by Hugh Brogan
The great game of capitalism had a hundred other hazards which regularly claimed their victims. In any single case it might not matter much, except to the individual loser and his dependants; but unfortunately, as the industrial economy grew ever larger, involving the destinies of more and more people, its financial structure grew ever more entangled, so that one man’s failure (say, Cooke’s) might lead to a run on his bank, which in turn would call in its loans, which meant pressure applied to other businessmen, possibly a downturn in economic activity, possibly a panic, if a big enough business were involved – Cooke’s again: so that suddenly dividends might be cut or suspended, factories closed, banks broken, and a downward spiral might begin, ending who knew where. Stricter state or federal laws might have helped to contain some of these ill-effects, but such laws were not on offer: apart from the universal creed that government should mind its own business, no one in his senses would have committed the management of American industry in any measure to the notoriously venal politicians of the period. No, if the economy was to be put on on a stable, predictable course, so that America’s great prospects could be realized steadily and harmoniously, the businessmen would have to do it themselves.
The businessmen were not wholly unsuited to the task. Perhaps no generation of Americans has ever received such a bad press as the so-called ‘Robber Barons’. In part this was simply because of their utter charmless-ness. Their virtues – courage, ingenuity, strength of will and in many cases a gloomy personal rectitude – were themselves unattractive, and their vices – their greed, their selfishness, their philistinism, their almost complete lack of scruple where business was concerned – were thoroughly repulsive. Of them all only Jim Fisk, who perhaps expiated his sins by being murdered in a quarrel about a woman, and Andrew Carnegie, the ebullient, idealistic salesman of steel, seem to have had any human warmth; and Carnegie’s behaviour during the Homestead strike and lockout7 was markedly less straightforward than that of his partner Frick, who had never pretended, in Carnegie’s fashion, to be the friend of his workers, and at least made it plain from the start of the episode that he expected the workers to go back on his terms or not at all. Frick, with some reason, felt betrayed by Carnegie, and the two men parted company; years later, when Carnegie tried to effect a reconciliation, Frick told the go-between, ‘You can say to Andrew Carnegie that I will meet him in hell (where we are both going) but not before.’ Like other multimillionaires, notably Pierpont Morgan, Frick spent much of his money on works of art, and left his elegant grey New York mansion and its incomparable contents to be a museum. Visitors can admire one of the finest personal collections of European art ever made; but the house itself, for all its grace, is somehow cold and morose. It seems to be haunted by the empty spirit of its builder, who sat alone in it, year after year, chewing his gold. Carnegie, who remarked that the man who died rich died disgraced, poured out his stupendous wealth on libraries, concert halls, schools, swimming-baths, teachers’ pensions. Rockefeller died rich, but appears to have given away as much as he kept, to institutions such as the University of Chicago. A devout Baptist, he never seems to have had any doubts about his social utility. ‘I saw a marvellous future for our country, and I wanted to participate in the work of making our country great. I had an ambition to build,’ he explained, in extreme old age. The long years in which his great creation, Standard Oil, was denounced as the worst of monopolies left him unruffled, although he hired a public relations man to proclaim his virtues to the public.
Nevertheless, the issue ought not to be posed in terms of personalities. The question is one of social function. Matthew Josephson asserted that the nineteenth-century capitalists were socially evil because, like the medieval robber barons, they battened by force on the labour of others without contributing anything in return.8 This is a defensible view. Even before the Civil War it was clear that there was a sharp distinction between the men who invented and organized and worked the industrial system and those who financed it. The first sort were interested in making things, the second in making money. The incessant plundering that disgraced the history of the railroads after the Civil War cannot be justified on economic grounds. Nothing can be said for Jay Gould, who got richer and richer while leaving a trail of devastation behind him in the form of bankrupt railroads, unemployed workmen, unfinished lines. Yet Gould was the almost inevitable price that America paid for her system of economic freedom. So long as the question of capital accumulation was all-important, and so long as government was kept at bay, the only source of funds was Wall Street, where stocks and bonds were trafficked in; and since the world is full of greedy scoundrels, some of them were certain to appear in that favourable environment. It is idle to say that things would have been different under socialism. For one thing, there is nothing in the history of real or self-styled socialist states to indicate that scoundrels are less common or successful in such regimes than under capitalism, and not much to suggest that socialist economics are more efficient than capitalist ones; for another, socialism, in any form, was not a choice which nineteenth-century America was in a position to make. The circumstances and the traditions of the country worked decisively against it. The only alternative economic system which was presented was slavery; and as we have seen, it had been rejected. Liberal capitalism was not going to start dismantling itself in the moment of its victory. It ignored its critics for a generation.
Instead many of the best and brightest of their time went into business, confident that they were furthering civilization and their country’s best interests by so doing. Nor were they wholly wrong. It was they who undertook the job of bringing order out of the chaos that America’s exuberant industrial growth had created.
Gradually consolidation and co-operation became terms with some of the magic of competition itself. Tired of the business of building parallel lines to steal each other’s traffic, and issuing watered stock, and designing attractively cut-price railroad rate schedules in the interest of cutting each other’s throats, and the occasional spectacular crash, the railroads began to work together. By the end of the century the greater part of America’s track mileage was tied up in half a dozen systems, which were thus able to impose a certain uniformity and stability on their operations. Even greater advances were made by Rockefeller and Standard Oil. Like other businessmen, the oil men first tried the so-called ‘pool’ arrangement, by which, unofficially, the various companies agreed to divide their market equitably between themselves on a pre-arranged basis: extra profits, should they accrue to any one company, would be distributed among all the pool members. Unfortunately it turned out that the members could not resist stealing marches on one another: they kept their word only so long as it was immediately advantageous to do so, and there was no legal remedy against recreants. ‘We can stand a great deal of cheating better than competition,’ said a participant in a railroad pool; but in the end cheating, and the tangle of arrangements needed to try to circumvent it, always broke the pools down. So the Rockefeller lawyers came up with the idea of the ‘trust’, giving a new meaning to an ancient word. Under the trust arrangement holders of stock in the various oil companies handed over their shares to Rockefeller and his associates, acting as a board of trustees; in return they got trust certificates, which paid dividends but gave no power. The trustees made all the decisions. So successful was this arrangement for a time that by 1898 the Standard trust refined 83.7 per cent of all oil produced in the United States, and produced 33.5 per cent of it. The example was an inspiration to other industries, and trusts proliferated in such businesses as electricity and meat-packing.
Andrew Carnegie took a different line. He preferred informal arrangements which left him with absolute personal control of his organization; but he was such a brilliant industrial leader that even without pools and trusts he was able to advance steadily towards the dominance of the steel industry. He was especially skilful at inducing customers to prefer his steel to that of his competitors; he inspired his wor
kers to toil ever harder, yet cut them down ruthlessly when they dared to press for higher wages than he thought desirable. He was not as quick at adopting important technical innovations as he liked to pretend (‘Pioneering don’t pay’ was one of his maxims) but he always did so in time to undersell his competitors. By the end of the century it was clear that Carnegie was excellently placed to destroy all the other large steel-producers in the country, a fate that could only have been averted, if at all, by a fearful battle of price-cutting and stock-market manipulation which would have had frightful consequences far beyond the steel and coal industries. Carnegie made the first moves, and Wall Street trembled; there was immense relief when it was discovered that the magnate had decided to retire and devote himself to philanthropy, if he could get a good price for his company. The banker John Pierpont Morgan bought him out for $480,000,000: he subsequently gave away $325,000,000 in various good causes. Meanwhile Morgan merged the Carnegie Steel Corporation with various lesser steel companies, and the result was the first billion-dollar trust, US Steel (‘Big Steel’), which has dominated its field from its foundation in 1901 to the present day.
This episode was the final signal that the industrial world had entered upon a new phase, that of finance capitalism. By the 1890s, and especially after the panic of 1893, which threatened universal ruin, the money men were determined to get control, and were in a position to do so. They were no longer dependent for business and funds on London: the growth of American industry in the previous twenty years had generated enormous profits which were at the sole disposal of New York. Only they could help companies through difficult times when there were too few customers and too many creditors, and the chastened industrial managers were eager to accept their help and leadership. In return for their assistance the New York banks usually exacted drastic reorganization, heavy fees and seats on the board for themselves or their representatives. The leader in this movement was the House of Morgan, which stood, then as now, at the corner of Wall Street and Broad Street, next door to the New York Stock Exchange. Morgan’s was the centre of American capitalism in more than mere geographical position. Between 1893 and 1913 (the year of his death) its chief was behind all the moves to stabilize operations and promote mergers in the railroads, in shipping, in the new electricity industry, in the telegraph, in telephones, as well as in steel. J. P. Morgan was the spider in a vast web of interlocking directorships (741 of them in 112 corporations), and as during the same period Standard Oil was steadily extending its influence, by the end of the first decade of the twentieth century it was almost the case that all the leading American capitalists were associates either of Morgan or of Rockefeller. The rationalization of industrialism by private capital might be said to have been very successfully completed.
The Morgans and the Rockefellers thought so. But neither at the time nor subsequently were their achievements unquestioned. In the first place it is far from clear that the larger and larger corporations, trusts and holding companies that emerged from their machinations were any more efficient than the smaller concerns which they superseded. They conferred more power on their masters, and more money; but in their actual economic functioning, in the basic business of production, there was little or no visible gain from giantism. A superficial case might be made for Rockefeller: he had a genius for cutting production costs, which certainly increased Standard Oil’s profits and may even have lowered the price of petroleum to the consumer. But he owed his unique position and immense wealth not to his flair for thrift but to his perception that the oil producers were at the mercy of the refineries and the shippers: after he got his dominating position in both by single-mindedly pursuing control of the refining process, he was able to dictate terms to the owners of the oil wells, whose product had to be processed and shipped to market before it could earn them a penny, and also to the railroads, which could not afford to lose Rockefeller’s custom. It was powerful business, but it is hard to see what the gain was to the economy from Rockefeller’s monopoly. His critics thought he was simply taxing the oil industry for his private benefit. Morgan was worse, for he did not always succeed. Thus in the first years of the twentieth century he put together a syndicate to beat the British and monopolize the transatlantic passenger steamship business, but was soon defeated: as a banker he did not know enough about shipping. He and his associates thought as money men protecting or forwarding their investments, not as creators of new wealth. In short, the power of the finance capitalists may have acted as something of a brake on America’s development.
And financial crises continued to occur. Economic historians still differ as to the cause; but whatever it was – whether the unwise greed of speculators, the inherent contradictions of free enterprise, over-production, under-consumption, monetary profligacy or such frequent accidents as war and bad harvests – it was and is plain that the great trusts were impotent to control it. Too many railroads lay outside Morgan’s grasp, too many oil wells outside Rockefeller’s (especially after the great Texan field opened in 1901 with the first gusher at Spindletop). In all other areas the overcapitalized giants, which had lavishly issued watered stock in generous anticipation of future earnings (US Steel was launched on the greatest flood of ‘water’ thus far seen), found themselves still dangerously exposed to the competition of smaller concerns; and if one of the giants should ever crash the repercussions for the American, indeed for the world, economy would be appalling. For the United States was by 1900, thanks less to its big businessmen than to its active population and vast resources, the world’s leading industrial nation. It produced more coal and pig-iron, and manufactured more raw cotton, than its nearest competitor, Great Britain; produced more iron ore and steel than Germany; more gold than Australia, and nearly as much silver as Mexico; more tobacco and cotton than India, and more wheat than Russia. Britain had a much larger merchant fleet, Russia had far more sheep and produced somewhat more petroleum; but even in these departments America’s achievement was increasingly formidable – her production of crude oil, for instance, more than doubled between 1899 and 1909. Every year, in short, increased the giant’s pre-eminence. America was still a debtor nation, borrowing more than she lent; but her enterprises were generating ever-mounting quantities of money that were beginning to find their way into investments overseas. The day was not far off when, as the saying goes, if Wall Street sneezed, the rest of the world would catch a cold. And Wall Street had not discovered how to stop itself sneezing.
From another point of view the triumph of the trusts seemed not so much inefficient or irrelevant as immoral. The bigger business grew, the larger were the bribes it could offer to national and local politicians, the greater was the pressure it could bring on the voters, in such a way as to undermine the democratic principles on which the United States was based. Others noticed the appalling conditions of labour throughout industrial and urban America, and asked why employers never had money to spare to improve them, though there always seemed to be funds in hand for re-investment or for Wall Street battles. Others again looked at the rising class-consciousness and class-hostility that industrialism bred, at the tensions provoked by the immigrant workers imported in large numbers to operate the economic machine, at the hideous industrial towns, at the shacks and rookeries of the New York slums, and asked if things would not be better managed if the trusts were disciplined. Others reasoned that whatever excuse for themselves the trusts might make, there was clearly something wrong with America, and it would be folly to rest content with business civilization as it stood: even if big business was not the cause of everything that had gone wrong, it was at least as certainly not the cure.
America had changed, was still changing, was moving into ever stranger waters. The fact spread a deepening malaise ever more widely in the national consciousness as the nineteenth century wore to its end. The old self-confident spirit was never very far away, perhaps: it was manifested with great exuberance in Chicago at the ‘World Columbian Exposition’ of 1893, which
was visited by twenty-eight million people, who marvelled at this celebration of America; but the Exposition was also marked by a meeting of the American Historical Association at which the young Frederick Jackson Turner read a paper arguing, in part, that since the 1890 census had shown that every part of the continental United States had now been organized, most of it already into states, the ‘frontier’ was closed and a new epoch was at hand. American institutions, formed in more propitious conditions, would be severely tested. The paper had a colossal influence, for all sorts of reasons, among them the fact that his audience was all too ready to be convinced. Other voices had been uttering similar warnings for years. In 1883 the prophet of the single tax reform, Henry George, had pointed with alarm to the filling-up of the West and the continued influx of immigrants: ‘What, in a few years more, are we to do for a dumping-ground? Will it make our difficulty the less that our human garbage can vote?’ In 1886 the North American Review announced, quite wrongly, that ‘the public domain of the United States is now exhausted’. Americans knew, before Turner told them, that their country had radically altered, and they did not much like it. The census of 1890 had also shown that the foreign-born element in the population now numbered over nine million (the total US population in that year was sixty-three million) and although as a percentage of the whole this was not much of an increase on the pre-Civil War figure (14 per cent instead of 13 per cent) it was easy to feel dangerously swamped by the incomers, especially as they tended to concentrate conspicuously in a few urban centres. Not only that: the composition of the immigration was changing rapidly. By 1890, when 445,680 Europeans were admitted, fully 25 per cent were from eastern or southern Europe: were Catholics, Greek Orthodox or Jews; Italians, Greeks, Hungarians or Slavs. Numbers and proportions of this ‘new immigration’ were going to go on rising steadily for the next two decades and more.
