The relentless revolution: a history of capitalism

by Joyce Appleby

  The competition that promoted the formation of large, market-commanding corporations in the United States had a different result in Germany. There the depression of 1873–1896 encouraged manufacturers to form cartels, organization of producers within a single sector directed to achieving collective goals. By 1911 there were more than five hundred cartels; by 1923, fifteen hundred. The common law of England and the United States construed the price regulations of a cartel as a restraint of trade. When Franklin Delano Roosevelt in the midst of the Great Depression of the 1930s shepherded through Congress the National Recovery Act, which imposed cooperative rules upon manufacturing companies, the Supreme Court declared it unconstitutional. No such obstacle operated under Europe’s civil law. This meant that in Britain or the United States cartels could be formed, but their rules could not be enforced in a court of law. The scrappy competition that marked enterprises in the eighteenth and early nineteenth centuries had given way to the imperative to moderate the destructive aspects of competition.

  Cartels reflected a cautious, defensive strategy. Aimed at conserving earnings rather than exploiting opportunities, cartels promoted slow, orderly advances in their particular industry, usually setting prices at the level of the least efficient producer. When it became obvious that stability required more than price setting, cartels became even more intrusive by allocating shares of the market, or quotas, to individual firms. Like most institutions that prevail for a long time, cartels had both advantages and disadvantages.34 They tended to reduce obsolete practices through the spread of information, and they prevented erratic swings in returns by setting prices. They encumbered individual decision making and sometimes the innovations that came along with it.

  As a collaborative endeavor, a cartel relied upon direction from professional administrators working at cartel headquarters to make industrywide decisions that would smooth out the ups and downs of trade. They also protected individual companies from being swallowed up by larger outfits. Whereas Carnegie Steel and Federal Steel each produced 35 percent of steel ingots and 45 percent of rails in the United States, no steelmaker in the Ruhr Valley produced as much as 10 percent of either product.35

  With its own highly bureaucratized regime in place, the German imperial government was in a position to channel economic developments, but in fact both the federal and state governments pretty much left the industrialists alone. What the Prussian government had done since the beginning of the nineteenth century was to initiate technical and scientific research that was diffused through a network of engineering schools.36 This became the source of Germany’s competitive edge in chemicals, metals, and electrical and heavy machinery. Having put in place tariffs to protect the German steel and iron industries from English and Belgian competition, the government left it to its industrialists to run their companies. The United States followed other European countries in raising tariff walls to protect their “home” industries. By the 1890s German and American economic preeminence was pronounced and accelerating.

  The English, the pioneer of free trade policies, along with the Netherlands and Belgium, declined to erect tariff barriers, and they suffered from that decision. Not that they got much credit for it. A typically jaundiced view was expressed by a diplomat who compared Great Britain’s free trade policy with someone climbing a tree full of fruit and kicking away the ladder to it.37 But in fact everyone benefited. Britain’s willingness to hold to free trade during downturns in the world economy meant that countries suffering from gluts had some outlet for their goods, a not inconsiderable service that stabilized the market for the long run, despite short-run costs to itself.38 Everyone came to appreciate this service after it ended when adverse circumstances forced Great Britain to abandon its leadership in 1931. In another “peculiarity of the British,” they had a penchant for keeping control of businesses in the hands of family owners and so did not undertake the corporate restructuring that the Americans and Germans had done. The failure to do so was painful as these firms watched the biggest shares in the international markets in steel products, electrical equipment, and dyestuffs pass to their competitors. Small may have been beautiful, but it was not as effective at the end of the nineteenth century.

  One might expect cartels and tariffs to breed a complacent business environment, but German producers performed well, competing for shares of the domestic market. The momentum created at mid-century by railroad building was strong enough for an almost seamless transition to the new technologies in electricity, chemistry, and precision engineering.39 The Germans became the world’s trailblazers with these new winners of capitalism. The German electrical engineering industry was moving toward global dominance. By the early twentieth century it was marketing half the electrical products in the international market. At the same time Germany achieved almost a monopoly of European commerce in fine chemicals, dyestuffs, and optics.

  The Scope of Industries

  Germans devoted substantial resources to scientific education even while they shared the high premium Europeans put on classical studies. German researchers during the nineteenth century only later found practical applications for their discoveries. And those applications were astounding! Germans gained more knowledge of energy, electricity, and optics than their peers in France and Great Britain combined. Academic researchers and business leaders worked hand in glove in what contemporaries sometimes called a secret marriage. By 1890 there were twice as many chemists in Germany as in Great Britain. They gave their country a virtual monopoly of dyestuffs before 1914. Their laboratories led the way in synthesizing natural materials, like fertilizer and dyes. After Germany’s humiliating defeat by Napoleon some concluded that their country would do better concentrating on science and the economy.40 From Waterloo to Verdun, Germany industrial production grew an amazing forty-fivefold while agricultural output increased by three and a half times with population more than doubling. Malthus had been proven wrong; agricultural productivity had kept up with population growth.

  Again the technological trajectory of the United States differed from that of Germany. Individual American inventors, like Thomas Alva Edison and Alexander Graham Bell, built major companies from their own workshops. Both men set up laboratories from the early returns of their inventions. They succeeded in establishing landmark corporations to capitalize on what electricity had wrought. They had been born in the same year, 1847, but it would be hard to find two more different men. Bell was the son and grandson of distinguished Scottish educators and came to the telephone by way of a career devoted to helping the deaf. Edison was an autodidact. When he quit school, he left behind teachers convinced that he was a slow learner. He educated himself in chemistry while working as a telegraph operator.

  Remembered most for the incandescent light bulb, which banished the darkness of night without smoke, soot, heat, or the danger of fire, Edison had a genius that was as prolific as it was profitable. With 1,093 patents, he still holds the world’s record. He also nurtured the talent of others. From Edison’s lab came Nikola Tesla, a Hungarian immigrant whose patent for the radio the Supreme Court upheld. Simultaneously, a slew of talented men from many countries had been working on the radio, including James Clerk Maxwell, a Scotsman; Mahlon Loomis, an American dentist; and the Italian Guglielmo Marconi. Many of Edison’s ideas emanated from telegraphy. Bell too began with telegraphy, and his great contribution was making electricity do the work of transmitting sound. Others working with both electricity and telegraphy developed phonographs, telephones, and motion pictures. The commercialization of these inventions fostered popular modes of entertainment that became the cultural signature of the twentieth century.

  Electricity did more than inspire new inventions; it provided a new form of power. Switching from steam to electrical power in manufacturing proved complicated and costly. It was not just a question of turning on a switch, but of converting the entire equipment of a plant. Sources for electrical power had to be secured. Both water—hydropower—and steam-drive
n turbines produced electricity for manufacturers who could either purchase their electricity from a new utility company or generate it at their sites. George Westinghouse played a major role in popularizing electricity by developing the transformer, which could deliver electricity over long distances. He tapped the power of Niagara Falls through generating stations that lit up Buffalo twenty miles away. He was also the champion of alternating current when Edison championed direct current. Direct current had the disadvantage of fading after traveling a mile while Westinghouse’s alternating current went hundreds of power-filled miles. This contest took a bizarre twist when publicists claimed that the danger of AC was proved by its efficient use in New York’s electric chair.

  The transfer from steam to electricity was uneven and took more than half a century. Apparel and printing firms led the way, with fabricated metals and transportation equipment following closely behind.41 Unforeseen ramifications unfolded. Elevators, for instance, made possible the skyscrapers that characterized modern architecture. Electricity changed one of the most conservative occupations, that of the building trade. The circular saw, lathe, router, and drill sped up the work of construction, but the rhythms remained human. The man (and sometimes woman) walking the beams on a building site still control the tool in his or her hand. The same could be said about the wonderful gadgets that began filling kitchens and home laundries.

  In almost every Western country a mechanical wizard was working on a model of an “automobile.” As early as 1771, the Frenchman Nicholas Joseph Cugnot had designed a steam-powered vehicle. The Germans Gottlieb Daimler and Wilhelm Maybach succeeded with a two-cylinder internal-combustion engine. Their competitor Karl Benz put a car into production. He celebrated his three-wheeler’s success by taking his wife on a motor tour in 1888. The American Ransom Olds enthralled the American public in 1901 with his “merry Oldsmobile,” the first car produced in any quantity. At the turn of the century there were fifty start-up companies attracting millions of venture dollars, marks, francs, and pounds, each trying to exploit the potential of placing a machine inside a carriage and letting it rip. The group backing the new Ford Motor Company wanted to produce cars for the rich. Their inventor, Henry Ford, had a different idea. He wanted to figure out how to cut costs, speed up production, make partners out of his salesmen, and supply cars for Mr. Everyman.42

  His 161 patents demonstrated Ford’s technical prowess, but his real genius turned out to be in the classic capitalist activities of production, competition, labor management, and marketing. In all these aspects of running a successful company, everything Ford did was original, totally original. His investors were not. When they failed to get on board his program, he bought them out. Most critical to Ford’s phenomenal success was his vision that the car could be a popular acquisition if he could cut costs and enhance efficiency on the shop floor. This was his lodestar.

  When Ford began, cars were made by craftsmen, one at a time. He revolutionized production by taking unskilled laborers, assigning them simple tasks in a thorough division of the labor, and assembling the cars in a line. He invented mass production. His mass producers at one factory spoke fifty different languages, but it didn’t matter, because they needed to know how to do only one task.43 Ford’s success can be measured by the fact that his famous assembly line, when perfected, could turn out a car in ninety-eight minutes! The Model T made its appearance in 1908; it was elegant in design and engineering and available in any color, Ford announced, “as long as it was black.” More important, most middle-class Americans could afford one, including Ford’s workers, whom he started paying five dollars a day in 1914. His goal was for his men to earn wages high enough for them to buy what they produced. And buy they did.

  The scientific management of labor had already attracted the attention of Frederick Winslow Taylor, who carefully observed men working in the steel industry in the 1880s and 1890s. Taylor brought to his research the conviction that scientific management could blend the interests of bosses and workers. This was probably too much to be expected, but Taylor did describe how to make time and motion at the work site more precise and management more attuned to workers’ rhythms. He introduced the idea of rest breaks in the work schedule. Production rates rose. Taylor had the distinction of being admired by both Adolf Hitler and V. I. Lenin. Taylorism became the perfect complement to the rationalization of corporation management and what came to be known as Fordism, a melding of mass production and mass consumption.

  By 1929 the River Rouge plant in Michigan was turning out a car every ten seconds. In the previous two decades the cost of a Model T had dropped from $850 to $260—or fifty-two daily paychecks for someone working the Ford assembly line. The 122 million Americans then, half of them under the age of twenty-six, were enjoying the pleasure of driving seventeen million cars, a good percentage of them Fords.44 At the same time, France, Germany, and Great Britain, with an aggregate population comparable to that of the United States, had fewer than two million cars. Amazingly, America led the world in both agricultural and industrial output.

  Ford pioneered another marketing innovation. He established dealerships where his Model Ts, or tin lizzies, as they were called, might be bought and serviced. By 1912 seven thousand Ford dealerships had opened with fancy showrooms to lure in consumers from Harrisburg to Houston, Portsmouth to Portland. Still, he had to compete with 273 other companies manufacturing cars in 1909!45 The automobile had taken the place of the railroad as the first gear of the economy by 1920. When Henry Ford closed down his River Rouge plant for six months in 1927 in order to switch to the Model A, America’s industrial production index dropped 11 percent.46

  William Durant proved that there was room for more than one genius in the automobile industry. Beginning with the Buick, Durant next acquired Oldsmobile and seized the chance during the stock market panic of 1907 to buy up lots of other automobile companies along with firms that made automobile accessories. By 1908 he had created General Motors, which was to give Ford more than a run for its money. Like a cat with more than one life, Durant went under in 1911, only to bounce back with a fierce competitor to the Model T that he called Chevrolet. Seeing an opening in Ford’s insistence upon making black cars that looked like boxes, Durant offered buyers attractive colors, softer seats, and the chance to buy one of GM’s five cars—Cadillac, Buick, Oldsmoble, Pontiac, and Chevrolet—on credit.47 As a later president of General Motors, Alfred Sloan, said, a “car for every purse and every purpose.” Soon Ford had to follow suit; a pattern had been set for Detroit automakers.

  Moving through the ranks of the automobile industry was Alfred P. Sloan, Jr., who became GM’s president in 1923. An electrical engineer and graduate of the Massachusetts Institute of Technology, Sloan turned General Motors into the largest automotive corporation in the world—a leader in both sales and profits. In the 1930s he made the Chevy, not the Ford, the car of choice for most American buyers. Taking advantage of Ford’s fetish about standardization, Sloan introduced style changes for each year’s models, much to the delight of American consumers.

  While the kinks were being worked out of automobile production during the first decade of the twentieth century, Wilbur and Orville Wright had been experimenting with kites, gliders, and biplanes in anticipation of their highly publicized fifteen-second airplane flight from Kitty Hawk, North Carolina, in 1908.

  Imperatives of Automobile Driving

  Retrospectively, the conversion to private transportation seems to have unfolded smoothly, but consider what a demanding novelty the car was. Instead of sitting in a bus or train, ordinary people had to learn to operate a complicated machine. Driving any distance depended upon the construction of roads as well as the availability of fuel. Formerly bought in grocery stores, the oil needed by the car promoted a new retailing business, drive-in gas stations along the roads between cities. People even had to acquire new mores to accommodate the automobile. The limited distance covered by a walker or horseback rider had now extended far b
eyond the watchful eyes of parents, bosses, and policemen. Greater mobility and an enclosed space allowed for greater sexual freedom—or at least parents feared this was so.

  Initially cars used the rutted roads of carriages, carts, and wagons, but the rattling of passengers’ teeth drove home the point that a smoother ride would be desirable. Macadam roads made of pressurized broken stone had been around for a half century; with cars, various additives were tried to give the macadamized roads more stability. Tar with crushed rocks did yeoman service for a while until cars triggered their own solution to the paving challenge. The steady demand for petroleum produced more and more by-products, like asphalt, that proved excellent in surfacing roadbeds. Urbanites preferred cement, which was smoother and better suited for making curbs, a new addition to the modern city. It’s staggering to think of the thousands of construction teams sent out across the country to level, grade, and lay mile upon mile of paved roads, all summoned by the automobile and its rough cousin the truck.

  Cars also had the capability of hurting people and damaging property, so they gave the insurance industry a big boost. And then there was the need for trained mechanics to tune these complicated machines lodged in the garages of millions of people for whom a look under the hood was an invitation to vertigo. That did change, and many an American lad spent his Saturdays lying underneath the family car tinkering with its engine. Tires frequently went flat; changing them became an imperative skill in the male repertoire until radial tires, introduced in the 1970s, made flats a thing of the past. Microprocessors now operating in cars have taken their repair out of the hands of amateurs.