BIG BUSINESSMEN AND A NEW ECONOMY
It is more than coincidence that the beginning of the Robber Baron legend, the portrayal of the big businessman as a warlike brigand cheating and plundering his way to millions, was contemporaneous with the inauguration of the corporation as the major instrument of business control in the United States. After the civil War the large corporation began to dominate the American economic scene. In those same years, Charles Francis Adams, Jr.1 launched his first assault against the "Erie robbers," and his brother, Henry Adams, warned of the day when great corporations, "swaying power such as has never in the world's history been trusted in the hands of mere private citizens," would be controlled by one man or combinations of men who would use these new leviathans to become masters of the nation.
Such dangerous potentialities were not recognizable prior to the civil War because the majority of businesses operated as local enterprises, usually as individual proprietorships, partnerships, or as small dosed corporations in which ownership and control were almost invariably Synonymous. Under most circumstances, the power and influence of the businessman were limited to the immediate environs of operation and seldom extended beyond state boundaries. Equally important, there existed among most businessmen of prewar days a nearly universal desire and a practical necessity for community esteem. This governed their conduct, kept their ventures well within the limits of individual liability and tended to restrain irresponsible profiteering. Antebellum criticisms of the businessman therefore were few and sporadic disapproval usually focused on the speculator or stock gamble and was often inspired by an agrarian distrust of big city ways.
The bloody struggles of the Civil War helped bring about revolutionary changes in economic and political life. War needs created almost insatiable demands for goods, munitions, clothing, and offered some manufacturers unsurpassed opportunities to make fortunes. More important, the stimulus of massive military demands alerted entrepreneurs to new concepts of the power and possibilities of large scale enterprise: "The great operations of war, the handling of large masses of men, the influence of discipline, the lavish expenditure of unprecedented sums of money, the immense financial operations, the possibilities of effective cooperation, were lessons not likely to be lost on men quick to receive and apply all new ideas." Though the war
prevented general economic expansion, the new ideas were profitably applied to the peacetime economy.
With the rich resources of the trans-Mississippi West open to private exploitation, the businessman had singular opportunities to become wealthy. Before him spread an immense untapped continent whose riches were his virtually for the taking; new means to turn these resources to profitable account were at hand. A host of new inventions and discoveries, the application of science to industry, and improved methods of transportation and communication were ready to assist the businessman. But all these aids would have been valueless without effective means to put them to work. The practical agency to meet these unprecedented entrepreneurial demands on capital and management proved to be the corporation. The stockholding system provided immense capital beyond the reach of any individual, and the corporate hierarchy presented a feasible solution to the greatly augmented problems of management.
The corporation was no novelty. It had served political as well as economic purposes in seventeenth century America; as an instrumentality of business its use antedated the discovery of this continent. Seldom before in American history, however, had the corporation been used on such a large scale. From a relatively passive creature of legalistic capitalism, it was transformed by fusion with techniques into a dynamic system spearheading economic expansion.
The impact of the newborn corporation on American society was almost cataclysmic. In the first few decades of its existence the modern corporate system enabled the nation to develop more wealth more rapidly than in any period since the discovery. But it also menaced hallowed economic theories and usages, threatening to ride like a great tidal wave over the traditional democratic social and political beliefs. Its size alone was sufficient to change fundamental social and economic relationships. Of the newly formed United States Steel Corporation an awed commentator wrote at the turn of the century: "It receives and expends more money every year than any but the very greatest of the world's national governments; its debt is larger than that of many of the lesser nations of Europe; it absolutely controls the destinies of a population nearly as large as that of Maryland or Nebraska, and indirectly : influences twice that number." Moreover, this concentrated economic power normally gravitated into the hands of a few, raising up a corporate ruling class with great economic authority....
The dedicated businessman could make money on an unprecedented scale. Though John D. Rockefeller never quite became a billionaire, his fortune in 1892 reportedly amounted to $815,647,796.89. Andrew Carnegie did nearly as well. The profits from his industrial empire in the decade 1889 to 1899 averaged about $7,500,000 a year and, in 1900 alone, amounted to $40,000,000. In the following year he sold out his interest for several hundred million dollars. Such fortunes, exceptional even for those days, emphasized the wealth available to the big businessman. In 1892, two New York newspapers engaged in a heated contest to count the number of American millionaires, the World uncovering 3,045 and the Tribune raising it to 4,047. Regardless of the exact total, millionaires were becoming fairly common. By 1900, for instance, the Senate alone counted twenty-five millionaires among its members, most of their the well-paid agents of big business- notorious fact that led some suspicious folk to dub that august body the "Rich, Man's Club" and the "House of Dollars."
This sudden leap of big businessmen into new positions of wealth and power caught the public eye. To Americans accustomed to thinking primarily of individuals, the big businessman stood out as the conspicuous symbol of corporate power-his popular image encompassing not only his personal attributes and failings but combining also the more amorphous and impersonal aspects of the business organization by which he had climbed to fortune. Just as the diminutive Andrew Carnegie came to represent the entire steel-making complex of men and decisions which bore his name, so the lean, ascetic John D. Rockefeller personified Standard Oil, and the prominent nose and rotund figure of J. P. Morgan signified the whole of Wall Street with its thousands of operators, its ethical flaws, and its business virtues.
Big businessmen were usually attacked not for personal failings, though they had them as well as the lion's share of wealth, but as the recognizable heads of large corporations. When Carnegie and Rockefeller gave up business careers and became private citizens, the rancor against them almost ceased. Instead of being censured for past actions, which had been widely and vehemently criticized, they were praised as benefactors and good citizens. Public castigation of the steel trust was shifted from "Little Andy" to the broader shoulders of Charles Schwab. The odium of monopoly which had surrounded his father was inherited by John D. Rockefeller, Jr. Only as the active and directive heads of great corporations, and not as subordinates or members of a business elite, were big businessmen branded "Robber Barons" and indicted for alleged crimes against society.
If the big businessman was not resented as an individual but as a power symbol wielding the might of the great corporation, the provocative question arises of why there was such resentment against the corporation. The answer is that the large industrial corporation was an anomaly in nineteenth century America. There was no place for it among existing institutions and no sanction for it in traditional American values.
What was to be done with such a monster? Either the corporation had to be made to conform to American institutions and principles or those institutions and principles had to be changed to accommodate the corporation. This was the dilemma first seriously confronted by Americans during the Gilded Age, and the issue that set off the great movement of introspection and reform which activated the American people for the next fifty years.
Most flagrantly apparent was the destructive effect of the large corporation upon free competition and equal opportunity. According to the accepted theory, which was a projection of the doctrines of liberal democracy into the economic sphere, the ideal economy, the only one, in fact, sanctioned by nature, was made up of freely competing individuals operating in a market unrestricted by man but fairly ruled by the inexorable forces of natural law. The ideal polity was achieved by bargaining among free and equal individuals under the benevolent eye of nature. It was assumed that, in economic affairs, impartial rivalry between individual entrepreneurs and free competition would automatically serve the best interests of society by preventing anyone from getting more than his fair share of the wealth.
In early nineteenth century America, this self-regulating mechanism seemed to work. Where businesses and factories were small, prices and output, wages and profits, rose and fell according to supply and demand. Every man appeared to have equal opportunity to compete with every other man. Even after the war, the individual businessman was forced, in the interests of self-preservation, to observe the common rules of competition. Ordinarily his share of the market was too small to permit any attempt at price control unless he joined with others in a pool, a trade association, or another rudimentary price fixing agreement. The average businessman eschewed trade agreements, not out of theoretical considerations, but for the practical reason that such coalitions did not work very well, often suffering from mutual distrust and the pursuit of centrifugal aims.
But what was true in a world of individual proprietors and workers was not necessarily correct for the corporation. It possessed greater unity of control and a larger share of the market and could either dictate prices or combine successfully with other corporations in monopolistic schemes. By bringing to bear superior economic force which to a great extent invalidated the tenets of the free market, the large organization put the big businessman in the favored position of operating in an economy dedicated to the idea of freely competing individuals, yet left him unhampered by the ordinary restrictions. Under such auspicious circumstances, he soon outdistanced unorganized rivals in the race for wealth.
This unfair advantage did not go unchallenged. As the earliest of the large corporations in the United States, the railroads were the first to come under concentrated attack. The immense extension of railways after 1865, and the crucial nature of their operations as common carriers, exposed their activities to public scrutiny and subjected their mistakes or misdeeds to considerable publicity Popular resentment against the railroads in the early 1870's grew hottest in the farming states of the Midwest, but indignant reports from all over the country accused railroads of using monopoly power against equal opportunity.
A most frequent criticism, common to both East and West, was that railway superintendents and managers showed unreasonable favoritism by discriminating between persons and places, offering rate concessions to large shippers, charging more for short than long hauls, and giving preferential treatment to large corporations in the form of secret rebates and drawbacks. That these preferential rates might sometimes have been forced upon the railroads by pressure from business made little difference. The popular consensus was that this elaborate system of special rates denied the little man equal opportunity with the rich and influential, breaking the connection between individual merit and success. The ultimate effect extended further monopoly by preventing free competition among businesses where railway transportation was an important factor.
The Standard Oil Company seemed to be the outstanding example of a monopoly propagated in this manner, the charge being that the determining factor behind Rockefeller's spectacular conquest of the oil business had been this railway practice of secrecy and favoritism which had aided his company and ruined others. By collecting rebates on their own shipments and drawbacks on those of competitors, Standard had gained virtual control of oil transportation. It then could regulate the prices of crude oil, with the detrimental result, so Henry Demarest Lloyd charged, that by 1881, though the company produced only one fiftieth of the nation's petroleum, Standard refined nine tenths of the oil produced in the United States and dictated the price of all of it.
As the whipping boy among trusts, Standard undoubtedly got more than its share of criticism, yet by contemporary standards of competition, the corporation was fairly adjudged a monopoly. Through the testimony of H. H. Rogers, an executive of the company, The Hepburn Committee in 1879 was able to establish that 90 to 95 percent of all the refiners in the country acted in harmony with Standard Oil. In 1886, the monopolistic proclivities of the oil trust were attested to by the Cullom Committee:
It is well understood in commercial circles that the Standard oil Company brooks no competition; that its settled policy and firm determination is to crush all who may be rash enough to enter the field against it; that it hesitates at nothing in the accomplishment of this purpose, in which it has been remarkably successful, and that it fitly represents the acme and perfection of corporate greed in its fullest development.
Similar convictions were expressed by a New York senate committee before which Rockefeller and other executives testified in 1888. Four years later, in 1892, the Supreme Court of Ohio declared that the object of the Standard Oil Company was "to establish a virtual monopoly of the business of producing petroleum, and of manufacturing, refining and dealing in it and all its products, throughout the entire country and by which it might not merely control the production, but the price, at its pleasure."
These findings were reaffirmed by new investigations. In 1902, the United States Industrial Commission reported that Standard, through its control of pipe lines, practically fixed the price of crude oil. In 1907, the commissioner of corporations supported and amplified this conclusion. The company might fall short of an absolute monopoly, the commissioner pointed out, but its intentions were monopolistic. In 1911, the United States Supreme Court confirmed this allegation, observing that "no disinterested mind" could survey the history of the Standard Oil combination from 1870 onward "without being irresistibly driven to the conclusion that the very genius for commercial development and organization.... soon begot an intent and purpose.... to drive others from the field and to exclude them from their right to trade and thus accomplish the mastery which was the end in view.
Far from regarding the intricate system of business combination he had developed as a monster to be cured or destroyed, a big businessman such as Rockefeller looked proudly upon his creation as a marvel of beneficence, an extraordinary and distinctive expression of American genius. And Carnegie contended "not evil, but good" had come from the phenomenal development of the corporation. He and others pointed out that the world obtained goods and commodities of excellent quality at prices which earlier generations would have considered incredibly cheap. The poor enjoyed what the richest could never before have afforded.
The big businessman supported his actions as being entirely in keeping with the business requisites of the day. Rather than engaging in a conscious conspiracy to undermine equal opportunity, he had sought only the immediate and practical rewards of successful enterprise, rationalizing business conduct on the pragmatic level of profit and loss.
Instead of deliberately blocking free competition, big businessmen maintained that their actions were only natural responses to immutable law. Charles E. Perkins, president of the Chicago, Burlington and Quincy Railroad Company, denied deliberate misuses of power in establishing rates, and claimed that the price of railroad transportation, like all other prices, adjusted itself. Discriminatory practices were viewed as part of an inevitable conflict between buyer and seller, a necessary result of competition. The payment of rebates and drawbacks was simply one method of meeting the market. In answer to the accusation that the railroads had made "important discriminations" in favor of Standard Oil, an executive of that company replied: "It may be frankly stated at the outset that the Standard Oil Company has at all times within the limits of fairness and with due regard for the laws ought to secure the most advantageous freight rates and routes possible." Rockefeller went on record as saying that Standard had received rebates from the railroads prior to 1880, because it was simply the railroads' way of doing business. Each shipper made the best bargain he could, hoping to outdo his competitor.