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A Biography of America

The Rise of Capitalism

Individual enterprise merges with technological innovation to launch the Commercial Revolution -- the seedbed of American industry. The program features the ideas of Adam Smith, the efforts of entrepreneurs in New England and Chicago, the Lowell Mills Experiment, and the engineering feats involved in Chicago's early transformation from marsh to metropolis.

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Program 7: The Rise of Capitalism/The Invisible Hand

Donald L. Miller and Louis P. Masur

Miller: America experiences a great surge of commercial development, technological innovation, and industrial growth at the beginning of the 19th century. You can’t just declare it and say we had this fascination with gadgetry, and technology has done so much for us, and we’ve become world leaders. Well, how did that happen?

Masur: Well, the legal system changes dramatically in order to encourage individualistic economic competition, precisely in this period. This is also a story about winners and losers. I mean, somebody’s paying for the economic technological development of the nation. So you asked the question, how do I do that, or how…

Miller: Today on A Biography of America, the energy, excitement, and peril for “The Rise of Capitalism.”

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A Century of Expansion

[Picture of Professor Miller]

Miller: In 1800, America was undergoing not one, but two revolutions: one political, the other economic. The forces unleashed by these twin revolutions; democracy, industrialization, and capitalism, developed in tandem and transformed the look and character of the country. There’s a world of difference between the America of Thomas Jefferson and that of Theodore Roosevelt.

In 1801, when Jefferson was inaugurated, the United States was a new, underdeveloped country of just over five million people. Although it was a country shaped by immigration, immigrants from one country, England, made up half the population. Some adventurous pioneers had moved west of the Appalachian Mountains, but America was still a seacoast settlement, hugging the Atlantic shoreline.

It was a prosperous nation, but it lagged far behind England, which was industrializing furiously. And with only 10% of its population living in cities and towns, it was still overwhelmingly agrarian. In 1801, all this was about to change. And the change would be sudden, explosive, and deeply disorientating.

In the next century, the nation’s boundaries would expand enormously, the result of a relentless westward push. And as America expanded, immigration, capitalism, and technology would reshape the land, old places as well as the new ones. In 1901, when Theodore Roosevelt became President, more than 77 million Americans lived in a continental empire that stretched from sea to sea. And Roosevelt’s America was a veritable nation of nations, a melting pot for over 30 nationalities.

Forty percent of Americans still worked on farms in 1900, but an equal number lived in cities. And by this time, America had surpassed England as the leading industrial nation on earth. The forces responsible for these sweeping transformations were gathering as the 19th century began. The American Revolution broke the back of state-regulated mercantile capitalism and opened the way for a market revolution that produced the world’s most dynamic economic system.

Adam Smith and a New Capitalism

This was the kind of capitalism that Adam Smith, the Scottish economist, had called for in his master work, The Wealth of Nations, which was published, interestingly, in 1776. Smith argued that the production of wealth would increase dramatically if individuals were allowed to pursue their self-interest, with little interference from government. And in serving their own interests, individuals would serve the public interest, unconsciously, as if guided, as he said, by an “unseen hand.” Better the unseen hand than the hand of the State.

Here were radically new ideas; but not to Americans. Smith’s theory coincided with a long-developing American tradition of individualism and opposition to government interference. America, not Britain, would be the great testing ground of Adam Smith’s ideas.

Almost everyone recognizes Smith as the founder of laissez-faire economics. Less well known are his ideas of about the division of labor. The division of labor, he insisted, would greatly improve the efficiency of workers.

To make his point, Smith described the workings of a pin factory. One person making a pin could make perhaps one in a day, maybe a few more. But if the job were divided into ten parts and given to ten workers, each performing a specialized function, a small factory could turn out 48,000 pins a day. This was the assembly line a century and a half before Henry Ford was credited with inventing it.

At the turn of the 19th century, America began to change almost in accordance with Smith’s ideas. What we commonly call the American Industrial Revolution was actually two converging revolutions: a technological revolution based on the division of labor, and a commercial revolution powered by a deep faith in economic individualism and unrestrained competition.

Samuel Slater and the Factory System

[Picture of Samuel Slater]

The American Industrial Revolution began with an act of economic espionage. In 1789, an English mechanic named Samuel Slater left his country for America, disguised as a farmer. In his head were the closely guarded secrets of British textile manufacturing. The following year, Slater built a mill from memory at Pawtucket, Rhode Island with the backing of two local capitalists.

It was America’s first factory. Slater’s mill was a place for making textiles, the woven fabrics used for clothing and hundreds of other products. The cotton cloth was manufactured by spinning machines powered by water. Since America had not yet discovered great deposits of coal, its embryonic industrial revolution would be a revolution primarily in water-powered, textile production.

[Picture of a textile mill]

Slater’s biggest problem was finding laborers. Unable to induce farmers to work in his mill, he hired orphans and poor children who were wards of the town government, paying them 25 cents a week. This was America’s first industrial work force. A new age had begun, and it was the cause of concern and debate.

When Alexander Hamilton heard about Slater’s mill, he celebrated its birth a year later in his famous Report of Manufacturers, which laid out the advantages of industrial development for the United States. Thomas Jefferson was less sanguine about Slater’s mill. Jefferson loved science and technology. He experimented with mechanical gadgets and labor-saving devices, and turned Monticello into a wonder place of technological contrivances.

But Jefferson worried about the new factory system that had sprung up in England and was now threatening to make its appearance in America. Jefferson associated industrialization with Manchester, the recklessly expanding city that had become the center of the British cotton industry. It was a city of fabulous wealth and unimaginable wretchedness, a place where rivers had been turned into black sewers and workers into industrial slaves.

On a visit there, the French writer, Alexis de Tocqueville, captured Manchester’s paradoxical combination of economic ingenuity and social backwardness. “From this foul drain,” he wrote, “the greatest stream of human industry flows out to fertilize the whole world…. Here humanity attains its most complete development and its most brutish; here civilization works its miracles, and civilized man is turned back almost into a savage.”

Jefferson knew that America couldn’t escape industrialization, but he hoped that American factories could be placed in the countryside and worked by farm families with strong democratic values. That way we could industrialize without endangering our republican institutions and creating an entrenched urban proletariat. Samuel Slater tried this family system of production in New England, after his expanding system of factories ran out of children to employ.

Along with hundreds of other early industrialists, Slater built agricultural villages around his mills to attract displaced farm families. The fathers worked in supervisory and ancillary jobs, and the women and kids in the mill itself. So American industry began in the country, not in the city, and remained there for a long time, for that’s where there was falling water to power the new machines.

The Lowell Experiment

The most promising experiment in rural industry was a model town that had been built from scratch in the 1820s, on a beautiful spot at the falls of the Merrimack River, north of Boston. It was named after another industrial spy, Francis Cabot Lowell. Lowell, a Boston merchant, had gone on a tour of British textile mills, memorized their technological secrets, and on his return to America, began building a textile empire. Lowell became its queen city.

What made Lowell unique was its work force: it was made up almost entirely of young, unmarried women, recruited from local farms. To attract them, a wholesome, handsomely landscaped community was constructed, the American answer to Manchester. For a promising moment, America looked like it would be the Great Exception, the only country to industrialize without savaging the environment or debasing the workers.

[Picture of women workers at a textile mill]

The women of Lowell lived in clean, orderly boarding houses supervised by matrons. They worked long hours, but they were farm girls who were used to a seventy-hour work week. What was new, and hard to adjust to, was the tight discipline and the new work routine. The women worked to the pace of their power driven machinery and to the rhythms of the clock.

The bells in the cupolas over the mills awoke them and called them to their jobs, to meals, and to bed in the evening. And the work was divided into boring, highly specialized tasks. But there were compensations. In their off hours, the women attended uplifting lectures, formed improvement groups, and editing their own magazine, the Lowell Offering.

For the mill owners, the secret to the system was the rotating work force. When workers built up a dowry or helped send a brother through college, they left. This made it easier to handle increasing complaints about pay or the speed-up of the work. There were several strikes in the 1830s, but the agitators weren’t there for long.

The Lowell Experiment was killed, not by labor discontent, but by technological change. In the 1830s, steam power began to replace water power in the mills, steam generated by newly-exploited Pennsylvania hard coal, or anthracite. Slater was the first to build large steam driven factories, but soon other cotton mills made the conversion to coal and steam.

Steam power meant bigger mills, faster production runs, closer supervision of the workers, and a greater division of labor in the interest of efficiency. And when this happened, the young Yankee women began to leave. They were replaced by Irish workers fleeing the Potato Famine of the 1840s.

The difference was; the Irish women stayed. They were too poor to leave. By 1850, Lowell was a squalid mill town, a miniature Manchester, with the industrial slavery Jefferson had warned about.

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The Erie Canal

Most historians have it wrong. It was the end of the Lowell Experiment, not the beginning, that marked the advent of full-scale industrial change in America: an age of coal, steam, and immigrant labor. While the factory system was evolving in the Northeast, the entire country experienced a market revolution that tied the expanding nation together with roads, canals, and railroads, and created modern capitalism.

This commercial revolution revolved around an axis that ran from New York to Chicago. Take a map and draw a line from New York up to Boston and then south to Baltimore. Put your hand on the map and move it across the country, all the way to the southern tip of Lake Michigan. Stop. You’re in Chicago.

It’s in this geographic corridor, and Mississippi Valley that serviced it, that the commercial revolution of the early 19th century was concentrated. In 1830, when they began to be make contact with one another, New York and Chicago were vastly different places. New York was a thriving commercial center of almost a quarter of a million people.

It had a spectacular gift from nature; a spacious, sheltered, deep-water port that was connected to the interior of the country by the Hudson River. And its aggressive merchants exploited this location to maximum advantage, making New York the country’s leading export and import center, America’s capital of commerce. New York was a city of the sea with an economic empire that was about to get far larger.

In 1825, the Erie Canal opened for business from Buffalo, on Lake Erie, to Albany, at the head of the Hudson River. This made New York the only port on the Atlantic coast linked by water to what was then the American West, a thinly settled area extending out to Chicago. The Erie Canal lowered shipping costs tremendously.

Now pioneering farmers in the West could ship their grain, lumber, and salted pork through frontier lake ports like Detroit, all the way to New York. And New York could trans-ship them almost anywhere in the world with its magnificent merchant fleet. The canal that helped make New York the country’s busiest saltwater port would soon make Chicago the country’s busiest freshwater port.

But in 1830, there was no town of Chicago. Chicago then was an isolated fur trading post on the far edge of American settlement, a dismal prairie swamp located on a small river that fed into Lake Michigan. The richest man in New York, Jacob Astor, had extended his fur trading empire out to Chicago, but the destinies of these two places would be more tightly connected in future years.

Nature had paved the way, eons ago, during the last Ice Age. When the glaciers that covered the northern part of the continent began to melt, they created a rushing river that swept south from the Great Lakes and cut a gap through the Appalachian Mountains-the Mohawk Pass. The Erie Canal, and later, railroads running between New York and Chicago, passed through this gap.

Because of the Mohawk Pass, there’s no mountain barrier between New York and Chicago, as there is between other eastern ports and Chicago. This gave New York a huge advantage over its rival Eastern cities and united the economic destinies of New York and Chicago.

Chicago Evolves

The completion of the Erie Canal prompted the newly-formed state of Illinois to begin a canal project of its own. It would drive a canal from the Chicago River down to the Illinois River, which flows into the Mississippi. This canal would create an all-water highway from New York down to New Orleans, with Chicago situated at one of its key junctures. It was rumors of this canal that first brought New York speculators to Chicago to assess its economic potential.

What they saw didn’t impress them. Because of the drainage problems, most of the place was underwater for a good part of the year. And most of the inhabitants were wild, hard-drinking French Canadians who had married into Indian tribes. The place had three raucous taverns but no church or schoolhouse.

The only thing Chicago had going for it was its location, but that was enough to interest New York money. Chicago’s river gave it a protected harbor. And that river wound south and would, with the building the new canal, become an open door into the Tallgrass Prairie, the most splendidly endowed agricultural region in the world. With the canal, Chicago could become a jumping-off point for the settlement of a great part of the Louisiana Purchase.

The building of Chicago is a great American story. Chicago’s early history is the history of the early American West, a place that was opened up, like the rest of the West, by cities, not by pioneering farmers, as the historian Frederick Jackson Turner argued. The settling of the frontier was one of the most ambitious city-building efforts in history. And no city in the West — in the world, in fact — grew faster than Chicago.

By the time of the Civil War, Chicago was the master metropolis of the mid-continent, a gateway city connecting new farms and towns of the West with the expanding industrial economy of the East. So what explains this place? How did it grow so spectacularly?

It wasn’t all location. Nature had blessed Chicago, but cities are not ordained by geography. They’re existential, products of human initiative.

The source of Chicago’s early success was its visionary capitalists, money makers as well as city builders. Most of them were young men of modest means from New York and New England. Most were men like William Butler Ogden, the town’s first mayor and master builder, and Gurdon Saltonstall Hubbard, who turned in his Indian buckskins for a frock coat and tie and became one of the town’s richest men.

They were gamblers who risked everything they had on Chicago, investing in swampland in the hope the canal would turn a mudhole into a metropolis. Their economic prospects were tied to the town’s economic prospects. Having invested heavily in Chicago real estate, every improvement they made, be it a road or a building, added to the town’s wealth and their own.

It was the working out of Adam Smith’s notion that self-interest promotes the public interest. In chasing wealth, they built a great city. Chicago was the creation of what John Maynard Keynes called those “beasts of capitalism:” risk-taking and innovation. And it embodied better than any other place the brutal and inventive vitality of the 19th century.

The Making of a City

You can underscore that word “brutal.” When city lots went up for sale to help pay for the canal, speculators poured into the town, and this created pressure to remove the peaceful Potawatomi Indians. The Potawatomi claimed most of the land around Chicago, but this land had become too valuable, it was argued, to be left in the possession of “savages.”

So the Indians were displaced, in a land swindle masquerading as a treaty negotiation. And with them went the French-Canadian forest traders, walking silently with wives and half-breed children to government reservations further west. This is how Chicago was turned, at the very moment of its birth, from a pre-capitalist, French and Indian trading post, to a capitalist, Anglo-American town.

The symbol of this cultural transformation was the Grid. When Chicago was designated as a future canal town, it was laid out by state surveyors in a grid, or checkerboard pattern. The grid turned land into real estate, a commodity to be bought and sold.

Land went to the highest bidder, and to remove land from the market for public use, such as parks or public squares, was considered a waste of a profit-generating resource. So early Chicago had no public squares and only one small park. When the city was built up, people were forced to go to cemeteries and use them as picnic grounds.

Chicago’s founders envisioned a great future for their adopted town. There was only one problem. Chicago had no money. Enter William Butler Ogden: Problem solved.

Ogden, a New York state legislator, was sent to Chicago by New York capitalists who had bought land there on speculation. He hated the place at first, but saw its potential and set himself up as a conduit for New York money that began streaming into Chicago. Ogden and his business associates then set about building a town and connecting it to the rest of the country. They built plank roads to grain farms out in the prairie, established lake trade with the East via the Erie Canal, and tapped New York capital to complete the building of the Illinois and Michigan Canal.

And they built an urban infrastructure of banks and businesses, roads and bridges, packing plants and grain elevators, libraries and schools. These prairie capitalists were ceaseless innovators. In 1848, the year the canal was opened, Ogden was already investing money in a transportation technology that would replace the Canal. It was the railroad.

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Chicago and the Railroad

In 1847, Chicago didn’t have a single mile of railroad. Ten years later, it was the rail center of America, and Ogden was a Railroad King of the West. By the opening of the Civil War, more railroads met at Chicago than at any other spot on earth.

[Picture of steam powered river boats]

St. Louis, Chicago’s chief urban rival, had built a thriving commerce with New Orleans, using steam-powered riverboats. But by the time of the Civil War, Chicago had displaced St. Louis, which remained tied to the river, as the region’s major trade center. The railroad tied the lower Midwest to the Northeast, and insured that this section didn’t split off and become part of the Confederacy in 1861, when the lower Mississippi became a Rebel River.

Chicago rose to regional prominence by becoming not a manufacturing center at first, but a trade center, a giant Exchange Engine. Here’s how the system worked for two commodities: lumber and wheat. Chicago sat between two different ecosystems, the timber-rich lands of upper Wisconsin and Michigan, and the treeless prairie. It was built on Lake Michigan, a water corridor that connected them.

Ogden and other Chicago capitalists purchased entire forests in the North and sent lumber by lake boats down to Chicago, where it was processed, and then sent out by canal and rail to prairie farmers. Chicago’s lumber mills made cottages, schoolhouses, stores, taverns, and churches. Out on the prairie, it wasn’t uncommon for entire groups of homesteaders to gather together at a desolate depot to await the arrival from Chicago of their entire ready-made town.

The wheat trade was a more symbiotic relationship, and the land wasn’t the loser. Reapers made at Cyrus McCormick’s steam-driven Chicago factory allowed farmers to cut the wheat that Chicago shipped to the rest of the world. Farmers made money; Chicago merchants made money; and the key to it all was the railroad.

[Picture of a train in Chicago]

Railroads were prohibited from entering the congested heart of Manhattan. But in freewheeling Chicago, where money-making was unimpeded by government restraints, the railroads steamed right into the center of town, creating tremendous smoke and noise and killing or mangling two persons a day at unprotected rail crossings. As one foreign visitor said: “It’s cheaper to kill people than to elevate the railroads, and human life in Chicago is nothing compared with money.”

Chicago was the American Manchester, the place people visited to see the new economic order. While not yet as rich or as wretchedly poor as Manchester, it was a place of even greater economic creativity and chaos. A commercial powerhouse, it was one of the ugliest cities in America, and the most unhealthy, as well.

Cleaning Up Chicago

In the 1850s, cholera, a water-borne disease, hit the city with devastating force, killing in one year almost six percent of its population. In that decade, Chicago had the highest death rate of any American city. The problem was that Chicagoans were drinking their own sewage. Both garbage and raw sewage were dumped into the Chicago River, along with the blood and remains of animals slaughtered at the city’s meat packing plants.

On some days, the river was blood red. This river water, in turn, flowed into Lake Michigan, the source of the city’s water supply. Even small fish got into the water supply, and would come shooting out of spigots in sinks. “When you turned on the hot water,” as one Chicagoan joked, “you got chowder.”

There was no joking, though, about cholera, which struck people with terrible suddenness and killed them in a day. Finally, public fear and outrage forced the city to act, to save itself. Ogden and other city officials hired a Boston engineer, Ellis Chesbrough, to build a modern water supply and sewage system.

Intake tunnels were driven far out into Lake Michigan. And the Chicago River was reversed by a process of dredging and pumping. Now it carried Chicago’s waste away from the city, into the Illinois and Michigan Canal, past complaining but less powerful canal towns.

Chesbrough also lifted Chicago out of the mud and swampy soil that were breeding places for cholera. He raised up the entire downtown by as much as 10 feet, jacking up entire rows of buildings, with the people right in them, and placing dredged soil from the river bottom under them. The raising of the city and the reversal of the river were two of the most stupendous engineering projects of the age, and they gave Chicago a reputation as a city that could accomplish almost anything.

Raw, wildly growing Chicago illustrated better than any other place America’s faith in technology and unfettered capitalism, forces that were conquering the frontier and raising America to greatness. The Chicago story is a cautionary tale. Self-interest doesn’t always lead in the benign direction Adam Smith hoped it would. These same forces of capitalism and technology would shape the country even more emphatically after the Civil War, making America — and Chicago — great opportunity centers; but also scenes of economic excess, injustice, and unrest.

Transportation Development

Developments in transportation were funded in a number of different ways. In the case of roads and turnpikes, private investors formed corporations and received legislative charters to run transportation companies. Not only Americans, but Europeans as well, invested heavily in the stocks of these corporations.

Governments did not oppose public works schemes, but they were loathe to raise taxes and use public monies. Still, the federal government contributed to the building of the National Road which crossed the Appalachian Mountains. When Andrew Jackson vetoed the Maysville Road Bill, he did so not because he was against a national road, but because he felt the federal government should not finance internal improvements located solely within a single state.

Local and state governments also invested heavily in internal improvements, particularly canals and railroads. The Erie Canal, for example, was built through millions of dollars of bonds issued by the New York State legislature and purchased by investors.

Through enormous land grants, the federal government made possible the creation of a transcontinental railroad by the 1860s. The courts as well played a critical role in promoting economic development. Time and again, judges ruled in favor of turnpike, canal, and railroad companies in their quests to compete against other companies, acquire land, or be indemnified from lawsuits claiming damages to property. Competition, these justices believed, was a good thing, and their rulings often reflected their belief that transportation networks marked the “onward spirit of the age,” a spirit that should be left unbridled.

Questions to Ponder

The economic transformation of America in the early 1800s was linked to dramatic changes in transportation networks. Investments in roads, turnpikes, canals, and railroads led to the expansion of markets, facilitated the movement of peoples, and altered the physical landscape. In the distances traveled, Americans, some commentators thought, had learned to “annihilate time and space.”

1. Canal companies and railroad companies often battled and sued one another. Why?

2. Why might some Americans have opposed the developments in transportation?


Dilts, James. The Great Road: The Building of the Baltimore and Ohio, the Nation’s First Railroad, 1828-1853.Stanford, California: Stanford University Press, 1993.

Sellers, Charles G. The Market Revolution: Jacksonian America, 1815-1846. New York: Oxford University Press, 1991.

Sheriff, Carol. The Artificial River: The Erie Canal and the Paradox of Progress, 1817-1862. New York: Hill and Wang, 1997.

Taylor, George R. The Transportation Revolution, 1815-1861. New York: Rinehart, 1951.



  • Samuel Slater
    • Slater Mill
      Biographical information on Samuel Slater, with a link to a history of the Slater Mill, a 1915 editorial from The Providence Journal, etc.


  • Thomas Jefferson & Inventions
    • Monticello
      Describes a day in the life of Thomas Jefferson with references to his mechanical inventions and labor-saving devices.


  • Alexander Hamilton
    • HamiltonBio
      An Alexander Hamilton chronology, with links to relevant documents, including an excerpt from The Report on the Subject of Manufactures.
    • A Biography of Alexander Hamilton (1755-1804)
      An introduction to and a description of Hamilton’s Report on Manufacturers.


  • Francis Cabot Lowell


  • William Butler Ogden
    • CPL Chicago Mayors Ogden
      A portrait of and a few biographical details about Mayor Ogden.
    • Chicago History — City Hall
      The history of Chicago’s city government with a reference to Ogden.


  • Gurdon Saltonstall Hubbard
    • Gurdon S. Hubbard- 1802 – 1886
      The story of Hubbard’s journey to Chicago as a young boy.
    • The Illinois and Michigan Canal
      The building of the Illinois and Michigan Canal with a reference to Hubbard.



  • Ellis Chesbrough
    • Chicago Department of Sewers

      Chicago Sewers Collection

      Detailed information on Chicago and its sewer system. On a page called “Raising Chicago” there is a portrait of Chesbrough and the history of his role in creating the sewer system of Chicago. Provides a link to the full text of Chesbrough’s Chicago Sewerage Report.

Series Directory

A Biography of America


Produced by WGBH Boston in cooperation with the Library of Congress and the National Archives and Records Administration, and with the assistance of Instructional Resources Corporation. 2000.
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