Labor productivity steadily increased. The first generation of bonanza farms roughly doubled labor output, and the steady improvement in machinery, especially the advent of the gasoline engine in the early twentieth century, doubled it again. (Steam power never made much of an impact in field work because of the cost of wood or coal fuel.) Land productivity actually declined. It was cheaper to break new land than to husband existing plots, so yields tended to drop as more marginal lands came into production. Extravagant waste of natural resources was the common thread through the American development story.
Part of a seventy-horse plowing team on a North Dakota bonanza farm.
Subtler interactions among railroads, the telegraph companies, and the grain markets—the culmination of twenty-five years of incremental improvements—also paid huge productivity dividends. Not long before, farmers had bagged up their grain and sold it on consignment to merchants. Traditional trade documents tracked the grain to the final sale so the payment could work its way back over the mountains to the farmer. Lots of fingers plucked snippets of the money along the way. Since the farmer usually couldn’t wait for his money, he would sell his “bill” to a local bank at a deep discount.
By the mid-1870s, however, there was a fully integrated national system of grain exchanges, with elevator storage, grading and weighing standards, and a telegraph futures market called a “grain call,” all underpinned by precise and reliable railroad delivery schedules. Grain was commoditized. The farmer’s specific bushels of wheat became certificates for x bushels of “no. 2 hard red winter wheat” that could be readily bought and sold through a near-instantaneous telegraphic pricing system. Farmers and big grain users, like Pillsbury, could make their deals even before the fields were planted, if they chose, and cover their exposures by hedging on the exchanges. Huge “frictional” costs, or pure economic waste, like the deep discounts once charged for the farmer’s trade bills, disappeared. Transaction commissions and costs were razor thin, prices fell, but gross volumes and profits rose, while the increased stability fed the growth of national cereal and flour brands.
The Disassembly Line
A rough parallel to the bonanza farm developed at about the same time in the meat industry. The Texas cattle ranch was born out of the devastation of the Civil War. Antebellum beef and pork production was distributed through the mid-Atlantic and border states and along the southern coasts from the Carolinas to Louisiana. The herds were hit hard by the fighting, with losses of up to 20 percent in the North and 50 percent in the South. Meat prices were very high after the war, and varied as much as eightfold from region to region.
Entrepreneurs soon realized that the open ranges of Texas were home to millions of semiwild “mavericks,” mostly Texas longhorns. The problem with longhorns was that they carried a devastating tick-borne cattle disease (the longhorn was immune), and many states prohibited driving longhorns through their territories. In 1867, a twenty-nine-year-old Illinois cattle buyer named Joseph McCoy convinced the Union Pacific to run a cattle spur to Abilene, Kansas, and prevailed upon state legislatures to permit the train passage of Texas steers. McCoy’s initiative gave birth to the “long drive” from Texas to Abilene, and the romance of the cowboy and the cattle town. In the 1880s, Jay Gould extended a vast, more or less unified, railroad system through the Southwest, consigning the drive to the realm of the dime novel.
Eastern and European capital quickly flowed into large-scale ranching. Barbed wire may have been the essential invention, although careless attitudes by the federal government and railroad companies toward their land grants also helped—many ranchers simply took over vacant land with no pretense to title. The XIT ranch, organized in the mid-1870s, with more than three million acres and six thousand miles of barbed wire, was the largest in American history. The available evidence suggests that big ranches were quite profitable: one of the first British-owned ranches, a half-million-acre spread organized in 1881, earned a 28 percent dividend its first year. Getting cattle to distant markets was never uneventful, however. Longhorns were not known for their docility, and before the era of the Mississippi bridges, they had to be unloaded and ferried across the river. A St. Louis paper reported in 1872:
Yesterday was a good day for Texas steers on the rampage. They could be met almost anywhere in the city. A Texas steer when he is in good spirits can make things decidedly lively on a crowded thoroughfare. Several portions of our city were enlivened by this means yesterday. One very sprightly fellow with horns nearly a yard long interviewed Mr. Lawrence Ford (of Bridge, Beach & Co.) on the corner of Chestnut and Commercial street, and was very sociable.
Even with bridges, the huge distance from the ranches to customers was a drag on profits. By 1880, when 80 percent of Americans lived east of the Mississippi, almost 60 percent of cattle were being raised in the west. Steers were traveling thousands of miles on trains: they were loaded at ranch-country depots, carried to switching points like Chicago, and from there to the main population centers on the east coast. Slaughtering and dressing was carried out by thousands of local butchers; in urban areas, many of them were substantial businessmen, dressing and brokering meat for retail outlets.
It was obvious that huge savings could be effected by processing the animals closer to the ranches. Live steers occupied three times the car space as their equivalent in dressed product; they lost weight during transshipping, died en route, got banged around so the meat was bruised and spoiled, and had to be regularly debarked, fed, and watered all along the way. The key was refrigeration: fresh beef had only a one-week shelf life, but it took up to three weeks to distribute product from a location like Chicago. Eastern milk producers had begun to use freight cars with ice stuffed in their walls in the 1850s, and an Indiana slaughterer, George Hammond, experimented with refrigerated shipments of dressed beef to Boston merchants as early as 1869, but his cars were too inefficient for summer shipping, and his meat sometimes spoiled even in winter.
It fell to Gustavus Swift, a Massachusetts butcher, to break the refrigeration barrier with a design that added a mechanical forced-air circulation system. He demonstrated the point with a prototype car that delivered good-quality Chicago meat at high profits to his brother, who was also a butcher in Boston. To his disappointment the railroads showed no interest in the new car, and several even refused to carry it. The carriers’ stonewalling isn’t surprising. All the lines had singled out the boom in cattle transport as a superior earnings opportunity, and most were making large investments in stock cars and stockyards. Swift was not a wealthy man, but he scraped up the money for ten cars and found a Canadian railroad willing to carry them. They were an instant success, allowing large markdowns over local butchers from the very start. Swift and his brother organized the Swift Packing Co., and Gustavus moved to Chicago while his brother handled the marketing of “Western Beef” up and down the East Coast. The railroads capitulated, and in hardly more than a half decade the entire industry was transformed.
Philip Armour, a New York native who had made a modest fortune as a California gold rush butcher, jumped into refrigerated shipping immediately, and quickly challenged Swift for industry leadership. Armour may have been first to appreciate that distribution costs outweighed the costs of slaughtering and packaging. Much as Rockefeller did in oil, Armour cut out local middlemen, setting up regional meat-finishing centers, and even providing train-based retail services to rural towns. Meatpackers found themselves in the same catbird seat as oil refiners—controlling the bottleneck between a diverse and unorganized ranching industry and a widely dispersed consumer market. Very quickly the industry consolidated into four major players—Swift, Armour, Hammond, and Nelson Morris, another Chicago slaughterer—with a few other firms, like Wilson or the Cudahys, holding the fifth position from time to time. Most of the firms expanded their holdings up and down the value chain, from stockyards and ranches to wholesale distribution centers as far away as Tokyo and Shanghai.
The big packing houses
were the heart of the business. Most of them were in Chicago, but others were steadily brought on line in Omaha, St. Louis, and points west. The packing house “disassembly” line, an inspiration for Henry Ford’s factories, became one of the lurid wonders of the world. The actress Sarah Bernhardt, after a tour, pronounced them “horrendous but fascinating.” A steer was forced down a ramp, a worker called a knocker stunned it with a sledgehammer, and it was swept up by an overhead meat hook and moved rapidly through gutters, slicers, splitters, skinners, rump sawyers, hide droppers, and trimmers—there were as many as seventy-eight different jobs on a beef disassembly line. It was fast, hard, dangerous work—the speed of the line and the blur of wickedly sharp instruments exacted a fearful toll of injuries and deaths among the workers. The costs of slaughtering and packaging fell sevenfold, even as the scale of operation opened up profit opportunities in byproducts. One of Armour’s very early investments was a glue factory, and all the houses expanded aggressively into hides, oils, and tallow. Hog processing was different in detail, but the pattern of development was roughly the same. Per capita meat consumption grew rapidly, especially in the 1880s, as the full impact of the factory system made itself felt.
The transformation of the food industry illustrates the daily disruptions of an accelerating boom. In production terms, the country was clearly on a roll. Physical output of food and manufactured goods were all up strongly. Employment was growing faster than the population. People were eating better and had more real purchasing power. But old ways of life, long settled expectations, all the fixed stars for measuring stature and progress, were violently wrenched out of place. On Dalrymple’s farms, transient workers outnumbered year-round staff by as much as twenty to one. Transients were mostly solid working men, not hobos or bums, and followed a reasonably well-defined route, from early spring farm work in the Southeast to the fall harvests in the Northwest and lumberjack camps in the winter. Living conditions on the bonanza farms and lumber camps were often quite decent. Prodigious quantities of hard physical work required strong men who had to be fed well and boarded in healthful conditions. But with even the best of amenities, how many of them could have aspired to such a life? Where was the opportunity to marry, put down roots, and raise a family? Or to save that “surplus” whereby, as Abraham Lincoln promised, a man “buy[s] tools or land, for himself; then labors on his own account another while, and at length hires another new beginner to help him”?
It’s no surprise that the protest movements that bloomed throughout the farm belt in the 1870s—the Grangers* are the best known—had a common theme of victimization by impersonal forces—railroads, eastern capitalists, riggers of commodity markets. The cold data bear out almost none of their complaints. Railroads did sometimes exploit monopoly positions on local connections,† but freight rates fell at least as fast as farm prices in the postwar period, and after the mid-1880s, much faster. Farmers were generally not heavily mortgaged—only about a third of all farmers had mortgages at all, in part because the Homestead Act and railroad land grants made land so cheap. (Roads like the Northern Pacific were desperate to get land into the hands of freight-generating farmers.) Interest rates fell steadily, and lenders were usually looking for customers. There is evidence that lenders rarely foreclosed on defaulted farms; when times were bad, it just wasn’t worth it. Overall, late nineteenth-century “terms of trade” turned decisively in farmers’ favor: it took fewer and fewer bushels of wheat to buy a reaper or a bolt of good cloth.
But it is the lurking, poorly grasped perils that make you paranoid. Most farmers would have been terrified as their markets delocalized. Traditional farms were diversified—even in a poor commercial season, a farm family usually had enough food and, in a pinch, could home-produce many of their other needs. The prewar generation of eastern wheat farmers were also close to their markets and could understand, and to a degree anticipate, ups and downs in their customers’ behavior. But a mechanized monoculture grower on the Northwest plain lived in a much more volatile world: a shift of weather patterns on the Russian steppes could wipe out his year. Specialization and mechanization increased revenues and profits, but also multiplied the risk of catastrophic failure. Men who prided themselves on crop management burned late-night kerosene lamps puzzling over balance sheets. Times were good, according to the numbers, but the loss of control was frightening.
The packing industry is a case study in how industrialization was creating millions of jobs; by century’s end, meat packing was the largest industrial employer in the country. But that was cold comfort to the butchers and middlemen/wholesalers wiped out by Swift and Armour. Headlong modernization must have greatly increased the levels of frictional unemployment even as overall job numbers moved up strongly. The new jobs were in the wrong place, or were jobs that skilled tradesmen would never consider taking—at least at first. Modernization also was very hard on small merchants. Meatpackers were not the only large manufacturers taking control over their own distribution and retail chains. Singer Sewing Machine is another early example. American radicalism typically bubbled up from the petit bourgeois, for they, not the oppressed poor, were often the first victims of modernization.
Finally, some large fraction of the jobs in the new industrial economy were simply dreadful. A nineteenth-century meatpacking line was a medieval vision of hell—gory, filthy, unremitting, unforgiving of even the slightest slip or misstep, and freezing cold besides (all the plants were refrigerated so they could run year-round). There were no set work schedules; even the longest-term workers showed up each day and worked as long, or as briefly, as they were told. Almost all pay was piece rate. Wages did increase strongly over the first twenty years of the industry, especially in real terms, but hours got longer and the lines got faster as well. Rural Irishmen and Polish peasants were delighted to get jobs in meatpacking—both were likely to have known real starvation—but the disassembly line was a world removed from the industrial Eden of artisanal enterprise that Lincoln had envisioned as the future of America.
America’s extractive and infrastructure industries—oil, steel, railroads—were careening toward modernity even faster than agriculture, which perfectly suited apostles of progress like Andrew Carnegie, John Rockefeller, and Jay Gould. Most businessmen reacted with fear at the violent disruptions of the 1870s. Top of the food chain feeders saw only a world ripe with opportunity.
*An important, if not precisely answerable question is how well unskilled labor did in this era. Unskilled jobs were certainly growing, but there would have been strong competition from arriving immigrants and newly freed slaves. One 1905 researcher compiled unskilled wage series covering most of the nineteenth century. Her findings suggest that unskilled wages dropped faster than prices in the 1870s (wages were down 31 percent, wholesale prices 25 percent), but workers more than made up for it in the 1880s (wages up 17 percent; prices down 13 percent). Such data series are impressionistic at best, but are, unfortunately, the best there are.
*When clear evidence of rapid growth contradicts the “Depression” tradition, historians often slip into oxymoron, as “Despite the downturns of the 1870s, Philadelphia textile sectors expanded mightily . . .”
*The prevailing theory of railroad investing was that operating cash flow (revenues less operating expenses) belonged to investors, so roads typically retained quite modest cash reserves after paying dividends and interest. Capital investments, like line extensions, were supposed to be financed by new securities, not from retained earnings. Since dividends were based on the par value of the stock, they were fixed in dollar terms, just like bond interest. It is the fixed dividends and debt service on falling nominal revenues, not falling operating margins, that explains the high rate of defaults. One should not shed tears for the investors: since most railroad shares traded well below par, a par-based dividend at the usual 7–10 percent offered windfall yields that should have fully compensated for the extra risk.
*The Granger movement won a mass following in t
he mid-1870s, but steadily lost importance thereafter. Its primary focus was railroad rate regulation. A number of western states passed “Granger laws”; most were of little effect, except perhaps in Illinois. (Railroads often countered “uniformity” requirements by raising all rates sharply, forcing legislatures to back down.) For most purposes, they were superseded by the federal Interstate Commerce Act, passed in 1887.
†But higher short-haul rates did not necessarily mean exploitation, as reformers assumed. Short-haul routes were considerably more expensive to operate because of more frequent stops and greater investment in stations and loading facilities per mile. The Interstate Commerce Commission eventually leveled rates, forcing long-haul shippers to subsidize local haulers—good politics, but poor economics.
5
MEGA-MACHINE
Philadelphia’s Centennial Exposition was the biggest bash of America’s hundredth birthday celebration in 1876. Much like Great Britain’s grand Crystal Palace Exhibition, it was an unreserved paean to technology, without the adumbrations of dangerous new competition that had so alarmed knowledgeable Englishmen in the 1850s. Opened by President Grant and Emperor Dom Pedro of Brazil, the exposition was as sprawling and unconstrained as the nation itself—attracting ten million visitors from all over the world with some 30,000 exhibits spread over 236 acres in Fairmount Park. The main exhibition hall, nearly a third of a mile in length, was the largest building in the world. Thomas Edison was there to demonstrate his automatic telegraph; Alexander Graham Bell first showed off his telephone. Composers and poets from Richard Wagner to John Greenleaf Whittier contributed the hymns that burst from massed orchestras and choirs at the opening ceremony. One young lady wrote: “Dear Mother, Oh! Oh! O-o-o-o-o-o-o-o-o!!!!!!”
The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supercompany Page 15
