THE AGE OF BIG BUSINESS,
A CHRONICLE OF THE CAPTAINS OF INDUSTRY

By Burton J. Hendrick

New Haven: Yale University Press

Toronto: Glasgow, Brook &
Co.

London: Humphrey Milford Oxford University Press

1919

Contents

THE AGE OF BIG BUSINESS

CHAPTER I. INDUSTRIAL AMERICA AT THE END OF THE CIVIL WAR

A comprehensive survey of the United States, at the end of the Civil War,
would reveal a state of society which bears little resemblance to that of
today. Almost all those commonplace fundamentals of existence, the things
that contribute to our bodily comfort while they vex us with economic and
political problems, had not yet made their appearance. The America of
Civil War days was a country without transcontinental railroads, without
telephones, without European cables, or wireless stations, or automobiles,
or electric lights, or sky-scrapers, or million-dollar hotels, or trolley
cars, or a thousand other contrivances that today supply the conveniences
and comforts of what we call our American civilization. The cities of that
period, with their unsewered and unpaved streets, their dingy, flickering
gaslights, their ambling horse-cars, and their hideous slums, seemed
appropriate settings for the unformed social life and the rough-and-ready
political methods of American democracy. The railroads, with their fragile
iron rails, their little wheezy locomotives, their wooden bridges, their
unheated coaches, and their kerosene lamps, fairly typified the prevailing
frontier business and economic organization. But only by talking with the
business leaders of that time could we have understood the changes that
have taken place in fifty years. For the most part we speak a business
language which our fathers and grandfathers would not have comprehended.
The word “trust” had not become a part of their vocabulary; “restraint of
trade” was a phrase which only the antiquarian lawyer could have
interpreted; “interlocking directorates,” “holding companies,”
“subsidiaries,” “underwriting syndicates,” and “community of interest”—all
this jargon of modern business would have signified nothing to our
immediate ancestors. Our nation of 1865 was a nation of farmers, city
artisans, and industrious, independent business men, and small-scale
manufacturers. Millionaires, though they were not unknown, did not swarm
all over the land. Luxury, though it had made great progress in the latter
years of the war, had not become the American standard of well-being. The
industrial story of the United States in the last fifty years is the story
of the most amazing economic transformation that the world has ever known;
a change which is fitly typified in the evolution of the independent oil
driller of western Pennsylvania into the Standard Oil Company, and of the
ancient open air forge on the banks of the Allegheny into the United
States Steel Corporation.

The slow, unceasing ages had been accumulating a priceless inheritance for
the American people. Nearly all of their natural resources, in 1865, were
still lying fallow, and even undiscovered in many instances. Americans had
begun, it is true, to exploit their more obvious, external wealth, their
forests and their land; the first had made them one of the world’s two
greatest shipbuilding nations, while the second had furnished a large part
of the resources that had enabled the Federal Government to fight what
was, up to that time, the greatest war in history. But the extensive
prairie plains whose settlement was to follow the railroad extensions of
the sixties and the seventies—Kansas, Nebraska, Iowa, Oklahoma,
Minnesota, the Dakotas—had been only slightly penetrated. This
region, with a rainfall not too abundant and not too scanty, with a
cultivable soil extending from eight inches to twenty feet under the
ground, with hardly a rock in its whole extent, with scarcely a tree,
except where it bordered on the streams, has been pronounced by competent
scientists the finest farming country to which man has ever set the plow.
Our mineral wealth was likewise lying everywhere ready to the uses of the
new generation. The United States now supplies the world with half its
copper, but in 1865 it was importing a considerable part of its own
supply. It was not till 1859 that the first “oil gusher” of western
Pennsylvania opened up an entirely new source of wealth. Though we had the
largest coal deposits known to geologists, we were bringing large supplies
of this indispensable necessity from Nova Scotia. It has been said that
coal and iron are the two mineral products that have chiefly affected
modern civilization. Certainly the nations that have made the greatest
progress industrially and commercially—England, Germany, America—are
the three that possess these minerals in largest amount. From sixty to
seventy per cent of all the known coal deposits in the world were located
in our national domain. Nature had given no other nation anything even
remotely comparable to the four hundred and eighty square miles of
anthracite in western Pennsylvania and West Virginia. Enormous fields of
bituminous lay in those Appalachian ranges extending from Pennsylvania to
Alabama, in Michigan, in the Rocky Mountains, and in the Pacific regions.
In speaking of our iron it is necessary to use terms that are even more
extravagant. From colonial times Americans had worked the iron ore
plentifully scattered along the Atlantic coast, but the greatest field of
all, that in Minnesota, had not been scratched. From the settlement of the
country up to 1869 it had mined only 50,000,000 tons of iron ore, while up
to 1910 we had produced 685,000,000 tons. The streams and waterfalls that,
in the next sixty years, were to furnish the power that would light our
cities, propel our street-cars, drive our transcontinental trains across
the mountains, and perform numerous domestic services, were running their
useless courses to the sea.

Industrial America is a product of the decades succeeding the Civil War;
yet even in 1865 we were a large manufacturing nation. The leading
characteristic of our industries, as compared with present conditions, was
that they were individualized. Nearly all had outgrown the household
stage, the factory system had gained a foothold in nearly every line, even
the corporation had made its appearance, yet small-scale production
prevailed in practically every field. In the decade preceding the War,
vans were still making regular trips through New England and the Middle
States, leaving at farmhouses bundles of straw plait, which the members of
the household fashioned into hats. The farmers’ wives and daughters still
supplemented the family income by working on goods for city dealers in
ready-made clothing. We can still see in Massachusetts rural towns the
little shoe shops in which the predecessors of the existing factory
workers soled and heeled the shoes which shod our armies in the early days
of the Civil War. Every city and town had its own slaughter house; New
York had more than two hundred; what is now Fifth Avenue was frequently
encumbered by large droves of cattle, and great stockyards occupied
territory which is now used for beautiful clubs, railroad stations,
hotels, and the highest class of retail establishments.

In this period before the Civil War comparatively small single owners, or
frequently copartnerships, controlled practically every industrial field.
Individual proprietors, not uncommonly powerful families which were almost
feudal in character, owned the great cotton and woolen mills of New
England. Separate proprietors, likewise, controlled the iron and steel
factories of New York State and Pennsylvania. Indeed it was not until the
War that corporations entered the iron industry, now regarded as the field
above all others adapted to this kind of organization. The manufacture of
sewing machines, firearms, and agricultural implements started on a great
scale in the Civil War; still, the prevailing unit was the private owner
or the partnership. In many manufacturing lines, the joint stock company
had become the prevailing organization, but even in these fields the
element that so characterizes our own age, that of combination, was
exerting practically no influence.

Competition was the order of the day: the industrial warfare of the
sixties was a free-for-all. A mere reference to the status of manufactures
in which the trust is now the all-prevailing fact will make the contrast
clear. In 1865 thousands of independent companies were drilling oil in
Pennsylvania and there were more than two hundred which were refining the
product. Nearly four hundred and fifty operators were mining coal, not
even dimly foreseeing the day when their business would become a great
railroad monopoly. The two hundred companies that were making mowers and
reapers, seventy-five of them located in New York State, had formed no
mental picture of the future International Harvester Company. One of our
first large industrial combinations was that which in the early seventies
absorbed the manufacturers of salt; yet the close of the Civil War found
fifty competing companies making salt in the Saginaw Valley of Michigan.
In the same State, about fifty distinct ownerships controlled the copper
mines, while in Nevada the Comstock Lode had more than one hundred
proprietors. The modern trust movement has now absorbed even our lumber
and mineral lands, but in 1865 these rich resources were parceled out
among a multiplicity of owners: No business has offered greater
opportunities to the modern promoter of combinations than our street
railways. In 1865 most of our large cities had their leisurely horse-car
systems, yet practically every avenue had its independent line. New York
had thirty separate companies engaged in the business of local
transportation. Indeed the Civil War period developed only one corporation
that could be described as a “trust” in the modern sense. This was the
Western Union Telegraph Company. Incredible as it may seem, more than
fifty companies, ten years before the Civil War, were engaged in the
business of transmitting telegraphic messages. These companies had built
their telegraph lines precisely as the railroads had laid their tracks;
that is, independent lines were constructed connecting two given points.
It was inevitable, of course, that all these scattered lines should come
under a single control, for the public convenience could not be served
otherwise. This combination was effected a few years before the War, when
the Western Union Telegraph Company, after a long and fierce contest,
succeeded in absorbing all its competitors. Similar forces were bringing
together certain continuous lines of railways, but the creation of huge
trunk systems had not yet taken place. How far our industrial era is
removed from that of fifty years ago is apparent when we recall that the
proposed capitalization of $15,000,000, caused by the merging of the
Boston and Worcester and the Western railroads, was widely denounced as
“monstrous” and as a corrupting force that would destroy our Republican
institutions. Naturally this small-scale ownership was reflected in the
distribution of wealth. The “swollen fortunes” of that period rested upon
the same foundation that had given stability for centuries to the
aristocracies of Europe. Social preeminence in large cities rested almost
entirely upon the ownership of land. The Astors, the Goelets, the
Rhinelanders, the Beekmans, the Brevoorts, and practically all the mighty
families that ruled the old Knickerbocker aristocracy in New York were
huge land proprietors. Their fortunes thus had precisely the same
foundation as that of the Prussian Junkers today. But their accumulations
compared only faintly with the fortunes that are commonplace now. How many
“millionaires” there were fifty years ago we do not precisely know. The
only definite information we have is a pamphlet published in 1855 by Moses
Yale Beach, proprietor of the New York Sun, on the “Wealthy Men of New
York.” This records the names of nineteen citizens who, in the estimation
of well-qualified judges, possessed more than a million dollars each. The
richest man in the list was William B. Astor, whose estate is estimated at
$6,000,000. The next richest man was Stephen Whitney, also a large
landowner, whose fortune is listed at $5,000,000. Then comes James Lenox,
again a land proprietor, with $3,000,000. The man who was to accumulate
the first monstrous American fortune, Cornelius Vanderbilt, is accredited
with a paltry $1,500,000. Mr. Beach’s little pamphlet sheds the utmost
light upon the economic era preceding the Civil War. It really pictures an
industrial organization that belongs as much to ancient history as the
empire of the Caesars. His study lists about one thousand of New York’s
“wealthy citizens.” Yet the fact that a man qualified for entrance into
this Valhalla who had $100,000 to his credit and that nine-tenths of those
so chosen possessed only that amount shows the progress concentrated
riches have made in sixty years. How many New Yorkers of today would look
upon a man with $100,000 as “wealthy”?

The sources of these fortunes also show the economic changes our country
has undergone. Today, when we think of our much exploited millionaires,
the phrase “captains of industry” is the accepted description; in Mr.
Beach’s time the popular designation was “merchant prince.” His catalogue
contains no “oil magnates” or “steel kings” or “railroad manipulators”;
nearly all the industrial giants of ante-bellum times—as
distinguished from the socially prominent whose wealth was inherited—had
heaped together their accumulations in humdrum trade. Perhaps Peter
Cooper, who had made a million dollars in the manufacture of isinglass and
glue, and George Law, whose gains, equally large, represented fortunate
speculations in street railroads, faintly suggest the approaching era; yet
the fortunes which are really typical are those of William Aspinwall, who
made $4,000,000 in the shipping business, of A. T. Stewart, whose
$2,000,000 represented his earnings as a retail and wholesale dry goods
merchant, and of Peter Harmony, whose $1,000,000 had been derived from
happy trade ventures in Cuba and Spain. Many of the reservoirs of this
ante-bellum wealth sound strangely in our modern ears. John Haggerty had
made $1,000,000 as an auctioneer; William L. Coggeswell had made half as
much as a wine importer; Japhet Bishop had rounded out an honest $600,000
from the profits of a hardware store; while Phineas T. Barnum ranks high
in the list by virtue of $800,000 accumulated in a business which it is
hardly necessary to specify. Indeed his name and that of the great
landlords are almost the only ones in this list that have descended to
posterity. Yet they were the Rockefellers, the Carnegies, the Harrimans,
the Fricks, and the Henry Fords of their day.

Before the Civil War had ended, however, the transformation of the United
States from a nation of farmers and small-scale manufacturers to a highly
organized industrial state had begun. Probably the most important single
influence was the War itself. Those four years of bitter conflict
illustrate, perhaps more graphically than any similar event in history,
the power which military operations may exercise in stimulating all the
productive forces of a people. In thickly settled nations, with few
dormant resources and with practically no areas of unoccupied land, a long
war usually produces industrial disorganization and financial exhaustion.
The Napoleonic wars had this effect in Europe; in particular they caused a
period of social and industrial distress in England. The few years
immediately following Waterloo marked a period when starving mobs rioted
in the streets of London, setting fire to the houses of the aristocracy
and stoning the Prince Regent whenever he dared to show his head in
public, when cotton spindles ceased to turn, when collieries closed down,
when jails and workhouses were overflowing with a wretched proletariat,
and when gaunt and homeless women and children crowded the country
highways. No such disorders followed the Civil War in this country, at
least in the North and West. Spiritually the struggle accomplished much in
awakening the nation to a consciousness of its great opportunities. The
fact that we could spend more than a million dollars a day—expenditures
that hardly seem startling in amount now, but which were almost
unprecedented then—and that soon after hostilities ceased we rapidly
paid off our large debt, directed the attention of foreign capitalists to
our resources, and gave them the utmost confidence in this new investment
field. Immigration, too, started after the war at a rate hitherto without
parallel in our annals. The Germans who had come in the years preceding
the Civil War had been largely political refugees and democratic
idealists, but now, in much larger numbers, began the influx of north and
south Germans whose dominating motive was economic. These Germans began to
find their way to the farms of the Mississippi Valley; the Irish began
once more to crowd our cities; the Slavs gravitated towards the mines of
Pennsylvania; the Scandinavians settled whole counties of certain
northwestern States; while the Jews began that conquest of the tailoring
industries that was ultimately to make them the clothiers of a hundred
million people. For this industrial development, America supplied the
land, the resources, and the business leaders, while Europe furnished the
liquid capital and the laborers.

Even more directly did the War stimulate our industrial development.
Perhaps the greatest effect was the way in which it changed our
transportation system. The mere necessity of constantly transporting
hundreds of thousands of troops and war supplies demanded reconstruction
and reequipment on an extensive scale. The American Civil War was the
first great conflict in which railroads played a conspicuous military
part, and their development during those four years naturally left them in
a strong position to meet the new necessities of peace. One of the first
effects of the War was to close the Mississippi River; consequently the
products of the Western farms had to go east by railroad, and this fact
led to that preeminence of the great trunk lines which they retain to this
day. Almost overnight Chicago became the great Western shipping center,
and though the river boats lingered for a time on the Ohio and the
Mississippi they grew fewer year by year. Prosperity, greater than the
country had ever known, prevailed everywhere in the North throughout the
last two years of the War.

So, too, feeding and supplying an army of millions of men laid the
foundation of many of our greatest industries. The Northern soldiers in
the early days of the war were clothed in garments so variegated that they
sometimes had trouble in telling friend from foe, and not infrequently
they shot at one another; so inadequately were our woolen mills prepared
to supply their uniforms! But larger government contracts enabled the
proprietors to reconstruct their mills, install modern machines, and build
up an organization and a prosperous business that still endures. Making
boots and shoes for Northern soldiers laid the foundation of America’s
great shoe industry. Machinery had already been applied to shoe
manufacture, but only to a limited extent; under the pressure of war
conditions, however, American inventive skill found ways of performing
mechanically almost all the operations that had formerly been done by
hand. The McKay sewing machine, one of the greatest of our inventions,
which was perfected in the second year of the war, did as much perhaps as
any single device to keep our soldiers well shod and comfortable. The
necessity of feeding these same armies created our great packing plants.
Though McCormick had invented his reaper several years before the war, the
new agricultural machinery had made no great headway. Without this
machinery, however, our Western farmers could never have harvested the
gigantic crops which not only fed our soldiers but laid the basis of our
economic prosperity. Thus the War directly established one of the
greatest, and certainly one of the most romantic, of our industries—that
of agricultural machinery.

Above all, however, the victory at Appomattox threw upon the country more
than a million unemployed men. Our European critics predicted that their
return to civil life would produce dire social and political consequences.
But these critics were thinking in terms of their own countries; they
failed to consider that the United States had an immense unoccupied domain
which was waiting for development. The men who fought the Civil War had
demonstrated precisely the adventurous, hardy instincts which were most
needed in this great enterprise. Even before the War ended, a great
immigration started towards the mines and farms of the trans-Mississippi
country. There was probably no important town or district west of the
Alleghanies that did not absorb a considerable number. In most instances,
too, our ex-soldiers became leaders in these new communities. Perhaps this
movement has its most typical and picturesque illustration in the extent
to which the Northern soldiers opened up the oil-producing regions of
western Pennsylvania. Venango County, where this great development
started, boasted that it had more ex-soldiers than any similar section of
the United States.

The Civil War period also forced into prominence a few men whose methods
and whose achievements indicated, even though roughly and indistinctly, a
new type of industrial leadership. Every period has its outstanding figure
and, when the Civil War was approaching its end, one personality had
emerged from the humdrum characters of the time—one man who, in
energy, imagination, and genius, displayed the forces that were to create
a new American world. Although this man employed his great talents in a
field, that of railroad transportation, which lies outside the scope of
the present volume, yet in this comprehensive view I may take Cornelius
Vanderbilt as the symbol that links the old industrial era with the new.
He is worthy of more detailed study than he has ever received, for in
personality and accomplishments Vanderbilt is the most romantic figure in
the history of American finance. We must remember that Vanderbilt was born
in 1794 and that at the time we are considering he was seventy-one years
old. In the matter of years, therefore, his career apparently belongs to
the ante-bellum days, yet the most remarkable fact about this remarkable
man is that his real life work did not begin until he had passed his
seventieth year. In 1865 Vanderbilt’s fortune, consisting chiefly of a
fleet of steamboats, amounted to about $10,000,000; he died twelve years
later, in 1877, leaving $104,000,000, the first of those colossal American
fortunes that were destined to astound the world. The mere fact that this
fortune was the accumulated profit of only ten years shows perhaps more
eloquently than any other circumstance that the United States had entered
a new economic age. That new factor in the life of America and the world,
the railroad, explains his achievement. Vanderbilt was one of the most
astonishing characters in our history. His physical exterior made him
perhaps the most imposing figure in New York. In his old age, at
seventy-three, Vanderbilt married his second wife, a beautiful Southern
widow who had just turned her thirtieth year, and the appearance of the
two, sitting side by side in one of the Commodore’s smartest turnouts,
driving recklessly behind a pair of the fastest trotters of the day, was a
common sight in Central Park. Nor did Vanderbilt look incongruous in this
brilliant setting. His tall and powerful frame was still erect, and his
large, defiant head, ruddy cheeks, sparkling, deep-set black eyes, and
snowy white hair and whiskers, made him look every inch the Commodore.
These public appearances lent a pleasanter and more sentimental aspect to
Vanderbilt’s life than his intimates always perceived. For his manners
were harsh and uncouth; he was totally without education and could write
hardly half a dozen lines without outraging the spelling-book. Though he
loved his race-horses, had a fondness for music, and could sit through
long winter evenings while his young wife sang old Southern ballads,
Vanderbilt’s ungovernable temper had placed him on bad terms with nearly
all his children—he had had thirteen, of whom eleven survived him—who
contested his will and exposed all his eccentricities to public view on
the ground that the man who created the New York Central system was
actually insane. Vanderbilt’s methods and his temperament presented such a
contrast to the commonplace minds which had previously dominated American
business that this explanation of his career is perhaps not surprising. He
saw things in their largest aspects and in his big transactions he seemed
to act almost on impulse and intuition. He could never explain the mental
processes by which he arrived at important decisions, though these
decisions themselves were invariably sound. He seems to have had, as he
himself frequently said, almost a seer-like faculty. He saw visions, and
he believed in dreams and in signs. The greatest practical genius of his
time was a frequent attendant at spiritualistic seances; he cultivated
personally the society of mediums, and in sickness he usually resorted to
mental healers, mesmerists, and clairvoyants. Before making investments or
embarking in his great railroad ventures, Vanderbilt visited
spiritualists; we have one circumstantial account of his summoning the
wraith of Jim Fiske to advise him in stock operations. His excessive
vanity led him to print his picture on all the Lake Shore bonds; he
proposed to New York City the construction in Central Park of a large
monument that would commemorate, side by side, the names of Vanderbilt and
Washington; and he actually erected a large statue to himself in his new
Hudson River station in St. John’s Park. His attitude towards the public
was shown in his remark when one of his associates told him that “each and
every one” of certain transactions which he had just forced through “is
absolutely forbidden by the statutes of the State of New York.” “My God,
John!” said the Commodore, “you don’t suppose you can run a railroad in
accordance with the statutes of the State of New York, do you?” “Law!” he
once roared on a similar occasion, “What do I care about law? Hain’t I got
the power?”

These things of course were the excrescences of an extremely vital,
overflowing, imaginative, energetic human being; they are traits that not
infrequently accompany genius. And the work which Vanderbilt did remains
an essential part of our economic organization today. Before his time a
trip to Chicago meant that the passenger changed trains seventeen times,
and that all freight had to be unloaded at a similar number of places,
carted across towns, and reloaded into other trains. The magnificent
railroad highway that extends up the banks of the Hudson, through the
Mohawk Valley, and alongside the borders of Lake Erie—a water line
route nearly the entire distance—was all but useless. It is true
that not all the consolidation of these lines was Vanderbilt’s work. In
1853 certain millionaires and politicians had linked together the several
separate lines extending from Albany to Buffalo, but they had managed the
new road so wretchedly that the largest stockholders in 1867 begged
Vanderbilt to take over the control. By 1873 the Commodore had acquired
the Hudson River, extending from New York to Albany, the New York Central
extending from Albany to Buffalo, and the Lake Shore which ran from
Buffalo to Chicago. In a few years these roads had been consolidated into
a smoothly operating system. If, in transforming these discordant
railroads into one, Vanderbilt bribed legislatures and corrupted courts,
if he engaged in the largest stock-watering operations on record up to
that time, and took advantage of inside information to make huge winnings
on the stock exchange, he also ripped up the old iron rails and relaid
them with steel, put down four tracks where formerly there had been two,
replaced wooden bridges with steel, discarded the old locomotives for new
and more powerful ones, built splendid new terminals, introduced economies
in a hundred directions, cut down the hours required in a New York-Chicago
trip from fifty to twenty-four, made his highway an expeditious line for
transporting freight, and transformed railroads that had formerly been the
playthings of Wall Street and that frequently could not meet their
pay-rolls into exceedingly profitable, high dividend paying properties. In
this operation Vanderbilt typified the era that was dawning—an era
of ruthlessness, of personal selfishness, of corruption, of disregard of
private rights, of contempt for law and legislatures, and yet of vast and
beneficial achievement. The men of this time may have traveled roughshod
to their goal, but after all, they opened up, in an amazingly short time,
a mighty continent to the uses of mankind. The triumph of the New York
Central and Hudson River Railroad under Vanderbilt, a triumph which
dazzled European investors as well as our own, and which represented an
entirely different business organization from anything the nation had
hitherto seen, appropriately ushered in the new business era whose
outlines will be sketched in the succeeding pages.

CHAPTER II. THE FIRST GREAT AMERICAN TRUST

When Cornelius Vanderbilt died in 1877, America’s first great industrial
combination had become an established fact. In that year the Standard Oil
Company of Ohio controlled at least ninety per cent of the business of
refining and marketing petroleum. A new portent had appeared in our
economic life, a phenomenon that was destined to affect not only the
social and business existence of the every-day American but even his
political and legal institutions.

It seems natural enough at the present time to refer to petroleum as an
indispensable commodity. At the beginning of the Civil War, however, any
such description would have been absurd. Though petroleum was not unknown,
millions of American households were still burning candles, whale oil, and
other illuminants. Not until 1859 did our ancestors realize that,
concealed in the rocky of western Pennsylvania, lay apparently
inexhaustible quantities of a liquid which, when refined, would give a
light exceeding in brilliancy anything they had hitherto known. The mere
existence of petroleum, it is true, had been a familiar fact for
centuries. Herodotus mentions the oil pits of Babylon, and Pliny informs
us that this oil was actually used for lighting in certain parts of
Sicily. It had never become an object of universal use, simply because no
one had discovered how to obtain it in sufficient quantities. No one had
suspected, indeed, that petroleum existed practically in the form of great
subterranean rivers, lakes, or even seas. For ages this great natural
treasure had been seeking to advertise its presence by occasionally
seeping through the rocks and appearing on the surface of watercourses. It
had been doing this all over the world—in China, in Russia, in
Germany, in England, in our own country. Yet our obtuse ancestors had for
centuries refused to take the hint. We can find much cause for
self-congratulation in that it was apparently the American mind that first
acted upon this obvious suggestion.

In Venango County, Pennsylvania, petroleum floated in such quantities on
the surface of a branch of the Allegheny River that this small watercourse
had for generations been known as Oil Creek. The neighboring farmers used
to collect the oil and use it to grease their wagon axles; others, more
enterprising, made a business of gathering the floating substance, packing
it in bottles, and selling it broadcast as a medicine. The most famous of
these concoctions, “Seneca Oil,” was widely advertised as a sure cure for
rheumatism, and had an extensive sale in this country. “Kier’s Rock Oil”
afterwards had an even more extended use. Samuel M. Kier, who exploited
this comprehensive cure-all, made no lasting contributions to medical
science, but his method of obtaining his medicament led indirectly to the
establishment of a great industry. In this western Pennsylvania region
salt manufacture had been a thriving business for many years; the salt was
obtained from salt water by means of artesian wells. This salt water
usually came to the surface contaminated with that same evil-smelling oil
which floated so constantly on top of the rivers and brooks. The salt
makers spent much time and money “purifying” their water from this
substance, never apparently suspecting that the really valuable product of
their wells was not the salt water they so carefully preserved, but the
petroleum which they threw away. Samuel M. Kier was originally a salt
manufacturer; more canny than his competitors, he sold the oil which came
up with his water as a patent medicine. In order to give a mysterious
virtue to this remedy, Kier printed on his labels the information that it
had been “pumped up with salt water about four hundred feet below the
earth’s surface.” His labels also contained the convincing picture of an
artesian well—a rough woodcut which really laid the foundation of
the Standard Oil Company.

In the late fifties Mr. George H. Bissell had become interested in rock
oil, not as an embrocation and as a cure for most human ills, but as a
light-giving material. A professor at Dartmouth had performed certain
experiments with this substance which had sunk deeply into Bissell’s
imagination. So convinced was this young man that he could introduce
petroleum commercially that he leased certain fields in western
Pennsylvania and sent a specimen of the oil to Benjamin Silliman, Jr.,
Professor of Chemistry at Yale. Professor Silliman gave the product a more
complete analysis than it had ever previously received and submitted a
report which is still the great classic in the scientific literature of
petroleum. This report informed Bissell that the substance, could be
refined cheaply and easily, and that, when refined, it made a splendid
illuminant, besides yielding certain byproducts, such as paraffin and
naphtha, which had a great commercial value. So far, Bissell’s enterprise
seemed to promise success, yet the great problem still remained: how could
he obtain this rock oil in amounts large enough to make his enterprise a
practical one? A chance glimpse of Kier’s label, with its picture of an
artesian well, supplied Bissell with his answer. He at once sent E. L.
Drake into the oil-fields with a complete drilling equipment, to look, not
for saltwater, but for oil. Nothing seems quite so obvious today as
drilling a well into the rock to discover oil, yet so strange was the idea
in Drake’s time that the people of Titusville, where he started work,
regarded him as a lunatic and manifested a hostility to his enterprise
that delayed operations for several months. Yet one day in August, 1859,
the coveted liquid began flowing from “Drake’s folly” at the rate of
twenty-five barrels a day.

Because of this performance Drake has gone down to fame as the man who
“discovered oil.” In the sense that his operation made petroleum available
to the uses of mankind, Drake was its discoverer, and his achievement
seems really a greater one than that of the men who first made apparent
our beds of coal, iron, copper, or even gold. For Drake really uncovered
an entirely new substance. And the country responded spontaneously to
Drake’s success. For anything approaching the sudden rush to the
oil-fields we shall have to go to the discovery of gold in California ten
years before. Men flocked into western Pennsylvania by the thousands;
fortunes were made and lost almost instantaneously. Oil flowed so
plentifully in this region that it frequently ran upon the ground, and the
“gusher,” which threw a stream of the precious liquid sometimes a hundred
feet and more into the air, became an almost every-day occurrence. The
discovery took the whole section by surprise; there were no towns, no
railways, and no wagon roads except a few almost impassable lumber trails.
Yet, almost in a twinkling, the whole situation changed; towns sprang up
overnight, roads were built, over which teamsters could carry the oil to
the nearest shipping points, and the great trunk lines began to extend
branches into the regions. The one thing, next to Drake’s well, that made
the oil available, was the discovery, which was made by Samuel Van Syckel,
that a two-inch pipe, starting at the well, could convey the oil for
several miles to the nearest railway station. In a few years the whole oil
region of Venango County was an inextricable tangle of these primitive
pipelines. Thus, before the Civil war had ended, the western Pennsylvania
wilderness had been transformed into the busy headquarters of a new
industry. Companies had been formed, many of them the wildest
stock-jobbing operations, refineries had been started, in a few years the
whalers of New England had almost lost their occupation, but millions of
American homes, that had hitherto had to spend the long winter evenings
almost in darkness, suddenly found themselves flooded with light. In
Cleveland, in Pittsburgh, in Philadelphia, in New York, and in the oil
regions, the business of refining and selling petroleum had reached
extensive proportions. Europe, although it had great undeveloped
oil-fields of its own, drew upon this new American enterprise to such an
extent that, eleven years after Drake’s “discovery,” petroleum had taken
fourth place among our exported articles.

The very year that Bissell had organized his petroleum company a boy of
sixteen had obtained his first job in a produce commission office on a
dock in Cleveland. As the curtain rises on the career of John D.
Rockefeller, we see him perched upon a high stool, adding up figures and
casting accounts, faithfully doing every odd office job that came his way,
earning his employer’s respect for his industry, his sobriety, and his
unmistakable talents for business. Nor does this picture inadequately
visualize Rockefeller’s whole after-life, and explain the business
qualities that made possible his unexampled success. It is, indeed, the
scene to which Mr. Rockefeller himself most frequently reverts when, in
his famous autobiographical discourses to his Cleveland Sunday School, he
calls our attention to the rules that inevitably lead to industrial
prosperity. “Thrift, thrift, Horatio,” is the one idea upon which the
great captain of the oil business has always insisted. Many have detected
in these habits of mind only the cheese-paring activities of a naturally
narrow spirit. Rockefeller’s old Cleveland associates remember him as the
greatest bargainer they had ever known, as a man who had an eye for
infinite details and an unquenchable patience and resource in making
economies. Yet Rockefeller was clearly more than a pertinacious haggler
over trifles. Certainly such a diagnosis does not explain a man who has
built up one of the world’s greatest organizations and accumulated the
largest fortune which has ever been placed at the disposal of one man.
Indeed, Rockefeller displayed unusual business ability even before he
entered the oil business. A young man who, at the age of nineteen, could
start a commission house and do a business of nearly five hundred thousand
the first year must have had commercial capacity to an extraordinary
degree.

Fate had placed Rockefeller in Cleveland in the days when the oil business
had got well under way. In the early sixties a score or so of refineries
had started in this town, many of which were making large profits. It is
not surprising that Rockefeller, gazing at these black and evil-smelling
buildings from the vantage point of his commission office, should have
felt an impulse to join in the gamble. He plunged into this new activity
at the age of twenty-three. He possessed two great advantages over most of
his adventurous competitors; one was a heavy bank account, representing
his earnings in the commission business, and the other a partner, Samuel
Andrews, who was generally regarded as a mechanical genius in the
production of illuminating oil. At the beginning, therefore, Rockefeller
had the two essentials which largely explain his subsequent career; an
adequate liquid capital and high technical resources. In the first few
years the Rockefeller houses—he rapidly organized three, one after
another—competed with a large number of other units in the oil
business on somewhat more than even terms. At this time Rockefeller was
merely one of a large number of successful oil refiners, yet during these
early days a grandiose scheme was taking shape in that quiet, insinuating,
far-reaching brain. He said nothing about it, even to his closest
associates, yet it filled his every waking hour. For this young man was
taking a comprehensive sweep of the world and he saw millions of people,
in the Americas, in Europe, and in Asia, whose need for the article in
which he dealt would grow more insistent every day. He saw that he was
handling a product which was becoming as much a necessity of life as the
air itself. The young man reached out to grasp this business. “All of it,”
we can picture Rockefeller saying to himself, “all of it shall be mine.”
Any study of Rockefeller’s career must lead to the conclusion that, before
he had reached his thirtieth year, he had determined to monopolize this
growing necessity. The mere fact that this young man could form such a
stupendous plan indicates that in him we are meeting for the first time a
new type of industrial leader. At that time monopolies were unknown in the
United States. That certain old English Kings had frequently granted
exclusive trading privileges to favored merchants most educated Americans
knew; and their knowledge of monopolies extended little further than this.
Yet about 1868 John D. Rockefeller started consciously to revive this
ancient practice, and to bring under one ownership the magnificent
industry to which Drake’s sensational discovery had given rise.

Daring as was this conception, the resourcefulness and the skill with
which Rockefeller executed it were more startling still. Merely to
catalogue, one by one, the achievements of the ten succeeding fruitful
years, almost takes one’s breath away. Indeed the whole operation
proceeded with such a Napoleonic rapidity of action that the outside world
had hardly grasped Rockefeller’s intention before the monopoly had been
made complete. We catch one glimpse of Rockefeller, in 1868, as head of
the prosperous house of Rockefeller, Andrews, and Flagler, and eight years
afterwards we see him once more, this time the man who controlled
practically the entire petroleum business of the world. His career of
conquest began in 1870, when the firm of Rockefeller, Andrews, and
Flagler, joining hands with several large capitalists in Cleveland and New
York, was incorporated under the name of the Standard Oil Company of Ohio.
In 1870 about twenty-five independent refineries, many of them prosperous
and powerful, were manufacturing oil in the city of Cleveland; two years
afterward this new Standard Oil Company had absorbed all of them except
five: In these two critical years the oil business of the largest refining
center in the United States had thus passed into Rockefeller’s hands. By
1874 the greatest refineries in New York and Philadelphia had likewise
merged their identity with his own. When Rockefeller began his
acquisition, there were thirty independent refineries operating in
Pittsburgh, all of which, in four or five years, passed one by one under
his control. The largest refineries of Baltimore surrendered in 1875.

These capitulations left only one important refining headquarters in the
United States which the Standard had not absorbed. This was that section
of western Pennsylvania where the oil business had had its origin. The
mere fact that this area was the headquarters of the oil supply gave it
great advantages as a place for manufacturing the finished product. The
oil regions regarded these advantages as giving them the right to dominate
the growing industry, and they had frequently proclaimed the doctrine that
the business belonged to them. They hated Rockefeller as much as they
feared him, yet at the very moment when the Titusville operators were
hanging him in effigy and posting the hoardings with cabalistic signs
against his corporation, this mysterious, almost uncanny power was
encircling them: Men who one night were addressing public meetings
denouncing the Standard influence would suddenly sell out their holdings
the next day. In 1875 John D. Archbold, a brilliant young refiner who had
grown up in the oil regions and who had gained much local fame as opponent
of the Standard, appeared in Titusville as the President of the Acme Oil
Company. At that time there were twenty-seven independent refineries in
this section. Archbold began buying and leasing these establishments for
his Acme Company, and in about four years practically every one had passed
under his control. The Acme Company was merely a subsidiary of the
Standard Oil. These rapid purchasing campaigns gave the Standard ninety
per cent of all the refineries in the United States, but Rockefeller’s
scheme comprehended more than the acquisition of refineries. In the main
the Rockefeller group left the production of crude oil in the hands of the
private drillers, but practically every other branch of the business
passed ultimately into their hands. Both the New York Central and the Erie
railroads surrendered to the Standard the large oil terminal stations
which they had maintained for years in New York. As a consequence, the
Standard obtained complete supervision of all oil sent by railroad into
New York, and it also secured the machinery of a complete espionage system
over the business of competitors. The Standard acquired companies which
had built up a large business in marketing oil. Even more dramatic was its
success in gathering up, one after another, these pipe lines which
represented the circulatory system of the oil industry. In the early days
these pipe lines were small and comparatively simple affairs. They merely
carried the crude oil from the wells to railroad centers; from these
stations the railroads transported it to the refineries at Cleveland, New
York, and other places. At an early day the construction and management of
these pipe lines became a separate industry. And now, in 1873, the
Standard Oil Company secured possession of a one-third interest in the
largest of these privately owned companies, the American Transfer Company.
Soon afterward the United Pipe Line Company went under their control. In
1877 the Empire Transportation Company, a large pipe line and refining
corporation which the Pennsylvania Railroad had controlled for many years,
became a Standard subsidiary.

Meanwhile certain hardy spirits in the oil regions had conceived a much
more ambitious plan. Why not build great underground mains directly from
the oil regions to the seaboard, pump the crude oil directly to the city
refineries, and thus free themselves from dependence on the railroads? At
first the idea of pumping oil through pipes over the Alleghany Mountains
seemed grotesque, but competent engineers gave their indorsement to the
plan. A certain “Dr.” Hostetter built for the Columbia Conduit Company a
trunk pipe line that extended thirty miles from the oil regions to
Pittsburgh. Hardly had Hostetter completed his splendid project when the
Standard Oil capitalists quietly appeared and purchased it! For four years
another group struggled with an even more ambitious scheme, the
construction of a conduit, five hundred miles long, from the oil regions
to Baltimore. The American people looked on admiringly at the splendid
enterprise whose projectors, led by General Haupt, the builder of the
Hoosac Tunnel, struggled against bankruptcy, strikes, railroad opposition,
and hostile legislatures, in their attempts to push their pipe line to the
sea. In 1879 the Tidewater Company first began to pump their oil, and the
American press hailed their achievement as something that ranked with the
laying of the Atlantic Cable and the construction of the Brooklyn Bridge.
But in less than two years the Rockefeller interest had entered into
agreements with the Tidewater Company that practically placed this great
seaboard pipe line in its hands.

Thus in less than ten years Rockefeller had realized his ambitious dream;
he now controlled practically everything concerned in the manufacture and
sale of petroleum. The change had come about so stealthily, so secretly,
and even so remorselessly that it impressed the public almost as the work
of some uncanny genius. What were the forces, personal and economic, that
had produced this new phenomenon in our business life? In certain
particulars the Standard Oil monopoly was the product of well-understood
principles. From his earliest days John D. Rockefeller had struggled to
eliminate the middleman. He established factories to build his own
barrels, to make his own acids; he created his own selling firms, and,
instead of paying large storage charges, he constructed his own warehouses
in New York. From his earliest days as a refiner, he had adopted the
principle of paying no man a profit, and of performing all the
intermediate acts that had formerly resulted in large tribute to
middlemen. Moreover, the Standard Oil Company was apparently the first
great American industrial enterprise that realized the necessity of
operating with an abundant capital. Not the least of Mr. Rockefeller’s
achievements was his success in associating with the new company men
having great financial standing—Amasa Stone, Benjamin Brewster,
Oliver Jennings, and the like, capitalists whose banking resources, placed
at the disposition of the Standard, gave it an immense advantage over its
rivals. While his competitors were “kiting” checks and waiting, hat in
hand, on the good nature of the money lenders, Rockefeller always had a
large bank balance, upon which he could instantly draw for his operations.

Nor must we overlook the fact that the Standard group contained a large
number of exceedingly able men. “They are mighty smart men,” said the
despairing W. H. Vanderbilt, in 1879, when pressed to give his reasons for
granting rebates to the Rockefeller group. “I guess if you ever had to
deal with them you would find that out.” In Rockefeller the corporation
possessed a man of tireless industry and unshakable determination. Nothing
could turn him aside from the work to which he had put his hand. Public
criticism and even denunciation, while he resented it as unjust and
regarded it as the product of a general misunderstanding, never caused the
leader of Standard Oil even momentarily to flinch. He was a man of one
idea, and he worked at it day and night, taking no rest or recreation,
skillfully turning to his purpose every little advantage that came his
way. His associates—men like Flagler, Archbold, and Rogers—also
had unusual talents, and together they built up the splendid organization
that still exists. They exacted from their subordinates the last ounce of
attention and energy and they rewarded generously everybody who served
them well. They showed great judgment in establishing refineries at the
most strategic points and in giving up localities, such as Boston and
Portland, which were too far removed from their supplies. They established
a marketing system which enabled them to bring their oil directly from
their own refineries to the retailer, all in their own tank cars and tank
wagons. They extended their markets in foreign countries, so that now the
Standard sells the larger part of its products outside the United States.
They established chemical research laboratories which devised new and
inexpensive methods for refining the product and developed invaluable
byproducts, such as paraffin, naphtha, vaseline, and lubricating oils. It
is impossible to study the career of the Standard Oil Company without
concluding that we have here an example of a supreme business intelligence
working in a field which gave the widest possible scope of action.

A high quality of organization, however, does not completely explain the
growth of this monopoly. The Standard Oil Company was the beneficiary of
methods that have deservedly received great public opprobrium. Of these
the one that stands forth most conspicuously is the railroad rebate. Those
who have attempted to trace the very origin of the Rockefeller preeminence
to railroad discrimination have not entirely succeeded. Only the most hazy
evidence exists that the firm of Rockefeller, Andrews, and Flagler greatly
profited from rebates. In fact, refined oil was not transported from
Cleveland to the seaboard by railroad until 1870, the year that this firm
dissolved; practically all of the product then went by way of the Great
Lakes and the Erie Canal. Possibly the Rockefeller firm did get occasional
rebates on crude oil from the oil regions to the refineries, but so did
their competitors. It is therefore not likely that such favors had great
influence in making this single firm the most successful in the largest
refining center. With the organization of the Standard Oil Company,
however, rebates became a more important consideration.

The turning-point in the history of the oil industry came when the
Rockefeller interests acquired the Cleveland refineries. The details
concerning this act of generalship are fairly well known. The South
Improvement Company is a corporation that necessarily bulks large in the
history of the Standard Oil. Mr. Rockefeller and his associates have
always disclaimed the parentage of this organization. They assert—and
their assertion is doubtless true—that the only responsible
begetters were Thomas A. Scott, President of the Pennsylvania Railroad,
and certain refineries in Pittsburgh and Philadelphia which, though they
were afterwards absorbed by the Standard, were at that time their
competitors. These refiners and the Pennsylvania, over which the Standard
Oil then was making no shipments, thus represented a group, composed of
railroads and refiners, which was antagonistic to the Rockefeller
interests. The South Improvement Company was an association of refiners
with which the railroads, chiefly the Pennsylvania, the New York Central,
and the Erie, made exclusive contracts for shipping oil. Under these
contracts rates to the seaboard were to be generally raised, though the
members of the South Improvement Company were to receive liberal rebates.
The refiners of Cleveland and Pittsburgh were to get lower rates than the
refiners located in the oil regions. But the clause in these contracts
that caused the greatest amazement and indignation was one which gave the
inside group rebates on every barrel of oil shipped by its competitors.

It would be difficult to imagine any transaction more wicked than these
contracts. Carried into execution they inevitably meant the extinction of
every refiner who had not been admitted into the inside ring. Of the two
thousand shares of the South Improvement Company, the gentlemen who were
at that time most conspicuously identified with the Standard Oil Company
subscribed to five hundred and forty. Mr. Rockefeller has always protested
that he did not favor the scheme and that he became a party to it simply
because he could not afford to antagonize the powerful Pennsylvania
Railroad, which had originated it. When the details became public
property, a wave of indignation swept from the Atlantic to the Pacific;
the oil regions, which would have been the heaviest sufferers, shut down
their wells and so cut off the supply of crude oil; the New York
newspapers started a “crusade” against the South Improvement group and
Congress ordered an investigation. So fiercely was the public wrath
aroused that the railroads ran to cover, abrogated the contracts, signed
an agreement promising never more to grant rebates to any one, while the
Pennsylvania Legislature repealed the charter of the South Improvement
Company. This particular scheme, therefore, never came to maturity. Before
the South Improvement Company ended its corporate existence, however, a
great change had taken place in the oil situation. Practically all the
refineries in Cleveland had passed into the control of the Standard Oil
Company. The Standard has always denied that there was any connection
between the purchase of these great refineries and the organization of the
South Improvement Company. But there is much evidence sustaining a
contrary view, for many of these refiners afterward went on the witness
stand and told circumstantial stories, all of which made precisely the
same point. This was that the Standard men had come to them, shown the
contracts which had been made by the South Improvement Company, and argued
that, under these new conditions, the refineries left outside the
combination could not long survive. The Standard’s rivals were therefore
urged to “come in,” to take Standard stock in return for their refineries,
or, if they preferred, to sell outright. Practically all saw the force in
this argument and sold—in most cases taking cash.

The acquisition of these Cleveland refineries made inevitable the
Rockefeller conquest of the oil industry. Up to that time the Standard had
refined about fifteen hundred barrels a day, and now suddenly its capacity
jumped to more than twelve thousand barrels. This one strategic move had
made Rockefeller master of about one-third of all the oil business in the
United States, and this fact explains the rapidity with which the other
citadels fell. There is no evidence that the Standard exercised any
pressure upon the great refineries in New York, Pittsburgh, and
Philadelphia. Indeed these concerns manifested an eagerness to join. The
fact that, unlike the Cleveland refiners, many of the firms in these other
cities took Standard stock, and so became parts of the new organization,
is in itself significant. They evidently realized that they were casting
their fortunes with the winning side. The huge shipments which the
Standard now controlled explain this change in front. Every day Mr.
Rockefeller could send from Cleveland to the seaboard a train, sixty cars
long, loaded with the blue barrels containing his celebrated liquid. That
was a consideration for which any railroad would at that time sell its
soul. And the New York Central road promptly made this sacrifice. Hardly
had the ink dried on its written promise not to grant any rebates when it
began granting them to the Standard Oil Company.

In those days the railroad rate was not the sacred, immutable thing which
it subsequently became, although the argument for equal treatment of
shippers existed theoretically just as strongly forty years ago as it does
today. The rebate was just as illegal then as it is at present; there was
no precise statute, it is true, which made it unlawful until the
Interstate Commerce Act was passed in 1887; but the common law had always
prohibited such discriminations. In the seventies and eighties, however,
railroad men like Cornelius Vanderbilt and Thomas A. Scott were less
interested in legal formalities than in getting freight. They regarded
transportation as a commodity to be bought and sold, like so much sugar or
wheat or coal, and they believed that the ordinary principles which
regulated private bargaining should also regulate the sale of the article
in which they dealt. According to this reasoning, which was utterly false
and iniquitous, but generally prevalent at the time, the man who shipped
the largest quantities of oil should get the lowest rate.

The purchase of the Cleveland refineries made the Standard Oil group the
largest shippers and therefore they obtained the most advantageous terms
for transporting their product. Under these conditions they naturally
obtained the monopoly, the extent of which has been already described.
Their competitors could rage, hold public meetings, start riots, threaten
to lynch Mr. Rockefeller and all his associates, but they could not long
survive in face of these advantages. The only way in which the smaller
shippers could overcome this handicap was by acquiring new methods of
transportation. It was this necessity that inspired the construction of
pipe lines; but the Standard, as already described, succeeded in absorbing
these just about as rapidly as they were constructed.

Not only did the Standard obtain railroad rebates but it developed the
most death-dealing methods in its system of marketing its oil. In these
campaigns it certainly overstepped the boundaries of legitimate business,
even according to the prevailing morals of its own or of any other time.
While it probably did not set fire to rival refineries, as it has
sometimes been accused of doing, it undoubtedly did resort to somewhat
Prussian methods of destroying the foe. This great corporation divided the
United States into several sections, over each of which it appointed an
agent, who in turn subdivided his territory into smaller divisions, each
one of which likewise had its captain. The order imperatively issued to
each agent was, “Sell all the oil that is sold in your district.” To these
instructions he was rigidly held; success in accomplishing his task meant
advancement and an increased salary, with a liberal pension in his old
age, whereas failure meant a pitiless dismissal. He was expected to
supervise not only his own business, but that of his rivals as well, to
obtain access to their accounts, their shipments, and their customers. It
has been asserted, and the assertion has been supported by considerable
evidence, that these agents did not hesitate to bribe railroad employees
and in this way get access to their competitors’ bills of lading and
records of their shipments, and that they would even bribe dealers to
cancel such orders and take the oil from them at a lower price. This
information laid the foundation for those price-cutting campaigns that
have brought the name of the Standard Oil into such disfavor. And when the
Standard cut, it cut to kill; the only purpose was to drive the competitor
from the field, and, when this had been accomplished, the price of oil
would promptly go up again. The organization of “bogus companies,” started
purely for the purpose of eliminating competitors, seems to have been a
not infrequent practice. This latter method emphasizes another quality
that accompanied the Standard’s operations and so largely explains its
unpopularity—the secrecy with which it so commonly worked. Though
the independent oil refiners were combating the most powerful financial
power of the time, they were frequently fighting in the dark, never
knowing where to deliver their blows.

This same characteristic was manifested in the form of corporate existence
which the Standard adopted. The first great “trust” was a trust not only
in name but in fact. The Standard introduced not only a new economic
development into our national organization; it introduced a new word into
our language and an issue into American politics that provided sustenance
for the presidential campaigns of twenty-five years. From the beginning
the Standard Oil had always been a close corporation. Originally it had
had only ten stockholders, and this number had gradually grown until, in
1881, there were forty-one. These men had adopted a new and secretive
method of combining their increasing possessions into a single ownership.
In 1873 the Standard Company had increased its capital stock (originally
$1,000,000) to $3,500,000, the new certificates being exchanged for
interests in the great New York and Philadelphia refineries The Standard
Oil Company of Ohio never had a larger capital stock than that. As
additional properties were acquired, the interests were placed in the
hands of trustees, who held them for the joint benefit of the stockholders
in the original company. In 1882 this idea was carried further, for then
the Standard Oil Trust was organized. The fact that the properties lay in
so many different States, many of which had laws intended to curb
corporations, was evidently what led to this form of consolidation. A
trust was formed, consisting of nine trustees, who held, for the benefit
of the Standard Oil stockholders, all the stock in the Standard and in the
subsidiary companies. Instead of certificates of stock the trustees issued
certificates of trust amounting to $70,000,000. Each Standard stockholder
received twenty of these certificates for each share which he held of
Standard stock. These certificates could be bought and sold and passed on
by inheritance precisely the same as stocks.

Ingenious as was this legal device, it did not stand the test of the
courts. In 1892 the Ohio Supreme Court declared the Standard Oil Trust a
violation of the law and demanded its dissolution. The persistent attempts
of the Standard to disregard this order increased its reputation for
lawlessness. Finally, in 1899, after Ohio had brought another action, the
trust was dissolved. The Standard interests now reorganized all their
holdings under the name of the Standard Oil Company of New Jersey. Again,
in 1911, the United States Supreme Court declared this combination a
violation of the Sherman Anti-Trust Act, and ordered its dissolution. By
this time the Standard capitalists had learned the value of public opinion
as a corporate asset, and made no attempt to evade the order of the court.
The Standard Oil Company of New Jersey proceeded to apportion among its
stockholders the stock which it held in thirty-seven other companies—refineries,
pipe lines, producing companies, marketing companies, and the like. Chief
Justice White, in rendering his decision, specifically ordered that, in
dissolving their combination, the Standard should make no agreement,
contractual or implied, which was intended still to retain their
properties in one ownership. As less than a dozen men owned a majority
interest in the Standard Oil Company of New Jersey, these same men
naturally continued to own a majority interest in the subsidiary
companies. Though the immediate effect of this famous decision therefore
was not to cause a separation in fact, this does not signify that, as time
goes on, such a real dissolution will not take place. It is not unlikely
that, in a few years, the transfers of the stock by inheritance or sale
will weaken the consolidated interest to a point where the companies that
made up the Standard Company will be distinct and competitive.

This is more likely to be the case since, long before the decision of
1911, the Standard Oil Company had ceased to be a monopoly. In the early
nineties there came to the front in the oil regions a man whose organizing
ability and indomitable will suggested the Standard Oil leaders
themselves. This man’s soul burned with an intense hatred of the
Rockefeller group, and this sentiment, as much as his love of success,
inspired all his efforts. There is nothing finer in American business
history than the fifteen years’ battle which Lewis Emery, Jr., fought
against the greatest financial power of the day. In 1901 this long
struggle met with complete success. Its monuments were the two great trunk
pipe lines which Emery had built from the Pennsylvania regions to Marcus
Hook, near Philadelphia, one for pumping refined and one for pumping
crude. The Pure Oil Company, Emery’s creation, has survived all its trials
and has done an excellent business. And meanwhile other independents
sprang up with the discovery of oil in other parts of the country. This
discovery first astonished the Standard Oil men themselves; when someone
suggested to Archbold, thirty-five years ago, that the midcontinent field
probably contained large oil supplies, he laughed, and said that he would
drink all the oil ever discovered outside of Pennsylvania. In these days a
haunting fear pursued the oil men that the Pennsylvania field would be
exhausted and that their business would be ended. This fear, as
developments showed, had a substantial basis; the Pennsylvania yield began
to fail in the eighties and nineties, until now it is an inconsiderable
element in this gigantic industry. Ohio, Indiana, Illinois, Kansas,
Oklahoma, Texas, California, and other states in turn became the scene of
the same exciting and adventurous events that had followed the discovery
of oil in Pennsylvania. The Standard promptly extended its pipe lines into
these new areas, but other great companies also took part in the
development. These companies, such as the Gulf Refining Company and the
Texas Refining Company, have their gathering pipe lines, their great trunk
lines, their marketing stations, and their export trade, like the
Standard; the Pure Oil Company has its tank cars, its tank ships, and its
barges on the great rivers of Europe. The ending of the rebate system has
stimulated the growth of independents, and the production of crude oil and
the market demand in a thousand directions has increased the business to
an extent which is now far beyond the ability of any one corporation to
monopolize. The Standard interests refine perhaps something more than
fifty per cent of the crude oil produced in this country. But in recent
years, Standard Oil has meant more than a corporation dealing in this
natural product. It has become the synonym of a vast financial power
reaching in all directions. The enormous profits made by the Rockefeller
group have found investments in other fields. The Rockefellers became the
owners of the great Mesaba iron ore range in Minnesota and of the Colorado
Fuel and Iron Company, the chief competitor of United States Steel. It is
the largest factor in several of the greatest American banks. Above all,
it is the single largest railroad power in America today.

CHAPTER III. THE EPIC OF STEEL

It was the boast of a Roman Emperor that he had found the Eternal City
brick and left it marble. Similarly the present generation of Americans
inherited a country which was wood and have transformed it into steel.
That which chiefly distinguishes the physical America of today from that
of forty years ago is the extensive use of this metal. Our fathers used
steel very little in railway transportation; rails and locomotives were
usually made of iron, and wood was the prevailing material for railroad
bridges. Steel cars, both for passengers and for freight, are now
everywhere taking the place of the more flimsy substance. We travel today
in steel subways, transact our business in steel buildings, and live in
apartments and private houses which are made largely of steel. The steel
automobile has long since supplanted the wooden carriage; the steel ship
has displaced the iron and wooden vessel. The American farmer now encloses
his lands with steel wire, the Southern planter binds his cotton with
steel ties, and modern America could never gather her abundant harvests
without her mighty agricultural implements, all of which are made of
steel. Thus it is steel that shelters us, that transports us, that feeds
us, and that even clothes us.

This substance is such a commonplace element in our lives that we take it
for granted, like air and water and the soil itself; yet the generation
that fought the Civil War knew practically nothing of steel. They were
familiar with this metal only as a curiosity or as a material used for the
finer kinds of cutlery. How many Americans realize that steel was used
even less in 1865 than aluminum is used today? Nearly all the men who have
made the American Steel Age—such as Carnegie, Phipps, Frick, and
Schwab—are still living and some of them are even now extremely
active. Thirty-five years ago steel manufacture was regarded, even in this
country, as an almost exclusively British industry. In 1870 the American
steel maker was the parvenu of the trade. American railroads purchased
their first steel rails in England, and the early American steel makers
went to Sheffield for their expert workmen. Yet, in little more than ten
years, American mills were selling agricultural machinery in that same
English town, American rails were displacing the English product in all
parts of the world, American locomotives were drawing English trains on
English railways, and American steel bridges were spanning the Ganges and
the Nile. Indeed, the United States soon surpassed England. In the year
before the World War the United Kingdom produced 7,500,000 tons of steel a
year, while the United States produced 32,000,000 tons. Since the outbreak
of the Great War, the United States has probably made more steel than all
the rest of the world put together. “The nation that makes the cheapest
steel,” says Mr. Carnegie, “has the other nations at its feet.” When some
future Buckle analyzes the fundamental facts in the World War, he may
possibly find that steel precipitated it and that steel determined its
outcome.

Three circumstances contributed to the rise of this greatest of American
industries: a new process for cheaply converting molten pig iron into
steel, the discovery of enormous deposits of ore in several sections of
the United States, and the entrance into the business of a hardy and
adventurous group of manufacturers and business men. Our steel industry is
thus another triumph of American inventive skill, made possible by the
richness of our mineral resources and the racial energy of our people. An
elementary scientific discovery introduced the great steel age. Steel, of
course, is merely iron which has been refined—freed from certain
impurities, such as carbon, sulphur, and phosphorus. We refine our iron
and turn it into steel precisely as we refine our sugar and petroleum.
From the days of Tubal Cain the iron worker had known that heat would
accomplish this purification; but heat, up to almost 1865, was an
exceedingly expensive commodity. For ages iron workers had obtained the
finer metal by applying this heat in the form of charcoal, never once
realizing that unlimited quantities of another fuel existed on every hand.
The man who first suggested that so commonplace a substance as air, blown
upon molten pig iron, would produce the intensest heat and destroy its
impurities, made possible our steel railroads, our steel ships, and our
steel cities. When William Kelly, an owner of iron works near Eddyville,
Kentucky, first proposed this method in 1847, he met with the ridicule
which usually greets the pioneer inventor. When Henry Bessemer, several
years afterward, read a paper before the British Association for the
Advancement of Science, in which he advocated the same principle, he was
roared down as “a crazy Frenchman,” and the savants were so humiliated by
the suggestion that they voted to make no record of his “silly paper” in
their official minutes. Yet these two men, the American Kelly and the
Englishman Bessemer, were the creators of modern steel. The records of the
American Patent Office clearly show that Kelly made “Bessemer” steel many
years before Bessemer. In 1870 the American Government refused to extend
Bessemer’s patent in this country on the ground that William Kelly had a
prior claim; in spite of this, Bessemer was undoubtedly the man who
developed the mechanical details and gave the process a universal
standing.

Though the Bessemer process made possible the production of steel by tons
instead of by pounds, it would never in itself have given the nation its
present preeminence in the steel industry. Iron had been mined in the
United States for two centuries on a small scale, the main deposits being
located in the Lake Champlain region of New York and in western
Pennsylvania. But these, and a hundred other places located along the
Atlantic coast, could not have produced ore in quantities sufficient to
satisfy the yawning jaws of the Bessemer converters. As this new method
poured out the liquid in thousands of tons, and as the commercial demand
extended in a dozen different directions, the cry went up from the
furnace’s for more ore. And again Nature, which has favored America in so
many directions, came to her assistance. Manufacturers in the steel
regions began to recall strange stories which had been floating down for
many years from the wilderness surrounding Lake Superior. The recollection
of a famous voyage made in this region by Philo M. Everett, as far back as
1845, now laid siege to the imagination of the new generation of
ironmasters. For years the Indians had told Everett of the “mountains of
iron” that lay on the Minnesota shore of Lake Superior and had described
their wonders in words that finally impelled this hardy adventurer to make
a voyage of exploration. For six weeks, in company with two Indian guides,
Everett had navigated a small boat along the shores of the Lake, covering
a distance that now takes only a few hours. The Indians had long regarded
this silent, red iron region with a superstitious reverence, and now, as
the little party approached, they refused to complete the journey. “Iron
Mountain!” they said, pointing northward along the trail—”Indian not
go near; white man go!” The sight which presently met Everett’s eyes
repaid him well for his solitary tramp in the forest. He found himself
face to face with a “mountain a hundred and fifty feet high, of solid ore,
which looked as bright as a bar of iron just broken.” Other explorations
subsequently laid open the whole of the Minnesota fields, including the
Mesaba, which developed into the world’s greatest iron range. America has
other regions rich in ore, particularly in Alabama, located alongside the
coal and limestone so necessary in steel production; yet it has drawn
two-thirds of its whole supply from these Lake Superior fields. Not only
the quantity, which is apparently limitless, but the quality explains
America’s leadership in steel making.

Mining in Minnesota has a character which is not duplicated elsewhere.
When we think of an iron mine, we naturally picture subterranean caverns
and galleries, and strange, gnome-like creatures prowling about with pick
and shovel and drill. But mining in this section is a much simpler
proceeding. The precious mineral does not lie concealed deep within the
earth; it lies practically upon the surface. Removing it is not a question
of blasting with dynamite; it is merely a matter of lifting it from the
surface of the earth with a huge steam shovel. “Miners” in Minnesota have
none of the conventional aspects of their trade. They operate precisely as
did those who dug the Panama Canal. The railroad cars run closely to the
gigantic red pit. A huge steam shovel opens its jaws, descends into an
open amphitheater, licks up five tons at each mouthful, and, swinging
sideways over the open cars, neatly deposits its booty. It is not
surprising that ore can be produced at lower cost in the United States
than even in those countries where the most wretched wages are paid.
Evidently this one iron field, to say nothing of others already worked,
gives a permanence to our steel industry.

Not only did America have the material resources; what is even more
important, she had also the men. American industrial history presents few
groups more brilliant, more resourceful, and more picturesque than that
which, in the early seventies, started to turn these Minnesota ore fields
into steel—and into gold. These men had all the dash, all the
venturesomeness, all the speculative and even the gambling instinct,
needed for one of the greatest industrial adventures in our annals. All
had sprung from the simplest and humblest origins. They had served their
business apprenticeships as grocery clerks, errand boys, telegraph
messengers, and newspaper gamins. For the most part they had spent their
boyhood together, had played with each other as children, had attended the
same Sunday schools, had sung in the same church choirs, and, as young
men, had quarreled with each other over their sweethearts. The Pittsburgh
group comprised about forty men, most of whom retired as millionaires,
though their names for the most part signify little to the present-day
American. Kloman, Coleman, McCandless, Shinn, Stewart, Jones, Vandervoort—are
all important men in the history of American steel. Thomas A. Scott and J.
Edgar Thompson, men associated chiefly with the creation of the
Pennsylvania Railroad, also made their contributions. But three or four
men towered so preeminently above their associates that today when we
think of the human agencies that constructed this mighty edifice, the
names that insistently come to mind are those of Carnegie, Phipps, Frick,
and Schwab.

Books have been written to discredit Carnegie’s work and to picture him as
the man who has stolen success from the labor of greater men. Yet Carnegie
is the one member of a brilliant company who had the indispensable quality
of genius. He had none of the plodding, painstaking qualities of a
Rockefeller; he had the fire, the restlessness, the keen relish for
adventure, and the imagination that leaped far in advance of his
competitors which we find so conspicuous in the older Vanderbilt. Carnegie
showed these qualities from his earliest days. Driven as a child from his
Scottish home by hunger, never having gone to school after twelve, he
found himself, at the age of thirteen, living in a miserable hut in
Allegheny, earning a dollar and twenty cents a week as bobbin-boy in a
cotton mill, while his mother augmented the family income by taking in
washing. Half a dozen years later Thomas Scott, President of the
Pennsylvania Railroad, made Carnegie his private secretary. How well the
young man used his opportunities in this occupation appeared afterward
when he turned his wide acquaintanceship among railroad men to practical
use in the steel business. It was this personal adaptability, indeed, that
explains Carnegie’s success. In the narrow, methodical sense he was not a
business man at all; he knew and cared nothing for its dull routine and
its labyrinthine details. As a practical steel man his position is a
negligible one. Though he was profoundly impressed by his first sight of a
Bessemer converter, he had little interest in the every-day process of
making steel. He had also many personal weaknesses: his egotism was
marked, he loved applause, he was always seeking opportunities for
self-exploitation, and he even aspired to fame as an author and
philosopher. The staid business men of Pittsburgh early regarded Carnegie
with disfavor; his daring impressed them as rashness and his bold
adventures as the plunging of the speculator. Yet in all its aspects
Carnegie’s triumph was a personal one. He was perhaps the greatest
commercial traveler this country has ever known. While his more methodical
associates plodded along making steel, Carnegie went out upon the highway,
bringing in orders by the millions. He showed this same personal quality
in the organization of his force. As a young man, entirely new to the
steel industry, he selected as the first manager of his works Captain Bill
Jones; his amazing judgment was justified when Jones developed into
America’s greatest practical genius in making steel. “Here lies the man”—Carnegie
once suggested this line for his epitaph—”who knew how to get around
him men who were cleverer than himself.” Carnegie inspired these men with
his own energy and restlessness; the spirit of the whole establishment
automatically became that of the pushing spirit of its head. This little
giant became the most remorseless pace-maker in the steel regions. However
astounding might be the results obtained by the Carnegie works the captain
at the head was never satisfied. As each month’s output surpassed that
which had gone before, Carnegie always came back with the same cry of
“More.” “We broke all records for making steel last week!” a delighted
superintendent once wired him and immediately he received his answer,
“Congratulations. Why not do it every week?” This spirit explains the
success of the Carnegie Company in outdistancing all its competitors and
gaining a worldwide preeminence for the Pittsburgh district. But Carnegie
did not make the mistake of capitalizing all this prosperity for himself;
his real greatness as an American business man consists in the fact that
he liberally shared the profits with his associates. Ruthless he might be
in appropriating their last ounce of energy, yet he rewarded the
successful men with golden partnerships. Nothing delighted Carnegie more
than to see the man whom he had lifted from a puddler’s furnace develop
into a millionaire.

Henry Phipps, still living at the age of seventy-eight, was the only one
of Carnegie’s early associates who remained with him to the end. Like many
of the others, Phipps had been Carnegie’s playmate as a boy, so far as any
of them, in those early days, had opportunity to play; like all his
contemporaries also, Phipps had been wretchedly poor, his earliest
business opening having been as messenger boy for a jeweler. Phipps had
none of the dash and sparkle of Carnegie. He was the plodder, the
bookkeeper, the economizer, the man who had an eye for microscopic
details. “What we most admired in young Phipps,” a Pittsburgh banker once
remarked, “is the way in which he could keep a check in the air for three
or four days.” His abilities consisted mainly in keeping the bankers
complaisant, in smoothing the ruffled feelings of creditors, in cutting
out unnecessary expenditures, and in shaving prices.

Carnegie’s other two more celebrated associates, Henry C. Frick and
Charles M. Schwab, were younger men. Frick was cold and masterful, as
hard, unyielding, and effective as the steel that formed the staple of his
existence. Schwab was enthusiastic, warm-hearted, and happy-go-lucky; a
man who ruled his employees and obtained his results by appealing to their
sympathies. The men of the steel yards feared Frick as much as they loved
“Charlie” Schwab. The earliest glimpses which we get of these remarkable
men suggest certain permanent characteristics: Frick is pictured as the
sober, industrious bookkeeper in his grandfather’s distillery; Schwab as
the rollicking, whistling driver of a stage between Loretto and Cresson.
Frick came into the steel business as a matter of deliberate choice,
whereas Schwab became associated with the Pittsburgh group more or less by
accident.

The region of Connellsville contains almost 150 square miles underlaid
with coal that has a particular heat value when submitted to the process
known as coking. As early as the late eighties certain operators had
discovered this fact and were coking this coal on a small scale. It is the
highest tribute to Frick’s intelligence that he alone foresaw the part
which this Connellsville coal was to play in building up the Pittsburgh
steel district. The panic of 1873, which laid low most of the
Connellsville operators, proved Frick’s opportunity. Though he was only
twenty-four years old he succeeded, by his intelligence and earnestness,
in borrowing money to purchase certain Connellsville mines, then much
depreciated in price. From that moment, coke became Frick’s obsession, as
steel had been Carnegie’s. With his early profits he purchased more coal
lands until, by 1889, he owned ten thousand coke ovens and was the
undisputed “coke king” of Connellsville. Several years before this,
Carnegie had made Frick one of his marshals, coke having become
indispensable to the manufacture of steel, and in 1889 the former
distiller’s accountant became Carnegie’s commander-in-chief. Probably the
popular mind associates Frick chiefly with the importation of Slavs as
workmen, with the terrible strikes that followed in consequence at
Homestead, with the murderous attack made upon him by Berkman, the
anarchist, and with his bitter, long drawn-out quarrel with Andrew
Carnegie. Frick’s stormy career was naturally the product of his
character.

On the other hand, temperamental pliability and lovableness were the
directing traits of the man who, in his way, made contributions quite as
solid to the extension of the Pittsburgh steel industry. Schwab worked
with the human material quite as successfully as other men worked with
iron ore, Bessemer furnaces, and coal. He handled successfully what was
perhaps the greatest task in management ever presented to a manufacturer
when to him fell the job of reorganizing the Homestead Works after the
strike of 1892 and of transforming thousands of riotous workmen into
orderly and interested producers of steel. In three or four years
practically every man on the premises had become “Charlie” Schwab’s
personal friend, and the Homestead property which, until the day he took
charge, had been a colossal failure, had developed into one of the most
profitable holdings of the Carnegie Company. As his reward Schwab, at the
age of thirty-four, was made President of the Carnegie corporation. Only
sixteen years before he had entered the steel works as a stake driver at a
dollar a day.

When the Carnegie group began operations in the early seventies, American
steel, as a British writer remarked, was a “hot-house product”; yet in
1900 the Carnegie partners divided $40,000,000 as the profits of a single
year. They had demonstrated that the United States, despite the high
prices that prevailed everywhere, could make steel more cheaply than any
other country. Foreign observers have offered several explanations for
this achievement. American makers had an endless supply of cheap and
high-grade ore, cheaper coke, cheaper transportation, and workmen of a
superior skill. We must give due consideration to the fact that their
organization was more flexible than those of older countries, and that it
regulated promotion exclusively by merit and gave exceptional
opportunities to young men. American steel makers also had scrap heaps
whose size astounded the foreign observers; they never hesitated to
discard the most expensive plants if by so doing they could reduce the
cost of steel rails by a dollar a ton. Machinery for steel making had a
more extensive development in this country than in England or Germany. Mr.
Carnegie also enjoyed the advantages of a high protective tariff, though
about 1900 he discovered that his extremely healthy infant no longer
demanded this form of coddling. But probably the Carnegie Company’s
greatest achievement was the abolition of the middleman. In a few years it
assembled all the essential elements of steel making in its own hands.
Frick’s entrance into the combination gave the concern an unlimited supply
of the highest grade of coking coal. In a few years, the Carnegie
interests had acquired great holdings in the Minnesota ore regions.

At first glance, the Pittsburgh region seems hardly the ideal place for
the making of steel. Fortune first placed the industry there because all
the raw materials, especially iron ore and coal, seemed to exist in
abundance. But the discovery of the Minnesota ore field, which alone could
supply this essential product in the amounts which the furnaces demanded,
immediately deprived the Pittsburgh region of its chief advantage. As a
result of this sudden development, the manufacturers of Pittsburgh awoke
one morning and discovered that their ore was located a thousand miles
away. To bring it to their converters necessitated a long voyage by water
and rail, with several reloadings. They overcame these obstacles by
developing machinery for handling ore and by acquiring the raw materials
and the connecting links of transportation. Ore which had been lying in
the wilds of Minnesota on Monday morning was thus brought to Pittsburgh
and made into steel rails or bridges or structural shapes by Saturday
night. The Carnegie Company first acquired sufficient mineral lands to
furnish ore for several generations and organized an ore fleet which
transported the products of the mines through the lakes to ports on Lake
Erie, particularly Ashtabula and Conneaut. The purchase of the Bessemer
and Lake Erie Railroad, which extended from Conneaut to Pittsburgh, made
this great transportation route complete. Besides freeing their business
from uncertainty, this elimination of middlemen naturally produced great
economies.

Probably Andrew Carnegie’s shrewdness in naming his first plant the J.
Edgar Thompson Steel Works, after the powerful President of the
Pennsylvania Railroad, and in making Thompson and his associate Scott
partners, had much to do with his early success. These two gentlemen
conferred two priceless favors upon the struggling enterprise. They became
large purchasers of steel rails and their influence in this direction
extended far beyond the Pennsylvania Railroad. What was perhaps even more
important, they gave the Carnegie concerns railroad rebates. The use of
rebates, as a method of stifling competition and building up a great
industrial prosperity, is an offense which the popular mind associates
almost exclusively with the Standard Oil Company, yet the Carnegie
fortune, as well as that of John D. Rockefeller, received an artificial
stimulation of this kind.

Though incomparably the greatest of the American steel companies, the
Carnegie Steel Company by no means monopolized the field. In forty years,
indeed, an enormous steel area had grown up, including western
Pennsylvania, Ohio, Indiana, and Illinois, practically all of it drawing
its raw materials from those same teeming ore lands in the Lake Superior
region. Johnstown, Youngstown, Cleveland, Lorain, Chicago, and Joliet,
became headquarters of steel production almost as important as Pittsburgh
itself. Two entirely new steel kingdoms, each with its own natural
reservoirs of ore, grew up in Colorado and Alabama. The Colorado Fuel and
Iron Company, which possessed apparently inexhaustible mineral lands in
Colorado, Wyoming, Utah, New Mexico, and California, itself produces not
far from three million tons a year, almost half the present production of
Great Britain. The Alabama steel country has developed in even more
spectacular fashion. Birmingham, a hive of southern industry placed almost
as if by magic in the leisurely cotton lands of the South, had no
existence in 1870, when the Pittsburgh prosperity began. In the Civil War,
the present site of a city with a population of 140,000 was merely a
blacksmith shop in the fork of the roads. Yet this district has advantages
for the manufacture of steel that have no parallel elsewhere. The steel
companies which are located here do not have to bring their materials
laboriously from a distance but possess, immediately at hand, apparently
endless store of the three things needful for making steel—iron ore,
coal, and limestone. All these territories have their personal romances
and their heroes, many of them quite as picturesque as those of the
Pittsburgh group.

It is doubtful indeed if American industry presents any figure quite as
astonishing and variegated as that of John W. Gates, the man who educated
farmers all over the world to the use of wire fencing. Half charlatan,
half enthusiast, speculator, gambler, a man who created great enterprises
and who also destroyed them, at times an upbuilding force and at other
times a sinister influence, Gates completely typified a period in American
history that, along with much that was heroic and splendid, had much also
that was grotesque and sordid. The opera-bouffe performance that laid the
foundations of Gates’s great industry was in every way characteristic of
this period. In 1871 Gates, then a clerk in a hardware store at
twenty-five dollars a week, made his first attempt to sell barbed wire in
the great cattle countries of the southwestern States. When the cattle men
in Texas first saw this barbed wire, they ridiculed the idea that it could
ever hold their steers. Gates selected a plaza in San Antonio, fenced it
in with his new product, and invited the enemies to bring along their
wildest specimens About thirty of Texas’ most ferocious cattle, placed
within the enclosure, spent a whole afternoon plunging at the barbs in a
useless and tormenting attempt to escape. This spectacular demonstration
of efficiency launched Gates fairly upon his career. He immediately began
to sell his new fencing on an enormous scale; in a few years the whole
world was demanding it, and it has become, as recent events have
disclosed, a particularly formidable munition of war. The American Steel
and Wire Company, one of the greatest of American corporations, was the
ultimate outgrowth of that lively afternoon in San Antonio.

In 1900 the Carnegie Steel Company was making one-quarter of all the
Bessemer steel produced in the United States. It owned in abundance all
the properties which were essential to its completed output—coal,
limestone, steel ships, railroads, and steel mills. In twenty-five years,
from 1875 to 1900, this manufacturing enterprise had paid the Carnegie
group profits aggregating $133,000,000, profits which, in the closing
years of the century, had increased at a stupendous rate. In 1898 Carnegie
and his associates had divided $11,500,000, in 1899 their earnings had
grown to $25,000,000, and in 1900 the aggregate had suddenly jumped to
$40,000,000. Of this latter sum Carnegie received $25,000,000, Phipps
$5,500,000, Frick $2,600,000, and Schwab $1,300,000. And Carnegie’s little
group could see no limit to the growth of their business and the expansion
of their personal fortunes. Yet at that very moment Carnegie was planning
to play the part of a Charles V with the large empire which he had pieced
together—to abdicate his throne, retire from business life, and
spend his remaining days in quiet.

Many influences were impelling him to this decision. His triumph,
stupendous as it had been, also had had its alloy of sorrow. Indeed this
little Scotsman, now at the crowning of his glory, was one of the
loneliest figures in the world. Practically all the forty men with whom he
had been closely associated had vanished from the scene. He had quarreled
with his playmate and lifelong partner, Henry Phipps, and was in the worst
possible business and personal relations with Frick. He had no son to
carry on his work. He had become greatly interested in his philanthropies,
and he had declared that the man who died rich died disgraced. Moreover,
new influences were rising in the steel trade with which Carnegie had
little sympathy. Its national capital seemed to be shifting from
Pittsburgh to Wall Street. New men who knew nothing about steel but who
possessed an intimate acquaintance with stocks and bonds—J. Pierpont
Morgan, George W. Perkins, and their associates—were branching out
as controllers of large steel interests. Carnegie had no interest in Wall
Street; he has declared that he never speculated in his life and that he
would immediately dissociate himself from any partner who would do so.
This Wall Street coterie, in the years from 1898 to 1900, had made several
large combinations in the steel trade. That was the era when the trust
mania had gained possession of the American mind and when its worst
features displayed themselves. The Federal Steel Company, the American
Bridge Company, the American Steel and Wire, the National Tube Company,
all representing the assembling of large works which had been engaged as
rivals in similar enterprises, were launched, with the usual
accompaniments of “underwriting syndicates,” watered stock, and Wall
Street speculation. This sort of thing made no appeal to Andrew Carnegie.
His huge enterprise had always remained essentially a copartnership, and
he had frequently expressed his abhorrence of trusts. Yet, in spite of his
wish to retire from business and in spite of his avowed intention to die
poor, Carnegie now adopted the policy of the Sibylline leaves to all
prospective purchasers. Moore and Reid would have purchased his interest
for $157,000,000; when Rockefeller came along the price had risen to
$250,000,000; when the oil man shook his head and retired, Carnegie
immediately raised his price to $500,000,000. It is doubtful whether he
would have sold at all had not his Wall Street competitors begun to
encroach on a field which the little Scotsman understood quite as well as
they—the production and merchandising of steel. The newly organized
combinations were completing elaborate plans to go after Carnegie’s
business. Then Carnegie, who had practically retired from active life,
again arrayed himself in his shirt-sleeves, abandoned his career of
authorship, and resumed his early trade. His first attacks produced an
immense reverberation in the House of Morgan. He purchased a huge tract at
Conneaut and began building a gigantic plant for the manufacture of steel
tubes, a business in which he had not hitherto engaged. This was a blow
aimed at one of Morgan’s pet new creations, the National Tube Company.
Should Carnegie finish his works, there was no doubt the Morgan enterprise
would be ruined, for the new plant would be far more modern and so could
manufacture the product at a much lower price; and, with Charles M. Schwab
as active manager, what possible chance would the older corporation have?
But Carnegie struck his enemy at an even more vulnerable point. The
Pennsylvania Railroad had a practical monopoly of traffic in and out of
Pittsburgh, and Pittsburgh “created” more freight business than any other
city in the world. Carnegie lent his powerful support to George J. Gould,
who was then extending his railroad system into the preempted field and
was also making surveys and had financed a company to build an entirely
new railroad from Pittsburgh to the Atlantic Coast. As Carnegie himself
controlled the larger part of the freight that made Pittsburgh such an
essential feeder to railroads, his new enterprise caused the greatest
alarm. At the same time Carnegie equipped a new and splendid fleet of ore
ships, his purpose being to enter a field of transportation which John D.
Rockefeller had found extremely profitable.

Such were the circumstances and such were the motives that gave birth to
the world’s largest corporation. All one night, so the story goes, Charles
M. Schwab and John W. Gates discussed the steel situation with J. Pierpont
Morgan. There was only one possible solution, they said—Andrew
Carnegie must be bought out. By the time the morning sun came through the
windows Morgan had been convinced. “Go and ask him what he will sell for,”
he said to Schwab. In a brief period Schwab came back to Morgan with a
letter which contained the following figures—five per cent gold
bonds $303,450,000; preferred stock $98,277,100; common stock $90,279,000—a
total of over $492,000,000. Carnegie demanded no cash; he preferred to
hold a huge first mortgage on a business whose golden opportunities he
knew so well. Morgan, who had been accustomed all his life to dictate to
other men, had now met a man who was able to dictate to him. And he
capitulated. The man who fifty-three years before had started life in a
new country as a bobbin-boy at a dollar and twenty cents a week, now at
the age of sixty-six retired from business the second richest man in the
world. With him retired a miscellaneous assortment of millionaires whose
fortunes he had made and whose subsequent careers in the United States and
in Europe have given a peculiar significance to the name “Pittsburgh
Millionaires.” The United States Steel Corporation, the combination that
included not only the Carnegie Company but seventy per cent of all the
steel concerns in the country, was really a trust made up of trusts. It
had a capitalization of a billion and a half, of which about $700,000,000
was composed of the commodity usually known as “water”; but so greatly has
its business grown and so capably has it been managed that all this liquid
material has since been converted into more solid substance. The
disappearance of Andrew Carnegie and his coworkers and the emergence of
this gigantic enterprise completed the great business cycle in the steel
trade. The age of individual enterprise and competition had passed—that
of corporate control had arrived.

CHAPTER IV. THE TELEPHONE: “AMERICA’S MOST POETICAL ACHIEVEMENT”

A distinguished English journalist, who was visiting the United States, in
1917, on an important governmental mission, had an almost sublime
illustration of the extent to which the telephone had developed on the
North American Continent. Sitting at a desk in a large office building in
New York, Lord Northcliffe took up two telephone receivers and placed one
at each ear. In the first he heard the surf beating at Coney Island, New
York, and in the other he heard, with equal distinctness, the breakers
pounding the beach at the Golden Gate, San Francisco. Certainly this
demonstration justified the statement made a few years before by another
English traveler. “What startles and frightens the backward European in
the United States,” said Mr. Arnold Bennett, “is the efficiency and
fearful universality of the telephone. To me it was the proudest
achievement and the most poetical achievement of the American people.”

Lord Northcliffe’s experience had a certain dramatic justice which
probably even he did not appreciate. He is the proprietor of the London
Times, a newspaper which, when the telephone was first introduced,
denounced it as the “latest American humbug” and declared that it “was far
inferior to the well-established system of speaking tubes.” The London
Times delivered this solemn judgment in 1877. A year before, at the
Philadelphia Centennial Exposition, Don Pedro, Emperor of Brazil, picked
up, almost accidentally, a queer cone-shaped instrument and put it to his
ear, “My God! It talks!” was his exclamation; an incident which, when
widely published in the press, first informed the American people that
another of the greatest inventions of all times had had its birth on their
own soil. Yet the initial judgment of the American people did not differ
essentially from the opinion which had been more coarsely expressed by the
leading English newspaper. Our fathers did not denounce the telephone as
an “American humbug,” but they did describe it as a curious electric “toy”
and ridiculed the notion that it could ever have any practical value. Even
after Alexander Graham Bell and his associates had completely demonstrated
its usefulness, the Western Union Telegraph Company refused to purchase
all their patent rights for $100,000! Only forty years have passed since
the telephone made such an inauspicious beginning. It remains now, as it
was then, essentially an American achievement. Other nations have their
telephone systems, but it is only in the United States that its
possibilities have been even faintly realized. It is not until Americans
visit foreign countries that they understand that, imperfect as in certain
directions their industrial and social organization may be, in this
respect at least their nation is preeminent.

The United States contains nearly all the telephones in existence, to be
exact, about seventy-five per cent. We have about ten million telephones,
while Canada, Central America, South America, Great Britain, Europe, Asia,
and Africa all combined have only about four million. In order to make an
impressive showing, however, we need not include the backward peoples, for
a comparison with the most enlightened nations emphasizes the same point.
Thus New York City has more telephones than six European countries taken
together—Austria-Hungary, Belgium, Norway, Denmark, Italy, and the
Netherlands. Chicago, with a population of 2,000,000, has more telephones
than the whole of France, with a population of 40,000,000. Philadelphia,
with 1,500,000, has more than the Russian Empire, with 166,000,000. Boston
has more telephones than Austria-Hungary, Los Angeles more than the
Netherlands, and Kansas City more than Belgium. Several office buildings
and hotels in New York City have more instruments than the kingdoms of
Greece or Bulgaria. The whole of Great Britain and Ireland has about
650,000 telephones, which is only about 200,000 more, than the city of New
York.

Mere numbers, however, tell only half the story. It is when we compare
service that American superiority stands most manifest. The London
newspapers are constantly filled with letters abusing the English
telephone system. If these communications describe things accurately,
there is apparently no telephone vexation that the Englishman does not
have to endure. Delays in getting connections are apparently chronic. At
times it seems impossible to get connections at all, especially from four
to five in the afternoon—when the operators are taking tea. Suburban
connections, which in New York take about ninety seconds, average half an
hour in London, and many of the smaller cities have no night service. An
American thinks nothing of putting in a telephone; he notifies his company
and in a few days the instrument is installed. We take a thing like this
for granted. But there are places where a mere telephone subscription, the
privilege of having an instrument installed, is a property right of
considerable value and where the telephone service has a “waiting list,”
like an exclusive club. In Japan one can sell a telephone privilege at a
good price, its value being daily quoted on the Stock Exchange. Americans,
by constantly using the telephone, have developed what may be called a
sixth sense, which enables them to project their personalities over an
almost unlimited area. In the United States the telephone has become the
one all-prevailing method of communication. The European writes or
telegraphs while the American more frequently telephones. In this country
the telephone penetrates to places which even the mails never reach. The
rural free delivery and other forms of the mail service extend to 58,000
communities, while our 10,000,000 telephones encompass 70,000. We use this
instrument for all the varied experiences of life, domestic, social, and
commercial. There are residences in New York City that have private branch
exchanges, like a bank or a newspaper office. Hostesses are more and more
falling into the habit of telephoning invitations for dinner and other
diversions. Many people find telephone conversations more convenient than
personal interviews, and it is every day displacing the stenographer and
the traveling salesman.

Perhaps the most noteworthy achievement of the telephone is its
transformation of country life. In Europe, rural telephones are almost
unknown, while in the United States one-third of all our telephone
stations are in country districts. The farmer no longer depends upon the
mails; like the city man, he telephones. This instrument is thus the
greatest civilizing force we have, for civilization is very largely a
matter of intercommunication. Indeed, the telephone and other similar
agencies, such as the parcel post, the rural free delivery, better roads,
and the automobile, are rapidly transforming rural life in this country.
In several regions, especially in the Mississippi Valley, a farmer who has
no telephone is in a class by himself, like one who has no mowing-machine.
Thus the latest returns from Iowa, taken by the census as far back as
1907, showed that seventy-three per cent of all the farms—160,000
out of 220,000—had telephones and the proportion is unquestionably
greater now. Every other farmhouse from the Atlantic to the Pacific
contains at least one instrument. These statistics clearly show that the
telephone has removed half the terrors and isolation of rural life. Many a
lonely farmer’s wife or daughter, on the approach of a suspicious-looking
character, has rushed to the telephone and called up the neighbors, so
that now tramps notoriously avoid houses that shelter the protecting
wires. In remote sections, insanity, especially among women, is frequently
the result of loneliness, a calamity which the telephone is doing much to
mitigate.

In the United States today there is one telephone to every nine persons.
This achievement represents American invention, genius, industrial
organization, and business enterprise at their best. The story of American
business contains many chapters and episodes which Americans would
willingly forget. But the American Telephone and Telegraph Company
represents an industry which has made not a single “swollen fortune,”
whose largest stockholder is the wife of Alexander Graham Bell, the
inventor (a woman who, being totally deaf, has never talked over the
telephone); which has not corrupted legislatures or courts; which has
steadily decreased the prices of its products as business and profits have
increased; which has never issued watered stock or declared fictitious
dividends; and which has always manifested a high sense of responsibility
in its dealings with the public.

Two forces, American science and American business capacity, have
accomplished this result. As a mechanism, this American telephone system
is the product not of one but of many minds. What most strikes the
imagination is the story of Alexander Graham Bell, yet other names—Carty,
Scribner, Pupin—play a large part in the story.

The man who discovered that an electric current had the power of
transmitting sound over a copper wire knew very little about electricity.
Had he known more about this agency and less about acoustics, Bell once
said himself, he would never have invented the telephone. His father and
grandfather had been teachers of the deaf and dumb and had made important
researches in acoustics. Alexander Graham Bell, born in Edinburgh in
March, 1847, and educated there and in London, followed the ancestral
example. This experience gave Bell an expert knowledge of phonetics that
laid the foundation for his life work. His invention, indeed, is clearly
associated with his attempts to make the deaf and dumb talk. He was driven
to America by ill-health, coming first to Canada, and in 1871 he settled
in Boston, where he accepted a position in Boston University to introduce
his system of teaching deaf-mutes. He opened a school of “Vocal
Physiology,” and his success in his chosen field brought him into
association with the people who afterward played an important part in the
development of the telephone. Not a single element of romance was lacking
in Bell’s experience; his great invention even involved the love story of
his life. Two influential citizens of Boston, Thomas Sanders and Gardiner
G. Hubbard, had daughters who were deaf and dumb, and both engaged Bell’s
services as teacher. Bell lived in Sanders’s home for a considerable
period, dividing his time between teaching his little pupil how to talk
and puttering away at a proposed invention which he called a “harmonic
telegraph.” Both Sanders and Hubbard had become greatly interested in this
contrivance and backed Bell financially while he worked. It was Bell’s
idea that, by a system of tuning different telegraphic receivers to
different pitches, several telegraphic messages could be sent
simultaneously over the same wire. The idea was not original with Bell,
although he supposed that it was and was entirely unaware that, at the
particular moment when he started work, about twenty other inventors were
struggling with the same problem. It was one of these other twenty
experimenters, Elisha Gray, who ultimately perfected this instrument.
Bell’s researches have an interest only in that they taught him much about
sound transmission and other kindred subjects and so paved the way for his
great conception. One day Hubbard and Sanders learned that Bell had
abandoned his “harmonic telegraph” and was experimenting with an entirely
new idea. This was the possibility of transmitting the human voice over an
electric wire. While working in Sanders’s basement, Bell had obtained from
a doctor a dead man’s ear, and it is said that while he was minutely
studying and analyzing this gruesome object, the idea of the telephone
first burst upon his mind. For years Bell had been engaged in a task that
seemed hopeless to most men—that of making deaf-mutes talk. “If I
can make a deaf-mute talk, I can make iron talk,” he declared. “If I could
make a current of electricity vary in intensity as the air varies in
density,” he said at another time, “I could transmit sound
telegraphically.” Many others, of course, had dreamed of inventing such an
instrument. The story of the telephone concerns many men who preceded
Bell, one of whom, Philip Reis, produced, in 1861, a mechanism that could
send a few discordant sounds, though not the human voice, over an electric
wire. Reis seemed to have based his work upon an article published in “The
American Journal of Science” by Dr. C.G. Page, of Salem, Mass., in 1837,
in which he called attention to the sound given out by an electric magnet
when the circuit is opened or closed. The work of these experimenters
involves too many technicalities for discussion in this place. The
important facts are that they all involved different principles from those
worked out by Bell and that none of them ever attained any practical
importance. Reis, in particular, never grasped the essential principles
that ultimately made the telephone a reality. His work 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.

CHAPTER V. THE DEVELOPMENT OF PUBLIC UTILITIES

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. *

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.

CHAPTER VI. MAKING THE WORLD’S AGRICULTURAL MACHINERY

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 operation.

“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 America.”

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 market.

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 contentment.

CHAPTER VII. THE DEMOCRATIZATION OF THE AUTOMOBILE

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 conception.

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; he 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.

BIBLIOGRAPHICAL NOTE

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 Millions.”