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Title: The Age of Big Business: A Chronicle of the Captains of Industry

Author: Burton Jesse Hendrick

Release date: January 1, 2002 [eBook #3037]
Most recently updated: February 5, 2013

Language: English

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*** START OF THE PROJECT GUTENBERG EBOOK THE AGE OF
BIG BUSINESS: A CHRONICLE OF THE CAPTAINS OF INDUSTRY
***

THE AGE OF BIG BUSINESS,
A CHRONICLE OF THE
CAPTAINS OF INDUSTRY

By Burton J. Hendrick

New Haven: Yale University Press

Toronto: Glasgow, Brook & Co.

London: Humphrey Milford Oxford University Press

1919

Contents
INDUSTRIAL AMERICA AT THE END OF THE
CHAPTER I.
CIVIL WAR
CHAPTER II. THE FIRST GREAT AMERICAN TRUST
CHAPTER III. THE EPIC OF STEEL
THE TELEPHONE: "AMERICA'S MOST
CHAPTER IV.
POETICAL ACHIEVEMENT"
CHAPTER V. THE DEVELOPMENT OF PUBLIC UTILITIES
MAKING THE WORLD'S AGRICULTURAL
CHAPTER VI.
MACHINERY
THE DEMOCRATIZATION OF THE
CHAPTER VII.
AUTOMOBILE
BIBLIOGRAPHICAL.

THE AGE OF BIG BUSINESS

CHAPTER I. INDUSTRIAL AMERICA AT THE
END OF THE CIVIL WAR
A comprehensive survey of the United States, at the end of the Civil War,
would reveal a state of society which bears little resemblance to that of
today. Almost all those commonplace fundamentals of existence, the things
that contribute to our bodily comfort while they vex us with economic and
political problems, had not yet made their appearance. The America of Civil
War days was a country without transcontinental railroads, without
telephones, without European cables, or wireless stations, or automobiles,
or electric lights, or sky-scrapers, or million-dollar hotels, or trolley cars, or
a thousand other contrivances that today supply the conveniences and
comforts of what we call our American civilization. The cities of that
period, with their unsewered and unpaved streets, their dingy, flickering
gaslights, their ambling horse-cars, and their hideous slums, seemed
appropriate settings for the unformed social life and the rough-and-ready
political methods of American democracy. The railroads, with their fragile
iron rails, their little wheezy locomotives, their wooden bridges, their
unheated coaches, and their kerosene lamps, fairly typified the prevailing
frontier business and economic organization. But only by talking with the
business leaders of that time could we have understood the changes that
have taken place in fifty years. For the most part we speak a business
language which our fathers and grandfathers would not have
comprehended. The word "trust" had not become a part of their vocabulary;
"restraint of trade" was a phrase which only the antiquarian lawyer could
have interpreted; "interlocking directorates," "holding companies,"
"subsidiaries," "underwriting syndicates," and "community of interest"—all
this jargon of modern business would have signified nothing to our
immediate ancestors. Our nation of 1865 was a nation of farmers, city
artisans, and industrious, independent business men, and small-scale
manufacturers. Millionaires, though they were not unknown, did not swarm
all over the land. Luxury, though it had made great progress in the latter
years of the war, had not become the American standard of well-being. The
industrial story of the United States in the last fifty years is the story of the

most amazing economic transformation that the world has ever known; a
change which is fitly typified in the evolution of the independent oil driller
of western Pennsylvania into the Standard Oil Company, and of the ancient
open air forge on the banks of the Allegheny into the United States Steel
Corporation.
The slow, unceasing ages had been accumulating a priceless inheritance
for the American people. Nearly all of their natural resources, in 1865, were
still lying fallow, and even undiscovered in many instances. Americans had
begun, it is true, to exploit their more obvious, external wealth, their forests
and their land; the first had made them one of the world's two greatest
shipbuilding nations, while the second had furnished a large part of the
resources that had enabled the Federal Government to fight what was, up to
that time, the greatest war in history. But the extensive prairie plains whose
settlement was to follow the railroad extensions of the sixties and the
seventies—Kansas, Nebraska, Iowa, Oklahoma, Minnesota, the Dakotas—
had been only slightly penetrated. This region, with a rainfall not too
abundant and not too scanty, with a cultivable soil extending from eight
inches to twenty feet under the ground, with hardly a rock in its whole
extent, with scarcely a tree, except where it bordered on the streams, has
been pronounced by competent scientists the finest farming country to
which man has ever set the plow. Our mineral wealth was likewise lying
everywhere ready to the uses of the new generation. The United States now
supplies the world with half its copper, but in 1865 it was importing a
considerable part of its own supply. It was not till 1859 that the first "oil
gusher" of western Pennsylvania opened up an entirely new source of
wealth. Though we had the largest coal deposits known to geologists, we
were bringing large supplies of this indispensable necessity from Nova
Scotia. It has been said that coal and iron are the two mineral products that
have chiefly affected modern civilization. Certainly the nations that have
made the greatest progress industrially and commercially—England,
Germany, America—are the three that possess these minerals in largest
amount. From sixty to seventy per cent of all the known coal deposits in the
world were located in our national domain. Nature had given no other
nation anything even remotely comparable to the four hundred and eighty
square miles of anthracite in western Pennsylvania and West Virginia.
Enormous fields of bituminous lay in those Appalachian ranges extending
from Pennsylvania to Alabama, in Michigan, in the Rocky Mountains, and

in the Pacific regions. In speaking of our iron it is necessary to use terms
that are even more extravagant. From colonial times Americans had worked
the iron ore plentifully scattered along the Atlantic coast, but the greatest
field of all, that in Minnesota, had not been scratched. From the settlement
of the country up to 1869 it had mined only 50,000,000 tons of iron ore,
while up to 1910 we had produced 685,000,000 tons. The streams and
waterfalls that, in the next sixty years, were to furnish the power that would
light our cities, propel our street-cars, drive our transcontinental trains
across the mountains, and perform numerous domestic services, were
running their useless courses to the sea.
Industrial America is a product of the decades succeeding the Civil War;
yet even in 1865 we were a large manufacturing nation. The leading
characteristic of our industries, as compared with present conditions, was
that they were individualized. Nearly all had outgrown the household stage,
the factory system had gained a foothold in nearly every line, even the
corporation had made its appearance, yet small-scale production prevailed
in practically every field. In the decade preceding the War, vans were still
making regular trips through New England and the Middle States, leaving
at farmhouses bundles of straw plait, which the members of the household
fashioned into hats. The farmers' wives and daughters still supplemented the
family income by working on goods for city dealers in ready-made
clothing. We can still see in Massachusetts rural towns the little shoe shops
in which the predecessors of the existing factory workers soled and heeled
the shoes which shod our armies in the early days of the Civil War. Every
city and town had its own slaughter house; New York had more than two
hundred; what is now Fifth Avenue was frequently encumbered by large
droves of cattle, and great stockyards occupied territory which is now used
for beautiful clubs, railroad stations, hotels, and the highest class of retail
establishments.
In this period before the Civil War comparatively small single owners, or
frequently copartnerships, controlled practically every industrial field.
Individual proprietors, not uncommonly powerful families which were
almost feudal in character, owned the great cotton and woolen mills of New
England. Separate proprietors, likewise, controlled the iron and steel
factories of New York State and Pennsylvania. Indeed it was not until the
War that corporations entered the iron industry, now regarded as the field
above all others adapted to this kind of organization. The manufacture of

sewing machines, firearms, and agricultural implements started on a great
scale in the Civil War; still, the prevailing unit was the private owner or the
partnership. In many manufacturing lines, the joint stock company had
become the prevailing organization, but even in these fields the element that
so characterizes our own age, that of combination, was exerting practically
no influence.
Competition was the order of the day: the industrial warfare of the sixties
was a free-for-all. A mere reference to the status of manufactures in which
the trust is now the all-prevailing fact will make the contrast clear. In 1865
thousands of independent companies were drilling oil in Pennsylvania and
there were more than two hundred which were refining the product. Nearly
four hundred and fifty operators were mining coal, not even dimly
foreseeing the day when their business would become a great railroad
monopoly. The two hundred companies that were making mowers and
reapers, seventy-five of them located in New York State, had formed no
mental picture of the future International Harvester Company. One of our
first large industrial combinations was that which in the early seventies
absorbed the manufacturers of salt; yet the close of the Civil War found fifty
competing companies making salt in the Saginaw Valley of Michigan. In
the same State, about fifty distinct ownerships controlled the copper mines,
while in Nevada the Comstock Lode had more than one hundred
proprietors. The modern trust movement has now absorbed even our lumber
and mineral lands, but in 1865 these rich resources were parceled out
among a multiplicity of owners: No business has offered greater
opportunities to the modern promoter of combinations than our street
railways. In 1865 most of our large cities had their leisurely horse-car
systems, yet practically every avenue had its independent line. New York
had thirty separate companies engaged in the business of local
transportation. Indeed the Civil War period developed only one corporation
that could be described as a "trust" in the modern sense. This was the
Western Union Telegraph Company. Incredible as it may seem, more than
fifty companies, ten years before the Civil War, were engaged in the
business of transmitting telegraphic messages. These companies had built
their telegraph lines precisely as the railroads had laid their tracks; that is,
independent lines were constructed connecting two given points. It was
inevitable, of course, that all these scattered lines should come under a
single control, for the public convenience could not be served otherwise.

This combination was effected a few years before the War, when the
Western Union Telegraph Company, after a long and fierce contest,
succeeded in absorbing all its competitors. Similar forces were bringing
together certain continuous lines of railways, but the creation of huge trunk
systems had not yet taken place. How far our industrial era is removed from
that of fifty years ago is apparent when we recall that the proposed
capitalization of $15,000,000, caused by the merging of the Boston and
Worcester and the Western railroads, was widely denounced as "monstrous"
and as a corrupting force that would destroy our Republican institutions.
Naturally this small-scale ownership was reflected in the distribution of
wealth. The "swollen fortunes" of that period rested upon the same
foundation that had given stability for centuries to the aristocracies of
Europe. Social preeminence in large cities rested almost entirely upon the
ownership of land. The Astors, the Goelets, the Rhinelanders, the
Beekmans, the Brevoorts, and practically all the mighty families that ruled
the old Knickerbocker aristocracy in New York were huge land proprietors.
Their fortunes thus had precisely the same foundation as that of the
Prussian Junkers today. But their accumulations compared only faintly with
the fortunes that are commonplace now. How many "millionaires" there
were fifty years ago we do not precisely know. The only definite
information we have is a pamphlet published in 1855 by Moses Yale Beach,
proprietor of the New York Sun, on the "Wealthy Men of New York." This
records the names of nineteen citizens who, in the estimation of well-
qualified judges, possessed more than a million dollars each. The richest
man in the list was William B. Astor, whose estate is estimated at
$6,000,000. The next richest man was Stephen Whitney, also a large
landowner, whose fortune is listed at $5,000,000. Then comes James Lenox,
again a land proprietor, with $3,000,000. The man who was to accumulate
the first monstrous American fortune, Cornelius Vanderbilt, is accredited
with a paltry $1,500,000. Mr. Beach's little pamphlet sheds the utmost light
upon the economic era preceding the Civil War. It really pictures an
industrial organization that belongs as much to ancient history as the empire
of the Caesars. His study lists about one thousand of New York's "wealthy
citizens." Yet the fact that a man qualified for entrance into this Valhalla
who had $100,000 to his credit and that nine-tenths of those so chosen
possessed only that amount shows the progress concentrated riches have

made in sixty years. How many New Yorkers of today would look upon a
man with $100,000 as "wealthy"?
The sources of these fortunes also show the economic changes our
country has undergone. Today, when we think of our much exploited
millionaires, the phrase "captains of industry" is the accepted description; in
Mr. Beach's time the popular designation was "merchant prince." His
catalogue contains no "oil magnates" or "steel kings" or "railroad
manipulators"; nearly all the industrial giants of ante-bellum times—as
distinguished from the socially prominent whose wealth was inherited—had
heaped together their accumulations in humdrum trade. Perhaps Peter
Cooper, who had made a million dollars in the manufacture of isinglass and
glue, and George Law, whose gains, equally large, represented fortunate
speculations in street railroads, faintly suggest the approaching era; yet the
fortunes which are really typical are those of William Aspinwall, who made
$4,000,000 in the shipping business, of A. T. Stewart, whose $2,000,000
represented his earnings as a retail and wholesale dry goods merchant, and
of Peter Harmony, whose $1,000,000 had been derived from happy trade
ventures in Cuba and Spain. Many of the reservoirs of this ante-bellum
wealth sound strangely in our modern ears. John Haggerty had made
$1,000,000 as an auctioneer; William L. Coggeswell had made half as much
as a wine importer; Japhet Bishop had rounded out an honest $600,000
from the profits of a hardware store; while Phineas T. Barnum ranks high in
the list by virtue of $800,000 accumulated in a business which it is hardly
necessary to specify. Indeed his name and that of the great landlords are
almost the only ones in this list that have descended to posterity. Yet they
were the Rockefellers, the Carnegies, the Harrimans, the Fricks, and the
Henry Fords of their day.
Before the Civil War had ended, however, the transformation of the
United States from a nation of farmers and small-scale manufacturers to a
highly organized industrial state had begun. Probably the most important
single influence was the War itself. Those four years of bitter conflict
illustrate, perhaps more graphically than any similar event in history, the
power which military operations may exercise in stimulating all the
productive forces of a people. In thickly settled nations, with few dormant
resources and with practically no areas of unoccupied land, a long war
usually produces industrial disorganization and financial exhaustion. The
Napoleonic wars had this effect in Europe; in particular they caused a

period of social and industrial distress in England. The few years
immediately following Waterloo marked a period when starving mobs
rioted in the streets of London, setting fire to the houses of the aristocracy
and stoning the Prince Regent whenever he dared to show his head in
public, when cotton spindles ceased to turn, when collieries closed down,
when jails and workhouses were overflowing with a wretched proletariat,
and when gaunt and homeless women and children crowded the country
highways. No such disorders followed the Civil War in this country, at least
in the North and West. Spiritually the struggle accomplished much in
awakening the nation to a consciousness of its great opportunities. The fact
that we could spend more than a million dollars a day—expenditures that
hardly seem startling in amount now, but which were almost unprecedented
then—and that soon after hostilities ceased we rapidly paid off our large
debt, directed the attention of foreign capitalists to our resources, and gave
them the utmost confidence in this new investment field. Immigration, too,
started after the war at a rate hitherto without parallel in our annals. The
Germans who had come in the years preceding the Civil War had been
largely political refugees and democratic idealists, but now, in much larger
numbers, began the influx of north and south Germans whose dominating
motive was economic. These Germans began to find their way to the farms
of the Mississippi Valley; the Irish began once more to crowd our cities; the
Slavs gravitated towards the mines of Pennsylvania; the Scandinavians
settled whole counties of certain northwestern States; while the Jews began
that conquest of the tailoring industries that was ultimately to make them
the clothiers of a hundred million people. For this industrial development,
America supplied the land, the resources, and the business leaders, while
Europe furnished the liquid capital and the laborers.
Even more directly did the War stimulate our industrial development.
Perhaps the greatest effect was the way in which it changed our
transportation system. The mere necessity of constantly transporting
hundreds of thousands of troops and war supplies demanded reconstruction
and reequipment on an extensive scale. The American Civil War was the
first great conflict in which railroads played a conspicuous military part,
and their development during those four years naturally left them in a
strong position to meet the new necessities of peace. One of the first effects
of the War was to close the Mississippi River; consequently the products of
the Western farms had to go east by railroad, and this fact led to that

preeminence of the great trunk lines which they retain to this day. Almost
overnight Chicago became the great Western shipping center, and though
the river boats lingered for a time on the Ohio and the Mississippi they
grew fewer year by year. Prosperity, greater than the country had ever
known, prevailed everywhere in the North throughout the last two years of
the War.
So, too, feeding and supplying an army of millions of men laid the
foundation of many of our greatest industries. The Northern soldiers in the
early days of the war were clothed in garments so variegated that they
sometimes had trouble in telling friend from foe, and not infrequently they
shot at one another; so inadequately were our woolen mills prepared to
supply their uniforms! But larger government contracts enabled the
proprietors to reconstruct their mills, install modern machines, and build up
an organization and a prosperous business that still endures. Making boots
and shoes for Northern soldiers laid the foundation of America's great shoe
industry. Machinery had already been applied to shoe manufacture, but only
to a limited extent; under the pressure of war conditions, however,
American inventive skill found ways of performing mechanically almost all
the operations that had formerly been done by hand. The McKay sewing
machine, one of the greatest of our inventions, which was perfected in the
second year of the war, did as much perhaps as any single device to keep
our soldiers well shod and comfortable. The necessity of feeding these same
armies created our great packing plants. Though McCormick had invented
his reaper several years before the war, the new agricultural machinery had
made no great headway. Without this machinery, however, our Western
farmers could never have harvested the gigantic crops which not only fed
our soldiers but laid the basis of our economic prosperity. Thus the War
directly established one of the greatest, and certainly one of the most
romantic, of our industries—that of agricultural machinery.
Above all, however, the victory at Appomattox threw upon the country
more than a million unemployed men. Our European critics predicted that
their return to civil life would produce dire social and political
consequences. But these critics were thinking in terms of their own
countries; they failed to consider that the United States had an immense
unoccupied domain which was waiting for development. The men who
fought the Civil War had demonstrated precisely the adventurous, hardy
instincts which were most needed in this great enterprise. Even before the

War ended, a great immigration started towards the mines and farms of the
trans-Mississippi country. There was probably no important town or district
west of the Alleghanies that did not absorb a considerable number. In most
instances, too, our ex-soldiers became leaders in these new communities.
Perhaps this movement has its most typical and picturesque illustration in
the extent to which the Northern soldiers opened up the oil-producing
regions of western Pennsylvania. Venango County, where this great
development started, boasted that it had more ex-soldiers than any similar
section of the United States.
The Civil War period also forced into prominence a few men whose
methods and whose achievements indicated, even though roughly and
indistinctly, a new type of industrial leadership. Every period has its
outstanding figure and, when the Civil War was approaching its end, one
personality had emerged from the humdrum characters of the time—one
man who, in energy, imagination, and genius, displayed the forces that were
to create a new American world. Although this man employed his great
talents in a field, that of railroad transportation, which lies outside the scope
of the present volume, yet in this comprehensive view I may take Cornelius
Vanderbilt as the symbol that links the old industrial era with the new. He is
worthy of more detailed study than he has ever received, for in personality
and accomplishments Vanderbilt is the most romantic figure in the history
of American finance. We must remember that Vanderbilt was born in 1794
and that at the time we are considering he was seventy-one years old. In the
matter of years, therefore, his career apparently belongs to the ante-bellum
days, yet the most remarkable fact about this remarkable man is that his real
life work did not begin until he had passed his seventieth year. In 1865
Vanderbilt's fortune, consisting chiefly of a fleet of steamboats, amounted to
about $10,000,000; he died twelve years later, in 1877, leaving
$104,000,000, the first of those colossal American fortunes that were
destined to astound the world. The mere fact that this fortune was the
accumulated profit of only ten years shows perhaps more eloquently than
any other circumstance that the United States had entered a new economic
age. That new factor in the life of America and the world, the railroad,
explains his achievement. Vanderbilt was one of the most astonishing
characters in our history. His physical exterior made him perhaps the most
imposing figure in New York. In his old age, at seventy-three, Vanderbilt
married his second wife, a beautiful Southern widow who had just turned

her thirtieth year, and the appearance of the two, sitting side by side in one
of the Commodore's smartest turnouts, driving recklessly behind a pair of
the fastest trotters of the day, was a common sight in Central Park. Nor did
Vanderbilt look incongruous in this brilliant setting. His tall and powerful
frame was still erect, and his large, defiant head, ruddy cheeks, sparkling,
deep-set black eyes, and snowy white hair and whiskers, made him look
every inch the Commodore. These public appearances lent a pleasanter and
more sentimental aspect to Vanderbilt's life than his intimates always
perceived. For his manners were harsh and uncouth; he was totally without
education and could write hardly half a dozen lines without outraging the
spelling-book. Though he loved his race-horses, had a fondness for music,
and could sit through long winter evenings while his young wife sang old
Southern ballads, Vanderbilt's ungovernable temper had placed him on bad
terms with nearly all his children—he had had thirteen, of whom eleven
survived him—who contested his will and exposed all his eccentricities to
public view on the ground that the man who created the New York Central
system was actually insane. Vanderbilt's methods and his temperament
presented such a contrast to the commonplace minds which had previously
dominated American business that this explanation of his career is perhaps
not surprising. He saw things in their largest aspects and in his big
transactions he seemed to act almost on impulse and intuition. He could
never explain the mental processes by which he arrived at important
decisions, though these decisions themselves were invariably sound. He
seems to have had, as he himself frequently said, almost a seer-like faculty.
He saw visions, and he believed in dreams and in signs. The greatest
practical genius of his time was a frequent attendant at spiritualistic
seances; he cultivated personally the society of mediums, and in sickness he
usually resorted to mental healers, mesmerists, and clairvoyants. Before
making investments or embarking in his great railroad ventures, Vanderbilt
visited spiritualists; we have one circumstantial account of his summoning
the wraith of Jim Fiske to advise him in stock operations. His excessive
vanity led him to print his picture on all the Lake Shore bonds; he proposed
to New York City the construction in Central Park of a large monument that
would commemorate, side by side, the names of Vanderbilt and
Washington; and he actually erected a large statue to himself in his new
Hudson River station in St. John's Park. His attitude towards the public was
shown in his remark when one of his associates told him that "each and

every one" of certain transactions which he had just forced through "is
absolutely forbidden by the statutes of the State of New York." "My God,
John!" said the Commodore, "you don't suppose you can run a railroad in
accordance with the statutes of the State of New York, do you?" "Law!" he
once roared on a similar occasion, "What do I care about law? Hain't I got
the power?"
These things of course were the excrescences of an extremely vital,
overflowing, imaginative, energetic human being; they are traits that not
infrequently accompany genius. And the work which Vanderbilt did remains
an essential part of our economic organization today. Before his time a trip
to Chicago meant that the passenger changed trains seventeen times, and
that all freight had to be unloaded at a similar number of places, carted
across towns, and reloaded into other trains. The magnificent railroad
highway that extends up the banks of the Hudson, through the Mohawk
Valley, and alongside the borders of Lake Erie—a water line route nearly
the entire distance—was all but useless. It is true that not all the
consolidation of these lines was Vanderbilt's work. In 1853 certain
millionaires and politicians had linked together the several separate lines
extending from Albany to Buffalo, but they had managed the new road so
wretchedly that the largest stockholders in 1867 begged Vanderbilt to take
over the control. By 1873 the Commodore had acquired the Hudson River,
extending from New York to Albany, the New York Central extending from
Albany to Buffalo, and the Lake Shore which ran from Buffalo to Chicago.
In a few years these roads had been consolidated into a smoothly operating
system. If, in transforming these discordant railroads into one, Vanderbilt
bribed legislatures and corrupted courts, if he engaged in the largest stock-
watering operations on record up to that time, and took advantage of inside
information to make huge winnings on the stock exchange, he also ripped
up the old iron rails and relaid them with steel, put down four tracks where
formerly there had been two, replaced wooden bridges with steel, discarded
the old locomotives for new and more powerful ones, built splendid new
terminals, introduced economies in a hundred directions, cut down the
hours required in a New York-Chicago trip from fifty to twenty-four, made
his highway an expeditious line for transporting freight, and transformed
railroads that had formerly been the playthings of Wall Street and that
frequently could not meet their pay-rolls into exceedingly profitable, high
dividend paying properties. In this operation Vanderbilt typified the era that

was dawning—an era of ruthlessness, of personal selfishness, of corruption,
of disregard of private rights, of contempt for law and legislatures, and yet
of vast and beneficial achievement. The men of this time may have traveled
roughshod to their goal, but after all, they opened up, in an amazingly short
time, a mighty continent to the uses of mankind. The triumph of the New
York Central and Hudson River Railroad under Vanderbilt, a triumph which
dazzled European investors as well as our own, and which represented an
entirely different business organization from anything the nation had
hitherto seen, appropriately ushered in the new business era whose outlines
will be sketched in the succeeding pages.

CHAPTER II. THE FIRST GREAT AMERICAN
TRUST
When Cornelius Vanderbilt died in 1877, America's first great industrial
combination had become an established fact. In that year the Standard Oil
Company of Ohio controlled at least ninety per cent of the business of
refining and marketing petroleum. A new portent had appeared in our
economic life, a phenomenon that was destined to affect not only the social
and business existence of the every-day American but even his political and
legal institutions.
It seems natural enough at the present time to refer to petroleum as an
indispensable commodity. At the beginning of the Civil War, however, any
such description would have been absurd. Though petroleum was not
unknown, millions of American households were still burning candles,
whale oil, and other illuminants. Not until 1859 did our ancestors realize
that, concealed in the rocky of western Pennsylvania, lay apparently
inexhaustible quantities of a liquid which, when refined, would give a light
exceeding in brilliancy anything they had hitherto known. The mere
existence of petroleum, it is true, had been a familiar fact for centuries.
Herodotus mentions the oil pits of Babylon, and Pliny informs us that this
oil was actually used for lighting in certain parts of Sicily. It had never
become an object of universal use, simply because no one had discovered
how to obtain it in sufficient quantities. No one had suspected, indeed, that
petroleum existed practically in the form of great subterranean rivers, lakes,
or even seas. For ages this great natural treasure had been seeking to
advertise its presence by occasionally seeping through the rocks and
appearing on the surface of watercourses. It had been doing this all over the
world—in China, in Russia, in Germany, in England, in our own country.
Yet our obtuse ancestors had for centuries refused to take the hint. We can
find much cause for self-congratulation in that it was apparently the
American mind that first acted upon this obvious suggestion.
In Venango County, Pennsylvania, petroleum floated in such quantities
on the surface of a branch of the Allegheny River that this small

watercourse had for generations been known as Oil Creek. The neighboring
farmers used to collect the oil and use it to grease their wagon axles; others,
more enterprising, made a business of gathering the floating substance,
packing it in bottles, and selling it broadcast as a medicine. The most
famous of these concoctions, "Seneca Oil," was widely advertised as a sure
cure for rheumatism, and had an extensive sale in this country. "Kier's Rock
Oil" afterwards had an even more extended use. Samuel M. Kier, who
exploited this comprehensive cure-all, made no lasting contributions to
medical science, but his method of obtaining his medicament led indirectly
to the establishment of a great industry. In this western Pennsylvania region
salt manufacture had been a thriving business for many years; the salt was
obtained from salt water by means of artesian wells. This salt water usually
came to the surface contaminated with that same evil-smelling oil which
floated so constantly on top of the rivers and brooks. The salt makers spent
much time and money "purifying" their water from this substance, never
apparently suspecting that the really valuable product of their wells was not
the salt water they so carefully preserved, but the petroleum which they
threw away. Samuel M. Kier was originally a salt manufacturer; more
canny than his competitors, he sold the oil which came up with his water as
a patent medicine. In order to give a mysterious virtue to this remedy, Kier
printed on his labels the information that it had been "pumped up with salt
water about four hundred feet below the earth's surface." His labels also
contained the convincing picture of an artesian well—a rough woodcut
which really laid the foundation of the Standard Oil Company.
In the late fifties Mr. George H. Bissell had become interested in rock oil,
not as an embrocation and as a cure for most human ills, but as a light-
giving material. A professor at Dartmouth had performed certain
experiments with this substance which had sunk deeply into Bissell's
imagination. So convinced was this young man that he could introduce
petroleum commercially that he leased certain fields in western
Pennsylvania and sent a specimen of the oil to Benjamin Silliman, Jr.,
Professor of Chemistry at Yale. Professor Silliman gave the product a more
complete analysis than it had ever previously received and submitted a
report which is still the great classic in the scientific literature of petroleum.
This report informed Bissell that the substance, could be refined cheaply
and easily, and that, when refined, it made a splendid illuminant, besides
yielding certain byproducts, such as paraffin and naphtha, which had a great

commercial value. So far, Bissell's enterprise seemed to promise success,
yet the great problem still remained: how could he obtain this rock oil in
amounts large enough to make his enterprise a practical one? A chance
glimpse of Kier's label, with its picture of an artesian well, supplied Bissell
with his answer. He at once sent E. L. Drake into the oil-fields with a
complete drilling equipment, to look, not for saltwater, but for oil. Nothing
seems quite so obvious today as drilling a well into the rock to discover oil,
yet so strange was the idea in Drake's time that the people of Titusville,
where he started work, regarded him as a lunatic and manifested a hostility
to his enterprise that delayed operations for several months. Yet one day in
August, 1859, the coveted liquid began flowing from "Drake's folly" at the
rate of twenty-five barrels a day.
Because of this performance Drake has gone down to fame as the man
who "discovered oil." In the sense that his operation made petroleum
available to the uses of mankind, Drake was its discoverer, and his
achievement seems really a greater one than that of the men who first made
apparent our beds of coal, iron, copper, or even gold. For Drake really
uncovered an entirely new substance. And the country responded
spontaneously to Drake's success. For anything approaching the sudden
rush to the oil-fields we shall have to go to the discovery of gold in
California ten years before. Men flocked into western Pennsylvania by the
thousands; fortunes were made and lost almost instantaneously. Oil flowed
so plentifully in this region that it frequently ran upon the ground, and the
"gusher," which threw a stream of the precious liquid sometimes a hundred
feet and more into the air, became an almost every-day occurrence. The
discovery took the whole section by surprise; there were no towns, no
railways, and no wagon roads except a few almost impassable lumber trails.
Yet, almost in a twinkling, the whole situation changed; towns sprang up
overnight, roads were built, over which teamsters could carry the oil to the
nearest shipping points, and the great trunk lines began to extend branches
into the regions. The one thing, next to Drake's well, that made the oil
available, was the discovery, which was made by Samuel Van Syckel, that a
two-inch pipe, starting at the well, could convey the oil for several miles to
the nearest railway station. In a few years the whole oil region of Venango
County was an inextricable tangle of these primitive pipelines. Thus, before
the Civil war had ended, the western Pennsylvania wilderness had been
transformed into the busy headquarters of a new industry. Companies had

been formed, many of them the wildest stock-jobbing operations, refineries
had been started, in a few years the whalers of New England had almost lost
their occupation, but millions of American homes, that had hitherto had to
spend the long winter evenings almost in darkness, suddenly found
themselves flooded with light. In Cleveland, in Pittsburgh, in Philadelphia,
in New York, and in the oil regions, the business of refining and selling
petroleum had reached extensive proportions. Europe, although it had great
undeveloped oil-fields of its own, drew upon this new American enterprise
to such an extent that, eleven years after Drake's "discovery," petroleum had
taken fourth place among our exported articles.
The very year that Bissell had organized his petroleum company a boy of
sixteen had obtained his first job in a produce commission office on a dock
in Cleveland. As the curtain rises on the career of John D. Rockefeller, we
see him perched upon a high stool, adding up figures and casting accounts,
faithfully doing every odd office job that came his way, earning his
employer's respect for his industry, his sobriety, and his unmistakable
talents for business. Nor does this picture inadequately visualize
Rockefeller's whole after-life, and explain the business qualities that made
possible his unexampled success. It is, indeed, the scene to which Mr.
Rockefeller himself most frequently reverts when, in his famous
autobiographical discourses to his Cleveland Sunday School, he calls our
attention to the rules that inevitably lead to industrial prosperity. "Thrift,
thrift, Horatio," is the one idea upon which the great captain of the oil
business has always insisted. Many have detected in these habits of mind
only the cheese-paring activities of a naturally narrow spirit. Rockefeller's
old Cleveland associates remember him as the greatest bargainer they had
ever known, as a man who had an eye for infinite details and an
unquenchable patience and resource in making economies. Yet Rockefeller
was clearly more than a pertinacious haggler over trifles. Certainly such a
diagnosis does not explain a man who has built up one of the world's
greatest organizations and accumulated the largest fortune which has ever
been placed at the disposal of one man. Indeed, Rockefeller displayed
unusual business ability even before he entered the oil business. A young
man who, at the age of nineteen, could start a commission house and do a
business of nearly five hundred thousand the first year must have had
commercial capacity to an extraordinary degree.

Fate had placed Rockefeller in Cleveland in the days when the oil
business had got well under way. In the early sixties a score or so of
refineries had started in this town, many of which were making large
profits. It is not surprising that Rockefeller, gazing at these black and evil-
smelling buildings from the vantage point of his commission office, should
have felt an impulse to join in the gamble. He plunged into this new activity
at the age of twenty-three. He possessed two great advantages over most of
his adventurous competitors; one was a heavy bank account, representing
his earnings in the commission business, and the other a partner, Samuel
Andrews, who was generally regarded as a mechanical genius in the
production of illuminating oil. At the beginning, therefore, Rockefeller had
the two essentials which largely explain his subsequent career; an adequate
liquid capital and high technical resources. In the first few years the
Rockefeller houses—he rapidly organized three, one after another—
competed with a large number of other units in the oil business on
somewhat more than even terms. At this time Rockefeller was merely one
of a large number of successful oil refiners, yet during these early days a
grandiose scheme was taking shape in that quiet, insinuating, far-reaching
brain. He said nothing about it, even to his closest associates, yet it filled his
every waking hour. For this young man was taking a comprehensive sweep
of the world and he saw millions of people, in the Americas, in Europe, and
in Asia, whose need for the article in which he dealt would grow more
insistent every day. He saw that he was handling a product which was
becoming as much a necessity of life as the air itself. The young man
reached out to grasp this business. "All of it," we can picture Rockefeller
saying to himself, "all of it shall be mine." Any study of Rockefeller's career
must lead to the conclusion that, before he had reached his thirtieth year, he
had determined to monopolize this growing necessity. The mere fact that
this young man could form such a stupendous plan indicates that in him we
are meeting for the first time a new type of industrial leader. At that time
monopolies were unknown in the United States. That certain old English
Kings had frequently granted exclusive trading privileges to favored
merchants most educated Americans knew; and their knowledge of
monopolies extended little further than this. Yet about 1868 John D.
Rockefeller started consciously to revive this ancient practice, and to bring
under one ownership the magnificent industry to which Drake's sensational
discovery had given rise.

Daring as was this conception, the resourcefulness and the skill with
which Rockefeller executed it were more startling still. Merely to catalogue,
one by one, the achievements of the ten succeeding fruitful years, almost
takes one's breath away. Indeed the whole operation proceeded with such a
Napoleonic rapidity of action that the outside world had hardly grasped
Rockefeller's intention before the monopoly had been made complete. We
catch one glimpse of Rockefeller, in 1868, as head of the prosperous house
of Rockefeller, Andrews, and Flagler, and eight years afterwards we see him
once more, this time the man who controlled practically the entire
petroleum business of the world. His career of conquest began in 1870,
when the firm of Rockefeller, Andrews, and Flagler, joining hands with
several large capitalists in Cleveland and New York, was incorporated under
the name of the Standard Oil Company of Ohio. In 1870 about twenty-five
independent refineries, many of them prosperous and powerful, were
manufacturing oil in the city of Cleveland; two years afterward this new
Standard Oil Company had absorbed all of them except five: In these two
critical years the oil business of the largest refining center in the United
States had thus passed into Rockefeller's hands. By 1874 the greatest
refineries in New York and Philadelphia had likewise merged their identity
with his own. When Rockefeller began his acquisition, there were thirty
independent refineries operating in Pittsburgh, all of which, in four or five
years, passed one by one under his control. The largest refineries of
Baltimore surrendered in 1875.
These capitulations left only one important refining headquarters in the
United States which the Standard had not absorbed. This was that section of
western Pennsylvania where the oil business had had its origin. The mere
fact that this area was the headquarters of the oil supply gave it great
advantages as a place for manufacturing the finished product. The oil
regions regarded these advantages as giving them the right to dominate the
growing industry, and they had frequently proclaimed the doctrine that the
business belonged to them. They hated Rockefeller as much as they feared
him, yet at the very moment when the Titusville operators were hanging
him in effigy and posting the hoardings with cabalistic signs against his
corporation, this mysterious, almost uncanny power was encircling them:
Men who one night were addressing public meetings denouncing the
Standard influence would suddenly sell out their holdings the next day. In
1875 John D. Archbold, a brilliant young refiner who had grown up in the

oil regions and who had gained much local fame as opponent of the
Standard, appeared in Titusville as the President of the Acme Oil Company.
At that time there were twenty-seven independent refineries in this section.
Archbold began buying and leasing these establishments for his Acme
Company, and in about four years practically every one had passed under
his control. The Acme Company was merely a subsidiary of the Standard
Oil. These rapid purchasing campaigns gave the Standard ninety per cent of
all the refineries in the United States, but Rockefeller's scheme
comprehended more than the acquisition of refineries. In the main the
Rockefeller group left the production of crude oil in the hands of the private
drillers, but practically every other branch of the business passed ultimately
into their hands. Both the New York Central and the Erie railroads
surrendered to the Standard the large oil terminal stations which they had
maintained for years in New York. As a consequence, the Standard obtained
complete supervision of all oil sent by railroad into New York, and it also
secured the machinery of a complete espionage system over the business of
competitors. The Standard acquired companies which had built up a large
business in marketing oil. Even more dramatic was its success in gathering
up, one after another, these pipe lines which represented the circulatory
system of the oil industry. In the early days these pipe lines were small and
comparatively simple affairs. They merely carried the crude oil from the
wells to railroad centers; from these stations the railroads transported it to
the refineries at Cleveland, New York, and other places. At an early day the
construction and management of these pipe lines became a separate
industry. And now, in 1873, the Standard Oil Company secured possession
of a one-third interest in the largest of these privately owned companies, the
American Transfer Company. Soon afterward the United Pipe Line
Company went under their control. In 1877 the Empire Transportation
Company, a large pipe line and refining corporation which the Pennsylvania
Railroad had controlled for many years, became a Standard subsidiary.
Meanwhile certain hardy spirits in the oil regions had conceived a much
more ambitious plan. Why not build great underground mains directly from
the oil regions to the seaboard, pump the crude oil directly to the city
refineries, and thus free themselves from dependence on the railroads? At
first the idea of pumping oil through pipes over the Alleghany Mountains
seemed grotesque, but competent engineers gave their indorsement to the
plan. A certain "Dr." Hostetter built for the Columbia Conduit Company a

trunk pipe line that extended thirty miles from the oil regions to Pittsburgh.
Hardly had Hostetter completed his splendid project when the Standard Oil
capitalists quietly appeared and purchased it! For four years another group
struggled with an even more ambitious scheme, the construction of a
conduit, five hundred miles long, from the oil regions to Baltimore. The
American people looked on admiringly at the splendid enterprise whose
projectors, led by General Haupt, the builder of the Hoosac Tunnel,
struggled against bankruptcy, strikes, railroad opposition, and hostile
legislatures, in their attempts to push their pipe line to the sea. In 1879 the
Tidewater Company first began to pump their oil, and the American press
hailed their achievement as something that ranked with the laying of the
Atlantic Cable and the construction of the Brooklyn Bridge. But in less than
two years the Rockefeller interest had entered into agreements with the
Tidewater Company that practically placed this great seaboard pipe line in
its hands.
Thus in less than ten years Rockefeller had realized his ambitious dream;
he now controlled practically everything concerned in the manufacture and
sale of petroleum. The change had come about so stealthily, so secretly, and
even so remorselessly that it impressed the public almost as the work of
some uncanny genius. What were the forces, personal and economic, that
had produced this new phenomenon in our business life? In certain
particulars the Standard Oil monopoly was the product of well-understood
principles. From his earliest days John D. Rockefeller had struggled to
eliminate the middleman. He established factories to build his own barrels,
to make his own acids; he created his own selling firms, and, instead of
paying large storage charges, he constructed his own warehouses in New
York. From his earliest days as a refiner, he had adopted the principle of
paying no man a profit, and of performing all the intermediate acts that had
formerly resulted in large tribute to middlemen. Moreover, the Standard Oil
Company was apparently the first great American industrial enterprise that
realized the necessity of operating with an abundant capital. Not the least of
Mr. Rockefeller's achievements was his success in associating with the new
company men having great financial standing—Amasa Stone, Benjamin
Brewster, Oliver Jennings, and the like, capitalists whose banking
resources, placed at the disposition of the Standard, gave it an immense
advantage over its rivals. While his competitors were "kiting" checks and
waiting, hat in hand, on the good nature of the money lenders, Rockefeller

always had a large bank balance, upon which he could instantly draw for his
operations.
Nor must we overlook the fact that the Standard group contained a large
number of exceedingly able men. "They are mighty smart men," said the
despairing W. H. Vanderbilt, in 1879, when pressed to give his reasons for
granting rebates to the Rockefeller group. "I guess if you ever had to deal
with them you would find that out." In Rockefeller the corporation
possessed a man of tireless industry and unshakable determination. Nothing
could turn him aside from the work to which he had put his hand. Public
criticism and even denunciation, while he resented it as unjust and regarded
it as the product of a general misunderstanding, never caused the leader of
Standard Oil even momentarily to flinch. He was a man of one idea, and he
worked at it day and night, taking no rest or recreation, skillfully turning to
his purpose every little advantage that came his way. His associates—men
like Flagler, Archbold, and Rogers—also had unusual talents, and together
they built up the splendid organization that still exists. They exacted from
their subordinates the last ounce of attention and energy and they rewarded
generously everybody who served them well. They showed great judgment
in establishing refineries at the most strategic points and in giving up
localities, such as Boston and Portland, which were too far removed from
their supplies. They established a marketing system which enabled them to
bring their oil directly from their own refineries to the retailer, all in their
own tank cars and tank wagons. They extended their markets in foreign
countries, so that now the Standard sells the larger part of its products
outside the United States. They established chemical research laboratories
which devised new and inexpensive methods for refining the product and
developed invaluable byproducts, such as paraffin, naphtha, vaseline, and
lubricating oils. It is impossible to study the career of the Standard Oil
Company without concluding that we have here an example of a supreme
business intelligence working in a field which gave the widest possible
scope of action.
A high quality of organization, however, does not completely explain the
growth of this monopoly. The Standard Oil Company was the beneficiary of
methods that have deservedly received great public opprobrium. Of these
the one that stands forth most conspicuously is the railroad rebate. Those
who have attempted to trace the very origin of the Rockefeller preeminence
to railroad discrimination have not entirely succeeded. Only the most hazy

evidence exists that the firm of Rockefeller, Andrews, and Flagler greatly
profited from rebates. In fact, refined oil was not transported from
Cleveland to the seaboard by railroad until 1870, the year that this firm
dissolved; practically all of the product then went by way of the Great
Lakes and the Erie Canal. Possibly the Rockefeller firm did get occasional
rebates on crude oil from the oil regions to the refineries, but so did their
competitors. It is therefore not likely that such favors had great influence in
making this single firm the most successful in the largest refining center.
With the organization of the Standard Oil Company, however, rebates
became a more important consideration.
The turning-point in the history of the oil industry came when the
Rockefeller interests acquired the Cleveland refineries. The details
concerning this act of generalship are fairly well known. The South
Improvement Company is a corporation that necessarily bulks large in the
history of the Standard Oil. Mr. Rockefeller and his associates have always
disclaimed the parentage of this organization. They assert—and their
assertion is doubtless true—that the only responsible begetters were
Thomas A. Scott, President of the Pennsylvania Railroad, and certain
refineries in Pittsburgh and Philadelphia which, though they were
afterwards absorbed by the Standard, were at that time their competitors.
These refiners and the Pennsylvania, over which the Standard Oil then was
making no shipments, thus represented a group, composed of railroads and
refiners, which was antagonistic to the Rockefeller interests. The South
Improvement Company was an association of refiners with which the
railroads, chiefly the Pennsylvania, the New York Central, and the Erie,
made exclusive contracts for shipping oil. Under these contracts rates to the
seaboard were to be generally raised, though the members of the South
Improvement Company were to receive liberal rebates. The refiners of
Cleveland and Pittsburgh were to get lower rates than the refiners located in
the oil regions. But the clause in these contracts that caused the greatest
amazement and indignation was one which gave the inside group rebates on
every barrel of oil shipped by its competitors.
It would be difficult to imagine any transaction more wicked than these
contracts. Carried into execution they inevitably meant the extinction of
every refiner who had not been admitted into the inside ring. Of the two
thousand shares of the South Improvement Company, the gentlemen who
were at that time most conspicuously identified with the Standard Oil

Company subscribed to five hundred and forty. Mr. Rockefeller has always
protested that he did not favor the scheme and that he became a party to it
simply because he could not afford to antagonize the powerful Pennsylvania
Railroad, which had originated it. When the details became public property,
a wave of indignation swept from the Atlantic to the Pacific; the oil regions,
which would have been the heaviest sufferers, shut down their wells and so
cut off the supply of crude oil; the New York newspapers started a
"crusade" against the South Improvement group and Congress ordered an
investigation. So fiercely was the public wrath aroused that the railroads ran
to cover, abrogated the contracts, signed an agreement promising never
more to grant rebates to any one, while the Pennsylvania Legislature
repealed the charter of the South Improvement Company. This particular
scheme, therefore, never came to maturity. Before the South Improvement
Company ended its corporate existence, however, a great change had taken
place in the oil situation. Practically all the refineries in Cleveland had
passed into the control of the Standard Oil Company. The Standard has
always denied that there was any connection between the purchase of these
great refineries and the organization of the South Improvement Company.
But there is much evidence sustaining a contrary view, for many of these
refiners afterward went on the witness stand and told circumstantial stories,
all of which made precisely the same point. This was that the Standard men
had come to them, shown the contracts which had been made by the South
Improvement Company, and argued that, under these new conditions, the
refineries left outside the combination could not long survive. The
Standard's rivals were therefore urged to "come in," to take Standard stock
in return for their refineries, or, if they preferred, to sell outright. Practically
all saw the force in this argument and sold—in most cases taking cash.
The acquisition of these Cleveland refineries made inevitable the
Rockefeller conquest of the oil industry. Up to that time the Standard had
refined about fifteen hundred barrels a day, and now suddenly its capacity
jumped to more than twelve thousand barrels. This one strategic move had
made Rockefeller master of about one-third of all the oil business in the
United States, and this fact explains the rapidity with which the other
citadels fell. There is no evidence that the Standard exercised any pressure
upon the great refineries in New York, Pittsburgh, and Philadelphia. Indeed
these concerns manifested an eagerness to join. The fact that, unlike the
Cleveland refiners, many of the firms in these other cities took Standard

stock, and so became parts of the new organization, is in itself significant.
They evidently realized that they were casting their fortunes with the
winning side. The huge shipments which the Standard now controlled
explain this change in front. Every day Mr. Rockefeller could send from
Cleveland to the seaboard a train, sixty cars long, loaded with the blue
barrels containing his celebrated liquid. That was a consideration for which
any railroad would at that time sell its soul. And the New York Central road
promptly made this sacrifice. Hardly had the ink dried on its written
promise not to grant any rebates when it began granting them to the
Standard Oil Company.
In those days the railroad rate was not the sacred, immutable thing which
it subsequently became, although the argument for equal treatment of
shippers existed theoretically just as strongly forty years ago as it does
today. The rebate was just as illegal then as it is at present; there was no
precise statute, it is true, which made it unlawful until the Interstate
Commerce Act was passed in 1887; but the common law had always
prohibited such discriminations. In the seventies and eighties, however,
railroad men like Cornelius Vanderbilt and Thomas A. Scott were less
interested in legal formalities than in getting freight. They regarded
transportation as a commodity to be bought and sold, like so much sugar or
wheat or coal, and they believed that the ordinary principles which
regulated private bargaining should also regulate the sale of the article in
which they dealt. According to this reasoning, which was utterly false and
iniquitous, but generally prevalent at the time, the man who shipped the
largest quantities of oil should get the lowest rate.
The purchase of the Cleveland refineries made the Standard Oil group the
largest shippers and therefore they obtained the most advantageous terms
for transporting their product. Under these conditions they naturally
obtained the monopoly, the extent of which has been already described.
Their competitors could rage, hold public meetings, start riots, threaten to
lynch Mr. Rockefeller and all his associates, but they could not long survive
in face of these advantages. The only way in which the smaller shippers
could overcome this handicap was by acquiring new methods of
transportation. It was this necessity that inspired the construction of pipe
lines; but the Standard, as already described, succeeded in absorbing these
just about as rapidly as they were constructed.

Not only did the Standard obtain railroad rebates but it developed the
most death-dealing methods in its system of marketing its oil. In these
campaigns it certainly overstepped the boundaries of legitimate business,
even according to the prevailing morals of its own or of any other time.
While it probably did not set fire to rival refineries, as it has sometimes
been accused of doing, it undoubtedly did resort to somewhat Prussian
methods of destroying the foe. This great corporation divided the United
States into several sections, over each of which it appointed an agent, who
in turn subdivided his territory into smaller divisions, each one of which
likewise had its captain. The order imperatively issued to each agent was,
"Sell all the oil that is sold in your district." To these instructions he was
rigidly held; success in accomplishing his task meant advancement and an
increased salary, with a liberal pension in his old age, whereas failure meant
a pitiless dismissal. He was expected to supervise not only his own
business, but that of his rivals as well, to obtain access to their accounts,
their shipments, and their customers. It has been asserted, and the assertion
has been supported by considerable evidence, that these agents did not
hesitate to bribe railroad employees and in this way get access to their
competitors' bills of lading and records of their shipments, and that they
would even bribe dealers to cancel such orders and take the oil from them at
a lower price. This information laid the foundation for those price-cutting
campaigns that have brought the name of the Standard Oil into such
disfavor. And when the Standard cut, it cut to kill; the only purpose was to
drive the competitor from the field, and, when this had been accomplished,
the price of oil would promptly go up again. The organization of "bogus
companies," started purely for the purpose of eliminating competitors,
seems to have been a not infrequent practice. This latter method emphasizes
another quality that accompanied the Standard's operations and so largely
explains its unpopularity—the secrecy with which it so commonly worked.
Though the independent oil refiners were combating the most powerful
financial power of the time, they were frequently fighting in the dark, never
knowing where to deliver their blows.
This same characteristic was manifested in the form of corporate
existence which the Standard adopted. The first great "trust" was a trust not
only in name but in fact. The Standard introduced not only a new economic
development into our national organization; it introduced a new word into
our language and an issue into American politics that provided sustenance

for the presidential campaigns of twenty-five years. From the beginning the
Standard Oil had always been a close corporation. Originally it had had
only ten stockholders, and this number had gradually grown until, in 1881,
there were forty-one. These men had adopted a new and secretive method
of combining their increasing possessions into a single ownership. In 1873
the Standard Company had increased its capital stock (originally
$1,000,000) to $3,500,000, the new certificates being exchanged for
interests in the great New York and Philadelphia refineries The Standard Oil
Company of Ohio never had a larger capital stock than that. As additional
properties were acquired, the interests were placed in the hands of trustees,
who held them for the joint benefit of the stockholders in the original
company. In 1882 this idea was carried further, for then the Standard Oil
Trust was organized. The fact that the properties lay in so many different
States, many of which had laws intended to curb corporations, was
evidently what led to this form of consolidation. A trust was formed,
consisting of nine trustees, who held, for the benefit of the Standard Oil
stockholders, all the stock in the Standard and in the subsidiary companies.
Instead of certificates of stock the trustees issued certificates of trust
amounting to $70,000,000. Each Standard stockholder received twenty of
these certificates for each share which he held of Standard stock. These
certificates could be bought and sold and passed on by inheritance precisely
the same as stocks.
Ingenious as was this legal device, it did not stand the test of the courts.
In 1892 the Ohio Supreme Court declared the Standard Oil Trust a violation
of the law and demanded its dissolution. The persistent attempts of the
Standard to disregard this order increased its reputation for lawlessness.
Finally, in 1899, after Ohio had brought another action, the trust was
dissolved. The Standard interests now reorganized all their holdings under
the name of the Standard Oil Company of New Jersey. Again, in 1911, the
United States Supreme Court declared this combination a violation of the
Sherman Anti-Trust Act, and ordered its dissolution. By this time the
Standard capitalists had learned the value of public opinion as a corporate
asset, and made no attempt to evade the order of the court. The Standard Oil
Company of New Jersey proceeded to apportion among its stockholders the
stock which it held in thirty-seven other companies—refineries, pipe lines,
producing companies, marketing companies, and the like. Chief Justice
White, in rendering his decision, specifically ordered that, in dissolving

their combination, the Standard should make no agreement, contractual or
implied, which was intended still to retain their properties in one ownership.
As less than a dozen men owned a majority interest in the Standard Oil
Company of New Jersey, these same men naturally continued to own a
majority interest in the subsidiary companies. Though the immediate effect
of this famous decision therefore was not to cause a separation in fact, this
does not signify that, as time goes on, such a real dissolution will not take
place. It is not unlikely that, in a few years, the transfers of the stock by
inheritance or sale will weaken the consolidated interest to a point where
the companies that made up the Standard Company will be distinct and
competitive.
This is more likely to be the case since, long before the decision of 1911,
the Standard Oil Company had ceased to be a monopoly. In the early
nineties there came to the front in the oil regions a man whose organizing
ability and indomitable will suggested the Standard Oil leaders themselves.
This man's soul burned with an intense hatred of the Rockefeller group, and
this sentiment, as much as his love of success, inspired all his efforts. There
is nothing finer in American business history than the fifteen years' battle
which Lewis Emery, Jr., fought against the greatest financial power of the
day. In 1901 this long struggle met with complete success. Its monuments
were the two great trunk pipe lines which Emery had built from the
Pennsylvania regions to Marcus Hook, near Philadelphia, one for pumping
refined and one for pumping crude. The Pure Oil Company, Emery's
creation, has survived all its trials and has done an excellent business. And
meanwhile other independents sprang up with the discovery of oil in other
parts of the country. This discovery first astonished the Standard Oil men
themselves; when someone suggested to Archbold, thirty-five years ago,
that the midcontinent field probably contained large oil supplies, he
laughed, and said that he would drink all the oil ever discovered outside of
Pennsylvania. In these days a haunting fear pursued the oil men that the
Pennsylvania field would be exhausted and that their business would be
ended. This fear, as developments showed, had a substantial basis; the
Pennsylvania yield began to fail in the eighties and nineties, until now it is
an inconsiderable element in this gigantic industry. Ohio, Indiana, Illinois,
Kansas, Oklahoma, Texas, California, and other states in turn became the
scene of the same exciting and adventurous events that had followed the
discovery of oil in Pennsylvania. The Standard promptly extended its pipe

lines into these new areas, but other great companies also took part in the
development. These companies, such as the Gulf Refining Company and
the Texas Refining Company, have their gathering pipe lines, their great
trunk lines, their marketing stations, and their export trade, like the
Standard; the Pure Oil Company has its tank cars, its tank ships, and its
barges on the great rivers of Europe. The ending of the rebate system has
stimulated the growth of independents, and the production of crude oil and
the market demand in a thousand directions has increased the business to an
extent which is now far beyond the ability of any one corporation to
monopolize. The Standard interests refine perhaps something more than
fifty per cent of the crude oil produced in this country. But in recent years,
Standard Oil has meant more than a corporation dealing in this natural
product. It has become the synonym of a vast financial power reaching in
all directions. The enormous profits made by the Rockefeller group have
found investments in other fields. The Rockefellers became the owners of
the great Mesaba iron ore range in Minnesota and of the Colorado Fuel and
Iron Company, the chief competitor of United States Steel. It is the largest
factor in several of the greatest American banks. Above all, it is the single
largest railroad power in America today.

CHAPTER III. THE EPIC OF STEEL
It was the boast of a Roman Emperor that he had found the Eternal City
brick and left it marble. Similarly the present generation of Americans
inherited a country which was wood and have transformed it into steel. That
which chiefly distinguishes the physical America of today from that of forty
years ago is the extensive use of this metal. Our fathers used steel very little
in railway transportation; rails and locomotives were usually made of iron,
and wood was the prevailing material for railroad bridges. Steel cars, both
for passengers and for freight, are now everywhere taking the place of the
more flimsy substance. We travel today in steel subways, transact our
business in steel buildings, and live in apartments and private houses which
are made largely of steel. The steel automobile has long since supplanted
the wooden carriage; the steel ship has displaced the iron and wooden
vessel. The American farmer now encloses his lands with steel wire, the
Southern planter binds his cotton with steel ties, and modern America could
never gather her abundant harvests without her mighty agricultural
implements, all of which are made of steel. Thus it is steel that shelters us,
that transports us, that feeds us, and that even clothes us.
This substance is such a commonplace element in our lives that we take it
for granted, like air and water and the soil itself; yet the generation that
fought the Civil War knew practically nothing of steel. They were familiar
with this metal only as a curiosity or as a material used for the finer kinds of
cutlery. How many Americans realize that steel was used even less in 1865
than aluminum is used today? Nearly all the men who have made the
American Steel Age—such as Carnegie, Phipps, Frick, and Schwab—are
still living and some of them are even now extremely active. Thirty-five
years ago steel manufacture was regarded, even in this country, as an almost
exclusively British industry. In 1870 the American steel maker was the
parvenu of the trade. American railroads purchased their first steel rails in
England, and the early American steel makers went to Sheffield for their
expert workmen. Yet, in little more than ten years, American mills were
selling agricultural machinery in that same English town, American rails
were displacing the English product in all parts of the world, American

locomotives were drawing English trains on English railways, and
American steel bridges were spanning the Ganges and the Nile. Indeed, the
United States soon surpassed England. In the year before the World War the
United Kingdom produced 7,500,000 tons of steel a year, while the United
States produced 32,000,000 tons. Since the outbreak of the Great War, the
United States has probably made more steel than all the rest of the world
put together. "The nation that makes the cheapest steel," says Mr. Carnegie,
"has the other nations at its feet." When some future Buckle analyzes the
fundamental facts in the World War, he may possibly find that steel
precipitated it and that steel determined its outcome.
Three circumstances contributed to the rise of this greatest of American
industries: a new process for cheaply converting molten pig iron into steel,
the discovery of enormous deposits of ore in several sections of the United
States, and the entrance into the business of a hardy and adventurous group
of manufacturers and business men. Our steel industry is thus another
triumph of American inventive skill, made possible by the richness of our
mineral resources and the racial energy of our people. An elementary
scientific discovery introduced the great steel age. Steel, of course, is
merely iron which has been refined—freed from certain impurities, such as
carbon, sulphur, and phosphorus. We refine our iron and turn it into steel
precisely as we refine our sugar and petroleum. From the days of Tubal
Cain the iron worker had known that heat would accomplish this
purification; but heat, up to almost 1865, was an exceedingly expensive
commodity. For ages iron workers had obtained the finer metal by applying
this heat in the form of charcoal, never once realizing that unlimited
quantities of another fuel existed on every hand. The man who first
suggested that so commonplace a substance as air, blown upon molten pig
iron, would produce the intensest heat and destroy its impurities, made
possible our steel railroads, our steel ships, and our steel cities. When
William Kelly, an owner of iron works near Eddyville, Kentucky, first
proposed this method in 1847, he met with the ridicule which usually greets
the pioneer inventor. When Henry Bessemer, several years afterward, read a
paper before the British Association for the Advancement of Science, in
which he advocated the same principle, he was roared down as "a crazy
Frenchman," and the savants were so humiliated by the suggestion that they
voted to make no record of his "silly paper" in their official minutes. Yet
these two men, the American Kelly and the Englishman Bessemer, were the

creators of modern steel. The records of the American Patent Office clearly
show that Kelly made "Bessemer" steel many years before Bessemer. In
1870 the American Government refused to extend Bessemer's patent in this
country on the ground that William Kelly had a prior claim; in spite of this,
Bessemer was undoubtedly the man who developed the mechanical details
and gave the process a universal standing.
Though the Bessemer process made possible the production of steel by
tons instead of by pounds, it would never in itself have given the nation its
present preeminence in the steel industry. Iron had been mined in the United
States for two centuries on a small scale, the main deposits being located in
the Lake Champlain region of New York and in western Pennsylvania. But
these, and a hundred other places located along the Atlantic coast, could not
have produced ore in quantities sufficient to satisfy the yawning jaws of the
Bessemer converters. As this new method poured out the liquid in
thousands of tons, and as the commercial demand extended in a dozen
different directions, the cry went up from the furnace's for more ore. And
again Nature, which has favored America in so many directions, came to
her assistance. Manufacturers in the steel regions began to recall strange
stories which had been floating down for many years from the wilderness
surrounding Lake Superior. The recollection of a famous voyage made in
this region by Philo M. Everett, as far back as 1845, now laid siege to the
imagination of the new generation of ironmasters. For years the Indians had
told Everett of the "mountains of iron" that lay on the Minnesota shore of
Lake Superior and had described their wonders in words that finally
impelled this hardy adventurer to make a voyage of exploration. For six
weeks, in company with two Indian guides, Everett had navigated a small
boat along the shores of the Lake, covering a distance that now takes only a
few hours. The Indians had long regarded this silent, red iron region with a
superstitious reverence, and now, as the little party approached, they refused
to complete the journey. "Iron Mountain!" they said, pointing northward
along the trail—"Indian not go near; white man go!" The sight which
presently met Everett's eyes repaid him well for his solitary tramp in the
forest. He found himself face to face with a "mountain a hundred and fifty
feet high, of solid ore, which looked as bright as a bar of iron just broken."
Other explorations subsequently laid open the whole of the Minnesota
fields, including the Mesaba, which developed into the world's greatest iron
range. America has other regions rich in ore, particularly in Alabama,

located alongside the coal and limestone so necessary in steel production;
yet it has drawn two-thirds of its whole supply from these Lake Superior
fields. Not only the quantity, which is apparently limitless, but the quality
explains America's leadership in steel making.
Mining in Minnesota has a character which is not duplicated elsewhere.
When we think of an iron mine, we naturally picture subterranean caverns
and galleries, and strange, gnome-like creatures prowling about with pick
and shovel and drill. But mining in this section is a much simpler
proceeding. The precious mineral does not lie concealed deep within the
earth; it lies practically upon the surface. Removing it is not a question of
blasting with dynamite; it is merely a matter of lifting it from the surface of
the earth with a huge steam shovel. "Miners" in Minnesota have none of the
conventional aspects of their trade. They operate precisely as did those who
dug the Panama Canal. The railroad cars run closely to the gigantic red pit.
A huge steam shovel opens its jaws, descends into an open amphitheater,
licks up five tons at each mouthful, and, swinging sideways over the open
cars, neatly deposits its booty. It is not surprising that ore can be produced
at lower cost in the United States than even in those countries where the
most wretched wages are paid. Evidently this one iron field, to say nothing
of others already worked, gives a permanence to our steel industry.
Not only did America have the material resources; what is even more
important, she had also the men. American industrial history presents few
groups more brilliant, more resourceful, and more picturesque than that
which, in the early seventies, started to turn these Minnesota ore fields into
steel—and into gold. These men had all the dash, all the venturesomeness,
all the speculative and even the gambling instinct, needed for one of the
greatest industrial adventures in our annals. All had sprung from the
simplest and humblest origins. They had served their business
apprenticeships as grocery clerks, errand boys, telegraph messengers, and
newspaper gamins. For the most part they had spent their boyhood together,
had played with each other as children, had attended the same Sunday
schools, had sung in the same church choirs, and, as young men, had
quarreled with each other over their sweethearts. The Pittsburgh group
comprised about forty men, most of whom retired as millionaires, though
their names for the most part signify little to the present-day American.
Kloman, Coleman, McCandless, Shinn, Stewart, Jones, Vandervoort—are
all important men in the history of American steel. Thomas A. Scott and J.

Edgar Thompson, men associated chiefly with the creation of the
Pennsylvania Railroad, also made their contributions. But three or four men
towered so preeminently above their associates that today when we think of
the human agencies that constructed this mighty edifice, the names that
insistently come to mind are those of Carnegie, Phipps, Frick, and Schwab.
Books have been written to discredit Carnegie's work and to picture him
as the man who has stolen success from the labor of greater men. Yet
Carnegie is the one member of a brilliant company who had the
indispensable quality of genius. He had none of the plodding, painstaking
qualities of a Rockefeller; he had the fire, the restlessness, the keen relish
for adventure, and the imagination that leaped far in advance of his
competitors which we find so conspicuous in the older Vanderbilt. Carnegie
showed these qualities from his earliest days. Driven as a child from his
Scottish home by hunger, never having gone to school after twelve, he
found himself, at the age of thirteen, living in a miserable hut in Allegheny,
earning a dollar and twenty cents a week as bobbin-boy in a cotton mill,
while his mother augmented the family income by taking in washing. Half a
dozen years later Thomas Scott, President of the Pennsylvania Railroad,
made Carnegie his private secretary. How well the young man used his
opportunities in this occupation appeared afterward when he turned his
wide acquaintanceship among railroad men to practical use in the steel
business. It was this personal adaptability, indeed, that explains Carnegie's
success. In the narrow, methodical sense he was not a business man at all;
he knew and cared nothing for its dull routine and its labyrinthine details.
As a practical steel man his position is a negligible one. Though he was
profoundly impressed by his first sight of a Bessemer converter, he had
little interest in the every-day process of making steel. He had also many
personal weaknesses: his egotism was marked, he loved applause, he was
always seeking opportunities for self-exploitation, and he even aspired to
fame as an author and philosopher. The staid business men of Pittsburgh
early regarded Carnegie with disfavor; his daring impressed them as
rashness and his bold adventures as the plunging of the speculator. Yet in all
its aspects Carnegie's triumph was a personal one. He was perhaps the
greatest commercial traveler this country has ever known. While his more
methodical associates plodded along making steel, Carnegie went out upon
the highway, bringing in orders by the millions. He showed this same
personal quality in the organization of his force. As a young man, entirely

new to the steel industry, he selected as the first manager of his works
Captain Bill Jones; his amazing judgment was justified when Jones
developed into America's greatest practical genius in making steel. "Here
lies the man"—Carnegie once suggested this line for his epitaph—"who
knew how to get around him men who were cleverer than himself."
Carnegie inspired these men with his own energy and restlessness; the spirit
of the whole establishment automatically became that of the pushing spirit
of its head. This little giant became the most remorseless pace-maker in the
steel regions. However astounding might be the results obtained by the
Carnegie works the captain at the head was never satisfied. As each month's
output surpassed that which had gone before, Carnegie always came back
with the same cry of "More." "We broke all records for making steel last
week!" a delighted superintendent once wired him and immediately he
received his answer, "Congratulations. Why not do it every week?" This
spirit explains the success of the Carnegie Company in outdistancing all its
competitors and gaining a worldwide preeminence for the Pittsburgh
district. But Carnegie did not make the mistake of capitalizing all this
prosperity for himself; his real greatness as an American business man
consists in the fact that he liberally shared the profits with his associates.
Ruthless he might be in appropriating their last ounce of energy, yet he
rewarded the successful men with golden partnerships. Nothing delighted
Carnegie more than to see the man whom he had lifted from a puddler's
furnace develop into a millionaire.
Henry Phipps, still living at the age of seventy-eight, was the only one of
Carnegie's early associates who remained with him to the end. Like many of
the others, Phipps had been Carnegie's playmate as a boy, so far as any of
them, in those early days, had opportunity to play; like all his
contemporaries also, Phipps had been wretchedly poor, his earliest business
opening having been as messenger boy for a jeweler. Phipps had none of
the dash and sparkle of Carnegie. He was the plodder, the bookkeeper, the
economizer, the man who had an eye for microscopic details. "What we
most admired in young Phipps," a Pittsburgh banker once remarked, "is the
way in which he could keep a check in the air for three or four days." His
abilities consisted mainly in keeping the bankers complaisant, in smoothing
the ruffled feelings of creditors, in cutting out unnecessary expenditures,
and in shaving prices.

Carnegie's other two more celebrated associates, Henry C. Frick and
Charles M. Schwab, were younger men. Frick was cold and masterful, as
hard, unyielding, and effective as the steel that formed the staple of his
existence. Schwab was enthusiastic, warm-hearted, and happy-go-lucky; a
man who ruled his employees and obtained his results by appealing to their
sympathies. The men of the steel yards feared Frick as much as they loved
"Charlie" Schwab. The earliest glimpses which we get of these remarkable
men suggest certain permanent characteristics: Frick is pictured as the
sober, industrious bookkeeper in his grandfather's distillery; Schwab as the
rollicking, whistling driver of a stage between Loretto and Cresson. Frick
came into the steel business as a matter of deliberate choice, whereas
Schwab became associated with the Pittsburgh group more or less by
accident.
The region of Connellsville contains almost 150 square miles underlaid
with coal that has a particular heat value when submitted to the process
known as coking. As early as the late eighties certain operators had
discovered this fact and were coking this coal on a small scale. It is the
highest tribute to Frick's intelligence that he alone foresaw the part which
this Connellsville coal was to play in building up the Pittsburgh steel
district. The panic of 1873, which laid low most of the Connellsville
operators, proved Frick's opportunity. Though he was only twenty-four
years old he succeeded, by his intelligence and earnestness, in borrowing
money to purchase certain Connellsville mines, then much depreciated in
price. From that moment, coke became Frick's obsession, as steel had been
Carnegie's. With his early profits he purchased more coal lands until, by
1889, he owned ten thousand coke ovens and was the undisputed "coke
king" of Connellsville. Several years before this, Carnegie had made Frick
one of his marshals, coke having become indispensable to the manufacture
of steel, and in 1889 the former distiller's accountant became Carnegie's
commander-in-chief. Probably the popular mind associates Frick chiefly
with the importation of Slavs as workmen, with the terrible strikes that
followed in consequence at Homestead, with the murderous attack made
upon him by Berkman, the anarchist, and with his bitter, long drawn-out
quarrel with Andrew Carnegie. Frick's stormy career was naturally the
product of his character.
On the other hand, temperamental pliability and lovableness were the
directing traits of the man who, in his way, made contributions quite as

solid to the extension of the Pittsburgh steel industry. Schwab worked with
the human material quite as successfully as other men worked with iron ore,
Bessemer furnaces, and coal. He handled successfully what was perhaps the
greatest task in management ever presented to a manufacturer when to him
fell the job of reorganizing the Homestead Works after the strike of 1892
and of transforming thousands of riotous workmen into orderly and
interested producers of steel. In three or four years practically every man on
the premises had become "Charlie" Schwab's personal friend, and the
Homestead property which, until the day he took charge, had been a
colossal failure, had developed into one of the most profitable holdings of
the Carnegie Company. As his reward Schwab, at the age of thirty-four, was
made President of the Carnegie corporation. Only sixteen years before he
had entered the steel works as a stake driver at a dollar a day.
When the Carnegie group began operations in the early seventies,
American steel, as a British writer remarked, was a "hot-house product"; yet
in 1900 the Carnegie partners divided $40,000,000 as the profits of a single
year. They had demonstrated that the United States, despite the high prices
that prevailed everywhere, could make steel more cheaply than any other
country. Foreign observers have offered several explanations for this
achievement. American makers had an endless supply of cheap and high-
grade ore, cheaper coke, cheaper transportation, and workmen of a superior
skill. We must give due consideration to the fact that their organization was
more flexible than those of older countries, and that it regulated promotion
exclusively by merit and gave exceptional opportunities to young men.
American steel makers also had scrap heaps whose size astounded the
foreign observers; they never hesitated to discard the most expensive plants
if by so doing they could reduce the cost of steel rails by a dollar a ton.
Machinery for steel making had a more extensive development in this
country than in England or Germany. Mr. Carnegie also enjoyed the
advantages of a high protective tariff, though about 1900 he discovered that
his extremely healthy infant no longer demanded this form of coddling. But
probably the Carnegie Company's greatest achievement was the abolition of
the middleman. In a few years it assembled all the essential elements of
steel making in its own hands. Frick's entrance into the combination gave
the concern an unlimited supply of the highest grade of coking coal. In a
few years, the Carnegie interests had acquired great holdings in the
Minnesota ore regions.

At first glance, the Pittsburgh region seems hardly the ideal place for the
making of steel. Fortune first placed the industry there because all the raw
materials, especially iron ore and coal, seemed to exist in abundance. But
the discovery of the Minnesota ore field, which alone could supply this
essential product in the amounts which the furnaces demanded,
immediately deprived the Pittsburgh region of its chief advantage. As a
result of this sudden development, the manufacturers of Pittsburgh awoke
one morning and discovered that their ore was located a thousand miles
away. To bring it to their converters necessitated a long voyage by water
and rail, with several reloadings. They overcame these obstacles by
developing machinery for handling ore and by acquiring the raw materials
and the connecting links of transportation. Ore which had been lying in the
wilds of Minnesota on Monday morning was thus brought to Pittsburgh and
made into steel rails or bridges or structural shapes by Saturday night. The
Carnegie Company first acquired sufficient mineral lands to furnish ore for
several generations and organized an ore fleet which transported the
products of the mines through the lakes to ports on Lake Erie, particularly
Ashtabula and Conneaut. The purchase of the Bessemer and Lake Erie
Railroad, which extended from Conneaut to Pittsburgh, made this great
transportation route complete. Besides freeing their business from
uncertainty, this elimination of middlemen naturally produced great
economies.
Probably Andrew Carnegie's shrewdness in naming his first plant the J.
Edgar Thompson Steel Works, after the powerful President of the
Pennsylvania Railroad, and in making Thompson and his associate Scott
partners, had much to do with his early success. These two gentlemen
conferred two priceless favors upon the struggling enterprise. They became
large purchasers of steel rails and their influence in this direction extended
far beyond the Pennsylvania Railroad. What was perhaps even more
important, they gave the Carnegie concerns railroad rebates. The use of
rebates, as a method of stifling competition and building up a great
industrial prosperity, is an offense which the popular mind associates almost
exclusively with the Standard Oil Company, yet the Carnegie fortune, as
well as that of John D. Rockefeller, received an artificial stimulation of this
kind.
Though incomparably the greatest of the American steel companies, the
Carnegie Steel Company by no means monopolized the field. In forty years,

indeed, an enormous steel area had grown up, including western
Pennsylvania, Ohio, Indiana, and Illinois, practically all of it drawing its
raw materials from those same teeming ore lands in the Lake Superior
region. Johnstown, Youngstown, Cleveland, Lorain, Chicago, and Joliet,
became headquarters of steel production almost as important as Pittsburgh
itself. Two entirely new steel kingdoms, each with its own natural reservoirs
of ore, grew up in Colorado and Alabama. The Colorado Fuel and Iron
Company, which possessed apparently inexhaustible mineral lands in
Colorado, Wyoming, Utah, New Mexico, and California, itself produces not
far from three million tons a year, almost half the present production of
Great Britain. The Alabama steel country has developed in even more
spectacular fashion. Birmingham, a hive of southern industry placed almost
as if by magic in the leisurely cotton lands of the South, had no existence in
1870, when the Pittsburgh prosperity began. In the Civil War, the present
site of a city with a population of 140,000 was merely a blacksmith shop in
the fork of the roads. Yet this district has advantages for the manufacture of
steel that have no parallel elsewhere. The steel companies which are located
here do not have to bring their materials laboriously from a distance but
possess, immediately at hand, apparently endless store of the three things
needful for making steel—iron ore, coal, and limestone. All these territories
have their personal romances and their heroes, many of them quite as
picturesque as those of the Pittsburgh group.
It is doubtful indeed if American industry presents any figure quite as
astonishing and variegated as that of John W. Gates, the man who educated
farmers all over the world to the use of wire fencing. Half charlatan, half
enthusiast, speculator, gambler, a man who created great enterprises and
who also destroyed them, at times an upbuilding force and at other times a
sinister influence, Gates completely typified a period in American history
that, along with much that was heroic and splendid, had much also that was
grotesque and sordid. The opera-bouffe performance that laid the
foundations of Gates's great industry was in every way characteristic of this
period. In 1871 Gates, then a clerk in a hardware store at twenty-five dollars
a week, made his first attempt to sell barbed wire in the great cattle
countries of the southwestern States. When the cattle men in Texas first saw
this barbed wire, they ridiculed the idea that it could ever hold their steers.
Gates selected a plaza in San Antonio, fenced it in with his new product,
and invited the enemies to bring along their wildest specimens About thirty

of Texas' most ferocious cattle, placed within the enclosure, spent a whole
afternoon plunging at the barbs in a useless and tormenting attempt to
escape. This spectacular demonstration of efficiency launched Gates fairly
upon his career. He immediately began to sell his new fencing on an
enormous scale; in a few years the whole world was demanding it, and it
has become, as recent events have disclosed, a particularly formidable
munition of war. The American Steel and Wire Company, one of the
greatest of American corporations, was the ultimate outgrowth of that lively
afternoon in San Antonio.
In 1900 the Carnegie Steel Company was making one-quarter of all the
Bessemer steel produced in the United States. It owned in abundance all the
properties which were essential to its completed output—coal, limestone,
steel ships, railroads, and steel mills. In twenty-five years, from 1875 to
1900, this manufacturing enterprise had paid the Carnegie group profits
aggregating $133,000,000, profits which, in the closing years of the century,
had increased at a stupendous rate. In 1898 Carnegie and his associates had
divided $11,500,000, in 1899 their earnings had grown to $25,000,000, and
in 1900 the aggregate had suddenly jumped to $40,000,000. Of this latter
sum Carnegie received $25,000,000, Phipps $5,500,000, Frick $2,600,000,
and Schwab $1,300,000. And Carnegie's little group could see no limit to
the growth of their business and the expansion of their personal fortunes.
Yet at that very moment Carnegie was planning to play the part of a Charles
V with the large empire which he had pieced together—to abdicate his
throne, retire from business life, and spend his remaining days in quiet.
Many influences were impelling him to this decision. His triumph,
stupendous as it had been, also had had its alloy of sorrow. Indeed this little
Scotsman, now at the crowning of his glory, was one of the loneliest figures
in the world. Practically all the forty men with whom he had been closely
associated had vanished from the scene. He had quarreled with his playmate
and lifelong partner, Henry Phipps, and was in the worst possible business
and personal relations with Frick. He had no son to carry on his work. He
had become greatly interested in his philanthropies, and he had declared
that the man who died rich died disgraced. Moreover, new influences were
rising in the steel trade with which Carnegie had little sympathy. Its national
capital seemed to be shifting from Pittsburgh to Wall Street. New men who
knew nothing about steel but who possessed an intimate acquaintance with
stocks and bonds—J. Pierpont Morgan, George W. Perkins, and their

associates—were branching out as controllers of large steel interests.
Carnegie had no interest in Wall Street; he has declared that he never
speculated in his life and that he would immediately dissociate himself from
any partner who would do so. This Wall Street coterie, in the years from
1898 to 1900, had made several large combinations in the steel trade. That
was the era when the trust mania had gained possession of the American
mind and when its worst features displayed themselves. The Federal Steel
Company, the American Bridge Company, the American Steel and Wire, the
National Tube Company, all representing the assembling of large works
which had been engaged as rivals in similar enterprises, were launched,
with the usual accompaniments of "underwriting syndicates," watered
stock, and Wall Street speculation. This sort of thing made no appeal to
Andrew Carnegie. His huge enterprise had always remained essentially a
copartnership, and he had frequently expressed his abhorrence of trusts. Yet,
in spite of his wish to retire from business and in spite of his avowed
intention to die poor, Carnegie now adopted the policy of the Sibylline
leaves to all prospective purchasers. Moore and Reid would have purchased
his interest for $157,000,000; when Rockefeller came along the price had
risen to $250,000,000; when the oil man shook his head and retired,
Carnegie immediately raised his price to $500,000,000. It is doubtful
whether he would have sold at all had not his Wall Street competitors begun
to encroach on a field which the little Scotsman understood quite as well as
they—the production and merchandising of steel. The newly organized
combinations were completing elaborate plans to go after Carnegie's
business. Then Carnegie, who had practically retired from active life, again
arrayed himself in his shirt-sleeves, abandoned his career of authorship, and
resumed his early trade. His first attacks produced an immense
reverberation in the House of Morgan. He purchased a huge tract at
Conneaut and began building a gigantic plant for the manufacture of steel
tubes, a business in which he had not hitherto engaged. This was a blow
aimed at one of Morgan's pet new creations, the National Tube Company.
Should Carnegie finish his works, there was no doubt the Morgan enterprise
would be ruined, for the new plant would be far more modern and so could
manufacture the product at a much lower price; and, with Charles M.
Schwab as active manager, what possible chance would the older
corporation have? But Carnegie struck his enemy at an even more
vulnerable point. The Pennsylvania Railroad had a practical monopoly of

traffic in and out of Pittsburgh, and Pittsburgh "created" more freight
business than any other city in the world. Carnegie lent his powerful
support to George J. Gould, who was then extending his railroad system
into the preempted field and was also making surveys and had financed a
company to build an entirely new railroad from Pittsburgh to the Atlantic
Coast. As Carnegie himself controlled the larger part of the freight that
made Pittsburgh such an essential feeder to railroads, his new enterprise
caused the greatest alarm. At the same time Carnegie equipped a new and
splendid fleet of ore ships, his purpose being to enter a field of
transportation which John D. Rockefeller had found extremely profitable.
Such were the circumstances and such were the motives that gave birth to
the world's largest corporation. All one night, so the story goes, Charles M.
Schwab and John W. Gates discussed the steel situation with J. Pierpont
Morgan. There was only one possible solution, they said—Andrew
Carnegie must be bought out. By the time the morning sun came through
the windows Morgan had been convinced. "Go and ask him what he will
sell for," he said to Schwab. In a brief period Schwab came back to Morgan
with a letter which contained the following figures—five per cent gold
bonds $303,450,000; preferred stock $98,277,100; common stock
$90,279,000—a total of over $492,000,000. Carnegie demanded no cash;
he preferred to hold a huge first mortgage on a business whose golden
opportunities he knew so well. Morgan, who had been accustomed all his
life to dictate to other men, had now met a man who was able to dictate to
him. And he capitulated. The man who fifty-three years before had started
life in a new country as a bobbin-boy at a dollar and twenty cents a week,
now at the age of sixty-six retired from business the second richest man in
the world. With him retired a miscellaneous assortment of millionaires
whose fortunes he had made and whose subsequent careers in the United
States and in Europe have given a peculiar significance to the name
"Pittsburgh Millionaires." The United States Steel Corporation, the
combination that included not only the Carnegie Company but seventy per
cent of all the steel concerns in the country, was really a trust made up of
trusts. It had a capitalization of a billion and a half, of which about
$700,000,000 was composed of the commodity usually known as "water";
but so greatly has its business grown and so capably has it been managed
that all this liquid material has since been converted into more solid
substance. The disappearance of Andrew Carnegie and his coworkers and

the emergence of this gigantic enterprise completed the great business cycle
in the steel trade. The age of individual enterprise and competition had
passed—that of corporate control had arrived.

CHAPTER IV. THE TELEPHONE:
"AMERICA'S MOST POETICAL
ACHIEVEMENT"
A distinguished English journalist, who was visiting the United States, in
1917, on an important governmental mission, had an almost sublime
illustration of the extent to which the telephone had developed on the North
American Continent. Sitting at a desk in a large office building in New
York, Lord Northcliffe took up two telephone receivers and placed one at
each ear. In the first he heard the surf beating at Coney Island, New York,
and in the other he heard, with equal distinctness, the breakers pounding the
beach at the Golden Gate, San Francisco. Certainly this demonstration
justified the statement made a few years before by another English traveler.
"What startles and frightens the backward European in the United States,"
said Mr. Arnold Bennett, "is the efficiency and fearful universality of the
telephone. To me it was the proudest achievement and the most poetical
achievement of the American people."
Lord Northcliffe's experience had a certain dramatic justice which
probably even he did not appreciate. He is the proprietor of the London
Times, a newspaper which, when the telephone was first introduced,
denounced it as the "latest American humbug" and declared that it "was far
inferior to the well-established system of speaking tubes." The London
Times delivered this solemn judgment in 1877. A year before, at the
Philadelphia Centennial Exposition, Don Pedro, Emperor of Brazil, picked
up, almost accidentally, a queer cone-shaped instrument and put it to his ear,
"My God! It talks!" was his exclamation; an incident which, when widely
published in the press, first informed the American people that another of
the greatest inventions of all times had had its birth on their own soil. Yet
the initial judgment of the American people did not differ essentially from
the opinion which had been more coarsely expressed by the leading English
newspaper. Our fathers did not denounce the telephone as an "American
humbug," but they did describe it as a curious electric "toy" and ridiculed
the notion that it could ever have any practical value. Even after Alexander

Graham Bell and his associates had completely demonstrated its usefulness,
the Western Union Telegraph Company refused to purchase all their patent
rights for $100,000! Only forty years have passed since the telephone made
such an inauspicious beginning. It remains now, as it was then, essentially
an American achievement. Other nations have their telephone systems, but
it is only in the United States that its possibilities have been even faintly
realized. It is not until Americans visit foreign countries that they
understand that, imperfect as in certain directions their industrial and social
organization may be, in this respect at least their nation is preeminent.
The United States contains nearly all the telephones in existence, to be
exact, about seventy-five per cent. We have about ten million telephones,
while Canada, Central America, South America, Great Britain, Europe,
Asia, and Africa all combined have only about four million. In order to
make an impressive showing, however, we need not include the backward
peoples, for a comparison with the most enlightened nations emphasizes the
same point. Thus New York City has more telephones than six European
countries taken together—Austria-Hungary, Belgium, Norway, Denmark,
Italy, and the Netherlands. Chicago, with a population of 2,000,000, has
more telephones than the whole of France, with a population of 40,000,000.
Philadelphia, with 1,500,000, has more than the Russian Empire, with
166,000,000. Boston has more telephones than Austria-Hungary, Los
Angeles more than the Netherlands, and Kansas City more than Belgium.
Several office buildings and hotels in New York City have more instruments
than the kingdoms of Greece or Bulgaria. The whole of Great Britain and
Ireland has about 650,000 telephones, which is only about 200,000 more,
than the city of New York.
Mere numbers, however, tell only half the story. It is when we compare
service that American superiority stands most manifest. The London
newspapers are constantly filled with letters abusing the English telephone
system. If these communications describe things accurately, there is
apparently no telephone vexation that the Englishman does not have to
endure. Delays in getting connections are apparently chronic. At times it
seems impossible to get connections at all, especially from four to five in
the afternoon—when the operators are taking tea. Suburban connections,
which in New York take about ninety seconds, average half an hour in
London, and many of the smaller cities have no night service. An American
thinks nothing of putting in a telephone; he notifies his company and in a

few days the instrument is installed. We take a thing like this for granted.
But there are places where a mere telephone subscription, the privilege of
having an instrument installed, is a property right of considerable value and
where the telephone service has a "waiting list," like an exclusive club. In
Japan one can sell a telephone privilege at a good price, its value being
daily quoted on the Stock Exchange. Americans, by constantly using the
telephone, have developed what may be called a sixth sense, which enables
them to project their personalities over an almost unlimited area. In the
United States the telephone has become the one all-prevailing method of
communication. The European writes or telegraphs while the American
more frequently telephones. In this country the telephone penetrates to
places which even the mails never reach. The rural free delivery and other
forms of the mail service extend to 58,000 communities, while our
10,000,000 telephones encompass 70,000. We use this instrument for all the
varied experiences of life, domestic, social, and commercial. There are
residences in New York City that have private branch exchanges, like a
bank or a newspaper office. Hostesses are more and more falling into the
habit of telephoning invitations for dinner and other diversions. Many
people find telephone conversations more convenient than personal
interviews, and it is every day displacing the stenographer and the traveling
salesman.
Perhaps the most noteworthy achievement of the telephone is its
transformation of country life. In Europe, rural telephones are almost
unknown, while in the United States one-third of all our telephone stations
are in country districts. The farmer no longer depends upon the mails; like
the city man, he telephones. This instrument is thus the greatest civilizing
force we have, for civilization is very largely a matter of
intercommunication. Indeed, the telephone and other similar agencies, such
as the parcel post, the rural free delivery, better roads, and the automobile,
are rapidly transforming rural life in this country. In several regions,
especially in the Mississippi Valley, a farmer who has no telephone is in a
class by himself, like one who has no mowing-machine. Thus the latest
returns from Iowa, taken by the census as far back as 1907, showed that
seventy-three per cent of all the farms—160,000 out of 220,000—had
telephones and the proportion is unquestionably greater now. Every other
farmhouse from the Atlantic to the Pacific contains at least one instrument.
These statistics clearly show that the telephone has removed half the terrors

and isolation of rural life. Many a lonely farmer's wife or daughter, on the
approach of a suspicious-looking character, has rushed to the telephone and
called up the neighbors, so that now tramps notoriously avoid houses that
shelter the protecting wires. In remote sections, insanity, especially among
women, is frequently the result of loneliness, a calamity which the
telephone is doing much to mitigate.
In the United States today there is one telephone to every nine persons.
This achievement represents American invention, genius, industrial
organization, and business enterprise at their best. The story of American
business contains many chapters and episodes which Americans would
willingly forget. But the American Telephone and Telegraph Company
represents an industry which has made not a single "swollen fortune,"
whose largest stockholder is the wife of Alexander Graham Bell, the
inventor (a woman who, being totally deaf, has never talked over the
telephone); which has not corrupted legislatures or courts; which has
steadily decreased the prices of its products as business and profits have
increased; which has never issued watered stock or declared fictitious
dividends; and which has always manifested a high sense of responsibility
in its dealings with the public.
Two forces, American science and American business capacity, have
accomplished this result. As a mechanism, this American telephone system
is the product not of one but of many minds. What most strikes the
imagination is the story of Alexander Graham Bell, yet other names—Carty,
Scribner, Pupin—play a large part in the story.
The man who discovered that an electric current had the power of
transmitting sound over a copper wire knew very little about electricity.
Had he known more about this agency and less about acoustics, Bell once
said himself, he would never have invented the telephone. His father and
grandfather had been teachers of the deaf and dumb and had made
important researches in acoustics. Alexander Graham Bell, born in
Edinburgh in March, 1847, and educated there and in London, followed the
ancestral example. This experience gave Bell an expert knowledge of
phonetics that laid the foundation for his life work. His invention, indeed, is
clearly associated with his attempts to make the deaf and dumb talk. He was
driven to America by ill-health, coming first to Canada, and in 1871 he
settled in Boston, where he accepted a position in Boston University to

introduce his system of teaching deaf-mutes. He opened a school of "Vocal
Physiology," and his success in his chosen field brought him into
association with the people who afterward played an important part in the
development of the telephone. Not a single element of romance was lacking
in Bell's experience; his great invention even involved the love story of his
life. Two influential citizens of Boston, Thomas Sanders and Gardiner G.
Hubbard, had daughters who were deaf and dumb, and both engaged Bell's
services as teacher. Bell lived in Sanders's home for a considerable period,
dividing his time between teaching his little pupil how to talk and puttering
away at a proposed invention which he called a "harmonic telegraph." Both
Sanders and Hubbard had become greatly interested in this contrivance and
backed Bell financially while he worked. It was Bell's idea that, by a system
of tuning different telegraphic receivers to different pitches, several
telegraphic messages could be sent simultaneously over the same wire. The
idea was not original with Bell, although he supposed that it was and was
entirely unaware that, at the particular moment when he started work, about
twenty other inventors were struggling with the same problem. It was one
of these other twenty experimenters, Elisha Gray, who ultimately perfected
this instrument. Bell's researches have an interest only in that they taught
him much about sound transmission and other kindred subjects and so
paved the way for his great conception. One day Hubbard and Sanders
learned that Bell had abandoned his "harmonic telegraph" and was
experimenting with an entirely new idea. This was the possibility of
transmitting the human voice over an electric wire. While working in
Sanders's basement, Bell had obtained from a doctor a dead man's ear, and
it is said that while he was minutely studying and analyzing this gruesome
object, the idea of the telephone first burst upon his mind. For years Bell
had been engaged in a task that seemed hopeless to most men—that of
making deaf-mutes talk. "If I can make a deaf-mute talk, I can make iron
talk," he declared. "If I could make a current of electricity vary in intensity
as the air varies in density," he said at another time, "I could transmit sound
telegraphically." Many others, of course, had dreamed of inventing such an
instrument. The story of the telephone concerns many men who preceded
Bell, one of whom, Philip Reis, produced, in 1861, a mechanism that could
send a few discordant sounds, though not the human voice, over an electric
wire. Reis seemed to have based his work upon an article published in "The
American Journal of Science" by Dr. C.G. Page, of Salem, Mass., in 1837,

in which he called attention to the sound given out by an electric magnet
when the circuit is opened or closed. The work of these experimenters
involves too many technicalities for discussion in this place. The important
facts are that they all involved different principles from those worked out by
Bell and that none of them ever attained any practical importance. Reis, in
particular, never grasped the essential principles that ultimately made the
telephone a reality. His work occupies a place in telephone history only
because certain financial interests, many years after his death, brought it to
light in an attempt to discredit Bell's claim to priority as the inventor. An
investigator who seems to have grasped more clearly the basic idea was the
distinguished American inventor Elisha Gray, already mentioned as the man
who had succeeded in perfecting the "harmonic telegraph." On February 14,
1876, Gray filed a caveat in the United States Patent Office, setting forth
pretty accurately the conception of the electric telephone. The tragedy in
Gray's work consists in the fact that, two hours before his caveat had been
put in, Bell had filed his application for a patent on the completed
instrument.
The champions of Bell and Gray may dispute the question of priority to
their heart's content; the historic fact is that the telephone dates from a
dramatic moment in the year 1876. Sanders and Hubbard, much annoyed
that Bell had abandoned his harmonic telegraph for so visionary an idea as a
long distance talking machine, refused to finance him further unless he
returned to his original quest. Disappointed and disconsolate, Bell and his
assistant, Thomas A. Watson, had started work on the top floor of the
Williams Manufacturing Company's shop in Boston. And now another
chance happening turned Bell back once more to the telephone. His
magnetized telegraph wire stretched from one room to another located in a
remote part of the building. One day Watson accidentally plucked a piece of
clock wire that lay near this telegraph wire, and Bell, working in another
room, heard the twang. A few seconds later Watson was startled when an
excited and somewhat disheveled figure burst into his room. "What was
that?" shouted Bell. What had happened was clearly manifest; a sound had
been sent distinctly over an electric wire. Bell's harmonic telegraph
immediately went into the discard, and the young inventor—Bell was then
only twenty-nine—became a man of one passionate idea. Yet final success
did not come easily; the inventor worked day and night for forty weeks
before he had obtained satisfactory results. It was on March 10, 1876, that

Watson, in a distant room, picked up the first telephone receiver and heard
these words, the first that had ever passed over a magnetized wire, "Come
here, Watson; I want you." The speaking instrument had become a reality,
and the foundation of the telephone, in all its present development, had
been laid. When the New York and San Francisco line was opened in
January, 1915, Alexander Graham Bell spoke these same words to his old
associate, Thomas Watson, located in San Francisco, both men using the
same instruments that had served so well on that historic occasion forty
years before.
Though Bell's first invention comprehended the great basic idea that
made it a success, the instrument itself bore few external resemblances to
that which has become so commonplace today. If one could transport
himself back to this early period and undergo the torture of using this
primitive telephone, he would appreciate somewhat the labor, the patience,
the inventive skill, and the business organization that have produced the
modern telephone. In the first place you would have no separate transmitter
and receiver. You would talk into a funnel-shaped contrivance and then
place it against your ear to get the returning message. In order to make
yourself heard, you would have to shout like a Gloucester sea captain at the
height of a storm. More than the speakers' voices would come over the wire.
It seemed to have become the playground of a million devils; moanings,
shriekings, mutterings, and noises of all kinds would constantly interrupt
the flow of speech. To call up your "party" you would not merely lift the
receiver as today; you would tap with a lead pencil, or some other
appliance, upon the diaphragm of your transmitter. There were no separate
telephone wires. The talking at first was done over the telegraph lines. The
earliest "centrals" reminded most persons of madhouses, for the day of the
polite, soft-spoken telephone girl had not arrived. Instead, boys were
rushing around with the ends of wires which they were frantically
attempting to peg into the holes of the primitive switchboard and so
establish "connections." When not knocking down and fighting each other,
these boys were swearing into transmitters at the customers; and it is said
that the incurable profanity of these early "telephone boys" had much to do
with their supersession by girls. In the early days of the telephone, each
instrument had to carry its own battery, usually installed in a little box
under the transmitter. The early telephone wires, even in the largest cities,
were strung on poles, as they are in country and suburban districts today. In

places like New York and Chicago, these thousands of overhanging wires
not only destroyed the attractiveness of the thoroughfare, but constantly
interfered with the fire department and proved to be public nuisances in
other ways. A telephone wire, however, loses much of its transmitting
power when placed under ground, and it took many years of experimenting
before the engineers perfected these subways. In these early days, of course,
the telephone was purely a local matter. Certain visionary enthusiasts had
foreseen the possibility of a national, long distance system, but a large
amount of labor, both in the laboratory and out, was to be expended before
these aspirations could become realities.
The transformation of this rudimentary means of communication into the
beautiful mechanism which we have today forms a splendid chapter in the
history of American invention. Of all the details in Bell's apparatus the
receiver is almost the only one that remains now what it was forty years
ago. The story of the transmitter in itself would fill a volume. Edison's
success in devising a transmitter which permitted talk in ordinary
conversational tones—an invention that became the property of the Western
Union Telegraph Company, which early embarked in the telephone business
—at one time seemed likely to force the Bell Company out of business. But
Emile Berliner and Francis Blake finally came to the rescue with an
excellent instrument, and the suggestion of an English clergyman, the
Reverend Henry Hummings, that carbon granules be used on the
diaphragm, made possible the present perfect instrument. The magneto call
bell—still used in certain backward districts—for many years gave fair
results for calling purposes, but the automatic switch, which enables us to
get central by merely picking up the receiver, has made possible our great
urban service. It was several years before the telephone makers developed
so essential a thing as a satisfactory wire. Silver, which gave excellent
results, was obviously too costly, and copper, the other metal which had
many desirable qualities, was too soft. Thomas B. Doolittle solved this
problem by inventing a hard-drawn copper wire. A young man of twenty-
two, John J. Carty, suggested a simple device for exorcising the hundreds of
"mysterious noises" that had made the use of the telephone so agonizing. It
was caused, Carty pointed out, by the circumstance that the telephone, like
the telegraph, used a ground circuit for the return wire; the resultant
scrapings and moanings and howlings were merely the multitudinous voices
of mother earth herself. Mr. Carty began installing the metallic circuit in his

lines that is, he used wire, instead of the ground, to complete the circuit. As
a result of this improvement the telephone was immediately cleared of these
annoying interruptions. Mr. Carty, who is now Chief Engineer of the
American Telephone and Telegraph Company, and the man who has
superintended all its extensions in recent years, is one of the three or four
men who have done most to create the present system. Another is Charles
E. Scribner, who, by his invention of that intricate device, the multiple
switchboard, has converted the telephone exchange into a smoothly
working, orderly place. Scribner's multiple switchboard dates from about
1890. It was Mr. Scribner also who replaced the individual system of dry
cells with one common battery located at the central exchange, an
improvement which saved the Company 4,000,000 dry cells a year. Then
Barrett discovered a method of twisting fifty pairs of wires—since grown to
2400 pairs-into a cable, wrapping them in paper and molding them in lead,
and the wires were now taken from poles and placed in conduits
underground.
But perhaps the most romantic figure in telephone history, next to Bell, is
that of a humble Servian immigrant who came to this country as a boy and
obtained his first employment as a rubber in a Turkish bath. Michael I.
Pupin was graduated from Columbia, studied afterward in Germany, and
became absorbed in the new subject of electromechanics. In particular he
became interested in a telephone problem that had bothered the greatest
experts for years. One thing that had prevented the great extension of the
telephone, especially for long distance work, was the size of the wire. Long
distance lines up to 1900 demanded wire about one-eighth of an inch thick
—as thick as a fairsized lead pencil; and, for this reason, the New York-
Chicago line, built in 1893, consumed 870,000 pounds of copper wire of
this size. Naturally the enormous expense stood in the way of any extended
development. The same thickness also interfered with cable extension. Only
about a hundred wires could be squeezed into one cable, against the
eighteen hundred now compressed in the same area. Because of these
shortcomings, telephone progress, about 1900, was marking time, awaiting
the arrival of a thin wire that would do the work of a thick one. The
importance of the problem is shown by the fact that one-fourth of all the
capital invested in the telephone has been spent in copper. Professor Pupin,
who had been a member of the faculty of Columbia University since 1888,
solved this problem in his quiet laboratory and, by doing so, won the

greatest prize in modern telephone art. His researches resulted in the
famous "Pupin coil" by the expedient now known as "loading." When the
scientists attempt to explain this invention, they have to use all kinds of
mathematical formulas and curves and, in fact, they usually get to
quarreling among themselves over the points involved. What Professor
Pupin has apparently done is to free the wire from those miscellaneous
disturbances known as "induction." This Pupin invention involved another
improvement unsuspected by the inventor, which shows us the telephone in
all its mystery and beauty and even its sublimity. Soon after the Pupin coil
was introduced, it was discovered that, by crossing the wires of two circuits
at regular intervals, another unexplainable circuit was induced. Because this
third circuit travels apparently without wires, in some manner which the
scientists have not yet discovered, it is appropriately known as the phantom
circuit. The practical result is that it is now possible to send three telephone
messages and eight telegraph messages over two pairs of wires—all at the
same time. Professor Pupin's invention has resulted in economies that
amount to millions of dollars, and has made possible long distance lines to
practically every part of the United States.
Thus many great inventive minds have produced the physical telephone.
We can point to several men—Bell, Blake, Carty, Scribner, Barrett, Pupin—
and say of each one, "Without his work the present telephone system could
not exist." But business genius, as well as mechanical genius, explains this
achievement. For the first four or five years of its existence, the new
invention had hard sailing. Bell and Thomas Watson, in order to fortify their
finances, were forced to travel around the country, giving a kind of
vaudeville entertainment. Bell made a speech explaining the new invention,
while a cornet player, located in another part of the town, played solos, the
music reaching the audience through several telephone instruments placed
against the walls. Watson, also located at a distance, varied the program by
singing songs via telephone. These lecture tours not only gave Bell the
money which he sorely needed but advertised the innovation. There
followed a few scattering attempts to introduce the telephone into every-day
use and telephone exchanges were established in New York, Boston,
Bridgeport, and New Haven. But these pioneers had the hostility of the
most powerful corporation of the day—the Western Union Telegraph
Company—and they lacked aggressive leaders.

In 1878, Mr. Gardiner Hubbard, Bell's earliest backer, and now his father-
in-law, became acquainted with a young man who was then serving in
Washington as General Superintendent of the Railway Mail Service. This
young man was Theodore N. Vail. His energy and enterprise so impressed
Hubbard that he immediately asked Vail to become General Manager of the
company which he was then forming to exploit the telephone. Viewed from
the retrospection of forty years this offer certainly looks like one of the
greatest prizes in American business. What it signified at that time,
however, is apparent from the fact that the office paid a salary of $3500 a
year and that for the first ten years Vail did not succeed in collecting a
dollar of this princely remuneration. Yet it was a happy fortune, not only for
the Bell Company but for the nation, that placed Vail at the head of this
struggling enterprise. There was a certain appropriateness in his selection,
even then. His granduncle, Stephen Vail, had built the engines for the first
steamship to cross the Atlantic. A cousin had worked with Morse while he
was inventing the telegraph. Vail, who was born in Carroll County, Ohio, in
1845, after spending two years as a medical student, suddenly shifted his
plans and became a telegraph operator. Then he entered the Railway Mail
service; in this service he completely revolutionized the system and
introduced reforms that exist at the present time. A natural bent had
apparently directed Vail's mind towards methods of communication, a fact
that may perhaps explain the youthful enthusiasm with which he took up
the new venture and the vision with which he foresaw and planned its
future. For the chief fact about Vail is that he was a business man with an
imagination. The crazy little machine which he now undertook to exploit
did not interest him as a means of collecting tolls, floating stock, and paying
dividends. He saw in it a new method of spreading American civilization
and of contributing to the happiness and comfort of millions of people.
Indeed Vail had hardly seen the telephone when a picture portraying the
development which we are familiar with today unfolded before his eyes.
That the telephone has had a greater development in America than
elsewhere and that the United States has avoided all those mistakes of
organization that have so greatly hampered its growth in other lands, is
owing to the fact that Vail, when he first took charge, mapped out the
comprehensive policies which have guided his corporation since.
Vail early adopted the "slogan" which has directed the Bell activities for
forty years—"One System! One Policy! Universal Service." In his mind a

telephone company was not a city affair, or even a state affair; it was a
national affair. His aim has been from the first a universal, national service,
all under one head, and reaching every hamlet, every business house,
factory, and home in the nation. The idea that any man, anywhere, should
be able to take down a receiver and talk to anyone, anywhere else in the
United States, was the conception which guided Vail's labors from the first.
He did not believe that a mass of unrelated companies could give a
satisfactory service; if circumstances had ever made a national monopoly,
that monopoly was certainly the telephone. Having in view this national,
universal, articulating monopoly, Vail insisted on his second great principle,
the standardization of equipment. Every man's telephone must be precisely
like every other man's, and that must be the best which mechanical skill and
inventive genius could produce. To make this a reality and to secure perfect
supervision and upkeep, it was necessary that telephones should not be sold
but leased. By enforcing these ideas Vail saved the United States from the
chaos which exists in certain other countries, such as France, where each
subscriber purchases his own instrument, making his selection from about
forty different varieties. That certain dangers were inherent in this universal
system Vail understood. Monopoly all too likely brings in excessive
charges, poor service, and inside speculation; but it was Vail's plan to justify
his system by its works. To this end he established a great engineering
department which should study all imaginable mechanical improvements,
with the results which have been described. He gave the greatest attention
to every detail of the service and particularly insisted on the fairest and
most courteous treatment of the public. The "please" which invariably
accompanies the telephone girl's request for a number—the familiar
"number, please"—is a trifle, but it epitomizes the whole spirit which Vail
inspired throughout his entire organization. Though there are plenty of
people who think that the existing telephone charges are too high, the fact
remains that the rate has steadily declined with the extension of the
business. Vail has also kept his company clear from the financial scandals
that have disgraced so many other great corporations. He has never received
any reward himself except his salary, such fortune as he possesses being the
result of personal business ventures in South America during the twenty
years from 1887 to 1907 that he was not associated with the Bell interests.
Vail's first achievement was to rescue this invention from the greatest
calamity which would have befallen it. The Western Union Telegraph

Company, which in the early days had looked upon the telephone as
negligible, suddenly awoke one morning to a realization of its importance.
This Corporation had recently introduced its "printing telegraph," a device
that made it possible to communicate without the intermediary operator.
When news reached headquarters that subscribers were dropping this new
contrivance and subscribing to telephones, the Western Union first
understood that a competitor had entered their field. Promptly organizing
the American Speaking Telephone Company, the Western Union, with all its
wealth and prestige, proceeded to destroy this insolent pigmy. Its methods
of attack were unscrupulous and underhanded, the least discreditable one
being the use of its political influence to prevent communities from giving
franchises to the Bell Company. But this corporation mainly relied for
success upon the wholesale manner in which it infringed the Bell patents. It
raked together all possible claimants to priority, from Philip Reis to Elisha
Gray, in its attempts to discredit Bell as the inventor. The Western Union
had only one legitimate advantage—the Edison transmitter—which was
unquestionably much superior to anything which the Bell Company then
possessed. Many Bell stockholders were discouraged in face of this fierce
opposition and wished to abandon the fight. Not so Vail. The mere
circumstance that the great capitalists of the Western Union had taken up
the telephone gave the public a confidence in its value which otherwise it
would not have had, a fact which Vail skillfully used in attracting influential
financial support. He boldly sued the Western Union in 1878 for
infringement of the Bell patents. The case was a famous one; the whole
history of the telephone was reviewed from the earliest days, and the
evidence as to rival claimants was placed on record for all time. After about
a year, Mr. George Clifford, perhaps the best patent attorney of the day, who
was conducting the case for the Western Union, quietly informed his clients
that they could never win, for the records showed that Bell was the inventor.
He advised the Western Union to settle the case out of court and his advice
was taken. This great corporation war was concluded by a treaty (November
10, 1879) in which the Western Union acknowledged that Bell was the
inventor, that his patents were valid, and agreed to retire from the telephone
business. The Bell Company, on its part, agreed to buy the Western Union
Telephone System, to pay the Western Union a royalty of twenty per cent
on all telephone rentals, and not to engage in the telegraph business. Had
this case been decided against the Bell Company it is almost certain that the

telephone would have been smothered in the interest of the telegraph and its
development delayed for many years.
Soon after the settlement of the Western Union suit, the original group
which had created the telephone withdrew from the scene. Bell went back
to teaching deaf-mutes. He has since busied himself with the study of
airplanes and wireless, and has invented an instrument for transmitting
sound by light. The new telephone company offered him $10,000 a year as
chief inventor, but he replied that he could not invent to order. Thomas
Sanders received somewhat less than $1,000,000 and lost most of it
exploiting a Colorado gold mine. Gardiner Hubbard withdrew from
business and devoted the last years of his life to the National Geographic
Society. Thomas Watson, after retiring from the telephone business, bought
a ship-building yard near Boston, which has been successful.
In making this settlement with the Western Union, the Bell interests not
only eliminated a competitor but gained great material advantages. They
took over about 56,000 telephone stations located in 55 cities and towns.
They also soon acquired the Western Electric Manufacturing Company,
which under the control of the Western Union had developed into an
important concern for the manufacture of telephone supplies. Under the
management of the Bell Company this corporation, which now has
extensive factories in Hawthorne, Ill., produces two-thirds of the world's
telephone apparatus. With the Western Electric Vail has realized the
fundamental conception underlying his ideal telephone system—the
standardization of equipment. For the accomplishment of his idea of a
national telephone system, instead of a parochial one, Mr. Vail organized, in
1881, the American Bell Telephone Company, a corporation that really
represented the federalization of all the telephone activities of the
subsidiary companies. The United States was divided into several sections,
in each of which a separate company was organized to develop the
telephone possibilities of that particular area. In 1899 the American
Telephone and Telegraph Company took over the business and properties of
the American Bell Company. The larger corporation built toll lines,
connected these smaller systems with one another, and thus made it possible
for Washington to talk to New York, New York to Chicago, and ultimately
—Boston to San Francisco. An enlightened policy led the Bell Company
frequently to establish exchanges in places where there was little chance of
immediate profit. Under this stimulation the use of this instrument extended

rapidly, yet it is in the last twenty years that the telephone has grown with
accelerated momentum. In 1887 there were 170,000 subscribers in the
United States, and in 1900 there were 610,000; but in 1906 the American
Telephone and Telegraph Company was furnishing its service to 2,550,000
stations, and in 1916 to 10,000,000. Clearly it is only since 1900 that the
telephone has become a commonplace of American existence. Up to 1900 it
had grown at the rate of about 13,000 a year; whereas since 1900 it has
grown at the rate of 700,000 a year. The explanation is that charges have
been so reduced that the telephone has been brought within the reach of
practically every business house and every family. Until the year 1900
every telephone subscriber had to pay $240 a year, and manifestly only
families in affluent circumstances could afford such a luxury. About that
time a new system of charges known as the "message rate" plan was
introduced, according to which the subscriber paid a moderate price for a
stipulated number of calls, and a pro rata charge for all calls in excess of
that number. Probably no single change in any business has had such an
instantaneous effect. The telephone, which had hitherto been an external
symbol of prosperity, suddenly became the possession of almost every
citizen.
Other companies than the Bell interests have participated in this
development. The only time the Bell Company has had no competitor, Mr.
Vail has said, was at the Philadelphia Centennial in 1876. Some of this
competition has benefited the public but much of it has accomplished little
except to enrich many not over-scrupulous promoters. Groups of farmers
who frequently started companies to furnish service at cost did much to
extend the use of the telephone. Many of the companies which, when the
Bell patents expired in 1895, sprang up in the Middle West, also manifested
great enterprise and gave excellent service. These companies have made
valuable contributions, of which perhaps the automatic telephone, an
instrument which enables a subscriber to call up his "party" directly,
without the mediation of "central," is the most ingenious. Although due
acknowledgment must be made of the honesty and enterprise with which
hundreds of the independents are managed, the fact remains that they are a
great economic waste. Most of them give only a local service, no company
having yet arisen which aims to duplicate the comprehensive national plans
of the greater corporation. As soon as an independent obtains a foothold, the
natural consequence is that every business house and private household

must either be contented with half service, or double the cost of the
telephone by subscribing to two companies. It is not unlikely that the
"independents" have exercised a wholesome influence upon the Bell
Corporation, but, as the principle of government regulation rather than
individual competition has now become the established method of
controlling monopoly, this influence will possess less virtue in the future. In
addition to these independent enterprises, the telephone has unfortunately
furnished an opportunity for stockjobbing schemes on a considerable scale.
The years from 1895 to 1905 witnessed the growth of many bubbles of this
kind; one group of men organized not far from two hundred telephone
companies. They would go into selected communities, promise a superior
service at half the current rates, enlist the cooperation of "leading" business
men, sell the stock largely in the city or town to be benefited, make large
profits in the construction of the lines and the sale of equipment—and then
decamp for pastures new. The multitudinous bankruptcies that followed in
the wake of such exploiters at length brought their activities to an end.

CHAPTER V. THE DEVELOPMENT OF
PUBLIC UTILITIES
The streets of practically all American cities, as they appeared in 1870
and as they appear today, present one of the greatest contrasts in our
industrial development. Fifty years ago only a few flickering gas lamps
lighted the most traveled thoroughfares. Only the most prosperous business
houses and homes had even this expensive illumination; most obtained their
artificial light from the new illuminant known as kerosene. But it was the
mechanism of city transportation that would have looked the strangest in
our eyes. New York City had built the world's first horse-car line in 1832,
and since that year this peculiarly American contrivance has had the most
extended development. In 1870, indeed, practically every city of any
importance had one or more railways of this type. New York possessed
thirty different companies, each operating an independent system. In
Philadelphia, Chicago, St. Louis, and San Francisco the growth of urban
transportation had been equally haphazard. The idea of combining the
several street railways into one comprehensive corporation had apparently
occurred to no one. The passengers, in their peregrinations through the city,
had frequently to pay three or four fares; competition was thus the universal
rule. The mechanical equipment similarly represented a primitive state of
organization. Horses and mules, in many cases hideous physical specimens
of their breeds, furnished the motive power. The cars were little "bobtailed"
receptacles, usually badly painted and more often than not in a desperate
state of disrepair. In many cities the driver presided as a solitary autocrat;
the passengers on entrance deposited their coins in a little fare box. At night
tiny oil lamps made the darkness visible; in winter time shivering
passengers warmed themselves by pulling their coat collars and furs closely
about their necks and thrusting their lower members into a heap of straw,
piled almost a foot deep on the floor.
Who would have thought, forty years ago, that the lighting of these dark
and dirty streets and the modernization of these local railway systems
would have given rise to one of the most astounding chapters in our
financial history and created hundreds, perhaps thousands, of millionaires?

When Thomas A. Edison invented the incandescent light, and when Frank J.
Sprague in 1887 constructed the first practicable urban trolley line, in
Richmond, Virginia, they liberated forces that powerfully affected not only
our social and economic life but our political institutions. These two
inventions introduced anew phrase—"Public Utilities." Combined with the
great growth and prosperity of the cities they furnished a fruitful
opportunity to several particularly famous groups of financial adventurers.
They led to the organization of "syndicates" which devoted all their
energies, for a quarter of a century, to exploiting city lighting and
transportation systems. These syndicates made a business of entering city
after city, purchasing the scattered street railway lines and lighting
companies, equipping them with electricity, combining them into unified
systems, organizing large corporations, and floating huge issues of
securities. A single group of six men—Yerkes, Widener, Elkins, Dolan,
Whitney, and Ryan—combined the street railways, and in many cases the
lighting companies, of New York, Philadelphia, Chicago, Pittsburgh, and at
least a hundred towns and cities in Pennsylvania, Connecticut, Rhode
Island, Massachusetts, Ohio, Indiana, New Hampshire, and Maine. Either
jointly or separately they controlled the gas and electric lighting companies
of Philadelphia, Reading, Harrisburg, Atlanta, Vicksburg, St. Augustine,
Minneapolis, Omaha, Des Moines, Kansas City, Sioux City, Syracuse, and
about seventy other communities. A single corporation developed nearly all
the trolley lines and lighting companies of New Jersey; another controlled
similar utilities in San Francisco and other cities on the Pacific Coast. In
practically all instances these syndicates adopted precisely the same plan of
operation. In so far as their activities resulted in cheap, comfortable, rapid,
and comprehensive transit systems and low-priced illumination, their
activities greatly benefited the public. The future historian of American
society will probably attribute enormous influence to the trolley car in
linking urban community with urban community, in extending the radius of
the modern city, in freeing urban workers from the demoralizing influences
of the tenement, in offering the poorer classes comfortable homes in the
surrounding country, and in extending general enlightenment by bringing
about a closer human intercourse. Indeed, there is probably no single
influence that has contributed so much to the pleasure and comfort of the
masses as the trolley car.

Yet the story that I shall have to tell is not a pleasant one. It is impossible
to write even a brief outline of this development without plunging deeply
into the two phases of American life of which we have most cause to be
ashamed; these are American municipal politics and the speculative aspects
of Wall Street. The predominating influences in American city life have
been the great franchise corporations. Practically all the men that have had
most to do with developing our public utilities have also had the greatest
influence in city politics. In New York, Thomas F. Ryan and William C.
Whitney were the powerful, though invisible, powers in Tammany Hall. In
Chicago, Charles T. Yerkes controlled mayors and city councils; he even
extended his influence into the state government, controlling governors and
legislatures. In Philadelphia, Widener and Elkins dominated the City Hall
and also became part of the Quay machine of Pennsylvania. Mark Hanna,
the most active force in Cleveland railways, was also the political boss of
the State. Roswell P. Flower, chief agent in developing Brooklyn Rapid
Transit, had been Governor of New York; Patrick Calhoun, who
monopolized the utilities of San Francisco and other cities, presided
likewise over the city's inner politics. The Public Service Corporation of
New Jersey also comprised a large political power in city and state politics.
It is hardly an exaggeration to say that in the most active period, that from
1880 to 1905, the powers that developed city railway and lighting
companies in American cities were identically the same owners that had the
most to do with city government. In the minds of these men politics was
necessarily as much a part of their business as trolley poles and steel rails.
This type of capitalist existed only on public franchises—the right to
occupy the public streets with their trolley cars, gas mains, and electric light
conduits; they could obtain these privileges only from complaisant city
governments, and the simplest way to obtain them was to control these
governments themselves. Herein we have the simple formula which made
possible one of the most profitable and one of the most adventurous
undertakings of our time.
An attempt to relate the history of all these syndicates would involve
endless repetition. If we have the history of one we have the history of
practically all. I have therefore selected, as typical, the operations of the
group that developed the street railways and, to a certain extent, the public
lighting companies, in our three greatest American cities—New York,
Chicago, and Philadelphia.

One of the men who started these enterprises actually had a criminal
record. William H. Kemble, an early member of the Philadelphia group, had
been indicted for attempting to bribe the Pennsylvania Legislature; he had
been convicted and sentenced to one year in the county jail and had escaped
imprisonment only by virtue of a pardon obtained through political
influence. Charles T. Yerkes, one of his partners in politics and street
railway enterprises, had been less fortunate, for he had served seven months
for assisting in the embezzlement of Philadelphia funds in 1873. It was this
circumstance in Yerkes's career which impelled him to leave Philadelphia
and settle in Chicago where, starting as a small broker, he ultimately
acquired sufficient resources and influence to embark in that street railway
business at which he had already served an extensive apprenticeship. Under
his domination, the Chicago aldermen attained a gravity that made them
notorious all over the world. They openly sold Yerkes the use of the streets
for cash and constantly blocked the efforts which an infuriated populace
made for reform. Yerkes purchased the old street railway lines, lined his
pockets by making contracts for their reconstruction, issued large flotations
of watered stock, heaped securities upon securities and reorganization upon
reorganization and diverted their assets to business in a hundred ingenious
ways.
In spite of the crimes which Yerkes perpetrated in American cities, there
was something refreshing and ingratiating about the man. Possibly this is
because he did not associate any hypocrisy with his depredations. "The
secret of success in my business," he once frankly said, "is to buy old junk,
fix it up a little, and unload it upon other fellows." Certain of his epigrams
—such as, "It is the strap-hanger who pays the dividends"—have likewise
given him a genial immortality. The fact that, after having reduced the
railway system of Chicago to financial pulp and physical dissolution, he
finally unloaded the whole useless mass, at a handsome personal profit,
upon his old New York friends, Whitney and Ryan, and decamped to
London, where he carried through huge transit enterprises, clearly
demonstrated that Yerkes was a buccaneer of no ordinary caliber.
Yerkes's difficulties in Philadelphia indirectly made possible the career of
Peter A. B. Widener. For Yerkes had become involved in the defalcation of
the City Treasurer, Joseph P. Mercer, whose translation to the Eastern
Penitentiary left vacant a municipal office into which Mr. Widener now
promptly stepped. Thus Mr. Widener, as is practically the case with all these

street railway magnates, was a municipal politician before he became a
financier. The fact that he attained the city treasurership shows that he had
already gone far, for it was the most powerful office in Philadelphia. He had
all those qualities of suavity, joviality, firmness, and personal domination
that made possible success in American local politics a generation ago. His
occupation contributed to his advancement. In recent years Mr. Widener, as
the owner of great art galleries and the patron of philanthropic and
industrial institutions, has been a national figure of the utmost dignity. Had
you dropped into the Spring Garden Market in Philadelphia forty years ago,
you would have found a portly gentleman, clad in a white apron, and armed
with a cleaver, presiding over a shop decorated with the design—"Peter A.
B. Widener, Butcher." He was constantly joking with his customers and
visitors, and in the evening he was accustomed to foregather with a group
of well-chosen spirits who had been long famous in Philadelphia as the "all-
night poker players." A successful butcher shop in Philadelphia in those
days played about the same part in local politics as did the saloon in New
York City. Such a station became the headquarters of political gossip and
the meeting ground of a political clique; and so Widener, the son of a poor
German bricklayer, rapidly became a political leader in the Twentieth Ward,
and soon found his power extending even to Harrisburg. A few years ago
Widener presided over a turbulent meeting of Metropolitan shareholders in
Newark, New Jersey. The proposal under consideration was the
transference of all the Metropolitan's visible assets to a company of which
the stockholders knew nothing. When several of these stockholders arose
and demanded that they be given an opportunity to discuss the projected
lease, Widener turned to them and said, in his politest and blandest manner:
"You can vote first and discuss afterward." Widener displayed precisely
these same qualities of ingratiating arrogance and good-natured contempt as
a Philadelphia politician. He was a man of big frame, alert and decisive in
his movements, and a ready talker; in business he was given much to living
in the clouds—a born speculator—emphatically a "boomer." His
sympathies were generous, at times emotional; it is said that he has even
been known to weep when discussing his fine collection of Madonnas. He
showed this personal side in his lifelong friendship and business association
with William L. Elkins, a man much inferior to him in ability. Indeed,
Elkins's great fortune was little more than a free gift from Widener, who
carried him as a partner in all his deals. Elkins became Widener's bondsman

when the latter entered the City Treasurer's office; the two men lived near
each other on the same street, and this association was cemented when
Widener's oldest son married Elkins's daughter. Elkins had started life as an
entry clerk in a grocery store, had made money in the butter and egg
business, had "struck oil" at Titusville in 1862, and had succeeded in
exchanging his holdings for a block of Standard Oil stock. He too became a
Philadelphia politician, but he had certain hard qualities—he was close-
fisted, slow, plodding—that prevented him from achieving much success.
For the other members of this group we must now change the scene to
New York City. In the early eighties certain powerful interests had formed
plans for controlling the New York transit fields. Prominent among them
was William Collins Whitney, a very different type of man from the
Philadelphians. Born in Conway, Massachusetts, in 1841, he came from a
long line of distinguished and intellectual New Englanders. At Yale his
wonderful mental gifts raised him far above his fellows; he divided all
scholastic honors there with his classmate, William Graham Sumner,
afterwards Yale's great political economist. Soon after graduation Whitney
came to New York and rapidly forged ahead as a lawyer. Brilliant, polished,
suave, he early displayed those qualities which afterward made him the
master mind of presidential Cabinets and the maker of American Presidents.
Physically handsome, loved by most men and all women, he soon acquired
a social standing that amounted almost to a dictatorship. His early political
activities had greatly benefited New York. He became a member of that
group which, under the leadership of Joseph H. Choate and Samuel J.
Tilden, accomplished the downfall of William M. Tweed. Whitney
remained Tilden's political protege for several years. Though highbred and
luxury-loving, as a young man he was not averse to hard political work, and
many old-timers still remember the days when "Bill" Whitney delivered
cart-tail harangues on the lower east side. By 1884 he had become the most
prominent Democrat in New York—always a foe to Tammany—and as such
he contributed largely to Cleveland's first election, became Secretary of the
Navy in Cleveland's cabinet and that great President's close friend and
adviser. As Secretary of the Navy, Whitney, who found the fleet composed
of a few useless hulks left over from the days of Farragut, created the
fighting force that did such efficient service in the Spanish War. The fact
that the United States is now the third naval power is largely owing to these
early activities of Whitney.

Certainly all this national service forms a strange prelude to Whitney's
activities in the public utilities of New York and other cities. Had he died,
indeed, in his fiftieth year, his name would be renowned today as a worker
for the highest ideals of American citizenship. What suddenly made him
turn his back upon his past, join his former enemies in Tammany Hall, and
engage in these great speculative enterprises? The simplest explanation is
that, with his ability and ambition, Whitney had the luxurious tastes of a
Medici. At the height of his career his financial success found expression in
a magnificent house which he established on Fifth Avenue. Its furnishings
were one of the wonders of New York. Whitney ransacked the art treasures
of Europe, stripped medieval castles of their carvings and tapestries, ripped
whole staircases and ceilings from the repose of centuries, and relaid them
in this abode of splendor, and here he entertained with a lavishness that
astounded New York. This single exploit pictures the man. Everything that
Whitney did and was his house, his financial transactions, his Wall Street
speculations, the rewards which he gave his friends assumed heroic
proportions. But these things all demanded money. The dilapidated horse
railways of New York offered him his most convenient opportunity for
amassing it.
But Whitney had not proceeded far when he came face to face with a
quiet and energetic young man who had already made considerable progress
in the New York transit field. This was a Virginian of South Irish descent
who had started life as a humble broker's clerk twelve or fourteen years
before. His name was Thomas Fortune Ryan. Few men have wielded
greater power in American finance, but in 1884 Ryan was merely a ruddy-
faced, cleancut, and clean-living Irishman of thirty-three, who could be
depended on to execute quickly and faithfully orders on the New York
Stock Exchange—even though they were small ones—and who, in
unostentatious fashion, had already acquired much influence in Tammany
Hall. With his six feet of stature, his extremely slender figure, his long legs,
his long arms, his raiment—which always represented the height of fashion
and tended slightly toward the flashy—Ryan made a conspicuous figure
wherever he went. He was born in 1851, on a small farm in Nelson County,
Virginia. The Civil War, which broke out when Ryan was a boy of ten,
destroyed the family fortune and in 1868, when seventeen, he began life as
a dry-goods clerk in Baltimore, fulfilling the tradition of the successful
country boy in the large city by marrying his employer's daughter. When his

father-in-law failed, in 1870, Ryan came to New York, went to work in a
broker's office, and succeeded so well that, in a few years, he was able to
purchase a seat on the Stock Exchange. He was sufficiently skillful as a
broker to number Jay Gould among his customers and to inspire a prophecy
by William C. Whitney that, if he retained his health, he would become one
of the richest men in the country. Afterwards, when he knew him more
intimately, Whitney elaborated this estimate by saying that Ryan was "the
most adroit, suave, and noiseless man he had ever known." Ryan had two
compelling traits that soon won for him these influential admirers. First of
all was his marvelous industry. His genius was not spasmodic. He worked
steadily, regularly, never losing a moment, never getting excited, going, day
after day, the same monotonous dog-trot, easily outdistancing scores of
apparently stronger men. He also had the indispensable faculty of silence.
He has always been the least talkative man in Wall Street, but, with all his
reserve, he has remained the soul of courtesy and outward good nature.
Here, then, we have the characters of this great impending drama—
Yerkes in Chicago, Widener and Elkins in Philadelphia, Whitney and Ryan
in New York. These five men did not invariably work as a unit. Yerkes,
though he had considerable interest in Philadelphia, which had been the
scene of his earliest exploits, limited his activities largely to Chicago.
Widener and Elkins, however, not only dominated Philadelphia traction but
participated in all of Yerkes's enterprises in Chicago and held an equal
interest with Whitney and Ryan in New York. The latter Metropolitan pair,
though they confined their interest chiefly to their own city, at times
transferred their attention to Chicago. Thus, for nearly thirty years, these
five men found their oyster in the transit systems of America's three greatest
cities—and, for that matter, in many others also.
An attempt to trace the convolutions of America's street railway and
public lighting finance would involve a puzzling array of statistics and an
inextricable complexity of stocks, bonds, leases, holding companies,
operating companies, construction companies, reorganizations, and the like.
Difficult and apparently impenetrable as is this financial morass, the
essential facts still stand out plainly enough. As already indicated, the
fundamental basis upon which the whole system rested was the control of
municipal politics. The story of the Metropolitan's manipulation of the New
York street railways starts with one of the most sordid episodes in the
municipal annals of America's largest city. Somewhat more than thirty years

ago, a group of New York city fathers acquired an international fame as the
"boodle aldermen." These men had finally given way to the importunities of
a certain Jacob Sharp, an eccentric New York character, who had for many
years operated New York City railways, and granted a franchise for the
construction of a horse-car line on lower Broadway. Soon after voting this
franchise, regarded as perhaps the most valuable in the world, these same
aldermen had begun to wear diamonds, to purchase real estate, and give
other outward evidences of unexpected prosperity. Presently, however, these
city fathers started a migration to Canada, Mexico, Spain, and other
countries where the processes of extradition did not work smoothly. Sharp's
enemies had succeeded in precipitating a legislative investigation under the
very capable leadership of Roscoe Conkling, who had little difficulty in
showing that Sharp had purchased his aldermen for $500,000 cash. In a
short time, such of the aldermen as were accessible to the police were
languishing in prison, and Sharp had been arrested on twenty-one
indictments for bribery and sentenced to four years' hard labor—a sentence
which he was saved from serving by his lonely and miserable death in
Ludlow Street Jail. In the delirium preceding his dissolution Sharp raved
constantly about his Broadway railroad and his enemies; it was apparently
his belief that the investigation which had uncovered his rascality and the
subsequent "persecutions" had been engineered by certain of his rivals,
either to compel Sharp to disgorge his franchise or to produce the facts that
would justify the legislature in annulling it on the ground of fraud.
Though the complete history of this transaction can never be written, we
do possess certain facts that lend some color to this diagnosis. Up to the
time that Sharp had captured this franchise, Ryan, Whitney, and the
Philadelphians—not as partners, but as rivals—had competed with him for
this prize. At the trial of Arthur J. McQuade in 1886, a fellow conspirator,
who bore the somewhat suggestive name of Fullgraff, related certain details
which, if true, would indicate that Sharp's methods differed from those of
his rivals only in that they had proved more successful. Thirteen members
of the Board of Aldermen, said Fullgraff, had formed a close corporation,
elected a chairman, and adopted a policy of "business unity in all important
matters," which meant that they proposed to keep together in order to
secure the highest price for the Broadway franchise. The cable railroad,
which was the one with which Mr. Ryan was identified, offered $750,000,
half in bonds and half in cash. Mr. Sharp, however, offered $500,000 all in

cash. The aldermen voted in favor of Sharp because cash was not only a
more valuable commodity than the bonds but, to use Alderman Fullgraff's
own words—"less easily traced." That Whitney financed lawsuits against
the validity of Sharp's franchise appears upon the record, and that Ryan was
actively promoting the Conkling investigation, is likewise a matter of
evidence. Sharp's victory had the great result of bringing together the three
forces—Ryan, Whitney, and the Philadelphians—who had hitherto
combated one another as rivals; that is, it caused the organization of the
famous Whitney-Ryan-Widener-Elkins syndicate. If these men had inspired
all those attacks on Sharp, their maneuver proved successful; for when the
investigation had attained its climax and public indignation against Sharp
had reached its most furious stage, that venerable corruptionist, worn down
by ill health, and almost crazed by the popular outcry, sold his Broadway
railroad to Peter A. B. Widener, William L. Elkins, and William H. Kemble.
Thomas F. Ryan became secretary of the new corporation, and William C.
Whitney an active participant in its affairs.
This Broadway franchise formed the vertebral column of the New York
transit system; with it as a basis, the operators formed the Metropolitan
Street Railway Company in 1893, commonly known as the "Metropolitan."
They organized also the Metropolitan Traction Company, an organization
which enjoys an historic position as the first "holding company" ever
created in this country. Its peculiar attribute was that it did not construct and
operate street railways itself, but merely owned other corporations that did
so. Its only assets, that is, were paper securities representing the ownership
and control of other companies. This "holding company," which has since
become almost a standardized form of corporation control in this country,
was the invention of Mr. Francis Lynde Stetson, one of America's greatest
corporation lawyers. "Mr. Stetson," Ryan is said to have remarked, "do you
know what you did when you drew up the papers of the Metropolitan
Traction Company? You made us a great big tin box."
The plan which Whitney and his associates now followed was to obtain
control, in various ways, of all the surface railways in New York and place
them under the leadership of the Metropolitan. Through their political
influences they obtained franchises of priceless value, organized subsidiary
street railway companies, and exchanged the stock of these subsidiary
companies for that of the Metropolitan. A few illustrations will show the
character of these transactions. They thus acquired, practically as a free gift,

a franchise to build a cable railroad on Lexington Avenue. At an extremely
liberal estimate, this line cost perhaps $2,500,000 to construct, yet the
syndicate turned this over to the Metropolitan for $10,000,000 of
Metropolitan securities. They similarly acquired a franchise for a line on
Columbus Avenue, spending perhaps $500,000 in construction, and handing
the completed property over to the Metropolitan for $6,000,000. In
exchange for these two properties, representing a real investment, it has
been maintained, of $3,000,000, the inside syndicates received securities
which had a face value of $16,000,000 and which, as will appear
subsequently, had a market cash value of not far from $25,000,000. They
purchased an old horse-car line on Fulton Street, a line whose assets
consisted of one-third of a mile of tracks, ten little box cars, thirty horses,
and an operating deficit of $40,000 a year. At auction, its visible assets
might have brought $15,000; yet the syndicate turned this over to the
Metropolitan for $1,000,000. They spent $50,000 in constructing and
equipping a horse railroad on Twenty-eighth and Twenty-ninth Streets and
turned this over to the Metropolitan for $3,000,000. For two and a half
miles of railroad on Thirty-fourth Street, which represented a cash
expenditure of perhaps $100,000, they received $2,000,000 of Metropolitan
stock. But it is hardly necessary to catalogue more instances; the plan of
operations must now be fairly evident. It was for the members of the
syndicate, as individuals, to collect all the properties and new franchises
that were available and to transfer them to the Metropolitan at enormously
inflated values. So far, all these deals were purely stock transactions—no
cash had yet changed hands. When the amalgamation was complete, the
insiders found themselves in possession of large amounts of Metropolitan
stock. Their scheme for transforming this paper into more tangible property
forms the concluding chapter of this Metropolitan story. *

* In 1897 the Traction Company dissolved, after distributing
$6,000,000 as "a voluntary dividend" among its stockholders.

Nearly all the properties actually purchased and transferred in the manner
described above, had little earning capacity, and therefore little value; they
were decrepit horse-car lines in unprofitable territory. The really valuable
roads were those that traversed the great north and south thoroughfares—
Lenox, Third, Fourth, Sixth, Eighth, and Ninth Avenues. Many old New
York families and estates had held these properties for years and had

collected large annual dividends from them. Naturally they had no desire to
sell, yet their acquisition was essential to the monopoly which the Whitney-
Ryan syndicate aspired to construct. They finally leased all these roads,
under agreements which guaranteed large annual rentals. In practically all
these cases the Metropolitan, in order to secure physical possession, agreed
to pay rentals that far exceeded the earning capacity of the road. What is the
explanation of such insane finance? We do not have the precise facts in the
matter of the New York railways; but similar operations in Chicago, which
have been officially made public, shed the utmost light upon the situation.
In order to get possession of a single road in Chicago, Widener and Elkins
guaranteed a thirty-five per cent dividend; to get one Philadelphia line, they
guaranteed 65 1/2 per cent on capital paid in. This, of course, was not
business; the motives actuating the syndicate were purely speculative. In
Chicago, Widener and Elkins quietly made large purchases of the stock in
these roads before they leased them to the parent company. The exceedingly
profitable lease naturally gave such stocks a high value, in case they
preferred to sell; if they held them, they reaped huge rewards from the
leases which they had themselves decreed. Perhaps their most remarkable
exploit was the lease of the West Division Railway Company of Chicago to
the West Chicago Street Railroad. Widener and Elkins controlled the West
Division Railway; their partner, Charles T. Yerkes, controlled the latter
corporation. The negotiation of a lease, therefore, was a purely informal
matter; the partners were merely dealing with one another; yet Widener and
Elkins received a fee of $5,000,000 as personal compensation for
negotiating this lease!
But this whole leasing system, both in New York and Chicago, entailed
scandals perhaps even more reprehensible. All these leased properties, when
taken over, were horse-car lines, and their transformation into electrically
propelled systems involved reconstruction operations on an extensive scale.
It seems perfectly clear that the chief motive which inspired these
extravagant leases was the determination of the individuals who made up
the syndicate to obtain physical possession and to make huge profits on
construction. The "construction accounts" of the Metropolitan in New York
form the most mysterious and incredible chapter in its history. The
Metropolitan reports show that they spent anywhere from $500,000 to
$600,000 a mile building underground trolley lines which, at their own
extravagant estimate, should have cost only $150,000. In a few years untold

millions, wasted in this way, disappeared from the Metropolitan treasury. In
1907 the Public Service Commission of New York began investigating
these "construction accounts," but it had not proceeded far when the
discovery was made that all the Metropolitan books containing the
information desired had been destroyed. All the ledgers, journals, checks,
and vouchers containing the financial history of the Metropolitan since its
organization in 1893 had been sold for $117 to a junkman, who had agreed
in writing to grind them into pulp, so that they would be safe from "prying
eyes." We shall therefore never know precisely how this money was spent.
But here again the Chicago transactions help us to an understanding. In
1898 Charles T. Yerkes, with that cynical frankness which some people
have regarded as a redeeming trait in his character, opened his books for the
preceding twenty-five years to the Civic Federation of Chicago. These
books disclosed that Mr. Yerkes and his associates, Widener and Elkins, had
made many millions in reconstructing the Chicago lines at prices which
represented gross overcharges to the stockholders. For this purpose Yerkes,
Widener, and Elkins organized the United States Construction Company
and made contracts for installing the new electric systems on the lines
which they controlled by lease or stock ownership. It seems a not unnatural
suspicion that the vanished Metropolitan books would have disclosed
similar performances in New York.
The concluding chapter of this tragedy has its setting in the Stock
Exchange. These inside gentlemen, as already said, received no cash as
their profits from these manipulations—only stock. But in the eyes of the
public this stock represented an enormous value. Metropolitan securities,
for example, represented the control and ownership of all the surface transit
business in the city of New York. Naturally, it had a great investment value.
When it began to pay regularly seven per cent dividends, the public appetite
for Metropolitan became insatiable. The eager purchasers did not know,
what we know now, that the Metropolitan did not earn these dividends and
never could have earned them. The mere fact that it was paying, as rentals
on its leased lines, annual sums far in excess of their earning capacity,
necessarily prevented anything in the nature of profitable operation. The
unpleasant fact is that these dividends were paid with borrowed money
merely to make the stock marketable. It is not unlikely that the padded
construction accounts, already described, may have concealed large
disbursements of money for unearned dividends. When the Metropolitan

was listed in 1897, it immediately went beyond par. The excitement that
followed forms one of the most memorable chapters in the history of Wall
Street. The investing public, egged on by daring and skillful stock
manipulators, simply went mad and purchased not only Metropolitan but
street railway shares that were then even more speculative. It was in these
bubble days that Brooklyn Rapid Transit soared to heights from which it
subsequently descended precipitately. Under this stimulus, Metropolitan
stock ultimately sold at $269 a share. While the whole investing public was
scrambling for Metropolitan, the members of the exploiting syndicate found
ample opportunity to sell. The real situation became apparent when William
C. Whitney died in 1904 leaving an estate valued at $40,000,000. Not a
single share of Metropolitan was found among his assets! The final crash
came in 1907, when the Metropolitan, a wrecked and plundered shell,
confessed insolvency and went into a receivership. Those who had
purchased its stock found their holdings as worthless as the traditional
western gold mine. The story of the Chicago and Philadelphia systems, as
well as that of numerous other cities, had been essentially the same. The
transit facilities of millions of Americans had merely become the
instruments of a group of speculators who had made huge personal fortunes
and had left, as a monument of their labors, street railway lines whose gross
overcapitalization was apparent to all and whose physical dilapidation in
many cases revealed the character of their management.
It seems perhaps an exaggeration to say that the enterprises which have
resulted in equipping our American cities and suburbs with trolley lines and
electric lighting facilities have followed the plan of campaign sketched
above. Perhaps not all have repeated the worst excesses of the syndicate
that so remorselessly exploited New York, Chicago, and Philadelphia. Yet in
most cases these elaborate undertakings have been largely speculative in
character. Huge issues of fictitious stock, created purely for the benefit of
inner rings, have been almost the prevailing rule. Stock speculation and
municipal corruption have constantly gone hand in hand everywhere with
the development of the public utilities. The relation of franchise
corporations to municipalities is probably the thing which has chiefly
opened the eyes of Americans to certain glaring defects in their democratic
organization. The popular agitation which has resulted has led to great
political reforms. The one satisfaction which we can derive from such a
relation as that given above is that, after all, it is representative of a past era

in our political and economic life. No new "Metropolitan syndicate" can
ever repeat the operations of its predecessors. Practically every State now
has utility commissions which regulate the granting of franchises, the issue
of securities, the details of construction and equipment and service. An
awakened public conscience has effectively ended the alliance between
politics and franchise corporations and the type of syndicate described in
the foregoing pages belongs as much to our American past as that rude
frontier civilization with which, after all, it had many characteristics in
common.

CHAPTER VI. MAKING THE WORLD'S
AGRICULTURAL MACHINERY
The Civil War in America did more than free the negro slave: it freed the
white man as well. In the Civil War agriculture, for the first time in history,
ceased to be exclusively a manual art. Up to that time the typical
agricultural laborer had been a bent figure, tending his fields and garnering
his crops with his own hands. Before the war had ended the American
farmer had assumed an erect position; the sickle and the scythe had given
way to a strange red chariot, which, with practically no expenditure of
human labor, easily did the work of a dozen men. Many as have been
America's contributions to civilization, hardly any have exerted greater
influence in promoting human welfare than her gift of agricultural
machinery. It seems astounding that, until McCormick invented his reaper,
in 1831, agricultural methods, in both the New and the Old World, differed
little from those that had prevailed in the days of the Babylonians. The New
England farmer sowed his fields and reaped his crops with almost
identically the same instruments as those which had been used by the
Roman farmer in the time of the Gracchi. Only a comparatively few used
the scythe; the great majority, with crooked backs and bended knees, cut the
grain with little hand sickles precisely like those which are now dug up in
Etruscan and Egyptian tombs.
Though McCormick had invented his reaper in 1831, and though many
rival machines had appeared in the twenty years preceding the Civil War,
only the farmers on the great western plains had used the new machinery to
any considerable extent. The agricultural papers and agricultural fairs had
not succeeded in popularizing these great laborsaving devices. Labor was so
abundant and so cheap that the farmer had no need of them. But the Civil
War took one man in three for the armies, and it was under this pressure that
the farmers really discovered the value of machinery. A small boy or girl
could mount a McCormick reaper and cut a dozen acres of grain in a day.
This circumstance made it possible to place millions of soldiers in the field
and to feed the armies from farms on which mature men did very little
work. But the reaper promoted the Northern cause in other ways. Its use

extended so in the early years of the war that the products of the farms
increased on an enormous scale, and the surplus, exported to Europe,
furnished the liquid capital that made possible the financing of the war.
Europe gazed in astonishment at a new spectacle in history; that of a nation
fighting the greatest war which had been known up to that time, employing
the greater part of her young and vigorous men in the armies, and yet
growing infinitely richer in the process. The Civil War produced many new
implements of warfare, such as the machine gun and the revolving turret for
battleships, but, so far as determining the result was concerned, perhaps the
most important was the reaper.
Extensive as the use of agricultural machinery became in the Civil War,
that period only faintly foreshadowed the development that has taken place
since. The American farm is today like a huge factory; the use of the hands
has almost entirely disappeared; there are only a few operations of
husbandry that are not performed automatically. In Civil War days the
reaper merely cut the grain; now machinery rakes it up and binds it into
sheaves and threshes it. Similar mechanisms bind corn and rice. Machinery
is now used to plant potatoes; grain, cotton, and other farm products are
sown automatically. The husking bees that formed one of our social
diversions in Civil War days have disappeared, for particular machines now
rip the husks off the ears. Horse hay-forks and horse hayrakes have
supplanted manual labor. The mere names of scores of modern instruments
of farming, all unknown in Civil War days—hay carriers, hay loaders, hay
stackers, manure spreaders, horse corn planters, corn drills, disk harrows,
disk ploughs, steam ploughs, tractors, and the like—give some suggestion
of the extent to which America has made mechanical the most ancient of
occupations. In thus transforming agriculture, we have developed not only
our own Western plains, but we have created new countries. Argentina
could hardly exist today except for American agricultural machinery. Ex-
President Loubet declared, a few years ago, that France would starve to
death except for the farming machines that were turned out in Chicago.
There is practically no part of the world where our self-binders are not used.
In many places America is not known as the land of freedom and
opportunity, but merely as "the place from which the reapers come." The
traveler suddenly comes upon these familiar agents in every European
country, in South America, in Egypt, China, Algiers, Siberia, India, Burma,
and Australia. For agricultural machinery remains today, what it has always

been, almost exclusively an American manufacture. It is practically the only
native American product that our European competitors have not been able
to imitate. Tariff walls, bounty systems, and all the other artificial aids to
manufacturing have not developed this industry in foreign lands, and today
the United States produces four-fifths of all the agricultural machinery used
in the world. The International Harvester Company has its salesmen in more
than fifty countries, and has established large American factories in many
nations of Europe.
One day, a few years before his death, Prince Bismarck was driving on
his estate, closely following a self-binder that had recently been put to
work. The venerable statesman, bent and feeble, seemed to find a deep
melancholy interest in the operation.
"Show me the thing that ties the knot," he said. It was taken to pieces and
explained to him in detail. "Can these machines be made in Germany?" he
asked.
"No, your Excellency," came the reply. "They can be made only in
America."
The old man gave a sigh. "Those Yankees are ingenious fellows," he said.
"This is a wonderful machine."
In this story of American success, four names stand out preeminently.
The men who made the greatest contributions were Cyrus H. McCormick,
C. W. Marsh, Charles B. Withington, and John F. Appleby. The name that
stands foremost, of course, is that of McCormick, but each of the others
made additions to his invention that have produced the present finished
machine. It seems like the stroke of an ironical fate which decreed that
since it was the invention of a Northerner, Eli Whitney, that made inevitable
the Civil War, so it was the invention of a Southerner, Cyrus McCormick,
that made inevitable the ending of that war in favor of the North.
McCormick was born in Rockbridge County, Virginia, on a farm about
eighteen miles from Staunton. He was a child of that pioneering Scotch-
Irish race which contributed so greatly to the settlement of this region and
which afterward made such inestimable additions to American citizenship.
The country in which he grew up was rough and, so far as the
conventionalities go, uncivilized; the family homestead was little more than
a log cabin; and existence meant a continual struggle with a not particularly
fruitful soil. The most remarkable figure in the McCormick home circle,

and the one whose every-day life exerted the greatest influence on the boy,
was his father. The older McCormick had one obsessing idea that made him
the favorite butt of the local humorists. He believed that the labor spent in
reaping grain was a useless expenditure of human effort and that machinery
might be made to do the work. Other men, in this country and in Europe,
had nourished similar notions. Several Englishmen had invented reaping
machines, all of which had had only a single defect—they would not reap.
An ingenious English actor had developed a contrivance which would cut
imitation wheat on the stage, but no one had developed a machine that
would work satisfactorily in real life. Robert McCormick spent the larger
part of his days and nights tinkering at a practical machine. He finally
produced a horrific contrivance, made up of whirling sickles, knives, and
revolving rods, pushed from behind by two horses; when he tried this upon
a grain-field, however, it made a humiliating failure.
Evidently Robert McCormick had ambitions far beyond his powers; yet
without his absurd experiments the development of American agriculture
might have waited many years. They became the favorite topics of
conversation in the evening gatherings that took place about the family log
fire. Robert McCormick had several sons, and one manifested a particular
interest in his repeated failures. From the time he was seven years old Cyrus
Hall McCormick became his father's closest companion. Others might
ridicule and revile, but this chubby, bright-eyed, intelligent little boy was
always the keenest listener, the one comfort which the father had against his
jeering neighbors. He also became his father's constant associate in his
rough workshop. Soon, however, the older man noticed a change in their
relations. The boy was becoming the teacher, and the father was taught. By
the time Cyrus was eighteen, indeed, he had advanced so far beyond his
father that the latter had become merely a proud observer. Young
McCormick threw into the discard all his father's ideas and struck out on
entirely new lines. By the time he had reached his twenty-second birthday
he had constructed a machine which, in all its essential details, is the one
which we have today. He had introduced seven principles, all of which are
an indispensable part of every reaper constructed now. One afternoon he
drove his unlovely contraption upon his father's farm, with no witnesses
except his own family. This group now witnessed the first successful
attempt ever made to reap with machinery. A few days later young
McCormick gave a public exhibition at Steele's Tavern, cutting six acres of

oats in an afternoon. The popular ridicule soon changed into acclaim; the
new invention was exhibited in a public square and Cyrus McCormick
became a local celebrity. Perhaps the words that pleased him most,
however, were those spoken by his father. "I am proud," said the old man,
"to have a son who can do what I failed to do."
This McCormick reaper dates from 1831; but it represented merely the
beginnings of the modern machine. It performed only a single function; it
simply cut the crop. When its sliding blade had performed this task, the
grain fell back upon a platform, and a farm hand, walking alongside, raked
this off upon the ground. A number of human harvesters followed, picked
up the bundles, and tied a few strips of grain around them, making the
sheaf. The work was exceedingly wearying and particularly hard upon the
women who were frequently impressed into service as farm-hands. About
1858 two farmers named Marsh, who lived near De Kalb, Illinois, solved
this problem. They attached to their McCormick reaper a moving platform
upon which the cut grain was deposited. A footboard was fixed to the
machine upon which two men stood. As the grain came upon this moving
platform these men seized it, bound it into sheaves, and threw it upon the
field. Simple as this procedure seemed it really worked a revolution in
agriculture; for the first time since the pronouncement of the primal curse,
the farmer abandoned his hunchback attitude and did his work standing
erect. Yet this device also had its disqualifications, the chief one being that
it converted the human sheaf-binder into a sweat-shop worker. It was
necessary to bind the grain as rapidly as the platform brought it up; the
worker was therefore kept in constant motion; and the consequences were
frequently distressing and nerve racking. Yet this "Marsh Harvester"
remained the great favorite with farmers from about 1860 to 1874.
All this time, however, there was a growing feeling that even the Marsh
harvester did not represent the final solution of the problem; the air was full
of talk and prophecies about self-binders, something that would take the
loose wheat from the platform and transform it into sheaves. Hundreds of
attempts failed until, in 1874, Charles B. Withington of Janesville,
Wisconsin, brought to McCormick a mechanism composed of two steel
arms which seized the grain, twisted a wire around it, cut the wire, and
tossed the completed sheaf to the earth. In actual practice this contrivance
worked with the utmost precision. Finally American farmers had a machine
that cut the grain, raked it up, and bound it into sheaves ready for the mill.

Human labor had apparently lost its usefulness; a solitary man or woman,
perched upon a seat and driving a pair of horses, now performed all these
operations of husbandry.
By this time, scores of manufacturers had entered the field in opposition
to McCormick, but his acquisition of Withington's invention had apparently
made his position secure. Indeed, for the next ten years he had everything
his own way. Then suddenly an ex-keeper of a drygoods store in Maine
crossed his path. This was William Deering, a character quite as energetic,
forceful, and pugnacious as was McCormick himself. Though McCormick
had made and sold thousands of his selfbinders, farmers were already
showing signs of discontent. The wire proved a continual annoyance. It
mingled with the straw and killed the cattle—at least so the farmers
complained; it cut their hands and even found its way, with disastrous
results, into the flour mills. Deering now appeared as the owner of a
startling invention by John F. Appleby. This did all that the Withington
machine did and did it better and quicker; and it had the great advantage
that it bound with twine instead of wire. The new machine immediately
swept aside all competitors; McCormick, to save his reaper from disaster,
presently perfected a twine binder of his own. The appearance of Appleby's
improvement in 1884 completes the cycle of the McCormick reaper on its
mechanical side The harvesting machine of fifty nations today is the one to
which Appleby put the final touches in 1884. Since then nothing of any
great importance has been added.
This outline of invention, however, comprises only part of the story. The
development of the reaper business presents a narrative quite as
adventurous as that of the reaper itself. Cyrus McCormick was not only a
great inventor; he was also a great businessman. So great was his ability in
this direction, indeed, that there has been a tendency to discredit his
achievements as a creative genius and to attribute his success to his talents
as an organizer and driver of industry. "I may make a million dollars from
this reaper," said McCormick, in the full tide of enthusiasm over his
invention; and these words indicate an indispensable part of his program.
He had no miserly instinct but he had one overpowering ambition. It was
McCormick's conviction, almost religious in its fervor, that the harvester
business of the world belonged to him. As already indicated, plenty of other
hardy spirits, many of them almost as commanding personalities as himself,
disputed the empire. Not far from 12,000 patents on harvesting machines

were granted in this country in the fifty years following McCormick's
invention, and more than two hundred companies were formed to compete
for the market. McCormick always regarded these competitors as
highwaymen who had invaded a field which had been almost divinely set
apart for himself. A man of covenanting antecedents, heroic in his physical
proportions, with a massive, Jove-like head and beard, tirelessly devoted to
his work, watching every detail with a microscopic eye, marshaling a huge
force of workers who were as possessed by this one overruling idea as was
McCormick himself, he certainly presented an almost unassailable
battlefront to his antagonists. The competition that raged between
McCormick and the makers of rival machines was probably the fiercest that
has prevailed in any American industry. For marketing his machine
McCormick developed a system almost as ingenious as the machine itself.
The popularization of so ungainly and expensive a contrivance as the
harvester proved a slow and difficult task. McCormick at first attempted to
build his product on his Virginia farm and for many years it was known as
the Virginia Reaper. Nearly ten years passed, however, before he sold his
first machine. The farmer first refused to take it seriously. "It's a great
invention," he would say, "but I'm running a farm, not a circus." About 1847
McCormick decided that the Western prairies offered the finest field for its
activities, and established his factory at Chicago, then an ugly little town on
the borders of a swamp. This selection proved to be a stroke of genius, for it
placed the harvesting factory right at the door of its largest market.
The price of the harvester, however, seemed an insurmountable obstacle
to its extensive use. The early settlers of the Western plains had little more
than their brawny hands as capital, and the homestead law furnished them
their land practically free. In the eyes of a large-seeing pioneer like
McCormick this was capital enough. He determined that his reaper should
develop this extensive domain, and that the crops themselves should pay the
cost. Selling expensive articles on the installment plan now seems a
commonplace of business, but in those days it was practically unknown.
McCormick was the first to see its possibilities. He established an agent,
usually the general storekeeper, in every agricultural center. Any farmer
who had a modicum of cash and who bore a reputation for thrift and
honesty could purchase a reaper. In payment he gave a series of notes, so
timed that they fell due at the end of harvesting seasons. Thus, as the money
came in from successive harvests, the pioneer paid off the notes, taking two,

three, or four years in the process. In the sixties and seventies immigrants
from the Eastern States and from Europe poured into the Mississippi Valley
by the hundreds of thousands. Almost the first person who greeted the
astonished Dane, German, or Swede was an agent of the harvester
company, offering to let him have one of these strange machines on these
terms. Thus the harvester, under McCormick's comprehensive selling plans,
did as much as the homestead act in opening up this great farming region.
McCormick covered the whole agricultural United States with these
agents. In this his numerous competitors followed suit, and the liveliest
times ensued. From that day to this the agents of harvesting implements
have lent much animation and color to rural life in this country. Half a
dozen men were usually tugging away at one farmer at the same time. The
mere fact that the farmer had closed a contract did not end his troubles, for
"busting up competitors' sales" was part of the agent's business. The
situation frequently reached a point where there was only one way to settle
rival claims and that was by a field contest. At a stated time two or three or
four rival harvesters would suddenly appear on the farmer's soil, each
prepared to show, by actual test, its superiority over the enemy. Farmers and
idlers for miles around would gather to witness the Homeric struggle. At a
given signal the small army of machines would spring savagely at a field of
wheat. The one that could cut the allotted area in the shortest time was
regarded as the winner. The harvester would rush on all kinds of fields, flat
and hilly, dry and wet, and would cut all kinds of crops, and even stubble.
All manner of tests were devised to prove one machine stronger than its
rival; a favorite idea was to chain two back to back, and have them pulled
apart by frantic careering horses; the one that suffered the fewest
breakdowns would be generally acclaimed from town to town. Sometimes
these field tests were the most exciting and spectacular events at country
fairs.
Thus the harvesting machine "pushed the frontier westward at the rate of
thirty miles a year," according to William H. Seward. It made American and
Canadian agriculture the most efficient in the world. The German brags that
his agriculture is superior to American, quoting as proof the more bushels of
wheat or potatoes he grows to an acre. But the comparison is fallacious. The
real test of efficiency is, not the crops that are grown per acre, but the crops
that are grown per man employed. German efficiency gets its results by
impressing women as cultivators—depressing bent figures that are in

themselves a sufficient criticism upon any civilization. America gets its
results by using a minimum of human labor and letting machinery do the
work. Thus America's methods are superior not only from the standpoint of
economics but of social progress. All nations, including Germany, use our
machinery, but none to the extent that prevails on the North American
Continent.
Perhaps McCormick's greatest achievement is that his machine has
banished famine wherever it is extensively used, at least in peace times.
Before the reaper appeared existence, even in the United States, was
primarily a primitive struggle for bread. The greatest service of the
harvester has been that it has freed the world—unless it is a world distracted
by disintegrating war—from a constant anxiety concerning its food supply.
The hundreds of thousands of binders, active in the fields of every country,
have made it certain that humankind shall not want for its daily bread.
When McCormick exhibited his harvester at the London Exposition of
1851, the London Times ridiculed it as "a cross between an Astley chariot, a
wheel barrow, and a flying machine." Yet this same grotesque object,
widely used in Canada, Argentina, Australia, South Africa, and India,
becomes an engine that really holds the British Empire together.
For the forty years succeeding the Civil War the manufacture of
harvesting machinery was a business in which many engaged, but in which
few survived. The wildest competition ruthlessly destroyed all but half a
dozen powerful firms. Cyrus McCormick died in 1884, but his sons proved
worthy successors; the McCormick factory still headed the list,
manufacturing, in 1900, one-third of all the self-binders used in the world.
The William Deering Company came next and then D. M. Osborne, J. J.
Glessner, and W. H. Jones, established factories that made existence
exceedingly uncomfortable for the pioneers. Whatever one may think of the
motives which caused so many combinations in the early years of the
twentieth century, there is no question that irresistible economic forces
compelled these great harvester companies to get together. Quick profits in
the shape of watered stock had nothing to do with the formation of the
International Harvester Company. All the men who controlled these
enterprises were individualists, with a natural loathing for trusts,
combinations, and pools. They wished for nothing better than to continue
fighting the Spartan battle that had made existence such an exciting pastime
for more than half a century. But the simple fact was that these several

concerns were destroying one another; it was a question of joining hands,
ending the competition that was eating so deeply into their financial
resources, or reducing the whole business to chaos. When Mr. George W.
Perkins, of J. P. Morgan and Company, first attempted to combine these
great companies, the antagonisms which had been accumulated in many
years of warfare constantly threatened to defeat his end. He early
discovered that the only way to bring these men together was to keep them
apart. The usual way of creating such combinations is to collect the
representative leaders, place them around a table, and persuade them to talk
the thing over. Such an amicable situation, however, was impossible in the
present instance. Even when the four big men—McCormick, Deering,
Glessner, and Jones—were finally brought for the final treaty of peace to J.
P. Morgan's office, Mr. Perkins had to station them in four separate rooms
and flit from one to another arranging terms. Had these four men been
brought face to face, the Harvester Company would probably never have
been formed.
Having once signed their names, however, these once antagonistic
interests had little difficulty in forming a strong combination. The company
thus brought together manufactured 85 per cent of all the farm machinery
used in this country. It owned its own coal-fields and iron mines and its own
forests, and it produces most of the implements used by 10,000,000
farmers. In 1847 Cyrus McCormick made 100 reapers and sold them for
$10,000; by 1902 the annual production of the corporation amounted to
hundreds of thousands of harvesters—besides an almost endless assortment
of other agricultural tools, ploughs, drills, rakes, gasoline engines, tractors,
threshers, cream separators, and the like—and the sales had grown to about
$75,000,000. This is merely the financial measure of progress; the genuine
achievements of McCormick's invention are millions of acres of productive
land and a farming population which is without parallel elsewhere for its
prosperity, intelligence, manfulness, and general contentment.

CHAPTER VII. THE DEMOCRATIZATION OF
THE AUTOMOBILE
In many manufacturing lines, American genius for organization and large
scale production has developed mammoth industries. In nearly all the
tendency to combination and concentration has exercised a predominating
influence. In the early years of the twentieth century the public realized, for
the first time, that one corporation, the American Sugar Refining Company,
controlled ninety-eight per cent of the business of refining sugar. Six large
interests—Armour, Swift, Morris, the National Packing Company, Cudahy,
and Schwarzschild and Sulzberger—had so concentrated the packing
business that, by 1905, they slaughtered practically all the cattle shipped to
Western centers and furnished most of the beef consumed in the large cities
east of Pittsburgh. The "Tobacco Trust" had largely monopolized both the
wholesale and retail trade in this article of luxury and had also made
extensive inroads into the English market. The textile industry had not only
transformed great centers of New England into an American Lancashire, but
the Southern States, recovering from the demoralization of the Civil War,
had begun to spin their own cotton and to send the finished product to all
parts of the world. American shoe manufacturers had developed their art to
a point where "American shoes" had acquired a distinctive standing in
practically every European country.
It is hardly necessary to describe in detail each of these industries. In
their broad outlines they merely repeat the story of steel, of oil, of
agricultural machinery; they are the product of the same methods, the same
initiative. There is one branch of American manufacture, however, that
merits more detailed attention. If we scan the manufacturing statistics of
1917, one amazing fact stares us in the face. There are only three American
industries whose product has attained the billion mark; one of these is steel,
the other food products, while the third is an industry that was practically
unknown in the United States fifteen years ago. Superlatives come naturally
to mind in discussing American progress, but hardly any extravagant
phrases could do justice to the development of American automobiles. In
1899 the United States produced 3700 motor vehicles; in 1916 we made

1,500,000. The man who now makes a personal profit of not far from
$50,000,000 a year in this industry was a puttering mechanic when the
twentieth century came in. If we capitalized Henry Ford's income, he is
probably a richer man than Rockefeller; yet, as recently as 1905 his
possessions consisted of a little shed of a factory which employed a dozen
workmen. Dazzling as is this personal success, its really important aspects
are the things for which it stands. The American automobile has had its
wildcat days; for the larger part, however, its leaders have paid little
attention to Wall Street, but have limited their activities exclusively to
manufacturing. Moreover, the automobile illustrates more completely than
any other industry the technical qualities that so largely explain our
industrial progress. Above all, American manufacturing has developed three
characteristics. These are quantity production, standardization, and the use
of labor-saving machinery. It is because Ford and other manufacturers
adapted these principles to making the automobile that the American motor
industry has reached such gigantic proportions.
A few years ago an English manufacturer, seeking the explanation of
America's ability to produce an excellent car so cheaply, made an
interesting experiment. He obtained three American automobiles, all of the
same "standardized" make, and gave them a long and racking tour over
English highways. Workmen then took apart the three cars and threw the
disjointed remains into a promiscuous heap. Every bolt, bar, gas tank,
motor, wheel, and tire was taken from its accustomed place and piled up, a
hideous mass of rubbish. Workmen then painstakingly put together three
cars from these disordered elements. Three chauffeurs jumped on these
cars, and they immediately started down the road and made a long journey
just as acceptably as before. The Englishman had learned the secret of
American success with automobiles. The one word "standardization"
explained the mystery.
Yet when, a few years before, the English referred to the American
automobile as a "glorified perambulator," the characterization was not
unjust. This new method of transportation was slow in finding favor on our
side of the Atlantic. America was sentimentally and practically devoted to
the horse as the motive power for vehicles; and the fact that we had so few
good roads also worked against the introduction of the automobile. Yet
here, as in Europe, the mechanically propelled wagon made its appearance
in early times. This vehicle, like the bicycle, is not essentially a modern

invention; the reason any one can manufacture it is that practically all the
basic ideas antedate 1840. Indeed, the automobile is really older than the
railroad. In the twenties and thirties, steam stage coaches made regular trips
between certain cities in England and occasionally a much resounding
power-driven carriage would come careering through New York and
Philadelphia, scaring all the horses and precipitating the intervention of the
authorities. The hardy spirits who devised these engines, all of whose
names are recorded in the encyclopedias, deservedly rank as the "fathers" of
the automobile. The responsibility as the actual "inventor" can probably be
no more definitely placed. However, had it not been for two developments,
neither of them immediately related to the motor car, we should never have
had this efficient method of transportation. The real "fathers" of the
automobile are Gottlieb Daimler, the German who made the first successful
gasoline engine, and Charles Goodyear, the American who discovered the
secret of vulcanized rubber. Without this engine to form the motive power
and the pneumatic tire to give it four air cushions to run on, the automobile
would never have progressed beyond the steam carriage stage. It is true that
Charles Baldwin Selden, of Rochester, has been pictured as the "inventor of
the modern automobile" because, as long ago as 1879, he applied for a
patent on the idea of using a gasoline engine as motive power, securing this
basic patent in 1895, but this, it must be admitted, forms a flimsy basis for
such a pretentious claim.
The French apparently led all nations in the manufacture of motor
vehicles, and in the early nineties their products began to make occasional
appearances on American roads. The type of American who owned this
imported machine was the same that owned steam yachts and a box at the
opera. Hardly any new development has aroused greater hostility. It not
only frightened horses, and so disturbed the popular traffic of the time, but
its speed, its glamour, its arrogance, and the haughty behavior of its
proprietor, had apparently transformed it into a new badge of social
cleavage. It thus immediately took its place as a new gewgaw of the rich;
that it had any other purpose to serve had occurred to few people. Yet the
French and English machines created an entirely different reaction in the
mind of an imaginative mechanic in Detroit. Probably American annals
contain no finer story than that of this simple American workman. Yet from
the beginning it seemed inevitable that Henry Ford should play this
appointed part in the world. Born in Michigan in 1863, the son of an

English farmer who had emigrated to Michigan and a Dutch mother, Ford
had always demonstrated an interest in things far removed from his farm.
Only mechanical devices interested him. He liked getting in the crops,
because McCormick harvesters did most of the work; it was only the
machinery of the dairy that held him enthralled. He developed destructive
tendencies as a boy; he had to take everything to pieces. He horrified a rich
playmate by resolving his new watch into its component parts—and
promptly quieted him by putting it together again. "Every clock in the
house shuddered when it saw me coming," he recently said. He constructed
a small working forge in his school-yard, and built a small steam engine
that could make ten miles an hour. He spent his winter evenings reading
mechanical and scientific journals; he cared little for general literature, but
machinery in any form was almost a pathological obsession. Some boys run
away from the farm to join the circus or to go to sea; Henry Ford at the age
of sixteen ran away to get a job in a machine shop. Here one anomaly
immediately impressed him. No two machines were made exactly alike;
each was regarded as a separate job. With his savings from his weekly wage
of $2.50, young Ford purchased a three dollar watch, and immediately
dissected it. If several thousand of these watches could be made, each one
exactly alike, they would cost only thirty-seven cents apiece. "Then," said
Ford to himself, "everybody could have one." He had fairly elaborated his
plans to start a factory on this basis when his father's illness called him back
to the farm.
This was about 1880; Ford's next conspicuous appearance in Detroit was
about 1892. This appearance was not only conspicuous; it was exceedingly
noisy. Detroit now knew him as the pilot of a queer affair that whirled and
lurched through her thoroughfares, making as much disturbance as a freight
train. In reading his technical journals Ford had met many descriptions of
horseless carriages; the consequence was that he had again broken away
from the farm, taken a job at $45 a month in a Detroit machine shop, and
devoted his evenings to the production of a gasoline engine. His young wife
was exceedingly concerned about his health; the neighbors' snap judgment
was that he was insane. Only two other Americans, Charles B. Duryea and
Ellwood Haynes, were attempting to construct an automobile at that time.
Long before Ford was ready with his machine, others had begun to appear.
Duryea turned out his first one in 1892; and foreign makes began to appear
in considerable numbers. But the Detroit mechanic had a more

comprehensive inspiration. He was not working to make one of the finely
upholstered and beautifully painted vehicles that came from overseas.
"Anything that isn't good for everybody is no good at all," he said. Precisely
as it was Vail's ambition to make every American a user of the telephone
and McCormick's to make every farmer a user of his harvester, so it was
Ford's determination that every family should have an automobile. He was
apparently the only man in those times who saw that this new machine was
not primarily a luxury but a convenience. Yet all manufacturers, here and in
Europe, laughed at his idea. Why not give every poor man a Fifth Avenue
house? Frenchmen and Englishmen scouted the idea that any one could
make a cheap automobile. Its machinery was particularly refined and called
for the highest grade of steel; the clever Americans might use their labor-
saving devices on many products, but only skillful hand work could turn out
a motor car. European manufacturers regarded each car as a separate
problem; they individualized its manufacture almost as scrupulously as a
painter paints his portrait or a poet writes his poem. The result was that only
a man with several thousand dollars could purchase one. But Henry Ford—
and afterward other American makers—had quite a different conception.
Henry Ford's earliest banker was the proprietor of a quick-lunch wagon at
which the inventor used to eat his midnight meal after his hard evening's
work in the shed. "Coffee Jim," to whom Ford confided his hopes and
aspirations on these occasions, was the only man with available cash who
had any faith in his ideas. Capital in more substantial form, however, came
in about 1902. With money advanced by "Coffee Jim," Ford had built a
machine which he entered in the Grosse Point races that year. It was a
hideous-looking affair, but it ran like the wind and outdistanced all
competitors. From that day Ford's career has been an uninterrupted triumph.
But he rejected the earliest offers of capital because the millionaires would
not agree to his terms. They were looking for high prices and quick profits,
while Ford's plans were for low prices, large sales, and use of profits to
extend the business and reduce the cost of his machine. Henry Ford's
greatness as a manufacturer consists in the tenacity with which he has clung
to this conception. Contrary to general belief in the automobile industry he
maintained that a high sale price was not necessary for large profits; indeed
he declared that the lower the price, the larger the net earnings would be.
Nor did he believe that low wages meant prosperity. The most efficient
labor, no matter what the nominal cost might be, was the most economical.

The secret of success was the rapid production of a serviceable article in
large quantities. When Ford first talked of turning out 10,000 automobiles a
year, his associates asked him where he was going to sell them. Ford's
answer was that that was no problem at all; the machines would sell
themselves. He called attention to the fact that there were millions of people
in this country whose incomes exceeded $1800 a year; all in that class
would become prospective purchasers of a low-priced automobile. There
were 6,000,000 farmers; what more receptive market could one ask? His
only problem was the technical one—how to produce his machine in
sufficient quantities.
The bicycle business in this country had passed through a similar
experience. When first placed on the market bicycles were expensive; it
took $100 or $150 to buy one. In a few years, however, an excellent
machine was selling for $25 or $30. What explained this drop in price? The
answer is that the manufacturers learned to standardize their product.
Bicycle factories became not so much places where the articles were
manufactured as assembling rooms for putting them together. The several
parts were made in different places, each establishment specializing in a
particular part; they were then shipped to centers where they were
transformed into completed machines. The result was that the United States,
despite the high wages paid here, led the world in bicycle making and
flooded all countries with this utilitarian article. Our great locomotive
factories had developed on similar lines. Europeans had always marveled
that Americans could build these costly articles so cheaply that they could
undersell European makers. When they obtained a glimpse of an American
locomotive factory, the reason became plain. In Europe each locomotive
was a separate problem; no two, even in the same shop, were exactly alike.
But here locomotives are built in parts, all duplicates of one another; the
parts are then sent by machinery to assembling rooms and rapidly put
together. American harvesting machines are built in the same way;
whenever a farmer loses a part, he can go to the country store and buy its
duplicate, for the parts of the same machine do not vary to the thousandth of
an inch. The same principle applies to hundreds of other articles.
Thus Henry Ford did not invent standardization; he merely applied this
great American idea to a product to which, because of the delicate labor
required, it seemed at first unadapted. He soon found that it was cheaper to
ship the parts of ten cars to a central point than to ship ten completed cars.

There would therefore be large savings in making his parts in particular
factories and shipping them to assembling establishments. In this way the
completed cars would always be near their markets. Large production
would mean that he could purchase his raw materials at very low prices;
high wages meant that he could get the efficient labor which was demanded
by his rapid fire method of campaign. It was necessary to plan the making
of every part to the minutest detail, to have each part machined to its exact
size, and to have every screw, bolt, and bar precisely interchangeable.
About the year 1907 the Ford factory was systematized on this basis. In that
twelvemonth it produced 10,000 machines, each one the absolute
counterpart of the other 9999. American manufacturers until then had been
content with a few hundred a year! From that date the Ford production has
rapidly increased; until, in 1916, there were nearly 4,000,000 automobiles
in the United States—more than in all the rest of the world put together—of
which one-sixth were the output of the Ford factories. Many other
American manufacturers followed the Ford plan, with the result that
American automobiles are duplicating the story of American bicycles;
because of their cheapness and serviceability, they are rapidly dominating
the markets of the world. In the Great War American machines have
surpassed all in the work done under particularly exacting circumstances.
A glimpse of a Ford assembling room—and we can see the same process
in other American factories—makes clear the reasons for this success. In
these rooms no fitting is done; the fragments of automobiles come in
automatically and are simply bolted together. First of all the units are
assembled in their several departments. The rear axles, the front axles, the
frames, the radiators, and the motors are all put together with the same
precision and exactness that marks the operation of the completed car. Thus
the wheels come from one part of the factory and are rolled on an inclined
plane to a particular spot. The tires are propelled by some mysterious force
to the same spot; as the two elements coincide, workmen quickly put them
together. In a long room the bodies are slowly advanced on moving
platforms at the rate of about a foot per minute. At the side stand groups of
men, each prepared to do his bit, their materials being delivered at
convenient points by chutes. As the tops pass by these men quickly bolt
them into place, and the completed body is sent to a place where it awaits
the chassis. This important section, comprising all the machinery, starts at
one end of a moving platform as a front and rear axle bolted together with

the frame. As this slowly advances, it passes under a bridge containing a
gasoline tank, which is quickly adjusted. Farther on the motor is swung
over by a small hoist and lowered into position on the frame. Presently the
dash slides down and is placed in position behind the motor. As the rapidly
accumulating mechanism passes on, different workmen adjust the mufflers,
exhaust pipes, the radiator, and the wheels which, as already indicated,
arrive on the scene completely tired. Then a workman seats himself on the
gasoline tank, which contains a small quantity of its indispensable fuel,
starts the engine, and the thing moves out the door under its own power. It
stops for a moment outside; the completed body drops down from the
second floor, and a few bolts quickly put it securely in place. The workman
drives the now finished Ford to a loading platform, it is stored away in a
box car, and is started on its way to market. At the present time about 2000
cars are daily turned out in this fashion. The nation demands them at a more
rapid rate than they can be made.
Herein we have what is probably America's greatest manufacturing
exploit. And this democratization of the automobile comprises more than
the acme of efficiency in the manufacturing art. The career of Henry Ford
has a symbolic significance as well. It may be taken as signalizing the new
ideals that have gained the upper hand in American industry. We began this
review of American business with Cornelius Vanderbilt as the typical
figure. It is a happy augury that it closes with Henry Ford in the foreground.
Vanderbilt, valuable as were many of his achievements, represented that
spirit of egotism that was rampant for the larger part of the fifty years
following the war. He was always seeking his own advantage, and he never
regarded the public interest as anything worth a moment's consideration.
With Ford, however, the spirit of service has been the predominating
motive. His earnings have been immeasurably greater than Vanderbilt's; his
income for two years amounts to nearly Vanderbilt's total fortune at his
death; but the piling up of riches has been by no means his exclusive
purpose. He has recognized that his workmen are his partners and has
liberally shared with them his increasing profits. His money is not the
product of speculation; Ford is a stranger to Wall Street and has built his
business independently of the great banking interest. He has enjoyed no
monopoly, as have the Rockefellers; there are more than three hundred
makers of automobiles in the United States alone. He has spurned all
solicitations to join combinations. Far from asking tariff favors he has

entered European markets and undersold English, French, and German
makers on their own ground. Instead of taking advantage of a great public
demand to increase his prices, Ford has continuously lowered them. Though
his idealism may have led him into an occasional personal absurdity, as a
business man he may be taken as the full flower of American manufacturing
genius. Possibly America, as a consequence of universal war, is advancing
to a higher state of industrial organization; but an economic system is not
entirely evil that produces such an industry as that which has made the
automobile the servant of millions of Americans.

BIBLIOGRAPHICAL NOTE
The materials are abundant for the history of American industry in the
last fifty years. They exist largely in the form of official documents. Any
one ambitious of studying this subject in great detail should consult, first of
all, the catalogs issued by that very valuable institution, the Government
Printing Office. The Bureau of Corporations has published elaborate reports
on such industries as petroleum (Standard Oil Company), beef, tobacco,
steel, and harvesting machinery, which are indispensable in studying these
great basic enterprises. The American habit of legislative investigation and
trust-fighting in the courts, whatever its public value may have been, has at
least had the result of piling up mountains of material for the historian of
American industry. For one single corporation, the Standard Oil Company,
a great library of such literature exists. The nearly twenty volumes of
testimony, exhibits, and briefs assembled in the course of the Federal suit
which led to its dissolution is the ultimate source of material on America's
greatest trust. As most of our other great corporations—the Steel Trust, the
Harvester Company, the Tobacco Company, and the like—have passed
through similar ordeals, all the information the student could ask
concerning them exists in the same form. The archives of such bodies as the
Interstate Commerce Commission and Public Utility Commissions of the
States are also bulging with documentary evidence. Thus all the material
contained in this volume—and much more—concerning the New York
traction situation will be found in the investigation conducted in 1907 by
the Public Service Commission of New York, Second District.
American business has also developed a great talent for publicity. Nearly
all our big corporations have assembled much material about their own
history, all of which is public property. Thus the American Telephone and
Telegraph Company can furnish detailed information on every phase of its
business and history. Indeed, one's respect for the achievements of
American industry is increased by the praiseworthy curiosity which it
displays about its own past and the readiness with which it makes such
material accessible to the public. Despite the abundance of data, there is not
a great amount of popular writing on these subjects that has much

fascination as literature or much value as history. The only book that is
really important is Miss Ida M. Tarbell's "History of the Standard Oil
Company," 2 vols. (new edition 1911). Of other popular volumes the
present writer has found most useful Herbert N. Casson's "Romance of
Steel" (1907), "History of the Telephone" (1910), and "Cyrus Hall
McCormick: His Life and Work" (1909); J.H. Bridge's "Inside History of
the Carnegie Steel Company" (1903); "Henry Ford's Own Story" as told to
Rose Wildes Lane (1917).
For Chapter V, the author has drawn from articles contributed by him in
1907-8 to "McClure's Magazine" on "Great American Fortunes and their
Making;" and for Chapter IV, from an article contributed to the same
magazine in 1914, on "Telephones for the Millions."

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