A Growing Economy: Petroleum and Steel
- Andrew Olesky
- Jul 6, 2023
- 4 min read
Prior to the outbreak of the American Civil War, the U.S. economy was heavily dependent on agriculture. Cotton, grain, and tobacco were the foundation of America’s economic system.[1] Although these products continued to be important to the postbellum economy, two other commodities experienced significant growth in the late nineteenth century. Petroleum and steel became increasingly important in the decades following the American Civil War. The reason for this was the sudden increase in manufacturing, the demand for more efficient and sustained energy and the need to transport goods across the continental United States.
Beginning in 1860 and continuing into the twentieth century, the demand for manufactured goods saw a sudden uptick in the United States. It did not overtake raw materials until the early twentieth century, but the path was set during the American Civil War. American businessmen saw opportunity in producing goods faster and cheaper with the help of machinery. These machines, which relied heavily on steam power were not producing to meet the demands of the industry. The solution was oil. Although oil had been drilled for hundreds of years in Asia, it had not been widely utilized in America until the 1850s. Businessmen such as John D. Rockefeller saw opportunity in drilling, refining, and using oil as a source of energy to help meet the demands in America. [2] The United States and Russia were the leading suppliers of oil to most of the world. Although Europe and Asia had a growing demand for oil, the United States was becoming quickly dependent upon it, as natural gas and coal were becoming less valuable to manufacturers.
Although Rockefeller foresaw great potential in the use of oil, he was taking a risk that this quick growing source of energy was going to produce continued growth. By the end of the nineteenth century, Standard Oil, Rockefeller’s company, monopolized the oil industry. Ultimately the Supreme Court ordered the company to be split. [3] This did not harm the profitability of Rockefeller’s oil, especially with the demand that came with World War I. Oil production grew steadily each year.
Whereas oil, was a risky investment, another industry, steel had been widely used in the United States and around the world for centuries. The postbellum America, however had a quickly growing demand for steel as railroads and manufacturing plants required its use. It was the railroad industry where U.S. businessman Andrew Carnegie found his start as an investor and business manager. Beginning in an entry-level position, Carnegie was noticed by his superiors as an intelligent and eager business leader. It was this experience that Carnegie came to understand and see first-hand the need of American steel. By taking advantage of 1870 tariffs, Andrew Carnegie sought to meet the U.S. need for steel production by manufacturing steel at a lower cost than the British companies that had supplied American demand before the American Civil War. [4] He ultimately helped to create the United States Steel Corporation, which became the world's first billion-dollar company.
America’s production of steel grew in the last three decades of the nineteenth century from one million tons to ten million tons. This growth continued into the twentieth century reaching twenty-four million tons by 1910. [5] Like Rockefeller and his Standard Oil Company, United States Steel Corporation was sued in an attempt to dissolve the company. Unlike Standard Oil, the decision of the United States Supreme Court was that although U.S. Steel was large, the combined power of its competitors was sufficient to determine that U.S. Steel did not have a monopoly on the steel industry.[6]
Conclusion
The Reconstruction Era of United States history is usually marked by social struggles and economic distress. Not every industry suffered negative effects of the years following the American Civil War. With the completion of the transcontinental railroad, the westward expansion of the United States territory, and the sharp increase in manufacturing, petroleum and steel were in high demand. Prior to the 1870s agriculture was the foundation of the American economy and although petroleum and steel overtook cotton, grain, and tobacco, it did not hurt these industries. In fact, the ability to manufacture and export goods brought about a higher demand for these products both domestically and internationally. Entrepreneurs like Rockefeller and Carnegie foresaw the demand of these crucial commodities and developed methods for extracting, refining, and manufacturing them to meet the needs of the market. In doing so they created two of the most profitable companies of the nineteenth century including the first billion-dollar company.
Bibliography:
[1] Douglas A. Irwin “Explaining America’s Surge in Manufactured Exports, 1880-1913.” The Review of Economics and Statistics 85, no. 2 (2003): 364–76. http://www.jstor.org/stable/3211586.
[2] Speight, James G. An Introduction to Petroleum Technology, Economics, and Politics. Salem, MA: Scrivener, 2011. 22
[3] Jose A. Bolanos. “Energy, uncertainty, and entrepreneurship: John D Rockefeller’s sequential approach to transaction costs management in the early oil industry.” Energy Research & Social Science, Volume 55, 2019, Pages 26-34, ISSN 2214-6296, https://doi.org/10.1016/j.erss.2019.04.020.
[4] Kaza, Greg. "ANDREW CARNEGIE: AN ECONOMIC BIOGRAPHY." Quarterly Journal of Austrian Economics 19, no. 3 (Fall, 2016): 302-6, https://go.openathens.net/redirector/liberty.edu?url=https://www.proquest.com/scholarly-journals/andrew-carnegie-economic-biography/docview/1863562406/se-2.
[5] “Industrial Competition Between Chicago and Pittsburg” Retrieved on July 4, 2023 from https://historyengine.richmond.edu/episodes/view/5174
[6] United States v. United States Steel Corp., 251 U.S. 417 (1920)
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