensive. The process uses air blown through the molten iron
to keep temperatures very high and burn off impurities.

4. As railroad locomotives grew bigger and heavier, they wore out iron rails very
quickly and steel product
ion took off, centered in Pittsburgh and Gary.


-
By 1870, the Iron and Steel industry was the fourth largest industry in America
(lumber/woodworking, flour/grist milling, and textiles were bigger) and the production of
steel illustrates the reach of indust
rial capitalism.

1. Andrew Carnegie founded Carnegie Steel (the forerunner of US Steel) in the
1870s.

2. The Bessemer process and the demand for steel allowed him to become the
second richest man in history by selling steel at 2/3c per pound.

3. One pound
of steel that came from a Carnegie mill consumed 2 pounds of iron
ore, shipped from as far away as the Mesabi Range of Minnesota, 1.3 pounds of
coal that had been mined in West Virginia and shipped to the coke ovens in
Pittsburgh, and 1/3 pound of limeston
e from Ohio.


C. PETROLEUM: By the beginning of the twentieth century petroleum emerged as the
most important of fossil fuels, a position it has retained ever since due to the dominance
of internal combustion engines and its place in heating homes. Until t
he Civil War era,
however, there was little market for oil or it byproducts in America.


-
Like coal, petroleum is formed through geologic processes (heat and pressure) from
ancient plant and animal matter


probably plankton and algae.

1. Crude oil has
been known and used by humans for thousands of years


construction and warfare were two uses. Oil was used to seal walls of buildings
and boat hulls since ancient times. Some Native peoples in America used it as a
salve or took it internally.

2. There was

not a large market for petroleum and in fact farmers viewed oil as a
nuisance as it fouled wells and streams.

3. With the industrial revolution there was a demand for better lighting and
demand outstripped supplies of whale oil, tallow candles, and beeswa
x.

4. Kerosene was initially refined from coal, but could be easily refined from oil,
and it emerged as the most important lighting oil. This provided the real push for
the petroleum industry.

5. One by product of the production of kerosene was the clear l
iquid called
gasoline!



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-
The first center of the American Petroleum industry was in
Western Pennsylvania
.
There the existence of surface seeps or “oil springs” was a sign of larger underground
deposits.

1. The area around Titusville, Pennsylvania and Oil C
reek attracted the interests
of speculators in the 1850s. Native peoples had collected oil there.

2. After nearly going bankrupt and being abandoned by his original investors,
Edwin L. Drake struck the first commercially viable well in the area in August o
f
1859.

3. The first oil boom in American history followed.

4. Strikes in Texas, Oklahoma, and California shifted the geographic focus of the
industry away from Pennsylvania by 1900.


-
In 1900, before the beginning of the automobile age, petroleum was alre
ady essential in
American industry and life.


1. One billion gallons of kerosene for lighting.


2. 300 million gallons of fuel oil.


3. 170 million gallons for industrial lubrication.


-
The story of
John D. Rockefeller and Standard Oil Corporation

are esse
ntial for
understanding the rise of the American petroleum industry.

1. Rockefeller was born in New York and moved with his family to Cleveland as
a boy. He began as a bookkeeper and then moved in to the produce business. With
his savings he looked for bus
iness opportunities.

2. He and his partners, whom he shortly bought out, opened the first oil refinery in
Cleveland in 1863.

3. Rockefeller founded Standard Oil in 1870 and focused first on controlling the
refining business from his headquarters in Clevela
nd


horizontal integration.
Within a decade he controls 90% of the refining capacity of the United States.

4. Rockefeller then moved to vertically integrate the industry. In1885 he moved
the company’s headquarters to New York City and re chartered the cor
poration in
New Jersey.

5. Rockefeller used particularly aggressive business practices, including
demanding special rates and rebates from railroads to drive down transportation
costs, in order to offer the lowest prices and drive his competitors out of bu
siness.

6. Standard Oil was eventually broken up in 1911 antitrust suit. From this one
corporation came Mobil, Exxon, Chevron, Conoco, Atlantic, and Amoco.

7. The Rockefellers also expanded into the steel and coal industries and owned
CF&I at the time of t
he Coalfield War of 1913
-
1914.


-
The rise of the automobile age only increased the demand for oil in the twentieth
century.

1. New advances in “thermal cracking” allowed greater yields from wells while
advances in refining made production cheaper.

2. By
1927 the price of a gallon of gasoline had fallen to 10c a gallon.

3. The rise of the Plastics industry increased the demand further.


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4. The United States developed a dependency on oil that today is one of the
greatest challenges the nation faces.