20. Why Can you Have Any Car as Long as it is Black?
The Rise of American Industry
After one year, Henry Clay Frick quit the university he was attending and, with two cousins and a friend, founded the Frick Coke Company. The plan was simple. Using a beehive oven, they would turn coal into coke fuel. Coke is an important ingredient in making steel.
Henry’s father had been a farmer and an unsuccessful businessman in Pennsylvania, and Henry vowed that his life would be different. Soon after establishing the Frick Coke Company, though, disaster struck – and it seemed that Henry would follow in his father’s footsteps. A financial crisis in 1873 had reduced the price of coke to 90 cents per ton and Henry’s business partners wanted out. But Henry chose to stay on, wrote a letter to an old family friend, Andrew Mellon, and received a loan of $10,000. For him, depressions were times of expansion; with his new loan he bought out his partners and acquired several coal mines from timid competitors at very low prices. And just as Henry had predicted, the panic did not last; within a few years the coke price had recovered to $4 per ton. By the time he was thirty, in 1879, Henry was a millionaire.
Two years later Henry married Adelaide Childs, and took her to New York for their honeymoon. It was not only for pleasure. In New York he met Andrew Carnegie, owner of vast steelworks in Pittsburgh and an important buyer of Frick’s coke. Not long afterwards the two became partners in Carnegie Steel. Carnegie Steel would, in 1901, join forces with the Federal Steel Company and National Steel Company, in a deal financed by J. P. Morgan, to become the United States Steel Corporation, the world’s first billion-dollar company.
Henry Frick’s career overlaps with one of the most important periods of American history. In 1860, when Henry was twelve, the United States was still mostly an agricultural society, with 43.2 per cent of all jobs in farming, fishing or forestry. By 1920, a year after Henry’s death, that number had shrunk by almost half, being replaced by manufacturing and service-sector jobs.
What contributed to this transformation of the US economy in one lifetime? The Industrial Revolution, which began in England during the second half of the eighteenth century on the back of new scientific inventions, had spread to other parts of Western Europe and also, by the nineteenth century, to the United States. Just as in England, American manufacturing began with textiles: Samuel Slater, using secret information he brought from England, built the first cotton-spinning mill in 1790. But manufacturing would only take off with the development of three important inputs: cheap energy, cheap transport and easy access to credit.
In 1836 steam power accounted for only 5 per cent of total power used in US manufacturing. Most power generation depended on water power. By 1900, however, steam had replaced water as the main source of power, with more than 80 per cent of all power used in manufacturing coming from steam. It was around this time, too, that steam reached its peak: a new technology – electricity – would rapidly expand during the early twentieth century.
What caused this large increase in steam power during the nineteenth century? The economic historians Nathan Rosenberg and Manuel Trajtenberg explain that as Americans moved westward after the Civil War of the 1860s, they moved into drier regions with fewer opportunities to generate water power.1 This provided an incentive to improve steam power, and George Corliss responded by designing a machine that did two things: it was more energy efficient and it delivered a continuous, uniform flow of power. It was especially on account of its efficiency – reducing the cost of fuel by a third or more – that the ‘Corliss’ became the standard stationary steam engine in manufacturing. Its widespread adoption, of course, increased the need for coal, which is one reason Henry Frick’s mines were always in demand. But the widespread adoption of the Corliss engine also meant that the geographic constraint of waterways was lifted. Factories could now be built anywhere, and not only next to rivers. This increased urbanisation and the growth of cities, something that would be augmented by the development of another important technology: railways.
Although horse-drawn barges on canals and paddle-wheel steamboats on rivers were in wide use during the early nineteenth century, the expansion of railways is often credited with the industrial rise of the United States. By 1840 there were as many miles of railways as there were of canals. A decade later the ratio had increased to two to one. By 1860 America had more railways than the rest of the world combined. This rapid expansion substantially lowered transportation costs, especially for those places without access to canals. This meant that the size of the market for many of those isolated in the interior expanded significantly. Just as was the case in India and elsewhere, the growth of railways in the USA expanded the market access of isolated towns in the American interior.2 To calculate just how large this effect was, economists Dave Donaldson and Richard Hornbeck constructed a network database of railways and waterways and calculated the lowest cost for each freight route between various US districts. They concluded that ‘railroads were critical to the agricultural sector in 1890: the absence of railroads would have decreased agricultural land values by 60%. Railroads’ contributions to the agricultural sector were largely irreplaceable, either through extensions to the canal network or improvements in country roads.’3
The third factor that contributed to the rise of industry was banking and the credit it provided. Although the history of banking in the United States dates back to the 1780s, it was only in 1836 that an era of ‘free banking’ began, with mixed results. Although the number of banks expanded rapidly all across America, banks could issue their own currency with little or no security, which resulted not only in high transaction costs but also in frequent bank failures and financial crises. The National Banking Acts of 1863 and 1864 were introduced to curb the risky behaviour of these institutions. It granted state charters to establish new banks and incorporate them into a national banking system, thereby contributing to the development of a national currency backed by bank holdings of US Treasury bills.
One interesting feature was that the new Act required banks to hold twice the equity in towns with more than 6,000 people than they did in towns below that threshold. This made it more difficult to establish a bank in a town with just more than 6,000 people than in a town with just below 6,000. One study exploits this difference to show that banks in towns just below the threshold extended more credit and chose a higher leverage, leading to a local credit boom that was associated with an expansion in local manufacturing industry.4 However, these same banks were also more likely to default during or after a financial crisis. Thus, places with less stringent regulations (and thus more bank competition) saw greater economic growth but also greater financial instability.
Innovations in energy, transportation and finance gave people like Henry Frick ample opportunity to make a fortune. But these innovations did not only benefit a small elite. The average American born in the 1840s, like Frick, would experience enormous changes in their lifetime. Their primary source of light changed from candles to kerosene lamps and then to electric light bulbs. Their mode of transport would change from walking and horses to steam-powered trains and electric trolley cars and, finally, by the beginning of the twentieth century, to gasoline-powered automobiles.
It was automobiles that would transform American cities anew, this time at the hands of another Henry. In 1903 Henry Ford established the Ford Motor Company and in 1908 produced the Model T, a car for the mass market that proved widely popular. Demand soon outstripped supply. In what was probably his most important invention, Ford realised that instead of using the same worker to manufacture an entire car, he could specialise the tasks for each worker, and thus produce far more cars in the same amount of time. The moving assembly line was thus born. To speed up production, all components were standardised and tasks were timed and reduced to a minimum. It is said that Ford one day noticed that black paint dried faster, and to cut down on production time he ordered that all cars be painted black. This explains his remark that ‘a customer can have a car painted any colour that he wants so long as it is black’.
Not only did this new system allow the Ford company to produce more cars, it also earned them greater profits, which allowed them to pay their workers better: by 1914 Ford could increase the daily wage for an eight-hour day to $5 from a previous $2.34 for nine hours. Higher productivity translated into higher incomes, for rich and poor.
Higher incomes contributed to healthier lives. Take infant mortality, for example. In the America of the 1850s, almost one in every four infants died before the age of five. Even the rich could not prevent deaths from disease that today are easily preventable; Abraham Lincoln’s second son Eddie, for example, died of ‘chronic consumption’ (probably tuberculosis) in 1850, despite Lincoln’s considerable wealth. His third son Willie died in 1862 from ‘bilious fever’ (probably typhoid fever) while living in the White House and despite the diligent care of three doctors.5
Industrialisation, the subsequent rise in incomes and the improvements in public health and sanitation that local governments could now afford from higher tax revenue changed that. The best evidence we have of how industrialisation helped to improve the living standards of both the rich and poor comes from economists Marcella Alsan and Claudia Goldin’s work on the impact of water and sewerage treatments built by municipalities around Boston between 1880 and 1920.6 Today we understand and recognise the value from investing in water and sanitation infrastructure. Water infrastructure eliminates impurities, ensuring water is safe to drink. Sanitation systems clear excrement from drinking water, reducing the risk of gastrointestinal diseases. In short: these practical investments can save millions of lives. And this is exactly what Alsan and Goldin found for early twentieth-century America. Boston municipalities that built water and sewerage treatments with their additional tax revenue lowered infant mortality by almost 50 per cent; from roughly one in six children in 1896 to one in eleven by 1920.
In Henry Frick’s lifetime, then, not only had the income of the average American soared from $3,713 to $10,450,7 but life expectancy, despite a deadly flu pandemic in 1918, had increased from forty-two years for men at birth in the 1840s to fifty-six years by 1920. A country of horses had become a country of cars: by 1920 one in three American households owned one. Half of them were Model Ts. The agrarian America that Frick was born into had been transformed into an urbanised, industrial superpower.
N. Rosenberg and M. Trajtenberg, A general-purpose technology at work: The Corliss steam engine in the late-nineteenth-century United States, Journal of Economic History, 64 (1), 2004, 61–99.↩︎
D. Donaldson and R. Hornbeck, Railroads and American economic growth: A ‘market access’ approach, Quarterly Journal of Economics, 131 (2), 2016, 799–858.↩︎
Ibid., 854.↩︎
M. A. Carlson, S. Correia and S. Luck, The effects of banking competition on growth and financial stability: Evidence from the national banking era (working paper SSRN 3202489, 2019).↩︎
Hacker, J. David, Martin Dribe, and Jonas Helgertz. "Wealth and Child Mortality in the Nineteenth-Century United States: Evidence from Three Panels of American Couples, 1850–1880." Social Science History 47, no. 3 (2023): 333-366.↩︎
M. Alsan and C. Goldin, Watersheds in child mortality: The role of effective water and sewerage infrastructure, 1880–1920, Journal of Political Economy, 127 (2), 2019, 586–638.↩︎
This per capita income is roughly the same as Bosnia and Herzegovina, Ecuador or Uzbekistan today.↩︎