The relentless revolution: a history of capitalism (33 page)

Fractional distillation involves heating oil. Because the components of oil have different boiling points, the process produces in sequence gas, naphtha, gasoline, kerosene, and lubricating oil. Only gasoline had no practical use at the time. Thirty years later the arrival of the automobile changed that. Standard Oil enjoyed monopoly control of the oil industry. In 1882 Rockefeller created one of the first trusts out of some forty separate companies, a business form that consolidated decision making. When such business combinations stirred up controversy, he defended them as essential to commanding capital and delivering more products at lower prices. In fact they facilitated central management. By 1896 Rockefeller was worth some two hundred million dollars, twice the fortune of Vanderbilt at his death twenty years earlier.

Rockefeller’s business tactics had not escaped critical notice. A devout Baptist, he recoiled at the hardhearted reputation he had acquired, especially the way Ida Tarbell depicted him in a popular muckraking magazine series. Following the advice of a public relations consultant, Rockefeller increased his giving to Baptist churches and began funding medical schools. Having embarked on a new career as a philanthropist at the age of fifty-seven, Rockefeller sponsored the idea of matching funds, where he would contribute to a project only if others did. He founded the University of Chicago through such a method and then in 1913 set up the Rockefeller Foundation to “promote the well-being of mankind throughout the world.” After divesting himself of five hundred million dollars, Rockefeller died a popular man.

Retrospectively, the lives of successful entrepreneurs appear boringly similar, especially if they started out poor. As boys they excel at whatever jobs they take at fourteen or fifteen, thrive as precocious self-improvers, display a determination to set up their own businesses, persevere assiduously to some level of prosperity, attract the attention of sponsors, and then launch themselves into new industries, all along divining the direction of economic growth. What stands out is their single-mindedness and their inability to stop their upward climb until they’ve reached the top or even created a top higher than anyone had ever imagined. Vanderbilt in railroads, Carnegie in steel, and Rockefeller in oil rode the tiger of fixed capital costs into the new world of giant corporations and trusts. They and their peers changed the landscape of capitalism. Adam Smith had argued that the invisible hand of competition would work to deliver goods at lower prices as entrepreneurs strove for a larger share of the market. But this assumed easy entries for new competitors. Instead high fixed costs limited competition to those with ready funds.

German Entrepreneurs

When August Thyssen died, the
New York Times
obituary dubbed him “the Rockefeller of the Ruhr.” This was a concession to the alliteration of
r
’s, for Thyssen was more like Andrew Carnegie. His fierce, competitive energy transformed the German steel industry. He came from a wealthy Rhineland banking family. His marriage at thirty brought even more money to his enterprises. Thyssen began buying up mills to meet the growing demand for the strip steel used in barrels, bales, crates, tubes, and pipes. He marketed his goods as far away as Russia, establishing foreign sales as a major component of his business. When the crisis of 1873 depressed prices, Thyssen boldly expanded production, diversified his enterprises, and turned to sales promotion. This of course is what Vanderbilt did, both men demonstrating the risk-taking and counterintuitive decisions that made them the stuff of legends.

By the end of the 1880s the operation of Thyssen & Company included coal mining, iron smelting, blast furnaces, steel mills, and machine engineering. The specialized, quality products that Thyssen offered in German, French, and English catalogs contrasted with the standardized high-volume production of American companies. He had a fine technical education, and he turned out to be a natural business organizer, developing a highly sophisticated structure of operations. He expected his department managers—often men in their twenties and thirties—to be as versatile as he was in handling both technical and marketing matters. The vertical integration he achieved in most of his production lines gave him enormous cost advantages. Yet despite the size of his operation, he maintained family control until the 1920s. Thyssen was a larger than life figure. He invested in new technologies that involved a constant addition of capital, a response that contrasted sharply with the now-cautious British entrepreneurs.
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Ernst Werner von Siemens was more a scientist, an engineer, and an inventor than a businessman, yet he founded one of the world’s most successful corporations. The Prussian budget, when he grew up, devoted almost as much money to education as it did to the military. Not having enough money to study civil engineering, he entered the Prussian artillery corps in 1835. Six years of technical study brought young men exemptions from two years of military service and a commission in the army reserve, complete with a uniform! The army benefited as well from this program. Siemens’s early inventions included a gold and silver electroplating process, a differential regulator, and several devices to improve the Wheatstone telegraphy machine. After leaving the army, Siemens concentrated on practical applications to gain money for his beloved experiments. He was the first to suggest using gutta-percha, a latex extracted from various tropical trees, to wrap electric cables for underground and underwater cable lines. He developed instruments for continuously testing cables like the one that linked Great Britain and India.

In 1847 Siemens’s first company moved aggressively into the new field of electricity. Siemens discovered the dynamoelectric principle that enabled batteries to generate continuous current and high voltage. In the 1860s he patented inventions involving electricity. New products moved through his laboratory with the regularity of the solar system. Publishing papers on dynamos, heat resistance, and measuring instruments and various electric magnetic apparatuses, Siemens pointed German industry toward new processes and products. He left a company that has remained closest to his founding initiatives in energy, electrical engineering, and communications.

Carl Zeiss came out of the strong German handicraft tradition that gave to many cities and regions a specialty: the gold, silver, and copper wares of Augsburg, the woodcrafts and toys of Nuremberg, the knives and scissors of the Rhineland, steel tools from Remscheid and brass ones from Stolberg. To which we might add the beer of Bavaria. After a twelve-year apprenticeship, Zeiss benefited from the biologists’ new interest in examining cells. He won a contract for making and repairing all of the scientific apparatuses of the University of Jena in 1846. Twenty years later his firm produced its thousandth microscope; forty years later, its ten thousandth. In 1866, Zeiss teamed up with Ernst Abbe to study the pressure that the latest microscopes put on glass. Their challenge was to modify glass to meet these demands. At the same time, they were experimenting with cameras, an invention of increasing importance to consumers, scientists, and manufacturers. Together Zeiss and Abbe discerned that rays from lenses focused on different places. Studying the mathematics of this phenomenon led to the new wave theory of light. In 1870 another glass chemist, Otto Schott, joined the Zeiss and Abbe enterprise.

At this point the firm moved beyond the horizons of most German artisans by emphasizing new product design. In Zeiss’s insistent improvement of scientific apparatus to accommodate scientific advances, he, along with his contemporaries Siemens and the chemists Justus von Liebig and Fritz Haber, linked German capitalism to technological frontiers. After Zeiss’s death in 1888, his firm achieved microscopes of magnification of 2000X that could identify good from bad bacteria. Today it produces binoculars, cameras, planetariums, microscopes, semiconductors, nanotechnology, spectrometers, and optronics.

Haber directed his research to agricultural searching for a way to replace the fertilizers German farmers needed during World War I, when the British blockade cut off their supply of nitrates from Chile and Peru. Haber’s synthesis of ammonia made possible the nitrogen fertilizers that plumped up crop yields worldwide. His Nobel Prize citation said that he had wrested bread from air. Haber had also experimented with chemical gases, leading to the development of pesticides, among them Zyklon B. In a bitter coda to a successful life, the Nazis used Zyklon B in its concentration camps, where several of Haber’s relatives died.
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Less macabre but still worrying, we can appreciate today that many of these advances compromised the atmosphere’s future with their accelerating use of fossil fuel and chemical fertilizers.

All through the century, people moved in a chain migration from farm work to rural industry and small-town shops to factories, mines, and railroad jobs. Without the protection that wealth confers, they had to accept changes whether they wanted them or not.
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These men and women could be old-fashioned or up-to-date in their attitudes, loyal, insubordinate, diligent, slovenly, slow, or bright, as human beings are wont to be. But in capitalist calculations they counted as commodities, subject to the laws of supply and demand. Malthus had interpreted one of these laws applying to laboring men and women when he predicted that the growth in the supply of babies in response to young people’s employment opportunities would sooner or later get caught in the scissors of declining harvests. He had not counted on the improvements in farming that enhanced crop yields. Still, his point about the short-run effect of increasing births was on the mark.

In the first half of the century the working class did not do well in Europe. Living standards were dropping in both rural and urban areas. The patterns of birth and death that had continued for centuries were being disrupted by greater fertility and lower morality. Wages did not keep up with expenses, and women in particular suffered. Though life had never been easy for the rural poor, in the cities there was marked job discrimination. The persistent short supply of food led women to defer to their husbands’ greater need for nutrition. In the English countryside when farmers, lured by new farm equipment, switched from raising livestock to growing grain, they pushed women out of paid farm work and into poor-paying work or homebound drudgery.
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Women also suffered from their husbands’ vulnerability to layoffs and industrial accidents.

Changing Options for the Poor

The mechanization of farm equipment, at first drawn by horses and later by steam and internal-combustion engines, had a worldwide impact. The bountiful harvests of American farms, thanks largely to Cyrus McCormick’s reaper, ushered in a period of prosperity for America’s family farms and drove down world commodity prices. Cheap American grains prompted calls as early as the 1870s within European countries for tariff protection. Easily transported across the Atlantic by the steam-powered shipping industry, America’s abundant harvests slowly wiped out the peasant economies of eastern and southern Europe. There ensued a reordering of agricultural production as countries rushed to find a place in the global division of agricultural specialties. In this system, farmers planted one or two crops instead of the diversity that they had grown earlier. Agricultural corporations began to replace farming families, whose members crowded into nearby cities or emigrated.

An alternative to enduring bad living conditions in Europe was to look for a new home in the countries of North or South America or to go yet farther, to Australia or New Zealand. As early as 1818, officials in Westphalia reported “a wandering spirit” and “the craze to emigrate to America.” By the 1840s one thousand Europeans were arriving in the United States each week. Two decades later most European countries had lifted all restrictions on travel for women and for those men who had completed their military service. Starting at the end of the nineteenth century, redundant rural workers in Poland, Russia, Hungary, Italy, Serbia, and Greece crossed the Atlantic to make a fresh start abroad. Others moved to their own industrializing cities. In 1892 a receiving center opened up on Ellis Island in the harbor of New York City. When immigration peaked in the first decade of the twentieth century, almost a million men, women, and children were arriving every year.

Everywhere people were on the move. In the Pacific, waves of Chinese left for Siam, Java, the Malay Peninsula, British Columbia, New South Wales, and California, which also attracted immigrants from Japan. An estimated three million Indians went to Nepal and East Africa as migratory workers.
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In all, close to fifty million left southern China and India for Southeast Asia, and the same number of Russians and Chinese moved to Central Asia, Siberia, and Manchuria.
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Spain sent more than a million people to Cuba and Latin America. Italians went to the United States, Argentina, and Tunisia; the French to Algeria. Despite its advanced economy, Great Britain sent twelve million of its men and women to the United States, New Zealand, Canada, and Australia while six million Germans emigrated to Brazil and North America. Once a beachhead of Bavarians or Irish or Swedes had been established abroad, it was easier for relatives and friends to make the journey. Clearly the new economic practices associated with capitalism were having profound and far-reaching effects.

While European populations grew, in the United States population exploded, going from five and a half million in 1800 to seventy-six million in 1900. A decade later there were ninety-two million Americans. White Latin Americans longed for European immigrants to whiten their population; manufacturers in the United States needed men and women to run their factories. In all, fifty-six million European men, women, and children made Atlantic crossings in what was the largest migration in history.
¹¹
The slave trade had brought eleven million. Since most of the immigrants were young and male, the United States had a low dependency rate with its men and women working at full tilt. Relatively few people were too young or too old to work.