CHAPTER LI

"BIG BUSINESS"

In spite of the financial excesses of their managers, the railroads were laying the foundations of a new economic structure in the United States. For all practical purposes, the country was made smaller in size, and the different parts were really brought into touch with each other. By this means every section was freed from dependence upon merely local sources of supply, both of food, and of manufactures, and as the nationwide market was gradually opened, business men were ready to supply it. The development of this new business organization is one of the most extraordinary stories of the nineteenth century, a story of an unprecedented utilization of natural resources, and of concentration and consolidation similar to that going on among the railroads.

BUSINESS BEFORE 1861

Even a cursory survey of the facilities available for business purposes in 1865 brings out the extent of the change. At the close of the Civil War not one of the transcontinental railroads was approaching completion; in fact only one was even started. The eastern trunk lines had not been created. The telephone, the trans-Atlantic cable, the radio, the electric light, the electric trolley car, the hydroelectric plant, the automobile, and the "skyscraper" were all unknown. Most of the cities were without adequate sewerage systems, without pavements. The great natural resources of copper, coal, and even iron, had hardly been touched, while the possibilities of petroleum were just beginning to appear. Modern industrialism was made possible by the railroads, but it is founded on two elements: petroleum and iron. Down to 1869, the United States had mined only about 50,000,000 tons of iron ore. Between 1869 and 1910 it mined 685,000,000 tons.

In 1865 the United States was still a nation of farmers, artisans, and independent, small-scale business men. Over eighty per cent of the total population lived in rural districts, farms, or small villages.

In 1890 thirty per cent lived in cities, in 1900 forty per cent, in 1910 forty-six per cent, in 1920 about fifty-one per cent. And, even as late as 1890, there were only six cities with over half a million inhabitants apiece, only twenty-eight with over one hundred thousand apiece. There were fifty of these in 1910. It was moreover a nation in which wealth was distributed less unevenly than at present. In 1855 in New York, there were only nineteen men who had fortunes of over a million dollars apiece, and the wealthiest of the lot had only six million dollars. At that time, Cornelius Vanderbilt who left a fortune of $104,000,000, had only $1,500,000. In those days the men of wealth were merchants rather than manufacturers, railroad magnates, or stock market manipulators.

Business enterprises now concentrated in the hands of a few men were then widely scattered. In 1850 there were over fifty separate companies engaged in the telegraph business. The first "trust' was the Western Union Telegraph Company, formed, under pressure of war needs, out of this collection of small competing concerns. In New York City in 1865, when horse-cars furnished transportation, there were thirty separate companies in the business; almost every street had its own independent line. Every city and town had its own slaughter house. As a result the by-products were mostly wasted. In 1865 thousands of independent companies were drilling for oil in Pennsylvania, and there were over two hundred refiners. A few years later over ninety per cent of all this petroleum industry was in the hands of the Standard Oil Company. Throughout the country there were over two hundred companies manufacturing agricultural machinery, seventy-five of which were in New York City. Many of these were later united to form the International Harvester Company. Lively competition prevailed everywhere, and no single firm or corporation seemed likely to get more than its due share of the business.

INDUSTRIAL DEVELOPMENT

During the Civil War the country began the process of transforming itself into a highly complex industrial state. Railroad consolidation had been stimulated by the necessity for moving troops by the hundred thousand. At the same time the demands of war gave a great impetus to the production of scores of commodities needed to make the contest a success. The persistent call for woolen cloth for

uniforms and blankets brought about extensive increases in facilities for production. The absence of labor doubled and trebled the demand for farm machinery, while the abnormal demand for food pointed toward the establishment of the great packing houses.

Nor did the demand stop with the war. The rapid settlement of the West, with its thousands of new farms, meant a larger market and a fairly steady sale for manufactured goods. Also, as the South began to recover, its people had to purchase heavily to make up for goods lost, confiscated, destroyed, or worn out during the war. Because of the steadily increasing production of raw materials, manufacturers found it easy to keep pace with their orders.

During the fifteen years immediately after the Civil War there was a remarkable expansion in textile manufacturing, both cotton and woolen. There was, too, an even more striking increase in the output of iron and steel, as the following figures show.

As the railroads brought the whole country to the very doors of the most enterprising manufacturer, the business became too large for the single individual or for the ordinary partnership to handle. But the corporation proved to be admirably adapted to the new commercial needs. With this type of organization it was possible to secure all the capital necessary for a growing business, together with the concentration of authority in the hands of a small body of directors, or of a single executive.

With the multiplicity of small firms competition was rarely severe enough to make it possible for one particular company to annihilate its rivals. With the advent of the corporation all this was changed. The larger concern, with heavy financial backing, under able officials, was ready and glad to drive its smaller neighbors to the wall. In various branches of industry therefore the old-fashioned small firm began to disappear. This process left the larger corporations to fight it out with each other, and they did so, very much as the railroads were doing, by suicidal competition.

The logical remedy for that impossible situation was the combina

tion of a number of companies engaged in the same kind of work into the so-called "trust," the counterpart of the trunk lines in railroading. Industrial leaders were slow in resorting to that remedy for too strenuous competition, but once they began the number of "trusts" increased rapidly, especially in the decade after 1890.

In 1901 the United States Steel Corporation, with a capitalization of $1,100,000,000, was launched, the biggest industrial concern in the United States.

STANDARD OIL

One of the best illustrations of this changing order in American industry, and one of the most striking examples of the "trust" and its methods is to be found in the history of the petroleum business and in the rise of the Standard Oil Company. In western Pennsylvania there is a small tributary of the Allegheny River known as Oil Creek, because the surface of the stream was always covered with oil. Sometimes the neighboring farmers collected it for axle-grease. Then certain more enterprising individuals began to bottle it, and to sell

it for medicinal purposes. "Rock Oil" and "Seneca Oil" were widely advertised as remedies for rheumatism. In the same region artesian well water in the salt works often came up polluted with oil. This was thrown away. In 1855 a curious-minded man named Bissell sent some samples for analysis to a chemist in Yale College. He reported that the oil could be easily refined, that the process of refining would yield valuable by-products, and that the finished product would make an excellent illuminant.

Bissell thereupon hired a man to drill for oil, and as the work started the people who watched the proceeding called him crazy. In August 1859 the drill man "struck" oil, and the daily flow averaged about twenty-five barrels. Nothing but the discovery of gold itself in that region would have aroused greater excitement. Fortune hunters flocked into Pennsylvania by the thousand, just as they

had rushed to California ten years earlier. Oil had been discovered in a sparsely populated region, with few towns, no railways, and very poor roads. But towns sprang up overnight, and western Pennsylvania enthusiastically began the production of oil.

By a curious coincidence it so happened that in 1859, the very year of the first sucessful oil well, one John D. Rockefeller, a youth of sixteen, got his first job in a produce commission office in Cleveland, Ohio. At the age of nineteen, the young clerk was ready to start a commission house of his own; by the end of the first year, he had built up a half-million dollar business. Four years later, at the age of twenty-three, he became interested in oil. His commission house had furnished him with capital enough to undertake the work on a large scale. Knowing nothing about oil production himself, he secured the services of an expert, with whose technical skill he could combine his own money and business talent.

Rockefeller in the oil business was like Commodore Vanderbilt in railroading; both men were able to look into the future, and to profit by their almost uncanny knowledge of what was coming. It was plain to the man of vision that "coal-oil" would supersede all other illuminating oil, and that it would soon become indispensable throughout the whole country. Before he was thirty Rockefeller calmly and deliberately planned to control all this business himself. Inside of ten years, he had secured ninety per cent of the petroleum trade. His first aim was to get the refineries. In 1870 the Standard Oil Company of Ohio was incorporated. There were at the time about twenty-five independent refining companies in Cleveland. By 1872, the Standard controlled twenty-two of them. Two years later the refineries in New York and Philadelphia were brought into the hands of the Standard. Shortly afterward the Standard got thirty refineries in Pittsburgh, and by 1875 all those in Baltimore. One group of refineries, those in western Pennsylvania, twenty-five in number, remained independent. Their owners resisted all of Rockefeller's appeals and threats. Finally a new refining company appeared in the section, widely heralded as the Standard's competitor. One by one it absorbed the independent concerns, and when the work was completed, it appeared that the "competitor" was nothing but a dummy company of the Standard.

With nearly all the refineries in their hands, the Rockefeller interests began to reach out for the wholesale distributing agencies. In