Don't Know Much About History, Anniversary Edition: Everything You Need to Know About American History but Never Learned (Don't Know Much About®) (44 page)

Jay Gould (1836–92), one of Vanderbilt’s fiercest competitors, started with the Erie railroad line in New York, but was forced out after revelations of stock watering so blatant that officials in this “anything goes” era had to step in. Gould built a large empire with small lines in the Southwest, integrating them into a regional monopoly. In 1869, Gould and James Fisk, who had made millions selling shoddy blankets to the Union through Tammany Hall (see p. 273), attempted to manipulate the gold market, which was then governed by the traders in the Gold Room of the New York Stock Exchange rather than by the U.S. government, using an unwitting President Grant for their purposes. Slow to catch on to the scheme, President Grant stopped gold sales for a time, forcing up gold prices until he realized what was going on and released $4 million in gold, driving gold prices down on “Black Friday” (September 24, 1869), causing a stock market panic that set off a depression lasting several years. (Gould was later shot dead by a former business partner in a quarrel over a shared mistress.)

With corruption and monopoly at the core of the railroad systems, and the depression unleashed by the “Black Friday” panic, the railroads were ripe for disaster. By the 1890s, many of the lines were nearly bankrupt from intense competition and poor economic conditions. In stepped John Pierpont Morgan Sr. (1837–1913). (J. P. Morgan Sr. and Jr. are often confused, because of their names, appearance, and power.)

The son of an American banker who was based in London, Pierpont Morgan had not only avoided fighting in the Civil War, but had profited handsomely from it. Pierpont financed the purchase of some obsolete carbine rifles for $3.50 apiece. Then he refinanced the purchase of the same rifles to a second man who paid $11.50 each. The weapons were updated and resold for $22 each. In a three-month period, the government had repurchased its old, altered rifles at six times the original price, and Morgan had financed the whole deal. As Ron Chernow writes in his book
The House of Morgan
, “The unarguable point is that he saw the Civil War as an occasion for profit, not service. . . . Like other well-to-do young men, Pierpont paid a stand-in $300 to take his place when he was drafted after Gettysburg—a common, if inequitable practice that contributed to draft riots in July 1863.” Later during the war, when the gold market responded to war news with sharp ups and downs, Morgan tried to rig the market by shipping gold out of America.

By the turn of the century, Morgan had his hand in almost every major financial undertaking in America. His banking house was a millionaires’ club that loaned money to other banks. Through Morgan, a small group of men was able to take control of the railroads of America, and by 1900, Morgan owned half of America’s track mileage. His friends owned most of the rest, enabling them to set the railroad rates across the country.

In 1900 also, Morgan and steel king Andrew Carnegie (1835–1919) met at a party. Carnegie scribbled a figure, Morgan agreed, and U.S. Steel was born, the first billion-dollar corporation. Unlike Morgan, Carnegie embodied at least a portion of the rags-to-riches myth. Born in Scotland, he immigrated to the United States with his family in 1848, and first worked in a cotton factory. His rise to power was mythic, going from telegraph clerk to secretary to the head of the Pennsylvania Railroad, and later becoming a Wall Street broker selling railroad commissions. When oil was found on a property he owned, Carnegie moved into the oil industry and later into iron and steel. Using an improved steel production technique called the Bessemer method, which he had seen in England, Carnegie revolutionized steel production in the United States, and with ruthless efficiency, he set out to control the American steel market.

Carnegie and one of his managers, Henry Clay Frick, were violently anti-union. In 1892, while Carnegie was in Scotland, Frick provoked a bloody strike when he demanded a pay cut and an end to the union at his Homestead plant in Pennsylvania. When the workers refused to accept Frick’s demands, he fired the entire workforce, surrounded the plant with barbed wire, and hired Pinkerton guards to protect the strikebreakers he brought in. Two barges carrying the Pinkerton guards were met by thousands of strikers and their friends and families, who kept the guards from landing, in a battle that left twenty strikers dead. Stiffening his back, Frick called on the state governor to send in 7,000 militiamen to protect the replacement workers. During the four-month confrontation, a young anarchist named Alexander Berkman—the lover of “Red Emma” Goldman (1869–1940), the most notorious anarchist leader of the day—shot Frick in the stomach, but only wounded him, and he was back in his office that day.

After the militia arrived, strike leaders were charged with murder, but all were acquitted. The plant kept producing steel with workers shipped in by railroad, and other Carnegie plants failed to join the Homestead strike, a union defeat that kept labor unorganized in Carnegie plants for years to come.

Another of the era’s “giants” was John D. Rockefeller (1839–1937), a bookkeeper by training who was once hired to investigate the investment promise of oil. Rockefeller told his employers it had “no future” and then invested in it himself, buying his first refinery in 1862. With a group of partners he formed the South Improvement Company, a company so corrupt it was forced out of business. Rockefeller responded by forming Standard Oil of Cleveland in 1870. Standard bought off whole legislatures, made secret deals with railroads to obtain favorable rates, and weakened rivals through bribery and sabotage until Rockefeller could buy them out with Standard Oil stock. By 1879, Standard controlled anywhere from 90 to 98 percent of the nation’s refining capacity at precisely the moment when oil’s value to an industrial society was becoming apparent.

Twenty years later, Standard Oil had been transformed into a “holding company” with diversified interests, including the Chase Manhattan Bank. The key to this diversification had been the invention of the “trust” by one of Rockefeller’s attorneys, Samuel C. T. Dodd, who was looking for ways around state laws governing corporations. Standard Oil, for instance, was an Ohio corporation prohibited from owning plants in other states or holding stock in out-of-state corporations. Dodd’s solution was to set up a nine-man board of trustees. Instead of a corporation issuing stock, Standard Oil became a “trust” issuing “trust certificates.” Through this new device, Rockefeller gobbled up the entire industry without worrying about breaking corporate antimonopoly laws. The idea was soon copied in other industries, and by the early 1890s, more than 5,000 separate companies had been organized into 300 trusts. Morgan’s railroad trust, for instance, owned all but 40,000 miles of track in America.

The trusts and the enormous monopolies kept prices artificially high, prevented competition, and set wages scandalously low. They were obviously not popular among working Americans. Standard Oil became the most hated company in America. Many of these monopolies had been built through graft and government subsidies, on the backs of poorly paid workers whose attempts to organize were met with deadly force. If any vague hope for reform rested in the presidency, it was a false hope.

For a generation, beginning with Andrew Johnson’s abbreviated term and the Grant years, the president almost seemed superfluous. In 1876, Rutherford B. Hayes (1822–93) became president because of a fraudulent election that stole the presidency from Democrat Samuel J. Tilden, resulting in a compromise with Southern Democrats that killed congressional Reconstruction and any hope for civil rights in the South. When Grover Cleveland (1837–1908) was elected in 1884, he named William Whitney his secretary of the navy. Whitney had married into the Standard Oil fortune and set out to build a “steel navy” by buying Carnegie steel at inflated prices.

Attempts at “reform” were mostly dogs without much bark or bite, intended to mollify a public sick of corruption. The Interstate Commerce Commission, established during Cleveland’s administration to regulate railroads, was a charade for public consumption. Cleveland’s successor, Benjamin Harrison (1833–1901), was a former railroad attorney who had broken railroad strikes as a soldier. During his tenure, as a reaction to public sentiment, Congress passed the Sherman Anti-Trust Act of 1890, named for Senator John Sherman, brother of General William Tecumseh Sherman, for the purpose of protecting trade against “unlawful restraints.”

It was a weak law made even more puny when the Supreme Court ruled in 1895 that a company owning 98 percent of the nation’s sugar-refining capacity was a manufacturing monopoly, not one of commerce, and was therefore immune to the law. During an extremely conservative, pro-business period, the high court also ruled that antitrust laws could be used against railway strikers who were “restraining trade.” This Alice in Wonderland Court took its perverse interpretations another step when it ruled that the Fourteenth Amendment, passed to guarantee the rights of freed slaves, was a protection for corporations, which the court said were “persons deserving the law’s due process.”

Were any honest fortunes made? Of course. As the nation spread west—at the expense largely of the vanishing Indian—incredible opportunity opened up for Americans—many of them newly arrived immigrants or their children—to prosper. But in the broad historical sweep, it is safe to say that the era—and the nation—belonged to a small group of wealthy men, in other words, a plutocracy. As conservative historian Kevin Phillips recently wrote in
Wealth and Democracy
, “The measure of the Gilded Age, beginning in the 1870s, was that by the 1890s the goliaths of U.S. business, railroading, and finance had gained de facto control over many state legislatures, the federal judiciary, and the U.S. Senate.”

A
MERICAN
V
OICES

From
ANDREW CARNEGIE’S
article “Wealth” (published in the
North American Review,
1890):

The Socialist or Anarchist who seeks to overturn present conditions is to be regarded as attacking the foundation upon which civilization itself rests, for civilization took its start from the day when the capable, industrious workman said to his incompetent and lazy fellow, “If thou dost not sow, thou shalt not reap,” and thus ended primitive Communism by separating the drones from the bees. One who studies this subject will soon be brought face to face with the conclusion that upon the sacredness of property civilization itself depends—the right of the laborer to his hundred dollars in the savings bank, and equally the legal right of the millionaire to his millions. . . . Not evil, but good, has come to the race from the accumulation of wealth by those who have had the ability and energy to produce it.

Of what was William Tweed boss?

In New York, quite a bit of energy and ambition were directed toward acquiring wealth. But much of it was being acquired through systematic corruption on a grand scale. The epidemic of greed didn’t begin or end with Washington and the great captains of industry. It extended to the local level, perhaps most notoriously in New York, the seat of power of William Marcy Tweed (1823–78), the infamous “boss” of Tammany Hall. The word Tammany was a corruption of the name Tamanend, who was a Delaware Indian chief of the early colonial period said to be “endowed with wisdom, virtue, prudence, charity.” These were qualities in conspicuously short supply in the club named for the chief.

Tammany began as one of many fraternal societies that adopted Indian names in post-Revolution days. Unlike the Society of Cincinnatus, which was reserved for Washington’s officers, groups like Tammany were for the common soldier, and their political value soon became apparent to clever power brokers like Aaron Burr and Martin Van Buren. By the time of the Civil War, the clubs not only had political pull, but had become quite corrupt, serving as a conduit for government contracts to crooked suppliers who sold the Union shoddy blankets and maggot-ridden meat.

A mechanic by trade, Tweed rose to his greatest heights of power ostensibly as chief of the Department of Public Works in New York City. But that small title gave no sense of the grip he possessed on almost every facet of city life. As the leader of Tammany Hall, the New York City Democratic clubhouse, he built a simple but effective means of control. In exchange for the votes of the waves of immigrants, factory workers, disenchanted homesteaders returning to the city, and even their dead relatives, Tweed and his ring arranged small “favors”—a job, an insurance settlement. With these votes, Tweed could maneuver favorable bills through the New York legislature at will. Rich in electoral votes, New York also wielded immense political clout in presidential politics, and Tweed used this power as well. Fraudulent contracts, patronage in the highest offices, kickbacks, false vouchers—all the usual tools of corruption were raised to an art form by Tweed’s Tammany Club.

Tweed’s most notable opponent was the cartoonist Thomas Nast, who once received an offer of $500,000 from Tweed not to run a particular cartoon. Tweed could well afford the bribe; conservative estimates of his rape of New York’s treasury ran upwards of $30 million, derived from every deal in New York, from the building of the Brooklyn Bridge to the sale of the land for Central Park.

It was only when a Tweed associate felt shortchanged that Tweed got into trouble. In 1872, Samuel Tilden (1814–80), a reform Democrat and future governor of New York who later lost the White House in an election scandal that stripped him of the electoral votes he rightfully deserved, finally won a conviction of Tweed. Sentenced to twelve years in jail, the boss escaped to Cuba and then to Spain, only to be returned by Spanish authorities despite the lack of an extradition treaty between the two countries. While in jail, Tweed made a full and damning confession, expecting immunity. But he died in prison, the only member of the ring to be convicted.

Tammany’s shenanigans did not end with the breakup of the Tweed ring. Powerful “sachems” continued their hold on New York’s legislature into the twentieth century. When Theodore Roosevelt entered the New York State legislature in the 1880s, Tammany’s influence was still prevalent in state politics, and the club held the key votes that controlled almost all legislation.