The New Nation

by Frederic L. Paxson

The industrial revival was marked by an extension of the scope of industry, as every similar period had been. After the panic of 1837 the railroad had appeared among the important new activities of American society. Improvements in manufacturing technique followed the panic of 1857. After 1873 the varied applications of electricity to industry and communication gave a new direction to investment. After 1893, with every preceding activity stimulated and extended, there came the first successful construction of a trackless engine—the motor-car—and the rebuilding of the physical plants of cities, railways, and suburban residences. The recovery of confidence came after 1896, and before the end of the century speculation was at full blast.

The drift toward monopoly was marked. The trusts had already shown their profitable character. Concentration had been made possible by the development of communication in the eighties, and grew now on a larger scale than the eighties had imagined. Within the field of transportation the promoters reorganized the railroads after the panic, reduced their number, and gathered their control into the hands of a few men.

The railway system by 1900, with 198,000 miles of track, was directed by a few powerful groups of roads. In the East the New York Central and Pennsylvania systems were dominant. In the West the continental railways formed the basis of new organizations. The keenest interest gathered round the reconstruction of the Union Pacific by Edward H. Harriman, who reorganized its finances after 1897. The Union Pacific had been forced into combination by its location and its neighbors. Running from Omaha to Ogden it was dependent for through traffic upon the Central Pacific that ran from Ogden to San Francisco. When the latter came under the control of the California capitalists who owned the Southern Pacific lines, the Union Pacific was driven to build or buy outlets of its own, and extended into Oregon and Texas as the result. Jay Gould had begun the consolidation in the eighties and Harriman continued it after the panic of 1893. He rebuilt the main line and improved the value and credit of his property. In 1901 his road borrowed money with which to buy a controlling interest in the Central Pacific and Southern Pacific—the Huntington lines,—and thereafter the Harriman system, with two complete railroads from the Mississippi to the Pacific, was beyond the reach of hostile competition.

The Interstate Commerce Law of 1887 stimulated combination among the railroads, since it made pools and rate agreements illegal. The alternative to such agreements was destructive competition, since no two lines were of exactly equal strength. To avoid this, the stronger lines bought or leased the weaker, with which they might not coöperate, but which they might buy outright. Harriman, successful with his Southwestern system, tried in 1901 to buy the Northern Pacific, too, and came into direct conflict with another group of railway owners.

The Northern Pacific had been supplemented after 1893 by the Great Northern, which James J. Hill had built without a subsidy. These two roads, and the Chicago, Burlington & Quincy, covered the Northwest as Harriman's lines covered the Southwest. They were so placed that with common management they could be more effective than with rivalry. The owners of the Great Northern and the Burlington, James J. Hill and J. Pierpont Morgan, were on the verge of a general consolidation when Harriman tried to buy a control of the Northern Pacific. They struggled to retain it and succeeded, but their competition raised its stock to one thousand per share, causing a stock exchange panic on May 9, 1901. Only the speculators suffered by the panic, but public attention was drawn by it to the gigantic size of the combinations which held arbitrary control over nearly half the United States.

Minor consolidations followed these in 1902 and 1903, but none aroused so much fear as the Northern Securities Company of New Jersey, the holding company in whose hands Hill and Morgan determined to put the control of their lines. The fate of any single company could be determined by the ownership of not over fifty-one per cent of its stock. If this was owned by another corporation, a similar proportion of the stock of the latter would control the whole. The holding company was a machine whereby capital could control property several times its bulk. The Governors of the Northwest States, alarmed at the monopolization of their railways, protested and started suits. It was claimed that this sort of merging of railroads was, after all, a conspiracy in restraint of trade. In March, 1902, President Roosevelt instructed his Attorney-General, Philander C. Knox, to test the Sherman Act of 1890, and bring suit under it for the dissolution of the Northern Securities Company. For several years after 1897 foreign affairs and big business had been dominant in the American mind, which had admired their bigness and activity, but now the social consequences of big business aroused the fears of the nation. In 1903 Congress passed the Elkins Law, forbidding railroads to give rebates to favored customers, and an Expedition Law, to make the wheels of justice move more rapidly when prosecutions under the Sherman and Interstate Commerce Laws were under way.

Industrial consolidation, like that of the railways, began again in 1897, and many of the new corporations assumed a type that marked an evolution for the trust. In the earlier period the aim of the trust had been to eliminate competition by gathering under a single control the whole of a given business. Oil, sugar, steel, whiskey, and tobacco were notable instances in which extreme consolidation had been reached. Competition changed its character as consolidation increased. It ceased to mean a struggle between rivals in the same trade, and came to mean a struggle between successive processes of manufacture. The mine-owner struggled for his profits with the smelter who used his ore. The smelter struggled with the steel manufacturer in the same way. Control of single industries left untouched this newer competition, but an integration of great groups of related processes promised to avoid it.

In 1901 the greatest of the integrated trusts, the United States Steel Corporation, was created. The iron and steel industry had been expanding since the Bessemer and other commercial processes for the manufacture of steel had made it available for railway, bridge, and architectural construction. Andrew Carnegie, with his Pittsburg mills, was the most successful producer. His partnership controlled by 1901 about twenty-five per cent of the output of finished steel. He already included many related and successive processes, but now he allowed his works to be merged with those of his rivals into a large company. The resulting United States Steel Corporation owned and operated the ore deposits and the mines, the necessary coal fields, the local railways and freight steamers, the smelters and the blast furnaces, the rolling mills and the factories in which iron and steel were manufactured into a multitude of shapes for sale. With a New Jersey charter it was capitalized at $1,100,000,000, and drew attention to the industrial phase of the trust problem much as Harriman, Hill, and Morgan had drawn it to the railroads.

Promotion of new trusts, with billions of aggregated capital, was the order of the day from 1897 to 1902. The fear of monopoly was speedily aroused, and in 1898 Congress created an Industrial Commission, whose nineteen volumes of reports contain the facts upon which the history of the trusts must be based. In the fall of 1899 there met in Chicago a great conference on the trusts, where business men, economists, and politicians discussed the economic and social possibilities of the movement. A willingness to hear and perhaps to rely on the judgment of experts was shown in the discussions over the trusts. It marked a change in the American attitude toward government. By 1902 the demand for a solution of the trust problem was heard repeatedly, but there was little agreement as to whether the trusts were good or bad, or whether they should be abolished, regulated, or owned outright by the Government. It was not even certain what powers the United States possessed to regulate general industry, but a group of Supreme Court cases suggested that the power could be found. In the Trans-Missouri Freight Case (1897), the Supreme Court declared that the Sherman Law applied to railway conspiracies, and in the Addystone Pipe Case (1898), a decision against an industrial combination, written by Circuit Judge William H. Taft, was upheld by the court of last appeal. The Northern Securities Case, started in 1902, was pushed to a successful end in 1904, when it became apparent that legal control could be exercised if Congress so desired.

Labor followed the course of industry and transportation, becoming stronger and better united, and showing a keen jealousy of centralized control. The years of trust promotion were years of notable strikes and of episodes which drew attention to the social results of industrial concentration. Sometimes the trust had labor at a disadvantage, as was shown in the strike against the Steel Corporation by the Amalgamated Association in 1901. In 1892 this union had conducted a great strike against the Carnegie Works and had lost public sympathy and the strike. Its men had committed open violence, and an anarchistic sympathizer had tried to murder Carnegie's representative at Homestead, Henry C. Frick. In 1901 the strike affected the unionized mills of the Steel Corporation, but that trust had only to close down the mills involved and transfer pending contracts to other mills, remote and non-unionized. The strike collapsed because of the superior organization of the trust.