The Age of Big Business
Burton J. Hendrick

Part 2 out of 2

occupies a place in telephone history only because certain
financial interests, many years after his death, brought it to
light in an attempt to discredit Bell's claim to priority as the
inventor. An investigator who seems to have grasped more clearly
the basic idea was the distinguished American inventor Elisha
Gray, already mentioned as the man who had succeeded in
perfecting the "harmonic telegraph." On February 14, 1876, Gray
filed a caveat in the United States Patent Office, setting forth
pretty accurately the conception of the electric telephone. The
tragedy in Gray's work consists in the fact that, two hours
before his caveat had been put in, Bell had filed his application
for a patent on the completed instrument.

The champions of Bell and Gray may dispute the question of
priority to their heart's content; the historic fact is that the
telephone dates from a dramatic moment in the year 1876. Sanders
and Hubbard, much annoyed that Bell had abandoned his harmonic
telegraph for so visionary an idea as a long distance talking
machine, refused to finance him further unless he returned to his
original quest. Disappointed and disconsolate, Bell and his
assistant, Thomas A. Watson, had started work on the top floor of
the Williams Manufacturing Company's shop in Boston. And now
another chance happening turned Bell back once more to the
telephone. His magnetized telegraph wire stretched from one room
to another located in a remote part of the building. One day
Watson accidentally plucked a piece of clock wire that lay near
this telegraph wire, and Bell, working in another room, heard the
twang. A few seconds later Watson was startled when an excited
and somewhat disheveled figure burst into his room. "What was
that?" shouted Bell. What had happened was clearly manifest; a
sound had been sent distinctly over an electric wire. Bell's
harmonic telegraph immediately went into the discard, and the
young inventor--Bell was then only twenty-nine--became a man of
one passionate idea. Yet final success did not come easily; the
inventor worked day and night for forty weeks before he had
obtained satisfactory results. It was on March 10, 1876, that
Watson, in a distant room, picked up the first telephone receiver
and heard these words, the first that had ever passed over a
magnetized wire, "Come here, Watson; I want you." The speaking
instrument had become a reality, and the foundation of the
telephone, in all its present development, had been laid. When
the New York and San Francisco line was opened in January, 1915,
Alexander Graham Bell spoke these same words to his old
associate, Thomas Watson, located in San Francisco, both men
using the same instruments that had served so well on that
historic occasion forty years before.

Though Bell's first invention comprehended the great basic idea
that made it a success, the instrument itself bore few external
resemblances to that which has become so commonplace today. If
one could transport himself back to this early period and undergo
the torture of using this primitive telephone, he would
appreciate somewhat the labor, the patience, the inventive skill,
and the business organization that have produced the modern
telephone. In the first place you would have no separate
transmitter and receiver. You would talk into a funnel-shaped
contrivance and then place it against your ear to get the
returning message. In order to make yourself heard, you would
have to shout like a Gloucester sea captain at the height of a
storm. More than the speakers' voices would come over the wire.
It seemed to have become the playground of a million devils;
moanings, shriekings, mutterings, and noises of all kinds would
constantly interrupt the flow of speech. To call up your "party"
you would not merely lift the receiver as today; you would tap
with a lead pencil, or some other appliance, upon the diaphragm
of your transmitter. There were no separate telephone wires. The
talking at first was done over the telegraph lines. The earliest
"centrals" reminded most persons of madhouses, for the day of the
polite, soft-spoken telephone girl had not arrived. Instead, boys
were rushing around with the ends of wires which they were
frantically attempting to peg into the holes of the primitive
switchboard and so establish "connections." When not knocking
down and fighting each other, these boys were swearing into
transmitters at the customers; and it is said that the incurable
profanity of these early "telephone boys" had much to do with
their supersession by girls. In the early days of the telephone,
each instrument had to carry its own battery, usually installed
in a little box under the transmitter. The early telephone wires,
even in the largest cities, were strung on poles, as they are in
country and suburban districts today. In places like New York and
Chicago, these thousands of overhanging wires not only destroyed
the attractiveness of the thoroughfare, but constantly interfered
with the fire department and proved to be public nuisances in
other ways. A telephone wire, however, loses much of its
transmitting power when placed under ground, and it took many
years of experimenting before the engineers perfected these
subways. In these early days, of course, the telephone was purely
a local matter. Certain visionary enthusiasts had foreseen the
possibility of a national, long distance system, but a large
amount of labor, both in the laboratory and out, was to be
expended before these aspirations could become realities.

The transformation of this rudimentary means of communication
into the beautiful mechanism which we have today forms a splendid
chapter in the history of American invention. Of all the details
in Bell's apparatus the receiver is almost the only one that
remains now what it was forty years ago. The story of the
transmitter in itself would fill a volume. Edison's success in
devising a transmitter which permitted talk in ordinary
conversational tones--an invention that became the property of
the Western Union Telegraph Company, which early embarked in the
telephone business--at one time seemed likely to force the Bell
Company out of business. But Emile Berliner and Francis Blake
finally came to the rescue with an excellent instrument, and the
suggestion of an English clergyman, the Reverend Henry Hummings,
that carbon granules be used on the diaphragm, made possible the
present perfect instrument. The magneto call bell--still used in
certain backward districts--for many years gave fair results for
calling purposes, but the automatic switch, which enables us to
get central by merely picking up the receiver, has made possible
our great urban service. It was several years before the
telephone makers developed so essential a thing as a satisfactory
wire. Silver, which gave excellent results, was obviously too
costly, and copper, the other metal which had many desirable
qualities, was too soft. Thomas B. Doolittle solved this problem
by inventing a hard-drawn copper wire. A young man of twenty-two,
John J. Carty, suggested a simple device for exorcising the
hundreds of "mysterious noises" that had made the use of the
telephone so agonizing. It was caused, Carty pointed out, by the
circumstance that the telephone, like the telegraph, used a
ground circuit for the return wire; the resultant scrapings and
moanings and howlings were merely the multitudinous voices of
mother earth herself. Mr. Carty began installing the metallic
circuit in his lines that is, he used wire, instead of the
ground, to complete the circuit. As a result of this improvement
the telephone was immediately cleared of these annoying
interruptions. Mr. Carty, who is now Chief Engineer of the
American Telephone and Telegraph Company, and the man who has
superintended all its extensions in recent years, is one of the
three or four men who have done most to create the present
system. Another is Charles E. Scribner, who, by his invention of
that intricate device, the multiple switchboard, has converted
the telephone exchange into a smoothly working, orderly place.
Scribner's multiple switchboard dates from about 1890. It was Mr.
Scribner also who replaced the individual system of dry cells
with one common battery located at the central exchange, an
improvement which saved the Company 4,000,000 dry cells a year.
Then Barrett discovered a method of twisting fifty pairs of
wires--since grown to 2400 pairs-into a cable, wrapping them in
paper and molding them in lead, and the wires were now taken from
poles and placed in conduits underground.

But perhaps the most romantic figure in telephone history, next
to Bell, is that of a humble Servian immigrant who came to this
country as a boy and obtained his first employment as a rubber in
a Turkish bath. Michael I. Pupin was graduated from Columbia,
studied afterward in Germany, and became absorbed in the new
subject of electromechanics. In particular he became interested
in a telephone problem that had bothered the greatest experts for
years. One thing that had prevented the great extension of the
telephone, especially for long distance work, was the size of the
wire. Long distance lines up to 1900 demanded wire about
one-eighth of an inch thick--as thick as a fairsized lead pencil;
and, for this reason, the New York-Chicago line, built in 1893,
consumed 870,000 pounds of copper wire of this size. Naturally
the enormous expense stood in the way of any extended
development. The same thickness also interfered with cable
extension. Only about a hundred wires could be squeezed into one
cable, against the eighteen hundred now compressed in the same
area. Because of these shortcomings, telephone progress, about
1900, was marking time, awaiting the arrival of a thin wire that
would do the work of a thick one. The importance of the problem
is shown by the fact that one-fourth of all the capital invested
in the telephone has been spent in copper. Professor Pupin, who
had been a member of the faculty of Columbia University since
1888, solved this problem in his quiet laboratory and, by doing
so, won the greatest prize in modern telephone art. His
researches resulted in the famous "Pupin coil" by the expedient
now known as "loading." When the scientists attempt to explain
this invention, they have to use all kinds of mathematical
formulas and curves and, in fact, they usually get to quarreling
among themselves over the points involved. What Professor Pupin
has apparently done is to free the wire from those miscellaneous
disturbances known as "induction." This Pupin invention involved
another improvement unsuspected by the inventor, which shows us
the telephone in all its mystery and beauty and even its
sublimity. Soon after the Pupin coil was introduced, it was
discovered that, by crossing the wires of two circuits at regular
intervals, another unexplainable circuit was induced. Because
this third circuit travels apparently without wires, in some
manner which the scientists have not yet discovered, it is
appropriately known as the phantom circuit. The practical result
is that it is now possible to send three telephone messages and
eight telegraph messages over two pairs of wires--all at the same
time. Professor Pupin's invention has resulted in economies that
amount to millions of dollars, and has made possible long
distance lines to practically every part of the United States.

Thus many great inventive minds have produced the physical
telephone. We can point to several men--Bell, Blake, Carty,
Scribner, Barrett, Pupin --and say of each one, "Without his work
the present telephone system could not exist." But business
genius, as well as mechanical genius, explains this achievement.
For the first four or five years of its existence, the new
invention had hard sailing. Bell and Thomas Watson, in order to
fortify their finances, were forced to travel around the country,
giving a kind of vaudeville entertainment. Bell made a speech
explaining the new invention, while a cornet player, located in
another part of the town, played solos, the music reaching the
audience through several telephone instruments placed against the
walls. Watson, also located at a distance, varied the program by
singing songs via telephone. These lecture tours not only gave
Bell the money which he sorely needed but advertised the
innovation. There followed a few scattering attempts to introduce
the telephone into every-day use and telephone exchanges were
established in New York, Boston, Bridgeport, and New Haven. But
these pioneers had the hostility of the most powerful corporation
of the day--the Western Union Telegraph Company--and they lacked
aggressive leaders.

In 1878, Mr. Gardiner Hubbard, Bell's earliest backer, and now
his father-in-law, became acquainted with a young man who was
then serving in Washington as General Superintendent of the
Railway Mail Service. This young man was Theodore N. Vail. His
energy and enterprise so impressed Hubbard that he immediately
asked Vail to become General Manager of the company which he was
then forming to exploit the telephone. Viewed from the
retrospection of forty years this offer certainly looks like one
of the greatest prizes in American business. What it signified at
that time, however, is apparent from the fact that the office
paid a salary of $3500 a year and that for the first ten years
Vail did not succeed in collecting a dollar of this princely
remuneration. Yet it was a happy fortune, not only for the Bell
Company but for the nation, that placed Vail at the head of this
struggling enterprise. There was a certain appropriateness in his
selection, even then. His granduncle, Stephen Vail, had built the
engines for the first steamship to cross the Atlantic. A cousin
had worked with Morse while he was inventing the telegraph. Vail,
who was born in Carroll County, Ohio, in 1845, after spending two
years as a medical student, suddenly shifted his plans and became
a telegraph operator. Then he entered the Railway Mail service;
in this service he completely revolutionized the system and
introduced reforms that exist at the present time. A natural bent
had apparently directed Vail's mind towards methods of
communication, a fact that may perhaps explain the youthful
enthusiasm with which he took up the new venture and the vision
with which he foresaw and planned its future. For the chief fact
about Vail is that he was a business man with an imagination. The
crazy little machine which he now undertook to exploit did not
interest him as a means of collecting tolls, floating stock, and
paying dividends. He saw in it a new method of spreading American
civilization and of contributing to the happiness and comfort of
millions of people. Indeed Vail had hardly seen the telephone
when a picture portraying the development which we are familiar
with today unfolded before his eyes. That the telephone has had a
greater development in America than elsewhere and that the United
States has avoided all those mistakes of organization that have
so greatly hampered its growth in other lands, is owing to the
fact that Vail, when he first took charge, mapped out the
comprehensive policies which have guided his corporation since.

Vail early adopted the "slogan" which has directed the Bell
activities for forty years--"One System! One Policy! Universal
Service." In his mind a telephone company was not a city affair,
or even a state affair; it was a national affair. His aim has
been from the first a universal, national service, all under one
head, and reaching every hamlet, every business house, factory,
and home in the nation. The idea that any man, anywhere, should
be able to take down a receiver and talk to anyone, anywhere else
in the United States, was the conception which guided Vail's
labors from the first. He did not believe that a mass of
unrelated companies could give a satisfactory service; if
circumstances had ever made a national monopoly, that monopoly
was certainly the telephone. Having in view this national,
universal, articulating monopoly, Vail insisted on his second
great principle, the standardization of equipment. Every man's
telephone must be precisely like every other man's, and that must
be the best which mechanical skill and inventive genius could
produce. To make this a reality and to secure perfect supervision
and upkeep, it was necessary that telephones should not be sold
but leased. By enforcing these ideas Vail saved the United States
from the chaos which exists in certain other countries, such as
France, where each subscriber purchases his own instrument,
making his selection from about forty different varieties. That
certain dangers were inherent in this universal system Vail
understood. Monopoly all too likely brings in excessive charges,
poor service, and inside speculation; but it was Vail's plan to
justify his system by its works. To this end he established a
great engineering department which should study all imaginable
mechanical improvements, with the results which have been
described. He gave the greatest attention to every detail of the
service and particularly insisted on the fairest and most
courteous treatment of the public. The "please" which invariably
accompanies the telephone girl's request for a number--the
familiar "number, please"--is a trifle, but it epitomizes the
whole spirit which Vail inspired throughout his entire
organization. Though there are plenty of people who think that
the existing telephone charges are too high, the fact remains
that the rate has steadily declined with the extension of the
business. Vail has also kept his company clear from the financial
scandals that have disgraced so many other great corporations. He
has never received any reward himself except his salary, such
fortune as he possesses being the result of personal business
ventures in South America during the twenty years from 1887 to
1907 that he was not associated with the Bell interests.

Vail's first achievement was to rescue this invention from the
greatest calamity which would have befallen it. The Western Union
Telegraph Company, which in the early days had looked upon the
telephone as negligible, suddenly awoke one morning to a
realization of its importance. This Corporation had recently
introduced its "printing telegraph," a device that made it
possible to communicate without the intermediary operator. When
news reached headquarters that subscribers were dropping this new
contrivance and subscribing to telephones, the Western Union
first understood that a competitor had entered their field.
Promptly organizing the American Speaking Telephone Company, the
Western Union, with all its wealth and prestige, proceeded to
destroy this insolent pigmy. Its methods of attack were
unscrupulous and underhanded, the least discreditable one being
the use of its political influence to prevent communities from
giving franchises to the Bell Company. But this corporation
mainly relied for success upon the wholesale manner in which it
infringed the Bell patents. It raked together all possible
claimants to priority, from Philip Reis to Elisha Gray, in its
attempts to discredit Bell as the inventor. The Western Union had
only one legitimate advantage--the Edison transmitter--which was
unquestionably much superior to anything which the Bell Company
then possessed. Many Bell stockholders were discouraged in face
of this fierce opposition and wished to abandon the fight. Not so
Vail. The mere circumstance that the great capitalists of the
Western Union had taken up the telephone gave the public a
confidence in its value which otherwise it would not have had, a
fact which Vail skillfully used in attracting influential
financial support. He boldly sued the Western Union in 1878 for
infringement of the Bell patents. The case was a famous one; the
whole history of the telephone was reviewed from the earliest
days, and the evidence as to rival claimants was placed on record
for all time. After about a year, Mr. George Clifford, perhaps
the best patent attorney of the day, who was conducting the case
for the Western Union, quietly informed his clients that they
could never win, for the records showed that Bell was the
inventor. He advised the Western Union to settle the case out of
court and his advice was taken. This great corporation war was
concluded by a treaty (November 10, 1879) in which the Western
Union acknowledged that Bell was the inventor, that his patents
were valid, and agreed to retire from the telephone business. The
Bell Company, on its part, agreed to buy the Western Union
Telephone System, to pay the Western Union a royalty of twenty
per cent on all telephone rentals, and not to engage in the
telegraph business. Had this case been decided against the Bell
Company it is almost certain that the telephone would have been
smothered in the interest of the telegraph and its development
delayed for many years.

Soon after the settlement of the Western Union suit, the original
group which had created the telephone withdrew from the scene.
Bell went back to teaching deaf-mutes. He has since busied
himself with the study of airplanes and wireless, and has
invented an instrument for transmitting sound by light. The new
telephone company offered him $10,000 a year as chief inventor,
but he replied that he could not invent to order. Thomas Sanders
received somewhat less than $1,000,000 and lost most of it
exploiting a Colorado gold mine. Gardiner Hubbard withdrew from
business and devoted the last years of his life to the National
Geographic Society. Thomas Watson, after retiring from the
telephone business, bought a ship-building yard near Boston,
which has been successful.

In making this settlement with the Western Union, the Bell
interests not only eliminated a competitor but gained great
material advantages. They took over about 56,000 telephone
stations located in 55 cities and towns. They also soon acquired
the Western Electric Manufacturing Company, which under the
control of the Western Union had developed into an important
concern for the manufacture of telephone supplies. Under the
management of the Bell Company this corporation, which now has
extensive factories in Hawthorne, Ill., produces two-thirds of
the world's telephone apparatus. With the Western Electric Vail
has realized the fundamental conception underlying his ideal
telephone system--the standardization of equipment. For the
accomplishment of his idea of a national telephone system,
instead of a parochial one, Mr. Vail organized, in 1881, the
American Bell Telephone Company, a corporation that really
represented the federalization of all the telephone activities of
the subsidiary companies. The United States was divided into
several sections, in each of which a separate company was
organized to develop the telephone possibilities of that
particular area. In 1899 the American Telephone and Telegraph
Company took over the business and properties of the American
Bell Company. The larger corporation built toll lines, connected
these smaller systems with one another, and thus made it possible
for Washington to talk to New York, New York to Chicago, and
ultimately--Boston to San Francisco. An enlightened policy led
the Bell Company frequently to establish exchanges in places
where there was little chance of immediate profit. Under this
stimulation the use of this instrument extended rapidly, yet it
is in the last twenty years that the telephone has grown with
accelerated momentum. In 1887 there were 170,000 subscribers in
the United States, and in 1900 there were 610,000; but in 1906
the American Telephone and Telegraph Company was furnishing its
service to 2,550,000 stations, and in 1916 to 10,000,000. Clearly
it is only since 1900 that the telephone has become a commonplace
of American existence. Up to 1900 it had grown at the rate of
about 13,000 a year; whereas since 1900 it has grown at the rate
of 700,000 a year. The explanation is that charges have been so
reduced that the telephone has been brought within the reach of
practically every business house and every family. Until the year
1900 every telephone subscriber had to pay $240 a year, and
manifestly only families in affluent circumstances could afford
such a luxury. About that time a new system of charges known as
the "message rate" plan was introduced, according to which the
subscriber paid a moderate price for a stipulated number of
calls, and a pro rata charge for all calls in excess of that
number. Probably no single change in any business has had such an
instantaneous effect. The telephone, which had hitherto been an
external symbol of prosperity, suddenly became the possession of
almost every citizen.

Other companies than the Bell interests have participated in this
development. The only time the Bell Company has had no
competitor, Mr. Vail has said, was at the Philadelphia Centennial
in 1876. Some of this competition has benefited the public but
much of it has accomplished little except to enrich many not
over-scrupulous promoters. Groups of farmers who frequently
started companies to furnish service at cost did much to extend
the use of the telephone. Many of the companies which, when the
Bell patents expired in 1895, sprang up in the Middle West, also
manifested great enterprise and gave excellent service. These
companies have made valuable contributions, of which perhaps the
automatic telephone, an instrument which enables a subscriber to
call up his "party" directly, without the mediation of "central,"
is the most ingenious. Although due acknowledgment must be made
of the honesty and enterprise with which hundreds of the
independents are managed, the fact remains that they are a great
economic waste. Most of them give only a local service, no
company having yet arisen which aims to duplicate the
comprehensive national plans of the greater corporation. As soon
as an independent obtains a foothold, the natural consequence is
that every business house and private household must either be
contented with half service, or double the cost of the telephone
by subscribing to two companies. It is not unlikely that the
"independents" have exercised a wholesome influence upon the Bell
Corporation, but, as the principle of government regulation
rather than individual competition has now become the established
method of controlling monopoly, this influence will possess less
virtue in the future. In addition to these independent
enterprises, the telephone has unfortunately furnished an
opportunity for stockjobbing schemes on a considerable scale. The
years from 1895 to 1905 witnessed the growth of many bubbles of
this kind; one group of men organized not far from two hundred
telephone companies. They would go into selected communities,
promise a superior service at half the current rates, enlist the
cooperation of "leading" business men, sell the stock largely in
the city or town to be benefited, make large profits in the
construction of the lines and the sale of equipment--and then
decamp for pastures new. The multitudinous bankruptcies that
followed in the wake of such exploiters at length brought their
activities to an end.


The streets of practically all American cities, as they appeared
in 1870 and as they appear today, present one of the greatest
contrasts in our industrial development. Fifty years ago only a
few flickering gas lamps lighted the most traveled thoroughfares.
Only the most prosperous business houses and homes had even this
expensive illumination; most obtained their artificial light from
the new illuminant known as kerosene. But it was the mechanism of
city transportation that would have looked the strangest in our
eyes. New York City had built the world's first horse-car line in
1832, and since that year this peculiarly American contrivance
has had the most extended development. In 1870, indeed,
practically every city of any importance had one or more railways
of this type. New York possessed thirty different companies, each
operating an independent system. In Philadelphia, Chicago, St.
Louis, and San Francisco the growth of urban transportation had
been equally haphazard. The idea of combining the several street
railways into one comprehensive corporation had apparently
occurred to no one. The passengers, in their peregrinations
through the city, had frequently to pay three or four fares;
competition was thus the universal rule. The mechanical equipment
similarly represented a primitive state of organization. Horses
and mules, in many cases hideous physical specimens of their
breeds, furnished the motive power. The cars were little
"bobtailed" receptacles, usually badly painted and more often
than not in a desperate state of disrepair. In many cities the
driver presided as a solitary autocrat; the passengers on
entrance deposited their coins in a little fare box. At night
tiny oil lamps made the darkness visible; in winter time
shivering passengers warmed themselves by pulling their coat
collars and furs closely about their necks and thrusting their
lower members into a heap of straw, piled almost a foot deep on
the floor.

Who would have thought, forty years ago, that the lighting of
these dark and dirty streets and the modernization of these local
railway systems would have given rise to one of the most
astounding chapters in our financial history and created
hundreds, perhaps thousands, of millionaires? When Thomas A.
Edison invented the incandescent light, and when Frank J. Sprague
in 1887 constructed the first practicable urban trolley line, in
Richmond, Virginia, they liberated forces that powerfully
affected not only our social and economic life but our political
institutions. These two inventions introduced anew
phrase--"Public Utilities." Combined with the great growth and
prosperity of the cities they furnished a fruitful opportunity to
several particularly famous groups of financial adventurers. They
led to the organization of "syndicates" which devoted all their
energies, for a quarter of a century, to exploiting city lighting
and transportation systems. These syndicates made a business of
entering city after city, purchasing the scattered street railway
lines and lighting companies, equipping them with electricity,
combining them into unified systems, organizing large
corporations, and floating huge issues of securities. A single
group of six men--Yerkes, Widener, Elkins, Dolan, Whitney, and
Ryan--combined the street railways, and in many cases the
lighting companies, of New York, Philadelphia, Chicago,
Pittsburgh, and at least a hundred towns and cities in
Pennsylvania, Connecticut, Rhode Island, Massachusetts, Ohio,
Indiana, New Hampshire, and Maine. Either jointly or separately
they controlled the gas and electric lighting companies of
Philadelphia, Reading, Harrisburg, Atlanta, Vicksburg, St.
Augustine, Minneapolis, Omaha, Des Moines, Kansas City, Sioux
City, Syracuse, and about seventy other communities. A single
corporation developed nearly all the trolley lines and lighting
companies of New Jersey; another controlled similar utilities in
San Francisco and other cities on the Pacific Coast. In
practically all instances these syndicates adopted precisely the
same plan of operation. In so far as their activities resulted in
cheap, comfortable, rapid, and comprehensive transit systems and
low-priced illumination, their activities greatly benefited the
public. The future historian of American society will probably
attribute enormous influence to the trolley car in linking urban
community with urban community, in extending the radius of the
modern city, in freeing urban workers from the demoralizing
influences of the tenement, in offering the poorer classes
comfortable homes in the surrounding country, and in extending
general enlightenment by bringing about a closer human
intercourse. Indeed, there is probably no single influence that
has contributed so much to the pleasure and comfort of the masses
as the trolley car.

Yet the story that I shall have to tell is not a pleasant one. It
is impossible to write even a brief outline of this development
without plunging deeply into the two phases of American life of
which we have most cause to be ashamed; these are American
municipal politics and the speculative aspects of Wall Street.
The predominating influences in American city life have been the
great franchise corporations. Practically all the men that have
had most to do with developing our public utilities have also had
the greatest influence in city politics. In New York, Thomas F.
Ryan and William C. Whitney were the powerful, though invisible,
powers in Tammany Hall. In Chicago, Charles T. Yerkes controlled
mayors and city councils; he even extended his influence into the
state government, controlling governors and legislatures. In
Philadelphia, Widener and Elkins dominated the City Hall and also
became part of the Quay machine of Pennsylvania. Mark Hanna, the
most active force in Cleveland railways, was also the political
boss of the State. Roswell P. Flower, chief agent in developing
Brooklyn Rapid Transit, had been Governor of New York; Patrick
Calhoun, who monopolized the utilities of San Francisco and other
cities, presided likewise over the city's inner politics. The
Public Service Corporation of New Jersey also comprised a large
political power in city and state politics. It is hardly an
exaggeration to say that in the most active period, that from
1880 to 1905, the powers that developed city railway and lighting
companies in American cities were identically the same owners
that had the most to do with city government. In the minds of
these men politics was necessarily as much a part of their
business as trolley poles and steel rails. This type of
capitalist existed only on public franchises--the right to occupy
the public streets with their trolley cars, gas mains, and
electric light conduits; they could obtain these privileges only
from complaisant city governments, and the simplest way to obtain
them was to control these governments themselves. Herein we have
the simple formula which made possible one of the most profitable
and one of the most adventurous undertakings of our time.

An attempt to relate the history of all these syndicates would
involve endless repetition. If we have the history of one we have
the history of practically all. I have therefore selected, as
typical, the operations of the group that developed the street
railways and, to a certain extent, the public lighting
companies, in our three greatest American cities--New York,
Chicago, and Philadelphia.

One of the men who started these enterprises actually had a
criminal record. William H. Kemble, an early member of the
Philadelphia group, had been indicted for attempting to bribe the
Pennsylvania Legislature; he had been convicted and sentenced to
one year in the county jail and had escaped imprisonment only by
virtue of a pardon obtained through political influence. Charles
T. Yerkes, one of his partners in politics and street railway
enterprises, had been less fortunate, for he had served seven
months for assisting in the embezzlement of Philadelphia funds in
1873. It was this circumstance in Yerkes's career which impelled
him to leave Philadelphia and settle in Chicago where, starting
as a small broker, he ultimately acquired sufficient resources
and influence to embark in that street railway business at which
he had already served an extensive apprenticeship. Under his
domination, the Chicago aldermen attained a gravity that made
them notorious all over the world. They openly sold Yerkes the
use of the streets for cash and constantly blocked the efforts
which an infuriated populace made for reform. Yerkes purchased
the old street railway lines, lined his pockets by making
contracts for their reconstruction, issued large flotations of
watered stock, heaped securities upon securities and
reorganization upon reorganization and diverted their assets to
business in a hundred ingenious ways.

In spite of the crimes which Yerkes perpetrated in American
cities, there was something refreshing and ingratiating about the
man. Possibly this is because he did not associate any hypocrisy
with his depredations. "The secret of success in my business," he
once frankly said, "is to buy old junk, fix it up a little, and
unload it upon other fellows." Certain of his epigrams--such as,
"It is the strap-hanger who pays the dividends"--have likewise
given him a genial immortality. The fact that, after having
reduced the railway system of Chicago to financial pulp and
physical dissolution, he finally unloaded the whole useless mass,
at a handsome personal profit, upon his old New York friends,
Whitney and Ryan, and decamped to London, where he carried
through huge transit enterprises, clearly demonstrated that
Yerkes was a buccaneer of no ordinary caliber.

Yerkes's difficulties in Philadelphia indirectly made possible
the career of Peter A. B. Widener. For Yerkes had become involved
in the defalcation of the City Treasurer, Joseph P. Mercer, whose
translation to the Eastern Penitentiary left vacant a municipal
office into which Mr. Widener now promptly stepped. Thus Mr.
Widener, as is practically the case with all these street railway
magnates, was a municipal politician before he became a
financier. The fact that he attained the city treasurership shows
that he had already gone far, for it was the most powerful office
in Philadelphia. He had all those qualities of suavity,
joviality, firmness, and personal domination that made possible
success in American local politics a generation ago. His
occupation contributed to his advancement. In recent years Mr.
Widener, as the owner of great art galleries and the patron of
philanthropic and industrial institutions, has been a national
figure of the utmost dignity. Had you dropped into the Spring
Garden Market in Philadelphia forty years ago, you would have
found a portly gentleman, clad in a white apron, and armed with a
cleaver, presiding over a shop decorated with the design--"Peter
A. B. Widener, Butcher." He was constantly joking with his
customers and visitors, and in the evening he was accustomed to
foregather with a group of well-chosen spirits who had been long
famous in Philadelphia as the "all-night poker players." A
successful butcher shop in Philadelphia in those days played
about the same part in local politics as did the saloon in New
York City. Such a station became the headquarters of political
gossip and the meeting ground of a political clique; and so
Widener, the son of a poor German bricklayer, rapidly became a
political leader in the Twentieth Ward, and soon found his power
extending even to Harrisburg. A few years ago Widener presided
over a turbulent meeting of Metropolitan shareholders in Newark,
New Jersey. The proposal under consideration was the transference
of all the Metropolitan's visible assets to a company of which
the stockholders knew nothing. When several of these stockholders
arose and demanded that they be given an opportunity to discuss
the projected lease, Widener turned to them and said, in his
politest and blandest manner: "You can vote first and discuss
afterward." Widener displayed precisely these same qualities of
ingratiating arrogance and good-natured contempt as a
Philadelphia politician. He was a man of big frame, alert and
decisive in his movements, and a ready talker; in business he was
given much to living in the clouds--a born
speculator--emphatically a "boomer." His sympathies were
generous, at times emotional; it is said that he has even been
known to weep when discussing his fine collection of Madonnas. He
showed this personal side in his lifelong friendship and business
association with William L. Elkins, a man much inferior to him in
ability. Indeed, Elkins's great fortune was little more than a
free gift from Widener, who carried him as a partner in all his
deals. Elkins became Widener's bondsman when the latter entered
the City Treasurer's office; the two men lived near each other on
the same street, and this association was cemented when Widener's
oldest son married Elkins's daughter. Elkins had started life as
an entry clerk in a grocery store, had made money in the butter
and egg business, had "struck oil" at Titusville in 1862, and had
succeeded in exchanging his holdings for a block of Standard Oil
stock. He too became a Philadelphia politician, but he had
certain hard qualities--he was close-fisted, slow, plodding--that
prevented him from achieving much success.

For the other members of this group we must now change the scene
to New York City. In the early eighties certain powerful
interests had formed plans for controlling the New York transit
fields. Prominent among them was William Collins Whitney, a very
different type of man from the Philadelphians. Born in Conway,
Massachusetts, in 1841, he came from a long line of distinguished
and intellectual New Englanders. At Yale his wonderful mental
gifts raised him far above his fellows; he divided all scholastic
honors there with his classmate, William Graham Sumner,
afterwards Yale's great political economist. Soon after
graduation Whitney came to New York and rapidly forged ahead as a
lawyer. Brilliant, polished, suave, he early displayed those
qualities which afterward made him the master mind of
presidential Cabinets and the maker of American Presidents.
Physically handsome, loved by most men and all women, he soon
acquired a social standing that amounted almost to a
dictatorship. His early political activities had greatly
benefited New York. He became a member of that group which, under
the leadership of Joseph H. Choate and Samuel J. Tilden,
accomplished the downfall of William M. Tweed. Whitney remained
Tilden's political protege for several years. Though highbred and
luxury-loving, as a young man he was not averse to hard political
work, and many old-timers still remember the days when "Bill"
Whitney delivered cart-tail harangues on the lower east side. By
1884 he had become the most prominent Democrat in New
York--always a foe to Tammany--and as such he contributed largely
to Cleveland's first election, became Secretary of the Navy in
Cleveland's cabinet and that great President's close friend and
adviser. As Secretary of the Navy, Whitney, who found the fleet
composed of a few useless hulks left over from the days of
Farragut, created the fighting force that did such efficient
service in the Spanish War. The fact that the United States is
now the third naval power is largely owing to these early
activities of Whitney.

Certainly all this national service forms a strange prelude to
Whitney's activities in the public utilities of New York and
other cities. Had he died, indeed, in his fiftieth year, his name
would be renowned today as a worker for the highest ideals of
American citizenship. What suddenly made him turn his back upon
his past, join his former enemies in Tammany Hall, and engage in
these great speculative enterprises? The simplest explanation is
that, with his ability and ambition, Whitney had the luxurious
tastes of a Medici. At the height of his career his financial
success found expression in a magnificent house which he
established on Fifth Avenue. Its furnishings were one of the
wonders of New York. Whitney ransacked the art treasures of
Europe, stripped medieval castles of their carvings and
tapestries, ripped whole staircases and ceilings from the repose
of centuries, and relaid them in this abode of splendor, and here
he entertained with a lavishness that astounded New York. This
single exploit pictures the man. Everything that Whitney did and
was his house, his financial transactions, his Wall Street
speculations, the rewards which he gave his friends assumed
heroic proportions. But these things all demanded money. The
dilapidated horse railways of New York offered him his most
convenient opportunity for amassing it.

But Whitney had not proceeded far when he came face to face with
a quiet and energetic young man who had already made considerable
progress in the New York transit field. This was a Virginian of
South Irish descent who had started life as a humble broker's
clerk twelve or fourteen years before. His name was Thomas
Fortune Ryan. Few men have wielded greater power in American
finance, but in 1884 Ryan was merely a ruddy-faced, cleancut, and
clean-living Irishman of thirty-three, who could be depended on
to execute quickly and faithfully orders on the New York Stock
Exchange--even though they were small ones--and who, in
unostentatious fashion, had already acquired much influence in
Tammany Hall. With his six feet of stature, his extremely slender
figure, his long legs, his long arms, his raiment--which always
represented the height of fashion and tended slightly toward the
flashy --Ryan made a conspicuous figure wherever he went. He was
born in 1851, on a small farm in Nelson County, Virginia. The
Civil War, which broke out when Ryan was a boy of ten, destroyed
the family fortune and in 1868, when seventeen, he began life as
a dry-goods clerk in Baltimore, fulfilling the tradition of the
successful country boy in the large city by marrying his
employer's daughter. When his father-in-law failed, in 1870, Ryan
came to New York, went to work in a broker's office, and
succeeded so well that, in a few years, he was able to purchase a
seat on the Stock Exchange. He was sufficiently skillful as a
broker to number Jay Gould among his customers and to inspire a
prophecy by William C. Whitney that, if he retained his health,
he would become one of the richest men in the country.
Afterwards, when he knew him more intimately, Whitney elaborated
this estimate by saying that Ryan was "the most adroit, suave,
and noiseless man he had ever known." Ryan had two compelling
traits that soon won for him these influential admirers. First of
all was his marvelous industry. His genius was not spasmodic. He
worked steadily, regularly, never losing a moment, never getting
excited, going, day after day, the same monotonous dog-trot,
easily outdistancing scores of apparently stronger men. He also
had the indispensable faculty of silence. He has always been the
least talkative man in Wall Street, but, with all his reserve, he
has remained the soul of courtesy and outward good nature.

Here, then, we have the characters of this great impending
drama--Yerkes in Chicago, Widener and Elkins in Philadelphia,
Whitney and Ryan in New York. These five men did not invariably
work as a unit. Yerkes, though he had considerable interest in
Philadelphia, which had been the scene of his earliest exploits,
limited his activities largely to Chicago. Widener and Elkins,
however, not only dominated Philadelphia traction but
participated in all of Yerkes's enterprises in Chicago and held
an equal interest with Whitney and Ryan in New York. The latter
Metropolitan pair, though they confined their interest chiefly to
their own city, at times transferred their attention to Chicago.
Thus, for nearly thirty years, these five men found their oyster
in the transit systems of America's three greatest cities--and,
for that matter, in many others also.

An attempt to trace the convolutions of America's street railway
and public lighting finance would involve a puzzling array of
statistics and an inextricable complexity of stocks, bonds,
leases, holding companies, operating companies, construction
companies, reorganizations, and the like. Difficult and
apparently impenetrable as is this financial morass, the
essential facts still stand out plainly enough. As already
indicated, the fundamental basis upon which the whole system
rested was the control of municipal politics. The story of the
Metropolitan's manipulation of the New York street railways
starts with one of the most sordid episodes in the municipal
annals of America's largest city. Somewhat more than thirty years
ago, a group of New York city fathers acquired an international
fame as the "boodle aldermen." These men had finally given way to
the importunities of a certain Jacob Sharp, an eccentric
New York character, who had for many years operated New York City
railways, and granted a franchise for the construction of a
horse-car line on lower Broadway. Soon after voting this
franchise, regarded as perhaps the most valuable in the world,
these same aldermen had begun to wear diamonds, to purchase real
estate, and give other outward evidences of unexpected
prosperity. Presently, however, these city fathers started a
migration to Canada, Mexico, Spain, and other countries where the
processes of extradition did not work smoothly. Sharp's enemies
had succeeded in precipitating a legislative investigation under
the very capable leadership of Roscoe Conkling, who had little
difficulty in showing that Sharp had purchased his aldermen for
$500,000 cash. In a short time, such of the aldermen as were
accessible to the police were languishing in prison, and Sharp
had been arrested on twenty-one indictments for bribery and
sentenced to four years' hard labor--a sentence which he was
saved from serving by his lonely and miserable death in Ludlow
Street Jail. In the delirium preceding his dissolution Sharp
raved constantly about his Broadway railroad and his enemies; it
was apparently his belief that the investigation which had
uncovered his rascality and the subsequent "persecutions" had
been engineered by certain of his rivals, either to compel Sharp
to disgorge his franchise or to produce the facts that would
justify the legislature in annulling it on the ground of fraud.

Though the complete history of this transaction can never be
written, we do possess certain facts that lend some color to this
diagnosis. Up to the time that Sharp had captured this franchise,
Ryan, Whitney, and the Philadelphians--not as partners, but as
rivals--had competed with him for this prize. At the trial of
Arthur J. McQuade in 1886, a fellow conspirator, who bore the
somewhat suggestive name of Fullgraff, related certain details
which, if true, would indicate that Sharp's methods differed from
those of his rivals only in that they had proved more successful.
Thirteen members of the Board of Aldermen, said Fullgraff, had
formed a close corporation, elected a chairman, and adopted a
policy of "business unity in all important matters," which meant
that they proposed to keep together in order to secure the
highest price for the Broadway franchise. The cable railroad,
which was the one with which Mr. Ryan was identified, offered
$750,000, half in bonds and half in cash. Mr. Sharp, however,
offered $500,000 all in cash. The aldermen voted in favor of
Sharp because cash was not only a more valuable commodity than
the bonds but, to use Alderman Fullgraff's own words--"less
easily traced." That Whitney financed lawsuits against the
validity of Sharp's franchise appears upon the record, and that
Ryan was actively promoting the Conkling investigation, is
likewise a matter of evidence. Sharp's victory had the great
result of bringing together the three forces--Ryan, Whitney, and
the Philadelphians--who had hitherto combated one another as
rivals; that is, it caused the organization of the famous
Whitney-Ryan-Widener-Elkins syndicate. If these men had inspired
all those attacks on Sharp, their maneuver proved successful; for
when the investigation had attained its climax and public
indignation against Sharp had reached its most furious stage,
that venerable corruptionist, worn down by ill health, and almost
crazed by the popular outcry, sold his Broadway railroad to Peter
A. B. Widener, William L. Elkins, and William H. Kemble. Thomas
F. Ryan became secretary of the new corporation, and William C.
Whitney an active participant in its affairs.

This Broadway franchise formed the vertebral column of the New
York transit system; with it as a basis, the operators formed the
Metropolitan Street Railway Company in 1893, commonly known as
the "Metropolitan." They organized also the Metropolitan Traction
Company, an organization which enjoys an historic position as the
first "holding company" ever created in this country. Its
peculiar attribute was that it did not construct and operate
street railways itself, but merely owned other corporations that
did so. Its only assets, that is, were paper securities
representing the ownership and control of other companies. This
"holding company," which has since become almost a standardized
form of corporation control in this country, was the invention of
Mr. Francis Lynde Stetson, one of America's greatest corporation
lawyers. "Mr. Stetson," Ryan is said to have remarked, "do you
know what you did when you drew up the papers of the Metropolitan
Traction Company? You made us a great big tin box."

The plan which Whitney and his associates now followed was to
obtain control, in various ways, of all the surface railways in
New York and place them under the leadership of the Metropolitan.
Through their political influences they obtained franchises of
priceless value, organized subsidiary street railway companies,
and exchanged the stock of these subsidiary companies for that of
the Metropolitan. A few illustrations will show the character of
these transactions. They thus acquired, practically as a free
gift, a franchise to build a cable railroad on Lexington Avenue.
At an extremely liberal estimate, this line cost perhaps
$2,500,000 to construct, yet the syndicate turned this over to
the Metropolitan for $10,000,000 of Metropolitan securities. They
similarly acquired a franchise for a line on Columbus Avenue,
spending perhaps $500,000 in construction, and handing the
completed property over to the Metropolitan for $6,000,000. In
exchange for these two properties, representing a real
investment, it has been maintained, of $3,000,000, the inside
syndicates received securities which had a face value of
$16,000,000 and which, as will appear subsequently, had a market
cash value of not far from $25,000,000. They purchased an old
horse-car line on Fulton Street, a line whose assets consisted of
one-third of a mile of tracks, ten little box cars, thirty
horses, and an operating deficit of $40,000 a year. At auction,
its visible assets might have brought $15,000; yet the syndicate
turned this over to the Metropolitan for $1,000,000. They spent
$50,000 in constructing and equipping a horse railroad on
Twenty-eighth and Twenty-ninth Streets and turned this over to
the Metropolitan for $3,000,000. For two and a half miles of
railroad on Thirty-fourth Street, which represented a cash
expenditure of perhaps $100,000, they received $2,000,000 of
Metropolitan stock. But it is hardly necessary to catalogue more
instances; the plan of operations must now be fairly evident. It
was for the members of the syndicate, as individuals, to collect
all the properties and new franchises that were available and to
transfer them to the Metropolitan at enormously inflated values.
So far, all these deals were purely stock transactions--no cash
had yet changed hands. When the amalgamation was complete, the
insiders found themselves in possession of large amounts of
Metropolitan stock. Their scheme for transforming this paper into
more tangible property forms the concluding chapter of this
Metropolitan story.*

* In 1897 the Traction Company dissolved, after distributing
$6,000,000 as "a voluntary dividend" among its stockholders.

Nearly all the properties actually purchased and transferred in
the manner described above, had little earning capacity, and
therefore little value; they were decrepit horse-car lines in
unprofitable territory. The really valuable roads were those that
traversed the great north and south thoroughfares-Lenox, Third,
Fourth, Sixth, Eighth, and Ninth Avenues. Many old New York
families and estates had held these properties for years and had
collected large annual dividends from them. Naturally they had no
desire to sell, yet their acquisition was essential to the
monopoly which the Whitney-Ryan syndicate aspired to construct.
They finally leased all these roads, under agreements which
guaranteed large annual rentals. In practically all these cases
the Metropolitan, in order to secure physical possession, agreed
to pay rentals that far exceeded the earning capacity of the
road. What is the explanation of such insane finance? We do not
have the precise facts in the matter of the New York railways;
but similar operations in Chicago, which have been officially
made public, shed the utmost light upon the situation. In order
to get possession of a single road in Chicago, Widener and Elkins
guaranteed a thirty-five per cent dividend; to get one
Philadelphia line, they guaranteed 65 1/2 per cent on capital
paid in. This, of course, was not business; the motives actuating
the syndicate were purely speculative. In Chicago, Widener and
Elkins quietly made large purchases of the stock in these roads
before they leased them to the parent company. The exceedingly
profitable lease naturally gave such stocks a high value, in case
they preferred to sell; if they held them, they reaped huge
rewards from the leases which they had themselves decreed.
Perhaps their most remarkable exploit was the lease of the West
Division Railway Company of Chicago to the West Chicago Street
Railroad. Widener and Elkins controlled the West Division
Railway; their partner, Charles T. Yerkes, controlled the latter
corporation. The negotiation of a lease, therefore, was a purely
informal matter; the partners were merely dealing with one
another; yet Widener and Elkins received a fee of $5,000,000 as
personal compensation for negotiating this lease!

But this whole leasing system, both in New York and Chicago,
entailed scandals perhaps even more reprehensible. All these
leased properties, when taken over, were horse-car lines, and
their transformation into electrically propelled systems involved
reconstruction operations on an extensive scale. It seems
perfectly clear that the chief motive which inspired these
extravagant leases was the determination of the individuals who
made up the syndicate to obtain physical possession and to make
huge profits on construction. The "construction accounts" of the
Metropolitan in New York form the most mysterious and incredible
chapter in its history. The Metropolitan reports show that they
spent anywhere from $500,000 to $600,000 a mile building
underground trolley lines which, at their own extravagant
estimate, should have cost only $150,000. In a few years untold
millions, wasted in this way, disappeared from the Metropolitan
treasury. In 1907 the Public Service Commission of New York began
investigating these "construction accounts," but it had not
proceeded far when the discovery was made that all the
Metropolitan books containing the information desired had been
destroyed. All the ledgers, journals, checks, and vouchers
containing the financial history of the Metropolitan since its
organization in 1893 had been sold for $117 to a junkman, who had
agreed in writing to grind them into pulp, so that they would be
safe from "prying eyes." We shall therefore never know precisely
how this money was spent. But here again the Chicago transactions
help us to an understanding. In 1898 Charles T. Yerkes, with that
cynical frankness which some people have regarded as a redeeming
trait in his character, opened his books for the preceding
twenty-five years to the Civic Federation of Chicago. These books
disclosed that Mr. Yerkes and his associates, Widener and Elkins,
had made many millions in reconstructing the Chicago lines at
prices which represented gross overcharges to the stockholders.
For this purpose Yerkes, Widener, and Elkins organized the United
States Construction Company and made contracts for installing the
new electric systems on the lines which they controlled by lease
or stock ownership. It seems a not unnatural suspicion that the
vanished Metropolitan books would have disclosed similar
performances in New York.

The concluding chapter of this tragedy has its setting in the
Stock Exchange. These inside gentlemen, as already said, received
no cash as their profits from these manipulations--only stock.
But in the eyes of the public this stock represented an enormous
value. Metropolitan securities, for example, represented the
control and ownership of all the surface transit business in the
city of New York. Naturally, it had a great investment value.
When it began to pay regularly seven per cent dividends, the
public appetite for Metropolitan became insatiable. The eager
purchasers did not know, what we know now, that the Metropolitan
did not earn these dividends and never could have earned them.
The mere fact that it was paying, as rentals on its leased lines,
annual sums far in excess of their earning capacity, necessarily
prevented anything in the nature of profitable operation. The
unpleasant fact is that these dividends were paid with borrowed
money merely to make the stock marketable. It is not unlikely
that the padded construction accounts, already described, may
have concealed large disbursements of money for unearned
dividends. When the Metropolitan was listed in 1897, it
immediately went beyond par. The excitement that followed forms
one of the most memorable chapters in the history of Wall Street.
The investing public, egged on by daring and skillful stock
manipulators, simply went mad and purchased not only Metropolitan
but street railway shares that were then even more speculative.
It was in these bubble days that Brooklyn Rapid Transit soared to
heights from which it subsequently descended precipitately. Under
this stimulus, Metropolitan stock ultimately sold at $269 a
share. While the whole investing public was scrambling for
Metropolitan, the members of the exploiting syndicate found ample
opportunity to sell. The real situation became apparent when
William C. Whitney died in 1904 leaving an estate valued at
$40,000,000. Not a single share of Metropolitan was found among
his assets! The final crash came in 1907, when the Metropolitan,
a wrecked and plundered shell, confessed insolvency and went into
a receivership. Those who had purchased its stock found their
holdings as worthless as the traditional western gold mine. The
story of the Chicago and Philadelphia systems, as well as that of
numerous other cities, had been essentially the same. The transit
facilities of millions of Americans had merely become the
instruments of a group of speculators who had made huge personal
fortunes and had left, as a monument of their labors, street
railway lines whose gross overcapitalization was apparent to all
and whose physical dilapidation in many cases revealed the
character of their management.

It seems perhaps an exaggeration to say that the enterprises
which have resulted in equipping our American cities and suburbs
with trolley lines and electric lighting facilities have followed
the plan of campaign sketched above. Perhaps not all have
repeated the worst excesses of the syndicate that so
remorselessly exploited New York, Chicago, and Philadelphia. Yet
in most cases these elaborate undertakings have been largely
speculative in character. Huge issues of fictitious stock,
created purely for the benefit of inner rings, have been almost
the prevailing rule. Stock speculation and municipal corruption
have constantly gone hand in hand everywhere with the development
of the public utilities. The relation of franchise corporations
to municipalities is probably the thing which has chiefly opened
the eyes of Americans to certain glaring defects in their
democratic organization. The popular agitation which has resulted
has led to great political reforms. The one satisfaction which we
can derive from such a relation as that given above is that,
after all, it is representative of a past era in our political
and economic life. No new "Metropolitan syndicate" can ever
repeat the operations of its predecessors. Practically every
State now has utility commissions which regulate the granting of
franchises, the issue of securities, the details of construction
and equipment and service. An awakened public conscience has
effectively ended the alliance between politics and franchise
corporations and the type of syndicate described in the foregoing
pages belongs as much to our American past as that rude frontier
civilization with which, after all, it had many characteristics
in common.


The Civil War in America did more than free the negro slave: it
freed the white man as well. In the Civil War agriculture, for
the first time in history, ceased to be exclusively a manual art.
Up to that time the typical agricultural laborer had been a bent
figure, tending his fields and garnering his crops with his own
hands. Before the war had ended the American farmer had assumed
an erect position; the sickle and the scythe had given way to a
strange red chariot, which, with practically no expenditure of
human labor, easily did the work of a dozen men. Many as have
been America's contributions to civilization, hardly any have
exerted greater influence in promoting human welfare than her
gift of agricultural machinery. It seems astounding that, until
McCormick invented his reaper, in 1831, agricultural methods, in
both the New and the Old World, differed little from those that
had prevailed in the days of the Babylonians. The New England
farmer sowed his fields and reaped his crops with almost
identically the same instruments as those which had been used by
the Roman farmer in the time of the Gracchi. Only a comparatively
few used the scythe; the great majority, with crooked backs and
bended knees, cut the grain with little hand sickles precisely
like those which are now dug up in Etruscan and Egyptian tombs.

Though McCormick had invented his reaper in 1831, and though many
rival machines had appeared in the twenty years preceding the
Civil War, only the farmers on the great western plains had used
the new machinery to any considerable extent. The agricultural
papers and agricultural fairs had not succeeded in popularizing
these great laborsaving devices. Labor was so abundant and so
cheap that the farmer had no need of them. But the Civil War took
one man in three for the armies, and it was under this pressure
that the farmers really discovered the value of machinery. A
small boy or girl could mount a McCormick reaper and cut a dozen
acres of grain in a day. This circumstance made it possible to
place millions of soldiers in the field and to feed the armies
from farms on which mature men did very little work. But the
reaper promoted the Northern cause in other ways. Its use
extended so in the early years of the war that the products of
the farms increased on an enormous scale, and the surplus,
exported to Europe, furnished the liquid capital that made
possible the financing of the war. Europe gazed in astonishment
at a new spectacle in history; that of a nation fighting the
greatest war which had been known up to that time, employing the
greater part of her young and vigorous men in the armies, and yet
growing infinitely richer in the process. The Civil War produced
many new implements of warfare, such as the machine gun and the
revolving turret for battleships, but, so far as determining the
result was concerned, perhaps the most important was the reaper.

Extensive as the use of agricultural machinery became in the
Civil War, that period only faintly foreshadowed the development
that has taken place since. The American farm is today like a
huge factory; the use of the hands has almost entirely
disappeared; there are only a few operations of husbandry that
are not performed automatically. In Civil War days the reaper
merely cut the grain; now machinery rakes it up and binds it into
sheaves and threshes it. Similar mechanisms bind corn and rice.
Machinery is now used to plant potatoes; grain, cotton, and other
farm products are sown automatically. The husking bees that
formed one of our social diversions in Civil War days have
disappeared, for particular machines now rip the husks off the
ears. Horse hay-forks and horse hayrakes have supplanted manual
labor. The mere names of scores of modern instruments of farming,
all unknown in Civil War days--hay carriers, hay loaders, hay
stackers, manure spreaders, horse corn planters, corn drills,
disk harrows, disk ploughs, steam ploughs, tractors, and the
like--give some suggestion of the extent to which America has
made mechanical the most ancient of occupations. In thus
transforming agriculture, we have developed not only our own
Western plains, but we have created new countries. Argentina
could hardly exist today except for American agricultural
machinery. Ex-President Loubet declared, a few years ago, that
France would starve to death except for the farming machines that
were turned out in Chicago. There is practically no part of the
world where our self-binders are not used. In many places America
is not known as the land of freedom and opportunity, but merely
as "the place from which the reapers come." The traveler suddenly
comes upon these familiar agents in every European country, in
South America, in Egypt, China, Algiers, Siberia, India, Burma,
and Australia. For agricultural machinery remains today, what it
has always been, almost exclusively an American manufacture. It
is practically the only native American product that our European
competitors have not been able to imitate. Tariff walls, bounty
systems, and all the other artificial aids to manufacturing have
not developed this industry in foreign lands, and today the
United States produces four-fifths of all the agricultural
machinery used in the world. The International Harvester Company
has its salesmen in more than fifty countries, and has
established large American factories in many nations of Europe.

One day, a few years before his death, Prince Bismarck was
driving on his estate, closely following a self-binder that had
recently been put to work. The venerable statesman, bent and
feeble, seemed to find a deep melancholy interest in the

"Show me the thing that ties the knot," he said. It was taken to
pieces and explained to him in detail. "Can these machines be
made in Germany?" he asked.

"No, your Excellency," came the reply. "They can be made only in

The old man gave a sigh. "Those Yankees are ingenious fellows,"
he said. "This is a wonderful machine."

In this story of American success, four names stand out
preeminently. The men who made the greatest contributions were
Cyrus H. McCormick, C. W. Marsh, Charles B. Withington, and John
F. Appleby. The name that stands foremost, of course, is that of
McCormick, but each of the others made additions to his invention
that have produced the present finished machine. It seems like
the stroke of an ironical fate which decreed that since it was
the invention of a Northerner, Eli Whitney, that made inevitable
the Civil War, so it was the invention of a Southerner, Cyrus
McCormick, that made inevitable the ending of that war in favor
of the North. McCormick was born in Rockbridge County, Virginia,
on a farm about eighteen miles from Staunton. He was a child of
that pioneering Scotch-Irish race which contributed so greatly to
the settlement of this region and which afterward made such
inestimable additions to American citizenship. The country in
which he grew up was rough and, so far as the conventionalities
go, uncivilized; the family homestead was little more than a log
cabin; and existence meant a continual struggle with a not
particularly fruitful soil. The most remarkable figure in the
McCormick home circle, and the one whose every-day life exerted
the greatest influence on the boy, was his father. The older
McCormick had one obsessing idea that made him the favorite butt
of the local humorists. He believed that the labor spent in
reaping grain was a useless expenditure of human effort and that
machinery might be made to do the work. Other men, in this
country and in Europe, had nourished similar notions. Several
Englishmen had invented reaping machines, all of which had had
only a single defect--they would not reap. An ingenious English
actor had developed a contrivance which would cut imitation wheat
on the stage, but no one had developed a machine that would work
satisfactorily in real life. Robert McCormick spent the larger
part of his days and nights tinkering at a practical machine. He
finally produced a horrific contrivance, made up of whirling
sickles, knives, and revolving rods, pushed from behind by two
horses; when he tried this upon a grain-field, however, it made a
humiliating failure.

Evidently Robert McCormick had ambitions far beyond his powers;
yet without his absurd experiments the development of American
agriculture might have waited many years. They became the
favorite topics of conversation in the evening gatherings that
took place about the family log fire. Robert McCormick had
several sons, and one manifested a particular interest in his
repeated failures. From the time he was seven years old Cyrus
Hall McCormick became his father's closest companion. Others
might ridicule and revile, but this chubby, bright-eyed,
intelligent little boy was always the keenest listener, the one
comfort which the father had against his jeering neighbors. He
also became his father's constant associate in his rough
workshop. Soon, however, the older man noticed a change in their
relations. The boy was becoming the teacher, and the father was
taught. By the time Cyrus was eighteen, indeed, he had advanced
so far beyond his father that the latter had become merely a
proud observer. Young McCormick threw into the discard all his
father's ideas and struck out on entirely new lines. By the time
he had reached his twenty-second birthday he had constructed a
machine which, in all its essential details, is the one which we
have today. He had introduced seven principles, all of which are
an indispensable part of every reaper constructed now. One
afternoon he drove his unlovely contraption upon his father's
farm, with no witnesses except his own family. This group now
witnessed the first successful attempt ever made to reap with
machinery. A few days later young McCormick gave a public
exhibition at Steele's Tavern, cutting six acres of oats in an
afternoon. The popular ridicule soon changed into acclaim; the
new invention was exhibited in a public square and Cyrus
McCormick became a local celebrity. Perhaps the words that
pleased him most, however, were those spoken by his father. "I am
proud," said the old man, "to have a son who can do what I failed
to do."

This McCormick reaper dates from 1831; but it represented merely
the beginnings of the modern machine. It performed only a single
function; it simply cut the crop. When its sliding blade had
performed this task, the grain fell back upon a platform, and a
farm hand, walking alongside, raked this off upon the ground. A
number of human harvesters followed, picked up the bundles, and
tied a few strips of grain around them, making the sheaf. The
work was exceedingly wearying and particularly hard upon the
women who were frequently impressed into service as farm-hands.
About 1858 two farmers named Marsh, who lived near De Kalb,
Illinois, solved this problem. They attached to their McCormick
reaper a moving platform upon which the cut grain was deposited.
A footboard was fixed to the machine upon which two men stood. As
the grain came upon this moving platform these men seized it,
bound it into sheaves, and threw it upon the field. Simple as
this procedure seemed it really worked a revolution in
agriculture; for the first time since the pronouncement of the
primal curse, the farmer abandoned his hunchback attitude and did
his work standing erect. Yet this device also had its
disqualifications, the chief one being that it converted the
human sheaf-binder into a sweat-shop worker. It was necessary to
bind the grain as rapidly as the platform brought it up; the
worker was therefore kept in constant motion; and the
consequences were frequently distressing and nerve racking. Yet
this "Marsh Harvester" remained the great favorite with farmers
from about 1860 to 1874.

All this time, however, there was a growing feeling that even the
Marsh harvester did not represent the final solution of the
problem; the air was full of talk and prophecies about
self-binders, something that would take the loose wheat from the
platform and transform it into sheaves. Hundreds of attempts
failed until, in 1874, Charles B. Withington of Janesville,
Wisconsin, brought to McCormick a mechanism composed of two steel
arms which seized the grain, twisted a wire around it, cut the
wire, and tossed the completed sheaf to the earth. In actual
practice this contrivance worked with the utmost precision.
Finally American farmers had a machine that cut the grain, raked
it up, and bound it into sheaves ready for the mill. Human labor
had apparently lost its usefulness; a solitary man or woman,
perched upon a seat and driving a pair of horses, now performed
all these operations of husbandry.

By this time, scores of manufacturers had entered the field in
opposition to McCormick, but his acquisition of Withington's
invention had apparently made his position secure. Indeed, for
the next ten years he had everything his own way. Then suddenly
an ex-keeper of a drygoods store in Maine crossed his path. This
was William Deering, a character quite as energetic, forceful,
and pugnacious as was McCormick himself. Though McCormick had
made and sold thousands of his selfbinders, farmers were already
showing signs of discontent. The wire proved a continual
annoyance. It mingled with the straw and killed the cattle--at
least so the farmers complained; it cut their hands and even
found its way, with disastrous results, into the flour mills.
Deering now appeared as the owner of a startling invention by
John F. Appleby. This did all that the Withington machine did and
did it better and quicker; and it had the great advantage that it
bound with twine instead of wire. The new machine immediately
swept aside all competitors; McCormick, to save his reaper from
disaster, presently perfected a twine binder of his own. The
appearance of Appleby's improvement in 1884 completes the cycle
of the McCormick reaper on its mechanical side The harvesting
machine of fifty nations today is the one to which Appleby put
the final touches in 1884. Since then nothing of any great
importance has been added.

This outline of invention, however, comprises only part of the
story. The development of the reaper business presents a
narrative quite as adventurous as that of the reaper itself.
Cyrus McCormick was not only a great inventor; he was also a
great businessman. So great was his ability in this direction,
indeed, that there has been a tendency to discredit his
achievements as a creative genius and to attribute his success to
his talents as an organizer and driver of industry. "I may make a
million dollars from this reaper," said McCormick, in the full
tide of enthusiasm over his invention; and these words indicate
an indispensable part of his program. He had no miserly instinct
but he had one overpowering ambition. It was McCormick's
conviction, almost religious in its fervor, that the harvester
business of the world belonged to him. As already indicated,
plenty of other hardy spirits, many of them almost as commanding
personalities as himself, disputed the empire. Not far from
12,000 patents on harvesting machines were granted in this
country in the fifty years following McCormick's invention, and
more than two hundred companies were formed to compete for the
market. McCormick always regarded these competitors as highwaymen
who had invaded a field which had been almost divinely set apart
for himself. A man of covenanting antecedents, heroic in his
physical proportions, with a massive, Jove-like head and beard,
tirelessly devoted to his work, watching every detail with a
microscopic eye, marshaling a huge force of workers who were as
possessed by this one overruling idea as was McCormick himself,
he certainly presented an almost unassailable battlefront to his
antagonists. The competition that raged between McCormick and
the makers of rival machines was probably the fiercest that has
prevailed in any American industry. For marketing his machine
McCormick developed a system almost as ingenious as the machine
itself. The popularization of so ungainly and expensive a
contrivance as the harvester proved a slow and difficult task.
McCormick at first attempted to build his product on his Virginia
farm and for many years it was known as the Virginia Reaper.
Nearly ten years passed, however, before he sold his first
machine. The farmer first refused to take it seriously. "It's a
great invention," he would say, "but I'm running a farm, not a
circus." About 1847 McCormick decided that the Western prairies
offered the finest field for its activities, and established his
factory at Chicago, then an ugly little town on the borders of a
swamp. This selection proved to be a stroke of genius, for it
placed the harvesting factory right at the door of its largest

The price of the harvester, however, seemed an insurmountable
obstacle to its extensive use. The early settlers of the Western
plains had little more than their brawny hands as capital, and
the homestead law furnished them their land practically free. In
the eyes of a large-seeing pioneer like McCormick this was
capital enough. He determined that his reaper should develop this
extensive domain, and that the crops themselves should pay the
cost. Selling expensive articles on the installment plan now
seems a commonplace of business, but in those days it was
practically unknown. McCormick was the first to see its
possibilities. He established an agent, usually the general
storekeeper, in every agricultural center. Any farmer who had a
modicum of cash and who bore a reputation for thrift and honesty
could purchase a reaper. In payment he gave a series of notes, so
timed that they fell due at the end of harvesting seasons. Thus,
as the money came in from successive harvests, the pioneer paid
off the notes, taking two, three, or four years in the process.
In the sixties and seventies immigrants from the Eastern States
and from Europe poured into the Mississippi Valley by the
hundreds of thousands. Almost the first person who greeted the
astonished Dane, German, or Swede was an agent of the harvester
company, offering to let him have one of these strange machines
on these terms. Thus the harvester, under McCormick's
comprehensive selling plans, did as much as the homestead act in
opening up this great farming region.

McCormick covered the whole agricultural United States with these
agents. In this his numerous competitors followed suit, and the
liveliest times ensued. From that day to this the agents of
harvesting implements have lent much animation and color to rural
life in this country. Half a dozen men were usually tugging away
at one farmer at the same time. The mere fact that the farmer had
closed a contract did not end his troubles, for "busting up
competitors' sales" was part of the agent's business. The
situation frequently reached a point where there was only one way
to settle rival claims and that was by a field contest. At a
stated time two or three or four rival harvesters would suddenly
appear on the farmer's soil, each prepared to show, by actual
test, its superiority over the enemy. Farmers and idlers for
miles around would gather to witness the Homeric struggle. At a
given signal the small army of machines would spring savagely at
a field of wheat. The one that could cut the allotted area in the
shortest time was regarded as the winner. The harvester would
rush on all kinds of fields, flat and hilly, dry and wet, and
would cut all kinds of crops, and even stubble. All manner of
tests were devised to prove one machine stronger than its rival;
a favorite idea was to chain two back to back, and have them
pulled apart by frantic careering horses; the one that suffered
the fewest breakdowns would be generally acclaimed from town to
town. Sometimes these field tests were the most exciting and
spectacular events at country fairs.

Thus the harvesting machine "pushed the frontier westward at the
rate of thirty miles a year," according to William H. Seward. It
made American and Canadian agriculture the most efficient in the
world. The German brags that his agriculture is superior to
American, quoting as proof the more bushels of wheat or potatoes
he grows to an acre. But the comparison is fallacious. The real
test of efficiency is, not the crops that are grown per acre, but
the crops that are grown per man employed. German efficiency gets
its results by impressing women as cultivators--depressing bent
figures that are in themselves a sufficient criticism upon any
civilization. America gets its results by using a minimum of
human labor and letting machinery do the work. Thus America's
methods are superior not only from the standpoint of economics
but of social progress. All nations, including Germany, use our
machinery, but none to the extent that prevails on the North
American Continent.

Perhaps McCormick's greatest achievement is that his machine has
banished famine wherever it is extensively used, at least in
peace times. Before the reaper appeared existence, even in the
United States, was primarily a primitive struggle for bread. The
greatest service of the harvester has been that it has freed the
world--unless it is a world distracted by disintegrating
war--from a constant anxiety concerning its food supply. The
hundreds of thousands of binders, active in the fields of every
country, have made it certain that humankind shall not want for
its daily bread. When McCormick exhibited his harvester at the
London Exposition of 1851, the London Times ridiculed it as "a
cross between an Astley chariot, a wheel barrow, and a flying
machine." Yet this same grotesque object, widely used in Canada,
Argentina, Australia, South Africa, and India, becomes an engine
that really holds the British Empire together.

For the forty years succeeding the Civil War the manufacture of
harvesting machinery was a business in which many engaged, but in
which few survived. The wildest competition ruthlessly destroyed
all but half a dozen powerful firms. Cyrus McCormick died in
1884, but his sons proved worthy successors; the McCormick
factory still headed the list, manufacturing, in 1900, one-third
of all the self-binders used in the world. The William Deering
Company came next and then D. M. Osborne, J. J. Glessner, and W.
H. Jones, established factories that made existence exceedingly
uncomfortable for the pioneers. Whatever one may think of the
motives which caused so many combinations in the early years of
the twentieth century, there is no question that irresistible
economic forces compelled these great harvester companies to get
together. Quick profits in the shape of watered stock had nothing
to do with the formation of the International Harvester Company.
All the men who controlled these enterprises were individualists,
with a natural loathing for trusts, combinations, and pools. They
wished for nothing better than to continue fighting the Spartan
battle that had made existence such an exciting pastime for more
than half a century. But the simple fact was that these several
concerns were destroying one another; it was a question of
joining hands, ending the competition that was eating so deeply
into their financial resources, or reducing the whole business to
chaos. When Mr. George W. Perkins, of J. P. Morgan and Company,
first attempted to combine these great companies, the antagonisms
which had been accumulated in many years of warfare constantly
threatened to defeat his end. He early discovered that the only
way to bring these men together was to keep them apart. The usual
way of creating such combinations is to collect the
representative leaders, place them around a table, and persuade
them to talk the thing over. Such an amicable situation, however,
was impossible in the present instance. Even when the four big
men--McCormick, Deering, Glessner, and Jones--were finally
brought for the final treaty of peace to J. P. Morgan's office,
Mr. Perkins had to station them in four separate rooms and flit
from one to another arranging terms. Had these four men been
brought face to face, the Harvester Company would probably never
have been formed.

Having once signed their names, however, these once antagonistic
interests had little difficulty in forming a strong combination.
The company thus brought together manufactured 85 per cent of all
the farm machinery used in this country. It owned its own
coal-fields and iron mines and its own forests, and it produces
most of the implements used by 10,000,000 farmers. In 1847 Cyrus
McCormick made 100 reapers and sold them for $10,000; by 1902 the
annual production of the corporation amounted to hundreds of
thousands of harvesters--besides an almost endless assortment of
other agricultural tools, ploughs, drills, rakes, gasoline
engines, tractors, threshers, cream separators, and the like--and
the sales had grown to about $75,000,000. This is merely the
financial measure of progress; the genuine achievements of
McCormick's invention are millions of acres of productive land
and a farming population which is without parallel elsewhere for
its prosperity, intelligence, manfulness, and general


In many manufacturing lines, American genius for organization and
large scale production has developed mammoth industries. In
nearly all the tendency to combination and concentration has
exercised a predominating influence. In the early years of the
twentieth century the public realized, for the first time, that
one corporation, the American Sugar Refining Company, controlled
ninety-eight per cent of the business of refining sugar. Six
large interests--Armour, Swift, Morris, the National Packing
Company, Cudahy, and Schwarzschild and Sulzberger--had so
concentrated the packing business that, by 1905, they slaughtered
practically all the cattle shipped to Western centers and
furnished most of the beef consumed in the large cities east of
Pittsburgh. The "Tobacco Trust" had largely monopolized both the
wholesale and retail trade in this article of luxury and had also
made extensive inroads into the English market. The textile
industry had not only transformed great centers of New England
into an American Lancashire, but the Southern States, recovering
from the demoralization of the Civil War, had begun to spin their
own cotton and to send the finished product to all parts of the
world. American shoe manufacturers had developed their art to a
point where "American shoes" had acquired a distinctive standing
in practically every European country.

It is hardly necessary to describe in detail each of these
industries. In their broad outlines they merely repeat the story
of steel, of oil, of agricultural machinery; they are the product
of the same methods, the same initiative. There is one branch of
American manufacture, however, that merits more detailed
attention. If we scan the manufacturing statistics of 1917, one
amazing fact stares us in the face. There are only three American
industries whose product has attained the billion mark; one of
these is steel, the other food products, while the third is an
industry that was practically unknown in the United States
fifteen years ago. Superlatives come naturally to mind in
discussing American progress, but hardly any extravagant phrases
could do justice to the development of American automobiles. In
1899 the United States produced 3700 motor vehicles; in 1916 we
made 1,500,000. The man who now makes a personal profit of not
far from $50,000,000 a year in this industry was a puttering
mechanic when the twentieth century came in. If we capitalized
Henry Ford's income, he is probably a richer man than
Rockefeller; yet, as recently as 1905 his possessions consisted
of a little shed of a factory which employed a dozen workmen.
Dazzling as is this personal success, its really important
aspects are the things for which it stands. The American
automobile has had its wildcat days; for the larger part,
however, its leaders have paid little attention to Wall Street,
but have limited their activities exclusively to manufacturing.
Moreover, the automobile illustrates more completely than any
other industry the technical qualities that so largely explain
our industrial progress. Above all, American manufacturing has
developed three characteristics. These are quantity production,
standardization, and the use of labor-saving machinery. It is
because Ford and other manufacturers adapted these principles to
making the automobile that the American motor industry has
reached such gigantic proportions.

A few years ago an English manufacturer, seeking the explanation
of America's ability to produce an excellent car so cheaply, made
an interesting experiment. He obtained three American
automobiles, all of the same "standardized" make, and gave them a
long and racking tour over English highways. Workmen then took
apart the three cars and threw the disjointed remains into a
promiscuous heap. Every bolt, bar, gas tank, motor, wheel, and
tire was taken from its accustomed place and piled up, a hideous
mass of rubbish. Workmen then painstakingly put together three
cars from these disordered elements. Three chauffeurs jumped on
these cars, and they immediately started down the road and made a
long journey just as acceptably as before. The Englishman had
learned the secret of American success with automobiles. The one
word "standardization" explained the mystery.

Yet when, a few years before, the English referred to the
American automobile as a "glorified perambulator," the
characterization was not unjust. This new method of
transportation was slow in finding favor on our side of the
Atlantic. America was sentimentally and practically devoted to
the horse as the motive power for vehicles; and the fact that we
had so few good roads also worked against the introduction of the
automobile. Yet here, as in Europe, the mechanically propelled
wagon made its appearance in early times. This vehicle, like the
bicycle, is not essentially a modern invention; the reason any
one can manufacture it is that practically all the basic ideas
antedate 1840. Indeed, the automobile is really older than the
railroad. In the twenties and thirties, steam stage coaches made
regular trips between certain cities in England and occasionally
a much resounding power-driven carriage would come careering
through New York and Philadelphia, scaring all the horses and
precipitating the intervention of the authorities. The hardy
spirits who devised these engines, all of whose names are
recorded in the encyclopedias, deservedly rank as the "fathers"
of the automobile. The responsibility as the actual "inventor"
can probably be no more definitely placed. However, had it not
been for two developments, neither of them immediately related to
the motor car, we should never have had this efficient method of
transportation. The real "fathers" of the automobile are Gottlieb
Daimler, the German who made the first successful gasoline
engine, and Charles Goodyear, the American who discovered the
secret of vulcanized rubber. Without this engine to form the
motive power and the pneumatic tire to give it four air cushions
to run on, the automobile would never have progressed beyond the
steam carriage stage. It is true that Charles Baldwin Selden, of
Rochester, has been pictured as the "inventor of the modern
automobile" because, as long ago as 1879, he applied for a patent
on the idea of using a gasoline engine as motive power, securing
this basic patent in 1895, but this, it must be admitted, forms a
flimsy basis for such a pretentious claim.

The French apparently led all nations in the manufacture of motor
vehicles, and in the early nineties their products began to make
occasional appearances on American roads. The type of American
who owned this imported machine was the same that owned steam
yachts and a box at the opera. Hardly any new development has
aroused greater hostility. It not only frightened horses, and so
disturbed the popular traffic of the time, but its speed, its
glamour, its arrogance, and the haughty behavior of its
proprietor, had apparently transformed it into a new badge of
social cleavage. It thus immediately took its place as a new
gewgaw of the rich; that it had any other purpose to serve had
occurred to few people. Yet the French and English machines
created an entirely different reaction in the mind of an
imaginative mechanic in Detroit. Probably American annals contain
no finer story than that of this simple American workman. Yet
from the beginning it seemed inevitable that Henry Ford should
play this appointed part in the world. Born in Michigan in 1863,
the son of an English farmer who had emigrated to Michigan and a
Dutch mother, Ford had always demonstrated an interest in things
far removed from his farm. Only mechanical devices interested
him. He liked getting in the crops, because McCormick harvesters
did most of the work; it was only the machinery of the dairy that
held him enthralled. He developed destructive tendencies as a
boy; he had to take everything to pieces. He horrified a rich
playmate by resolving his new watch into its component parts--and
promptly quieted him by putting it together again. "Every clock
in the house shuddered when it saw me coming," he recently said.
He constructed a small working forge in his school-yard, and
built a small steam engine that could make ten miles an hour. He
spent his winter evenings reading mechanical and scientific
journals; he cared little for general literature, but machinery
in any form was almost a pathological obsession. Some boys run
away from the farm to join the circus or to go to sea; Henry Ford
at the age of sixteen ran away to get a job in a machine shop.
Here one anomaly immediately impressed him. No two machines were
made exactly alike; each was regarded as a separate job. With his
savings from his weekly wage of $2.50, young Ford purchased a
three dollar watch, and immediately dissected it. If several
thousand of these watches could be made, each one exactly alike,
they would cost only thirty-seven cents apiece. "Then," said Ford
to himself, "everybody could have one." He had fairly elaborated
his plans to start a factory on this basis when his father's
illness called him back to the farm.

This was about 1880; Ford's next conspicuous appearance in
Detroit was about 1892. This appearance was not only conspicuous;
it was exceedingly noisy. Detroit now knew him as the pilot of a
queer affair that whirled and lurched through her thoroughfares,
making as much disturbance as a freight train. In reading his
technical journals Ford had met many descriptions of horseless
carriages; the consequence was that he had again broken away from
the farm, taken a job at $45 a month in a Detroit machine shop,
and devoted his evenings to the production of a gasoline engine.
His young wife was exceedingly concerned about his health; the
neighbors' snap judgment was that he was insane. Only two other
Americans, Charles B. Duryea and Ellwood Haynes, were attempting
to construct an automobile at that time. Long before Ford was
ready with his machine, others had begun to appear. Duryea turned
out his first one in 1892; and foreign makes began to appear in
considerable numbers. But the Detroit mechanic had a more
comprehensive inspiration. He was not working to make one of the
finely upholstered and beautifully painted vehicles that came
from overseas. "Anything that isn't good for everybody is no good
at all," he said. Precisely as it was Vail's ambition to make
every American a user of the telephone and McCormick's to make
every farmer a user of his harvester, so it was Ford's
determination that every family should have an automobile. He was
apparently the only man in those times who saw that this new
machine was not primarily a luxury but a convenience. Yet all
manufacturers, here and in Europe, laughed at his idea. Why not
give every poor man a Fifth Avenue house? Frenchmen and
Englishmen scouted the idea that any one could make a cheap
automobile. Its machinery was particularly refined and called for
the highest grade of steel; the clever Americans might use their
labor-saving devices on many products, but only skillful hand
work could turn out a motor car. European manufacturers regarded
each car as a separate problem; they individualized its
manufacture almost as scrupulously as a painter paints his
portrait or a poet writes his poem. The result was that only a
man with several thousand dollars could purchase one. But Henry
Ford--and afterward other American makers--had quite a different

Henry Ford's earliest banker was the proprietor of a quick-lunch
wagon at which the inventor used to eat his midnight meal after
his hard evening's work in the shed. "Coffee Jim," to whom Ford
confided his hopes and aspirations on these occasions, was the
only man with available cash who had any faith in his ideas.
Capital in more substantial form, however, came in about 1902.
With money advanced by "Coffee Jim," Ford had built a machine
which he entered in the Grosse Point races that year. It was a
hideous-looking affair, but it ran like the wind and outdistanced
all competitors. From that day Ford's career has been an
uninterrupted triumph. But he rejected the earliest offers of
capital because the millionaires would not agree to his terms.
They were looking for high prices and quick profits, while Ford's
plans were for low prices, large sales, and use of profits to
extend the business and reduce the cost of his machine. Henry
Ford's greatness as a manufacturer consists in the tenacity with
which he has clung to this conception. Contrary to general belief
in the automobile industry he maintained that a high sale price
was not necessary for large profits; indeed he declared that the
lower the price, the larger the net earnings would be. Nor did he
believe that low wages meant prosperity. The most efficient
labor, no matter what the nominal cost might be, was the most
economical. The secret of success was the rapid production of a
serviceable article in large quantities. When Ford first talked
of turning out 10,000 automobiles a year, his associates asked
him where he was going to sell them. Ford's answer was that that
was no problem at all; the machines would sell themselves. He
called attention to the fact that there were millions of people
in this country whose incomes exceeded $1800 a year; all in that
class would become prospective purchasers of a low-priced
automobile. There were 6,000,000 farmers; what more receptive
market could one ask? His only problem was the technical one--how
to produce his machine in sufficient quantities.

The bicycle business in this country had passed through a similar
experience. When first placed on the market bicycles were
expensive; it took $100 or $150 to buy one. In a few years,
however, an excellent machine was selling for $25 or $30. What
explained this drop in price? The answer is that the
manufacturers learned to standardize their product. Bicycle
factories became not so much places where the articles were
manufactured as assembling rooms for putting them together. The
several parts were made in different places, each establishment
specializing in a particular part; they were then shipped to
centers where they were transformed into completed machines. The
result was that the United States, despite the high wages paid
here, led the world in bicycle making and flooded all countries
with this utilitarian article. Our great locomotive factories had
developed on similar lines. Europeans had always marveled that
Americans could build these costly articles so cheaply that they
could undersell European makers. When they obtained a glimpse of
an American locomotive factory, the reason became plain. In
Europe each locomotive was a separate problem; no two, even in
the same shop, were exactly alike. But here locomotives are built
in parts, all duplicates of one another; the parts are then sent
by machinery to assembling rooms and rapidly put together.
American harvesting machines are built in the same way; whenever
a farmer loses a part, he can go to the country store and buy its
duplicate, for the parts of the same machine do not vary to the
thousandth of an inch. The same principle applies to hundreds of
other articles.

Thus Henry Ford did not invent standardization; be merely applied
this great American idea to a product to which, because of the
delicate labor required, it seemed at first unadapted. He soon
found that it was cheaper to ship the parts of ten cars to a
central point than to ship ten completed cars. There would
therefore be large savings in making his parts in particular
factories and shipping them to assembling establishments. In this
way the completed cars would always be near their markets. Large
production would mean that he could purchase his raw materials at
very low prices; high wages meant that he could get the efficient
labor which was demanded by his rapid fire method of campaign. It
was necessary to plan the making of every part to the minutest
detail, to have each part machined to its exact size, and to have
every screw, bolt, and bar precisely interchangeable. About the
year 1907 the Ford factory was systematized on this basis. In
that twelvemonth it produced 10,000 machines, each one the
absolute counterpart of the other 9999. American manufacturers
until then had been content with a few hundred a year! From that
date the Ford production has rapidly increased; until, in 1916,
there were nearly 4,000,000 automobiles in the United
States--more than in all the rest of the world put together--of
which one-sixth were the output of the Ford factories. Many other
American manufacturers followed the Ford plan, with the result
that American automobiles are duplicating the story of American
bicycles; because of their cheapness and serviceability, they are
rapidly dominating the markets of the world. In the Great War
American machines have surpassed all in the work done under
particularly exacting circumstances.

A glimpse of a Ford assembling room--and we can see the same
process in other American factories--makes clear the reasons for
this success. In these rooms no fitting is done; the fragments of
automobiles come in automatically and are simply bolted together.
First of all the units are assembled in their several
departments. The rear axles, the front axles, the frames, the
radiators, and the motors are all put together with the same
precision and exactness that marks the operation of the completed
car. Thus the wheels come from one part of the factory and are
rolled on an inclined plane to a particular spot. The tires are
propelled by some mysterious force to the same spot; as the two
elements coincide, workmen quickly put them together. In a long
room the bodies are slowly advanced on moving platforms at the
rate of about a foot per minute. At the side stand groups of men,
each prepared to do his bit, their materials being delivered at
convenient points by chutes. As the tops pass by these men
quickly bolt them into place, and the completed body is sent to a
place where it awaits the chassis. This important section,
comprising all the machinery, starts at one end of a moving
platform as a front and rear axle bolted together with the frame.
As this slowly ,advances, it passes under a bridge containing a
gasoline tank, which is quickly adjusted. Farther on the motor is
swung over by a small hoist and lowered into position on the
frame. Presently the dash slides down and is placed in position
behind the motor. As the rapidly accumulating mechanism passes
on, different workmen adjust the mufflers, exhaust pipes, the
radiator, and the wheels which, as already indicated, arrive on
the scene completely tired. Then a workman seats himself on the
gasoline tank, which contains a small quantity of its
indispensable fuel, starts the engine, and the thing moves out
the door under its own power. It stops for a moment outside; the
completed body drops down from the second floor, and a few bolts
quickly put it securely in place. The workman drives the now
finished Ford to a loading platform, it is stored away in a box
car, and is started on its way to market. At the present time
about 2000 cars are daily turned out in this fashion. The nation
demands them at a more rapid rate than they can be made.

Herein we have what is probably America's greatest manufacturing
exploit. And this democratization of the automobile comprises
more than the acme of efficiency in the manufacturing art. The
career of Henry Ford has a symbolic significance as well. It may
be taken as signalizing the new ideals that have gained the upper
hand in American industry. We began this review of American
business with Cornelius Vanderbilt as the typical figure. It is a
happy augury that it closes with Henry Ford in the foreground.
Vanderbilt, valuable as were many of his achievements,
represented that spirit of egotism that was rampant for the
larger part of the fifty years following the war. He was always
seeking his own advantage, and he never regarded the public
interest as anything worth a moment's consideration. With Ford,
however, the spirit of service has been the predominating motive.
His earnings have been immeasurably greater than Vanderbilt's;
his income for two years amounts to nearly Vanderbilt's total
fortune at his death; but the piling up of riches has been by no
means his exclusive purpose. He has recognized that his workmen
are his partners and has liberally shared with them his
increasing profits. His money is not the product of speculation;
Ford is a stranger to Wall Street and has built his business
independently of the great banking interest. He has enjoyed no
monopoly, as have the Rockefellers; there are more than three
hundred makers of automobiles in the United States alone. He has
spurned all solicitations to join combinations. Far from asking
tariff favors he has entered European markets and undersold
English, French, and German makers on their own ground. Instead
of taking advantage of a great public demand to increase his
prices, Ford has continuously lowered them. Though his idealism
may have led him into an occasional personal absurdity, as a
business man he may be taken as the full flower of American
manufacturing genius. Possibly America, as a consequence of
universal war, is advancing to a higher state of industrial
organization; but an economic system is not entirely evil that
produces such an industry as that which has made the automobile
the servant of millions of Americans.


The materials are abundant for the history of American industry
in the last fifty years. They exist largely in the form of
official documents. Any one ambitious of studying this subject in
great detail should consult, first of all, the catalogs issued by
that very valuable institution, the Government Printing Office.
The Bureau of Corporations has published elaborate reports on
such industries as petroleum (Standard Oil Company), beef,
tobacco, steel, and harvesting machinery, which are indispensable
in studying these great basic enterprises. The American habit of
legislative investigation and trust-fighting in the courts,
whatever its public value may have been, has at least had the
result of piling up mountains of material for the historian of
American industry. For one single corporation, the Standard Oil
Company, a great library of such literature exists. The nearly
twenty volumes of testimony, exhibits, and briefs assembled in
the course of the Federal suit which led to its dissolution is
the ultimate source of material on America's greatest trust. As
most of our other great corporations--the Steel Trust, the
Harvester Company, the Tobacco Company, and the like--have passed
through similar ordeals, all the information the student could
ask concerning them exists in the same form. The archives of such
bodies as the Interstate Commerce Commission and Public Utility
Commissions of the States are also bulging with documentary
evidence. Thus all the material contained in this volume--and
much more--concerning the New York traction situation will be
found in the investigation conducted in 1907 by the Public
Service Commission of New York, Second District.

American business has also developed a great talent for
publicity. Nearly all our big corporations have assembled much
material about their own history, all of which is public
property. Thus the American Telephone and Telegraph Company can
furnish detailed information on every phase of its business and
history. Indeed, one's respect for the achievements of American
industry is increased by the praiseworthy curiosity which it
displays about its own past and the readiness with which it makes
such material accessible to the public. Despite the abundance of
data, there is not a great amount of popular writing on these
subjects that has much fascination as literature or much value as
history. The only book that is really important is Miss Ida M.
Tarbell's "History of the Standard Oil Company," 2 vols. (new
edition 1911). Of other popular volumes the present writer has
found most useful Herbert N. Casson's "Romance of Steel" (1907),
"History of the Telephone" (1910), and "Cyrus Hall McCormick: His
Life and Work" (1909); J.H. Bridge's "Inside History of the
Carnegie Steel Company" (1903); "Henry Ford's Own Story" as told
to Rose Wildes Lane (1917).

For Chapter V, the author has drawn from articles contributed by
him in 1907-8 to "McClure's Magazine" on "Great American Fortunes
and their Making;" and for Chapter IV, from an article
contributed to the same magazine in 1914, on "Telephones for the


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