In Meat We Trust (9 page)

It’s not surprising that the cattle bubble went the way of all such bubbles. If nothing else, the western plains could not support the burden. In 1870, a steer could survive on five acres of land; by 1880, thanks to overgrazing and grass depletion, those same animals needed fifty to ninety acres. President Grover Cleveland compounded the problem in 1885 when he ordered livestock owners to remove more than two hundred thousand head of cattle from federal lands in the Indian Territory (now Oklahoma). There were only two directions the herds could go: east to the slaughterhouses, or west to a range already teetering on the brink of disaster. Thousands poured into the stockyards in Kansas City, Chicago, and elsewhere, scrawny range cattle that provided cheap raw materials for beef canners and packers alike. Thousands more flooded the overcrowded plains. Then came the winters of 1885–86 and 1886–87, with frigid temperatures and a string of brutal blizzards. Tens of thousands of cattle perished, a cruel rebuttal to the notion that they could fend for themselves and that ranching consisted of a roundup romp and a jaunt to the bank. Cattle companies large and small collapsed. The disaster coincided with, and exacerbated, one of the periodic economic slumps that punctuated an already unpredictable economy, and bankers began calling loans. Small ranchers and corporate cowboys alike stared foreclosure and bankruptcy in the face and sold their livestock for whatever price they could get. It was not much. “I have tried everybody,”
an agent for a British company reported to his superiors. “I tried every possible means I could to cause a sale by personal favor, commission, etc. . . . There are simply no buyers.” The stockyards at Chicago and Kansas City could not “contain the enormous car-loads
of . . . cattle . . . pouring in from all directions,” reported another observer. “The thing has been overdone, the market is glutted and collapse is imminent.” The disaster enraged a veteran cattle buyer from south Texas, who denounced the invasion of “men who did not know
what they were doing,” representing as they did “large capitalists” rather than knowledgeable livestock producers. “I do not think
I ever saw a business that was as prosperous . . . that went down as quick and fast, with no confidence left in it at all.” From Iowa to Texas, livestock producers watched as prices plunged and their livelihoods disintegrated.

The reasons behind the collapse are obvious to us now—overgrazing, incompetence, greed, weather—but in the volatile economy of the 1880s, those whose fortunes vanished were convinced that someone or some group must have manipulated the market and pushed cattle prices into an abyss. Blame focused on the dressed-beef men, and rumors of a “Big Three” and a “Big Four” swirled about the stockyards and drifted through the smoky bars that lined the streets of Dodge City and other cowtowns. One man spoke for many when he denounced Swift, Armour, and Hammond as a rapacious “monopoly”
and a “dangerous power”: “They antagonize the railroads, the butchers, the stock yards, the cattle raisers, and the beef consumers; they seem to want the whole earth.” A Texan complained that the upstart packers constituted a “dressed beef syndicate”
that colluded to control cattle prices. “A man from the range arrives with a train load of beef on the hoof at Kansas City,” he told a reporter, and receives an offer from a member of the “combination.” “The offer is not a good one,” so the seller ships the stock to Chicago—and discovers that no one there will offer more. Why? Because the meatpacker’s Kansas City agent telegraphed the Chicago office, warning the boss that the rancher had not cooperated. The packers made “an example” of him by offering a price lower than the one in Kansas City. The Texan calculated that the dressed-beef packers earned $15 profit on each head. “We [ranchers] think that if the slaughterers made a profit of from $2 to $5 on every steer they ought to be well satisfied, and so would we be, and the consumers, too.”

Swift and Armour likely howled at the idea of earning that much on cattle or anything else. They knew what the public did not: on its own, dressed beef returned almost no profit thanks to the layers of expense that stood between the live animal and the shipped carcass. When packers bid on livestock in Kansas City or Chicago, they were paying for a beast that had already moved hundreds of miles and devoured money in the form of water, feed, and care, all of which figured into the price on the hoof. Once purchased, the animal had to be fed and watered until it was time for slaughter. The finished carcass was stored in a refrigerator (that contained tons of expensive ice) before being loaded onto a railcar (also filled with ice) for shipment east, where it was unloaded and stored again. All of it necessitated owning and maintaining an enormous infrastructure of railcars, warehouses, and ice farms as well as office space and hundreds of employees. Every step devoured money, and when the final sale was made, it had to be at a price customers would pay. If not, the carcasses rotted. Assuming all the relevant variables—including weather, the size of the corn crop, and the health of the overall economy—aligned, at best sides of beef returned 1 percent profit and usually less. In bad times—if the corn crop failed, if inflation forced consumers to choose between beef and bread—the packers lost money. That slender line between profit and loss, and meat’s perishable nature, explains why the dressed-beef kings obsessed over the three factors they could control: efficiency, volume, and byproducts.

Swift, Armour, Hammond, and a handful of other beef packers understood that they had to slaughter huge numbers of cattle in order to keep their plants operating at capacity, and that spurred them to outbid everyone else at the stockyards. They needed every animal they could lay their hands on. Huge numbers of cattle translated into mountains of waste in the form of blood, bone, hide, and marrow that could be converted into money. Hides, for example, could be sold almost anywhere in the world for a profit. So, too, “oleomargarine,” an animal-fat-based butter substitute the packers developed in the 1880s and shipped around the world. Byproducts subsidized beef.

But neither demand nor volume nor byproducts could keep that infrastructure afloat, which is why the beef packers used other, less obvious tools in their search for profit. Simeon Armour, Phil’s brother and manager of the company’s Kansas City operations, explained the problem and the solution at which the packers had arrived: Suppose a dealer arrived at the stockyard with a herd of cattle, only half of which suited Armour’s needs on that particular day. The dealer, however, insisted on selling the entire herd as a whole. “I want part
of those cattle,” Simeon Armour explained, “and perhaps my neighboring packer wants part of them. I may go to that [packer] and say ‘Here, there is no use of our bidding against each other; I will take half of them and you half.’” In the meatpackers’ minds, the activity was less collusion than justifiable necessity: beef was perishable and supplies and demand fickle. Why not divvy up supply to match demand? But there the “cooperation” stopped, Armour added. “We are the biggest fighters, and have the biggest time in cutting each other’s throats of any class of business that is done in America.” In markets where the brothers competed head to head, Simeon groused, “we are cutting each other’s throat all the time in the way of competition. I am sorry to see it.” As for setting prices, that, too, was the child of necessity: in the 1880s, Swift, the Armours, and a few others competed most directly against each other in the urban Northeast, but in those early years, there was not yet enough business for all of them, or, more accurately, not enough business to pay for the investment each had made in plant, warehouses, and railroad cars. The men recognized that until they could build up their operations in other parts of the country (as Armour was doing in the Deep South), it made sense to cooperate, in this case by setting prices for meat sold in northeastern cities.

The packers were not alone in cooperating in order to manage markets and avoid ruinous competition. “Combinations” and trusts spanned the diversity of American commerce: railroads, oil refining, cottonseed oil, and whiskey; rope and cord, window sashes and frames; pig iron, wallpaper, and barbed wire; stoves, beer, and gunpowder. Most of these arrangements were little more than gentlemen’s agreements, unenforceable in court and so almost always doomed to failure. Only a handful followed John D. Rockefeller’s example in the oil-refining industry, devising binding partnerships cemented by pages of complex contracts. The rationale for these transactions was obvious to those who created them: many businessmen of that era believed that competition was inefficient because it hindered the smooth functioning of an industry and thus of the economy as a whole. That had been the lesson of the railroad industry, where relentless competition provoked rate warfare that threatened to destroy the entire transportation infrastructure. Moreover, many Americans embraced the view that bigger was better: operating a large factory lowered the cost of manufacturing and thus prices that consumers paid for goods, just as, in the minds of many, a single, giant abattoir was more cost-efficient than many small slaughterhouses.

Still, the rise of giant corporations raised troubling questions, and the proliferation of trusts and combinations seemed to indicate that, left to its own devices, competition devoured itself, leaving only a string of monopolies to mark its grave. Was competition thus inherently inefficient? What would happen if monopoly won the day? Would monopolists control supply and thus price, leaving consumers at their mercy? By their nature, monopolies barred opportunity for others. Was that the price Americans had to pay for a free-market society? Or was there, as some suggested, a natural limit to competition? If so, how to identify and impose that limit without also destroying the pursuit of opportunity that was the bedrock of American life?

Until answers could be found, many Americans opted to counter the power of the Rockefellers and Swifts of the world with their own cooperative ventures. In 1886, skilled workers organized the American Federation of Labor in order to amass the clout necessary to meet their corporate employers on a level playing field. (Those employers argued, no surprise, that unions hindered their right as owners to operate their companies as they saw fit.) Butchers did the same: when Armour and Swift began selling dressed beef in New York, Philadelphia, and other cities, meat cutters complained that the invaders were trying to monopolize and control the fresh meat business, leaving not just them but consumers, too, “at the mercy
of . . . soulless corporations,” as one put it. The butchers responded with their own “counter-combination.” The president of the Butchers’ National Protective Association argued that the tactic was a necessity in “an age of organizations,”
because those who failed to combine would “fall far behind in the race for business success.”

Fears of monopoly had already inspired thirteen states to pass or ponder antitrust legislation, and in 1885, the U.S. Senate held hearings on alleged collusion in the railroad industry. Witnesses regaled senators with complaints about the railroads’ wily methods of dispensing special rates and rebates, and details of the railroad men’s cooperation in setting those rates and rebates. The testimony seemed proof positive that tycoons like Vanderbilt—and Swift and Armour—rarely acted in the public’s interest and ought to be reined in. Those hearings resulted in the creation of the Interstate Commerce Commission, a first tentative effort to manage the new national economy with regulations aimed at mitigating the chaos in the railroad industry (regulations that, it should be noted, the roads supported: here, finally, was a way to end chronic rate wars).

So when cattlemen complained about a Beef Trust, their words resonated with politicians who had discovered that antimonopoly rhetoric played well with voters, especially in western states and territories. In 1888, the Senate opened hearings to examine the dressed-beef industry. An array of the aggrieved showed up to testify, from ranchers and livestock dealers to butchers and packinghouse employees. Most of them unloaded
complaints in the vein of an Iowa cattle feeder who was convinced that the packers colluded to destroy his profits. The man explained that he received Chicago price reports via telegraph and knew when stockyard supplies were running “light,” a signal that cattle prices would rise. When that happened, he loaded his livestock and himself onto the next train to Chicago. And it never failed, he complained: by the time he got there, receipts were running heavy and he couldn’t get the price he wanted for his livestock. He was convinced that the Big Four were manipulating supplies so as to manipulate price. It did not occur to the man that other cattle farmers read the same telegraph reports and made the same decision to head to Chicago, thereby turning a cattle shortage into a glut. Another witness had gone to Arizona in 1883, hell-bent on grabbing his share of the cattle bonanza. By his own admission, he was “entirely unfamiliar
with the business,” but that did not stop him. He bought cattle and took them to Kansas City, where the dressed-beef kings offered him what he regarded as an insultingly low price. More experienced sellers advised him to take the offer, but the would-be cattle king decided to outsmart the packers by taking his livestock straight to the East Coast. No one would buy it there, he complained, and that, too, he blamed on the long arm of the “Dressed Beef Trust,” which he believed shipped its cheap beef east and employed a “local stool-pigeon” to pass the goods off to butchers. That kind of testimony, which dominated the hearings, confirmed what the committee’s members, all of whom represented cattle-producing states, already believed: the packers were robbing cattle producers at one end and driving up consumer prices at the other, all to satisfy their greed.

Phil Armour begged
to differ. He and the other packers had been subpoenaed by the committee, but only Armour showed up. After days of hearing complaints from ranchers, farmers, and butchers, and given that the senators had thus far demonstrated little understanding of how stockyards, meatpacking, and meat retailing worked, Armour’s testimony must have sounded like the words of an alien being. Where other witnesses focused on their small piece of the stage—the butcher shop, the ranch, the stockyard—Armour described an industry that was international in scope and boggling in its complexity. He regaled the committee with statistical evidence of the global demand for cowhide; discussed the taxes that hindered the manufacture and sale of American oleomargarine; described livestock production in New Zealand, Australia, and South America; explained changes in consumer demand in foreign markets; and tallied the amount of beef and mutton imported into the United Kingdom in 1888 as well as the price of tallow in New York City and “oleo oil” in Rotterdam.