In making this settlement with the Western Union, the Bell interests not only eliminated a competitor but gained great material advantages. They took over about 56,000 telephone stations located in 55 cities and towns. They also soon acquired the Western Electric Manufacturing Company, which under the control of the Western Union had developed into an important concern for the manufacture of telephone supplies. Under the management of the Bell Company this corporation, which now has extensive factories in Hawthorne, Ill., produces two-thirds of the world's telephone apparatus. With the Western Electric Vail has realized the fundamental conception underlying his ideal telephone system—the standardization of equipment. For the accomplishment of his idea of a national telephone system, instead of a parochial one, Mr. Vail organized, in 1881, the American Bell Telephone Company, a corporation that really represented the federalization of all the telephone activities of the subsidiary companies. The United States was divided into several sections, in each of which a separate company was organized to develop the telephone possibilities of that particular area. In 1899 the American Telephone and Telegraph Company took over the business and properties of the American Bell Company. The larger corporation built toll lines, connected these smaller systems with one another, and thus made it possible for Washington to talk to New York, New York to Chicago, and ultimately—Boston to San Francisco. An enlightened policy led the Bell Company frequently to establish exchanges in places where there was little chance of immediate profit. Under this stimulation the use of this instrument extended rapidly, yet it is in the last twenty years that the telephone has grown with accelerated momentum. In 1887 there were 170,000 subscribers in the United States, and in 1900 there were 610,000; but in 1906 the American Telephone and Telegraph Company was furnishing its service to 2,550,000 stations, and in 1916 to 10,000,000. Clearly it is only since 1900 that the telephone has become a commonplace of American existence. Up to 1900 it had grown at the rate of about 13,000 a year; whereas since 1900 it has grown at the rate of 700,000 a year. The explanation is that charges have been so reduced that the telephone has been brought within the reach of practically every business house and every family. Until the year 1900 every telephone subscriber had to pay $240 a year, and manifestly only families in affluent circumstances could afford such a luxury. About that time a new system of charges known as the "message rate" plan was introduced, according to which the subscriber paid a moderate price for a stipulated number of calls, and a pro rata charge for all calls in excess of that number. Probably no single change in any business has had such an instantaneous effect. The telephone, which had hitherto been an external symbol of prosperity, suddenly became the possession of almost every citizen.
Other companies than the Bell interests have participated in this development. The only time the Bell Company has had no competitor, Mr. Vail has said, was at the Philadelphia Centennial in 1876. Some of this competition has benefited the public but much of it has accomplished little except to enrich many not over-scrupulous promoters. Groups of farmers who frequently started companies to furnish service at cost did much to extend the use of the telephone. Many of the companies which, when the Bell patents expired in 1895, sprang up in the Middle West, also manifested great enterprise and gave excellent service. These companies have made valuable contributions, of which perhaps the automatic telephone, an instrument which enables a subscriber to call up his "party" directly, without the mediation of "central," is the most ingenious. Although due acknowledgment must be made of the honesty and enterprise with which hundreds of the independents are managed, the fact remains that they are a great economic waste. Most of them give only a local service, no company having yet arisen which aims to duplicate the comprehensive national plans of the greater corporation. As soon as an independent obtains a foothold, the natural consequence is that every business house and private household must either be contented with half service, or double the cost of the telephone by subscribing to two companies. It is not unlikely that the "independents" have exercised a wholesome influence upon the Bell Corporation, but, as the principle of government regulation rather than individual competition has now become the established method of controlling monopoly, this influence will possess less virtue in the future. In addition to these independent enterprises, the telephone has unfortunately furnished an opportunity for stockjobbing schemes on a considerable scale. The years from 1895 to 1905 witnessed the growth of many bubbles of this kind; one group of men organized not far from two hundred telephone companies. They would go into selected communities, promise a superior service at half the current rates, enlist the cooperation of "leading" business men, sell the stock largely in the city or town to be benefited, make large profits in the construction of the lines and the sale of equipment—and then decamp for pastures new. The multitudinous bankruptcies that followed in the wake of such exploiters at length brought their activities to an end.
CHAPTER V. THE DEVELOPMENT OF PUBLIC UTILITIES
The streets of practically all American cities, as they appeared in 1870 and as they appear today, present one of the greatest contrasts in our industrial development. Fifty years ago only a few flickering gas lamps lighted the most traveled thoroughfares. Only the most prosperous business houses and homes had even this expensive illumination; most obtained their artificial light from the new illuminant known as kerosene. But it was the mechanism of city transportation that would have looked the strangest in our eyes. New York City had built the world's first horse-car line in 1832, and since that year this peculiarly American contrivance has had the most extended development. In 1870, indeed, practically every city of any importance had one or more railways of this type. New York possessed thirty different companies, each operating an independent system. In Philadelphia, Chicago, St. Louis, and San Francisco the growth of urban transportation had been equally haphazard. The idea of combining the several street railways into one comprehensive corporation had apparently occurred to no one. The passengers, in their peregrinations through the city, had frequently to pay three or four fares; competition was thus the universal rule. The mechanical equipment similarly represented a primitive state of organization. Horses and mules, in many cases hideous physical specimens of their breeds, furnished the motive power. The cars were little "bobtailed" receptacles, usually badly painted and more often than not in a desperate state of disrepair. In many cities the driver presided as a solitary autocrat; the passengers on entrance deposited their coins in a little fare box. At night tiny oil lamps made the darkness visible; in winter time shivering passengers warmed themselves by pulling their coat collars and furs closely about their necks and thrusting their lower members into a heap of straw, piled almost a foot deep on the floor.
Who would have thought, forty years ago, that the lighting of these dark and dirty streets and the modernization of these local railway systems would have given rise to one of the most astounding chapters in our financial history and created hundreds, perhaps thousands, of millionaires? When Thomas A. Edison invented the incandescent light, and when Frank J. Sprague in 1887 constructed the first practicable urban trolley line, in Richmond, Virginia, they liberated forces that powerfully affected not only our social and economic life but our political institutions. These two inventions introduced anew phrase—"Public Utilities." Combined with the great growth and prosperity of the cities they furnished a fruitful opportunity to several particularly famous groups of financial adventurers. They led to the organization of "syndicates" which devoted all their energies, for a quarter of a century, to exploiting city lighting and transportation systems. These syndicates made a business of entering city after city, purchasing the scattered street railway lines and lighting companies, equipping them with electricity, combining them into unified systems, organizing large corporations, and floating huge issues of securities. A single group of six men—Yerkes, Widener, Elkins, Dolan, Whitney, and Ryan—combined the street railways, and in many cases the lighting companies, of New York, Philadelphia, Chicago, Pittsburgh, and at least a hundred towns and cities in Pennsylvania, Connecticut, Rhode Island, Massachusetts, Ohio, Indiana, New Hampshire, and Maine. Either jointly or separately they controlled the gas and electric lighting companies of Philadelphia, Reading, Harrisburg, Atlanta, Vicksburg, St. Augustine, Minneapolis, Omaha, Des Moines, Kansas City, Sioux City, Syracuse, and about seventy other communities. A single corporation developed nearly all the trolley lines and lighting companies of New Jersey; another controlled similar utilities in San Francisco and other cities on the Pacific Coast. In practically all instances these syndicates adopted precisely the same plan of operation. In so far as their activities resulted in cheap, comfortable, rapid, and comprehensive transit systems and low-priced illumination, their activities greatly benefited the public. The future historian of American society will probably attribute enormous influence to the trolley car in linking urban community with urban community, in extending the radius of the modern city, in freeing urban workers from the demoralizing influences of the tenement, in offering the poorer classes comfortable homes in the surrounding country, and in extending general enlightenment by bringing about a closer human intercourse. Indeed, there is probably no single influence that has contributed so much to the pleasure and comfort of the masses as the trolley car.
Yet the story that I shall have to tell is not a pleasant one. It is impossible to write even a brief outline of this development without plunging deeply into the two phases of American life of which we have most cause to be ashamed; these are American municipal politics and the speculative aspects of Wall Street. The predominating influences in American city life have been the great franchise corporations. Practically all the men that have had most to do with developing our public utilities have also had the greatest influence in city politics. In New York, Thomas F. Ryan and William C. Whitney were the powerful, though invisible, powers in Tammany Hall. In Chicago, Charles T. Yerkes controlled mayors and city councils; he even extended his influence into the state government, controlling governors and legislatures. In Philadelphia, Widener and Elkins dominated the City Hall and also became part of the Quay machine of Pennsylvania. Mark Hanna, the most active force in Cleveland railways, was also the political boss of the State. Roswell P. Flower, chief agent in developing Brooklyn Rapid Transit, had been Governor of New York; Patrick Calhoun, who monopolized the utilities of San Francisco and other cities, presided likewise over the city's inner politics. The Public Service Corporation of New Jersey also comprised a large political power in city and state politics. It is hardly an exaggeration to say that in the most active period, that from 1880 to 1905, the powers that developed city railway and lighting companies in American cities were identically the same owners that had the most to do with city government. In the minds of these men politics was necessarily as much a part of their business as trolley poles and steel rails. This type of capitalist existed only on public franchises—the right to occupy the public streets with their trolley cars, gas mains, and electric light conduits; they could obtain these privileges only from complaisant city governments, and the simplest way to obtain them was to control these governments themselves. Herein we have the simple formula which made possible one of the most profitable and one of the most adventurous undertakings of our time.
An attempt to relate the history of all these syndicates would involve endless repetition. If we have the history of one we have the history of practically all. I have therefore selected, as typical, the operations of the group that developed the street railways and, to a certain extent, the public lighting companies, in our three greatest American cities—New York, Chicago, and Philadelphia.
One of the men who started these enterprises actually had a criminal record. William H. Kemble, an early member of the Philadelphia group, had been indicted for attempting to bribe the Pennsylvania Legislature; he had been convicted and sentenced to one year in the county jail and had escaped imprisonment only by virtue of a pardon obtained through political influence. Charles T. Yerkes, one of his partners in politics and street railway enterprises, had been less fortunate, for he had served seven months for assisting in the embezzlement of Philadelphia funds in 1873. It was this circumstance in Yerkes's career which impelled him to leave Philadelphia and settle in Chicago where, starting as a small broker, he ultimately acquired sufficient resources and influence to embark in that street railway business at which he had already served an extensive apprenticeship. Under his domination, the Chicago aldermen attained a gravity that made them notorious all over the world. They openly sold Yerkes the use of the streets for cash and constantly blocked the efforts which an infuriated populace made for reform. Yerkes purchased the old street railway lines, lined his pockets by making contracts for their reconstruction, issued large flotations of watered stock, heaped securities upon securities and reorganization upon reorganization and diverted their assets to business in a hundred ingenious ways.
In spite of the crimes which Yerkes perpetrated in American cities, there was something refreshing and ingratiating about the man. Possibly this is because he did not associate any hypocrisy with his depredations. "The secret of success in my business," he once frankly said, "is to buy old junk, fix it up a little, and unload it upon other fellows." Certain of his epigrams—such as, "It is the strap-hanger who pays the dividends"—have likewise given him a genial immortality. The fact that, after having reduced the railway system of Chicago to financial pulp and physical dissolution, he finally unloaded the whole useless mass, at a handsome personal profit, upon his old New York friends, Whitney and Ryan, and decamped to London, where he carried through huge transit enterprises, clearly demonstrated that Yerkes was a buccaneer of no ordinary caliber.