Robber Barons
Were the Robber Barons captains of industry, without whom this country could not have taken its place as a great industrial power, or were they just robber, limiting healthy competition and robbing from the poor to benefit the rich? Where do we draw the line between unfair business practices and competition that leads to innovation, investment, and improvement in the standard of living for everyone? Would the industrial economy have succeeded without entrepreneurs willing to take competition to its extremes?
The robber barons and captains of industry of the last quarter of the nineteenth century were all under forty in 1861: Jay Gould, Jim Fisk, J.P. Morgan, Philip Armour, Andrew Carnegie, James Hill and John Rockefeller were in their early twenties; Collis Huntington and Leland Stanford were over thirty, and Jay Cooke, not yet forty. Their business acumen, willingness to take risks, and downright arrogance resulted in exorbitant, some would say obscene, wealth, much of which was, at this point, plowed back into the businesses to create even more capital. Their power is evident in the panic of Black Friday (September 24, 1869), caused by the efforts of Jim Fisk and Jay Gould to corner the gold market.
Jay Gould and James Fisk Jr. are linked in American business history in the age of “robber barons.” Together, they controlled the Erie Railroad, were part of the Tammany Hall set, and wrangled with J.P. Morgan over the Albany & Susquehanna Railroad. James Fisk, Jr.was born April 1, 1835 in Pownal, VT. His early work history is quite colorful and includes a stint in the circus, as well as work as a waiter, peddler and salesman. In Washington, D.C. he did well with Army contracts during the Civil War and later became a stock broker. It was about this time that his path crossed with Jay Gould. Jay Gould’s background was a bit more traditional.
Gould and Fisk’s earliest collaboration involved the Erie Railroad. Much of Erie’s stock was owned by Cornelius Vanderbilt, but they wanted to supplant Vanderbilt. They came up with a scheme to issue fraudulent stock in the company to weaken Vanderbilt’s position. This fight over control of the railroad was messy (it was sometimes called the Erie War) but eventually Vanderbilt ceded control of the railroad. Once in control of the company the men sought to curry favor and appointed Tammany Hall’s William Tweed, AKA Boss Tweed, a director of the company in return for legislation favorable to their business interests.
The fortunes of Gould and Fisk didn’t go well over the next few years. Fisk’s longtime mistress took up with Edward Stokes and the two attempted to blackmail Fisk. Fisk resisted and Stokes, frustrated and facing bankruptcy, shot and killed Fisk in January 1872. Jay Gould wasn’t one to give up. Instead he went west where he gained control of several railroads, including Union Pacific.
Andrew Carnegie was largely responsible for the great advances in steel production. Carnegie, who came to America from Scotland as a child of 12, progressed from bobbin boy in a cotton factory to a job in a telegraph office, then to one on the Pennsylvania Railroad. Before he was 30 years old he had made shrewd and farsighted investments, which by 1865 were concentrated in iron. Within a few years, he had organized or had stock in companies making iron bridges, rails, and locomotives. Ten years later, he built the nation’s largest steel mill on the Monongahela River in Pennsylvania. He acquired control not only of new mills, but also of coke and coal properties, iron ore from Lake Superior, a fleet of steamers on the Great Lakes, a port town on Lake Erie, and a connecting railroad. His business, allied with a dozen others, commanded favorable terms from railroads and shipping lines. Nothing comparable in industrial growth had ever been seen in America before.
Though Carnegie long dominated the industry, he never achieved a complete monopoly over the natural resources, transportation, and industrial plants involved in the making of steel. In the 1890s, new companies challenged his preeminence. He would be persuaded to merge his holdings into a new corporation that would embrace most of the important iron and steel properties in the nation. The United States Steel Corporation, which resulted from this merger in 1901, illustrated a process under way for 30 years: the combination of independent industrial enterprises into federated or centralized companies. Started during the Civil War, the trend gathered momentum after the 1870s, as businessmen began to fear that overproduction would lead to declining prices and falling profits. They realized that if they could control both production and markets, they could bring competing firms into a single organization. The “corporation” and the “trust” were developed to achieve these ends.
Corporations, making available a deep reservoir of capital and giving business enterprises permanent life and continuity of control, attracted investors both by their anticipated profits and by their limited liability in case of business failure. The trusts were in effect combinations of corporations whereby the stockholders of each placed stocks in the hands of trustees. (The “trust” as a method of corporate consolidation soon gave way to the holding company, but the term stuck.) Trusts made possible large-scale combinations, centralized control and administration, and the pooling of patents. Their larger capital resources provided power to expand, to compete with foreign business organizations, and to drive hard bargains with labor, which was beginning to organize effectively. They could also exact favorable terms from railroads and exercise influence in politics.
The Standard Oil Company, founded by John D. Rockefeller, was one of the earliest and strongest corporations, and was followed rapidly by other combinations — in cottonseed oil, lead, sugar, tobacco, and rubber. Soon aggressive individual businessmen began to mark out industrial domains for themselves. Four great meat packers, chief among them Philip Armour and Gustavus Swift, established a beef trust. Cyrus McCormick achieved preeminence in the reaper business. A 1904 survey showed that more than 5,000 previously independent concerns had been consolidated into some 300 industrial trusts.
The trend toward amalgamation extended to other fields, particularly transportation and communications. Western Union, dominant in telegraphy, was followed by the Bell Telephone System and eventually by the American Telephone and Telegraph Company. In the 1860s, Cornelius Vanderbilt had consolidated 13 separate railroads into a single 800-kilometer line connecting New York City and Buffalo. During the next decade he acquired lines to Chicago, Illinois, and Detroit, Michigan, establishing the New York Central Railroad. Soon the major railroads of the nation were organized into trunk lines and systems directed by a handful of men.
During this period, public antipathy toward the trusts increased. The nation’s gigantic corporations were subjected to bitter attack through the 1880s by reformers such as Henry George and Edward Bellamy. The Sherman Antitrust Act, passed in 1890, forbade all combinations in restraint of interstate trade and provided several methods of enforcement with severe penalties. Couched in vague generalities, the law accomplished little immediately after its passage. But a decade later, President Theodore Roosevelt would use it vigorously.
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
