History of American Business: A Baruch College Blog

Richard White’s excerpt “Creative Destruction” brings up the various pros and cons of transcontinental railroads. To say the creation and rise of railroads in the United States brought with it many negatives is an extreme thing to utter, in hindsight. However, White does attempt to make the argument by mentioning how unnecessary a large agricultural expansion was needed. While the railroads did create extremely productive farmlands, it created as many, if not more, extremely unproductive and costly farmlands. These railroads also made farmers overproduce goods like cattle, wheat, and silver. The level of supply of these goods easily surpassed the world demand for the goods meaning a great loss of money, time, effort, and product for eager farmers and their farmland communities.

White also touches on how certain people with money, influence, and/or power were able to take advantage of these transcontinental railroads while the majority of the population had to wait a while to enjoy this movement. Entrepreneur Joseph Schumpeter famously said “creative destruction was its essence” when referring to capitalism. He believed that the harm and the damage capitalism was able to create was the reason why capitalism was so powerful. For someone like him to claim this makes complete sense. He reaped way more than he sowed because he had the goal of getting wealthy quick, now, and in a hurry. Schumpeter, however, did not keep that same energy when it came to the rest of society who weren’t apart of the elite. He often spoke about how it’ll take generations for communities to finally enjoy the fruits of their parent’s labor and Schumpeter was completely okay with that. In fact, he encouraged it.  The entrepreneur believed that society should let capitalistic damage, in this case the creation of railroads, run its course. Eventually with time the problems brought about from these creations would sort themselves out. This reminds me of the idea of Adam Smith’s Laissez Faire. This idea promoted minimal government intervention because of the belief that markets, if left alone, would solve their issues on their own over time. It is not surprising that Joseph Schumpeter openly agreed to all this. He had to actually. Reason being is because if his goal was to get rich quick, he needed a lot of people to suffer and not prosper so that he had the opportunity to thrive.

One surprising fact that I read in this excerpt was how underwhelming growth was in the West initially but then boomed almost immediately due to the railroads. One would think that with the implementation of a society-changing innovation like the railroad  would instantly produce prosperity. However, very quickly did the United States realize that the lands between the 98th and 100th meridian were very infertile, very dry, and overall not good enough land to cultivate goods. This being the case in the midwest and west, California was upset about how small their growth was occurring in the 1870s and 1880s. In fact, between the years 1880 and 1890, the Sacramento Valley “had lost 20 thousand of its natural increase in population”. However, very quickly would all this change. So in the 1870s there were only 2 million non-Indians settled west of the Missouri River. By 1900, that 2 million had multiplied 5-fold to a whopping 10.4 million. This fact fascinates. It’s crazy to think how quickly things could change seemingly just out of the blue.

White’s book describes the various transcontinental railroads that were established in America. In chapter eleven of his book, “Railroaded,” White describes the historical transformation that arises as a result of the establishment of transcontinental railroads. Railroads are viewed as an engine of change. Some of the changes include conversion of land that was
initially bare being utilized to plant wheat and corn, increased population, the growth of cities (White 455). This change occurred rapidly and came as a result of the establishment of railroads. The establishment of railroads negatively affected the Indian people negatively as they were displaced, controlled, confined, and others were murdered during the struggle to protect their land from being taken from them.

I acquired so much from this reading that I was not aware of before. One is that there had been debate on whether the growth was entirely from railroad establishment. The Missouri and Burlington directors once told their stockholders that the railroad should not get total credit for the settlement increase (White 457). Preemption and homestead laws had also contributed to the increased settlement. However, there would be no occupants settling in the land bordered railway tracks in the absence of railroads.

One question that crosses my mind is how the planners organized where the railroads were to pass through. I also wonder whether the transcontinental was worth the cost. The author notes that poverty also increased in the process of progress. The author addresses my questions as he states that there were better locations where the railroads would have been established. For instance, if the rail lines connected St. Louis, Kansas City, and Chicago to the east would have connected California to a perfect Pacific rail (White 461). Railroads created environmental catastrophes and dumb growth when it comes to the cost. The establishment had incurred high costs, which resulted in the railroads not being willing to wait for profitable traffic to arrive (White 462). Items would be hauled at a loss as the railroads had been established before demand existed. I am curious whether people realized the adverse effects they were encountering as a result of the establishment of railroads.

“Say what you will, the result was worth the price, and the lives of tens of millions of people were the better for it.” This is the ideology many used to defend what was becoming of the United States. When it comes to the 19th century development the implementation of railroads into the US economy is one of the most notable ones mentioned as it allowed for 3 seperate countries to unite at the time. The initial thoughts brought about from the implementation of the railroad systems were that they were soon to be a symbol of progress for civilizations and the nation as a whole. What was not considered at the time and what Richard White argues is whether it was even necessary to create this system of railroads at the time as there was not much need for it. The incorporations of railroads led to a huge undertaking of mass constructions of these railroads that was subsidized by the government. This expansion came at a price and it is not taken into much account as it is seen more so as a side though to many entrepreneurs who were trying to get many to incorporate railroads into small towns to incentivize them to join the railroad economy. What White notes is that this expansion with the use of railroads did what two generations couldn’t do in half the time. 

There is no doubt that there was success in this implantation of railroads but what is not highlighted enough and what continues to be Whites argument is if it was necessary at the time. What I find interesting is the idea that this is the first time that American industrialism has been criticized for the time it was implemented rather than if it was a good or bad. Rather than criticizing how the implantations of railroads brought economic instability White approaches the topic as to if it was at the right time in history to incorporate the system to the United States. The mention of creative destruction also comes into the mix as when seeing how railroads took out the majority of the Indian population and how it was necessary for the country as a whole to succeed. What is later discussed is the social benefits and how there were only positives mentioned while there were a lot of negatives to also consider when discussing railroad implementation. White acknowledges Hornaday’s statement that “Americans would never appreciate anything that could not be assigned to a large market value”, needless to say this was true this also meant that there were environmental catastrophes that would ensue and not be stopped until the process was too late to reverse the effects. So with the introduction of the railroads rather than being seen as this huge asset to the United States white takes a different approach and criticizes how there was more loss than good that railroads brought into the country. 

In David Montgomery’s Beyond Equality, he starts by explaining how the economy was doing low, how the introduction of the railroad and the telegraph led to production and corporation to manage “men, money, and materials” during 1847 and 1854. (Montgomery, p.4).

On the other hand, unfortunately, unemployment was high. This part interested me because it reminded me of when many people faced this situation during the covid 19 pandemic. Businesses did not have enough money and struggled to pay their workers, so many had to ‘cut off’ people. These events took place rapidly between 1861- 1865. The topic of unemployment also reminded me of what we learned last class, which happened during the Panic of 1873.

In addition, it tells us how the workers faced a competitive, hard environment because employers demanded more. They were treated bad and not paid attention to. Also, the government played a role in a way to “fostering growth and in the thinking of most entrepreneurs than did economies.” (Montgomery, p.6). In order to improve, many people joined and formed partnerships, an example can be the Cambria Iron Works, which was between Daniel J. Morrell and John Fritz, their business had land and “6,000 men and boys” (Montgomery, p.9). This partnership was known as the ‘nation’s largest fabricator of iron rails.’

Overall, Montgomery shows entrepreneurial crisis, how unemployment affected people’s lives, how the Civil War brought inflation, and how government interfered.

 

Accounting for Slavery by Rosenthal delves into the rudimentary accounting practices to “sophisticated scientific management” between the periods of early adoption of slavery to the abolition era. Rosenthal pedantically details the development of accounting practices from antebellum era plantations throughout the Americas, where hierarchies of white workers would detail minute aspects of workers, essentially diminishing them as “cogs in a machine”, to the postbellum era where the sole object was to curtail any form of negotiation that would hinder profits and low costs.

Rosenthal’s main argument for the development of accounting practices during the antebellum period is that slaves were regarded as a form of sophisticated capital machinery. Unlike the machinery that was operated in the industrial heavy north, the slaves were monitored in intrusive detail based on age, sex, strengths, punishments, and output in various conditions and aspects. The minutia of control lead plantation owners, attorneys, and overseers to finely tune their slaves that inadvertently, as a byproduct of profit-seeking, cost-cutting, and output increasing, lead the development of accounting and management practices and technology to aid this process. However, the sophistication of this “scientific management” came down to debased ploys on manipulating lives through misleading incentives and harrowing punishments which persisted in the postbellum era but in more subtle and legal means. Rosenthal also argues that the abolition of slaves purveyed new methods in scientific management to further assert control on slaves. Though never reaching the level of output during the antebellum period, postbellum scientific management shows various ploys in the legal system to curtail runaways, signing misleading contracts that resembled indentured servitude of virtually no remuneration, binding slaves to the plantation at length, and inhibiting prospects of owning or renting land.

The accounting practices in the north, in contrast to the south, were haphazard and not as conducive to higher output, and thus profit, as workers were prone to quitting and demanding higher wages and lower hours. This shows by contrast to the industrial north where human capital could not be manipulated as easily and had to be negotiated with. In conclusion, Rosenthal’s arguments elucidate a blood-stained development of the accounting and management practices that serves as the basis of our modern corporations.

In the introduction excerpt from Richard White’s book “Railroaded”, White points out how the railroad corporations created modernity through both their failures and success. Railroads at the time stood as the epitome of modernity(White, xxii). The introduction of the transcontinental railroad allowed settlement to move from east-west, instead of only north-south. This movement westward resulted in the promotion of settlement along the way, so that they can integrate these settlers into the expanding world economy. Moreover, the production from these places went beyond market capacity. This meant that the extra production harmed the environment. 

Although White argues that the idea of the transcontinental railroad is not bad, the problem was that it was not necessary to build so many railroads at the time and some are not even built in the most efficient places. In addition, this resulted in the cost in both the long term and short term to exceed their benefits. Therefore, one of the main problems was not the idea of the transcontinental railroad, but rather the execution of it. As a result, the transcontinental failed politically, socially, and economically. Furthermore, some expected the transcontinental to fail as a business and were using the failure as a way to funnel corporate resources into their own pockets. These railroad corporations either failed or ended up being rescued by nation-states. White makes a parallel to this by stating how it is similar to the 2007-2008 collapse where the combination of precipitated massive loss, receivership, government rescues, and severe economic downturns. Where in both cases government rescue results in severe economic downturns.

Overall, I believe White is trying to point out how although these railroad companies failed to turn transcontinental into a profitable business, the failures were still able to shape modern North America.

Similarly to what White said about the innovation entrepreneurs succeeding at the expense of the firm(White, xxvi). I believe this is similar to the insiders that are benefitting from the failure of the business. I thought this was similar to when a stock investor has inside information about a corporation and then uses this information to increase their own wealth. 

 

David Montgomery’s chapter on Entrepreneur and Wage Earner portrays the image of the civil war era and its different social and economic changes. Montgomery goes in dept through the specific misconceptions of the 1860s and 1870s. The boom began from the late 1830s growing 1.62 cents per year (Montgomery, pg 3). He makes an argument that most of the growth was initially from industries but later from mining, that after the 1860s industries caused an increase in production but a stall in growth. Later in the chapter, he goes into depth about the different technological advancements that lead to the growth of mining such as the railroad and the telegraph. He describes the different entrepreneurs and companies and the differences between free labor and slavery. Lastly, the different social dynamics that made the civil war era so unique with women working jobs in cotton mills and the rise of different political parties. 

Montgomery goes into the specifics before the Panic of 1873 and the causes of the different sociological changes. The author provides us evidence of how after the 1830s, 40s, there is only so much progress and wealth you can have and after a peak limit, their success has to slow down and eventually fall. He states that unemployment was high during the year 1861 which leads to the conversation of industries being the cause of the panic (Montgomery, page 5). Major companies such as Lewis, Oliver, and Philips company were held at a halt in profits.  Montgomery makes the argument that mining leads to the demand of immigrants due to the call for labor giving them up to a 12-month contract. The debate of comparing the lives of black slaves and poor whites working in enslaved wages rose but the difference is the option to be free from working rather than being beaten or killed to work. Circumstances such as Andrew Carnegie prove that ordinary people could go from working for two dollars to living a rich and wealthy life (Montgomery, pg 30). Montgomery describes the effect women had on the social construct of the patriarchy. Women work in the cotton mills while the shops are run by men. Despite the harsh conditions and bad wages paid to support only themselves, women still preferred to work rather than depend on a man to provide for them. Ethnic classes and religion lead to different political parties due to the rise of immigrants.

David Yusupov

Professor Sean Griffin

03/21/22

HIS 3410

Blog Post #2-Creative Destruction

Throughout history, many inventions influenced the course of history. The Chinese invented the wheel which helped the world to build carriages to transport people and goods quicker. Conversely, they also utilized gunpowder for fireworks but the Europeans used it to make weapons of war. Essentially, technological progress is inevitable. However, as much as technological progress is certainly beneficial there is a trade-off. The famous Austrian economist Joseph Schumpeter described a phenomenon called “creative destruction” which is basically recognizing the fact that yes, there is advancement in society, however this comes at the expense that others lose their jobs. So for example, there was the horse and the buggy and then the automobile came out, yes the automobile revolutionized travel but it led to all the workers who make buggies to be out of work. Much the same way in Richard White’s Creative Destruction there is a clear development of these trade offs.

The development and history of the railroad in the United States with relation to the idea of creative destruction is visible in Richard White’s article. Firstly, it is noted in the article that the railroad aided troops to fight Native American rebellions. Analyzing this from a creative destruction viewpoint it is easy to see that before the development of the railroad troops had to move either on foot or horse and buggy. Therefore with the advent of the railroad those professions are no longer as necessary and that creates a loss of work for those people. There is also that the railroads in Mexico for example was described as an assault on the landed people by the elites, and in the United States it caused the dispossession of the Native Americans, the degradation of the environment, waste of resources and business failures. 

These changes took place because as described before, the advent of the railroad made it possible. The railroad greatly aided in American and other colonial powers expansions. It helped troops to move around quicker, thus conquering land faster. For the railroads to be built it needed to destroy natural habitats. There were naturally going to be a waste of resources and business failures because mishaps happen when doing large scale constructions. These changes took place rapidly because the nature of the railroad was that it, as was stated before, made it possible to do activities quicker. The railroads affected many different types of people in different ways. There was a lot of use of cheap labor from the Chinese to construct the railroads. Businessmen relied on railroads to expand their businesses. As was stated before many Native Americans were unfortunately displaced.

Throughout the many history classes and texts that I have read, most related to economics refer back to the great depression and the 2008 recession, while leaving out the recessions that preceded them. In David Montgomery’s Beyond Equality, he delves into the reasons and economic conditions behind the panic of 1873, adding to my knowledge of downswings in the business cycle. Interestingly, he does not attribute the panic to a single component of industry, like entrepreneurship, the telegraph or the rise of railroads, but rather the effect such inventions have had as a whole in increasing industrial output.

Montgomery describes a change in attitude and rise of production during the mid 19th century. America had purchased fabrics and other capital that would then be used to create the final good. But, speculators wanted to raise such capital on American soil, leading to a change in priorities regarding trade and an increase in manufacturing. At face value this seems beneficial to the American economy, but as more goods flooded the market the selling price began to rise at a slower rate than the cost of inputs in the production cycle. Competition also drove down prices culminating in troubling profit numbers for business owners. This increase in industrial might was driven largely by government provided capital and the “typical family firm” began to “cast his eye more frequently toward the government than his own concern”(Montgomery 6). Railroad companies in particular looked towards the government when faced with financial hardship or a lack of financing despite laissez faire capitalism being one of the predominant economic positions during the time period. Production took off as the 1870s quickly approached with an increase in manufacturing fueling economic growth that eventually led to economic crisis.

Industries like pig iron, coal, and building related trades expanded production at tremendous rates during the 1860s, but were plagued by issues. A large amount of production was “carried on by very small firms” that surrounded giant monopolistic companies(Montgomery 10). With the rise of railroads came a rise in the demand of its inputs like steel and iron, which saw a large increase in demand(Montgomery 11). However, the costs of building railroads were more than “individual industrialists” could finance, leading to a reliance on government subsidization, as the laissez faire capitalists went against their own philosophy(Montgomery 7). Adding to this, the successful business owners promulgated the “cult of self made man”, the idea that the successful capitalists pulled themselves up from the bottom on their own, but the reliance many had on government spending would counter that idea for some capitalists(Montgomery 14).

The panic of 1873 was caused by many factors, all centered around the rise of manufacturing. Increasing manufacturing continually without taking into account pricing and supply and demand can lead to negative consequences as seen during the years of the panic. Beyond Equality explains this, and gives insight to a downward period in the business cycle I was not familiar with before.

 

In the reading, “Accounting for Slavery: Masters and Management” by Caitlin Rosenthal explains deeply about development and management of different practices of planation around the 18^th and 19^th century. Through the different methods of planation with the help of enslave individuals. Keeping track of records and development of the growth of planation.

Bookkeepers help keep records of inventory and lives lost. Bookkeepers “’credit’ the account for lives lost over the course of the year” (Rosenthal 9). Keeping track if they died due to diseases, fevers, and old age. Bookkeepers were also responsible for “maintenance and preparing food crops” (Rosenthal 29). They could be carrying letters, math, and carting.

The improvement of blueprints for a machine that preprinted forms was interesting. It was a technology that helped bring in reports of what was being produced and was used for books. During the early 19^th century, “preprinted forms guided planters…” (Rosenthal 50). This help keep track of records and maintain planation production. With the development of preprint, owners and management individuals could purchase “prepaid journals to help monitor operations” (Rosenthal 51). If these individuals were away, they could keep track of the process.

The beginning of enslaved individuals obtaining freedom. After the Civil War, planters began to slowly lose control of their own workers and would have to pay them. Since they were free, they would of leave whenever they wanted. This cause planation to fall apart as planters began to no longer “measured and monitored labor with exacting precision” (Rosenthal 159). But some enslaved individuals decided to stay with their plantation owners.

In brief, these chapters were interesting as it explains the development and management of different practices of planation around the 18^th and 19^th century. These caused the growth of different management to grow planation and keep records of the process. It was interesting to see the development of bookkeepers and prepaid forms to maintain the production of planation and workers. Looking at the aftereffects of individuals being free after plantation owners start to lose control of their enslaved people.