Electricity and the Electrical Industry in the Second Industrial Revolution

The electrical industry was the most important new industry of the Second Industrial Revolution. The development of the dynamo, the electric motor, and the electric light bulb transformed daily life and created one of the largest industries in the world.

The Origins of the Electrical Industry

The theoretical foundations of the electrical industry were laid in the early nineteenth century by a series of scientists, including Hans Christian Ørsted, who discovered that electric current could produce a magnetic field; Michael Faraday, who discovered that a moving magnetic field could produce an electric current; and James Clerk Maxwell, who formulated the equations that describe the behavior of electric and magnetic fields.

The practical development of the industry was the work of a generation of inventor-engineers, including Thomas Edison, Nikola Tesla, George Westinghouse, and Werner von Siemens. The article on Thomas Edison and the electrical industry describes Edison’s work in more detail. The article on Nikola Tesla and the AC system describes Tesla’s work in more detail.

The Incandescent Light Bulb

The invention of the practical incandescent light bulb in the 1870s and 1880s was the breakthrough that made the electrical industry a major economic force. The electric light bulb made it possible to light homes, factories, and streets with electricity, and it created a mass market for electrical equipment. The two most important versions of the light bulb were developed by Thomas Edison in the United States and Joseph Swan in Britain.

The War of the Currents

The early years of the electrical industry were marked by a famous conflict between the proponents of direct current (DC) and alternating current (AC). Edison’s system, based on DC, was limited in the distance it could transmit electricity. The AC system, developed by George Westinghouse and Nikola Tesla, could transmit electricity over much longer distances. The AC system eventually won the war, largely because of its technical superiority in long-distance transmission.

The Great Electrical Companies

The late nineteenth and early twentieth centuries saw the rise of the great electrical companies, which came to dominate the industry. In the United States, the most important firms were Edison General Electric (which later became General Electric) and Westinghouse Electric. In Germany, the leading firms were Siemens and AEG.

The Electrification of Industry

The development of the electric motor made it possible to use electricity to power machinery in factories. Before electrification, factories had to be located near a source of water power, or they had to generate their own steam power. The electric motor freed factories from these constraints, and it allowed factories to be designed around the flow of materials rather than the constraints of a single source of power.

The Pearl Street Station and the Birth of the Public Utility

The first commercial central power station in the world was Thomas Edison’s Pearl Street Station, which began operation on September 4, 1882, at 257 Pearl Street in lower Manhattan. The station, designed by Edison, Francis Upton, and Luther Stieringer, used six “Jumbo” dynamos to provide 110-volt direct current to 59 customers in the surrounding neighborhood, illuminating about 5,000 lamps at its first year of operation. The success of the Pearl Street Station led to the construction of similar stations in many American and European cities, and by 1890 there were more than 1,000 central stations in the United States, with a total capacity of perhaps 200,000 horsepower. The early stations, based on DC current, were limited in the distance they could transmit electricity: the voltage drop over a distance of more than a mile or two was too severe to be practical. The development of the alternating current (AC) system, based on the work of Nikola Tesla, Galileo Ferraris, and Mikhail Dolivo-Dobrovolsky, made long-distance transmission possible, and the first commercial AC power station, the AEG station in Berlin, was built in 1884. The “war of the currents” between Edison’s DC and Westinghouse’s AC systems was a defining moment in the history of the industry.

The War of the Currents: 1885-1895

The “war of the currents” was a contest between two competing technical systems and two competing business models. Edison’s system, based on 110-volt DC, was safe and reliable but limited in range; the AC system, promoted by George Westinghouse and developed by Tesla, could transmit electricity over much longer distances but was initially seen as dangerous. The war was decided by three events. First, the Westinghouse AC system was selected for the 1893 World’s Columbian Exposition in Chicago, with Westinghouse and Tesla providing the electrical equipment for the fair at a fraction of the price of the General Electric bid. Second, the Niagara Falls Power Company chose an AC system for the first large-scale hydroelectric power station in the United States in 1895, with Westinghouse and General Electric providing the equipment. Third, the New York State Electric Commission chose an AC system for the electrification of New York City in 1895, effectively ending the technical competition. The war was also a business contest: Edison, who had refused to merge with Westinghouse in 1889, was forced to accept the merger of his company with Thomson-Houston in 1892, forming General Electric, which became the dominant American electrical firm of the twentieth century.

The German Electrical Industry: Siemens, AEG, and the Research-Based Firm

The German electrical industry was, by 1900, the most successful in the world, and it was the first to develop the model of the research-based corporation that defined the twentieth-century economy. Siemens, founded by Werner von Siemens in 1847, was the world’s largest electrical firm by 1900, with revenues of 56 million marks and 18,000 employees. AEG (Allgemeine Elektricitäts-Gesellschaft), founded in 1883 and led by Emil Rathenau, was the second largest, with revenues of 50 million marks. The German success was based on a combination of factors: the strong tradition of scientific research in the German technical universities, the close relationship between the industry and the universities, the willingness of the German state to fund scientific research, and the practice of hiring large numbers of trained scientists and engineers in industrial research laboratories. The German chemical industry, with the firms BASF, Bayer, and Hoechst, had developed the same model in the 1880s, and the German electrical industry was in many ways modeled on the chemical industry. The model was later adapted in the United States by General Electric, AT&T’s Bell Labs, and DuPont, and in Britain by Imperial Chemical Industries (1926). The German model is the subject of Alfred D. Chandler Jr.’s Scale and Scope (1990), which compares the American, German, and British versions of the modern corporation.

The Electrification of the United States

The electrification of the United States was one of the largest infrastructure projects in history, and it was a defining feature of the twentieth century. The first American central station, the Pearl Street Station, was opened in 1882, and by 1900 there were about 3,600 central stations in the country, with a total capacity of perhaps 1.2 million kilowatts. The growth of the industry was rapid: by 1920, the United States had about 5,000 central stations and 7.6 million customers; by 1930, 4,500 central stations and 24 million customers; and by 1950, 3,200 central stations and 53 million customers. The consolidation of the industry, accelerated by the Federal Water Power Act of 1920 and the Public Utility Holding Company Act of 1935, reduced the number of firms dramatically: in 1935 there were 216 holding companies controlling 95 percent of the private electrical utility business; by 1952 there were 36. The decline of the cost of electricity to residential customers was remarkable: the average price fell from 24.4 cents per kilowatt-hour in 1882 to 12.2 cents in 1900, 7.5 cents in 1920, 4.7 cents in 1940, and 2.7 cents in 1970. The electrification of the United States is the subject of Thomas Parke Hughes’s Networks of Power (1983), which compares the American, German, and British models of electrical system development.

Historiography: The Second Industrial Revolution

The interpretation of the electrical industry is central to the larger debate about the “Second Industrial Revolution.” The classic account, derived from W. W. Rostow’s The Stages of Economic Growth (1960) and from the older Patrick Geddes and Lewis Mumford tradition, treats the Second Industrial Revolution as a distinct phase characterized by new industries, new sources of power, and a new type of firm. The revisionist case, associated with Alexander Gerschenkron in Economic Backwardness in Historical Perspective (1962) and with Charles Sabel and Jonathan Zeitlin in World of Possibilities (1997), argues that the distinction between the First and Second Industrial Revolutions is overdrawn, and that the key features of the later period — the research-based firm, the new industries, the new sources of power — were the continuation of trends established in the earlier period. The debate matters because it shapes how we think about the relationship between the British Industrial Revolution and the later industrialization of Germany, the United States, and Japan. The most recent synthesis, Joel Mokyr’s The Enlightened Economy (2009) and Robert C. Allen’s The British Industrial Revolution in Global Perspective (2009), treat the two industrial revolutions as a single long process of technological change, with different sectoral leaders in different periods.

The 20th-Century Electrical Economy and the Long 20th Century

The electrical industry of the late 19th and early 20th centuries laid the foundation for the modern electrical economy. The post-1945 expansion of the electrical industry was driven by the rising demand for household appliances — refrigerators, washing machines, vacuum cleaners, electric stoves, electric heaters, air conditioners — and by the post-1960 demand for electronic goods — televisions, radios, computers, and the integrated circuits that made them possible. The introduction of the transistor at Bell Labs in December 1947 by John Bardeen, Walter Brattain, and William Shockley, and the integrated circuit developed independently by Jack Kilby of Texas Instruments and Robert Noyce of Fairchild Semiconductor in 1958-1959, were the foundations of the modern electronics industry. The long-term effect was the development of the “electrical economy” of the late 20th and early 21st century, in which electrical power is the universal form of energy and electronics is the universal form of information. The 2008 launch of the iPhone and the subsequent development of the smartphone, the cloud, and the platform economy are direct descendants of the electrical and electronic industries founded in the late 19th century. The current debates about the electrical grid, the electrification of transportation, and the carbon footprint of the electrical economy are, in many ways, continuations of the debates that began with the Pearl Street Station in 1882.

The Hydroelectric Question and the Politics of the Dam

The development of the electrical industry was closely tied to the politics of water. The first major hydroelectric power stations — the Mechanicsville Dam (1895) on the Hudson River in New York, the Niagara Falls Power Company (1895), and the Big Creek hydroelectric project (1910) in California — were built in the 1890s and early 1900s, and the hydroelectric industry grew rapidly in the 20th century. The 1930s saw a wave of dam-building in the United States, including the Hoover Dam (1936) on the Colorado River, the Grand Coulee Dam (1942) on the Columbia River, and the Shasta Dam (1945) on the Sacramento River, all built as part of the New Deal public works program. The 1935 Rural Electrification Administration brought electricity to the rural areas of the United States, and the Tennessee Valley Authority (1933) became the largest single producer of electricity in the country. The worldwide hydroelectric capacity grew from 12 GW in 1900 to 1,300 GW in 2020, and the Three Gorges Dam in China (2003) is the largest single power station in the world. The politics of the dam, including the displacement of communities and the environmental consequences, is the subject of Donald Worster’s A River Running West (2000) and of John McPhee’s The Control of Nature (1989), which remain essential reading for the modern history of water and electricity.

Key Dates in the Electrical Industry

A short chronology of the principal dates in the history of the electrical industry:

1820 — Hans Christian Ørsted discovers electromagnetism
1831 — Michael Faraday discovers electromagnetic induction
1865 — James Clerk Maxwell’s equations published
1876 — Charles Brush develops the dynamo
1879 — Edison’s practical incandescent light bulb
1882 — Pearl Street Station opens (first commercial power station)
1886 — Westinghouse forms the Westinghouse Electric Company
1893 — Westinghouse/Tesla system chosen for World’s Columbian Exposition
1895 — Niagara Falls Power Company chooses AC system
1903 — Du Pont Experimental Station opens
1925 — Niagara Falls Power Company operating at 3.5 million horsepower
1947 — Transistor invented at Bell Labs
1958 — Integrated circuit invented
1970s-80s — Deregulation of the American utility industry

In this section

Nikola Tesla and the AC Electrical System The life and work of Nikola Tesla, the Serbian-American inventor who developed the AC motor and the AC power transmission system that won the war of the currents. Thomas Edison and the Birth of the Electrical Industry The life and work of Thomas Edison, the American inventor who developed the phonograph, the incandescent light bulb, and the first commercial electrical system.