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

by Charles R. Morris

  Supply Shock?

  The discussion of the greenback is drawn mostly from Irwin Unger, The Greenback Era, and Milton Friedman and Anna Jacobson Schwartz, A Monetary History. The Chronicle quotes are from the issues of May 23, 1874, and March 27, 1875. See Michael D. Bordo and Angela Redish, “Is Deflation Depressing?,” which argues the case for a “supply shock.” For the development of the bill of lading and car accounting, Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass.: The Belknap Press of Harvard University Press, 1977), pp. 128–29. The “Prices,” “overwhelming,” and “the wails” quotes are from A. E. Musson, “The Great Depression in Britain, 1873–1896: A Reappraisal,” Journal of Economic History XIX (June 1959), 199–228, at 199–200. S. B. Saul, The Myth of the Great Depression, 1873–1896 (Basingstoke, Hampshire, U.K.: Macmillan, 1985), is a book-length treatment of the same issues that broadly agrees with Musson.

  The Birth of the Factory Farm

  My main source for the bonanza farm is Hiram A. Drache, The Day of the Bonanza: A History of Bonanza Farming in the Red River Valley of the North (Fargo, N.D.: North Dakota Institute for Regional Studies, 1964). Other useful material includes Jeremy Atack, Fred Bateman, and William N. Parker, “The Farm, The Farmer, and the Market,” in Stanley Engerman and Robert Gallman, eds., The Cambridge Economic History of the United States, Vol. II, The Long Nineteenth Century (Cambridge, U.K.: Cambridge University Press, 2000), pp. 245–84; for a shorter version that covers much of the same material, see Jeremy Atack and Peter Passell, A New Economic View of American History (New York: W. W. Norton, 1994), pp. 402–26. For details on particular farms, there is an assembly of materials at www.fargo-history.com. Farm operations are drawn from Hiram A. Drache, The Day of the Bonanza, pp. 91–120; for productivity data, see Jeremy Atack, et al., “The Farm,” pp. 258–63; Jeremy Atack and Peter Passell, A New Economic View, pp. 280–81. For the growth of grain exchanges, see Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass.: The Belknap Press of Harvard University Press, 1977), pp. 209–15. The Kansas Board of Trade, one of the earliest wheat exchanges, also has useful historical material available on its Web site.

  The Disassembly Line

  My main sources for ranching and meatpacking are Jimmy M. Skaggs, Prime Cut: Livestock Raising and Meatpacking in the United States, 1607–1983 (College Station, Tex.: Texas A&M University Press, 1983), pp. 50–89 (ranching) and 90–129 (meatpacking); and Robert Adudell and Louis Cain, “Location and Collusion in the Meatpacking Industry,” in Louis P. Cain and Paul J. Uselding, eds., Business Enterprise and Economic Change: Essays in Honor of Harold F. Williamson (Kent, Ohio: Kent State University Press, 1973), pp. 85–117. Both sources are data rich and substantially in agreement. Adudell and Cain make some interesting competitive points. Local butchers could compete so long as they were within 100–300 miles of their beef supply—i.e., lower transportation costs made up for the lack of scale. On the other hand, the authors argue that the 1890s meatpacking plants were too big. Economies of scale flattened out as production hit about one hundred carcasses a day. (Packing houses still had to work one steer at a time, whereas steel plants could install ever bigger furnaces or rolling mills.) Rational behavior would have led to much more decentralized plants to capture transportation economies earlier in the chain. Adudell and Cain suggest that the rampant collusion that characterized the industry from the mid-1880s on was necessary to protect outsized packing house investments. The industrialists’ mantra at this time was that bigger is always better—Andrew Carnegie was among the most vocal on this point—but in fact the appropriate scale depends on the process being rationalized. The extractive and infrastructure industries, like oil and steel, just happened to be ones where the appropriate scale was very large. The “Yesterday was” quote is from Robert W. Jackson, Rails across the Mississippi: A History of the St. Louis Bridge (Urbana, Ill.: University of Illinois Press, 2001), pp. 152–53. For Jay Gould and southwestern railroads, see Julius Grodinsky, Jay Gould: His Business Career, 1867–1892, The Expansion of America’s Railroad Empire (Philadelphia, Pa.: University of Pennsylvania Press, 1957), pp. 252–67.

  The brief section exploring the discord between contemporary perception and the generally accepted economic data is obviously speculative, but would be consistent with episodes of rapid change in our own time, especially in rapidly developing countries. Frank Norris’s novels about the grain trade, The Octopus (1901) and The Pit (1903), treat the market almost as a vast natural storm system with no human elements. The American ideology of always getting ahead and moving on probably made the transition to modernity far more compressed and less painful than in many other countries. For the Grangers, I used Solon Justus Buck, The Granger Movement: A Study of Agricultural Organization and Its Political, Economic, and Social Manifestations (Lincoln, Neb.: University of Nebraska Press, 1963; reprint of 1913 Harvard University Press edition). The “Granger Laws” are at the center of an important line of Supreme Court cases, upholding the right of states to regulate businesses infused with a “public interest” even in areas where the federal government had a superior regulatory claim. Munn v. Illinois, 94 U.S. 113 (1877) is the leading case. It upheld state grain elevator regulation, which was a harder case than railroads, since they were not on public land. For the higher cost of short-term rail routes, Stanley Lebergott, The Americans: An Economic Record (New York: Norton, 1984), pp. 290–91. On foreclosure rate, ibid., p. 306. In one instance where there are good records—for the Davenport banking family covering 1869–1900—there were foreclosures on only nineteen out of 1,380 loans; also see Jeremy Atack and Peter Passell, A New Economic View, pp. 412–14.

  5. Mega-Machine

  For a fine description of the Philadelphia Exposition, see William Dean Howells, “A Sennight of the Centennial,” The Atlantic Monthly (July 1876), 92–107, and also Donald E. Sutherland, The Expansion of Everyday Life—1860–1876 (Fayette, Ark.: University of Arkansas Press, 2000), pp. 263–70. The quote “Dear Mother” is in Sutherland, p. 264. The Howells quote is from op. cit., p. 96. For George Corliss and his engine, see Louis C. Hunter, A History of Industrial Power in the United States, 1780–1930, Vol. II: Steam Power (Charlottesville, Va.: The University Press of Virginia, 1985), pp. 251–300. There is an extended note on the Exposition engine itself on p. 293. Corliss may have been the greatest of the American contributors to steam engine technology. The Exposition engine, despite reports to the contrary, was not the largest ever built, but was close. When the Exposition closed, the engine was purchased by the Pullman Company, and powered one of its car factories until it was replaced by a turbine in 1910. For an assessment of railroads as an economic driver, see Albert Fishlow, “Internal Transportation in the Nineteenth and Early Twentieth Century,” in Stanley Engerman and Robert Gallman, eds., The Cambridge Economic History of the United States, Vol. II, The Long Nineteenth Century (Cambridge, U.K.: Cambridge University Press, 2000), pp. 543–642, especially pp. 609–23. This essay pulls together a great deal of Fishlow’s previous work, and is for now the last word on a sometimes excessively controversial subject.

  The Edgar Thomson Works

  The description of the ET works is primarily from A. L. Holley and Lenox Smith, “American Iron and Steel Works, No. XXI, The Works of the Edgar Thomson Steel Company (Limited),” Engineer (London), April 19, 1878, 295–301; April 26, 1878, 313–17; May 17, 1878, 381–84. (The quotes are from 313, 383, and 295.) I also used Joseph Frazier Wall, Andrew Carnegie (Pittsburgh, Pa.: University of Pittsburgh Press, 1989), pp. 309–22 and Thomas J. Misa, A Nation of Steel: The Making of Modern America, 1865–1925 (Baltimore, Md.: Johns Hopkins University Press, 1995), pp. 23–28. The “English expert” is Frank Popplewell, Some Modern Conditions and Recent Developments in Iron and Steel Production in America (Manchester, U.K.: University Press, 1906), in which he specified six characteristically “American” features, one of which, the fif
th, applies to the Siemens open-hearth technology, not the ET’s Bessemer process. They are: “(1) the close combination between pig-iron and steel smelting plants, (2) the employment in Bessemer converters and open-hearth furnaces of molten pig-iron direct from the blast-furnace, (3) the equalization of composition of the products of a number of furnaces effected by means of a pig-iron mixer, (4) ingot-casting on cars, (5) the employment of mechanical charging-machines for open-hearth furnaces, and (6) the large replacement of hand labour by machinery in rolling-mills.” Items 4 and 6 were in place from the start, and the integration of iron and steel manufacture with the ET’s own blast furnaces by 1879. The blast furnaces were linked directly to the converter by 1882, with the final step in a completely continuous process, the “Jones mixer,” in place in 1887, Misa, op. cit., pp. 27–28, and Peter Temin, Iron and Steel in Nineteenth-Century America: An Economic Inquiry (Cambridge, Mass.: The MIT Press, 1964), p. 157. The quote “Where” is from Wall, op. cit., p. 320. The ET’s profits are in ACLC, vol. 73. They were 22.9 percent (on $750,000 capitalization) in 1876; 19 percent (on $1 million capitalization) in 1877; and 29 percent (on $1.034 million average capitalization) in 1878. The capitalization was raised from $1 million to $1.25 million on November 11, 1878 (ACLC, Vol. 4), which I average over the year.

  Steel Is King

  In addition to the material cited for the previous section, D.L. Burn, The Economic History of Steelmaking, 1867–1939: A Study in Competition (Cambridge, U.K.: Cambridge University Press, 1940) offers an excellent lens on the American industry from a British perspective, with much detailed information on comparative practices. The technology development narrative is drawn primarily from Thomas Misa, Nation of Steel, and Peter Temin, Iron and Steel. The “onions” quote is from Misa, p. 176. The definitional controversy, in its first phase, was about whether carbon contents by themselves were determinative of steel or nonsteel or whether process steps were also required—especially very high heats to ensure a more homogeneous product than typical low-carbon irons. Increased specificity of chemistry and, over time, the replacement of chemistry-based definitions with ones based on molecular structures gradually achieved consensus. Misa, pp. 31–39, has a good discussion. My appreciation of Holley’s contribution to the American industry was greatly deepened by a collection of his reports and speeches in HSWP, Box 36B. For the initial reception of “American practice” in Great Britain, see D. L. Burn, Economic History, pp. 47–51. The “subsidy” to the Vulcan works may have been a payment to defer entering the rail business; for a discussion, see Peter Temin, Iron and Steel, pp. 176–78.

  King of Steel

  Unless otherwise noted, the narrative follows Joseph Frazier Wall, Andrew Carnegie. Carnegie’s quote “A man who” is from ibid., p. 319. His 1873 balance sheet is from HSWP Box 20, Folder 2. The cash balance showed only $4,708 at the end of the year, plus $66,327 in bills receivable. More than half of the assets were in Carnegie company shares and other interests, which were not liquid. The companies had also borrowed heavily to finance the Lucy furnace, and Carnegie was further strained by some foolish speculation by Andrew Kloman. Kloman had not realized that by investing in a mining partnership, he had placed his Carnegie, Kloman shares within reach of the partnership’s creditors. Carnegie had to intervene to prevent the shares falling into outside hands. The story of the Bessemer “Fathers” meeting was actually told in 1928, or fifty-three years after the event. The quote “I shall” is from Wall, op. cit., p. 331. There is no way Carnegie could have produced 19 percent of the industry’s output from the outset. Steel production in 1876 was 533,000 tons; 19 percent would have been 101,000 tons. Carnegie probably produced about half that much, and almost all in rails. A 19 percent share of just steel rails would have required about 70,000 tons of rails, or about 40 percent more than his actual rail production. Production data from Peter Temin, Iron and Steel, “Appendix C: Statistics of Iron and Steel,” pp. 264–85.

  For the structural steel handbooks, Thomas J. Misa, Nation of Steel, pp. 71–74. The quote “When demand” is from D. L. Burn, Economic History, p. 283; “[e]xcepting” from A. L. Holley and Lenox Smith, “American Iron and Steel Works,” April 26, 1878, p. 313. Captain Jones’s letters are in HSWP, Box 71, Folder 1; the dates of the letters quoted are May 6, 1878, May 7, 1881, and November 2, 1883. The reports referenced are in ibid., Box 72, Folder 5. The “very sad” and “Two courses” quotes are from Wall, op. cit., pp. 351, 349. For “hard-driving” see Peter Temin, Iron and Steel, pp. 160–63. The Pennsylvania order is noted in “The Pennsylvania Railroad, No. LVIII, Maintenance of Way,” Engineer (February 8, 1878), 100; the item also noted that 79 percent of the Pennsylvania’s rails were steel by that point. The Garrett negotiation is in Steven W. Usselman, Regulating Railroad Innovation: Business, Technology, and Politics in America, 1840–1920 (New York: Cambridge University Press, 2002), p. 89.

  Gould, Back from the Grave

  The account of Gould’s involvement with the Union Pacific triangulates those in Maury Klein, The Life and Legend of Jay Gould (Baltimore, Md.: Johns Hopkins University Press, 1986); Maury Klein, Union Pacific (New York: Doubleday, 1987, vol.1); and Julius Grodinsky, Jay Gould: His Business Career, 1867–1892, The Expansion of America’s Railroad Empire (Philadelphia, Pa.: University of Pennsylvania Press, 1957). The quotes “steal” and “the elevation” are from Maury Klein, Union Pacific, p. 308.

  For the Crédit Mobilier scandal, besides the sources above, I used Robert W. Fogel, The Union Pacific Railroad: A Case in Premature Enterprise (Baltimore, Md.: Johns Hopkins University Press, 1960) and J. B. Crawford, The Credit Mobilier of America: Its Origin and History (Westport, Conn.: Greenwood Press, 1969; reprint of 1880 edition). There is a careful account of Garfield’s involvement in Allan Peskin, Garfield: A Biography (Kent, Ohio: Kent State University Press, 1978), pp. 359–62, 412–13. Oakes Ames was clearly financing purchases of UP stock in a rising market for selected congressmen. They didn’t put up any money; he just entered the supposed purchases in his book and later on wrote them a check for their profits. Garfield rather lamely said he thought his check was a loan. But while Garfield had the good sense to make an excuse, however lame, Colfax embarrassed everyone by insisting he had behaved properly, so he was punished more severely. Ames said that the verdict reminded him of “the man in Massachusetts who committed adultery and the jury brought in a verdict that he was guilty as the devil but that the woman was innocent as an angel” (Peskin, ibid., p. 362).

  The quote “The surest” is from Maury Klein, Life and Legend, p. 141; “magical wand” from Julius Grodinsky, Jay Gould, p. 129; and “will play us” from Klein, Life and Legend, p. 145. The improvement in the UP’s 1874 and 1875 earnings are from reports in the Commercial and Financial Chronicle, June 6, 1874, and October 2, 1875. (The road’s fiscal year ended in June.) The best account I found of Tom Scott’s role in the 1877 political crisis is in C. Vann Woodward, Reunion and Reaction: The Compromise of 1877 and the End of Reconstruction (Boston: Little, Brown and Company, 1966), see especially pp. 101–22, but the story is marbled throughout the entire book, since Scott played such a central role in the Southern strategy. There is a shorter account in T. Lloyd Benson and Trina Rossman, “Re-Assessing Tom Scott, the ‘Railroad Prince,’” Paper Presented at Mid-America Conference on History, September 16 1995 (available at http://alpha.furman.edu/~benson/col-tom.html).

  Gould (Almost) Conquers All

  The quotes “But straightaway,” “The yacht,” “I am so,” and “I never” are from Maury Klein, Life and Legend, pp. 196, 307, and 258. The first Times quote is from 1875, which suggests how fast Gould’s reputation recovered after his departure from the Erie. For Fink, see Alfred D. Chandler, Jr., The Visible Hand: The Managerial Revolution in American Business (Cambridge, Mass.: Harvard University Press, 1977), pp. 116–17 and 138–48. The “hand over” quote is from Julius Grodinsky, Jay Gould, p. 281; Klein’s “was no” is from his Life and Legend, p. 382. The Schumpeter quote is fr
om Nathan Rosenberg, Exploring the Black Box: Technology, Economics, and History (New York: Cambridge University Press, 1994), p. 66. “The brokers” is from Grodinsky, op. cit., p. 326. For the early profitability of eastern railroads (in footnote) see Albert Fishlow, American Railroads and the Transformation of the Ante-bellum Economy (Cambridge, Mass.: Harvard University Press, 1965). For all practical purposes, save for a few short, isolated lines, there were no railroads west of the Mississippi before the Civil War. Perkins’s “economical maintenance” is from Steven W. Usselman, Regulating Railroad Innovation, p. 182.

  Rockefeller’s Machine

  As in previous chapters, the narrative of the Standard triangulates the accounts in Ron Chernow, Titan: The Life of John D. Rockefeller, Sr. (New York: Random House, 1998); Allan Nevins, JohnD. Rockefeller: The Heroic Age of American Enterprise (New York: Charles Scribner’s Sons, 1940, 2 vols.); and Ida M. Tarbell, The History of the Standard Oil Company (New York: Macmillan, 1925, 2 vols.). The Garland and Stowe comments on kerosene lighting are from Harold F. Williamson and Arnold R. Daum, The American Petroleum Industry: Vol. I, The Age of Illumination, 1859–1899 (Evanston, Ill.: Northwestern University Press, 1959), p. 339. Rock-efeller’s statements of personal wealth are in RAC, Series F, “Trial Balances, 1875 and 1897” and “Trial Balances, 1890–1915.” The quote “from 90” is in Nevins, op. cit., I:486. The Archbold letters are in RAC, Series B; all the letters were written between December 1877 and February 1878. The A. J. Cassatt quotes are from U.S. House of Representatives, Investigation of Certain Trusts: Report in Relation to the Sugar Trust and Standard Oil Trust by the Committee on Manufactures (Washington, D.C.: U.S. Government Printing Office, 1889), pp. 178–79, 177. For the friction over storage after the Bradford production boom, the best detail is in Williamson, op. cit., pp. 189–94 and 383–90; and for Tidewater and the implications of long-distance pipelines ibid., pp. 430–62.