Produced by The James J. Kelly Library Of St. Gregory's
University, and Alev Akman






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

By Burton J. Hendrick


New Haven: Yale University Press

Toronto: Glasgow, Brook & Co.

London: Humphrey Milford Oxford University Press

1919


CONTENTS

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




THE AGE OF BIG BUSINESS



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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER II. THE FIRST GREAT AMERICAN TRUST

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER III. THE EPIC OF STEEL

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



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

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

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

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

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

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

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

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

The man who discovered that an electric current had the power
of transmitting sound over a copper wire knew very little about
electricity. Had he known more about this agency and less about
acoustics, Bell once said himself, he would never have invented the
telephone. His father and grandfather had been teachers of the deaf and
dumb and had made important researches in acoustics. Alexander Graham
Bell, born in Edinburgh in March, 1847, and educated there and in
London, followed the ancestral example. This experience gave Bell an
expert knowledge of phonetics that laid the foundation for his life
work. His invention, indeed, is clearly associated with his attempts
to make the deaf and dumb talk. He was driven to America by ill-health,
coming first to Canada, and in 1871 he settled in Boston, where he
accepted a position in Boston University to introduce his system of
teaching deaf-mutes. He opened a school of "Vocal Physiology," and his
success in his chosen field brought him into association with the
people who afterward played an important part in the development of
the telephone. Not a single element of romance was lacking in Bell's
experience; his great invention even involved the love story of his
life. Two influential citizens of Boston, Thomas Sanders and Gardiner G.
Hubbard, had daughters who were deaf and dumb, and both engaged Bell's
services as teacher. Bell lived in Sanders's home for a considerable
period, dividing his time between teaching his little pupil how to talk
and puttering away at a proposed invention which he called a "harmonic
telegraph." Both Sanders and Hubbard had become greatly interested in
this contrivance and backed Bell financially while he worked. It was
Bell's idea that, by a system of tuning different telegraphic receivers
to different pitches, several telegraphic messages could be sent
simultaneously over the same wire. The idea was not original with Bell,
although he supposed that it was and was entirely unaware that, at the
particular moment when he started work, about twenty other inventors
were struggling with the same problem. It was one of these other twenty
experimenters, Elisha Gray, who ultimately perfected this instrument.
Bell's researches have an interest only in that they taught him much
about sound transmission and other kindred subjects and so paved the way
for his great conception. One day Hubbard and Sanders learned that Bell
had abandoned his "harmonic telegraph" and was experimenting with an
entirely new idea. This was the possibility of transmitting the human
voice over an electric wire. While working in Sanders's basement, Bell
had obtained from a doctor a dead man's ear, and it is said that while
he was minutely studying and analyzing this gruesome object, the idea of
the telephone first burst upon his mind. For years Bell had been engaged
in a task that seemed hopeless to most men--that of making deaf-mutes
talk. "If I can make a deaf-mute talk, I can make iron talk," he
declared. "If I could make a current of electricity vary in intensity as
the air varies in density," he said at another time, "I could transmit
sound telegraphically." Many others, of course, had dreamed of inventing
such an instrument. The story of the telephone concerns many men who
preceded Bell, one of whom, Philip Reis, produced, in 1861, a mechanism
that could send a few discordant sounds, though not the human voice,
over an electric wire. Reis seemed to have based his work upon an
article published in "The American Journal of Science" by Dr. C.G. Page,
of Salem, Mass., in 1837, in which he called attention to the sound
given out by an electric magnet when the circuit is opened or closed.
The work of these experimenters involves too many technicalities for
discussion in this place. The important facts are that they all involved
different principles from those worked out by Bell and that none of
them ever attained any practical importance. Reis, in particular, never
grasped the essential principles that ultimately made the telephone a
reality. His work occupies a place in telephone history only because
certain financial interests, many years after his death, brought it
to light in an attempt to discredit Bell's claim to priority as the
inventor. An investigator who seems to have grasped more clearly the
basic idea was the distinguished American inventor Elisha Gray, already
mentioned as the man who had succeeded in perfecting the "harmonic
telegraph." On February 14, 1876, Gray filed a caveat in the United
States Patent Office, setting forth pretty accurately the conception of
the electric telephone. The tragedy in Gray's work consists in the fact
that, two hours before his caveat had been put in, Bell had filed his
application for a patent on the completed instrument.

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

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

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

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

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

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

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

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

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

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

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



CHAPTER V. THE DEVELOPMENT OF PUBLIC UTILITIES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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




BIBLIOGRAPHICAL NOTE

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

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

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





End of Project Gutenberg's The Age of Big Business, by Burton J. Hendrick