In the early 1800s, most Americans still lived on farms. Out of a population of over 30 million, only 1.3 million Americans worked
in industry when the Civil War began in 1861.

By the late 1800s, the United States was the world’s leading industrial nation. By 1914 the nation’s gross national product (GNP)—the total value of all goods and services that a country produces—was eight times greater than it had been in 1865 when the Civil War came to an end.

Many of these resources were located in the American West. The settlement of this region helped accelerate industrialization, as did the transcontinental railroad. Railroads took settlers and miners to the region and carried resources back to factories in the East.

At the same time, people began using a new resource, petroleum. Even before the automotive age, petroleum was in high demand because it could be turned into kerosene. The American
oil industry was built on the demand for kerosene, a fuel used in lanterns and stoves.

In 1859 Edwin Drake drilled the first oil well near Titusville, Pennsylvania. By 1900 oil fields from Pennsylvania to Texas had been drilled. As oil production rose, it led to economic expansion.

Another important reason the United States was able to industrialize rapidly was its free enterprise system. In the late 1800s, many Americans embraced the idea of laissez-faire, a French phrase meaning “let people do as they choose.”

Supporters of laissez-faire believe the government should not interfere in the economy other than to protect private property rights and maintain peace.

They argue that if the government regulates the economy, it increases costs and eventually hurts society more than it helps.

In the late 1800s, the profit motive attracted many capable and ambitious people into business. Entrepreneurs—people who risk their capital to organize and run businesses—were attracted by the prospect of making money in manufacturing and transportation.

Many entrepreneurs from New England, who had accumulated money by investing in trade, fishing, and textile mills, now invested in factories and railroads. An equally important source of private capital was Europe, especially Great Britain. Foreign investors saw great opportunities for profit in the United States.

Between 1860 and 1910 the population of the United States nearly tripled. This population growth provided industry with an abundant workforce and also created greater demand for the consumer goods manufactured by factories.

Population growth stemmed from two causes—large families and a flood of immigrants.

New technology increased the nation’s productivity and improved transportation and communications networks. New inventions also resulted in new industries, which in turn produced more wealth and jobs.

Since the early 1800s, leaders in the Northeast and the South had different ideas about the proper role of the government in the economy.

Northern leaders wanted high tariffs to protect manufacturers from foreign competition and also supported federal subsidies for companies building roads, canals, and railroads. Southern leaders opposed subsidies and favored low tariffs to promote trade and to keep the cost of imported goods low.

The Civil War ended the debate. After the Southern states seceded, the Republican-controlled Congress passed the Morrill Tariff, which greatly increased tariff rates. By 1865 tariffs had nearly tripled.

The railroad boom began in 1862, when President Abraham Lincoln signed the Pacific Railway Act. This act provided for the construction of a transcontinental railroad by two corporations.

To encourage rapid construction, the government offered each company land along its right- of-way. A competition between the two companies developed, as each raced to obtain as much land and money as possible.

By linking the nation, railroads increased the markets for many products, spurring American industrial growth. Railroads also stimulated the economy by spending huge amounts of money on steel, coal, timber, and other materials.

Hundreds of small, unconnected railroads had been built before the Civil War. Gradually, however, large rail lines took them over.

By 1890, for example, the Pennsylvania Railroad had consolidated 73 smaller companies.

Eventually, seven giant systems with terminals in major cities and scores of branches reaching into the countryside controlled most rail traffic.

Building railroad lines often required more money than most private investors could raise on their own.

To encourage railroad construction across the Great Plains, the federal government gave land grants to many railroad companies.

The railroads then sold the land to settlers, real estate companies, and other businesses to raise money to build the railroad.

During the 1850s and 1860s, the federal land grant system gave railroad companies more than 120 million acres of public land, an
area larger than New England, New York, and Pennsylvania combined. Several railroads, including the Union Pacific and Central Pacific, received enough land to cover most of the cost of building their lines.

The great wealth many railroad entrepreneurs acquired in the late 1800s led to accusations that they had built their fortunes by swindling investors and taxpayers, bribing officials, and cheating on their contracts and debts. Infamous for manipulating stock, Jay Gould was the most notoriously corrupt railroad owner.

Corruption in the railroad industry became public in 1872, when the Crédit Mobilier scandal erupted.

Crédit Mobilier was a construction company set up by several stockholders of the Union Pacific Railroad, including Oakes Ames, a member of Congress. Acting for both the Union Pacific and Crédit Mobilier, the investors signed contracts with themselves.

Crédit Mobilier greatly overcharged Union Pacific and added miles to the rail- road construction. Because the same investors controlled both companies, the railroad agreed to pay the inflated bills with- out questions.