The Age of Big Business
by
Burton J. Hendrick
Part 1 out of 2
J. KELLY LIBRARY OF ST. GREGORY'S UNIVERSITY; THANKS TO ALEV
AKMAN.
THE AGE OF BIG BUSINESS, A CHRONICLE OF THE CAPTAINS OF INDUSTRY
BY BURTON J. HENDRICK
NEW HAVEN: YALE UNIVERSITY PRESS
TORONTO: GLASGOW, BROOK & CO.
LONDON: HUMPHREY MILFORD
OXFORD UNIVERSITY PRESS
1919
CONTENTS
I. INDUSTRIAL AMERICA AT THE END OF THE CIVIL WAR
II. THE FIRST GREAT AMERICAN TRUST
III. THE EPIC OF STEEL
IV. THE TELEPHONE: AMERICA'S MOST POETICAL ACHIEVEMENT
V. THE DEVELOPMENT OF PUBLIC UTILITIES
VI. MAKING THE WORLD'S AGRICULTURAL MACHINERY
VII. THE DEMOCRATIZATION OF THE AUTOMOBILE
BIBLIOGRAPHICAL NOTE
THE AGE OF BIG BUSINESS
CHAPTER I. INDUSTRIAL AMERICA AT THE END OF THE CIVIL WAR
A comprehensive survey of the United States, at the end of the
Civil War, would reveal a state of society which bears little
resemblance to that of today. Almost all those commonplace
fundamentals of existence, the things that contribute to our
bodily comfort while they vex us with economic and political
problems, had not yet made their appearance. The America of Civil
War days was a country without transcontinental railroads,
without telephones, without European cables, or wireless
stations, or automobiles, or electric lights, or sky-scrapers, or
million-dollar hotels, or trolley cars, or a thousand other
contrivances that today supply the conveniences and comforts of
what we call our American civilization. The cities of that
period, with their unsewered and unpaved streets, their dingy,
flickering gaslights, their ambling horse-cars, and their hideous
slums, seemed appropriate settings for the unformed social life
and the rough-and-ready political methods of American democracy.
The railroads, with their fragile iron rails, their little wheezy
locomotives, their wooden bridges, their unheated coaches, and
their kerosene lamps, fairly typified the prevailing frontier
business and economic organization. But only by talking with the
business leaders of that time could we have understood the
changes that have taken place in fifty years. For the most part
we speak a business language which our fathers and grandfathers
would not have comprehended. The word "trust" had not become
a part of their vocabulary; "restraint of trade" was a phrase
which only the antiquarian lawyer could have interpreted;
"interlocking directorates," "holding companies," "subsidiaries,"
"underwriting syndicates," and "community of interest"--all this
jargon of modern business would have signified nothing to our
immediate ancestors. Our nation of 1865 was a nation of farmers,
city artisans, and industrious, independent business men, and
small-scale manufacturers. Millionaires, though they were not
unknown, did not swarm all over the land. Luxury, though it had
made great progress in the latter years of the war, had not
become the American standard of well-being. The industrial story
of the United States in the last fifty years is the story of the
most amazing economic transformation that the world has ever
known; a change which is fitly typified in the evolution of the
independent oil driller of western Pennsylvania into the Standard
Oil Company, and of the ancient open air forge on the banks of
the Allegheny into the United States Steel Corporation.
The slow, unceasing ages had been accumulating a priceless
inheritance for the American people. Nearly all of their natural
resources, in 1865, were still lying fallow, and even
undiscovered in many instances. Americans had begun, it is true,
to exploit their more obvious, external wealth, their forests and
their land; the first had made them one of the world's two
greatest shipbuilding nations, while the second had furnished a
large part of the resources that had enabled the Federal
Government to fight what was, up to that time, the greatest war
in history. But the extensive prairie plains whose settlement was
to follow the railroad extensions of the sixties and the
seventies--Kansas, Nebraska, Iowa, Oklahoma, Minnesota, the
Dakotas--had been only slightly penetrated. This region, with a
rainfall not too abundant and not too scanty, with a cultivable
soil extending from eight inches to twenty feet under the ground,
with hardly a rock in its whole extent, with scarcely a tree,
except where it bordered on the streams, has been pronounced by
competent scientists the finest farming country to which man has
ever set the plow. Our mineral wealth was likewise lying
everywhere ready to the uses of the new generation. The United
States now supplies the world with half its copper, but in 1865
it was importing a considerable part of its own supply. It was
not till 1859 that the first "oil gusher" of western Pennsylvania
opened up an entirely new source of wealth. Though we had the
largest coal deposits known to geologists, we were bringing large
supplies of this indispensable necessity from Nova Scotia. It has
been said that coal and iron are the two mineral products that
have chiefly affected modern civilization. Certainly the nations
that have made the greatest progress industrially and
commercially--England, Germany, America--are the three that
possess these minerals in largest amount. From sixty to seventy
per cent of all the known coal deposits in the world were located
in our national domain. Nature had given no other nation anything
even remotely comparable to the four hundred and eighty square
miles of anthracite in western Pennsylvania and West Virginia.
Enormous fields of bituminous lay in those Appalachian ranges
extending from Pennsylvania to Alabama, in Michigan, in the Rocky
Mountains, and in the Pacific regions. In speaking of our iron it
is necessary to use terms that are even more extravagant. From
colonial times Americans had worked the iron ore plentifully
scattered along the Atlantic coast, but the greatest field of
all, that in Minnesota, had not been scratched. From the
settlement of the country up to 1869 it had mined only 50,000,000
tons of iron ore, while up to 1910 we had produced 685,000,000
tons. The streams and waterfalls that, in the next sixty years,
were to furnish the power that would light our cities, propel our
street-cars, drive our transcontinental trains across the
mountains, and perform numerous domestic services, were running
their useless courses to the sea.
Industrial America is a product of the decades succeeding the
Civil War; yet even in 1865 we were a large manufacturing nation.
The leading characteristic of our industries, as compared with
present conditions, was that they were individualized. Nearly all
had outgrown the household stage, the factory system had gained a
foothold in nearly every line, even the corporation had made its
appearance, yet small-scale production prevailed in practically
every field. In the decade preceding the War, vans were still
making regular trips through New England and the Middle States,
leaving at farmhouses bundles of straw plait, which the members
of the household fashioned into hats. The farmers' wives and
daughters still supplemented the family income by working on
goods for city dealers in ready-made clothing. We can still see
in Massachusetts rural towns the little shoe shops in which the
predecessors of the existing factory workers soled and heeled the
shoes which shod our armies in the early days of the Civil War.
Every city and town had its own slaughter house; New York had
more than two hundred; what is now Fifth Avenue was frequently
encumbered by large droves of cattle, and great stockyards
occupied territory which is now used for beautiful clubs,
railroad stations, hotels, and the highest class of retail
establishments.
In this period before the Civil War comparatively small single
owners, or frequently copartnerships, controlled practically
every industrial field. Individual proprietors, not uncommonly
powerful families which were almost feudal in character, owned
the great cotton and woolen mills of New England. Separate
proprietors, likewise, controlled the iron and steel factories of
New York State and Pennsylvania. Indeed it was not until the War
that corporations entered the iron industry, now regarded as the
field above all others adapted to this kind of organization. The
manufacture of sewing machines, firearms, and agricultural
implements started on a great scale in the Civil War; still, the
prevailing unit was the private owner or the partnership. In many
manufacturing lines, the joint stock company had become the
prevailing organization, but even in these fields the element
that so characterizes our own age, that of combination, was
exerting practically no influence.
Competition was the order of the day: the industrial warfare of
the sixties was a free-for-all. A mere reference to the status of
manufactures in which the trust is now the all-prevailing fact
will make the contrast clear. In 1865 thousands of independent
companies were drilling oil in Pennsylvania and there were more
than two hundred which were refining the product. Nearly four
hundred and fifty operators were mining coal, not even dimly
foreseeing the day when their business would become a great
railroad monopoly. The two hundred companies that were making
mowers and reapers, seventy-five of them located in New York
State, had formed no mental picture of the future International
Harvester Company. One of our first large industrial combinations
was that which in the early seventies absorbed the manufacturers
of salt; yet the close of the Civil War found fifty competing
companies making salt in the Saginaw Valley of Michigan. In the
same State, about fifty distinct ownerships controlled the copper
mines, while in Nevada the Comstock Lode had more than one
hundred proprietors. The modern trust movement has now absorbed
even our lumber and mineral lands, but in 1865 these rich
resources were parceled out among a multiplicity of owners: No
business has offered greater opportunities to the modern promoter
of combinations than our street railways. In 1865 most of our
large cities had their leisurely horse-car systems, yet
practically every avenue had its independent line. New York had
thirty separate companies engaged in the business of local
transportation. Indeed the Civil War period developed only one
corporation that could be described as a "trust" in the modern
sense. This was the Western Union Telegraph Company. Incredible
as it may seem, more than fifty companies, ten years before the
Civil War, were engaged in the business of transmitting
telegraphic messages. These companies had built their telegraph
lines precisely as the railroads had laid their tracks; that is,
independent lines were constructed connecting two given points.
It was inevitable, of course, that all these scattered lines
should come under a single control, for the public convenience
could not be served otherwise. This combination was effected a
few years before the War, when the Western Union Telegraph
Company, after a long and fierce contest, succeeded in absorbing
all its competitors. Similar forces were bringing together
certain continuous lines of railways, but the creation of huge
trunk systems had not yet taken place. How far our industrial era
is removed from that of fifty years ago is apparent when we
recall that the proposed capitalization of $15,000,000, caused by
the merging of the Boston and Worcester and the Western
railroads, was widely denounced as "monstrous" and as a
corrupting force that would destroy our Republican institutions.
Naturally this small-scale ownership was reflected in the
distribution of wealth. The "swollen fortunes" of that period
rested upon the same foundation that had given stability for
centuries to the aristocracies of Europe. Social preeminence in
large cities rested almost entirely upon the ownership of land.
The Astors, the Goelets, the Rhinelanders, the Beekmans, the
Brevoorts, and practically all the mighty families that ruled the
old Knickerbocker aristocracy in New York were huge land
proprietors. Their fortunes thus had precisely the same
foundation as that of the Prussian Junkers today. But their
accumulations compared only faintly with the fortunes that are
commonplace now. How many "millionaires" there were fifty years
ago we do not precisely know. The only definite information we
have is a pamphlet published in 1855 by Moses Yale Beach,
proprietor of the New York Sun, on the "Wealthy Men of New York."
This records the names of nineteen citizens who, in the
estimation of well-qualified judges, possessed more than a
million dollars each. The richest man in the list was William B.
Astor, whose estate is estimated at $6,000,000. The next richest
man was Stephen Whitney, also a large landowner, whose fortune is
listed at $5,000,000. Then comes James Lenox, again a land
proprietor, with $3,000,000. The man who was to accumulate the
first monstrous American fortune, Cornelius Vanderbilt, is
accredited with a paltry $1,500,000. Mr. Beach's little pamphlet
sheds the utmost light upon the economic era preceding the Civil
War. It really pictures an industrial organization that belongs
as much to ancient history as the empire of the Caesars. His
study lists about one thousand of New York's "wealthy citizens."
Yet the fact that a man qualified for entrance into this Valhalla
who had $100,000 to his credit and that nine-tenths of those so
chosen possessed only that amount shows the progress concentrated
riches have made in sixty years. How many New Yorkers of today
would look upon a man with $100,000 as "wealthy"?
The sources of these fortunes also show the economic changes our
country has undergone. Today, when we think of our much exploited
millionaires, the phrase "captains of industry" is the accepted
description; in Mr. Beach's time the popular designation was
"merchant prince." His catalogue contains no "oil magnates" or
"steel kings" or "railroad manipulators"; nearly all the
industrial giants of ante-bellum times--as distinguished from the
socially prominent whose wealth was inherited--had heaped
together their accumulations in humdrum trade. Perhaps Peter
Cooper, who had made a million dollars in the manufacture of
isinglass and glue, and George Law, whose gains, equally large,
represented fortunate speculations in street railroads, faintly
suggest the approaching era; yet the fortunes which are really
typical are those of William Aspinwall, who made $4,000,000 in
the shipping business, of A. T. Stewart, whose $2,000,000
represented his earnings as a retail and wholesale dry goods
merchant, and of Peter Harmony, whose $1,000,000 had been derived
from happy trade ventures in Cuba and Spain. Many of the
reservoirs of this ante-bellum wealth sound strangely in our
modern ears. John Haggerty had made $1,000,000 as an auctioneer;
William L. Coggeswell had made half as much as a wine importer;
Japhet Bishop had rounded out an honest $600,000 from the profits
of a hardware store; while Phineas T. Barnum ranks high in the
list by virtue of $800,000 accumulated in a business which it is
hardly necessary to specify. Indeed his name and that of the
great landlords are almost the only ones in this list that have
descended to posterity. Yet they were the Rockefellers, the
Carnegies, the Harrimans, the Fricks, and the Henry Fords of
their day.
Before the Civil War had ended, however, the transformation of
the United States from a nation of farmers and small-scale
manufacturers to a highly organized industrial state had begun.
Probably the most important single influence was the War itself.
Those four years of bitter conflict illustrate, perhaps more
graphically than any similar event in history, the power which
military operations may exercise in stimulating all the
productive forces of a people. In thickly settled nations, with
few dormant resources and with practically no areas of unoccupied
land, a long war usually produces industrial disorganization and
financial exhaustion. The Napoleonic wars had this effect in
Europe; in particular they caused a period of social and
industrial distress in England. The few years immediately
following Waterloo marked a period when starving mobs rioted in
the streets of London, setting fire to the houses of the
aristocracy and stoning the Prince Regent whenever he dared to
show his head in public, when cotton spindles ceased to turn,
when collieries closed down, when jails and workhouses were
overflowing with a wretched proletariat, and when gaunt and
homeless women and children crowded the country highways. No such
disorders followed the Civil War in this country, at least in the
North and West. Spiritually the struggle accomplished much in
awakening the nation to a consciousness of its great
opportunities. The fact that we could spend more than a million
dollars a day--expenditures that hardly seem startling in amount
now, but which were almost unprecedented then--and that soon
after hostilities ceased we rapidly paid off our large debt,
directed the attention of foreign capitalists to our resources,
and gave them the utmost confidence in this new investment field.
Immigration, too, started after the war at a rate hitherto
without parallel in our annals. The Germans who had come in the
years preceding the Civil War had been largely political refugees
and democratic idealists, but now, in much larger numbers, began
the influx of north and south Germans whose dominating motive was
economic. These Germans began to find their way to the farms of
the Mississippi Valley; the Irish began once more to crowd our
cities; the Slavs gravitated towards the mines of Pennsylvania;
the Scandinavians settled whole counties of certain northwestern
States; while the Jews began that conquest of the tailoring
industries that was ultimately to make them the clothiers of a
hundred million people. For this industrial development, America
supplied the land, the resources, and the business leaders, while
Europe furnished the liquid capital and the laborers.
Even more directly did the War stimulate our industrial
development. Perhaps the greatest effect was the way in which it
changed our transportation system. The mere necessity of
constantly transporting hundreds of thousands of troops and war
supplies demanded reconstruction and reequipment on an extensive
scale. The American Civil War was the first great conflict in
which railroads played a conspicuous military part, and their
development during those four years naturally left them in a
strong position to meet the new necessities of peace. One of the
first effects of the War was to close the Mississippi River;
consequently the products of the Western farms had to go east by
railroad, and this fact led to that preeminence of the great
trunk lines which they retain to this day. Almost overnight
Chicago became the great Western shipping center, and though the
river boats lingered for a time on the Ohio and the Mississippi
they grew fewer year by year. Prosperity, greater than the
country had ever known, prevailed everywhere in the North
throughout the last two years of the War.
So, too, feeding and supplying an army of millions of men laid
the foundation of many of our greatest industries. The Northern
soldiers in the early days of the war were clothed in garments so
variegated that they sometimes had trouble in telling friend from
foe, and not infrequently they shot at one another; so
inadequately were our woolen mills prepared to supply their
uniforms! But larger government contracts enabled the proprietors
to reconstruct their mills, install modern machines, and build up
an organization and a prosperous business that still endures.
Making boots and shoes for Northern soldiers laid the foundation
of America's great shoe industry. Machinery had already been
applied to shoe manufacture, but only to a limited extent; under
the pressure of war conditions, however, American inventive skill
found ways of performing mechanically almost all the operations
that had formerly been done by hand. The McKay sewing machine,
one of the greatest of our inventions, which was perfected in the
second year of the war, did as much perhaps as any single device
to keep our soldiers well shod and comfortable. The necessity of
feeding these same armies created our great packing plants.
Though McCormick had invented his reaper several years before the
war, the new agricultural machinery had made no great headway.
Without this machinery, however, our Western farmers could never
have harvested the gigantic crops which not only fed our soldiers
but laid the basis of our economic prosperity. Thus the War
directly established one of the greatest, and certainly one of
the most romantic, of our industries--that of agricultural
machinery.
Above all, however, the victory at Appomattox threw upon the
country more than a million unemployed men. Our European critics
predicted that their return to civil life would produce dire
social and political consequences. But these critics were
thinking in terms of their own countries; they failed to consider
that the United States had an immense unoccupied domain which was
waiting for development. The men who fought the Civil War had
demonstrated precisely the adventurous, hardy instincts which
were most needed in this great enterprise. Even before the War
ended, a great immigration started towards the mines and farms of
the trans-Mississippi country. There was probably no important
town or district west of the Alleghanies that did not absorb a
considerable number. In most instances, too, our ex-soldiers
became leaders in these new communities. Perhaps this movement
has its most typical and picturesque illustration in the extent
to which the Northern soldiers opened up the oil-producing
regions of western Pennsylvania. Venango County, where this great
development started, boasted that it had more ex-soldiers than
any similar section of the United States.
The Civil War period also forced into prominence a few men whose
methods and whose achievements indicated, even though roughly and
indistinctly, a new type of industrial leadership. Every period
has its outstanding figure and, when the Civil War was
approaching its end, one personality had emerged from the humdrum
characters of the time--one man who, in energy, imagination, and
genius, displayed the forces that were to create a new American
world. Although this man employed his great talents in a field,
that of railroad transportation, which lies outside the scope of
the present volume, yet in this comprehensive view I may take
Cornelius Vanderbilt as the symbol that links the old industrial
era with the new. He is worthy of more detailed study than he has
ever received, for in personality and accomplishments Vanderbilt
is the most romantic figure in the history of American finance.
We must remember that Vanderbilt was born in 1794 and that at the
time we are considering he was seventy-one years old. In the
matter of years, therefore, his career apparently belongs to the
ante-bellum days, yet the most remarkable fact about this
remarkable man is that his real life work did not begin until he
had passed his seventieth year. In 1865 Vanderbilt's fortune,
consisting chiefly of a fleet of steamboats, amounted to about
$10,000,000; he died twelve years later, in 1877, leaving
$104,000,000, the first of those colossal American fortunes that
were destined to astound the world. The mere fact that this
fortune was the accumulated profit of only ten years shows
perhaps more eloquently than any other circumstance that the
United States had entered a new economic age. That new factor in
the life of America and the world, the railroad, explains his
achievement. Vanderbilt was one of the most astonishing
characters in our history. His physical exterior made him perhaps
the most imposing figure in New York. In his old age, at
seventy-three, Vanderbilt married his second wife, a beautiful
Southern widow who had just turned her thirtieth year, and the
appearance of the two, sitting side by side in one of the
Commodore's smartest turnouts, driving recklessly behind a pair
of the fastest trotters of the day, was a common sight in Central
Park. Nor did Vanderbilt look incongruous in this brilliant
setting. His tall and powerful frame was still erect, and his
large, defiant head, ruddy cheeks, sparkling, deep-set black
eyes, and snowy white hair and whiskers, made him look every inch
the Commodore. These public appearances lent a pleasanter and
more sentimental aspect to Vanderbilt's life than his intimates
always perceived. For his manners were harsh and uncouth; he was
totally without education and could write hardly half a dozen
lines without outraging the spelling-book. Though he loved his
race-horses, had a fondness for music, and could sit through long
winter evenings while his young wife sang old Southern ballads,
Vanderbilt's ungovernable temper had placed him on bad terms with
nearly all his children--he had had thirteen, of whom eleven
survived him--who contested his will and exposed all his
eccentricities to public view on the ground that the man who
created the New York Central system was actually insane.
Vanderbilt's methods and his temperament presented such a
contrast to the commonplace minds which had previously dominated
American business that this explanation of his career is perhaps
not surprising. He saw things in their largest aspects and in his
big transactions he seemed to act almost on impulse and
intuition. He could never explain the mental processes by which
he arrived at important decisions, though these decisions
themselves were invariably sound. He seems to have had, as he
himself frequently said, almost a seer-like faculty. He saw
visions, and he believed in dreams and in signs. The greatest
practical genius of his time was a frequent attendant at
spiritualistic seances; he cultivated personally the society of
mediums, and in sickness he usually resorted to mental healers,
mesmerists, and clairvoyants. Before making investments or
embarking in his great railroad ventures, Vanderbilt visited
spiritualists; we have one circumstantial account of his
summoning the wraith of Jim Fiske to advise him in stock
operations. His excessive vanity led him to print his picture on
all the Lake Shore bonds; he proposed to New York City the
construction in Central Park of a large monument that would
commemorate, side by side, the names of Vanderbilt and
Washington; and he actually erected a large statue to himself in
his new Hudson River station in St. John's Park. His attitude
towards the public was shown in his remark when one of his
associates told him that "each and every one" of certain
transactions which he had just forced through "is absolutely
forbidden by the statutes of the State of New York." "My God,
John!" said the Commodore, "you don't suppose you can run a
railroad in accordance with the statutes of the State of New
York, do you?" "Law!" he once roared on a similar occasion, "What
do I care about law? Hain't I got the power?"
These things of course were the excrescences of an extremely
vital, overflowing, imaginative, energetic human being; they are
traits that not infrequently accompany genius. And the work which
Vanderbilt did remains an essential part of our economic
organization today. Before his time a trip to Chicago meant that
the passenger changed trains seventeen times, and that all
freight had to be unloaded at a similar number of places, carted
across towns, and reloaded into other trains. The magnificent
railroad highway that extends up the banks of the Hudson, through
the Mohawk Valley, and alongside the borders of Lake Erie--a
water line route nearly the entire distance--was all but useless.
It is true that not all the consolidation of these lines was
Vanderbilt's work. In 1853 certain millionaires and politicians
had linked together the several separate lines extending from
Albany to Buffalo, but they had managed the new road so
wretchedly that the largest stockholders in 1867 begged
Vanderbilt to take over the control. By 1873 the Commodore had
acquired the Hudson River, extending from New York to Albany, the
New York Central extending from Albany to Buffalo, and the Lake
Shore which ran from Buffalo to Chicago. In a few years these
roads had been consolidated into a smoothly operating system. If,
in transforming these discordant railroads into one, Vanderbilt
bribed legislatures and corrupted courts, if he engaged in the
largest stock-watering operations on record up to that time, and
took advantage of inside information to make huge winnings on the
stock exchange, he also ripped up the old iron rails and relaid
them with steel, put down four tracks where formerly there had
been two, replaced wooden bridges with steel, discarded the old
locomotives for new and more powerful ones, built splendid new
terminals, introduced economies in a hundred directions, cut down
the hours required in a New York-Chicago trip from fifty to
twenty-four, made his highway an expeditious line for
transporting freight, and transformed railroads that had formerly
been the playthings of Wall Street and that frequently could not
meet their pay-rolls into exceedingly profitable, high dividend
paying properties. In this operation Vanderbilt typified the era
that was dawning--an era of ruthlessness, of personal
selfishness, of corruption, of disregard of private rights, of
contempt for law and legislatures, and yet of vast and beneficial
achievement. The men of this time may have traveled roughshod to
their goal, but after all, they opened up, in an amazingly short
time, a mighty continent to the uses of mankind. The triumph of
the New York Central and Hudson River Railroad under Vanderbilt,
a triumph which dazzled European investors as well as our own,
and which represented an entirely different business organization
from anything the nation had hitherto seen, appropriately ushered
in the new business era whose outlines will be sketched in the
succeeding pages.
CHAPTER II. THE FIRST GREAT AMERICAN TRUST
When Cornelius Vanderbilt died in 1877, America's first great
industrial combination had become an established fact. In that
year the Standard Oil Company of Ohio controlled at least ninety
per cent of the business of refining and marketing petroleum. A
new portent had appeared in our economic life, a phenomenon that
was destined to affect not only the social and business existence
of the every-day American but even his political and legal
institutions.
It seems natural enough at the present time to refer to petroleum
as an indispensable commodity. At the beginning of the Civil War,
however, any such description would have been absurd. Though
petroleum was not unknown, millions of American households were
still burning candles, whale oil, and other illuminants. Not
until 1859 did our ancestors realize that, concealed in the rocky
of western Pennsylvania, lay apparently inexhaustible quantities
of a liquid which, when refined, would give a light exceeding in
brilliancy anything they had hitherto known. The mere existence
of petroleum, it is true, had been a familiar fact for centuries.
Herodotus mentions the oil pits of Babylon, and Pliny informs us
that this oil was actually used for lighting in certain parts of
Sicily. It had never become an object of universal use, simply
because no one had discovered how to obtain it in sufficient
quantities. No one had suspected, indeed, that petroleum existed
practically in the form of great subterranean rivers, lakes, or
even seas. For ages this great natural treasure had been seeking
to advertise its presence by occasionally seeping through the
rocks and appearing on the surface of watercourses. It had been
doing this all over the world--in China, in Russia, in Germany,
in England, in our own country. Yet our obtuse ancestors had for
centuries refused to take the hint. We can find much cause for
self-congratulation in that it was apparently the American mind
that first acted upon this obvious suggestion.
In Venango County, Pennsylvania, petroleum floated in such
quantities on the surface of a branch of the Allegheny River that
this small watercourse had for generations been known as Oil
Creek. The neighboring farmers used to collect the oil and use it
to grease their wagon axles; others, more enterprising, made a
business of gathering the floating substance, packing it in
bottles, and selling it broadcast as a medicine. The most famous
of these concoctions, "Seneca Oil," was widely advertised as a
sure cure for rheumatism, and had an extensive sale in this
country. "Kier's Rock Oil" afterwards had an even more extended
use. Samuel M. Kier, who exploited this comprehensive cure-all,
made no lasting contributions to medical science, but his method
of obtaining his medicament led indirectly to the establishment
of a great industry. In this western Pennsylvania region salt
manufacture had been a thriving business for many years; the salt
was obtained from salt water by means of artesian wells. This
salt water usually came to the surface contaminated with that
same evil-smelling oil which floated so constantly on top of the
rivers and brooks. The salt makers spent much time and money
"purifying" their water from this substance, never apparently
suspecting that the really valuable product of their wells was
not the salt water they so carefully preserved, but the petroleum
which they threw away. Samuel M. Kier was originally a salt
manufacturer; more canny than his competitors, he sold the oil
which came up with his water as a patent medicine. In order to
give a mysterious virtue to this remedy, Kier printed on his
labels the information that it had been "pumped up with salt
water about four hundred feet below the earth's surface." His
labels also contained the convincing picture of an artesian
well--a rough woodcut which really laid the foundation of the
Standard Oil Company.
In the late fifties Mr. George H. Bissell had become interested
in rock oil, not as an embrocation and as a cure for most human
ills, but as a light-giving material. A professor at Dartmouth
had performed certain experiments with this substance which had
sunk deeply into Bissell's imagination. So convinced was this
young man that he could introduce petroleum commercially that he
leased certain fields in western Pennsylvania and sent a specimen
of the oil to Benjamin Silliman, Jr., Professor of Chemistry at
Yale. Professor Silliman gave the product a more complete
analysis than it had ever previously received and submitted a
report which is still the great classic in the scientific
literature of petroleum. This report informed Bissell that the
substance, could be refined cheaply and easily, and that, when
refined, it made a splendid illuminant, besides yielding certain
byproducts, such as paraffin and naphtha, which had a great
commercial value. So far, Bissell's enterprise seemed to promise
success, yet the great problem still remained: how could he
obtain this rock oil in amounts large enough to make his
enterprise a practical one? A chance glimpse of Kier's label,
with its picture of an artesian well, supplied Bissell with his
answer. He at once sent E. L. Drake into the oil-fields with a
complete drilling equipment, to look, not for saltwater, but for
oil. Nothing seems quite so obvious today as drilling a well into
the rock to discover oil, yet so strange was the idea in Drake's
time that the people of Titusville, where he started work,
regarded him as a lunatic and manifested a hostility to his
enterprise that delayed operations for several months. Yet one
day in August, 1859, the coveted liquid began flowing from
"Drake's folly" at the rate of twenty-five barrels a day.
Because of this performance Drake has gone down to fame as the
man who "discovered oil." In the sense that his operation made
petroleum available to the uses of mankind, Drake was its
discoverer, and his achievement seems really a greater one than
that of the men who first made apparent our beds of coal, iron,
copper, or even gold. For Drake really uncovered an entirely new
substance. And the country responded spontaneously to Drake's
success. For anything approaching the sudden rush to the
oil-fields we shall have to go to the discovery of gold in
California ten years before. Men flocked into western
Pennsylvania by the thousands; fortunes were made and lost almost
instantaneously. Oil flowed so plentifully in this region that it
frequently ran upon the ground, and the "gusher," which threw a
stream of the precious liquid sometimes a hundred feet and more
into the air, became an almost every-day occurrence. The
discovery took the whole section by surprise; there were no
towns, no railways, and no wagon roads except a few almost
impassable lumber trails. Yet, almost in a twinkling, the whole
situation changed; towns sprang up overnight, roads were built,
over which teamsters could carry the oil to the nearest shipping
points, and the great trunk lines began to extend branches into
the regions. The one thing, next to Drake's well, that made the
oil available, was the discovery, which was made by Samuel Van
Syckel, that a two-inch pipe, starting at the well, could convey
the oil for several miles to the nearest railway station. In a
few years the whole oil region of Venango County was an
inextricable tangle of these primitive pipelines. Thus, before
the Civil war had ended, the western Pennsylvania wilderness had
been transformed into the busy headquarters of a new industry.
Companies had been formed, many of them the wildest stock-jobbing
operations, refineries had been started, in a few years the
whalers of New England had almost lost their occupation, but
millions of American homes, that had hitherto had to spend the
long winter evenings almost in darkness, suddenly found
themselves flooded with light. In Cleveland, in Pittsburgh, in
Philadelphia, in New York, and in the oil regions, the business
of refining and selling petroleum had reached extensive
proportions. Europe, although it had great undeveloped oil-fields
of its own, drew upon this new American enterprise to such an
extent that, eleven years after Drake's "discovery," petroleum
had taken fourth place among our exported articles.
The very year that Bissell had organized his petroleum company a
boy of sixteen had obtained his first job in a produce commission
office on a dock in Cleveland. As the curtain rises on the career
of John D. Rockefeller, we see him perched upon a high stool,
adding up figures and casting accounts, faithfully doing every
odd office job that came his way, earning his employer's respect
for his industry, his sobriety, and his unmistakable talents for
business. Nor does this picture inadequately visualize
Rockefeller's whole after-life, and explain the business
qualities that made possible his unexampled success. It is,
indeed, the scene to which Mr. Rockefeller himself most
frequently reverts when, in his famous autobiographical
discourses to his Cleveland Sunday School, he calls our attention
to the rules that inevitably lead to industrial prosperity.
"Thrift, thrift, Horatio," is the one idea upon which the great
captain of the oil business has always insisted. Many have
detected in these habits of mind only the cheese-paring
activities of a naturally narrow spirit. Rockefeller's old
Cleveland associates remember him as the greatest bargainer they
had ever known, as a man who had an eye for infinite details and
an unquenchable patience and resource in making economies. Yet
Rockefeller was clearly more than a pertinacious haggler over
trifles. Certainly such a diagnosis does not explain a man who
has built up one of the world's greatest organizations and
accumulated the largest fortune which has ever been placed at the
disposal of one man. Indeed, Rockefeller displayed unusual
business ability even before he entered the oil business. A young
man who, at the age of nineteen, could start a commission house
and do a business of nearly five hundred thousand the first year
must have had commercial capacity to an extraordinary degree.
Fate had placed Rockefeller in Cleveland in the days when the oil
business had got well under way. In the early sixties a score or
so of refineries had started in this town, many of which were
making large profits. It is not surprising that Rockefeller,
gazing at these black and evil-smelling buildings from the
vantage point of his commission office, should have felt an
impulse to join in the gamble. He plunged into this new activity
at the age of twenty-three. He possessed two great advantages
over most of his adventurous competitors; one was a heavy bank
account, representing his earnings in the commission business,
and the other a partner, Samuel Andrews, who was generally
regarded as a mechanical genius in the production of illuminating
oil. At the beginning, therefore, Rockefeller had the two
essentials which largely explain his subsequent career; an
adequate liquid capital and high technical resources. In the
first few years the Rockefeller houses--he rapidly organized
three, one after another--competed with a large number of other
units in the oil business on somewhat more than even terms. At
this time Rockefeller was merely one of a large number of
successful oil refiners, yet during these early days a grandiose
scheme was taking shape in that quiet, insinuating, far-reaching
brain. He said nothing about it, even to his closest associates,
yet it filled his every waking hour. For this young man was
taking a comprehensive sweep of the world and he saw millions of
people, in the Americas, in Europe, and in Asia, whose need for
the article in which he dealt would grow more insistent every
day. He saw that he was handling a product which was becoming as
much a necessity of life as the air itself. The young man reached
out to grasp this business. "All of it," we can picture
Rockefeller saying to himself, "all of it shall be mine." Any
study of Rockefeller's career must lead to the conclusion that,
before he had reached his thirtieth year, he had determined to
monopolize this growing necessity. The mere fact that this young
man could form such a stupendous plan indicates that in him we
are meeting for the first time a new type of industrial leader.
At that time monopolies were unknown in the United States. That
certain old English Kings had frequently granted exclusive
trading privileges to favored merchants most educated Americans
knew; and their knowledge of monopolies extended little further
than this. Yet about 1868 John D. Rockefeller started consciously
to revive this ancient practice, and to bring under one ownership
the magnificent industry to which Drake's sensational discovery
had given rise.
Daring as was this conception, the resourcefulness and the skill
with which Rockefeller executed it were more startling still.
Merely to catalogue, one by one, the achievements of the ten
succeeding fruitful years, almost takes one's breath away. Indeed
the whole operation proceeded with such a Napoleonic rapidity of
action that the outside world had hardly grasped Rockefeller's
intention before the monopoly had been made complete. We catch
one glimpse of Rockefeller, in 1868, as head of the prosperous
house of Rockefeller, Andrews, and Flagler, and eight years
afterwards we see him once more, this time the man who controlled
practically the entire petroleum business of the world. His
career of conquest began in 1870, when the firm of Rockefeller,
Andrews, and Flagler, joining hands with several large
capitalists in Cleveland and New York, was incorporated under the
name of the Standard Oil Company of Ohio. In 1870 about
twenty-five independent refineries, many of them prosperous and
powerful, were manufacturing oil in the city of Cleveland; two
years afterward this new Standard Oil Company had absorbed all of
them except five: In these two critical years the oil business of
the largest refining center in the United States had thus passed
into Rockefeller's hands. By 1874 the greatest refineries in New
York and Philadelphia had likewise merged their identity with his
own. When Rockefeller began his acquisition, there were thirty
independent refineries operating in Pittsburgh, all of which, in
four or five years, passed one by one under his control. The
largest refineries of Baltimore surrendered in 1875.
These capitulations left only one important refining headquarters
in the United States which the Standard had not absorbed. This
was that section of western Pennsylvania where the oil business
had had its origin. The mere fact that this area was the
headquarters of the oil supply gave it great advantages as a
place for manufacturing the finished product. The oil regions
regarded these advantages as giving them the right to dominate
the growing industry, and they had frequently proclaimed the
doctrine that the business belonged to them. They hated
Rockefeller as much as they feared him, yet at the very moment
when the Titusville operators were hanging him in effigy and
posting the hoardings with cabalistic signs against his
corporation, this mysterious, almost uncanny power was encircling
them: Men who one night were addressing public meetings
denouncing the Standard influence would suddenly sell out their
holdings the next day. In 1875 John D. Archbold, a brilliant
young refiner who had grown up in the oil regions and who had
gained much local fame as opponent of the Standard, appeared in
Titusville as the President of the Acme Oil Company. At that time
there were twenty-seven independent refineries in this section.
Archbold began buying and leasing these establishments for his
Acme Company, and in about four years practically every one had
passed under his control. The Acme Company was merely a
subsidiary of the Standard Oil. These rapid purchasing campaigns
gave the Standard ninety per cent of all the refineries in the
United States, but Rockefeller's scheme comprehended more than
the acquisition of refineries. In the main the Rockefeller group
left the production of crude oil in the hands of the private
drillers, but practically every other branch of the business
passed ultimately into their hands. Both the New York Central and
the Erie railroads surrendered to the Standard the large oil
terminal stations which they had maintained for years in New
York. As a consequence, the Standard obtained complete
supervision of all oil sent by railroad into New York, and it
also secured the machinery of a complete espionage system over
the business of competitors. The Standard acquired companies
which had built up a large business in marketing oil. Even more
dramatic was its success in gathering up, one after another,
these pipe lines which represented the circulatory system of the
oil industry. In the early days these pipe lines were small and
comparatively simple affairs. They merely carried the crude oil
from the wells to railroad centers; from these stations the
railroads transported it to the refineries at Cleveland, New
York, and other places. At an early day the construction and
management of these pipe lines became a separate industry. And
now, in 1873, the Standard Oil Company secured possession of a
one-third interest in the largest of these privately owned
companies, the American Transfer Company. Soon afterward the
United Pipe Line Company went under their control. In 1877 the
Empire Transportation Company, a large pipe line and refining
corporation which the Pennsylvania Railroad had controlled for
many years, became a Standard subsidiary.
Meanwhile certain hardy spirits in the oil regions had conceived
a much more ambitious plan. Why not build great underground mains
directly from the oil regions to the seaboard, pump the crude oil
directly to the city refineries, and thus free themselves from
dependence on the railroads? At first the idea of pumping oil
through pipes over the Alleghany Mountains seemed grotesque, but
competent engineers gave their indorsement to the plan. A certain
"Dr." Hostetter built for the Columbia Conduit Company a trunk
pipe line that extended thirty miles from the oil regions to
Pittsburgh. Hardly had Hostetter completed his splendid project
when the Standard Oil capitalists quietly appeared and purchased
it! For four years another group struggled with an even more
ambitious scheme, the construction of a conduit, five hundred
miles long, from the oil regions to Baltimore. The American
people looked on admiringly at the splendid enterprise whose
projectors, led by General Haupt, the builder of the Hoosac
Tunnel, struggled against bankruptcy, strikes, railroad
opposition, and hostile legislatures, in their attempts to push
their pipe line to the sea. In 1879 the Tidewater Company first
began to pump their oil, and the American press hailed their
achievement as something that ranked with the laying of the
Atlantic Cable and the construction of the Brooklyn Bridge. But
in less than two years the Rockefeller interest had entered into
agreements with the Tidewater Company that practically placed
this great seaboard pipe line in its hands.
Thus in less than ten years Rockefeller had realized his
ambitious dream; he now controlled practically everything
concerned in the manufacture and sale of petroleum. The change
had come about so stealthily, so secretly, and even so
remorselessly that it impressed the public almost as the work of
some uncanny genius. What were the forces, personal and economic,
that had produced this new phenomenon in our business life? In
certain particulars the Standard Oil monopoly was the product of
well-understood principles. From his earliest days John D.
Rockefeller had struggled to eliminate the middleman. He
established factories to build his own barrels, to make his own
acids; he created his own selling firms, and, instead of paying
large storage charges, he constructed his own warehouses in New
York. From his earliest days as a refiner, he had adopted the
principle of paying no man a profit, and of performing all the
intermediate acts that had formerly resulted in large tribute to
middlemen. Moreover, the Standard Oil Company was apparently the
first great American industrial enterprise that realized the
necessity of operating with an abundant capital. Not the least of
Mr. Rockefeller's achievements was his success in associating
with the new company men having great financial standing--Amasa
Stone, Benjamin Brewster, Oliver Jennings, and the like,
capitalists whose banking resources, placed at the disposition of
the Standard, gave it an immense advantage over its rivals. While
his competitors were "kiting" checks and waiting, hat in hand, on
the good nature of the money lenders, Rockefeller always had a
large bank balance, upon which he could instantly draw for his
operations.
Nor must we overlook the fact that the Standard group contained a
large number of exceedingly able men. "They are mighty smart
men," said the despairing W. H. Vanderbilt, in 1879, when pressed
to give his reasons for granting rebates to the Rockefeller
group. "I guess if you ever had to deal with them you would find
that out." In Rockefeller the corporation possessed a man of
tireless industry and unshakable determination. Nothing could
turn him aside from the work to which he had put his hand. Public
criticism and even denunciation, while he resented it as unjust
and regarded it as the product of a general misunderstanding,
never caused the leader of Standard Oil even momentarily to
flinch. He was a man of one idea, and he worked at it day and
night, taking no rest or recreation, skillfully turning to his
purpose every little advantage that came his way. His
associates--men like Flagler, Archbold, and Rogers--also had
unusual talents, and together they built up the splendid
organization that still exists. They exacted from their
subordinates the last ounce of attention and energy and they
rewarded generously everybody who served them well. They showed
great judgment in establishing refineries at the most strategic
points and in giving up localities, such as Boston and Portland,
which were too far removed from their supplies. They established
a marketing system which enabled them to bring their oil directly
from their own refineries to the retailer, all in their own tank
cars and tank wagons. They extended their markets in foreign
countries, so that now the Standard sells the larger part of its
products outside the United States. They established chemical
research laboratories which devised new and inexpensive methods
for refining the product and developed invaluable byproducts,
such as paraffin, naphtha, vaseline, and lubricating oils. It is
impossible to study the career of the Standard Oil Company
without concluding that we have here an example of a supreme
business intelligence working in a field which gave the widest
possible scope of action.
A high quality of organization, however, does not completely
explain the growth of this monopoly. The Standard Oil Company was
the beneficiary of methods that have deservedly received great
public opprobrium. Of these the one that stands forth most
conspicuously is the railroad rebate. Those who have attempted to
trace the very origin of the Rockefeller preeminence to railroad
discrimination have not entirely succeeded. Only the most hazy
evidence exists that the firm of Rockefeller, Andrews, and
Flagler greatly profited from rebates. In fact, refined oil was
not transported from Cleveland to the seaboard by railroad until
1870, the year that this firm dissolved; practically all of the
product then went by way of the Great Lakes and the Erie Canal.
Possibly the Rockefeller firm did get occasional rebates on crude
oil from the oil regions to the refineries, but so did their
competitors. It is therefore not likely that such favors had
great influence in making this single firm the most successful in
the largest refining center. With the organization of the
Standard Oil Company, however, rebates became a more important
consideration.
The turning-point in the history of the oil industry came when
the Rockefeller interests acquired the Cleveland refineries. The
details concerning this act of generalship are fairly well known.
The South Improvement Company is a corporation that necessarily
bulks large in the history of the Standard Oil. Mr. Rockefeller
and his associates have always disclaimed the parentage of this
organization. They assert--and their assertion is doubtless
true--that the only responsible begetters were Thomas A. Scott,
President of the Pennsylvania Railroad, and certain refineries in
Pittsburgh and Philadelphia which, though they were afterwards
absorbed by the Standard, were at that time their competitors.
These refiners and the Pennsylvania, over which the Standard Oil
then was making no shipments, thus represented a group, composed
of railroads and refiners, which was antagonistic to the
Rockefeller interests. The South Improvement Company was an
association of refiners with which the railroads, chiefly the
Pennsylvania, the New York Central, and the Erie, made exclusive
contracts for shipping oil. Under these contracts rates to the
seaboard were to be generally raised, though the members of the
South Improvement Company were to receive liberal rebates. The
refiners of Cleveland and Pittsburgh were to get lower rates than
the refiners located in the oil regions. But the clause in these
contracts that caused the greatest amazement and indignation was
one which gave the inside group rebates on every barrel of oil
shipped by its competitors.
It would be difficult to imagine any transaction more wicked than
these contracts. Carried into execution they inevitably meant the
extinction of every refiner who had not been admitted into the
inside ring. Of the two thousand shares of the South Improvement
Company, the gentlemen who were at that time most conspicuously
identified with the Standard Oil Company subscribed to five
hundred and forty. Mr. Rockefeller has always protested that he
did not favor the scheme and that he became a party to it simply
because he could not afford to antagonize the powerful
Pennsylvania Railroad, which had originated it. When the details
became public property, a wave of indignation swept from the
Atlantic to the Pacific; the oil regions, which would have been
the heaviest sufferers, shut down their wells and so cut off the
supply of crude oil; the New York newspapers started a "crusade"
against the South Improvement group and Congress ordered an
investigation. So fiercely was the public wrath aroused that the
railroads ran to cover, abrogated the contracts, signed an
agreement promising never more to grant rebates to any one, while
the Pennsylvania Legislature repealed the charter of the South
Improvement Company. This particular scheme, therefore, never
came to maturity. Before the South Improvement Company ended its
corporate existence, however, a great change had taken place in
the oil situation. Practically all the refineries in Cleveland
had passed into the control of the Standard Oil Company. The
Standard has always denied that there was any connection between
the purchase of these great refineries and the organization of
the South Improvement Company. But there is much evidence
sustaining a contrary view, for many of these refiners afterward
went on the witness stand and told circumstantial stories, all of
which made precisely the same point. This was that the Standard
men had come to them, shown the contracts which had been made by
the South Improvement Company, and argued that, under these new
conditions, the refineries left outside the combination could not
long survive. The Standard's rivals were therefore urged to "come
in," to take Standard stock in return for their refineries, or,
if they preferred, to sell outright. Practically all saw the
force in this argument and sold--in most cases taking cash.
The acquisition of these Cleveland refineries made inevitable the
Rockefeller conquest of the oil industry. Up to that time the
Standard had refined about fifteen hundred barrels a day, and now
suddenly its capacity jumped to more than twelve thousand
barrels. This one strategic move had made Rockefeller master of
about one-third of all the oil business in the United States, and
this fact explains the rapidity with which the other citadels
fell. There is no evidence that the Standard exercised any
pressure upon the great refineries in New York, Pittsburgh, and
Philadelphia. Indeed these concerns manifested an eagerness to
join. The fact that, unlike the Cleveland refiners, many of the
firms in these other cities took Standard stock, and so became
parts of the new organization, is in itself significant. They
evidently realized that they were casting their fortunes with the
winning side. The huge shipments which the Standard now
controlled explain this change in front. Every day Mr.
Rockefeller could send from Cleveland to the seaboard a train,
sixty cars long, loaded with the blue barrels containing his
celebrated liquid. That was a consideration for which any
railroad would at that time sell its soul. And the New York
Central road promptly made this sacrifice. Hardly had the ink
dried on its written promise not to grant any rebates when it
began granting them to the Standard Oil Company.
In those days the railroad rate was not the sacred, immutable
thing which it subsequently became, although the argument for
equal treatment of shippers existed theoretically just as
strongly forty years ago as it does today. The rebate was just as
illegal then as it is at present; there was no precise statute,
it is true, which made it unlawful until the Interstate Commerce
Act was passed in 1887; but the common law had always prohibited
such discriminations. In the seventies and eighties, however,
railroad men like Cornelius Vanderbilt and Thomas A. Scott were
less interested in legal formalities than in getting freight.
They regarded transportation as a commodity to be bought and
sold, like so much sugar or wheat or coal, and they believed that
the ordinary principles which regulated private bargaining should
also regulate the sale of the article in which they dealt.
According to this reasoning, which was utterly false and
iniquitous, but generally prevalent at the time, the man who
shipped the largest quantities of oil should get the lowest rate.
The purchase of the Cleveland refineries made the Standard Oil
group the largest shippers and therefore they obtained the most
advantageous terms for transporting their product. Under these
conditions they naturally obtained the monopoly, the extent of
which has been already described. Their competitors could rage,
hold public meetings, start riots, threaten to lynch Mr.
Rockefeller and all his associates, but they could not long
survive in face of these advantages. The only way in which the
smaller shippers could overcome this handicap was by acquiring
new methods of transportation. It was this necessity that
inspired the construction of pipe lines; but the Standard, as
already described, succeeded in absorbing these just about as
rapidly as they were constructed.
Not only did the Standard obtain railroad rebates but it
developed the most death-dealing methods in its system of
marketing its oil. In these campaigns it certainly overstepped
the boundaries of legitimate business, even according to the
prevailing morals of its own or of any other time. While it
probably did not set fire to rival refineries, as it has
sometimes been accused of doing, it undoubtedly did resort to
somewhat Prussian methods of destroying the foe. This great
corporation divided the United States into several sections, over
each of which it appointed an agent, who in turn subdivided his
territory into smaller divisions, each one of which likewise had
its captain. The order imperatively issued to each agent was,
"Sell all the oil that is sold in your district." To these
instructions he was rigidly held; success in accomplishing his
task meant advancement and an increased salary, with a liberal
pension in his old age, whereas failure meant a pitiless
dismissal. He was expected to supervise not only his own
business, but that of his rivals as well, to obtain access to
their accounts, their shipments, and their customers. It has been
asserted, and the assertion has been supported by considerable
evidence, that these agents did not hesitate to bribe railroad
employees and in this way get access to their competitors' bills
of lading and records of their shipments, and that they would
even bribe dealers to cancel such orders and take the oil from
them at a lower price. This information laid the foundation for
those price-cutting campaigns that have brought the name of the
Standard Oil into such disfavor. And when the Standard cut, it
cut to kill; the only purpose was to drive the competitor from
the field, and, when this had been accomplished, the price of oil
would promptly go up again. The organization of "bogus
companies," started purely for the purpose of eliminating
competitors, seems to have been a not infrequent practice. This
latter method emphasizes another quality that accompanied the
Standard's operations and so largely explains its
unpopularity--the secrecy with which it so commonly worked.
Though the independent oil refiners were combating the most
powerful financial power of the time, they were frequently
fighting in the dark, never knowing where to deliver their blows.
This same characteristic was manifested in the form of corporate
existence which the Standard adopted. The first great "trust" was
a trust not only in name but in fact. The Standard introduced not
only a new economic development into our national organization;
it introduced a new word into our language and an issue into
American politics that provided sustenance for the presidential
campaigns of twenty-five years. From the beginning the Standard
Oil had always been a close corporation. Originally it had had
only ten stockholders, and this number had gradually grown until,
in 1881, there were forty-one. These men had adopted a new and
secretive method of combining their increasing possessions into a
single ownership. In 1873 the Standard Company had increased its
capital stock (originally $1,000,000) to $3,500,000, the new
certificates being exchanged for interests in the great New York
and Philadelphia refineries The Standard Oil Company of Ohio
never had a larger capital stock than that. As additional
properties were acquired, the interests were placed in the hands
of trustees, who held them for the joint benefit of the
stockholders in the original company. In 1882 this idea was
carried further, for then the Standard Oil Trust was organized.
The fact that the properties lay in so many different States,
many of which had laws intended to curb corporations, was
evidently what led to this form of consolidation. A trust was
formed, consisting of nine trustees, who held, for the benefit of
the Standard Oil stockholders, all the stock in the Standard and
in the subsidiary companies. Instead of certificates of stock the
trustees issued certificates of trust amounting to $70,000,000.
Each Standard stockholder received twenty of these certificates
for each share which he held of Standard stock. These
certificates could be bought and sold and passed on by
inheritance precisely the same as stocks.
Ingenious as was this legal device, it did not stand the test of
the courts. In 1892 the Ohio Supreme Court declared the Standard
Oil Trust a violation of the law and demanded its dissolution.
The persistent attempts of the Standard to disregard this order
increased its reputation for lawlessness. Finally, in 1899, after
Ohio had brought another action, the trust was dissolved. The
Standard interests now reorganized all their holdings under the
name of the Standard Oil Company of New Jersey. Again, in 1911,
the United States Supreme Court declared this combination a
violation of the Sherman Anti-Trust Act, and ordered its
dissolution. By this time the Standard capitalists had learned
the value of public opinion as a corporate asset, and made no
attempt to evade the order of the court. The Standard Oil Company
of New Jersey proceeded to apportion among its stockholders the
stock which it held in thirty-seven other companies--refineries,
pipe lines, producing companies, marketing companies, and the
like. Chief Justice White, in rendering his decision,
specifically ordered that, in dissolving their combination, the
Standard should make no agreement, contractual or implied, which
was intended still to retain their properties in one ownership.
As less than a dozen men owned a majority interest in the
Standard Oil Company of New Jersey, these same men naturally
continued to own a majority interest in the subsidiary companies.
Though the immediate effect of this famous decision therefore was
not to cause a separation in fact, this does not signify that, as
time goes on, such a real dissolution will not take place. It is
not unlikely that, in a few years, the transfers of the stock by
inheritance or sale will weaken the consolidated interest to a
point where the companies that made up the Standard Company will
be distinct and competitive.
This is more likely to be the case since, long before the
decision of 1911, the Standard Oil Company had ceased to be a
monopoly. In the early nineties there came to the front in the
oil regions a man whose organizing ability and indomitable will
suggested the Standard Oil leaders themselves. This man's soul
burned with an intense hatred of the Rockefeller group, and this
sentiment, as much as his love of success, inspired all his
efforts. There is nothing finer in American business history than
the fifteen years' battle which Lewis Emery, Jr., fought against
the greatest financial power of the day. In 1901 this long
struggle met with complete success. Its monuments were the two
great trunk pipe lines which Emery had built from the
Pennsylvania regions to Marcus Hook, near Philadelphia, one for
pumping refined and one for pumping crude. The Pure Oil Company,
Emery's creation, has survived all its trials and has done an
excellent business. And meanwhile other independents sprang up
with the discovery of oil in other parts of the country. This
discovery first astonished the Standard Oil men themselves; when
someone suggested to Archbold, thirty-five years ago, that the
midcontinent field probably contained large oil supplies, he
laughed, and said that he would drink all the oil ever discovered
outside of Pennsylvania. In these days a haunting fear pursued
the oil men that the Pennsylvania field would be exhausted and
that their business would be ended. This fear, as developments
showed, had a substantial basis; the Pennsylvania yield began to
fail in the eighties and nineties, until now it is an
inconsiderable element in this gigantic industry. Ohio, Indiana,
Illinois, Kansas, Oklahoma, Texas, California, and other states
in turn became the scene of the same exciting and adventurous
events that had followed the discovery of oil in Pennsylvania.
The Standard promptly extended its pipe lines into these new
areas, but other great companies also took part in the
development. These companies, such as the Gulf Refining Company
and the Texas Refining Company, have their gathering pipe lines,
their great trunk lines, their marketing stations, and their
export trade, like the Standard; the Pure Oil Company has its
tank cars, its tank ships, and its barges on the great rivers of
Europe. The ending of the rebate system has stimulated the growth
of independents, and the production of crude oil and the market
demand in a thousand directions has increased the business to an
extent which is now far beyond the ability of any one corporation
to monopolize. The Standard interests refine perhaps something
more than fifty per cent of the crude oil produced in this
country. But in recent years, Standard Oil has meant more than a
corporation dealing in this natural product. It has become the
synonym of a vast financial power reaching in all directions. The
enormous profits made by the Rockefeller group have found
investments in other fields. The Rockefellers became the owners
of the great Mesaba iron ore range in Minnesota and of the
Colorado Fuel and Iron Company, the chief competitor of United
States Steel. It is the largest factor in several of the greatest
American banks. Above all, it is the single largest railroad
power in America today.
CHAPTER III. THE EPIC OF STEEL
It was the boast of a Roman Emperor that he had found the Eternal
City brick and left it marble. Similarly the present generation
of Americans inherited a country which was wood and have
transformed it into steel. That which chiefly distinguishes the
physical America of today from that of forty years ago is the
extensive use of this metal. Our fathers used steel very little
in railway transportation; rails and locomotives were usually
made of iron, and wood was the prevailing material for railroad
bridges. Steel cars, both for passengers and for freight, are now
everywhere taking the place of the more flimsy substance. We
travel today in steel subways, transact our business in steel
buildings, and live in apartments and private houses which are
made largely of steel. The steel automobile has long since
supplanted the wooden carriage; the steel ship has displaced the
iron and wooden vessel. The American farmer now encloses his
lands with steel wire, the Southern planter binds his cotton with
steel ties, and modern America could never gather her abundant
harvests without her mighty agricultural implements, all of which
are made of steel. Thus it is steel that shelters us, that
transports us, that feeds us, and that even clothes us.
This substance is such a commonplace element in our lives that we
take it for granted, like air and water and the soil itself; yet
the generation that fought the Civil War knew practically nothing
of steel. They were familiar with this metal only as a curiosity
or as a material used for the finer kinds of cutlery. How many
Americans realize that steel was used even less in 1865 than
aluminum is used today? Nearly all the men who have made the
American Steel Age--such as Carnegie, Phipps, Frick, and Schwab-
-are still living and some of them are even now extremely active.
Thirty-five years ago steel manufacture was regarded, even in
this country, as an almost exclusively British industry. In 1870
the American steel maker was the parvenu of the trade. American
railroads purchased their first steel rails in England, and the
early American steel makers went to Sheffield for their expert
workmen. Yet, in little more than ten years, American mills were
selling agricultural machinery in that same English town,
American rails were displacing the English product in all parts
of the world, American locomotives were drawing English trains on
English railways, and American steel bridges were spanning the
Ganges and the Nile. Indeed, the United States soon surpassed
England. In the year before the World War the United Kingdom
produced 7,500,000 tons of steel a year, while the United States
produced 32,000,000 tons. Since the outbreak of the Great War,
the United States has probably made more steel than all the rest
of the world put together. "The nation that makes the cheapest
steel," says Mr. Carnegie, "has the other nations at its feet."
When some future Buckle analyzes the fundamental facts in the
World War, he may possibly find that steel precipitated it and
that steel determined its outcome.
Three circumstances contributed to the rise of this greatest of
American industries: a new process for cheaply converting molten
pig iron into steel, the discovery of enormous deposits of ore in
several sections of the United States, and the entrance into the
business of a hardy and adventurous group of manufacturers and
business men. Our steel industry is thus another triumph of
American inventive skill, made possible by the richness of our
mineral resources and the racial energy of our people. An
elementary scientific discovery introduced the great steel age.
Steel, of course, is merely iron which has been refined--freed
from certain impurities, such as carbon, sulphur, and phosphorus.
We refine our iron and turn it into steel precisely as we refine
our sugar and petroleum. From the days of Tubal Cain the iron
worker had known that heat would accomplish this purification;
but heat, up to almost 1865, was an exceedingly expensive
commodity. For ages iron workers had obtained the finer metal by
applying this heat in the form of charcoal, never once realizing
that unlimited quantities of another fuel existed on every hand.
The man who first suggested that so commonplace a substance as
air, blown upon molten pig iron, would produce the intensest heat
and destroy its impurities, made possible our steel railroads,
our steel ships, and our steel cities. When William Kelly, an
owner of iron works near Eddyville, Kentucky, first proposed this
method in 1847, he met with the ridicule which usually greets the
pioneer inventor. When Henry Bessemer, several years afterward,
read a paper before the British Association for the Advancement
of Science, in which he advocated the same principle, he was
roared down as "a crazy Frenchman," and the savants were so
humiliated by the suggestion that they voted to make no record of
his "silly paper" in their official minutes. Yet these two men,
the American Kelly and the Englishman Bessemer, were the creators
of modern steel. The records of the American Patent Office
clearly show that Kelly made "Bessemer" steel many years before
Bessemer. In 1870 the American Government refused to extend
Bessemer's patent in this country on the ground that William
Kelly had a prior claim; in spite of this, Bessemer was
undoubtedly the man who developed the mechanical details and gave
the process a universal standing.
Though the Bessemer process made possible the production of steel
by tons instead of by pounds, it would never in itself have given
the nation its present preeminence in the steel industry. Iron
had been mined in the United States for two centuries on a small
scale, the main deposits being located in the Lake Champlain
region of New York and in western Pennsylvania. But these, and a
hundred other places located along the Atlantic coast, could not
have produced ore in quantities sufficient to satisfy the yawning
jaws of the Bessemer converters. As this new method poured out
the liquid in thousands of tons, and as the commercial demand
extended in a dozen different directions, the cry went up from
the furnace's for more ore. And again Nature, which has favored
America in so many directions, came to her assistance.
Manufacturers in the steel regions began to recall strange
stories which had been floating down for many years from the
wilderness surrounding Lake Superior. The recollection of a
famous voyage made in this region by Philo M. Everett, as far
back as 1845, now laid siege to the imagination of the new
generation of ironmasters. For years the Indians had told Everett
of the "mountains of iron" that lay on the Minnesota shore of
Lake Superior and had described their wonders in words that
finally impelled this hardy adventurer to make a voyage of
exploration. For six weeks, in company with two Indian guides,
Everett had navigated a small boat along the shores of the Lake,
covering a distance that now takes only a few hours. The Indians
had long regarded this silent, red iron region with a
superstitious reverence, and now, as the little party approached,
they refused to complete the journey. "Iron Mountain!" they said,
pointing northward along the trail--"Indian not go near; white
man go!" The sight which presently met Everett's eyes repaid him
well for his solitary tramp in the forest. He found himself face
to face with a "mountain a hundred and fifty feet high, of solid
ore, which looked as bright as a bar of iron just broken." Other
explorations subsequently laid open the whole of the Minnesota
fields, including the Mesaba, which developed into the world's
greatest iron range. America has other regions rich in ore,
particularly in Alabama, located alongside the coal and limestone
so necessary in steel production; yet it has drawn two-thirds of
its whole supply from these Lake Superior fields. Not only the
quantity, which is apparently limitless, but the quality explains
America's leadership in steel making.
Mining in Minnesota has a character which is not duplicated
elsewhere. When we think of an iron mine, we naturally picture
subterranean caverns and galleries, and strange, gnome-like
creatures prowling about with pick and shovel and drill. But
mining in this section is a much simpler proceeding. The precious
mineral does not lie concealed deep within the earth; it lies
practically upon the surface. Removing it is not a question of
blasting with dynamite; it is merely a matter of lifting it from
the surface of the earth with a huge steam shovel. "Miners" in
Minnesota have none of the conventional aspects of their trade.
They operate precisely as did those who dug the Panama Canal. The
railroad cars run closely to the gigantic red pit. A huge steam
shovel opens its jaws, descends into an open amphitheater, licks
up five tons at each mouthful, and, swinging sideways over the
open cars, neatly deposits its booty. It is not surprising that
ore can be produced at lower cost in the United States than even
in those countries where the most wretched wages are paid.
Evidently this one iron field, to say nothing of others already
worked, gives a permanence to our steel industry.
Not only did America have the material resources; what is even
more important, she had also the men. American industrial history
presents few groups more brilliant, more resourceful, and more
picturesque than that which, in the early seventies, started to
turn these Minnesota ore fields into steel--and into gold. These
men had all the dash, all the venturesomeness, all the
speculative and even the gambling instinct, needed for one of the
greatest industrial adventures in our annals. All had sprung from
the simplest and humblest origins. They had served their business
apprenticeships as grocery clerks, errand boys, telegraph
messengers, and newspaper gamins. For the most part they had
spent their boyhood together, had played with each other as
children, had attended the same Sunday schools, had sung in the
same church choirs, and, as young men, had quarreled with each
other over their sweethearts. The Pittsburgh group comprised
about forty men, most of whom retired as millionaires, though
their names for the most part signify little to the present-day
American. Kloman, Coleman, McCandless, Shinn, Stewart, Jones,
Vandervoort--are all important men in the history of American
steel. Thomas A. Scott and J. Edgar Thompson, men associated
chiefly with the creation of the Pennsylvania Railroad, also made
their contributions. But three or four men towered so
preeminently above their associates that today when we think of
the human agencies that constructed this mighty edifice, the
names that insistently come to mind are those of Carnegie,
Phipps, Frick, and Schwab.
Books have been written to discredit Carnegie's work and to
picture him as the man who has stolen success from the labor of
greater men. Yet Carnegie is the one member of a brilliant
company who had the indispensable quality of genius. He had none
of the plodding, painstaking qualities of a Rockefeller; he had
the fire, the restlessness, the keen relish for adventure, and
the imagination that leaped far in advance of his competitors
which we find so conspicuous in the older Vanderbilt. Carnegie
showed these qualities from his earliest days. Driven as a child
from his Scottish home by hunger, never having gone to school
after twelve, he found himself, at the age of thirteen, living in
a miserable hut in Allegheny, earning a dollar and twenty cents a
week as bobbin-boy in a cotton mill, while his mother augmented
the family income by taking in washing. Half a dozen years later
Thomas Scott, President of the Pennsylvania Railroad, made
Carnegie his private secretary. How well the young man used his
opportunities in this occupation appeared afterward when he
turned his wide acquaintanceship among railroad men to practical
use in the steel business. It was this personal adaptability,
indeed, that explains Carnegie's success. In the narrow,
methodical sense he was not a business man at all; he knew and
cared nothing for its dull routine and its labyrinthine details.
As a practical steel man his position is a negligible one. Though
he was profoundly impressed by his first sight of a Bessemer
converter, he had little interest in the every-day process of
making steel. He had also many personal weaknesses: his egotism
was marked, he loved applause, he was always seeking
opportunities for self-exploitation, and he even aspired to fame
as an author and philosopher. The staid business men of
Pittsburgh early regarded Carnegie with disfavor; his daring
impressed them as rashness and his bold adventures as the
plunging of the speculator. Yet in all its aspects Carnegie's
triumph was a personal one. He was perhaps the greatest
commercial traveler this country has ever known. While his more
methodical associates plodded along making steel, Carnegie went
out upon the highway, bringing in orders by the millions. He
showed this same personal quality in the organization of his
force. As a young man, entirely new to the steel industry, he
selected as the first manager of his works Captain Bill Jones;
his amazing judgment was justified when Jones developed into
America's greatest practical genius in making steel. "Here lies
the man"--Carnegie once suggested this line for his epitaph--"who
knew how to get around him men who were cleverer than himself."
Carnegie inspired these men with his own energy and restlessness;
the spirit of the whole establishment automatically became that
of the pushing spirit of its head. This little giant became the
most remorseless pace-maker in the steel regions. However
astounding might be the results obtained by the Carnegie works
the captain at the head was never satisfied. As each month's
output surpassed that which had gone before, Carnegie always came
back with the same cry of "More." "We broke all records for
making steel last week!" a delighted superintendent once wired
him and immediately he received his answer, "Congratulations. Why
not do it every week?" This spirit explains the success of the
Carnegie Company in outdistancing all its competitors and gaining
a worldwide preeminence for the Pittsburgh district. But Carnegie
did not make the mistake of capitalizing all this prosperity for
himself; his real greatness as an American business man consists
in the fact that he liberally shared the profits with his
associates. Ruthless he might be in appropriating their last
ounce of energy, yet he rewarded the successful men with golden
partnerships. Nothing delighted Carnegie more than to see the man
whom he had lifted from a puddler's furnace develop into a
millionaire.
Henry Phipps, still living at the age of seventy-eight, was the
only one of Carnegie's early associates who remained with him to
the end. Like many of the others, Phipps had been Carnegie's
playmate as a boy, so far as any of them, in those early days,
had opportunity to play; like all his contemporaries also, Phipps
had been wretchedly poor, his earliest business opening having
been as messenger boy for a jeweler. Phipps had none of the dash
and sparkle of Carnegie. He was the plodder, the bookkeeper, the
economizer, the man who had an eye for microscopic details. "What
we most admired in young Phipps," a Pittsburgh banker once
remarked, "is the way in which he could keep a check in the air
for three or four days." His abilities consisted mainly in
keeping the bankers complaisant, in smoothing the ruffled
feelings of creditors, in cutting out unnecessary expenditures,
and in shaving prices.
Carnegie's other two more celebrated associates, Henry C. Frick
and Charles M. Schwab, were younger men. Frick was cold and
masterful, as hard, unyielding, and effective as the steel that
formed the staple of his existence. Schwab was enthusiastic,
warm-hearted, and happy-go-lucky; a man who ruled his employees
and obtained his results by appealing to their sympathies. The
men of the steel yards feared Frick as much as they loved
"Charlie" Schwab. The earliest glimpses which we get of these
remarkable men suggest certain permanent characteristics: Frick
is pictured as the sober, industrious bookkeeper in his
grandfather's distillery; Schwab as the rollicking, whistling
driver of a stage between Loretto and Cresson. Frick came into
the steel business as a matter of deliberate choice, whereas
Schwab became associated with the Pittsburgh group more or less
by accident.
The region of Connellsville contains almost 150 square miles
underlaid with coal that has a particular heat value when
submitted to the process known as coking. As early as the late
eighties certain operators had discovered this fact and were
coking this coal on a small scale. It is the highest tribute to
Frick's intelligence that he alone foresaw the part which this
Connellsville coal was to play in building up the Pittsburgh
steel district. The panic of 1873, which laid low most of the
Connellsville operators, proved Frick's opportunity. Though he
was only twenty-four years old he succeeded, by his intelligence
and earnestness, in borrowing money to purchase certain
Connellsville mines, then much depreciated in price. From that
moment, coke became Frick's obsession, as steel had been
Carnegie's. With his early profits he purchased more coal lands
until, by 1889, he owned ten thousand coke ovens and was the
undisputed "coke king" of Connellsville. Several years before
this, Carnegie had made Frick one of his marshals, coke having
become indispensable to the manufacture of steel, and in 1889 the
former distiller's accountant became Carnegie's
commander-in-chief. Probably the popular mind associates Frick
chiefly with the importation of Slavs as workmen, with the
terrible strikes that followed in consequence at Homestead, with
the murderous attack made upon him by Berkman, the anarchist, and
with his bitter, longdrawn-out quarrel with Andrew Carnegie.
Frick's stormy career was naturally the product of his character.
On the other hand, temperamental pliability and lovableness were
the directing traits of the man who, in his way, made
contributions quite as solid to the extension of the Pittsburgh
steel industry. Schwab worked with the human material quite as
successfully as other men worked with iron ore, Bessemer
furnaces, and coal. He handled successfully what was perhaps the
greatest task in management ever presented to a manufacturer when
to him fell the job of reorganizing the Homestead Works after the
strike of 1892 and of transforming thousands of riotous workmen
into orderly and interested producers of steel. In three or four
years practically every man on the premises had become "Charlie"
Schwab's personal friend, and the Homestead property which, until
the day he took charge, had been a colossal failure, had
developed into one of the most profitable holdings of the
Carnegie Company. As his reward Schwab, at the age of thirty-
four, was made President of the Carnegie corporation. Only
sixteen years before he had entered the steel works as a stake
driver at a dollar a day.
When the Carnegie group began operations in the early seventies,
American steel, as a British writer remarked, was a "hot-house
product"; yet in 1900 the Carnegie partners divided $40,000,000
as the profits of a single year. They had demonstrated that the
United States, despite the high prices that prevailed everywhere,
could make steel more cheaply than any other country. Foreign
observers have offered several explanations for this achievement.
American makers had an endless supply of cheap and high-grade
ore, cheaper coke, cheaper transportation, and workmen of a
superior skill. We must give due consideration to the fact that
their organization was more flexible than those of older
countries, and that it regulated promotion exclusively by merit
and gave exceptional opportunities to young men. American steel
makers also had scrap heaps whose size astounded the foreign
observers; they never hesitated to discard the most expensive
plants if by so doing they could reduce the cost of steel rails
by a dollar a ton. Machinery for steel making had a more
extensive development in this country than in England or Germany.
Mr. Carnegie also enjoyed the advantages of a high protective
tariff, though about 1900 he discovered that his extremely
healthy infant no longer demanded this form of coddling. But
probably the Carnegie Company's greatest achievement was the
abolition of the middleman. In a few years it assembled all the
essential elements of steel making in its own hands. Frick's
entrance into the combination gave the concern an unlimited
supply of the highest grade of coking coal. In a few years, the
Carnegie interests had acquired great holdings in the Minnesota
ore regions.
At first glance, the Pittsburgh region seems hardly the ideal
place for the making of steel. Fortune first placed the industry
there because all the raw materials, especially iron ore and
coal, seemed to exist in abundance. But the discovery of the
Minnesota ore field, which alone could supply this essential
product in the amounts which the furnaces demanded, immediately
deprived the Pittsburgh region of its chief advantage. As a
result of this sudden development, the manufacturers of
Pittsburgh awoke one morning and discovered that their ore was
located a thousand miles away. To bring it to their converters
necessitated a long voyage by water and rail, with several
reloadings. They overcame these obstacles by developing machinery
for handling ore and by acquiring the raw materials and the
connecting links of transportation. Ore which had been lying in
the wilds of Minnesota on Monday morning was thus brought to
Pittsburgh and made into steel rails or bridges or structural
shapes by Saturday night. The Carnegie Company first acquired
sufficient mineral lands to furnish ore for several generations
and organized an ore fleet which transported the products of the
mines through the lakes to ports on Lake Erie, particularly
Ashtabula and Conneaut. The purchase of the Bessemer and Lake
Erie Railroad, which extended from Conneaut to Pittsburgh, made
this great transportation route complete. Besides freeing their
business from uncertainty, this elimination of middlemen
naturally produced great economies.
Probably Andrew Carnegie's shrewdness in naming his first plant
the J. Edgar Thompson Steel Works, after the powerful President
of the Pennsylvania Railroad, and in making Thompson and his
associate Scott partners, had much to do with his early success.
These two gentlemen conferred two priceless favors upon the
struggling enterprise. They became large purchasers of steel
rails and their influence in this direction extended far beyond
the Pennsylvania Railroad. What was perhaps even more important,
they gave the Carnegie concerns railroad rebates. The use of
rebates, as a method of stifling competition and building up a
great industrial prosperity, is an offense which the popular mind
associates almost exclusively with the Standard Oil Company, yet
the Carnegie fortune, as well as that of John D. Rockefeller,
received an artificial stimulation of this kind.
Though incomparably the greatest of the American steel companies,
the Carnegie Steel Company by no means monopolized the field. In
forty years, indeed, an enormous steel area had grown up,
including western Pennsylvania, Ohio, Indiana, and Illinois,
practically all of it drawing its raw materials from those same
teeming ore lands in the Lake Superior region. Johnstown,
Youngstown, Cleveland, Lorain, Chicago, and Joliet, became
headquarters of steel production almost as important as
Pittsburgh itself. Two entirely new steel kingdoms, each with its
own natural reservoirs of ore, grew up in Colorado and Alabama.
The Colorado Fuel and Iron Company, which possessed apparently
inexhaustible mineral lands in Colorado, Wyoming, Utah, New
Mexico, and California, itself produces not far from three
million tons a year, almost half the present production of Great
Britain. The Alabama steel country has developed in even more
spectacular fashion. Birmingham, a hive of southern industry
placed almost as if by magic in the leisurely cotton lands of the
South, had no existence in 1870, when the Pittsburgh prosperity
began. In the Civil War, the present site of a city with a
population of 140,000 was merely a blacksmith shop in the fork of
the roads. Yet this district has advantages for the manufacture
of steel that have no parallel elsewhere. The steel companies
which are located here do not have to bring their materials
laboriously from a distance but possess, immediately at hand,
apparently endless store of the three things needful for making
steel--iron ore, coal, and limestone. All these territories have
their personal romances and their heroes, many of them quite as
picturesque as those of the Pittsburgh group.
It is doubtful indeed if American industry presents any figure
quite as astonishing and variegated as that of John W. Gates, the
man who educated farmers all over the world to the use of wire
fencing. Half charlatan, half enthusiast, speculator, gambler, a
man who created great enterprises and who also destroyed them, at
times an upbuilding force and at other times a sinister
influence, Gates completely typified a period in American history
that, along with much that was heroic and splendid, had much also
that was grotesque and sordid. The opera-bouffe performance that
laid the foundations of Gates's great industry was in every way
characteristic of this period. In 1871 Gates, then a clerk in a
hardware store at twenty-five dollars a week, made his first
attempt to sell barbed wire in the great cattle countries of the
southwestern States. When the cattle men in Texas first saw this
barbed wire, they ridiculed the idea that it could ever hold
their steers. Gates selected a plaza in San Antonio, fenced it in
with his new product, and invited the enemies to bring along
their wildest specimens About thirty of Texas' most ferocious
cattle, placed within the enclosure, spent a whole afternoon
plunging at the barbs in a useless and tormenting attempt to
escape. This spectacular demonstration of efficiency launched
Gates fairly upon his career. He immediately began to sell his
new fencing on an enormous scale; in a few years the whole world
was demanding it, and it has become, as recent events have
disclosed, a particularly formidable munition of war. The
American Steel and Wire Company, one of the greatest of American
corporations, was the ultimate outgrowth of that lively afternoon
in San Antonio.
In 1900 the Carnegie Steel Company was making one-quarter of all
the Bessemer steel produced in the United States. It owned in
abundance all the properties which were essential to its
completed output--coal, limestone, steel ships, railroads, and
steel mills. In twenty-five years, from 1875 to 1900, this
manufacturing enterprise had paid the Carnegie group profits
aggregating $133,000,000, profits which, in the closing years of
the century, had increased at a stupendous rate. In 1898 Carnegie
and his associates had divided $11,500,000, in 1899 their
earnings had grown to $25,000,000, and in 1900 the aggregate had
suddenly jumped to $40,000,000. Of this latter sum Carnegie
received $25,000,000, Phipps $5,500,000, Frick $2,600,000, and
Schwab $1,300,000. And Carnegie's little group could see no limit
to the growth of their business and the expansion of their
personal fortunes. Yet at that very moment Carnegie was planning
to play the part of a Charles V with the large empire which he
had pieced together--to abdicate his throne, retire from business
life, and spend his remaining days in quiet.
Many influences were impelling him to this decision. His triumph,
stupendous as it had been, also had had its alloy of sorrow.
Indeed this little Scotsman, now at the crowning of his glory,
was one of the loneliest figures in the world. Practically all
the forty men with whom he had been closely associated had
vanished from the scene. He had quarreled with his playmate and
lifelong partner, Henry Phipps, and was in the worst possible
business and personal relations with Frick. He had no son to
carry on his work. He had become greatly interested in his
philanthropies, and he had declared that the man who died rich
died disgraced. Moreover, new influences were rising in the steel
trade with which Carnegie had little sympathy. Its national
capital seemed to be shifting from Pittsburgh to Wall Street. New
men who knew nothing about steel but who possessed an intimate
acquaintance with stocks and bonds--J. Pierpont Morgan, George W.
Perkins, and their associates--were branching out as controllers
of large steel interests. Carnegie had no interest in Wall
Street; he has declared that he never speculated in his life and
that he would immediately dissociate himself from any partner who
would do so. This Wall Street coterie, in the years from 1898 to
1900, had made several large combinations in the steel trade.
That was the era when the trust mania had gained possession of
the American mind and when its worst features displayed
themselves. The Federal Steel Company, the American Bridge
Company, the American Steel and Wire, the National Tube Company,
all representing the assembling of large works which had been
engaged as rivals in similar enterprises, were launched, with the
usual accompaniments of "underwriting syndicates," watered stock,
and Wall Street speculation. This sort of thing made no appeal to
Andrew Carnegie. His huge enterprise had always remained
essentially a copartnership, and he had frequently expressed his
abhorrence of trusts. Yet, in spite of his wish to retire from
business and in spite of his avowed intention to die poor,
Carnegie now adopted the policy of the Sibylline leaves to all
prospective purchasers. Moore and Reid would have purchased his
interest for $157,000,000; when Rockefeller came along the price
had risen to $250,000,000; when the oil man shook his head and
retired, Carnegie immediately raised his price to $500,000,000.
It is doubtful whether he would have sold at all had not his Wall
Street competitors begun to encroach on a field which the little
Scotsman understood quite as well as they--the production and
merchandising of steel. The newly organized combinations were
completing elaborate plans to go after Carnegie's business. Then
Carnegie, who had practically retired from active life, again
arrayed himself in his shirt-sleeves, abandoned his career of
authorship, and resumed his early trade. His first attacks
produced an immense reverberation in the House of Morgan. He
purchased a huge tract at Conneaut and began building a gigantic
plant for the manufacture of steel tubes, a business in which he
had not hitherto engaged. This was a blow aimed at one of
Morgan's pet new creations, the National Tube Company. Should
Carnegie finish his works, there was no doubt the Morgan
enterprise would be ruined, for the new plant would be far more
modern and so could manufacture the product at a much lower
price; and, with Charles M. Schwab as active manager, what
possible chance would the older corporation have? But Carnegie
struck his enemy at an even more vulnerable point. The
Pennsylvania Railroad had a practical monopoly of traffic in and
out of Pittsburgh, and Pittsburgh "created" more freight business
than any other city in the world. Carnegie lent his powerful
support to George J. Gould, who was then extending his railroad
system into the preempted field and was also making surveys and
had financed a company to build an entirely new railroad from
Pittsburgh to the Atlantic Coast. As Carnegie himself controlled
the larger part of the freight that made Pittsburgh such an
essential feeder to railroads, his new enterprise caused the
greatest alarm. At the same time Carnegie equipped a new and
splendid fleet of ore ships, his purpose being to enter a field
of transportation which John D. Rockefeller had found extremely
profitable.
Such were the circumstances and such were the motives that gave
birth to the world's largest corporation. All one night, so the
story goes, Charles M. Schwab and John W. Gates discussed the
steel situation with J. Pierpont Morgan. There was only one
possible solution, they said--Andrew Carnegie must be bought out.
By the time the morning sun came through the windows Morgan had
been convinced. "Go and ask him what he will sell for," he said
to Schwab. In a brief period Schwab came back to Morgan with a
letter which contained the following figures--five per cent gold
bonds $303,450,000; preferred stock $98,277,100; common stock
$90,279,000--a total of over $492,000,000. Carnegie demanded no
cash; he preferred to hold a huge first mortgage on a business
whose golden opportunities he knew so well. Morgan, who had been
accustomed all his life to dictate to other men, had now met a
man who was able to dictate to him. And he capitulated. The man
who fifty-three years before had started life in a new country as
a bobbin-boy at a dollar and twenty cents a week, now at the age
of sixty-six retired from business the second richest man in the
world. With him retired a miscellaneous assortment of
millionaires whose fortunes he had made and whose subsequent
careers in the United States and in Europe have given a peculiar
significance to the name "Pittsburgh Millionaires." The United
States Steel Corporation, the combination that included not only
the Carnegie Company but seventy per cent of all the steel
concerns in the country, was really a trust made up of trusts. It
had a capitalization of a billion and a half, of which about
$700,000,000 was composed of the commodity usually known as
"water"; but so greatly has its business grown and so capably has
it been managed that all this liquid material has since been
converted into more solid substance. The disappearance of Andrew
Carnegie and his coworkers and the emergence of this gigantic
enterprise completed the great business cycle in the steel trade.
The age of individual enterprise and competition had passed--that
of corporate control had arrived.
CHAPTER IV. THE TELEPHONE: "AMERICA'S MOST POETICAL ACHIEVEMENT"
A distinguished English journalist, who was visiting the United
States, in 1917, on an important governmental mission, had an
almost sublime illustration of the extent to which the telephone
had developed on the North American Continent. Sitting at a desk
in a large office building in New York, Lord Northcliffe took up
two telephone receivers and placed one at each ear. In the first
he heard the surf beating at Coney Island, New York, and in the
other he heard, with equal distinctness, the breakers pounding
the beach at the Golden Gate, San Francisco. Certainly this
demonstration justified the statement made a few years before by
another English traveler. "What startles and frightens the
backward European in the United States," said Mr. Arnold Bennett,
"is the efficiency and fearful universality of the telephone. To
me it was the proudest achievement and the most poetical
achievement of the American people."
Lord Northcliffe's experience had a certain dramatic justice
which probably even he did not appreciate. He is the proprietor
of the London Times, a newspaper which, when the telephone was
first introduced, denounced it as the "latest American humbug"
and declared that it "was far inferior to the well-established
system of speaking tubes." The London Times delivered this solemn
judgment in 1877. A year before, at the Philadelphia Centennial
Exposition, Don Pedro, Emperor of Brazil, picked up, almost
accidentally, a queer cone-shaped instrument and put it to his
ear, "My God! It talks!" was his exclamation; an incident which,
when widely published in the press, first informed the American
people that another of the greatest inventions of all times had
had its birth on their own soil. Yet the initial judgment of the
American people did not differ essentially from the opinion which
had been more coarsely expressed by the leading English
newspaper. Our fathers did not denounce the telephone as an
"American humbug," but they did describe it as a curious electric
"toy" and ridiculed the notion that it could ever have any
practical value. Even after Alexander Graham Bell and his
associates had completely demonstrated its usefulness, the
Western Union Telegraph Company refused to purchase all their
patent rights for $100,000! Only forty years have passed since
the telephone made such an inauspicious beginning. It remains
now, as it was then, essentially an American achievement. Other
nations have their telephone systems, but it is only in the
United States that its possibilities have been even faintly
realized. It is not until Americans visit foreign countries that
they understand that, imperfect as in certain directions their
industrial and social organization may be, in this respect at
least their nation is preeminent.
The United States contains nearly all the telephones in
existence, to be exact, about seventy-five per cent. We have
about ten million telephones, while Canada, Central America,
South America, Great Britain, Europe, Asia, and Africa all
combined have only about four million. In order to make an
impressive showing, however, we need not include the backward
peoples, for a comparison with the most enlightened nations
emphasizes the same point. Thus New York City has more telephones
than six European countries taken together--Austria-Hungary,
Belgium, Norway, Denmark, Italy, and the Netherlands. Chicago,
with a population of 2,000,000, has more telephones than the
whole of France, with a population of 40,000,000. Philadelphia,
with 1,500,000, has more than the Russian Empire, with
166,000,000. Boston has more telephones than Austria-Hungary, Los
Angeles more than the Netherlands, and Kansas City more than
Belgium. Several office buildings and hotels in New York City
have more instruments than the kingdoms of Greece or Bulgaria.
The whole of Great Britain and Ireland has about 650,000
telephones, which is only about 200,000 more, than the city of
New York.
Mere numbers, however, tell only half the story. It is when we
compare service that American superiority stands most manifest.
The London newspapers are constantly filled with letters abusing
the English telephone system. If these communications describe
things accurately, there is apparently no telephone vexation that
the Englishman does not have to endure. Delays in getting
connections are apparently chronic. At times it seems impossible
to get connections at all, especially from four to five in the
afternoon--when the operators are taking tea. Suburban
connections, which in New York take about ninety seconds, average
half an hour in London, and many of the smaller cities have no
night service. An American thinks nothing of putting in a
telephone; he notifies his company and in a few days the
instrument is installed. We take a thing like this for granted.
But there are places where a mere telephone subscription, the
privilege of having an instrument installed, is a property right
of considerable value and where the telephone service has a
"waiting list," like an exclusive club. In Japan one can sell a
telephone privilege at a good price, its value being daily quoted
on the Stock Exchange. Americans, by constantly using the
telephone, have developed what may be called a sixth sense, which
enables them to project their personalities over an almost
unlimited area. In the United States the telephone has become the
one all-prevailing method of communication. The European writes
or telegraphs while the American more frequently telephones. In
this country the telephone penetrates to places which even the
mails never reach. The rural free delivery and other forms of the
mail service extend to 58,000 communities, while our 10,000,000
telephones encompass 70,000. We use this instrument for all the
varied experiences of life, domestic, social, and commercial.
There are residences in New York City that have private branch
exchanges, like a bank or a newspaper office. Hostesses are more
and more falling into the habit of telephoning invitations for
dinner and other diversions. Many people find telephone
conversations more convenient than personal interviews, and it is
every day displacing the stenographer and the traveling salesman.
Perhaps the most noteworthy achievement of the telephone is its
transformation of country life. In Europe, rural telephones are
almost unknown, while in the United States one-third of all our
telephone stations are in country districts. The farmer no longer
depends upon the mails; like the city man, he telephones. This
instrument is thus the greatest civilizing force we have, for
civilization is very largely a matter of intercommunication.
Indeed, the telephone and other similar agencies, such as the
parcel post, the rural free delivery, better roads, and the
automobile, are rapidly transforming rural life in this country.
In several regions, especially in the Mississippi Valley, a
farmer who has no telephone is in a class by himself, like one
who has no mowing-machine. Thus the latest returns from Iowa,
taken by the census as far back as 1907, showed that
seventy-three per cent of all the farms--160,000 out of
220,000--had telephones and the proportion is unquestionably
greater now. Every other farmhouse from the Atlantic to the
Pacific contains at least one instrument. These statistics
clearly show that the telephone has removed half the terrors and
isolation of rural life. Many a lonely farmer's wife or daughter,
on the approach of a suspicious-looking character, has rushed to
the telephone and called up the neighbors, so that now tramps
notoriously avoid houses that shelter the protecting wires. In
remote sections, insanity, especially among women, is frequently
the result of loneliness, a calamity which the telephone is doing
much to mitigate.
In the United States today there is one telephone to every nine
persons. This achievement represents American invention, genius,
industrial organization, and business enterprise at their best.
The story of American business contains many chapters and
episodes which Americans would willingly forget. But the American
Telephone and Telegraph Company represents an industry which has
made not a single "swollen fortune," whose largest stockholder is
the wife of Alexander Graham Bell, the inventor (a woman who,
being totally deaf, has never talked over the telephone); which
has not corrupted legislatures or courts; which has steadily
decreased the prices of its products as business and profits have
increased; which has never issued watered stock or declared
fictitious dividends; and which has always manifested a high
sense of responsibility in its dealings with the public.
Two forces, American science and American business capacity, have
accomplished this result. As a mechanism, this American telephone
system is the product not of one but of many minds. What most
strikes the imagination is the story of Alexander Graham Bell,
yet other names--Carty, Scribner, Pupin--play a large part in the
story.
The man who discovered that an electric current had the power of
transmitting sound over a copper wire knew very little about
electricity. Had he known more about this agency and less about
acoustics, Bell once said himself, he would never have invented
the telephone. His father and grandfather had been teachers of
the deaf and dumb and had made important researches in acoustics.
Alexander Graham Bell, born in Edinburgh in March, 1847, and
educated there and in London, followed the ancestral example.
This experience gave Bell an expert knowledge of phonetics that
laid the foundation for his life work. His invention, indeed, is
clearly associated with his attempts to make the deaf and dumb
talk. He was driven to America by ill-health, coming first to
Canada, and in 1871 he settled in Boston, where he accepted a
position in Boston University to introduce his system of teaching
deaf-mutes. He opened a school of "Vocal Physiology," and his
success in his chosen field brought him into association with the
people who afterward played an important part in the development
of the telephone. Not a single element of romance was lacking in
Bell's experience; his great invention even involved the love
story of his life. Two influential citizens of Boston, Thomas
Sanders and Gardiner G. Hubbard, had daughters who were deaf and
dumb, and both engaged Bell's services as teacher. Bell lived in
Sanders's home for a considerable period, dividing his time
between teaching his little pupil how to talk and puttering away
at a proposed invention which he called a "harmonic telegraph."
Both Sanders and Hubbard had become greatly interested in this
contrivance and backed Bell financially while he worked. It was
Bell's idea that, by a system of tuning different telegraphic
receivers to different pitches, several telegraphic messages
could be sent simultaneously over the same wire. The idea was not
original with Bell, although he supposed that it was and was
entirely unaware that, at the particular moment when he started
work, about twenty other inventors were struggling with the same
problem. It was one of these other twenty experimenters, Elisha
Gray, who ultimately perfected this instrument. Bell's researches
have an interest only in that they taught him much about sound
transmission and other kindred subjects and so paved the way for
his great conception. One day Hubbard and Sanders learned that
Bell had abandoned his "harmonic telegraph" and was experimenting
with an entirely new idea. This was the possibility of
transmitting the human voice over an electric wire. While working
in Sanders's basement, Bell had obtained from a doctor a dead
man's ear, and it is said that while he was minutely studying and
analyzing this gruesome object, the idea of the telephone first
burst upon his mind. For years Bell had been engaged in a task
that seemed hopeless to most men--that of making deaf-mutes talk.
"If I can make a deaf-mute talk, I can make iron talk," he
declared. "If I could make a current of electricity vary in
intensity as the air varies in density," he said at another time,
"I could transmit sound telegraphically." Many others, of course,
had dreamed of inventing such an instrument. The story of the
telephone concerns many men who preceded Bell, one of whom,
Philip Reis, produced, in 1861, a mechanism that could send a few
discordant sounds, though not the human voice, over an electric
wire. Reis seemed to have based his work upon an article
published in "The American Journal of Science" by Dr. C.G. Page,
of Salem, Mass., in 1837, in which he called attention to the
sound given out by an electric magnet when the circuit is opened
or closed. The work of these experimenters involves too many
technicalities for discussion in this place. The important facts
are that they all involved different principles from those worked
out by Bell and that none of them ever attained any practical
importance. Reis, in particular, never grasped the essential
principles that ultimately made the telephone a reality. His work
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