Character- Baltimore). This rehabilitation of the navy was sadly needed, for in his report William C. Whitney, the secretary of the navy, stated that although $75,000,000 had been spent on the navy between 1868 and 1886 the money had been virtually thrown away. "It is questionable," he said, "whether we have a single naval vessel finished and afloat at the present time that could encounter the ships of any important power-a single vessel that has either the necessary armor for protection, speed for escape, or weapons for defense." From this time the development of the navy became a fixed policy of the Government, with the result that before many years had passed the United States as a naval power was ranking with the leading nations of the world. THE RISE OF CORPORATE INDUSTRY Since the overshadowing fact of American life during Cleveland's first administration was a revolution that was changing the face of the business world, it will be well at this point to draw near and view closely the general economic situation that existed in the United States about the middle of the eighties. The thing that was bringing about a business revolution in the early eighties was the corporation. And what is a corporation? It is a group of natural persons authorized by law to act as one artificial person. This artificial person lives on for the period allotted to it by law, if that is for a thousand years. The corporation, therefore, has time for the accomplishment of great things. Through the corporation the capital of small investors may be massed and applied to a particular enterprise. By selling shares of its stocks to individuals the corporation makes it possible for a person with only one hundred dollars, or even a smaller sum, to become the part owner of a concern whose capital goes up into the millions. When a corporation meets with failure, the shareholder is liable only for the amount he has invested. The shares in a corporation can be easily transferred or sold at any time the holder wishes to part with them. Thus it is easy to see that this artificial person called a corporation possesses advantages that enable it to do many things that a natural person cannot do and do them better and on a vastly larger scale. Before Civil Before the Civil War the corporation was not the ordinary The Corform of business organization. Under the workings of the poration factory system some very large industrial establishments had the made their appearance; but for the most part these were owned War and managed either by one person or by a group of persons who had formed a partnership. In the building of railroads, however, the corporation had been brought into use. Το build a railroad required a capital investment of many millions of dollars, and there was no single person or small group of persons who had a sufficient amount of money to finance the enterprise. In 1860 there was hardly a score of millionaires in the whole country. Through the agency of the corporation, however, the necessary money was easily raised; shares in the enterprise were offered for sale, and thousands of persons came forward to buy, some taking a single share, others ten shares, others a hundred. Advantages of the Corporation During the Civil War corporations began to appear in the industrial field, and by the time the war was well over they were becoming a common form of business organization. In the manufacturing industries the corporation was desirable because of its great efficiency. Under corporate management The goods could be manufactured on a tremendously large scale; the best mechanical devices could be used; factories could be established at strategic points with the view of economy in distribution; the working force could be so organized that the greatest amount of effective labor could be secured; large sums in office expenses and in the expenses of salesmanship could be saved. With this array of advantages on its side, a large establishment could manufacture goods in immense quantities, sell them at a very small profit, and still make fabulous sums of money. The corporation was only one of a number of forces that were leading to concentration in commerce and industry. Improved machinery and new processes of manufacture were Concen tration was in Things'' making it possible to produce goods in quantities and on a scale never before known. The splendid facilities for carrying on commercial transactions was a factor that made for big things. With the lightning-express train to carry him from place to place, a man in the eighties could do as much in a week in the way of bargaining, planning, and superintending as in the forties he could have done in a year. At the telephone he could transact as much business between breakfast and lunch as in the old time could be transacted in a month. The A Few Copyright Keystone View Company A scene in a watch factory at Elgin, Illinois. very development of the nation's resources depended upon combination of interests and unity of effort. The commercial and industrial successes described in the last chapter could not have been achieved by a decentralized management. In truth, consolidation was now the order of the day; concentration was in things. A few figures will show what was taking place in the business world in the eighties. The number of iron- and steelmills decreased by a third between 1880 and 1890, but the output of the mills increased by one half. The number of The Triumph establishments engaged in the manufacture of agricultural implements fell from 1943 in 1880 to 910 in 1890, although the capital invested was more than doubled in the interval. In the leather industry three fourths of the establishments disappeared in eight years, while the value of leather manufactures increased five fold. And thus it was in almost every branch of industry: there was concentration all along the line. This concentration, of course, meant the triumph of the large producer, for he could sell at a small profit and still of the prosper, whereas if the small producer attempted to sell at the Producer same small profit he would be ruined. Moreover, concentration was hastened by reason of the unjust and unfair conduct of business men. For example, the Standard Oil Company, the greatest of the oil-refining concerns, profited in its early days enormously by reason of the special favors it received from the railroads. From the railroads it received rebatesreductions in the regular rates--and drawbacks-sums of money paid back to it after it had paid the regular rates; it was given a better service than was given to its competitors; it had rates manipulated for its own purpose; it received secret information as to the business of its competitors. As a result of these favors the Standard Oil Company 1 was able to beat down its rivals and establish a virtual monopoly in the oil business. 1 Although the forces in the industrial world were working in favor of the big concern, it was not long before the big concern itself began to suffer from the ravages of competition. When one big corporation went into the market to compete with another big corporation, it was diamond cut diamond, and the struggle was fierce and costly. The remedy, of course, could be found only in further consolidation, for where combination can be achieved competition is eliminated. The first efforts of the great corporations to escape the ravages of compe 1 This company was chartered in Ohio in 1870 for the purpose of manufacturing illuminating oil from petroleum. The petroleum industry as we know it to-day may be said to have had its beginning in 1859 when the first petroleum well was sunk near Titusville, Pennsylvania. Soon after this, wells were bored in Ohio and Indiana, and later in West Virginia, Kansas, Texas, California, and elsewhere. Scores of companies engaged in the petroleum business, but the Standard Oil Company, directed chiefly by John D. Rockefeller, had at an early date left all its competitors far in the rear. The property of the Standard Oil Company in 1870 was valued at $1,000,000; in 1900 it was valued at $500,000,000. Pools and Trusts The Early Trusts The aires tition consisted in the formation of pools: several competitors would agree upon a scale of prices and upon the amount of goods that each separate competitor was to produce and sell. Under this arrangement there was to be no competition in prices. The buyer, if he bought from a company belonging to the pool, would have to pay the price fixed by the pool. Here plainly was an attempt to establish monopoly, and since monopoly has no place in American law, the pool was speedily declared (in 1882) illegal. But the corporations did not abandon their attempts to escape competition. They devised a new form of combination which came to be known generally as a trust. This was simply a giant corporation consisting of a number of corporations whose separate interests were merged into one concern. A company, however, could not properly be called a trust unless it was big enough and powerful enough to control prices. It was in the eighties that the industrial giants called trusts began to appear. In this decade about forty oil companies combined their interests and formed the Standard Oil Trust. About twenty sugar refiners joined to form the Sugar Trust. It was about this time, also, that the foundations were laid for the Coal Trust and the Tobacco Trust. While immense volumes of business were passing into the hands of the corporations, immense streams of money were flowing into the pockets of a few individuals. With the trust came the multimillionaire. At first it was the railroad magnates who amassed fortunes which at the time seemed to be beyond the dreams of avarice. Cornelius Vanderbilt, who died in 1877, left behind him $100,000,000, nearly all of which had been acquired by a shrewd manipulation of railroad properties. Jay Gould, who before the Civil War was a poor man, by the middle of the eighties had by means of railroad transactions accumulated something like $80,000,000. By this time the "captains of industry," as the industrial barons were called, were coming into their own and were lining their pockets as fast as the railroad magnates were lining theirs. Andrew Carnegie, who in his early youth worked in a factory as a |