American steel producers enjoyed great natural advantages in their vast coal reserves and the nearly infinite, low-cost Great Lakes ore ranges. But it required huge investments to bring that potential to fruition. Cost-effective use of Mesabi ore came only with the advent of large-scale surface mining machines, mechanized loading and unloading docks, massive ore boats, and purpose-built railroads, like Carnegie’s Pittsburgh and Bessemer line. The Carnegie companies took the pole position in most of those investment initiatives, they set the steel price caps for their competitors, and since they reinvested so much of their earnings, they forced copycat investment on everyone else.
American steel tariffs may be the unusual case where the excess earnings were intelligently used. There is no way to quantify the impact of Carnegie. There were other men of energy and invention in the nascent American steel trade—the Fritz brothers at Cambria and Bethlehem, for instance—but none had his drive, ambition, or subversive instincts. Absent Carnegie, the “Fathers” of the Bessemer Association, America’s original steel cartel, could more easily have maintained their cautious, controlled development strategy; the genius of Alexander Holley might never have been given full play; men on the cut of a Gates and a Gary would have been in control from the start. Without the tariff, in short, the American industry might have evolved more like that of Great Britain, and one of the earliest, and the most dramatic, examples of the highly mechanized, mass-scale, intensely driven industrial machine that was a hallmark of the American advance might have been delayed too long to make a difference.
What Was Special about America?
The quite different development paths of the American and German steel industries offer insights into America’s uniqueness. Superficially, on the eve of the World War, they appeared very similar—both were highly mechanized, with very large-scale plants, and the Germans especially impressed with their immaculate work organization. The difference lay in how they used their production. Since Germany exported a far higher proportion of its steel, its per capita domestic steel consumption was less than two-thirds that in America, and the difference is greater still when one considers the very substantial share of German domestic production devoted to military purposes. Per capita military spending was some four times greater in Germany than in America, and, as in the naval arms race with Great Britain, was very steel-intensive. Even nominally nonmilitary German spending, moreover, was tilted to military ends; its heavy industry and the military were united in the Wehrverein, the union of defense, and German railroad and telegraph development was partially subordinate to military requirements; the Railway Section was one of the more important of the General Staff departments.
The remarkable feature of nineteenth-century American development, in short, is not just the staggering size of the gap it opened up over the rest of the world but the fact that it was so overwhelmingly directed to private purposes. The historian David Landes has pointed out the uniqueness of the western European commitment to private enterprise, and its consequent hyperrational, contract-centered ordering of affairs. The commercial focus of European society, he argues, gave it a “tremendous advantage in the invention and adoption of new technologies.” If that was true, America was Europe on steroids, for its settlers were the people who found Europe confining and repressive.
In America, moreover, the world’s most energetic people were paired with the most boundless trove of natural resources, resources that were as close as ever to being free, so long as you had the will to go get them. Lincoln’s claim that the average man “labors for wages a while, saves a surplus with which to buy tools or land, for himself . . . and at length hires another new beginner to help him,” was sufficiently true that it became the standard to judge oneself by. De Tocqueville was struck by Americans’ restless mobility, their unrootedness in place or class, the fevered striving, the obsession with money. How could they be otherwise? The prize was never so achievable, or so palpable. The very speed of the race evoked the common-sense, straight-at-them, unadorned American style. The craftsmen who decorated the great palaces of Europe could not be hired in America; Americans were too busy making and selling useful things.
A land of abundance was the perfect incubator for a machine-based business culture—with free resources, any method of accelerating output built wealth. As a Crystal Palace commentator said in 1851, the American approach to technology was ideal for “increasing the number or the quantity of articles suited to the wants of a whole people, and adapted to promote the enjoyment of that moderate competency which prevails among them.” Even in the 1850s, rural factories were machine-producing a hundred doors a day, just as machines let scattered farm families open large new tracts of land to commercial farming. Well before the Civil War, Americans, at least outside the South, had more goods and more food more equitably distributed than any people in history.
Andrew Carnegie, John D. Rockefeller, and Jay Gould, the archetypes for the megatycoons that dominated the second half of the century, all arrived just at the cusp of the fateful post–Civil War transition from artisanal to big-business forms. All three came from modest circumstances, and while they were all men of great intelligence and lightning commercial reflexes, they separated themselves by the boundlessness of their ambition and their instincts for disruption. The economist Joseph Schumpeter spoke of progress as “creative destruction.” These three were walking whirlwinds: over some twenty-five years they forced the pace in all the critical underpinnings of the modern industrial state—steel, oil, railroads, coal, telegraphs—constantly driving to larger scales and lower costs, constantly attacking the comfortable settling points where normal businessmen paused to enjoy their success.
Cheap national distribution combined with machine-based production created the world’s first mass consumer culture, the vast outpouring of “good-enough” products that filled the households, if never quite satisfied the wants, of the first-ever middle-class nation. The steady drop in prices through the second half of the century was not mostly about currency adjustments. Rather it appears that most goods actually were cheaper in a real sense, much as the real price of computer power has dropped so amazingly in our own day. Scientific American noted in 1904 how steel fishing rods were sweeping away the old bamboo versions. They were lighter, more durable, more easily weighted, more sensitive to the touch—and they were turned out by factories instead of by craftsmen, so ordinary people could buy them.
Other nations, including even the “cousins” in England, who had the closest relations, were late to realize the stunning scale and breadth of the American boom. That was partly because America was such a voracious consumer of its own manufacturing; as far as export markets were concerned, Americans produced mostly food products and oil. The immense power of the American economy instead made itself felt as a kind of natural storm system, a “vast but unpredictable bellows” that, for no apparent reason, might suddenly blow hot winds or icy gales through the entire world. Londoners grew cynical at Wall Street’s recurrent crashes. When the 1907 crash hit, the Economist wrote wearily, “The collapse in New York, so long anticipated, has at last come to pass.” Although there was absolutely nothing wrong with the British economy, or with America’s either, in the British view, the force of the contraction was so great that the Bank of England had almost to quadruple its bank rate, to a punishing 7½ percent. It was “all very violent and primitive and annoying to Londoners.”
Perceptive financiers, however, understood how the force fields lay. A senior Barings partner, Gaspard Farrar, surprised his colleagues in 1904 by remarking “that it cannot be very long before New York is the financial centre of the world; but I fear for our sakes that it is coming too quickly.” One of Pierpont Morgan’s great roles, besides imposing a semblance of order on finances at home, was to mediate the cohabitation between the more settled financial systems of the Old World and the often chaotic arrangements of the New.
The same mixture of irritation and concern greeted the United St
ates’s hesitant emergence in world affairs. European countries did not upgrade their American ministries to full ambassador status until the 1890s. The sudden war with Spain seemed to have sprung more from the rantings of American press barons than from considerations of policy. What John Hay intended by his 1900 “Open Door” policy in China was a puzzle to other statesmen. Yet the British carefully backed away from a potential confrontation with the United States in Latin America. There was nothing to be gained from goading adolescent giants.
European elites were struck by America’s rawness, its tawdriness, its half-finished character. Much of Henry James’s work digs after the micro-points of intersection between the Old and the New Worlds. In his last novel, The Golden Bowl (1904), a beautiful, accomplished, young American woman, Charlotte, who has been living on the fringes of English society, marries a widowed American tycoon who is on a “collecting” tour. Charlotte’s older Englishwoman friend contemplates her return to America with horror, for her fate is the pointedly named “American City”: “I see the long miles of ocean and the dreadful great country, State after State—which have never seemed to me so big or so terrible. I see them at last, day by day and step by step, at the far end—and I see them never come back.”
James, the expatriate Londoner, does not elaborate on Charlotte’s future, nor offer more than a scrap of description of American City, for his readers, both English and American, know it will be dreadful. But his tycoon, Adam Verver, is still by far the most formidable character in the novel, a man of great power and quiet confidence, with an ear for emotional nuance and an eye for Damascene tiles.
The impecunious Italian prince who marries Verver’s daughter recognizes that he is being collected, along with other artworks, and his resolve to live up to the bargain underscores his fundamental decency. This somewhat etiolated aristocrat, an habitué of crumbling palaces, understands in all sincerity that this American tycoon is “the best man I’ve ever seen in my life.”
The surge of raw power at the commencement of a great empire can sustain expansionist momentum long after its internal dynamism flags. A telltale sign of ebbing energy is when intellectual elites start constructing imperial narratives. The tale spinners of Augustan Rome were priests and poets; in the twentieth-century empire of American business, they were pundits and professors.
*Overall American agricultural productivity after the Civil War was actually lower than Great Britain’s, due to the dismal productivity in the American South and to the typically low output of first-generation western settlers. Midwestern “factory farming” did not move into full swing until the 1880s, about the same time as the spread of railroads and the telegraph brought transport and utility services to a level comparable with Britain’s. Banking and other financial services lagged well behind Britain’s into the twentieth century. Comparisons between the United Kingdom and the United States in the 1870s and 1880s are therefore much like those between the United States and Japan in the 1970s and 1980s, when Japan’s stunning productivity advantage in manufacturing was more than offset by lagging productivity in services and agriculture. By the 1890s, however, across-the-board United States productivity had surpassed that in the United Kingdom, which was still the highest in Europe. A recent review of the data concludes that by 1910 the United States had a total productivity advantage over the United Kingdom of about 25 percent, and a correspondingly greater advantage over the rest of the world.
*“Comparative advantage” was first set out rigorously by Ricardo in 1817. It shows that total welfare (i.e., production) is maximized if each trading partner specializes in its own highest productivity industry. In his famous example of England and Portugal producing wine and cloth, he shows that even if Portugal could produce both wine and cloth more efficiently than England, both countries would be better off if Portugal concentrated on wine and traded for cloth, and vice versa, provided only that England was better at cloth than wine, and Portugal better at wine than cloth. It didn’t matter that Portugal was also better at cloth than England, if it was comparatively even better at wine. Ricardo’s “comparative advantage” is both more general and less intuitive than Adam Smith’s “absolute advantage,” which would reach the above result only if England was better at cloth than Portugal.
*The interpretation was almost certainly incorrect. The original legislation read: “On tin plates, and iron galvanized or coated with . . .”; the Treasury, probably through a misunderstanding, moved the comma so it read: “On tin plates and iron, galvanized or coated with. . . .” Since tin plate was never galvanized or coated, it was held not to be covered by the legislation.
10
THE WRONG LESSONS
First, a multiple choice test. Consider the following two men.
We have met Alexander Holley many times in this book. He brought modern steel technology to America, and more than anyone else, created, and then steadily improved, the highly mechanized, labor-saving American system of steel manufacture. Holley’s work greatly expanded the reach of the Connecticut Valley machine tradition, and was the definitive demonstration of the characteristically American style of driving productivity through advanced technology.
A quarter century after Holley laid out his great steelworks, Frederick W. Taylor solved the problem of hand-loading pig iron into freight cars. By his account, after much research and analysis, he and his assistants worked out optimum weight loads and walking speeds, and minutely calculated the precise physical motions for an ideal result. His “scientific” samplings were actually almost all based on a single man, the wiry, vigorous Henry Noll, who Taylor later immortalized as the stupid immigrant “Schmidt.” Noll, it seems, loved heavy labor and often ran a mile home after work, but even Noll could not consistently keep up with Taylor’s standards. Since Taylor used his standards for piecework pay rates, almost all the pig loaders had their wages cut.
The challenge for the reader is to guess which of these two men would be anointed by intellectuals and business school professors as “the Father of Scientific Management.” Which would be hailed by no less an eminence than the management guru Peter Drucker for “the most powerful as well as the most lasting contribution America has made to western thought since the Federalist papers”? Which man, in a 1977 survey of professors and historians to choose the most important contributors to management thought and practice, would crush all other contenders, including Andrew Carnegie, John D. Rockefeller, Alfred Sloan, and Henry Ford? Those who picked Holley may go to the back of the class.
Taylor’s real lifework was as an innovator in machine shop technology, where his contributions were sufficiently important that he could fairly be dubbed “the father of modern machine shop management.” But the work that he himself claimed as the central feature of “scientific management” was the organization and engineering of manual operations, like his “science of shoveling” or his “law of heavy labor,” which lays down that a “first-class” man carrying ninety-two-pound weights needs to be load-free 57 percent of the work day, but only 46 percent if the load is reduced by half. (Yes, it’s nonsense.) But even if Taylor’s claims could be taken at face value, their essential triviality is astonishing. There is a place in industry for engineered manual operations. But when presented with a problem like loading pig iron, an Alexander Holley or a Henry Ford would first ask, why on earth are you doing it by hand? And before looking more closely at Taylor’s work, we must first ask why on earth did people think his claims were so important?
The answer is wrapped up in the way American opinion-makers came to terms with the immense new power centers that the tycoons left behind them. In part the process entailed taking at face value Morgan’s assurance that the great new combines were designed to domesticate taloned predators like Carnegie Steel and to reestablish “orderly” competition. In part it was the relief of knowing that “business,” rather than an endless waste of eye-gouging warfare, was just another topic that could fit on a professor’s blackboard. Especially for the
growing American upper-middle classes, who were investing so heavily in their children, it was a comfort to know that the first step toward success in business, just as in law or medicine, was simply doing well in school. And, finally, the notion that business was, after all, just a science like any other reassured intellectuals that they might still have something to say about the course of affairs.
Intellectuals Discover the Machine
Consider the aging Henry Adams, historian and descendent of presidents, standing agape before a giant electrical dynamo at the Paris Exposition of 1900, ready to fall on his knees “bewildered and helpless, as in the fourth century, a priest of Isis before the Cross of Christ.” Adams’s distress typified the severe intellectual crisis suffered by American elites around the turn of the century. A generation before, even secularists implicitly believed in the providential nature of the American adventure: the glow around the City on a Hill no longer emanated from God, perhaps, but they could still see it. For a while, providentialism survived the encounter with Darwin—the textbook evolutionary tree, after all, usually showed a white European male perched on top. But by century’s end, elites had begun to understand evolution’s essential randomness; if the only criterion for “fitness” was survival, the future might well belong to beetles and rats. One by one the old verities crumbled: radioactivity put the lie to the permanence of matter, while Freud’s expeditions into the darker recesses of the mind exposed the pretensions of the Rational Man. Karl Pearson’s 1892 bestseller, The Grammar of Science, stressed the probabilistic character of physics, and its agnosticism toward the reality of entities like force. The Education of Henry Adams mocked its author’s plight:
The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supercompany Page 36
