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Economy in Progressive Era Politics

Captains of Industry and the Money Trusts

As American industry was just beginning to develop in the nineteenth century, most people had no concept of the amount of wealth that could be made—or the tactics that might be implemented to make it. There were no personal or corporate income taxes until 1913, and with few government regulations, the country's burgeoning industrial empires enjoyed a period of rapid growth throughout the "Gilded Age" of the late nineteenth century. Perhaps the most famous of the entrepreneurs to take advantage of wide-open state of American capitalism was John D. Rockefeller, who started out as a clerk for a Cleveland merchant before earning a small fortune from a grain and meat partnership by the end of the Civil War. Rockefeller went on to invest in a small Cleveland oil refinery, using it as the platform from which to launch Standard Oil in 1870. Standard Oil grew rapidly and became the nation's most powerful corporation, based on monopolistic business tactics. Rockefeller used Standard Oil capital to buy out all his competitors; if that failed, he drove them out of business by fixing prices and production quotas. He made secret deals with railroad companies for lower freight rates. The railroads went along with this because, if they didn't, Rockefeller would ship through a competing rail line. This method is known as horizontal expansion—eliminating competitors who manufacture the same product and acquiring control over the means of production and distribution. Rockefeller could undersell his competitors by making his own plants the most efficient in the country, then selling the products at well below cost. This sort of cutthroat competition forced Rockefeller to absorb his losses, but it paid off when Standard Oil finally eliminated its competitors and cornered the market. Then the company could charge more than ever; monopolization thus yielded windfall profits.

Rockefeller then began expanding beyond Cleveland and vertically integrating his monopoly; that is, he made sure that Standard Oil controlled almost every step in the process of oil production and distribution, from the drilling to the refining to the storage and the delivery. By 1879, less than a decade after Standard Oil's founding, the company controlled 90% of the American oil industry and had cornered virtually the entire international market for oil—a precious commodity in an industrializing world.36 Rockefeller's ruthless pursuit of monopoly made him one of the world's richest and most powerful men, and one of the Gilded Age's most cunning entrepreneurs.

Like Rockefeller, Scottish immigrant Andrew Carnegie employed vertical integration in order to monopolize the steel industry. Carnegie benefited handsomely from the depression of 1873, since such financial crises lowered prices and hampered the competition. (Rockefeller capitalized on the same depression, as did the Armour and Morris meat-packing empire and the Bell telephone company of Boston.) Carnegie built the largest and most technologically advanced complex of steel mills in the world at Homestead, Pennsylvania. By 1879, his company manufactured almost all of the 930,000 tons of steel produced annually in the United States. Steel production levels kept soaring; in 1890, they rose to 4 million tons. Carnegie made hundreds of millions of dollars and eventually sold out to the newly formed U.S. Steel corporation, the world's first billion-dollar-corporation, in 1901. Financed by J. P. Morgan, U.S. Steel controlled 70% of the steel business and was capitalized at almost $1.5 billion dollars.37

Rockefeller and Carnegie were two of the most conspicuous examples of industrial tycoons; in many ways they epitomized both the best (market inventiveness, charity work) and worst (market ruthlessness, unchecked power) of unregulated capitalism. Depending on whom you asked or your own personal perspective, they could represent either of the competing images of businessmen during the Gilded Age: bold, innovative "captains of industry" or cold, greedy "robber barrons." They both gave substantial portions of their fortune away to charity (some $332 million in gifts from Carnegie and $175 million from Rockefeller).38 Carnegie funded the establishment of public libraries across the country and Rockefeller established foundations to support medical research and education. Yet both men also ran their businesses with an iron fist; they bitterly fought their employees' attempts to win higher wages, ruthlessly crushed strikes, and kept their workforces on very long rotations in sometimes dangerous working conditions, with few breaks or holidays. Most of the nearly 170,000 impoverished laborers in the Carnegie steel mills never actually saw Andrew Carnegie himself, but they typically worked for him twelve hours a day, every day of the year except the Fourth of July. Carnegie's company grossed more money annually than the U.S. Treasury, but his workers saw a paltry fraction of that profit.39 When Henry Clay Frick, Carnegie's associate and the chairman of the steel company, tried to lower worker wages at the Homestead steel plant in the summer of 1892, the steel workers' union refused to accept and walked out on the job. Frick tried to lock out the 3,800 striking workers. Instead, the workers seized the mill and prevented strikebreakers from entering the area. Frick hired 300 Pinkerton private detectives to surround the plant and protect the strikebreakers who had been brought in to replace the usual workers. The Homestead workers fought with the Pinkertons for twelve hours, using every weapon they could find (including, improbably, a 20-pound cannon). Three workers and seven Pinkertons were killed; Frick requested state assistance and the governor of Pennsylvania called out the state militia to protect the reopened plant. The strikebreakers—unionized workers called them "scabs"—continued to labor there, and regular Homestead workers eventually returned to their old jobs on the company's terms.40 For Carnegie, violence served its purpose.

Carnegie, who was visiting Scotland during the crisis, tried to distance himself from the whole debacle. He had, however, kept in touch with Frick throughout the strike via telegraph and mail. Before the Homestead lockout, he wrote to Frick, "No contest will be entered in that will fail....We all approve of anything you do, not stopping short of approval of a contest. We are with you to the end." After the violence on 6 July 1892, Carnegie told the New York Herald that the news "grieved me more than I can tell you. It came on me like a thunderbolt in a clear sky." Yet the next day, he telegrammed Frick: "All anxiety gone since you stand firm. Never employ one of these rioters. Let grass grow over works. Must not fail now. You will win easily next trial."41

"Combination Is Here To Stay"

Most of the "captains of industry" were unapologetic about such outcomes of their total workplace control. Rockefeller declared that "combination is here to stay" and that "individualism has gone, never to return."42 To Rockefeller, monopolies represented the most efficient and financially sound businesses in the marketplace; his Standard Oil was one of the "survivors of the fittest," an exemplar of the popular Social Darwinist philosophy of the period. In other words, according to English philosopher Herbert Spencer and his many followers—which included Andrew Carnegie, John D. Rockefeller, and probably most Americans at the time—Charles Darwin's theory of evolution could be applied to what historian Leon Litwack has called "the system of unregulated business competition."43 If monopolies succeeded and thrived, it was only because they were more "fit" to survive than their competitors. By applying scientific theories to social practices, the Social Darwinists tried to justify or even naturalize the process of cutthroat competition that often employed no-holds-barred tactics for the sake of economic profit and industrial dominance. Social Darwinism also provided an argument against government interference in the marketplace, since reforms designed to support the weak or less fortunate were considered unnecessary interventions in the "natural" process of weeding out "inferior" participants in the marketplace.

Social Darwinism also provided a powerful justification for society's increasingly unequal distribution of wealth and the concentration of vast fortunes in an ever-smaller number of pockets; the poor were simply less "fit" organisms than the rich. According to Social Darwinists such as William Graham Sumner, successful people possessed the good character traits necessary to become wealthy; that is, they were pious, thrifty, hard-working, and virtuous. This philosophy discounted the possibility that any unscrupulous traits might actually aid an entrepreneur in becoming wealthy and powerful. It instead assumed that the accumulation of wealth was a positive and natural outgrowth of hard work and that wealthy people were also good Christians. It therefore defended laissez-faire capitalism as a just system that only reinforced the "natural" order of things in society, where individuals with more talent and better traits amassed the most wealth and power, and those with the least abilities justly occupied the bottom rung of the social ladder.

The biographies of some industrialists seemed to prove the theory; Andrew Carnegie, for example, rose from poverty to power seemingly through the sheer force of his will and his shrewdness for business. Other tycoons, however, called into question Social Darwinism's happy nostrums through their unrepentance for their lucrative but morally dubious acts. These men did not even attempt to save face through charitable donations or other public works. Railroad tycoons like Jay Gould, Daniel Drew, and Jim Fisk earned their reputation as "robber barons"; they made their money by manipulating stock prices, bribing public officials and party bosses, and speculating on risky investments that sometimes triggered broad economic collapses. These men actually caused the financial panic of September 1869 when they tried to corner (or monopolize) the gold market, then failed to coerce federal officials to join them. When government gold was released for sale, a financial panic ensued and thousands of smaller investors were ruined. Gould, Drew, and Fisk ruthlessly sought to destroy any competitors they encountered along the way and tried to pay off everyone necessary to win the contracts they needed for their Erie Railroad Company. Meanwhile, they built poorly constructed railroads. Their cynicism led critics like Mark Twain to describe their true "gospel" as a sham: "Its message is 'get money. Get it quickly. Get it in abundance. Get it dishonestly, if you can, honestly if you must.'44"

The amount of wealth these men controlled is almost hard to imagine, especially in contrast to the meager state of their employees' living and working conditions. By one estimate, financier J. P. Morgan and his partners controlled at one time some $30 billion dollars of the U.S. economy—the equivalent of $7.5 trillion today and an amount equal to 40% of all industrial, commercial, and financial capital in the United States. Since Morgan's wealth peaked just before World War I, at the tail end of a full generation of Progressive reform, those reforms clearly did not bring about any fundamental redistribution of assets or market control.

Criticisms of their excesses notwithstanding, Gilded Age "captains of industry" did build the industrial capacity that made America the world's foremost manufacturing power by the turn of the twentieth century. They laid the track for a nationwide rail network that enabled citizens to travel farther and faster than ever before. They built the factories that provided vital building materials for the growing cities. They amassed the capital that underwrote new projects in national transportation, production, and distribution networks. They fostered an economic system that prized ingenuity and efficiency. Yet their enormous concentrations of wealth and the aggressive tactics they employed to obtain it generated fierce opposition, as critics complained of income maldistribution, working-class poverty, and political corruption. The railroad workers, steel plant employees, coal miners, and others who toiled to produce their wealth were typically paid paltry wages, forced to labor long hours with little rest, and quickly replaced if they spoke out or struck for better wages and working conditions. The country frequently seemed on the verge of outright industrial warfare.

The Progressives who became critics of many facets of this new industrial world were, at the same time, products of it; many Progressives belonged to the expanding middle-class of white-collar professionals that could only come into existence along with industrialization. They spoke out against monopolization and its effects not because they sought a socialistic redistribution of wealth but because they believed that the Gilded Age's unprecedented concentrations of power ran counter to deeply cherished American ideals of democracy, equal opportunity, and the pursuit of happiness. They felt that monopoly destroyed the free market itself, and that the growth of a permanent underclass of impoverished workers confined to hopeless urban slums would lead to violent revolution and the collapse of the entire system. At the center of the Progressive vision, then, was a commitment to realizing a particular Progressive conception of the mythic American Dream—that those with talent and a strong work-ethic could rise to the top, that the free market should be freed of domination by trusts, and that the government ought to ensure the rights and liberties of all citizens.

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