The United States Since the Civil War Part 13

[3] The remaining members of the cabinet were: Redfield Proctor, Vt., Secretary of War; W.H.H. Miller, Ind., Attorney-General; B.F. Tracy, N.Y., Secretary of the Navy; J.W. n.o.ble, Mo., Secretary of the Interior; J.M. Rusk, Wis., Secretary of Agriculture.

[4] Corporal Tanner is commonly supposed to have been so anxious to have a hand in the generous distribution of government revenue among the old soldiers that he declared one morning as he seated himself at his desk, "G.o.d help the surplus." This is a mistake, although the Corporal seems to have been more ready than the President to act quickly and generously on claims.

[5] The open character of the financial corruption of the campaign also gave impetus to the movement for the secret or Australian ballot which was first introduced in Louisville, Ky., on Feb. 28, 1888, and in Ma.s.sachusetts on May 29, of the same year. Another reform movement was that which resulted in the destruction of the Louisiana lottery. Cf.

A.K. McClure, _Recollections_, 173-183, and Peck, _Twenty Years_, 215-220.

[6] An incident which occurred when he was not speaker may serve to ill.u.s.trate the manner in which he routed his opponents. Representative Springer, of Illinois, who had a reputation for loquacity and insincerity, once asked for unanimous consent to correct a statement which he had previously made in debate. "No correction needed," shouted Reed. "We didn't think it was so when you made it."

[7] In his _Manual of General Parliamentary Law_, Reed declared that the House prior to 1890 was the most unwieldy parliamentary body in the world. Three resolute men, he a.s.serted, could stop all public business.

A few years later, when the Democrats were in power, they adopted the plans which Reed had so successfully used.

[8] These acts were part of the general financial history of the period and in that connection demand fuller discussion at a later point. Cf. Chap. XV.

CHAPTER XI

INDUSTRY AND _LAISSEZ FAIRE_

About the time the Sherman Anti-trust law was being pa.s.sed, in 1890, Henry D. Lloyd was writing his book _Wealth Against Commonwealth_, in which occurred a memorable pa.s.sage:

A small number of men are obtaining the power to forbid any but themselves to supply the people with fire in nearly every form known to modern life and industry, from matches to locomotives and electricity. They control our hard coal and much of the soft, and stoves, furnaces, and steam and hot-water heaters; the governors on steam-boilers and the boilers; gas and gas-fixtures; natural gas and gas-pipes; electric lighting, and all the appurtenances. You cannot free yourself by changing from electricity to gas, or from the gas of the city to the gas of the fields. If you fly from kerosene to candles, you are still under the ban.

To understand the dangers of the monopolies which Lloyd feared and denounced, it is necessary to know the princ.i.p.al features in the development of American industry from the close of the Civil War to 1890.

It will be remembered that the consolidation of small railroad lines into large systems was accompanied by such advantages to the companies and to the travelling public, as to demonstrate that combination was the inevitable order of the day. The similar integration of small industrial and commercial enterprises took place more slowly between 1870 and 1890, but the process was no less inevitable on that account. The census of 1890 indicated that the production of manufactured articles had greatly increased since 1870; more capital was engaged; the product was more valuable; and more workmen were employed. Nevertheless the number of establishments which were in operation had shown a considerable decline in many industries. An army of 100,000 employees represented the expansion of the wage-earning force in the iron and steel works, for example, and $270,000,000 the increase in the value of their products; yet the number of establishments engaged showed a shrinkage of nearly fourteen per cent. The workers in the textile mills grew from 275,000 to 512,000, and the capital outlay from $300,000,000 to $750,000,000, but the number of factories declined from 4,790 to 4,114. A cartoon in _Puck_ on January 26, 1881, remarked that "the telegraph companies have been consolidated, which in simple language means that Mr. Jay Gould controls every wire in the United States over which a telegram can be sent."

Some of the reasons for the prevalent tendency toward combination were not hard to discover. In the first place, although industrial organizations fought one another with the utmost bitterness, it was in the nature of things for them to combine if threatened by any common foe. Moreover, production on a large scale made possible savings and improvements that were outside the grasp of more modest enterprises; buying and selling large quant.i.ties of goods commanded opportunities for profit; waste products could be made use of and costly scientific investigations conducted in order to discover improved methods, overcome difficulties and open new avenues of activity; large salaries and important positions could be offered to men of executive capacity; and expensive equipment could be purchased and utilized.[1] An effective force which tended to drive industries to combine was the cut-throat compet.i.tion which prevailed. Herbert Croly in his stimulating book _The Promise of American Life_ vividly describes the bitter, warlike character of industrial compet.i.tion after 1865. Compet.i.tion was battle to the knife and tomahawk. The leaders were constantly seeking bigger operations, to which the bigger risks only added zest. A company might be making unbelievable profits one year and "skirting" bankruptcy the next. Exciting as all this was, however, the desire for adventure was not as powerful as the desire for profits, and cut-throat compet.i.tion in industry led as naturally to combination, as rate-wars on the railroads led to pooling agreements.

An important factor in the development of large corporations was the increasing use of the corporation form of industrial organization, as contrasted with the co-partnership plan. If a few men enter a copartnership, each of them must supply a considerable amount of capital; but if a corporation is formed and stock is sold, the par value of the shares may be placed at a low figure--$100 or less, for example--and thus a large number of persons may be able to establish an industry which is far beyond the financial resources of any individual or small group among them. The corporation, moreover, is relatively permanent, for the death of one stock-holder among many is unimportant as compared with that of one member of a co-partnership. In case of disaster to the enterprise the liability of the stock-holder in a corporation is limited to the amount which he has invested, while any member of a partnership may be legally held for all the debts of the organization. With such advantages in its favor the corporation plan largely dominated the organization of industry.

The most famous example of combination before 1890 was the Standard Oil Company, which was the cause of more litigation, more study and more complaint than any other industrial organization that has ever existed in America. In 1865 Rockefeller & Andrews started an oil-refining business in Cleveland, Ohio. Samuel Andrews was a mechanical genius and he attended to the technical end of the industry; John D. Rockefeller had bargaining capacity, and to him fell the task of buying the crude oil, providing barrels and other materials and selling the product. The firm prospered. H.M. Flagler was taken into the company and a branch was established in New York. In 1870 these three with a few others organized the Standard Oil Company of Ohio, with a capitalization of a million dollars. It controlled not over ten percent. of the business of oil-refining in the United States at that time. But the oil business was so profitable that capital flowed into it and compet.i.tion became keen.

Rockefeller and some a.s.sociates, therefore, devised the South Improvement Company of Pennsylvania, a combination of refiners, headed and controlled by the Standard, the purpose of which was to make advantageous arrangements With the railroads for transportation facilities. Early in 1872, a most remarkable contract was signed between the company and the important railroads of the oil country--the Pennsylvania, the New York Central and the Erie. By it the roads agreed to establish certain freight rates from the crude-oil producing region of western Pennsylvania to such refining and shipping centers as New York, Philadelphia, Baltimore, Pittsburg and Cleveland. From these rates the South Improvement Company was to receive substantial rebates, amounting to forty or fifty per cent. on crude oil and twenty-five to forty-five per cent. on refined. On their side the railroads were promised the entire freight business of the Company, each to have an a.s.sured proportion of the traffic, with freedom from rate-cutting compet.i.tion. All this was the common railroad practice of the times.

But another portion of the contract was not so common. It provided that the roads should give the South Improvement Company rebates on all oil shipped by its compet.i.tors and furnish it with full way-bills of all such shipments each day. In other words, the Company was to know exactly the amount of the business of its compet.i.tors and with whom it was being done. The contract allowed the roads to make similar rebates with anybody offering an equal amount of traffic, but the likelihood of such an outcome was slender in the extreme. Armed with this powerful weapon, Rockefeller entered upon a campaign to eliminate compet.i.tion by offering to buy out independent refiners either with cash or with Standard Oil stock, at his estimate of the value of their property. Those who objected to selling were shown that the alliance between the South Improvement Company and the railroads was so strong that they faced the alternative of giving way or being crushed. Of the twenty-six refineries in Cleveland, at least twenty-one yielded. The capacity of the Standard leaped from 1,500 to 10,000 barrels a day and it controlled a fifth of the refining business of the country. When these facts came to be known in the oil country, the bitter Oil War of 1872 began. Independent producers joined to fight for existence, and at length the railroads gave way and agreed to abandon the contract with the South Improvement Company, and the legislature of Pennsylvania annulled its charter, although in one way or another rebates continued and the absorption of rivals went on. In 1882 the entire combination--thirty-nine refiners, controlling ninety to ninety-five per cent. of the product--was organized as the Standard Oil Trust. All stock-holders in the combining companies surrendered their certificates and received in return receipts or "trust-certificates," which showed the amount of the owner's interest in the trust. In order to secure unity of purpose and management, the affairs of the combination were put into the hands of nine trustees, with Rockefeller at the head.

The wonderful success of the Standard Oil Company, however, was not due solely to the alliance with the railroads, although this advantage came at a strategic time when it was fighting for supremacy. Its marketing department gave it an unenviable reputation, but achieved amazing success. The department was organized to cover the country, find out everything possible about compet.i.tors, and then kill them off by price-cutting or other means. The great resources of the Company enabled it to undersell rivals, going below cost if necessary, and thus wearing out opposition. Continuity of control, also, contributed to Standard success; the narrow limits of the area in which the crude oil was produced before 1890 rendered the problem of securing a monopoly somewhat easier; the organization was extremely efficient and the const.i.tuent companies were stimulated to a high degree of productivity by encouraging the spirit of emulation; men of ability were called to its high positions; the policy of gaining the mastery over the trade in petroleum and its products was kept definitely and persistently to the front; and then there was John D. Rockefeller.

Rockefeller was what used to be called a "self-made" man. He began his business life in Cleveland as a clerk at an extremely modest salary.

Capacity for details and for shrewd bargaining, patience, frugality, seriousness, secretiveness, caution, an instinctive sense for business openings, self-control--all these were characteristic both of the Cleveland clerk and the later oil-refiner. In the bigger field he developed a daring caution, a quick understanding of the value of new inventions, a capacity for organization, quick grasp of essentials and a resourcefulness that dominated the entire Standard combination. He built his own barrels, owned the pipe-lines, tank-cars, tank-wagons and warehouses. Consolidation, magnitude and financial returns were his aims, and in achieving these he and his a.s.sociates were so successful as to make the Standard a leader in all branches of business, except the ethics of industry. Litigation has been the constant accompaniment of Standard progress.

Following the Standard Oil Company, other combinations found the trust form of organization a convenient one. The cotton trust, the whiskey trust, and the sugar, cotton bagging, copper and salt trusts made the public familiar with the term. Moreover, popular suspicion and hostility became aroused, and the word "trust" began to acquire something of the unpleasant connotation which it later possessed.

Although it was upon the Standard Oil Company that people turned when they denounced the trusts and feared or condemned their practices, the principles to which the Standard adhered when under the strain of compet.i.tion were the practices which were followed by their contemporaries, both big and little. When the Diamond Match Company, for example, was before the Courts of Michigan in 1889, it appeared that the organization was built up for the purpose of controlling the manufacture and trade in matches in the United States and Canada. Its policy was to buy up and "remove" compet.i.tion, so that it might monopolize the manufacture and sale of matches. It could then fix the price of its commodity at such a point that it could recoup itself for the expense of eliminating compet.i.tors and also make larger profits than were possible when its rivals were active.

Still more dangerous was the combination of the hard coal operators. By 1873, six corporations owned both the hard coal deposits of Pennsylvania and the railroads which made it possible to haul the coal out to the markets. In the same year and later these companies made agreements which determined the amounts of coal that they would mine, the price which they would charge, and the proportion of the whole output that each company would be allowed to handle. Independent operators--that is, operators not in the combination--found their existence precarious in the extreme, for their means of transportation was in the hands of the six coal-carrying railroads, who could raise rates almost at will and find reasons even for refusing service. The states were powerless to remedy the situation because their authority did not extend to interstate commerce, yet it was intolerable for a small group of interested parties to have power to fix the output of so necessary a commodity as coal, on no other basis than that provided by their own desires.

Other abuses appeared which showed that industrial combinations were open to many of the complaints which, in connection with the railroads, had led to the Interstate Commerce Act. Industrial pools resembled railroad pools and were objected to for similar reasons. Bankers and others who organized combinations were given returns that seemed as extravagant as the prices paid to railroad construction companies; the issues of the stock of corporations were bought and sold by their own officers for speculative purposes; and stock-watering was as common as in railroading. The industrial combinations also had somewhat the same effect on politics that the railroads had. Lloyd declared that the Standard Oil Company had done everything with the Pennsylvania legislature except refine it.

One of the most noted cases of corporation influence in politics was that of the election of Senator Henry B. Payne of Ohio. In 1886 the legislature of the state requested the United States Senate to investigate the election of Payne because of charges of Standard Oil influence. The debate over the case showed clearly the belief on the part of many that the Standard, which controlled "business, railroads, men and things" was also choosing United States senators. Senator h.o.a.r raised the question whether the Standard was represented in the Senate and even in the Cabinet. In denying any connection with the Oil Company, Payne himself declared that no inst.i.tution or a.s.sociation had been "to so large an expense in money" to accomplish his defeat when he was a candidate for election to the lower house. Popular suspicion seemed confirmed, therefore, that the Company was taking an active share in government. Whether the trust was for or against Payne made little difference.

A complaint that brought the trust problem to the attention of many who were not interested in its other aspects was the treatment accorded independent producers. The rough-shod methods employed by the Standard Oil Company, the Diamond Match Company and the coal operators were concretely ill.u.s.trated in many a city and town by such incidents as that of a Pennsylvania butcher mentioned by Lloyd. An agent of the great meat slaughtering firms ordered the butcher to cease slaughtering cattle, and when he refused the agent informed him that his business would be destroyed. He then found himself unable to buy any meat whatever from Chicago, the meat-packing center, and discovered that the railroad would not furnish cars to transport his supplies. Faced by such overwhelming force, the independent producer was generally compelled to give way to the demands of the big concerns or be driven to the wall. The helplessness of the individual under such conditions was strikingly expressed by Mr. Justice Harlan of the Supreme Court in a decision in a suit against the Standard Oil Company:

All who recall the condition of the country in 1890 will remember that there was everywhere, among the people generally, a deep feeling of unrest. The Nation had been rid of human slavery ...

but the conviction was universal that the country was in real danger from another kind of slavery sought to be fastened on the American people, namely, the slavery that would result from aggregations of capital in the hands of a few ... controlling, for their own ...

advantage exclusively, the entire business of the country, including the production and sale of the necessaries of life.

Observers noted that fortunes which outstripped the possessions of princes were being ama.s.sed for the few by combinations which sometimes, if not frequently, resorted to illegal and unfair practices, and they compared these conditions with the labor unrest, the discontent and the poverty which was the lot of the many.

In the meanwhile there had arisen a growing demand for action which would give relief from the conditions just described. As early as 1879 the Hepburn committee appointed by the New York a.s.sembly had investigated the railroads and had made public a ma.s.s of information concerning the relation of the transportation system to the industrial combinations. In 1880 Henry George had published _Progress and Poverty_ in which he had contended that the entire burden of taxation should be laid upon land values, in order to overcome the advantage which the ownership of land gave to monopoly. In 1881 Henry D. Lloyd had fired his first volley, "The Story of a Great Monopoly," an attack on the Standard Oil Company which was published in the _Atlantic Monthly_ and which caused that number of the periodical to go through seven editions.[2] In 1888 Edward Bellamy's _Looking Backward_ had pictured a socialized Utopian state in which the luxuries as well as the necessities of life were produced for the common benefit of all the people. Societies had been formed for the propagation of Bellamy's ideas, and the parlor study of socialism had become popular.

The platforms of the political parties had given evidence of a continuing unrest without presenting any definite proposals for relief.

As far back as 1872 the Labor Reformers had condemned the "capitalists"

for importing Chinese laborers; in the same year the Republicans and Democrats had opposed further grants of public land to corporations and monopolies--referring in the main to the railroads; in 1880 the Greenbackers and in 1884 the Anti-Monopolists, the Prohibitionists and the Democrats had denounced the corporations and called for government action to prevent or control them; and in 1888 the Union Labor party, the Prohibitionists and the Republicans had urged legislation for doing away with or regulating trusts and monopolies. By 1890 eight states had already pa.s.sed anti-trust laws. Among unorganized forces, possibly the independent producers were as effective as any. Although usually overcome by the superior strength of their big opponents, they frequently conducted vigorous contests and sometimes carried the issue to the courts where damaging evidence was made public.

The solution of the problem of trust control was not easy to discover.

The amount of property involved was so great that forceful legislation would be fought to the last ditch; while legislation that was obviously weak, on the other hand, would not satisfy public opinion. Public officials were hopelessly divergent in their views. Cleveland had called attention to the evils of the trusts in his tariff message of 1887, but had laid his emphasis on the need of reduced taxation rather than upon control of the great combinations. Blaine was opposed to federal action. Thomas B. Reed had characteristically ridiculed the idea that monopolies existed:

And yet, outside the Patent Office there are no monopolies in this country, and there never can be. Ah, but what is that I see on the far horizon's edge, with tongue of lambent flame and eye of forked fire, serpent-headed and griffin-clawed?

Surely it must be the great new chimera "Trust." Quick, cries every masked member of the Ways and Means. Quick, let us lower the tariff.

Let us call in the British. Let them save our devastated homes.

More serious was the almost universal lack of knowledge of the elements involved in the situation. Industrial leaders were unenlightened and wrapped up in the attempt to outdo rivals who were equally unenlightened and absorbed; the nation needed instruction and leadership, and neither was to be found. Instead, the poorer cla.s.ses became more and more hostile to big business interests; the capitalist cla.s.s set itself stolidly to the preservation of its interests. The one saw only the abuses, the other only the benefits of combinations.

Thoughtful men felt that industrialism was afflicted with a malady which would kill the nation unless a remedy were found.

The legal and const.i.tutional position of the trusts was almost impregnable. Ever since the decision of the Supreme Court in the Dartmouth College case, handed down in 1819, franchises and charters granted by states to corporations had been regarded as contracts which could not be altered by subsequent legislation. Moreover, the Court had so interpreted the Fourteenth Amendment, as has been seen, that the states had found great difficulty in framing regulatory legislation that would pa.s.s muster before the judiciary.[3] It was doubtful whether federal attempts at regulation would be more fortunate. More fundamental still, for public opinion underlies even const.i.tutional interpretation, American industrial and commercial expansion had run ahead of our conception of the possible and proper functions of government. Government as the protector of property was an ancient concept and commonly held in the United States; government as the guardian of the individual against the powerful holder of a great deal of property was a new idea and not generally looked upon with favor.

It has already been seen that the prevailing economic theory, _laissez faire_, was diametrically opposed to government regulation of the economic activities of the individual. According to this view, unrestricted industrial liberty would result in adjustment by business itself on honorable lines. Men whose integrity was such that they were in control of great enterprises, a.s.serted an attorney for the Standard Oil Company, would be the first to realize that a fair policy toward compet.i.tors and the public was the most successful policy. Combination was declared to be inevitable in modern life and reductions in the price of many commodities were pointed to as a justification for leaving the trusts unhampered.

Public opinion, however, was reaching the point where it was prepared to brush aside theoretical difficulties. President Harrison, Senator Sherman and others urged action. Large numbers of anti-monopoly bills were presented in Congress. The indifference of some members and the opposition of others was somewhat neutralized by the fiery zeal of such men as Senator Jones of Arkansas, who declared that the fortunes made by the Standard Oil Company did not represent a single dollar of honest toil or one trace of benefit to mankind. "The sugar trust," declared the senator, "has its 'long, felonious fingers' at this moment in every man's pocket in the United States, deftly extracting with the same audacity the pennies from the pockets of the poor and the dollars from the pockets of the rich."

After much study of the ma.s.s of suggested legislation, Congress relied upon its const.i.tutional power to regulate commerce among the several states and pa.s.sed the Sherman Anti-trust Act, which received President Harrison's signature on July 2, 1890. Its most significant portions are the following:

Sec. 1. Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is ... illegal.

Sec. 2. Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other such person ... to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of misdemeanor.

The purpose of the framers of the Act seems clearly to have been to draw up a general measure whose terms should be those usual in the English common law and then rest on the a.s.surance that the courts would interpret its meaning in the light of former practice. For some centuries restraint of trade had been considered illegal in England, but no contract was held to be contrary to law if it provided only a _reasonable_ restraint--that is, if the restraint was merely minor and subsidiary. The Sherman act was a Senate measure, was presented from the Judiciary Committee and was pa.s.sed precisely as drawn up by it. In speaking from the Committee, both Edmunds and h.o.a.r took the att.i.tude which the latter expressed as follows: "The great thing that this bill does ... is to extend the common-law principles, which protected fair compet.i.tion ... in England, to international and interstate commerce in the United States." Just how far the members of Congress who were not on the Judiciary Committee of the Senate shared in this view or really understood the bill can not be said. Indeed, many members of both chambers absented themselves when the bill came to a vote.[4]

For a long time the Sherman Act like the Interstate Commerce Act was singularly ineffective and futile. Trusts were nominally dissolved, but the separate parts were conducted under a common and uniform policy by the same board of managers. The Standard Oil Company changed its form by selecting the Standard Oil Company of New Jersey as a "holding corporation." Stock of the members of the combination was exchanged for stock in the New Jersey organization, leaving control in the same hands as before. The "same business was carried on in the same way but 'under a new sign.'" The wide variety of conditions tolerated under the corporation laws of the several states made confusion worse confounded.

In its early attempts to convict corporations of violation of the law, the government was uniformly defeated.

In 1893 came the climax of futility. The American Sugar Refining Company had purchased refineries in Philadelphia which enabled it to control, with its other plants, ninety-eight per cent. of the refining business in the country. The government asked the courts to cancel the purchase on the ground that it was contrary to the Sherman law, and to order the return of the properties to their former owners. The Supreme Court declared that the mere purchase of sugar refineries was not an act of interstate commerce and that it could not be said to restrain such trade, and it refused to grant the request of the government.

Unhappily the prosecuting officers of the Attorney-General's office had drawn up their case badly, making their complaint the purchase, not the resulting restraint. No direct evidence was presented to show that interstate commerce in sugar and the control of the sugar business and of prices were the chief objects of the combination. To the public it seemed that the corporations were impregnable, for even the United States government could not control them.