An Industrial Giant
WHEN THE CIVIL WAR BEGAN, THE country's industrial output, though increasing, did not approach that of major European powers. By the end of the century the United States had become far and away the colossus among world manufacturers, dwarfing the production of Great Britain and Germany. The world had never seen such rapid economic growth. The output of goods and services in the country (the gross national product, or GNP) increased by 44 percent between 1874 and 1883 and continued to expand in succeeding years.
Industrial Growth: An Overview
American manufacturing flourished for many reasons. New natural resources were discovered and exploited steadily, thereby increasing opportunities. These opportunities in turn attracted the brightest and most energetic of a vigorous and expanding population. The growth of the country added constantly to the size of the national market, and high tariffs shielded that market from foreign competition. The dominant spirit of the time encouraged businessmen to maximum effort by emphasizing progress, glorifying material wealth, and justifying aggressiveness. European immigrants provided the additional labor needed by expanding industry; 2.5 million arrived in the 1870s, twice that number in the 1880s.
It was a period of rapid advances in basic science, and technicians created a bountiful harvest of new machines, processes, and power sources that increased productivity and created new industries. In agriculture there were better harvesters, binding machines, and combines that could thresh and bag 450 pounds of grain a minute. An 1886 report of the Illinois Bureau of Labor Statistics claimed that "new machinery has displaced fully 50 percent of the muscular labor formerly required to do a given amount of work in the manufacture of agricultural implements." As a result of improvements in the milling of grain, packaged cereals appeared on the American breakfast table. The commercial canning of food expanded rapidly. The perfection of the typewriter by the Remington Company in the 1880s revolutionized the way office work was performed.
Railroads: The First Big Business
The railroads were probably the most significant element in American economic development, railroad executives the most powerful people in the country. Railroads were important first as an industry in themselves. Less than 35,000 miles of track existed when Lee laid down his sword at Appomattox. In 1875 railroad mileage exceeded 74,000, and the skeleton of the network was complete. By 1900 the nation had 193,000 miles of track.
The emphasis in railroad construction after 1865 was on organizing integrated systems. The lines had high fixed costs: taxes, interest on their bonds, maintenance of track and rolling stock, salaries of office personnel. A short train with half-empty cars required almost as many workers and as much fuel to operate as a long one jammed with freight or passengers. To earn profits, the railroads had to carry as much traffic as possible. They therefore spread out feeder lines to draw business to their main lines the way the root network of a tree draws water into its trunk.
Before the Civil War, as we have seen, passengers and freight could travel by rail from beyond Chicago and St. Louis to the Atlantic Coast, but only after the war did true interregional trunk lines appear. In 1861, for example, the New York Central ran from Albany to Buffalo. One could proceed from Buffalo to Chicago, but on a different company's trains. In 1867 the Central passed into the hands of "Commodore" Cornelius Vanderbilt, who had made a large fortune in the shipping business. In 1873 he integrated the Lake Shore and Michigan Southern into his empire, two years later the Michigan Central. At his death in 1877 the Central operated a network of more than 4,500 miles of track between New York City and most of the principal cities of the Middle West.
While Vanderbilt was putting together the New York Central complex, Thomas A. Scott was fusing roads to Cincinnati, Indianapolis, St. Louis, and Chicago to his Pennsylvania Railroad, which linked Pittsburgh and Philadelphia. In 1871 the Pennsylvania obtained access to New York; it soon reached Baltimore and Washington. By 1869 another important system, the Erie, extended from New York to Cleveland, Cincinnati, and St. Louis. Soon thereafter it too tapped the markets of Chicago and other principal cities. In 1874 the Baltimore and Ohio also obtained access to Chicago. The transcontinental were trunk fines from the start; the emptiness of the western country would have made short lines unprofitable, and builders quickly grasped the need for direct connections to eastern markets and thorough integration of feeder lines.
The dominant system builder of the Southwest was Jay Gould. With millions acquired in shady railroad and stock market ventures, Gould invaded the West in the 1870s, buying 370,000 shares of Union Pacific stock. He took over the Kansas Pacific, running from Denver to Kansas City, which he consolidated with the Union Pacific, and the Missouri Pacific, a line from Kansas City to St. Louis, which he expanded through mergers and purchases into a 5,300-mile system. Often Gould put together such properties merely to unload them on other railroads at a profit, but his grasp of the importance of integration was sound.
In the Northwest, Henry Villard, a German born ex-newspaperman, constructed another great complex based on his control of the Northern Pacific. James J. Hill controlled the Great Northern system, still another western network. The trunk lines interconnected and thus had to standardize many of their activities. The present system of time zones was developed in 1883 by the roads. The standard track gauge (4 feet 81/2 inches) was established in 1886. Standardized signal systems and even standard methods of accounting were essential to the effective functioning of the network.
The lines sought to work out fixed rates for carrying different types of freight, charging more for valuable manufactured goods than for bulky products like coal or wheat, and they agreed to permit rate concessions to shippers when necessary to avoid hauling empty cars. To enforce cooperation, they founded regional organizations such as the Eastern Trunk Line Association and the Western Traffic Association.
The railroads stimulated the economy indirectly. Like foreign commerce and the textile industry in earlier times, they served as a "multiplier," speeding development. In 1869 they bought $41.6 million worth of cars and locomotives; in 1889, $90.8 million. Their purchases created thousands of jobs and led to countless technological advances.
Because of their voracious appetite for traffic, railroads in sparsely settled regions and in areas with undeveloped resources devoted much money and effort to stimulating local economic growth. The Louisville and Nashville, for instance, was a prime mover in the expansion of the iron industry in Alabama in the 1880s.
To speed the settlement of new regions, the land-grant railroads sold land cheaply and on easy terms, for sales meant future business as well as current income. They offered reduced rates to travelers interested in buying farms and set up "bureaus of immigration" that distributed elaborate brochures describing the wonders of the new country. Their agents greeted immigrants at the great eastern ports and tried to steer them to railroad property. Overseas branches advertised the virtues of American farmland.
Technological advances in railroading accelerated economic development in complex ways. In 1869 George Westinghouse invented the air brake. By enabling an engineer to apply the brakes to all cars simultaneously (formerly each car had to be braked separately by its own conductor or brakeman), this invention made possible revolutionary increases in the size of trains and the speed at which they could safely operate. The sleeping car, invented in 1864 by George Pullman, now came into its own.
To pull the heavier trains, more powerful locomotives were needed. They in turn produced a call for stronger and more durable rails to bear the additional weight. Steel, itself reduced in cost because of technological developments, supplied the answer, for steel rails outlasted iron many times despite the use of much heavier equipment.
Iron, Oil, and ElectricityThe transformation of iron manufacturing affected the nation almost as much as railroad development. Output rose from 920,000 tons in 1860 to 10.3 million tons in 1900, but the big change came in the development of ways to mass-produce steel. Steel was expensive to manufacture until the invention in the 1850s of the Bessemer process, perfected independently by Henry Bessemer, an Englishman, and
William Kelly of Kentucky. The Bessemer process and the open-hearth method, a slower but more precise technique that enabled producers to sample the molten mass and thus control quality closely, were introduced commercially in the United States in the 1860s. In 1870 some 77,000 tons of steel were manufactured; by 1900, nearly 11.4 million tons.
Such growth would have been impossible but for the huge supplies of iron ore in the United States and the coal necessary to fire the furnaces that refined it. In the 1870s the great iron fields rimming Lake Superior began to yield their treasures. The enormous iron concentrations of the Mesabi region made a compass needle spin like a top. Mesabi ores could be mined with steam shovels, almost like gravel. Pittsburgh, surrounded by vast coal deposits, became the iron and steel capital of the country, the Minnesota ores reaching it by way of steamers on the Great Lakes and rail lines from Cleveland.
The petroleum industry expanded even more swiftly than iron and steel. Edwin L. Drake drilled the first successful well in Pennsylvania in 1859. During the Civil War, production ranged between 2 and 3 million barrels a year. By 1890 the figure had leaped to about 50 million barrels.
Before the invention of the gasoline engine and the automobile, the most important petroleum product was kerosene, which was burned in lamps. By the early 1870s, refiners had learned how to "crack" petroleum by applying high temperatures to the crude oil in order to rearrange its molecular structure, thereby increasing the percentage of kerosene yielded. By-products such as naphtha, gasoline (used in vaporized form as an illuminating gas), rhigolene (a local anesthetic), cymogene (a coolant for refrigerating machines), and many lubricants and waxes began to appear on the market. At the same time, a great increase in the supply of crude oil especially after the German-born chemist Herman Frasch perfected a method for removing sulfur from low-quality petroleum-drove prices down. These circumstances put a premium on refining efficiency. Larger plants using expensive machinery and employing skilled technicians became more important.
Two other important new industries were the telephone and electric light businesses. Both were typical of the period, being products of technical advances and intimately related to the growth of a high-speed, urban civilization that put great stress on communication. The telephone was invented in 1876 by Alexander Graham Bell, who had been led to the study of acoustics through his interest in the education of the deaf. The invention soon proved its practical value. By 1900 there were almost 800,000 phones in the country, twice the total for all of Europe. The American Telephone and Telegraph Company, a consolidation of over 100 local systems, dominated the business.
When Western Union, the telegraph company, realized the importance of the telephone, it tried for a time to compete with Bell by developing a machine of its own. The man it commissioned to devise this machine was Thomas A. Edison, but Bell's patents proved unassailable. Edison had already made a number of contributions toward solving what he called the "mysteries of electrical force," including a multiplex telegraph capable of sending four messages over a single wire at the same time. At Menlo Park, New Jersey, he built the prototype of the modern research laboratory, where specific problems could be attacked on a mass scale by a team of trained specialists.
Edison's most significant achievement was unquestionably his perfection of the incandescent lamp, or electric fight bulb. Others before Edison had experimented with the idea of producing light by passing electricity through a filament in a vacuum. Always, however, the filaments quickly burned out. Edison tried hundreds of fibers before producing, in 1879, a carbonized filament that would glow brightly in a vacuum tube for as long as 170 hours without crumbling.
In 1882 his Edison Illuminating Company opened a power station in New York and began to supply current for lighting to 85 consumers. Soon central stations were springing up everywhere until, by 1898, there were about 3,000 in the country.
Electricity was soon used to produce power as well as fight. The substitution of electricity for steam power in factories was as liberating as that of steam for waterpower before the Civil War. Small, safe electric motors replaced dangerous and cumbersome mazes of belts and wheels.
Competition and Monopoly: The Railroads
During the post-Civil War era, expansion in industry went hand in hand with concentration. The principal cause of this trend, aside from the obvious economies resulting from large-scale production and the growing importance of expensive machinery, was the downward trend of prices after 1873. The deflation, caused mainly by the failure of the money supply to keep pace with the rapid increase in the volume of goods produced, lasted until 1896 or 1897.
Falling prices kept a steady pressure on profit margins, and this led to increased production and thus to intense competition for markets. According to contemporary economists, competition advanced the public interest by keeping prices low and assuring the most efficient producer the largest profit. Up to a point, it accomplished these purposes in the years after 1865, but it had side effects that injured both the economy and society as a whole. Railroad managers, for instance, found it impossible to enforce "official" rate schedules and maintain their regional associations once competitive pressures mounted. In 1865 it had cost from 96 cents to $2.15 per 100 pounds, depending on the class of freight, to ship goods from New York to Chicago. In 1888 rates ranged from 35 cents to 75 cents.
Competition cut deeply into railroad profits, causing the fines to seek desperately to increase volume. They did so chiefly by reducing rates still more, on a selective basis. They gave rebates (secret reductions below the published rates) to large shippers in order to capture their business. In the 1870s the New York Central regularly reduced the rates important shippers were charged by 50 to 80 percent. One large Utica dry goods merchant received a rate of 9 cents while others paid 33 cents.
Railroad officials disliked rebating but found no way to avoid the practice. In extreme cases the railroads even gave large shippers drawbacks, which were rebates on the business of the shippers' competitors! Besides rebating, railroads battled directly with one another in ways damaging both to themselves and to the public. To make up for losses forced on them by competitive pressures, railroads charged higher rates at way points along their tracks where no competition existed. Frequently it cost more to ship a product a short distance than a longer one. Rochester, New York, was served only by the New York Central. In the 1870s it cost 30 cents to transport a barrel of flour from Rochester to New York City, a distance of 350 miles. At the same time, flour could be shipped from Minneapolis to New York, a
distance of well over 1,000 miles, for only 20 cents a barrel.
Although cheap transportation stimulated the economy, few persons benefited from cutthroat competition. Small shippers-and all businessmen in cities and towns with limited rail outlets-suffered; railroad discrimination speeded the concentration of industry in large corporations located in major centers. The instability of rates even troubled interests like the middle western flour millers who benefited from the competitive situation, for it hampered planning. Nor could manufacturers who received rebates be entirely happy, since few could be sure that some other producer was not getting a larger reduction.
Probably the worst sufferers were the roads themselves. The loss of revenue resulting from rate cutting, combined with inflated debts, put most of them in grave difficulty when faced with a downturn in the business cycle. In 1876 two-fifths of all railroad bonds were in default; three years later 65 lines were bankrupt. Wits called Samuel J. Tilden, the 1876 Democratic presidential candidate, the "Great Forecloser" because of his work reorganizing bankrupt railroads at this time. Since the public would not countenance bankrupt railroads going out of business, these companies were placed in the hands of court-appointed receivers. The receivers, however, seldom provided efficient management and had no funds at their disposal for new equipment.
During the 1880s the major roads responded to these pressures by building or buying lines in order to create interregional systems. These were the first giant corporations, capitalized in the hundreds of millions of dollars. Their enormous cost led to another wave of bankruptcies when a depression struck in the 1890s. The consequent reorganizations brought most of the big systems under the control of financiers, notably J. Pierpont Morgan, and such other private bankers as Kuhn, Loeb of New York and Lee, Higginson of Boston. The economic historian A. D. Noyes described in 1904 what the bankers did: "Bondholders were requested to scale down interest charges, receiving new stock in compensation.... [The bankers] combined to guarantee that the requisite money should be raised. . . . Fixed charges were diminished and a sufficient fund for road improvement and new equipment was provided."
Critics called the reorganizations "Morganizations." Representatives of the bankers sat on the board of every line they saved, and their influence was predominant. They consistently opposed rate wars, rebating, and other competitive practices. In effect, control of the railroad network became centralized, even though the companies maintained their separate existences and operated in a seemingly independent manner. When Morgan died in 1913, "Morgan men" dominated the boards of the New York Central, the Erie, the Atchison, Topeka and Santa Fe; and many other lines.
Competition and Monopoly: Steel
The iron and steel industry was also intensely competitive. Despite the trend toward higher production, demand varied erratically from year to year, even from month to month. In good times producers built new facilities, only to suffer heavy losses when demand declined. The forward rush of technology put a tremendous emphasis on efficiency; expensive plants quickly became obsolete. Improved transportation facilities allowed manufacturers in widely separated places to compete with one another.
The kingpin of the industry was Andrew Carnegie. Carnegie was born in Scotland and came to the United States in 1848 at the age of 12. His first job, as a bobbin boy in a cotton mill, brought him $1.20 a week, but his talents fitted the times perfectly, and he rose rapidly: to Western Union messenger boy, to telegrapher, to private secretary, to railroad manager. He saved his money, made some shrewd investments, and by 1868 had an income of $50,000 a year.
At about this time he decided to specialize in the iron business. Carnegie possessed great talent as a salesman, boundless faith in the future of the country, an uncanny knack of choosing topflight subordinates, and enough ruthlessness to survive in the iron and steel jungle. Where other steelmen built new plants in good times, he preferred to expand in bad times, when it cost far less to do so. During the 1870s, he later recalled, "many of my friends needed money.... [11 bought out five or six of them. That is what gave me my leading interest in this steel business."
Carnegie grasped the importance of technological improvements. He was also a driver of men and a merciless competitor. When a plant manager announced, "We broke all records for making steel last week," Carnegie replied, "Congratulations! Why not do it every week?" By 1890 the Carnegie Steel Company dominated the industry, and its output increased nearly tenfold during the next decade. Profits soared. Alarmed by Carnegie's increasing control of the industry, the makers of finished steel products such as barbed wire and tubing began to combine and to consider entering the primary field. Carnegie, his competitive temper aroused, threatened to turn to finished products himself. A colossal steel war seemed imminent.
However, Carnegie longed to retire to devote himself to philanthropic work. He believed that wealth entailed social responsibilities and that it was a disgrace to die rich. When J. P. Morgan approached him through an intermediary with an offer to buy him out, he assented readily. In 1901 Morgan put together United States Steel, the "world's first billion dollar corporation." This combination included all the Carnegie properties, the Federal Steel Company (Carnegie's largest competitor), and such important fabricators of finished products as the American Steel and Wire Company, the American Tin Plate Company, and the National Tube Company. Vast reserves of Minnesota iron ore and a fleet of Great Lakes ore steamers were also included. U.S. Steel was capitalized at $1.4 billion, about twice the value of its component properties but not necessarily an overestimation of its profit-earning capacity. The owners of Carnegie Steel received $492 million, of which $250 million went to Carnegie himself.
Competition and Monopoly: Oil
The pattern of fierce competition leading to combination and monopoly is well illustrated by the history of the petroleum industry. Irresistible pressures pushed the refiners into a brutal struggle to dominate the business. Production of crude oil, subject to the uncertainties of prospecting and drilling, fluctuated constantly and without regard for need. In general, output surged far ahead of demand. By the 1870s the largest oil-refining center was Cleveland, chiefly because the New York Central and Erie railroads competed fiercely for its oil trade and the Erie Canal offered an alternative route. The Standard Oil Company of Cleveland, founded in 1870 by a 31-year-old merchant named John D. Rockefeller, emerged as the giant among the refiners. Rockefeller exploited every possible technical advance and employed fair means and foul to persuade competitors either to sell out or to join forces. By 1879 he controlled 90 percent of the nation's oil-refining capacity, along with a network of oil pipelines and large reserves of petroleum in the ground.
Standard Oil emerged victorious in the competitive wars because Rockefeller and his associates were the toughest and most imaginative fighters as well as the most efficient refiners in the business. In addition to obtaining from the railroads a 10 percent rebate and drawbacks on its competitors' shipments, Standard Oil cut prices locally to force small independents to sell out or face ruin. The company employed spies to track down the customers of independents and offer them oil at bargain prices. Bribery was also a Standard practice; the reformer Henry Demarest Lloyd quipped that the company had done everything to the Pennsylvania legislature except refine it.
Although a bold planner and a daring taker of necessary risks, Rockefeller was far too orderly and astute to enjoy the free-swinging battles that plagued his industry. He sought efficiency, order, and stability. His forte was meticulous attention to detail: Stories are told of his ordering the number of drops of solder used to seal oil cans reduced from 40 to 39 and of his insisting that the manager of one of his refineries account for 750 missing barrel bungs. Not miserliness but a profound grasp of the economies of large-scale production explains this behavior. He competed ruthlessly, not primarily to crush other refiners but to persuade them to join with him, to share the business peaceably and rationally so that all could profit.
Having achieved his monopoly, Rockefeller stabilized and structured it by creating a new type of business organization, the trust. Standard Oil was an Ohio corporation, prohibited by local law from owning plants in other states or holding stock in out-of state corporations. As Rockefeller and his associates took over dozens of companies with facilities scattered across the country, serious legal and managerial difficulties arose. How could these many organizations be integrated with Standard OR of Ohio?
A rotund, genial little Pennsylvania lawyer named Samuel C. T. Dodd came up with an answer to this question in 1879. The stock of Standard of Ohio and of all the other companies that the Rockefeller interests had swallowed up was turned over to nine trustees, who were empowered to "exercise general supervision" over all the properties. Stockholders received in exchange trust certificates, on which dividends were paid. This seemingly simple device brought order to the petroleum business. Competition almost disappeared; prices steadied; profits skyrocketed.
From the company's point of view, monopoly was not the purpose of the trust-that had been achieved before the device was invented. Centralization of the management of diverse and far-flung operations in the interest of efficiency was its chief function. Standard Oil headquarters in New York became the brain of a complex network where information from salaried managers in the field was collected and digested, where top managerial decisions were made, and whence orders went out to armies of drillers, refiners, scientists, and salesmen.
Competition and Monopoly: Retailing and Utilities
The pattern of competition leading to dominance by a few great companies was repeated in many other businesses. The period saw the growth of huge department stores by merchants such as Alexander T. Stewart in New York, John Wanamaker in Philadelphia, and Marshall Field in Chicago. In life insurance, an immense expansion took place. High-pressure salesmanship prevailed; agents gave rebates to customers by shaving their own commissions; companies stole crack agents from their rivals and raided new territories. By 1900, three giants dominated the industry-Equitable, New York Life, and Mutual Life, each with approximately $1 billion of insurance in force.
The telephone and electric fighting industries were also plagued by competition. Bell and Edison had to fight mighty court battles to protect their patents. Western Union hired Edison himself in a futile effort to get around Bell's telephone patents. In 1892 Edison merged with his most powerful competitor to form General Electric. It and the Westinghouse Company thereafter dominated in business.
Americans' Reactions to Big Business
The expansion of industry and its concentration in fewer and fewer hands changed the way many people felt about the role of government in economic and social affairs. The fact that Americans disliked powerful governments in general and strict regulation of the economy in particular had never meant that they objected to all government activity in the economic sphere. Banking laws, tariffs, internal improvement legislation, and the granting of public land to railroads are only the most obvious of the economic regulations enforced in the 19th century by both the federal government and the states. Americans saw no contradiction between government activities of this type and the free enterprise philosophy, for such laws were intended to release human energy and thus increase the area in which freedom could operate. Tariffs stimulated industry and created new jobs, railroad grants opened up new regions for development, and so on.
The growth of huge industrial and financial organizations and the increasing complexity of economic relations frightened people yet made them at the same time greedy for more of the goods and services the new society was turning out. To many, the great new corporations and trusts resembled Frankenstein's monster-marvelous and powerful but a grave threat to society. The astute James Bryce described the changes in The American Commonwealth (1888):
Modern civilization ... has become more exacting. It discerns more benefits which the organized Power of government can secure, and grows more anxious to attain them. Men live fast, and are impatient of the slow working of natural laws. ... Unlimited competition seems to press too hard on the weak. The power of groups of men organized by incorporation as joint-stock companies, or of small knots of rich men acting in combination, has developed with unexpected strength in unexpected ways, overshadowing individuals and even communities, and showing that the very freedom of association which men sought to secure by law... may, under the shelter of the law, -ripen into a new form of tyranny.
To some extent public fear of the industrial giants reflected concern about monopoly. If Standard Oil dominated oil refining, it might raise prices inordinately at vast cost to consumers. Although in isolated cases monopolists did raise prices unreasonably, generally they did not. On the contrary, prices tended to fall until by the 1890s a veritable "consumer's millennium" had arrived.
Far more important in causing resentment was the fear that the monopolists were destroying economic opportunity and threatening democratic institutions. It was not the wealth of tycoons like Carnegie and Rockefeller and Morgan so much as their influence that worried people. In the face of the growing disparity between rich and poor, could republican institutions survive?
Some observers believed either autocracy or a form of revolutionary socialism to be almost inevitable. In 1890 former president Hayes pondered "the wrong and evils of the money-piling tendency of our country, which is changing laws, government, and morals and giving all power to the rich" and decided that he was going to become a "nihilist." John Boyle O'Reilly, a liberal Catholic journalist, wrote in 1886: "There is something worse than Anarchy, bad as that is; and it is irresponsible power in the hands of mere wealth." William Cook, a New York lawyer, warned in The Corporation Problem (1891) that "colossal aggregations of capital" were "dangerous to the republic."
As criticism mounted, business leaders rose to their own defense. Rockefeller described in graphic terms the chaotic conditions that plagued the oil industry before the rise of Standard Oil: It seemed absolutely necessary to extend the market for oil... and also greatly improve the process of refining so that oil could be made and sold cheaply, yet with a profit. We proceeded to buy the largest and best refining concerns and centralized the administration of them with a view to securing greater economy and efficiency. Carnegie, in an essay published in 1889, insisted that the concentration of wealth was necessary if humanity was to progress, softening this "Gospel of Wealth" by insisting that the rich must use their money in the manner "best calculated to produce the most beneficial results for the community."
Reformers: George, Bellamy, Lloyd
The voices of the critics were louder, if not necessarily more influential. In 1879 Henry George published Progress and Poverty, a forthright attack on the maldistribution of wealth in the United States. George argued that labor was the true and only source of capital. Observing the speculative fever of the West, which enabled landowners to reap profits merely by holding property while population increased, George proposed a property tax that would confiscate this "unearned increment." The value of land depended on society and should belong to society. This "single tax," as others called it, would bring in so much money that no other taxes would be necessary, and the government would have plenty of funds to establish new schools, museums, theaters, and other badly needed social and cultural services. Though the single tax was never adopted, George's ideas attracted enthusiastic attention. Single tax clubs sprang up throughout the nation, and Progress and Poverty became a best-seller.
Even more spectacular was the reception afforded Looking Backward, 2000-1887 a utopian novel written in 1888 by Edward Bellamy. This book, which sold over a million copies in its first few years, described a future America that was completely socialized, all economic activity carefully planned. Bellamy suggested that the ideal socialist state, in which all citizens shared equally, would arrive without revolution or violence. The trend toward consolidation would continue, he predicted, until one monster trust controlled all economic activity. At this point everyone would realize that nationalization was essential.
A third influential attack on monopoly was that of Henry Demarest Lloyd, whose Wealth Against Commonwealth (1894) denounced the Standard Oil Company. Lloyd's forceful, uncomplicated arguments and his copious references to official documents made Wealth Against Commonwealth utterly convincing to thousands.
The popularity of these publications indicates that the trend toward monopoly in the United States worried many people. But despite the drastic changes suggested in their pages, none of these writers questioned the underlying values of the middle class majority. They insisted that reform could be accomplished without serious inconvenience to any individual or class.
Nor did most of their millions of readers seriously consider trying to apply the reformers' ideas. The national discontent was apparently not as profound as the popularity of these works might suggest. If John D. Rockefeller became the bogeyman of American industry because of Lloyd's attack, no one prevented him from also becoming the richest man in the United States.
Reformers: The Marxists
By the 1870s the ideas of Marxian socialists were beginning to penetrate the United States, and in 1877 a Marxist Socialist Labor party was founded. Laurence Gronlund in The Cooperative Commonwealth (1884) made the first serious attempt to explain Marx's ideas to Americans.
Capitalism, Grordund claimed, contained the seeds of its own destruction. The state ought to own all the means of production, middlemen were "parasites," speculators "vampires ... .. Capital and Labor," he wrote in one of the rare humorous lines in his book, "are just as harmonious as roast beef and a hungry stomach." Gronlund expected the millennium to arrive in an orderly manner.
The leading voice of the Socialist Labor party, Daniel De Leon, was a different type. He was born in the West Indies and in the 1870s emigrated to the United States, where he was progressively attracted by the ideas of Henry George, then Edward Bellamy, and finally Marx. Ordinarily mild-mannered and kindly, when he put pen to paper, he became a doctrinaire revolutionary. He insisted that industrial workers could improve their lot only by adopting socialism and joining the Socialist Labor party. He paid scant attention, however, to the practical needs or even to the opinions of rank-and-file working people. The labor historian Philip Taft aptly characterized him as a "verbal revolutionary."
Government Reactions to Big Business: Railroad Regulation
Political action to check big business came first on the state level and dealt chiefly with the regulation of railroads. Although a number of New England states established railroad commissions before the Civil War, strict regulation was largely the result of agitation by western farm groups, principally the
National Grange of the Patrons of Husbandry. The Grange, founded in 1867 by Oliver H. Kelley, was created to provide social and cultural benefits for isolated rural communities. As it spread and grew in influence, the movement became political too. "Granger" candidates won control of a number of state legislatures in the West and the South. Railroad regulation invariably followed.
The Illinois Granger laws were typical. They established "reasonable maximum rates" and outlawed "unjust discrimination." The legislature also and set up a commission to enforce the laws and punish violators. The railroads protested, insisting that they were being deprived of property without due process of law. In Munn v. Illinois (1877), a case that involved the owner of a grain elevator who refused to comply with a state warehouse act, the Supreme Court upheld the constitutionality of this kind of law. Any business that served a public interest, such as a railroad or a grain warehouse, was subject to state control, the justices ruled. Legislatures might fix maximum charges; if the charges seemed unreasonable, the parties concerned should direct their complaints to the legislatures or to the voters, not to the courts.
Regulation of the railroad network by the individual states was inefficient, and in some cases the commissions were incompetent and even corrupt. When the Supreme Court, in the Wabash case (1886), declared unconstitutional an Illinois regulation outlawing long and short-haul inequalities, federal action became necessary. The Wabash, St. Louis and Pacific Railroad had charged 25 cents per 100 pounds for shipping goods from Gilman, Illinois, to New York City but only 15 cents from Peoria, which was 86 miles farther from New York. Illinois judges had held this to be illegal, but the Supreme Court decided that Illinois could not regulate interstate shipments.
Congress in 1887 filled the gap by passing the Interstate Commerce Act. All charges made by railroads "shall be reasonable and just," the act stated. Rebates, drawbacks, inconsistent rates, and other competitive practices were declared unlawful, and so were their monopolistic counterparts, pools and traffic-sharing agreements. Railroads were required to publish schedules of rates and were forbidden to change them without due public notice. Most important, the law established the Interstate Commerce Commission (ICC), the first federal regulatory board, to supervise the affairs of railroads, investigate complaints, and issue cease and desist orders when the roads acted illegally.
The Interstate Commerce Act broke new ground, yet it was neither radical nor particularly effective. Its terms were contradictory some having been designed to stimulate competition, others to penalize it. The chairman of the commission soon characterized the law as an "anomaly." It sought, he said, to "enforce competition" at the same time that it outlawed "the acts and inducements by which competition is ordinarily effected." The new commission had less power than the law seemed to give it. It could not fix rates, only take the roads to court when it considered rates unreasonably high. Such cases could be extremely complicated; applying the law was "like cutting a path through a jungle." With the truth so hard to determine and the burden of proof on the commission, the courts in nearly every instance decided in favor of the railroads.
Nevertheless, by describing so clearly the right of Congress to regulate private corporations engaged in interstate commerce, the Interstate Commerce Act challenged the philosophy of laissez-faire. Later legislation made the commission more effective. The commission also served as the prototype for a host of similar federal administrative authorities, such as the Federal Communications Commission (1934).
Government Reactions to Big Business: The Sherman Antitrust Act
As with railroad legislation, the first antitrust laws originated in the states, but they were southern and western states with relatively little industry, and most of the statutes were vaguely worded and ill-enforced. Federal action came in 1890 with the passage of the Sherman Antitrust Act. Any combination "in the form of trust or otherwise" that was "in restraint of trade or commerce among the several states, or with foreign nations" was declared illegal. Persons forming such combinations were subject to fines of $5,000 and a year in jail. Individuals and businesses suffering losses because of actions that violated the law were authorized to sue in the federal courts for triple damages.
Whereas the Interstate Commerce Act sought to outlaw the excesses of competition, the Sherman Act was supposed to restore competition. If businessmen joined together to "restrain" (monopolize) trade in a particular field, they should be punished, and their deeds undone. But the Sherman Act was rather loosely worded-Thurman Arnold, a modem authority, once said that it made it "a crime to violate a vaguely stated economic policy." Critics have argued that the congressmen were more interested in quieting the public clamor for action against the trusts than in actually breaking up any of the new combinations. This was certainly one of their objectives. However, they were trying to solve a new problem and were not sure how to proceed. A law with teeth too sharp might do more harm than good. Most Americans assumed that the courts would deal with the details, as they always had in common-law matters.
In fact the Supreme Court quickly emasculated the Sherman Act. In United States v. E. C. Knight Company (1895) it held that the American Sugar Refining Company had not violated the law by taking over a number of important competitors. Although the Sugar Trust now controlled about 98 percent of all sugar refining in the United States, it was not restraining trade. "Doubtless the power to control the manufacture of a given thing involves in a certain sense the control of its disposition," the Court said in one of the great judicial understatements of all time. "Although the exercise of that power may result in bringing the operation of commerce into play, it does not control it, and affects it only incidentally and indirectly."
If the creation of the Sugar Trust did not violate the Sherman Act, it seemed unlikely that any other combination of manufacturers could be convicted under the law. But in several cases in 1898 and 1899 the Supreme Court ruled that agreements to fix prices or divide markets did violate the act. These decisions precipitated a wave of outright mergers in which a handful of large corporations swallowed up hundreds of smaller ones. Presumably mergers were not illegal. When, Andrew Carnegie was asked by a committee of the House of Representatives some years after his retirement to explain how he had dared participate in the formation of the U.S. Steel Corporation, he replied: "Nobody ever mentioned the Sherman Act to me, that I remember."
The Union Movement
At the time of the Civil War, most union members were cigarmakers, printers, carpenters, and other skilled artisans. Aside from ironworkers, railroad workers, and miners, few industrial laborers were organized. Nevertheless, the union was the workers' response to the big corporation: a combination designed to eliminate competition for jobs and to provide efficient organization for labor.
After 1865 the growth of national craft unions, which had been stimulated by labor dissatisfaction during the Civil War, quickened perceptibly. In 1866 a federation of these organizations, the National Labor Union, was founded, but most of its leaders were out of touch with the practical needs and aspirations of workers. They opposed the wage system, strikes, and anything that increased the laborers' sense of being members of the working class.
Far more remarkable was the Knights of Labor, founded in 1869 by Philadelphia garment workers. Its head, Uriah S. Stephens, was a reformer of wide interests. He and his successor, Terence V. Powderly, supported political objectives that had no direct connection with working conditions, such as currency reform and the curbing of land speculation. They rejected the idea that workers must resign themselves to remaining wage earners. "There is no good reason," Powderly wrote in his autobiography, 11 why labor cannot, through cooperation, own and operate mines, factories, and railroads." The leading Knights saw no contradiction between their denunciation of "soulless" monopolies and "drones" like bankers and lawyers and their talk of "combining all branches of trade in one common brotherhood." Such muddled thinking led the Knights to attack the wage system and to frown on strikes as "acts of private warfare."
If the Knights had one foot in the past, they also had one foot in the future. They rejected the traditional grouping of workers by crafts and developed a concept closely resembling modern industrial unionism. They welcomed blacks (though mostly in segregated locals), women, and immigrants, and they accepted unskilled workers as well as artisans. The eight-hour day was one of their basic demands.
The growth of the union, however, had little to do with ideology. As late as 1879 it had fewer than 10,000 members. But between 1882 and 1886 successful strikes by local "assemblies," including one against the hated Jay Gould's Missouri Pacific Railroad, brought recruits by the thousands. The membership passed 110,000 in 1885 and the next year soared beyond the 700,000 mark. Alas, sudden prosperity was too much for the Knights. Its national leadership was unable to control local groups. A number of poorly planned strikes failed dismally, and the public was alienated by sporadic acts of violence and intimidation. Disillusioned recruits began to drift away.
Circumstances largely fortuitous caused the collapse of the organization. By 1886 the movement for the eight-hour day had gained wide support among workers. In Chicago, a center of the eight-hour movement, about 80,000 workers were involved, and a small group of anarchists was trying to take advantage of the excitement to win support. When a striker was killed in a fracas at the McCormick Harvesting Machine Company, the anarchists called a protest meeting on May 4, at Haymarket Square. Police intervened to break up the meeting, and someone-whose identity has never been established-hurled a bomb into their ranks. Seven policemen were killed and many others injured.
The American Federation of Labor
Organized labor, especially the Knights, suffered heavily as a result of the Haymarket bombing. No tie with the Knights could be established, but the union had been closely connected with the eight-hour agitation, and the public tended to associate that with violence and radicalism. Its membership declined dramatically until soon the union ceased to exist.
Its place was taken by the American Federation of Labor, a combination of national craft unions established in 1886. Its principal leaders, Adolph Strasser and Samuel Gompers of the Cigarmakers Union, concentrated on organizing skilled workers and fighting for "bread and butter" issues such as higher wages and shorter hours. "Our organization does not consist of idealists," Strasser explained to a congressional committee. "We do not control the production of the world. That is controlled by the employers.... I look first to cigars."
The AFL accepted the fact that most workers would remain wage earners all their lives and tried to develop in them a sense of common purpose and pride in their skills and station. Rank-and-file AFL members were naturally eager to win wage increases and other benefits, but most also valued their unions for the companionship they provided, the sense of belonging to a group. In other words, despite statements such as Strasser's, unions, in and out of the AFL, were a kind of club as well as a means of defending and advancing their members' material interests.
The, chief weapon of the federation was the strike. "I have my own philosophy and my own dreams," Gompers once told a left-wing French politician, "but first and foremost I want to increase the workingman's welfare year by year.... The French workers waste their economic force by their political divisions."
Gompers's approach to labor problems produced solid, if unspectacular, growth for the AFL. Unions with a total of about 150,000 members formed the federation in 1886. By 1892 the membership had reached 250,000, and in 1901 it passed the million mark.
Labor Militancy Rebuffed
The stress of the AFL on the strike weapon reflected the increasing militancy of labor. Workers felt themselves threatened by the growing size and power of their corporate employers, the substitution of machines for human skills, and the invasion of foreign workers willing to accept substandard wages. The average employer behaved like a tyrant when dealing with workers. He discharged any who tried to organize unions; he hired scabs to replace ' e strikers; he frequently failed to provide the most rudimentary protections against injury on the job. Most employers would not bargain with labor collectively.
The industrialists of the period were not all ogres; they were as alarmed by the rapid changes of the times as their workers, and since they had more at stake materially, they were probably more frightened by the uncertainties. Deflation, technological change, and intense competition kept even the most successful under constant pressure. Their thinking was remarkably confused. They considered workers who joined unions "disloyal," yet at the same time they treated labor as a commodity to be purchased as cheaply as possible. When labor was scarce, employers resisted demands for higher wages by arguing that the price of labor was controlled by its productivity; when it was plentiful, they justified reducing wages by referring to the law of supply and demand.
Thus capital and labor were often spoiling for a fight. In 1877 a great railroad strike convulsed much of the nation. It began on the Baltimore and Ohio system in response to a wage cut and spread until about two-thirds of the railroad mileage of the country had been shut down. Violence broke out; rail yards were put to the torch. Frightened businessmen formed militia companies to patrol the streets of Chicago and other cities. Eventually, President Hayes sent federal troops to restore order, and the strike collapsed.
The disturbances of 1877 were a response to a business slump, those of the next decade a response to good times. Twice as many strikes occurred in 1886 as in any previous year. The situation was so disturbing that President Grover Cleveland, in the first presidential message devoted to labor problems, urged Congress to create a voluntary arbitration board to aid in settling labor disputes-a remarkable suggestion for a man of Cleveland's conservative, laissez-faire approach to economic issues.
In 1892 a violent strike broke out among silver miners at Coeur d'Alene, Idaho, and a far more important clash shook Andrew Carnegie's Homestead steel plant near Pittsburgh when strikers attacked 300 private guards brought in to protect strikebreakers. The Homestead affair was part of a struggle between capital and labor in the steel industry. The steelmen insisted that the workers were holding back progress by resisting technological advances, while the workers believed that the company was refusing to share the fruits of more efficient operation fairly. The defeat of the 24,000-member Amalgamated Association of Iron and Steel Workers destroyed unionism as an effective force in the steel industry and set back the progress of organized labor all over the country.
As in the case of the Haymarket bombing, the activities of radicals on the fringe of the dispute turned the public against the steelworkers. The boss of Homestead was Henry Clay Frick, a tough-minded foe of unions. Frick made the decision to bring in strikebreakers and to employ Pinkerton detectives to protect them. During the course of the strike, Alexander Berkman, an anarchist unconnected with the union, burst into Frick's office and shot him. Frick was only slightly wounded, but the attack brought him much sympathy and unjustly discredited the strikers.
The most important strike of the period took place in 1894. It began when the workers at George Pullman's Palace Car factory outside Chicago walked out in protest against wage cuts. Some Pullman workers belonged to the American Railway Union, headed by Eugene V. Debs, and the union voted to refuse to handle trains with Pullman cars. The resulting strike tied up trunk lines running in and out of Chicago. The railroad owners appealed to President Cleveland to send troops to preserve order. On the pretext that the soldiers were needed to ensure the movement of the mails, Cleveland agreed. When Debs defied a federal injunction to end the walkout, he was jailed for contempt, and the strike was broken.
Whither America, Whither Democracy?
Each year more of the nation's wealth and power seemed to fall into fewer hands. As with the railroads, other industries were coming to be influenced, if not completely dominated, by bankers. The firm of J. P. Morgan and Company controlled many railroads; the largest steel, electrical, agricultural machinery, rubber, and shipping companies; two life insurance companies; and a number of banks. By 1913 Morgan and the Rockefeller National City Bank group between them could name 341 directors to 112 corporations worth over $22.2 billion. The "Money Trust," a loose but potent fraternity of financiers, seemed fated to become the ultimate monopoly.
Centralization increased efficiency in industries that used expensive machinery to turn out goods for the masses and for markets where close coordination of output, distribution, and sales was important. The public benefited immensely from the productive efficiency of the new empires. Living standards rose. But the trend toward giantism raised doubts. With ownership falling into fewer hands, what would be the ultimate effect of big business on American democracy? What did it mean for ordinary people when a few tycoons possessed huge fortunes and commanded such influence even on Congress and the courts?
The crushing of the Pullman strike demonstrated the power of the courts to break strikes by issuing injunctions. And the courts seemed concerned only with protecting the interests of the rich and powerful. Particularly ominous for organized labor was the fact that the federal government based its request for the injunction that broke the strike on the Sherman Antitrust Act, arguing that the American Railway Union was a combination in restraint of trade.
While serving his sentence for contempt, Eugene Debs was visited by a number of prominent socialists who sought to convert him to their cause. One gave him a copy of Karl Marx's Capital, which he found too dull to finish, but he did read Looking Backward and Wealth Against Commonwealth. In 1897 he became a socialist.