14.3 Big Business and Organized Labor

As the business enterprise becomes large it operates on a scale of production that requires the labor of a proportionally large number of workers. The managers of the firm must ensure that they reliably and efficiently meet their production goals. To achieve this end, managers established methods for controlling their labor force so that rate of production remains within their full discretion. Introduction of mechanization into the production process serves as one historical example of the methods of controlling labor. Mechanization establishes the pace of production, by powering machine technology. For example, an assembly line sets the rate at which workers must labor. In this sense, workers on an assembly line must work at roughly the same pace, harmonizing their collected labor. By adjusting the speed of the machine, worker productivity may be adjusted across the board as desired, subject to physical limits of the labor force. Similarly, the machine process results in a “deskilling” process, which tends to homogenize the labor requirements for production. Deskilling transforms the labor process by removing the power that workers enjoy via their specialized knowledge of craft production. Machine production depends, to a much lesser degree, on the specialized knowledge of workers. Instead, this knowledge is transferred to the managerial class, who may possess knowledge of the machine and its technical requirements or retain the expertise of an engineer.

Loss of worker control over the production process results in the ability for the managerial class to retain a larger share of the monetary value of the output of the labor process. Managerial focus on cost efficiency and meeting its production targets, coupled with control over the labor process, resulted in dangerous and poor working conditions. The large business enterprise, by exercising its control over the labor process in order to exploit its workers, created the conditions for the emergence for an organized labor movement.

An exhaustive review of the labor history in the United States is beyond our reach, however, we may highlight some of the major themes and events that helped shape its development.

The Knights of Labor

 Organized in 1869 by tailors in Pennsylvania, the secret organization named the Noble Order of the Knights of Labor would serve as an organizational body for workers seeking collective action following the Panic of 1873. Coal miners helped drive membership growth in the Knights of Labor through the depression of the 1870s. By 1884 there were 70,000 members of the Knights of Labor. By 1886 this figure exploded to 700,000.

The Knights of Labor participated in strikes in order to achieve their primary goal of an 8 hour workday. Most notably, the Knights of Labor won a struggle against Jay Gould over a dispute concerning the Wabash Railroad in 1885.

The Great Railway Strike of 1877

Railroads figure prominently in the course of American economic history for they have left lasting and transformative imprints on the course of development. It is natural, then, to link a major moment in the history of the labor movement to consequences of railroad speculation and administration. The economic depression of the 1870’s was global in nature and was caused largely by a financial crisis related to the value of railroad securities. The Panic of 1873 emerged from a financial system that had become increasingly fragile during the speculative episode in railroad securities, mostly bonds, following the Civil War. Jay Cooke, a major US banker during the latter part of the 19th century, was heavily vested in the market for Northern Pacific bonds to interests in Europe. During the 1870s Europeans were less keen to accept the risk associated with holding American railroad bonds. In turn, this led to the inability for Cooke to continue issuing debt and ultimately resulted in his firm becoming insolvent. The failure of Jay Cooke & Company set off a wave of bank failures and a closure of the New York Stock Exchange. The result of this financial panic was a nearly decade long depression.

As a result, railroads were under pressure to cut their labor costs. Notable railroads such as the Pennsylvania and Baltimore & Ohio Railroads had administered waves of wage cuts. Railroad workers organized themselves in the summer of 1877 and succeeded in bringing the railroad system in the eastern part of the United States to a grinding halt. Striking railroad workers were joined by sympathetic workers in other mining and manufacturing sectors, which resulted in fears on the part of the state and business interests that labor was growing into a coherent and powerful countervailing force. To quell the strikers, initially local militias were deployed. However, local militias were ineffective due to their propensity to defect and join the strikers, as they found themselves in common interest with their fellow members of the community. Consequently, National Guard and federal troops were brought into cities under the control of the strikers and were far more effective, because the soldiers were not particularly vested with the interests of the community and more likely to follow the orders of their commanding officers.

Etching of national guard soldiers firing on strikers in the streets of Baltimore
Figure 5. Maryland National Guard Sixth Regiment fighting to suppress strikers in Baltimore. Harper’s Weekly, Journal of Civilization, Vol XXL, No. 1076, New York. Public domain.

The strikes of 1877 serve as an important moment in the development of the political economy of the labor situation in the United States. Following the strikes, membership in labor organizations increased substantially. Likewise, more national guard units were established with an eye toward checking the power of labor going forward. In the realm of economic theory, the struggle between big business and big labor was taken as a serious matter of consideration. The development of neoclassical economics owes much of its theory of distribution to the international labor struggle that reached a fever pitch in the 1870s. For example, John Bates Clark, the father of the marginal product theory of distribution, was working out a theory of distribution that sought to move consideration of the distribution of the social product away from conflict between social classes, toward one based upon marginal contributions of each factor of production (land, labor, capital) in the production process. The result, is a theoretical system that finds fairness in an unequal distribution of income and wealth. Bates’ theory was a direct response to the class conflict embodied in events like the Great Strikes of 1877.

While it is not possible to give the history of the labor movement in the United States a thorough treatment here, we can summarize some of central implications and consequences:

  • Ongoing coherence and emphasize around the demand for an 8 hour working day.
  • Development of systems of administration and organization capable of exerting a countervailing force against big business.
  • Formation of institutions capable of allowing workers to regain some of the control over production that was lost with the demise of handicraft production as a result of industrialization.


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Principles of Microeconomics: Scarcity and Social Provisioning Copyright © 2016 by Erik Dean, Justin Elardo, Mitch Green, Benjamin Wilson, Sebastian Berger is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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