Penguin History of the United States of America (72 page)

In the long run such greedy calculations would be amply justified; meantime difficulties arose. Purchasing power was increasing at a great rate, no doubt, but there were still too many people – poor, pinched or simply parsimonious by tradition-who could not be customers for the industrialists’ wares. The great firms of mail-order catalogues (Montgomery Ward, Sears Roebuck) carried the good news of cheap, diversified products far and wide, to isolated farms, small towns and Southern plantations (or what was left of them); the railroads made it easy to fill orders from these catalogues rapidly; but still demand did not quite keep up with production. American capitalism was not organized to adjust to such a condition. Competition was the fiercely affirmed law of its life. Everyone with a little money plunged into the market, hoping to get richer quickly by finding a business which would crush its rivals; towns, as we have seen, competed for the favours of the railroads; inventors rushed to the patent office with their new devices and then hurried to find capitalists to manufacture and sell them; eager adventurers, like the notorious Jay Gould, looked ceaselessly for opportunities to make money by outsmarting other manipulators of the stock exchanges; politicians exacted enormous favours, for themselves and their constituencies, from the businessmen, especially the railroad kings (who complained about it bitterly), in return for charters and subsidies and rights to mine for minerals on public lands. The fact that there was never enough capital for all the projects that were launched ought to have ensured investors an ample return on their money, and those who managed to hold on to their investments and did not fall victim to the many fraudulent prospectuses that circulated, not to mention other, even less honest practices that were common, eventually reaped their reward. But it took time, and the limited though ever-expanding market for industrial goods, services and processes, coupled with the shortage of capital, inevitably created tensions and contradictions. The search for funds meant that investors were regularly promised far higher returns than a company could earn for years to come. This tended to reduce the soundest concerns to the condition of speculative gambles, and, far worse, to produce permanent instability on the stock markets, where only rogues like Gould or his associate Jim Fisk could thrive.

The uncertainties of the economy were such that no one quite knew when, from being a winner, he might suddenly plunge into loss. Thus, the federal government tried steadily, in the decade after the Civil War, to return to its old modest scale and get out of the business of economic management; the culmination of this trend came in 1875 when an Act was
passed undertaking to make the paper currency, the ‘greenbacks’ (originally issued to finance the Civil War), convertible into gold on 1 January 1879. This anti-inflationary measure no doubt played its part in bringing on the depression that persisted, with ups and downs, for twenty years. At any rate many people of the time thought so, and found their business calculations thrown out. Or there was the panic of 1873, which broke out when the great financier Jay Cooke, who had marketed the government’s loans during the war, suddenly went bankrupt. He brought down thousands with him in his fall. Even the richest were not safe: Cornelius Vanderbilt, ‘the Commodore’, lost an immense amount of money – it would have crippled anyone else – in his unsuccessful attempt to buy control of the Erie Railroad in 1868. He was beaten by the machinations of the men he was trying to dislodge from management, Gould, Fisk and David Drew: they issued more than 850,000,000 worth of ‘watered’ stock
⁵
and thereby kept control of a majority of Erie shares; but this device increased the indebtedness of the railroad by nearly 400 per cent, for the money raised by selling watered stock, though no doubt useful to the sellers, did not equal the nominal value of the shares or the returns that the purchasers exacted, and above all was not necessary for building up the railroad itself (not that Gould would ever do anything so quaint as to invest a penny, if he could help it, in engines, rails, safety devices or stations).
⁶
In these circumstances it is not surprising that railroads frequently crashed (Erie went bankrupt in 1893) for their earnings could not meet their debt charges. Not even the greatest escaped: in 1893, besides the Erie, the bankrupts included the Northern Pacific, the Union Pacific and the Atchison, Topeka & Santa Fe. The managers rather relished such disasters, which freed them to run trains instead of paying shareholders, but it was hard luck on the shareholders just the same.

The great game of capitalism had a hundred other hazards which regularly claimed their victims. In any single case it might not matter much, except to the individual loser and his dependants; but unfortunately, as the industrial economy grew ever larger, involving the destinies of more and more people, its financial structure grew ever more entangled, so that one man’s failure
(say, Cooke’s) might lead to a run on his bank, which in turn would call in its loans, which meant pressure applied to other businessmen, possibly a downturn in economic activity, possibly a panic, if a big enough business were involved – Cooke’s again: so that suddenly dividends might be cut or suspended, factories closed, banks broken, and a downward spiral might begin, ending who knew where. Stricter state or federal laws might have helped to contain some of these ill-effects, but such laws were not on offer: apart from the universal creed that government should mind its own business, no one in his senses would have committed the management of American industry in any measure to the notoriously venal politicians of the period. No, if the economy was to be put on on a stable, predictable course, so that America’s great prospects could be realized steadily and harmoniously, the businessmen would have to do it themselves.

The businessmen were not wholly unsuited to the task. Perhaps no generation of Americans has ever received such a bad press as the so-called ‘Robber Barons’. In part this was simply because of their utter charmless-ness. Their virtues – courage, ingenuity, strength of will and in many cases a gloomy personal rectitude – were themselves unattractive, and their vices – their greed, their selfishness, their philistinism, their almost complete lack of scruple where business was concerned – were thoroughly repulsive. Of them all only Jim Fisk, who perhaps expiated his sins by being murdered in a quarrel about a woman, and Andrew Carnegie, the ebullient, idealistic salesman of steel, seem to have had any human warmth; and Carnegie’s behaviour during the Homestead strike and lockout
⁷
was markedly less straightforward than that of his partner Frick, who had never pretended, in Carnegie’s fashion, to be the friend of his workers, and at least made it plain from the start of the episode that he expected the workers to go back on his terms or not at all. Frick, with some reason, felt betrayed by Carnegie, and the two men parted company; years later, when Carnegie tried to effect a reconciliation, Frick told the go-between, ‘You can say to Andrew Carnegie that I will meet him in hell (where we are both going) but not before.’ Like other multimillionaires, notably Pierpont Morgan, Frick spent much of his money on works of art, and left his elegant grey New York mansion and its incomparable contents to be a museum. Visitors can admire one of the finest personal collections of European art ever made; but the house itself, for all its grace, is somehow cold and morose. It seems to be haunted by the empty spirit of its builder, who sat alone in it, year after year, chewing his gold. Carnegie, who remarked that the man who died rich died disgraced, poured out his stupendous wealth on libraries, concert halls, schools, swimming-baths, teachers’ pensions. Rockefeller died rich, but appears to have given away as much as he kept, to institutions such as the University of Chicago. A devout Baptist, he never seems to have had any doubts about his social utility. ‘I saw a marvellous future for our country, and I wanted
to participate in the work of making our country great. I had an ambition to build,’ he explained, in extreme old age. The long years in which his great creation, Standard Oil, was denounced as the worst of monopolies left him unruffled, although he hired a public relations man to proclaim his virtues to the public.

Nevertheless, the issue ought not to be posed in terms of personalities. The question is one of social function. Matthew Josephson asserted that the nineteenth-century capitalists were socially evil because, like the medieval robber barons, they battened by force on the labour of others without contributing anything in return.
⁸
This is a defensible view. Even before the Civil War it was clear that there was a sharp distinction between the men who invented and organized and worked the industrial system and those who financed it. The first sort were interested in making things, the second in making money. The incessant plundering that disgraced the history of the railroads after the Civil War cannot be justified on economic grounds. Nothing can be said for Jay Gould, who got richer and richer while leaving a trail of devastation behind him in the form of bankrupt railroads, unemployed workmen, unfinished lines. Yet Gould was the almost inevitable price that America paid for her system of economic freedom. So long as the question of capital accumulation was all-important, and so long as government was kept at bay, the only source of funds was Wall Street, where stocks and bonds were trafficked in; and since the world is full of greedy scoundrels, some of them were certain to appear in that favourable environment. It is idle to say that things would have been different under socialism. For one thing, there is nothing in the history of real or self-styled socialist states to indicate that scoundrels are less common or successful in such regimes than under capitalism, and not much to suggest that socialist economics are more efficient than capitalist ones; for another, socialism, in any form, was not a choice which nineteenth-century America was in a position to make. The circumstances and the traditions of the country worked decisively against it. The only alternative economic system which was presented was slavery; and as we have seen, it had been rejected. Liberal capitalism was not going to start dismantling itself in the moment of its victory. It ignored its critics for a generation.

Instead many of the best and brightest of their time went into business, confident that they were furthering civilization and their country’s best interests by so doing. Nor were they wholly wrong. It was they who undertook the job of bringing order out of the chaos that America’s exuberant industrial growth had created.

Gradually
consolidation
and
co-operation
became terms with some of the magic of
competition
itself. Tired of the business of building parallel lines to steal each other’s traffic, and issuing watered stock, and designing attractively cut-price railroad rate schedules in the interest of cutting each other’s
throats, and the occasional spectacular crash, the railroads began to work together. By the end of the century the greater part of America’s track mileage was tied up in half a dozen systems, which were thus able to impose a certain uniformity and stability on their operations. Even greater advances were made by Rockefeller and Standard Oil. Like other businessmen, the oil men first tried the so-called ‘pool’ arrangement, by which, unofficially, the various companies agreed to divide their market equitably between themselves on a pre-arranged basis: extra profits, should they accrue to any one company, would be distributed among all the pool members. Unfortunately it turned out that the members could not resist stealing marches on one another: they kept their word only so long as it was immediately advantageous to do so, and there was no legal remedy against recreants. ‘We can stand a great deal of cheating better than competition,’ said a participant in a railroad pool; but in the end cheating, and the tangle of arrangements needed to try to circumvent it, always broke the pools down. So the Rockefeller lawyers came up with the idea of the ‘trust’, giving a new meaning to an ancient word. Under the trust arrangement holders of stock in the various oil companies handed over their shares to Rockefeller and his associates, acting as a board of trustees; in return they got trust certificates, which paid dividends but gave no power. The trustees made all the decisions. So successful was this arrangement for a time that by 1898 the Standard trust refined 83.7 per cent of all oil produced in the United States, and produced 33.5 per cent of it. The example was an inspiration to other industries, and trusts proliferated in such businesses as electricity and meat-packing.

Andrew Carnegie took a different line. He preferred informal arrangements which left him with absolute personal control of his organization; but he was such a brilliant industrial leader that even without pools and trusts he was able to advance steadily towards the dominance of the steel industry. He was especially skilful at inducing customers to prefer his steel to that of his competitors; he inspired his workers to toil ever harder, yet cut them down ruthlessly when they dared to press for higher wages than he thought desirable. He was not as quick at adopting important technical innovations as he liked to pretend (‘Pioneering don’t pay’ was one of his maxims) but he always did so in time to undersell his competitors. By the end of the century it was clear that Carnegie was excellently placed to destroy all the other large steel-producers in the country, a fate that could only have been averted, if at all, by a fearful battle of price-cutting and stock-market manipulation which would have had frightful consequences far beyond the steel and coal industries. Carnegie made the first moves, and Wall Street trembled; there was immense relief when it was discovered that the magnate had decided to retire and devote himself to philanthropy, if he could get a good price for his company. The banker John Pierpont Morgan bought him out for $480,000,000: he subsequently gave away $325,000,000 in various good causes. Meanwhile Morgan merged the
Carnegie Steel Corporation with various lesser steel companies, and the result was the first billion-dollar trust, US Steel (‘Big Steel’), which has dominated its field from its foundation in 1901 to the present day.