The Myth of the Robber Barons
Page 15
Obviously textbooks can't include everything. Nor can their authors be expected to know everything. Textbook writers have a lot to cover and we can't expect them to have read much on Rockefeller. Unfortunately, they also don't seem to be very familiar with the books on Vanderbilt, Hill, Schwab and other entrepreneurs.8 None of the twenty texts that I looked at describe the federal aid to steamships and the competition between the subsidized lines and Vanderbilt. Similarly, none of the textbooks mentions Schwab's triumph over the government-run armor plant in West Virginia. The story of the Scrantons is also absent.
Some of the textbook authors do talk about Hill and his accomplishments. In fact, large sections of Bailey's, Garraty's, and Woodward's books tell us about the transcontinental railroads. But the problem of the government subsidies is often not well-reasoned. Bailey, for example, admits that Hill was "probably the greatest railroad builder of all." Bailey even displays a picture of all four transcontinentals and says that Hill's Great Northern was "the only one constructed without lavish federal subsidies." But from this, he does not consider the possibility that federal subsidies may not have been needed. Instead, he says, "Transcontinental railroad building was so costly and risky as to require government subsidies." As we have seen earlier, however, when the federal aid to railroads came, so did political entrepreneurship and corruption. Bailey describes some of this boondoggling and blames not the government, for making federal aid available, but the "grasping railroads" and "greedy corporations," for receiving it.9
Bailey later applauds the passing of the Sherman Anti-trust Act and the creation of the Interstate Commerce Commission.
Not until 1914 were the paper jaws of the Sherman Act fitted with reasonably sharp teeth. Until then, there was some question whether the government would control the trusts or the trusts the government. But the iron grip of monopolistic corporations was being threatened. A revolutionary new principle had been written into the law books by the Sherman Anti-Trust Act of 1890, as well as by the Interstate Commerce Act of 1887. Private greed must henceforth be subordinated to public need.10
As we have seen, however, the efficient Hill was the one who got hurt by these laws: The Hepburn Act, which strengthened the Interstate Commerce Commission, throttled his international railroad and shipping business; the Sherman Act was used to break up his Northern Securities Company.
Not all historians accept the modified robber-baron view dominant in the textbooks. Specialists in business history have been moving away from this view since the 1960s. Instead, many of them have adopted an interpretation called the "organizational view" of the rise of big business. Where the authors of these textbooks say that entrepreneurs cheated us, organizational historians say that entrepreneurs were not very significant. Business institutions, and their evolution, were more important than the men who ran them. To organizational historians, the rise of the corporation is the central event of the industrial revolution. The corporation—its layers of specialized bureaucracy, its centralization of power, and its thrust to control knowledge—evolved to meet the new challenges in marketing, producing, and distributing goods. In this view, of course, moral questions are not so relevant. The entrepreneur's strategy was almost predetermined by the structure of the industry and the peculiarities of vertical integration. The corporation was bigger than the entrepreneur.11
The organizational historians have contributed much to the writing of business history. Their amoral emphasis on the corporation is a refreshing change from the Robber Baron model. Yet, this points up a problem as well. Amoral organizational history has a deterministic quality to it. The structure of the corporation shapes the strategy of the business. In this setting, there is little room for entrepreneurship. Whatever happened had to happen. And if any entrepreneur had not done what he did, another would have come along and done roughly the same thing.
This point of view is perhaps most boldly stated by Robert Thomas:
Individual entrepreneurs, whether alone or as archetypes, don't matterl (Thomas's emphasis) And if indeed they do not matter, the reason, I suggest, is that the supply of entrepreneurs throughout American history, combined with institutions that permitted—indeed fostered— intense competition, was sufficiently elastic to reduce the importance of any particular individual. . . . This is not to argue that innovations don't matter, only that they do not come about as the product of individual genius but rather as the result of more general forces acting in the economy.12
Thomas illustrates his view in the following way:
Let us examine an analogy from track and field; a close race in the 100-yard dash has resulted in a winner in 9.6 seconds, second place goes to a man whose time is 9.7, and the remaining six runners are clustered below that time. Had the winner instead not been entered in the race and everyone merely moved up a place in the standings, I would argue that it would only make a marginal difference to the spectators. To be sure they would be poorer because they would have had to wait one-tenth of a second longer to determine the winner, but how significant a cost is that? That is precisely the entrepreneurial historian's task, to place the contributions of the entrepreneur within a marginal framework.13
It is only when we extend Thomas' logic that we see its flaws. For, in fact, small margins are frequently the crucial difference between success and failure, between genius and mediocrity. To continue the sports analogies, the difference between hitting the ball 311 feet and 312 feet to left field in Yankee stadium is probably the difference between a long out and a home run. The difference between a quarterback throwing a pass forty yards or forty-one yards may be the difference between a touchdown and an incompleted pass. When facing a ten-foot putt, any duffer can hit the ball nine or eleven feet; it takes a pro to consistently sink it.
In the same way small margins can reveal the differences between an entrepreneur, with his creative mind and innovative spirit, and a run-of-the-mill businessman. John D. Rockefeller dominated oil refining primarily by making a series of small cuts in cost. For example, he cut the drops of solder used to seal oil cans from forty to thirty-nine. This small reduction improved his competitive edge: he gained dominance over the whole industry because he was able to sell kerosene at less than eight cents a gallon.
A better illustration would be the small gradual cost-cutting that allowed America to capture foreign steel markets. When Andrew Carnegie entered steel production in 1872, England dominated world production and the price of steel was $56 per ton. By 1900, Carnegie Steel, headed by Charles Schwab, was manufacturing steel for $11.50 per ton—and outstripping the entire production of England. That allowed railroad entrepreneur James J. Hill to buy cheap American rails, ship them across the continent and over the ocean to Japan, and still outprice England. The point here is that America did not claim these markets by natural advantages: they had to be won in international competition by entrepreneurs with vision for an industry and ability to improve products bit by bit.14
It would be silly for someone to say that if Carnegie had not come along, someone else would have emerged to singlehandedly outproduce the country that had led the world in steel. Yet some organizational historians say exactly this. They are right in claiming that the rise of the corporation made some of Carnegie's success possible. But Carnegie was the only steel operator before Schwab to take full advantage of this rise. They are also right in saying that the environment (e. g. location and resources) plays some role in success. But Carnegie rose to the top before the opening of America's Mesabi iron range. American steel companies began outdistancing the British even when the Americans had to import some of their raw material from Cuba and Chile, manufacture it in Pennsylvania, and ship it across the country and over oceans to foreign markets.
This is not to denigrate the organizational view, but only to recognize its limitations. By focusing on the rise of the corporation, organizational historians have shown how corporate structure pervaded and helped to shape American economic and social life. However, the organizati
onal view, like all other interpretations, can't explain everything. Specifically, it tends to ignore or downgrade the significant and unique contributions that entrepreneurs made to American economic development.
The "organizational" and "robber baron" views both have some merit. The rise of the corporation did shape economic development in important ways. Also, we did have industrialists, such as Jay Gould and Henry Villard, who mulcted government money, erected shoddy enterprises, and ran them into the ground. What is missing are the builders who took the risks, overcame strong foreign competition, and pushed American industries to places of world leadership. These entrepreneurs are a major part of the story of American business.
Many historians know this and teach it, but the issue is often muddled because textbooks tend to lump the predators and political adventurers with the creators and builders. Therefore, the teaching ends up like this: "Entrepreneurs cut costs and made many contributions to American economic growth, but they also marred political life by bribing politicians, forming pools, and misusing government funds. Therefore, we needed the federal government to come in and regulate business."
Historians' misconceptions about entrepreneurs have led to problems in related areas as well. This is nowhere more apparent than in the studies of social mobility, which have become very popular among historians ever since the 1960s. Naturally, historians of social mobility have not operated in a vacuum. They have often been influenced by the prevailing historical theories denigrating the role of entrepreneurs and championing the role of government regulation. Put another way, if America's industrial entrepreneurs were a sordid group of replaceable people, then they could not have helped, and may have hindered, upward social mobility in cities throughout America. This is the implicit assumption in many social mobility studies conducted in the last generation.
Influenced by these prevailing views, many historians have argued two basic ideas about social mobility under American capitalism. First is the notion of low social mobility for manual laborers. In Poverty and Progress: Social Mobility in a Nineteenth Century City, Ste-phan Thernstrom finds that "the common workman who remained in Newburyport, [Massachusetts, from] 1850 to 1880 had only a slight chance of rising into a middle class occupation." As for the captains of industry at the opposite end of the spectrum, the second idea is that they usually got rich because they were born rich. This again suggests little mobility. For example, William Miller, recorded the social origins of 190 corporation presidents between 1900-1910. He found that almost 80 percent of them had business or white collar professionals as fathers. More recently, Edward Pessen has argued that 90 percent of the antebellum elite in New York, Philadelphia, and Boston was silk-stocking in origin.15
Fortunately, more careful research has discredited this negative view of social mobility. Newburyport, for example, was a stagnant town during the thirty years covered by Thernstrom's research. If new industries were rare and if opportunities were few, then, of course, we would expect social mobility to be low. Michael Weber sensed this and did a study of social mobility in Warren, Pennsylvania, an oil-producing boom town from 1880 to 1910. In Warren, population multiplied every decade as market entrepreneurs created a climate for opportunity and growth. Growth and opportunity seem to have gone together: Warren residents were much more upwardly mobile than those living in Thernstrom's Newburyport.16
Flaws are also apparent in William Miller's analysis of the social origins of America's corporate elite in 1910. Miller traced the background of 190 corporate presidents and board chairmen. But as diligent as his research was, he could not discover the social origins of 23 (12 percent) of these men. Miller draws no inference from this lack of evidence. If they left no record, however, the fathers were probably artisans at best, crooks at worst. Furthermore, 60 percent of Miller's industrialists came from farms or small towns (under 8,000 population). This almost certainly makes their fathers country merchants rather than urban capitalists. And the ascent from son of a country merchant to corporate president is indeed sensational. Miller's statistics do not "speak for themselves": they need careful thought and imaginative interpretation.
Newer studies suggest this too. For example, Herbert Gutman found that most of the successful locomotive, iron, and machinery manufacturers in Paterson, New Jersey, started work as apprentice craftsmen or iron workers. Also important is Bernard Saracheck's analysis of a group of entrepreneurs similar in size and prestige to Miller's sample. Saracheck went to "published biographies and company histories" to get a large list of entrepreneurs in a wide range of industries. His group was much more upwardly mobile than Miller's group. Almost one-half of Saracheck's entrepreneurs had fathers who were workers or farmers. Of course the business ties from father to son link many of Saracheck's men, too.17 But shouldn't this be expected? The key point here is that an open and growing system produces fluidity: manual laborers often became skilled workers or clerks and, for some, there was room at the top.
We still need to explain the contrasting results of Miller and Saracheck. Many of Miller's men were presidents of textile corporations or railroads, both of which were older and even declining fields by 1910. As economist Ralph Andreano has noted, Miller's sample neglected men from newer, more rapidly growing industries such as oil, beverages, and publishing—where Jews and immigrants often excelled.18 Saracheck included a wider range of businessmen than Miller did, and perhaps for this reason he got a more upwardly mobile group. Again we get the strong tie between rapid growth (this time in industries, not cities) and upward mobility. The work of Edward Pessen has supported the idea that it was easy for rich men and their children to keep their wealth and influence over time. After studying New York City, Philadelphia, Brooklyn, and Boston, Pessen concluded:
The rich with few exceptions had been born to wealth and comfort, owing their worldly success mostly to inheritance and family support. Instead of rising and falling at a mercurial rate, fortunes usually remained in the hands of their accumulators, whether in the long or the short. . . . Antebellum urban society [and, by implication, postbeflum urban society] was very much a class society.19
Is there any way to reconcile the stability of wealth found by Pessen and others20 with the fluid mobility of the Scranton elite? One problem, of course, is with technique and method. Defining who constituted a "leader," an "entrepreneur," or an "industrialist" varies from study to study. A bigger problem is the scope of the research of Pessen and others. In studying the continuity of wealth and talent in families over time, Pessen and others rarely look at all family members, only those who were successful. In fact, if my Scranton research is on target, the successful seem to be the exception, not the rule.
First glances can be deceptive, hi Scranton, for example, James Blair and brothers Thomas and George Dickson held three of the five directorships of the First National Bank in 1880. In 1869, James Linen, a nephew of Thomas and George Dickson, married Blair's daughter, Anna; in 1891, Linen became president of the bank for a twenty-two year stretch. To the casual observer, such an occurrence illustrates overpowering continuity of leadership. However, if one looks at all eight sons of Blair and the two Dicksons, a sharply etched picture of failure clearly emerges. Seven of their eight sons never darkened the door of a corporate boardroom; under the eighth, the Dickson Manufacturing Company disintegrated. Continuity from father to son may actually have been the undoing of the business. Furthermore, H. A. Coursen, like bank president James Linen, married a daughter of James Blair; yet Coursen remained a small retailer with no apparent economic influence. In the city of Scranton, at least, the scions of power were not the men their fathers were. Before historians can assert the continuity of economic leadership or family wealth, they must study all the children of the rich, not just the rare conspicuous successes.
A few historians have already been doing this. Lee Benson has studied the Philadelphia economic elite in the 1800s and finds it to be fluid with much upward and downward mobility at all levels. Fredric C. Jaher also f
inds the "upper strata" in several industrial cities to be very fluid. Stanley Lebergott has studied corporate leadership in America and cites a high rate of discontinuity from father to son.21 Naturally those born into wealth are, on the whole, more successful than those born into poverty. But to say this is merely to confirm what applies to all societies at all times. Yes, wealth counts; but so do talent, vision, initiative, and luck.
The classic question asked by those historians who study social stratification is this: "Who gets what and why?" We can see how many historians err when they assume that the rich got rich by being robber barons and stayed rich by keeping the corporation in the family and keeping newcomers out of their group as much as possible.
There is another realm of misunderstanding, too: some historians have implied that the economic pie was fixed. This is a weakness in many historical studies of social stratification. Edward Pessen, for example, tells how only one percent of the population held about forty percent of the wealth in many industrial cities in the 1840s. His research is careful, and he insists this share increased over time. Along similar lines, Gabriel Kolko has recorded the distribution of income from 1910 to 1959. He points out that the top one-tenth of Americans usually earned about thirty percent of the national income and that the lowest one-tenth consistently earned only about one percent.22 This may be true, but Pessen and Kolko also need to emphasize that the total amount of wealth in American society increased geometrically after 1820. This means that American workers improved their standard of living over time even though their percentage of the national income may not have increased. We must also remember that there was constant individual movement up and down the economic ladder. Therefore, the pattern of inequality may have persisted, but the categories of wealth-holding were still fluid in our open society. Finally, it needs to be stressed that one percent of the population often created not only their own wealth, but many of the opportunities that enabled others to acquire wealth.