The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supercompany

by Charles R. Morris

  Assessing Morgan

  The Brandeis quotes “conservative” and “financial,” Henry Lee Staples and Alpheus Thomas Mason, The Fall of a Railroad Empire: Brandeis and the New Haven Merger Battle (Syracuse, N.Y.: Syracuse University Press, 1947), p. 154. The New Haven summary follows Staples and Mason, as well as Vincent P. Carosso, The Morgans, especially pp. 608–12. IMM account follows Thomas R. Navin and Marion V. Sears, “A Study in Merger: Formation of the International Mercantile Marine Company,” Business History Review 28:4 (December 1954), 291–328. The “how even” quote is on p. 291. Carosso treats it on pp. 481–86 and 491–93. The Roosevelt story is in Jean Strouse, Morgan, p. 441. The Brandeis “J. P. Morgan” quote is from Louis D. Brandeis, Other People’s Money: And How the Bankers Use It (Washington, D.C.: National Home Library, 1933), pp. 36–37.

  9. America Rules

  For Rothschild, Morgan, and the Boer War, see Niall Ferguson, The House of Rothschild: The World’s Banker, 1899–1999 (New York: Viking Penguin, 1999), pp. 364–68. For comparative output and productivity data, I used Paul Bairoch, “International Industrialization Levels from 1750 to 1980,” Journal of European Economic History 11:2 (Fall 1982), 269–333, and Stephen N. Broadberry and Douglas Irwin, “Labor Productivity in the United States and the United Kingdom during the Nineteenth Century,” NBER Working Paper 10364 (March 2004). The 1870–1913 growth rate calculations are from W. Arthur Lewis, Growth and Fluctuation, 1870–1913 (London: George Allen & Unwin, 1978), pp. 17–18. S. B. Saul, The Myth of the Great Depression, 1873–1896 (Basingstoke, Hampshire, U.K.: Macmillan, 1985), also includes a great deal of comparative data, generally consistent with Bairoch, but with a variety of additional nuances.

  For background, David S. Landes, The Unbound Prometheus: Technological Change and Industrial Development in Western Europe from 1750 to the Present (London: Cambridge University Press, 1969), is superb. For the relative decline of British industry, see François Crouzet, The Victorian Economy (New York: Columbia University Press, 1982); and for the rise of America, Harold G. Vatter, The Drive to Industrial Maturity: The U.S. Economy, 1860–1914 (Westport, Conn.: Greenwood Press, 1975). And see Paul Kennedy, The Rise and Fall of the Great Powers: Economic Change and Military Conflict from 1500 to 2000 (New York: Random House, 1987), pp. 194–249, for a crisp assessment of turn-of-the-century Great Power economic positions.

  What Happened to England?

  Besides the works above, for specific comparisons of American/British prowess in steel, see D. L. Burn, The Economic History of Steelmaking, 1867–1939: A Study in Competition (Cambridge, U.K.: University Press, 1940), and the contemporary assessments: J. Stephen Jeans, ed., American Industrial Conditions and Competition: Reports of the Commissioners Appointed by the British Iron Trade Association to Enquire into the Iron, Steel, and Allied Industries of the United States (London, 1902) and Frank Popplewell, Some Modern Conditions and Recent Developments in Iron and Steel Production in America (Manchester, U.K.: University Press, 1906). The quotes “is considerably larger” and “more than three” are from Jeans, op. cit., pp. 306–7; “very conspicuous” from Popplewell, op. cit., p. 103; “act for the” and “can compete with,” Jeans, op. cit., pp. 257, 121; “must steer clear,” “distinctly deteriorated,” “outside England,” “pessimism” in Burn, op. cit., pp. 147, 144n, 208, 186. For Sheffield and tool steel, see Geoffrey Tweedale, Sheffield Steel and America: A Century of Commercial and Technological Interdependence, 1830–1930 (New York: Cambridge University Press, 1987), p. 100. David Landes, The Unbound Prometheus, pp. 269–94, summarizes British slippage in other industries.

  The Tariff Question

  The history of the tariff in Great Britain follows Anthony Howe, Free Trade and Liberal England, 1846–1946 (Oxford, U.K.: Oxford University Press, 1997), and for America, Frank W. Taussig, The Tariff History of the United States (New York: Capricorn Books, 1964), and Douglas A. Irwin, “The Aftermath of Hamilton’s ‘Report on Manufactures,’” NBER Working Paper 9903 (August 2003). The D. L. Burn analysis is from op. cit. And see Peter Temin, “Relative Decline of British Steel Industry, 1880–1913,” in Henry Rosovsky, ed., Industrialization in Two Systems: Essays in Honor of Alexander Gerschenkron by a Group of His Students (New York: John Wiley, 1966), pp. 140–55, for the American-German squeeze on the British. For the soda ash data, see Kenneth Warren, “Technology Transfer in the Origins of the Heavy Chemicals Industry in the United States and the Russian Empire,” in David J. Jeremy, International Technology Transfer: Europe, Japan, and the USA (Brookfield, Vt.: Edward Elgar, 1991), pp. 153–77, at p. 159. The quote “Protection . . . brings” is in Jagdish Bhagwati and Douglas A. Irwin, “The Return of the Reciprocitarians: U.S. Trade Policy Today,” The World Economy 10:2 (June 1987), 109–30, at 113; and “hitherto chaste” from D. L. Burn, op. cit., p. 312. It might be noted that selling at lower prices abroad than at home may be quite rational in an industry like steel in which increased scale can often reduce costs across the board. The larger volumes, that is, may increase profits on both domestic and foreign sales. The effect is often exaggerated, however, since scale economies tend to flatten out in all industries—i.e., big plants may be more efficient than small ones, but big, bigger, and biggest may be indistinguishable. “Dumping,” strictly speaking, is selling below cost, which is never profitable in the short run, but may be a rational long-term strategy aimed at eliminating competition. By treaty among developed countries, such practices are now illegal; they were not in the nineteenth century. Determining what “costs” are, however, is a reliable source of annuity income for trade lawyers.

  The classic statement of the rule of comparative advantage is chapter VII of David Ricardo’s Principles of Political Economy and Taxation (Amherst, N.Y.: Prometheus Books, 1996). For the tin plate story, see Frank W. Taussig, Some Aspects of the Tariff Question (Cambridge, Mass.: Harvard University Press, 1915), pp. 175–85 and Douglas A. Irwin, “Did Late Nineteenth-Century U.S. Tariffs Promote Infant Industries? Evidence from the Tinplate Industry,” The Journal of American Economic History 60:2 (June 2000), 335–60. The quote “not unfavorable” is from Taussig, Aspects, p. 53; and “the Mother of” is from Jeremiah Whipple Jenks, The Trust Problem (Garden City, N.Y.: Doubleday, Page and Co., 1914), p. 44.

  The Carnegie Effect

  For the discussion of American and British steel prices and margins: the Edgar Thomson margins from 1875 through 1878 are in James Howard Bridge, The Inside History of the Carnegie Steel Company, A Romance of Millions (New York: Aldine, 1903), pp. 94–102; Bill Jones’s 1882 cost sheets for ET, Box 71, HSWP (Jones’s costs cover all steel, not just rails, so the comparison is not precise, but the American cost disadvantage is very large); and for American-British price comparisons, I used the American rail prices in Peter Temin, Iron and Steel in Nineteenth-Century America: An Economic Inquiry (Cambridge, Mass.: The MIT Press, 1964), “Appendix C: Statistics of Iron and Steel,” pp. 264–85; and the British fob rail export prices in D. L. Burn, op. cit., p. 103. For Carnegie’s share increases during recessions, see the table in Kenneth Warren, Triumphant Capitalism: Henry Clay Frick and the Industrial Transformation of America (Pittsburgh, Pa.: University of Pittsburgh Press, 1996), p. 308. Gates’s “large profits” quote is in David Brody, Steelworkers in America: The Nonunion Era (New York: Russell and Russell, 1970), p. 7; his “bull” quote is from Hearings before the Committee on Investigation of United States Steel Corporation (Stanley Committee) (Washington, D.C.: U.S. Government Printing Office, 1912, 8 vols.), p. I:44, and Gary’s “entirely,” ibid., p. I:220.

  What Was Special about America?

  The quote “tremendous advantage” is from David S. Landes, The Unbound Prometheus, p. 33; “labors for wages” from Roy P. Basler, ed., The Collected Works of Abraham Lincoln (New Brunswick, N.J.: Rutgers University Press, 1953–1955, 9 vols.), III:478; “increasing the number” from Nathan Rosenberg, ed., The American System of Manufactures (Edinburgh: Edinburgh University Press, 1969), p. 7n. The
fishing rod example was in “50, 100, & 150 Years Ago,” Scientific American (November 2004), 16. The “vast but unpredictable” quote is from Paul Kennedy, The Rise and Fall of the Great Powers, p. 245; “The collapse in” and “all very violent” are from J. H. Clapham, The Economic History of Modern Britain (Cambridge, U.K.: Cambridge University Press, 1938), vol. 3, pp. 55, 57; “that it cannot” from Philip Ziegler, The Sixth Great Power: A History of One of the Greatest of all Banking Families, 1762–1929 (New York: Knopf, 1988), p. 292. The Henry James quotes are from The Golden Bowl (New York: Penguin Classics, 1987), pp. 535, 45.

  10. The Wrong Lessons

  For Taylor, I follow, generally, Daniel Nelson, Frederick W. Taylor and the Rise of Scientific Management (Madison, Wisc.: The University of Wisconsin Press, 1980), a very clear-eyed account, supplemented by Robert Kanigel, The One Best Way: Frederick Winslow Taylor and the Enigma of Efficiency (New York: Viking, 1997). The Drucker quote is from Kanigel, p. 11. The quotes on the “science of shoveling” and the “law of heavy labor” and the “first-class” man are from the collection, Frederick W. Taylor, Scientific Management: Comprising Shop Management, The Principles of Scientific Management, and Testimony before the Special House Subcommittee (New York: Harper & Brothers, 1947), Shop Management, pp. 165, 57, and Principles, p. 65.

  Intellectuals Discover the Machine

  The main source for this section is Dorothy Ross, The Origins of American Social Science (New York: Cambridge University Press, 1991); and also see the essays in her (as editor) Modernist Impulses in the Human Sciences, 1870–1930 (Baltimore, Md.: Johns Hopkins University Press, 1994), including her “Modernist Science in the Land of the New/Old,” pp. 171–89. The quotes “bewildered and helpless” and “To Thomas” are from Henry Adams, The Education of Henry Adams (New York: The Modern Library, 1931), pp. 487, 456, 458. The quote “is the great fact” is from Walter Lippmann, Drift and Mastery: An Attempt to Diagnose the Current Unrest (Madison, Wisc.: The University of Wisconsin Press, 1985), p. 37. The Pennsylvania’s St. Louis exhibit is from Steven W. Usselman, Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840–1920 (New York: Cambridge University Press, 2002), pp. 245–46; and for its subsequent history, pp. 354–57. The Charles Schwab quotes are from his “What May Be Expected in the Steel and Iron Industry,” North American Review, no. 534 (May 1901), 655–64, at pp. 655, 661, 664. The Lippmann quotes are from his Drift, pp. 37–38, 41, 87, 98; the quote “single syndicate” is from Edward Bellamy, Looking Backward (New York: Viking Penguin, 1982), pp. 65–66. The Pearson quotes are from Theodore Porter, “The Death of the Object: Fin-de-Siècle Philosophy of Physics,” in Dorothy Ross, ed., Modernist Impulses, pp. 128–51, at pp. 145–46. For the rise of sociology, see Dorothy Ross, Origins, especially pp. 219–56. The quotes “scientific,” “social control,” and “social equilibrating” are from pp. 219, 236, 238. “Dynamic Theory” from Henry Adams, The Education, p. 474. I used the Dewey “great factories” quote in my “It’s Not The Economy, Stupid,” The Atlantic Monthly (July 1993), pp. 49–62, but no longer have those notes and have not been able to recover its original source (the Atlantic vets sources carefully); Dewey’s “the transformation” is from Olivier Zunz, “Producers, Brokers, and Users of Knowledge: The Institutional Matrix,” in Dorothy Ross, ed., Modernist Impulses, p. 304; and “ideally suited” from Theodore Porter, op. cit., p. 148.

  What Did Taylor Do?

  The quote “the management of” is from David F. Noble, America by Design: Science, Technology, and the Rise of Corporate Capitalism (New York: Knopf, 1977), p. 267; “every single act,” “[A] man who,” and “[I]n the higher” from the collection, Frederick W. Taylor, Scientific Management, Principles, pp. 64, 59, 97. The shoveling studies and related quotes are from Frederick W. Taylor, op. cit., Shop Management, pp. 150–69, 172–74. The 25% to 75% examples for P are from the best documented of Taylor’s engagements (he was more the engagement impresario than the manager) in Hugh G. J. Aitken, Taylorism at Watertown Arsenal: Scientific Management in Action, 1908–1915 (Cambridge, Mass.: Harvard University Press, 1960), p. 24. The Taylor quotes “scientific investigation” and “The one is guesswork” are from Frederick W. Taylor, op. cit., Testimony, p. 164. The account of the discovery of high-speed steel follows Thomas J. Misa, A Nation of Steel: The Making of Modern America, 1865–1925 (Baltimore, Md.: Johns Hopkins University Press, 1995), pp. 180–209. And see Philip Scranton, Endless Novelty: Specialty Production and American Industrialization, 1865–1925 (Princeton, N.J.: Princeton University Press, 1997), pp. 202–4, for the challenges high-speed tools posed for machine makers. The quote “potential dramatic appeal” is from Daniel Nelson, Frederick W. Taylor, p. 119.

  Enter Mr. Brandeis

  For the Rate cases, see Louis D. Brandeis, Scientific Management and Railroads (New York: The Engineering Magazine, 1911). It includes an extended preface by the editors of the Engineering Magazine, Brandeis’s closing statement, and the testimony of the Taylorites. The roads actually had a good case for higher rates. Blue-collar wages were rising strongly, and they were losing experienced staff; plus a radical increase in short-haul traffic density on roads like the Pennsylvania was very costly. The current tariff ideology forbade differential cost-based charging. For Gilbreth and his therbligs, Samuel Haber, Efficiency and Uplift; Scientific Management in the Progressive Era, 1890–1920 (Chicago: University of Chicago Press, 1964), pp. 40–41. The quotes from the Taylorite testimony are from Louis D. Brandeis, Scientific Management, pp. 6, 7, 11, 27, 22, 39. The Emerson consulting quotes are in Daniel Nelson, Frederick W. Taylor, pp. 130, 128. The quote “few of those” and Times and Tribune headlines are from Robert Kanigel, The One Best Way, pp. 434, 433, 435. The Gilbreth text is Frank B. Gilbreth, Primer of Scientific Management (New York: D. Van Nostrand Co., 1914); the quotes are from pp. 6, 80. Taylor’s Principles coda is from Frederick W. Taylor, Scientific Management: Principles, pp. 140–44.

  The quotes “Are there no,” “scientific laws” “the sane middle,” and “placing engineers” are from Edward T. Layton, Jr., The Revolt of the Engineers: Social Responsibility and the American Engineering Profession (Baltimore, Md.: Johns Hopkins University Press, 1986), an excellent discussion of the rise and fall of engineering hubris. The quote “new professional” is from James Gilbert, Designing the Industrial State: The Intellectual Pursuit of Collectivism in America, 1880–1940 (Chicago: Quadrangle Books, 1972). The quotes from Merrick and Taylor in the Watertown footnote are from Hugh G. J. Aitken, Taylorism at Watertown, pp. 147, 137. For Taylor’s congressional testimony and the questioning, see Frederick W. Taylor, Scientific Management: Testimony. “We never take” is from Robert Kanigel, The One Best Way, p. 564.

  Taylor and the Intellectuals

  The quote “a batch and” is from Philip Scranton, Endless Novelty, p. 69. For Chandler on Taylor, see Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass.: The Belknap Press of Harvard University Press, 1977), pp. 274–81. David A. Hounshell, From American System to Mass Production, 1800–1932: The Development of Manufacturing Technology in the United States (Baltimore, Md.: Johns Hopkins University Press, 1984), pp. 217–61, is a definitive discussion of Ford’s achievements. For Taylor’s reservations about working with well-managed companies, see Daniel Nelson, FrederickW. Taylor, p. 150. For the defense of railroad management, see William J. Cunningham, “Scientific Management in the Operation of Railroads,” The Quarterly Journal of Economics 25 (May 1911), 539–61. Albert Fishlow’s “Productivity and Technological Change in the Railroad Sector, 1840–1910, in Dorothy Brady, ed., National Bureau of Economic Research, Output, Employment, and Productivity in the United States after 1800 (New York: Columbia University Press, 1966), pp. 583–646, shows that, in fact, productivity growth in the railroad sector was the fastest of any over that entire period.

  . . . And There Were Consequences

  The footnote on the Soviet vers
ion of Taylorism is from Richard Overy, The Dictators: Hitler’s Germany and Stalin’s Russia (New York: Norton, 2004), p. 320. The referenced Chandler books, in addition to The Visible Hand, are: Alfred D. Chandler, Jr., Scale and Scope: The Dynamics of Industrial Capitalism (Cambridge, Mass.: The Belknap Press of Harvard University Press, 1990); and Strategy and Structure: Chapters in the History of Industrial Enterprise (Cambridge, Mass.: The MIT Press, 1962). Scale and Scope extends the argument to the international arena, for all practical purposes excluding Japan, a significant omission by 1990 when the book was published. The “teutonic” label is from William Parker, “Business Enterprise and Economic Change,” in Louis P. Cain and Paul J. Uselding, eds., Business Enterprise and Economic Change: Essays in Honor of Harold F. Williamson (Kent, Ohio: Kent State University Press, 1973), pp. 15–47, 24. The quotes “the economies of speed” and “[M]anaging and” are from Alfred D. Chandler, Jr., The Visible Hand, pp. 281, 454. For the history of the Harvard Business School, see Jeffrey L. Cruikshank, A Delicate Experiment: The Harvard Business School: 1908–1945 (Cambridge, Mass.: The Harvard Business School Press, 1987). For “had plenty of,” see Alfred D. Chandler, Jr., Strategy and Structure, p. 284. For EOQ, see H. Thomas Johnson and Robert S. Kaplan, The Rise and Fall of Management Accounting (Cambridge, Mass.: Harvard Business School Press, 1987), pp. 209–20, an important book for those who care about such things. For the Toyota system, see Taiichi Ohno, Toyota Production System: Beyond Large-Scale Production (Cambridge, Mass.: Productivity Press, 1988) and Japan Management Association, Kanban: Just-in-Time at Toyota (Cambridge, Mass.: Productivity Press, 1982). The quote “pursuit of quantity” is from Taiichi Ohno, op. cit., p. 109. I wrote about the burst of reform in American factories in my The Coming Global Boom (New York: Bantam, 1990). The article criticizing managers is Robert H. Hayes and William J. Abernathy, “Managing Our Way to Economic Decline,” Harvard Business Review (July–August 1980), 67–77; the quotes are from pp. 70, 74. Chandler’s “the businessman of” is from his The Visible Hand, p. 455.