By today’s standards, to be sure, the prosperity of this new era was singularly restricted. At the beginning of the twentieth century, while Andrew Carnegie was enjoying a personal income of something like fifteen million dollars a year (with no income taxes to pay), the mass of unskilled workers in the North were receiving less than $460 a year in wages, and in the South the figure was even lower—less than $300. According to Robert Hunter’s study of Poverty, published in 1904, the wages of streetcar employees ranged from $320 a year to $460; a cotton-mill proprietor in Georgia testified before the Industrial Commission that the average wage paid to his employees was $234 a year; and the average wage in the anthracite district was less than $500. And this in a period when one millionaire’s domestic staff was said to be ready at an hour’s notice to serve a hundred guests; when another gave a dinner at Delmonico’s at which seventy-two guests sat about a huge oval table in the middle of which was a contrived pond thirty feet long with four swans swimming in it; when a third was basking in a Scotch castle with forty guest suites, eight footmen whose sole function was to serve wine, and a personal bagpiper whose assignment was to march round the castle in the morning playing to wake the guests; and when a fourth was building a vast residence which was to contain a swimming pool, a gymnasium, a billiard room with ten tables, a private chapel with a marble altar weighing ten tons, a $50,000 organ, and a refrigerator large enough to hold twenty tons of beef!
Along with these wide contrasts went a state of mind which it is difficult for us, half a century later, to grasp imaginatively. When we go back today and read the polite journals of the eighteen-nineties, we find ourselves in a world of ideas in which there was only one group of people who appeared to matter much: ladies and gentlemen and those who aspired to be ladies and gentlemen (meaning the new rich and other imitators of the ways of the cultivated Eastern urban well-to-do). These journals took scant notice of the vast middle group of the population among whom Lorimer’s Saturday Evening Post and Bok’s Ladies’ Home Journal were presently to recruit armies of readers, and who in subsequent decades would form the backbone of the audiences for the popular movies and radio shows—the proprietors of little businesses, the more successful farmers, and those hosts of small-salaried business employees and modest professional people whose unassuming and essentially democratic customs and manners William Allen White could celebrate so well. To the polite journalists of the eighteen-nineties, such men and women were untutored and negligible—except perhaps as aspirants to the genteel life. As for “the poor,” the polite journalists referred to them almost as if they were residents of a foreign land. Occasionally one finds in these journals earnest studies of the plight of the poor, or amusing or sentimental accounts of their picturesque ways; but that the poor should themselves read the polite journals, or for that matter become consumers of any of the reasonable comforts of life (except by leaping out of their class, as many of them did, to join the ranks of the prosperous) did not seem to occur to editors or writers.
In part this curiously patrician attitude was due to the reign of genteelism in literary and artistic circles. (For example, business was not considered a suitable subject for general journalistic consideration. Although it was of course the central fact of life in the United States and the favorite topic for talk when men gathered by themselves, it was thought a little vulgar for ladies and gentlemen together; they might better improve themselves by discussing literature, preferably English, or art, preferably Continental. Not until about the turn of the century did McClure, by turning his muckrakers loose upon the scandals and excesses of business, and Lorimer, by chronicling its wonders, begin to satisfy the innate interest of innumerable readers in the hard facts of the business world.) But in part the attitude of the polite journalists reflected also the actual conditions of American life under which they had grown up and the prevailing attitudes of the day.
Thousands of American communities west of the Alleghenies, and more especially west of the Mississippi, were only just outgrowing the crudities and isolation of frontier times. And as for the poor, they were—aside from the Negroes—mostly immigrants from Europe, who were then pouring into the United States by the hundreds of thousands each year and overflowing from the slums of the Eastern seaboard into industrial towns the country over; they spoke foreign languages, looked rough and ignorant and dirty to people of older American stock, and seemed destined in the nature of things to sweat for low pay and live in miserable slums. (Hence, perhaps, the long-continuing condescension of native-stock Americans toward the mass of Europeans.) If today, when you drive with an elderly man past a factory, he expresses astonishment at the number of cars jammed in the parking lot, that is because he half-remembers what industrialism was like when he was a boy, and is startled to be reminded how the United States has become democratized during the past half century.
Nor was there then any widespread realization of the existence of what we today call the national economy. Not that the statistics of business were not elaborately recorded. One can look back today in the financial journals of that time and find out exactly how much money a given railroad made in a given quarter of the year and exactly what were the totals of bank clearings, exports, imports, and sales of this commodity or that over a given period. One can find elaborate discussions of the condition of this industry or that, this company or that. But one looks in vain for any adequate measurement of the prosperity of the country as a whole, or for any suggestion—except in the writings of indignant radicals—that the prosperity of the country as a whole was anything but the sum of the prosperity of the various businesses which were conducted in it. Not for many years to come would Willford I. King produce the idea that there was such a thing as the national income.
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But as business accumulated momentum during the McKinley days, an idea precedent to the idea of the national income, and immensely significant, did seize hold of the minds of business men with a vengeance: the idea of national—and even international—markets for individual businesses or combinations of businesses.
The concept was of course not new. Before the eighteen-nineties Rockefeller, for example, had spread the operations of his Standard Oil Trust so widely as to achieve something approaching a national monopoly, and of course many manufacturers—like the Singer Sewing Machine people, let us say—had sold their goods in so many areas of the country (to say nothing of other countries) as to conceive of the United States as a single market for their wares. And Pierpont Morgan, calling together the chief railroad presidents of the country, surely had had in mind at least a vague concept of all these separate lines making together something of a national pattern. But the vast majority even of good-sized businesses were local. Most pools and combinations in industry were apparently conceived more with the idea of holding up prices between competitors in a limited area than with the idea of controlling jointly a market stretching from coast to coast. The concept of national advertising was still in its infancy. Meanwhile during the depression of the mid-nineties almost all grand schemes for new business combinations had been held in abeyance or at least slowed down; the times were not propitious. Morgan, for example, had acquired his unique influence among the railroads of the East not by launching any magnificent plan for expansion, but by acting as receiver, as it were, for distressed corporations. But now, in 1897, ambition began to see its chance to make up for lost time.
The nation was now linked by railroads from Maine to California. The frontier was closed. The pioneer days were ending. The South was at last really recovering from the ravages of the Civil War. Manufacturers were learning the techniques of mass production. (Long before Henry Ford’s business began to boom, Andrew Carnegie had demonstrated the validity of the principle of huge production at low cost and small profit per unit.) And now, all at once, among shrewd and well-heeled business proprietors, the idea spread like a wild epidemic that there was a national market awaiting them if only they could expand or combine to exploit it
. And the easy victory of the United States in the Spanish War in 1898 encouraged an extension of this idea: why not an international market, for that matter?
American industry was abruptly—and feverishly—coming of age.
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Yes, but how could a business or group of businesses grow so big as to capture the whole American market? The chief obstacle was not the Sherman Anti-trust Act, for although this act, passed in 1890, forbade combinations “in restraint of trade,” the government had been singularly lax about enforcing it and the Supreme Court had shown considerable uncertainty as to what constituted restraint of trade. Apparently it was all right for a group of companies to join forces and achieve a near-monopoly in a given industry (provided their methods of eliminating their competitors were sufficiently discreet) if they could find a legal way of joining forces. Years before, Rockefeller had combined a lot of oil companies by getting the men who held stock in these companies to turn over their shares to a group of trustees to vote as a unit; hence the term “trust.” But court decisions had made it clear that trusts in this strict or Rockefeller sense would no longer be permitted. How, then, could the thing be done?
As a matter of fact the answer to this question had already been found—found, indeed, before the Sherman act was even passed. The machinery for combining businesses had already been invented by a cheerful, rosy-faced New Jersey lawyer named James B. Dill.
On being asked in 1889 by the governor of New Jersey how the state’s revenues might be increased, Dill had suggested passing a New Jersey law permitting one corporation to hold the stock of another corporation—a thing previously considered grossly improper, and only rarely sanctioned by special legislation. The law was accordingly passed, and New Jersey’s revenues swelled as business men began to discover that now the door was wide open to perfectly legal combination. Did you want to combine ten companies into one? All you had to do was to go to New Jersey, incorporate a holding company under the New Jersey laws, make a series of agreements by which this company would buy the stock of the ten companies, giving its own shares in return—and the thing was done. The ten companies had now become in effect mere subsidiaries or departments of one big boss concern—which now might be big enough to capture the whole national market.
By the time the business tide turned in 1897, Dill’s invention had become very well known. Lincoln Steffens tells in his Autobiography how, when he was a financial reporter in New York, he was shocked to hear that all sorts of outrageous things could be done under the shelter of the New Jersey Holding Company Act, and went to see the author of the act, James B. Dill. Somewhat to his surprise, Dill appeared to share Steffens’ dismay, told him that such abuses must be exposed and stopped, and provided him with even more scandalous facts than he had already gathered. Steffens wrote a detailed story and it was published. Not until some time later, when Steffens had got to know Dill really well, did the rosy little lawyer explain to him, with vast amusement, why he had been so helpful. “You thought that the things you were describing were dreadful,” said Dill in effect. “But I knew that to a lot of business men they would look mighty inviting. I was advertising my wares and the business of my state.”
The possibilities of the New Jersey law were certainly wonderful. How, you may ask, could anyone persuade the owners of, say, ten businesses to sell out to a new holding company? Well, suppose each of these businesses represented an investment of one million dollars. The promoter of the new holding company would offer the owners of each of them two million dollars’ worth of the shares of the new company; that would bring them in all right. Yes, but would these new shares actually be worth two million dollars? Possibly not—but to the eye of optimism the advantages of monopoly or near-monopoly, plus the gain in efficiency that should come from integrating all these concerns, plus the appeal of a big and forward-looking scheme, would be very persuasive. What the promoters of the new holding company were doing was capitalizing, at one fell swoop, the prospects for the long future. Crazy? Perhaps. But was not America coming of age, and was not the future something to conjure with? As soon as the shares of the new holding company were launched on the Stock Exchange, the public swarmed to buy them; and the man who had sold his control of the Podunk Street Railway Company to a new Consolidated Traction Company, accepting stock in the latter as his payment, found he could sell this new stock at a fat price—and would be suddenly a rich man.
Not only that, but if the promoter, merging ten companies into one, was increasing their total capitalization from ten million to twenty million, why not increase it still more, say to twenty-two million, and award the additional stock to himself for his services in bringing the boys together and organizing the syndicate that would launch the new shares on the market? The idea began to get round that there was nothing so remunerative as promoting New Jersey holding companies. You could become a promoter without even learning much about the businesses you were combining; did not the Moore brothers, within the space of a few years, organize a combination of match companies, a combination of biscuit companies, and a combination of tin-plate companies, and profit preposterously thereby? What Dill had invented might well have been described as a device for the manufacture of millionaires.
Yet it was also a device for expanding and co-ordinating the industries of America to meet the conditions of a new day. A mature and united country offered a field for business operations on a national scale. And Dill’s invention made such operations abundantly possible.
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It was in the late summer of 1897 that Pierpont Morgan got his first real glimpse of the possibilities of combination in the great steel industry.
His life that year had been full of variety. Early in January he had given a million dollars to the Lying-in Hospital for a new building. Then he had taken a short sub-zero winter holiday at his friend W. West Durant’s camp in the Adirondacks, enjoying the place so much that he bought it the following year. In March he had promised to build a new rectory for the Church of the Holy Innocents at Highland Falls, of which he was senior warden (as he was of St. George’s in New York). On March 24 he had departed from Wall Street and No. 219 Madison Avenue for his annual trip abroad, sailing this time on the Teutonic with his daughter Louisa. While in England he had supervised the affairs of his London banking house, had prepared the way among British investors for the refunding of the New York Central mortgage debt, and had also found time to make heavy purchases of objects of art, for himself and for the Metropolitan Museum, in which he was now taking an expanding interest. And returning from Europe in June, he had divided his summer attention between financial affairs and his plans for the annual regatta of the New York Yacht Club, of which he had recently been elected commodore.
They were big plans, for the new commodore liked to do things in a spacious way. The yachts were to assemble at Glen Cove, Long Island, proceed to New London and then Newport and then Vineyard Haven, and then go on the longest jaunt in their history—a race round Cape Cod and all the way to Mt. Desert, Maine. Morgan offered gold and silver cups for the winners. And at the beginning of August he filled his 204-foot black Corsair to capacity with guests and set out upon the festivities of regatta week.
The Yacht Club had never had such a gala cruise. When on the afternoon of August 4, the schooners and sloops and steam yachts slipped by twos and threes into Newport Harbor past the gleaming white warships of the Atlantic squadron, there was “a constant coming and going of launches and gigs filled with gay people, sunburnt yachtsmen and pretty women, carriages and traps bringing down favored ones for dinners on the yachts, and other favored ones driven off for dinners on shore”; after dusk fell, the harbor glittered with moving lights and on the shore there was a grand show of fireworks. And when, days later, the yachts had finished their long deep-sea race at Mt. Desert Light (Vigilant leading, followed in turn by Colonia, Navahoe, Emerald, and the rest of the long procession), they sailed round the lovely island to Bar Harbor, where Commodore Morgan gave
a big dinner aboard the Corsair in honor of the winning captains; and again the night skies were bright with fireworks—furnished, of course, by the commodore himself, who had arranged to have a bargeload of them brought from New York.
It was not long after this regatta that he was waited upon in New York by Judge Elbert H. Gary, a Middle Westerner who had himself been vacationing that summer, in a somewhat less spectacular way—taking his first trip to England and dutifully doing the cultural round there, from Bunyan’s grave and Dickens’ “Old Curiosity Shop” to the British Museum and the Tower of London. Gary—whom Morgan had met before—had now come to New York on behalf of John Warne Gates, a rising manufacturer of barbed wire who had already, with Gary’s help, combined a number of steel and wire companies into one, and who now wanted to combine a great many more—to form an eighty-million-dollar American Steel & Wire Company.
Charles Coster had already examined the data which Gary had brought with him, and had reported that the project was worth his chief’s attention. Morgan talked with Gary, was favorably impressed, and gave his provisional OK to the ambitious project; and Gary and Gates thereupon went to work trying to line up the numerous manufacturers of wire for the great merger.
Morgan was dealing now with two quite different men. Gary, born and bred in an Illinois farm town, had become a leading Chicago lawyer, had been mayor of Wheaton, Illinois, had served two terms as a county judge, and had been president of the Chicago Bar Association; recently, as legal adviser for Gates, he had become an expert matchmaker among corporations. A shrewd, diplomatic man with the ability to frame a compromise which would satisfy both parties to a deal, Gary was aptly described by Herbert N. Casson as resembling, in appearance and manner, “a Methodist bishop—benign, suave, cordial, and earnest.” But there was nothing about Gary’s friend Gates that remotely resembled a bishop. Gates was a plunger, a gambler, a large, genial all-night poker player, once described by his secretary as a “great boy with an extraordinary money sense annexed.” He had made his start in business as a barbed-wire salesman; had gone to San Antonio, rented a tract of land there, built a corral of his barbed wire, and challenged the ranchers to find a steer that could get out of it; and had triumphantly accumulated so many orders for wire that he abandoned his employer, went to St. Louis, raised some capital, and went into the wire business himself to fill those orders. Now he had become a big shot in the wire industry and was ready to become a bigger one. They called him “Bet-a-Million” Gates; he was said to have spent a rainy afternoon on a way train betting with a companion on which of the raindrops coursing down the windowpane would reach the bottom first—at a thousand dollars a race.
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