A Patriot's History of the United States: From Columbus's Great Discovery to the War on Terror (89 page)

With falling prices came greater sales. Carnegie Steel saw its capital rise from $20 million to $45 million from 1888 to 1898, when production tripled to 6,000 tons of steel a day. “The 4,000 men at Carnegie’s Homestead works,” noted Paul Johnson, “made three times as much steel in any year as the 15,000 men at the great Krupps works in Essen, supposedly the most modern in Europe.”
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Carnegie slashed the price of steel from $160 a ton for rails in 1875 to $17 a ton by 1898. To Carnegie, it all came down to finding good employees, excellent managers, and then streamlining the process.

That frequently antagonized labor unions, for whom Carnegie had little patience. It was not that he was against labor. Quite the contrary, Carnegie appreciated the value of hard work, but based on his own experience, he expected that workers would do their own negotiating and pay would be highly individualized. He wanted, for example, a sliding scale that would reward greater productivity. Such an approach was fiercely resisted by unions, which, by nature, catered to the least productive workers. Even though he was out of the country when the famous Homestead Strike (1892) occurred—Frick dealt with it—the Scotsman did not disagree with Frick’s basic principles, only his tactics. Homestead was a labor-relations blunder of significant proportions, but it tarnished Carnegie’s image only slightly. Even Frick, who had tried to sneak in Pinkerton strikebreakers at night to reopen the company and break the strike, became a sympathetic figure in the aftermath when an anarchist named Alexander Berkman burst into his office and shot him twice. After the maniac was subdued, Frick gritted his teeth and insisted that the company physician remove both bullets without anesthesia. The imperturbable Frick then wrote his mother a letter in which he scarcely mentioned the incident: “Was shot twice today, though not seriously.”
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Frick had only come into the presidency of Carnegie Steel because, by that time, Carnegie was more interested in giving away his fortune and traveling in Europe than in running the company. He epitomized the captains of industry who single-handedly transformed industry after industry. His empire brought him into contact with John D. Rockefeller, who had purchased control of the rich Mesabi iron range in Minnesota, making Carnegie dependent on Rockefeller’s iron ore. When Carnegie finally decided to sell his business, he sold it to the premier banker in America, J. P. Morgan, at which point Carnegie’s second in command, Charles Schwab, negotiated the deal. Schwab then went on to become a powerful steel magnate in his own right. The sale of Carnegie Steel to Morgan for $450 million constituted the biggest business transaction in history, and made Carnegie, as Morgan told him, “the richest man in the world.” The Scotsman proceeded to give most of it away, distributing more than $300 million to philanthropies, art museums, community libraries, universities, and other endowments that continue to this day.

It is difficult to say which of the nineteenth-century captains of industry was most important, though certainly Carnegie is in the top three. The other two, however, would have to be both John D. Rockefeller and J. P. Morgan, each a business wizard in his own right. Rockefeller probably came in for the most scorn of the three, even described as a “brooding, cautious, secretive man” who founded the “meanest monopoly known to history.”
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When Rockefeller died, another said, “Hell must be half full.”
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One can scarcely imagine that these comments were made about a devout Baptist, a lifelong tither, and a man who did more to provide cheap energy for the masses (and, in the process, probably saved the whales from extinction) than any other person who ever walked the earth.

Rockefeller’s father had been a peddler in New York before the family moved to Cleveland, where John went to school. He worked as an assistant bookkeeper, earning fifty cents per day. In that job he developed an eye for the detail of enterprise, although it was in church where he learned of a new venture in oil from a member who became one of his partners in building a refinery. In 1867, Rockefeller, along with Samuel Andrews and Henry Flagler, formed a partnership to drill for oil, but Rockefeller quickly saw that the real profits lay in oil refining. He set out to reduce the waste of the refining process by using his own timber, building his own kilns and manufacturing his own wagons to haul the kerosene, and saving money in other ways. From 1865 to 1870, Rockefeller’s prices dropped by half, and the company remained profitable even as competitors failed in droves.

Reorganized as the Standard Oil Company, the firm produced kerosene at such low costs that the previous source of interior lighting, whale oil, became exorbitantly expensive, and whaling immediately began to diminish as a viable energy industry. Cheap kerosene also kept electricity at bay for a brief time, though bringing with it other dangers. Standard Oil’s chemists, who were charged by Rockefeller to come up with different uses for the by-products, eventually made some three hundred different products from a single barrel of oil.

After an attempt to fix prices through a pool, which brought nothing but public outrage, Rockefeller developed a new concept in which he would purchase competitors using stock in Standard Oil Company, bringing dozens of refiners into his network. By the 1880s, Standard controlled 80 percent of the kerosene market. Since Standard shipped far more oil than anyone else, the company obtained discounts from railroads known as rebates. It is common practice in small businesses today for a frequent customer, after so many purchases, to receive a free item or a discount. Yet in the 1800s, the rebate became the symbol of unfairness and monopoly control. Most, if not all, of the complaints came from competitors unable to meet Rockefeller’s efficiencies—with or without the rebates—never from consumers, whose costs plunged. When Standard obtained 90 percent of the market, kerosene prices had fallen from twenty-six cents to eight cents a gallon. By 1897, at the pinnacle of Standard’s control, prices for refined oil reached “their lowest levels in the history of the petroleum industry.”
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Most customers of energy—then and now—would beg for control of that nature.

Yet Rockefeller was under no illusions that he could eliminate competition: “Competitors we must have, we must have,” he said. “If we absorb them, be sure it will bring up another.”
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Citing predatory price cutting as a tool to drive out competitors, Rockefeller’s critics, such as Ida Tarbell, bemoaned Standard Oil’s efficiency. But when John S. McGee, a legal scholar, investigated the testimony of the competitors who claimed to have been harmed by the price cutting, he found “no evidence” to support any claims of predatory price cutting.
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Like Carnegie, Rockefeller excelled at philanthropy. His church tithes increased from $100,000 per year at age forty-five to $1 million per year at fifty-three, a truly staggering amount considering that many modern churches have annual budgets of less than $1 million. At eighty years of age, Rockefeller gave away $138 million, and his lifetime philanthropy was more than $540 million, exceeding that of the Scotsman. Where Carnegie had funded secular arts and education, however, Rockefeller gave most of his money to the preaching of the Gospel, although his money helped found the University of Chicago.

John Pierpont (“J.P.”) Morgan, while not personally as wealthy as either Rockefeller or Carnegie, nevertheless changed the structure of business more profoundly. A contemporary of both men (Morgan was born in 1837, Rockefeller in 1839, and Carnegie in 1835), Morgan started with more advantages than either. Raised in a home as luxurious as Carnegie’s was bleak and schooled in Switzerland, Morgan had nevertheless worked hard at learning the details of business. As a young man, he was strong and tall, although he later suffered from skin disorders that left his prominent nose pockmarked and red. He studied every aspect of the banking and accounting business, apprenticing at Duncan, Sherman and Company, then worked at his father’s investment banking office in London. Morgan then joined several partnerships, one with Anthony Drexel that placed him at the center of many railroad reorganizations. His first real railroad deal, which consisted of a mortgage bond issue of $6.5 million for the Kansas Pacific Railroad, taught him that he needed to take a personal role in supervising any railroad to which he lent money. Within years, he was merging, disassembling, and reorganizing railroads he financed as though they were so many toy train sets.

After the Panic of 1873, the failures of several railroads led to a wave of bank bailouts by investment consortia. Most of those roads had received massive government subsidies and land grants, and were not only thoroughly inefficient, but were also laced with corruption. Only Hill’s Great Northern, financed almost entirely by private funding, survived the purge. As Morgan and his partners rescued railroad after railroad, they assumed control to restore them to profitability. This was accomplished by making railroads, in essence, look much like banks. Imposing such a structure on many of the railroads improved their operations and brought them into the managerial revolution by introducing them to modern accounting methods and line-and-staff managerial structures, and pushing them toward vertical combinations.

On one occasion, during the Panic of 1893, Morgan essentially rescued the federal government with a massive bailout, delivering 3.5 million ounces of gold to the U.S. Treasury to stave off national bankruptcy. Again, during the Panic of 1907, Morgan and his network of investment bankers helped save the banking structure, although by then he recognized that the American commercial banking system had grown too large for him to save again. By then, his completely rotund shape; stern, almost scowling, expression; and bulbous irritated nose left him a target for merciless caricatures of the “evil capitalist.” Although he hardly matched the private philanthropy of Rockefeller or Carnegie, the Atlas-like Morgan had hoisted Wall Street and the entire U.S. financial world on his back several times and held it aloft until it stabilized.

If Morgan, Rockefeller, and Carnegie had been the only three prominent American business leaders to emerge in the post–Civil War era, they alone would have composed a remarkable story of industrial growth. The entrepreneurial explosion that occurred in the 1830s, however, only accelerated in the postbellum era, unleashing an army of inventors and corporate founders who enabled the United States to leapfrog past Britain and France in productivity, profitability, and innovation. From 1870 to 1900, the U. S. Patent Office granted more than four hundred thousand patents—ten times what was granted in the previous eighty years. The inventors who sparked this remarkable surge owed much to entrepreneurs who had generated a climate of risk taking unknown to the rest of the world (including capitalist Europe and England). Much of the growth derived from the new emphasis on efficiency that came with the appearance of the managerial hierarchies. The goal was to make products without waste, either in labor or in raw materials, and to sell the goods as efficiently as possible.
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James B. Duke, who founded the American Tobacco Company, used the Bonsack rolling machine to turn out 120,000 cigarettes per day. Charles Pillsbury, a New Hampshire bread maker, invented the purifier that made bread flour uniform in quality. In 1872 he installed a continuous rolling process similar to Duke’s that mass-produced flour. By 1889 his mills were grinding 10,000 barrels of flour a day, drawing wheat from the Dakotas, processing it, then selling it in the East.
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Henry J. Heinz’s pickle empire, Joseph Campbell’s soup business, and Gustavus Swift’s meat-packing plants all used mass-processing techniques, combined with innovative advertising and packaging to create household brands of food items. Heinz added a flair for advertising by giving away free pickle samples at the 1892–93 Columbian Exposition in Chicago.
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Campbell’s soups and Pillsbury’s bread, along with Isaac Singer’s sewing machine, saved women huge blocks of time.

So did other home products, such as soap, which now could be purchased instead of made at home, thanks to British-born soap maker William C. Procter and his brother-in-law, James Gamble. Procter and Gamble processed and sold candles and soap to the Union army, mixing and crushing products used for bar soap. By 1880, P&G, as the firm was known, was turning out daily two hundred thousand cakes of its Ivory soap. The soap, by a fluke in which an employee had left a mixing machine on for too long, was so puffed up with air that it floated. Gamble had the advertising hook he needed: “It Floats!” announced his ads, and later, when an analysis of the composition of the soap showed that it had only .56 percent impurities, the company proudly announced that its product was “99-44/100% Pure.”
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Greed and Jealousy in the Gilded Age

Not every lumberman held to Frederick Weyerhaeuser’s appreciation for replenishing the forests, and not every oilman believed as Rockefeller did that kerosene ought to be cheap and widely available for the consumer. So perhaps it was inevitable that even as wages started a sharp upward rise in the late 1800s and, more important, real purchasing power of industrial employees grew at dramatic rates, a widespread dissatisfaction with the system surfaced.

Although entrepreneurs abounded, with more appearing every day, the fact of life is that not everyone can be an entrepreneur. Most people—other than farmers—worked for someone else and often labored in a factory or a mine, usually under difficult and occasionally dangerous conditions. Workers in the late 1800s often faced tedious, repetitive, and dreary jobs. Plumbers made $3.37 a day; stonemasons, $2.58 a day; and farm laborers, $1.25 a day, usually for a fifty-four-to-sixty-hour work week.
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In terms of that era’s cost of living, these wages were sufficient, though certainly not generous. Eleven pounds of coffee went for $1.00, a box of chocolate bonbons sold for $0.60, a shirt might cost $1.50 or a pair of boots $0.60, and a cigar (naturally) $0.05.
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A typical city family in Atlanta would pay, on average, about $120 per year for food, and all other expenses, including medical care, books, vacations, or entertainments, would cost perhaps $85.