CEO Books : Online Executive Education Books
CEO Books
Online Executive Education Resources

Books and Education Resources on
Business  Strategy. Management. Economy. Government. Politics and Executive Development 


CEO Courses:  Executive Education

 

 

 

 

 

 

 

 

THE AGE OF BIG BUSINESS, A CHRONICLE OF THE CAPTAINS OF INDUSTRY
BY BURTON J. HENDRICK

NEW HAVEN: YALE UNIVERSITY PRESS
TORONTO: GLASGOW, BROOK & CO.
LONDON: HUMPHREY MILFORD
OXFORD UNIVERSITY PRESS

1919

CONTENTS

I. INDUSTRIAL AMERICA AT THE END OF THE CIVIL WAR
II. THE FIRST GREAT AMERICAN TRUST
III. THE EPIC OF STEEL
IV. THE TELEPHONE: AMERICA'S MOST POETICAL ACHIEVEMENT
V. THE DEVELOPMENT OF PUBLIC UTILITIES
VI. MAKING THE WORLD'S AGRICULTURAL MACHINERY
VII. THE DEMOCRATIZATION OF THE AUTOMOBILE
BIBLIOGRAPHICAL NOTE


THE AGE OF BIG BUSINESS


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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER II. THE FIRST GREAT AMERICAN TRUST

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER III. THE EPIC OF STEEL

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER IV. THE TELEPHONE: "AMERICA'S MOST POETICAL ACHIEVEMENT"

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

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

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

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

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

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

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

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

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


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

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

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

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



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; be merely applied
this great American idea to a product to which, because of the
delicate labor required, it seemed at first unadapted. He soon
found that it was cheaper to ship the parts of ten cars to a
central point than to ship ten completed cars. There would
therefore be large savings in making his parts in particular
factories and shipping them to assembling establishments. In this
way the completed cars would always be near their markets. Large
production would mean that he could purchase his raw materials at
very low prices; high wages meant that he could get the efficient
labor which was demanded by his rapid fire method of campaign. It
was necessary to plan the making of every part to the minutest
detail, to have each part machined to its exact size, and to have
every screw, bolt, and bar precisely interchangeable. About the
year 1907 the Ford factory was systematized on this basis. In
that twelvemonth it produced 10,000 machines, each one the
absolute counterpart of the other 9999. American manufacturers
until then had been content with a few hundred a year! From that
date the Ford production has rapidly increased; until, in 1916,
there were nearly 4,000,000 automobiles in the United
States--more than in all the rest of the world put together--of
which one-sixth were the output of the Ford factories. Many other
American manufacturers followed the Ford plan, with the result
that American automobiles are duplicating the story of American
bicycles; because of their cheapness and serviceability, they are
rapidly dominating the markets of the world. In the Great War
American machines have surpassed all in the work done under
particularly exacting circumstances.

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

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



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."

End of The Age of Big Business.


End of The Age of Big Business
by Burton J. Hendrick

 

 

CEO Books Resources

Leadership Courses & Management Training Courses in Las Vegas USA
Management Training Courses in Las Vegas USA
Leadership Training & Management Courses in Las Vegas

Las Vegas Graphics Design, Web Design, and Online Marketing
Las Vegas Graphic & Web Design
Professional
Graphic Design & Web Design in Las Vegas
 

CEO Club - CEO's Global Business Club
CEO Club
CEO's
Executive Club

Management  Best Practices
Management Best Practices

World Online Education
World Education Portal

Management Consulting Courses
Management Consulting Courses

Management Training Courses
Management Training Courses

Business School Online
Online Business Schools

Open Courseware
Free Open Courses

Online Business Courses
Business Schools Online

Business Management Courses
Business Management Courses

CEO Magazine
CEO Magazine

CEO Library
CEO Library

CEO Club
Executive Networking

CEO Books
CEO Books

MBA Review
Review of MBA Programs

Best MBA
Ranking of World's Best MBA Programs

MBA distance Learning
Online MBA

Top Ranking MBA
Ranking of Top MBA Programs

Online Executive MBA
Online Executive MBA Programs

Accelerated MBA
Accelerated MBA Programs

Home | About Us