The Industrial Era and the Robber Barons -Learn to Earn_ A Beginner’s Guide to the Basics of Investing and Business.
Corporations had built the factories, the girders, the underpinnings of modern America. By the mid-nineteenth century, less than a quarter of the country’s business was done by corporations, but moving toward the twentieth, companies were having an impact on every aspect of domestic life.
Mass production was the watchword of the day: The goods could roll from the factories into the railroad cars to be distributed across state lines, making regional markets out of what used to be neighborhood markets of small shops, with little variety in the merchandise. This expansion of markets was a revolutionary change in society, which affected people’s daily lives as much as or more than the American Revolution itself. Whereas before 1820, two-thirds of the clothing worn in the United States was made at home by hand, by the end of the century most of it came from factories.
Company names and brand names such as Diamond, Pillsbury, Campbell, Heinz, Borden, Quaker Oats, Libby, and Procter & Gamble became household words. Household products became celebrities, just as famous as well-known writers, painters, entertainers, or politicians. By the 1880s, Ivory soap was recognized from coast to coast. In 1884, George Eastman came up with a way to mass-produce the film to make photographs, and ten years later, taking pictures with Kodak film and Kodak cameras had become a national pastime.
The machine age and mass production came along so fast that people hardly had time to prepare for it. Property laws had to be rewritten, new rules of commerce established, new business arrangements entered into. A small group of people took advantage of the situation and enriched themselves beyond the wildest dreams of their contemporaries. These men amassed fortunes that dwarfed the fortunes of the richest pharaohs, sultans, potentates, kings, queens, conquistadores, and empire builders in all of history. They were known as the robber barons, a term coined by historian Matthew Josephson in the late 1920s.
The robber barons were not robbers in the traditional sense, nor were they lawbreakers, although some of them bent the laws, and even had the laws rewritten, for their own benefit. They were high-rolling speculators, most of them raised in poverty, who struggled, connived, and strong-armed their way to the top of American industry. They stretched the envelope of money.
Among them were Jay Gould, the son of a poor farmer in upstate New York, who by hook and by crook built a fabulous railroad empire; Andrew Carnegie, the son of Scottish weavers, who also owned railroads and became the nation’s most powerful iron magnate; Cornelius Vanderbilt, a roughneck on the docks of New York, who built a fleet of steamships, controlled the shipping industry and after that railroads, but in spite of his success and his wealth, lived for many years in a small house with a ratty old carpet; Daniel Drew, a cattle drover who was a master at manipulating the stock market for his own benefit; J. P. Morgan, the devoted churchgoer whose bank became so powerful he was once asked to bail out the U.S. government; Jay Cooke, the eternally optimistic stock and bond dealer whose investment company was so big and powerful that when it collapsed, the country almost collapsed with it; “Diamond” Jim Fisk, a former pushcart peddler and circus fancier who wore loud clothes and rings on every fat finger; Russell Sage, a crafty stock speculator and railroad tycoon; Leland Stanford, who became governor of California and used his political clout to build the railroads there, enriching himself and later Stanford University, which took his name and his money.
Last but not least was John D. Rockefeller, son of a snake-oil salesman, and himself a devout Baptist, a combination that produced a shrewd and fearsome capitalist, who gathered all the oil companies into a giant monopoly that could raise prices at will and force all its rivals into submission. More on this later.
With one or two exceptions, the robber barons were conservative in their personal lives, often devoutly religious, and oddly frugal given the size of their bankrolls. Most of them built or owned railroads, and they were plotting constantly to take over each other’s rail lines. They knew how to control the stock market to make the prices of railroad stocks zig and zag, and they made millions on the zigs.
Diamond Jim Fisk wasn’t called “first in the pockets of his countrymen” for no reason, and Jay Gould was a champion at talking up his Erie Railroad stock, so people would pay much more than these shares were worth. It was because of Gould that the Erie was called the “Scarlet Woman of Wall Street”—a company with a ruined credit rating that paid no dividend to shareholders between 1873 and 1942.
When Jay Cooke closed the doors of his banking offices because his railroad investments had soured, he triggered the Panic of 1873, which brought down several brokerage houses and almost put Wall Street out of business.
While the population doubled from 1864 to the early 1900s, the rail network increased sevenfold, and every American was within earshot of a railroad whistle. A twenty-two-year-old veteran of the Union forces, George Westinghouse, invented the air brake; electric lights replaced the gas and kerosene lamps; and Pullman came along with his manufactured railroad cars.
Even though the railroads were everywhere, people lost money on the stocks. There was always a crisis or a scandal that wiped out the small investors, while the robber barons managed to rake in the profits. In 1877, one of the most successful among them, Cornelius Vanderbilt, died in New York, leaving his entire fortune, a whopping $100 million, to his son William Vanderbilt.
The elder Vanderbilt was considered the richest man in American when he died, and he made his pile on shipping and then on railroads, particularly the New York Central. As often as he was praised as a titan of commerce, he was cursed as an aristocratic ingrate who gave nothing back to the people whose sweat had built the railroads and created his fortune.
The public was outraged that he departed from life having left nothing to the community. Vanderbilt himself believed he had done enough good by creating the railroad, and his money was his own business. His son William was more blunt about it. “The public be damned,” he once said.
In the emerging market of the United States, things didn’t happen in an orderly fashion. The same is true in many contemporary emerging markets. Every couple of decades, the economy broke down, and people would panic and rush to the banks to rescue their money, most of which had already been loaned out. The banks couldn’t possibly pay back all their depositors at once, so they collapsed. Once the banks collapsed and entire communities were left without money, all sorts of businesses would fail, and the financial system would go into the tank. The stock market would crash, and so would the bond market, because the organizations that issued the bonds couldn’t make the interest payments.
The Europeans were big losers in the Panic of 1873, just as they had been in earlier such calamities. Because of our frequent crashes and panics, the United States got the reputation of being a nation of sharpies who couldn’t be trusted in a business deal, the same sort of thing that’s recently been said about some of the Chinese and Russian entrepreneurs. We were the deadbeats of yesteryear.
In the Panic of 1893 (the big ones seemed to come at twenty-year intervals) one-fourth of the railroad companies were forced into bankruptcy. There was a lesser panic in 1903. Panic or no panic, some great companies that got their start in this period are still great companies today, employing hundreds of thousands of workers and making money for the shareholders. Half the countries that appeared on the world maps of 1900 have disappeared, but Hershey’s, Quaker Oats, Wrigley’s, AT&T, Du Pont, the Bank of Boston, American Tobacco, U.S. Steel, and the various spinoffs of Standard Oil (Exxon, Chevron, Mobil, Amoco, and so forth) are going strong.