STEEL
The modern steel industry of America is forty-five years old. The “great bankers” had no part in initiating it. Andrew Carnegie, then already a man of large means, introduced the Bessemer process in 1868. In the next thirty years our steel and iron industry increased greatly. By 1898 we had far outstripped all competitors. America’s production about equalled the aggregate of England and Germany. We had also reduced costs so much that Europe talked of the “American Peril.” It was 1898, when J. P. Morgan & Co. took their first step in forming the Steel Trust, by organizing the Federal Steel Company. Then followed the combination of the tube mills into an $80,000,000 corporation, J. P. Morgan & Co. taking for their syndicate services $20,000,000 of common stock. About the same time the consolidation of the bridge and structural works, the tin plate, the sheet steel, the hoop and other mills followed; and finally, in 1901, the Steel Trust was formed, with a capitalization of $1,402,000,000. These combinations came thirty years after the steel industry had been “initiated”.
THE TELEPHONE
The telephone industry is less than forty years old. It is probably America’s greatest contribution to industrial development. The bankers had no part in “initiating” it. The glory belongs to a simple, enthusiastic, warm-hearted, business man of Haverhill, Massachusetts, who was willing to risk his own money. H. N. Casson tells of this, most interestingly, in his “History of the Telephone”:
“The only man who had money and dared to stake it on the future of the telephone was Thomas Sanders, and he did this not mainly for business reasons. Both he and Hubbard were attached to Bell primarily by sentiment, as Bell had removed the blight of dumbness from Sanders’ little son, and was soon to marry Hubbard’s daughter. Also, Sanders had no expectation, at first, that so much money would be needed. He was not rich. His entire business, which was that of cutting out soles for shoe manufacturers, was not at any time worth more than thirty-five thousand dollars. Yet, from 1874 to 1878, he had advanced nine-tenths of the money that was spent on the telephone. The first five thousand telephones, and more, were made with his money. And so many long, expensive months dragged by before any relief came to Sanders, that he was compelled, much against his will and his business judgment, to stretch his credit within an inch of the breaking-point to help Bell and the telephone. Desperately he signed note after note until he faced a total of one hundred and ten thousand dollars. If the new ‘scientific toy’ succeeded, which he often doubted, he would be the richest citizen in Haverhill; and if it failed, which he sorely feared, he would be a bankrupt. Sanders and Hubbard were leasing telephones two by two, to business men who previously had been using the private lines of the Western Union Telegraph Company. This great corporation was at this time their natural and inevitable enemy. It had swallowed most of its competitors, and was reaching out to monopolize all methods of communication by wire. The rosiest hope that shone in front of Sanders and Hubbard was that the Western Union might conclude to buy the Bell patents, just as it had already bought many others. In one moment of discouragement they had offered the telephone to President Orton, of the Western Union, for $100,000; and Orton had refused it. ‘What use,’ he asked pleasantly, ‘could this company make of an electrical toy?’
“But besides the operation of its own wires, the Western Union was supplying customers with various kinds of printing-telegraphs and dial-telegraphs, some of which could transmit sixty words a minute. These accurate instruments, it believed, could never be displaced by such a scientific oddity as the telephone, and it continued to believe this until one of its subsidiary companies—the Gold and Stock—reported that several of its machines had been superseded by telephones.
“At once the Western Union awoke from its indifference. Even this tiny nibbling at its business must be stopped. It took action quickly, and organized the ‘American Speaking-Telephone Company,’ and with $300,000 capital, and with three electrical inventors, Edison, Gray, and Dolbear, on its staff. With all the bulk of its great wealth and prestige, it swept down upon Bell and his little body-guard. It trampled upon Bell’s patent with as little concern as an elephant can have when he tramples upon an ant’s nest. To the complete bewilderment of Bell, it coolly announced that it had the only original telephone, and that it was ready to supply superior telephones with all the latest improvements made by the original inventors—Dolbear, Gray, and Edison.
“The result was strange and unexpected. The Bell group, instead of being driven from the field, were at once lifted to a higher level in the business world. And the Western Union, in the endeavor to protect its private lines, became involuntarily a ‘bell-wether’ to lead capitalists in the direction of the telephone.”
Even then, when financial aid came to the Bell enterprise, it was from capitalists, not from bankers, and among these capitalists was William H. Forbes (son of the builder of the Burlington) who became the first President of the Bell Telephone Company. That was in 1878. More than twenty years later, after the telephone had spread over the world, the great house of Morgan came into financial control of the property. The American Telephone & Telegraph Company was formed. The process of combination became active. Since January, 1900, its stock has increased from $25,886,300 to $344,606,400. In six years (1906 to 1912), the Morgan associates marketed about $300,000,000 bonds of that company or its subsidiaries. In that period the volume of business done by the telephone companies had, of course, grown greatly, and the plant had to be constantly increased; but the proceeds of these huge security issues were used, to a large extent, in effecting combinations; that is, in buying out telephone competitors; in buying control of the Western Union Telegraph Company; and in buying up outstanding stock interests in semi-independent Bell companies. It is these combinations which have led to the investigation of the Telephone Company by the Department of Justice; and they are, in large part, responsible for the movement to have the government take over the telephone business.