Who Were the Robber Barons? [1 of 2]

Unknown.jpegLiving through the technological revolution of the 21st-century, characterized by new, groundbreaking inventions, we are experiencing the height of ingenuity here in America, navigating a post-industrial capitalist society, the home of several influential figures in technology, technological titans like Steve Jobs, Mark Zuckerberg, Bill Gates, and Jeff Bezos, all of whom have built up awe-inspiring businesses, and who take up the global stage, leaving us to face the overwhelming consolidation of big corporations, massive conglomerates like Apple, Facebook, Microsoft, and Amazon, which dominate the market, providing everything we need, from social networking to searching to shopping online. Famous for its invitation to live the “American Dream,” the U.S. prides itself on its economic status, flaunting its capitalist success, making it appealing to young entrepreneurs looking to get a start and build a wealthy enterprise. But this is nothing new in American history, for just over a century ago, having recovered from its destructive Civil War, this young, promising country—a newly christened republic and “democracy”—was trying to lose the training wheels of Europe and ride on its own, without help, ushering in the Second Industrial Revolution, which heralded the so-called “Gilded Age,” which oversaw a rise in inventors and entrepreneurs. The late 19th– and early 20th-century saw the flourishing of an industrial, capitalist America. It was during this period that the big names like Rockefeller, Carnegie, and Morgan became known as “Robber Barons,” men who built Unknown-1.jpegbusinesses ruthlessly, mercilessly, for their own private profit. We are at a critical point in history, when our democratic ideals of freedom, liberty, and privacy are threatened by unstoppable businesses that are indispensable to our lives, and without which we could not imagine living, exercising a powerful hold over us. So how did we get here? History shows us the parallels between seemingly disparate ages. As such, by looking back at the Robber Barons—who they were, how they became who they were, and how they managed to prosper—and the conditions that allowed for their growth, we will gain a better understanding of this contemporary, urgent junction at which we now stand, enveloped by and subjugated to the corporate world, which at any moment threatens to swallow us whole. We will be looking at the lives and careers of the infamous Robber Barons, the environment that enabled them to expand, and the current situation and how it resembles the past.


Unknown-2.jpegAfter the Civil War, Americans began to settle down peacefully and rebuild. The growing nation had to deal with the fact that there were lots of people who needed to get places, that if the economy were to improve, it needed to be sped up. Railroads were the solution to these two problems. By constructing vast railroad lines, people could get one from state to another in a matter of days, instead of months, and commerce would be boosted because goods could be moved farther and faster. The problem was, building railroads was a big project, so it required both able workers and money—lots of money. Men eager to make a buck saw an opportunity in this opening. Early on, in 1867, when the First Transcontinental Railroad was set into action, a company was hired to build it, called Crédit Mobilier. Although the real projected cost of the endeavor was about $44 million, Crédit Mobilier managed to get the Government to pay them $94 million in order Crédit-Scandal.jpgto begin. Cons like this were not uncommon in the railroad days, as opportunists profited entirely off of land grants and construction projects which were blown way out of proportion, costing the Government millions. The scam was not noticed until several years later, and much to the public’s surprise, many of those complicit in it were notable politicians, such as Representative Oakes Ames; founder of Stanford University Leland Stanford, who was also guilty of bribing other governments for control of other railroads; future President James A. Garfield (yup, President’s are not immune to corruption by any means!); and the then-current Vice President Schuyler Colfax, among others. This was but the beginning of a long series of scandals that would plague the U.S. railroads. The fact that powerful people were involved, too, is no exception, but rather the rule of the Gilded Age.


While Crédit Mobilier was busy stealing millions from the Government, there was another controversy going on, except that this one was neither private nor peaceful. Unknown-3.jpegCornelius “Commodore” Vanderbilt (1794-1877) had up until the latter part of his life worked with steamships, before the Civil War, from which he gained his nickname. Later, he moved onto railroads, seeing in them a lucrative business. He used the many openings as a way of getting rich, buying and consolidating different racks, notably the New York Central Line, which was heavily used, making him incredibly rich at the time. But as Vanderbilt devoured mile after mile of railroad, he looked back behind him to find that his enterprise was being encroached upon by a rival of his, Daniel Drew (1797-1879), who proved a tough competitor, just as meteoric in his acquisitions as Vanderbilt was. Accompanied by his two associates, Drew had two goals: To grow his business and to retard Vanderbilt’s business. The latter was most important, so Drew was determined to prevent Vanderbilt from dominating the railroad lines. In order to keep Vanderbilt from buying him out, Drew held steadfastly to the Erie Line. He refused to sell it, but kept adding onto it, stealing more and more land from Vanderbilt, rising the prices more and more outrageously, provoking his nemesis not just once, but numerous times, to put a bounty on Drew’s head, in a vicious attempt to usurp him and take his business. Both men, Drew and Vanderbilt, bribed railroad operators to obtain and add them to their collections, as if they were trophies. Vanderbilt would stop at nothing to extend his grasp over the railroads, and he constantly tried, in vain, to buy the Erie Railroad from Drew. He was known, Vanderbilt, for hosting lavish parties, showing off his wealth through ostentatious displays of conspicuous consumption, proving to everyone he was the real deal. Whoever owned more railroads, whoever was richer, by whatever means necessary, was the better of the two. It became known as the Erie War.


Unbeknownst to either of the two, both of Drew’s associates were doing their own thing, independently. The most controversial of the two, Jay Gould (1836-92), was probably the most deserving of the name “Robber Baron,” and for this reason, he is like the Prodicus of 19th-century America; that is, Jay Gould was to the American public what the Sophists of 5th-century Athens were to Socrates and Plato: Good-for-nothing, 408_108567419405.jpgtalentless, swindling charlatans, imposters, who got money dishonorably, by both charging too much and deceiving their “clients,” or, more appropriately, “victims.” Gould, the Sophist of American business, bought abandoned Southern railroads, fixed them up, then sold them for way more than they were worth—essentially, Gould flipped railroads—and earned hundreds of millions of dollars from it. Thus, from 1867-72, Gould, Drew, and their third associate, James Fisk (1835-72), all vied with Vanderbilt for the railroads, each using illegitimate means to do so. Drew, to keep Vanderbilt from buying the Erie Railroad, and Gould, to make a fortune off of ruined railroads elsewhere, sold “watered stocks,” i.e., stocks whose prices were unbelievably inflated, more expensive than they actually were. Because of these watered stocks, Vanderbilt was unable to pay for the unrealistic cost of the Erie Railroad proposed by Drew, and Gould was able to make bank in a matter of years.


Finally, in 1872, Gould and Fisk dissociated themselves from Drew and sought a new get-rich-quick scheme, this time going on a bigger scale, their eyes set on something which seemed utterly insane and dangerous, should they be exposed. Gould, who had contacts, 120.pngmanaged to befriend the President of the United States, ex-Union General Ulysses S. Grant. His goal: To “corner” the gold market. By getting close to Grant, Gould hoped to get confidential insights into the Gold Exchange, whose prices changed monthly, so that he and Fisk could jump at the right minute, buy it all up, and thereby gain control of the entire market, influencing its prices, driving them up, and getting lots and lots of money—this was what “cornering the gold market” meant. Steadily, with caution and precision, Gould and Fisk drove the prices up, remaining low-key, careful not to attract any attention. They were successful, until, that is, Grant caught on. A panicked Grant released $4 million worth of gold into the market on September 24, 1869, a day that is known as “Black Friday,” and as the day that the gold market crashed. It was a tragic event, culminating in the loss of hundreds of thousands of dollars from investors and a loss of trust in Grant, who unwittingly abetted the two criminals, Gould and Fisk. While the term “Robber Baron” was used first in 1859, it was applied most trenchantly to the railroad tyrants in Charles Francis Adams, Jr.’s, book Railroads: Their Origins and Problems (1878), only then to be spread into the mainstream in 1934 by Matthew Josephson.


Now that we know from where the term “Robber Baron” originated, we will look at the Big Three of American business, three entrepreneurs who, like the trailblazers who charted the New World, first charted what would become modern-day capitalist business and corporation. When Robber Baron is mentioned, it is usually these three who come to Unknown-4.jpegmind: John D. Rockefeller, Andrew Carnegie, and J.P. Morgan. John Davison Rockefeller (1839-1937) was born in New York, and his father, fittingly, was a conman. At a young age, his family moved to Cleveland, Ohio. Rockefeller was noted to be neat, organized, and highly individualistic. This last quality was especially important back in the Gilded Age, when the value of the individual was important as it is today in the U.S. The Pennsylvania Oil Rush of 1860, it is reported, was even more impactful in terms of economic boons than the California Gold Rush of 1848; it was in this context that a young Rockefeller ventured forth into the budding oil business, fresh and ready for work, confident, ready to compete for his share. Because the oil business was still in its infancy, it was easy for Rockefeller to get started. In 1870, he and a few others created the Standard Oil Company of Ohio. At the time, it was modest, but few would predict the success and legacy it would have later one. Rockefeller created a year later the South Improvement Company. The South Improvement Company was Rockefeller’s notorious method of gaining the upper hand in the oil world: He quickly assumed ownership of several railroads, from which he demanded rebates, or price reductions—basically, a discount—yet he also ordered them to raise the prices of shipping for other companies, the gains of which he himself would get. In short, he was able to assert complete control over railroads, to the extent that he could ship large freights for a reduced price, while also collecting money gotten from his rivals, procured from taxes his railroads put on them. His influence was so great that the railroads literally paid him to transport his oil. Why would the railroads agree to pay Rockefeller? Because the railroads were in competition, they needed lots of business, which Rockefeller could give them, so they accepted his terms. Another aspect of the contract signed between the South Improvement Company and the railroads was that large frights were allowed to go only Unknown-5.jpegon certain railroads, namely Rockefeller’s. He made the railroads refuse to export or import other companies’ oil. Of course, such a deal like this was outrageous, and many people knew it; unfortunately, Rockefeller could not bribe his way out of this one, and the South Improvement Company was shut down for its corruptness shortly thereafter. Other than this one instance, Rockefeller was generally able to bribe the legislature and judiciary easily, giving him a major advantage, allowing him to bypass laws to beat his opponents. Even though the South Improvement Company produced a lot of controversy, even more controversial was Rockefeller’s use of “horizontal integration,” by which Rockefeller would buy out his competition. He pressured and then eliminated other oil companies through vicious tactics, one of which was “predatory pricing,” a form of cutthroat competition. In predatory pricing, a seller lowers their prices, and everyone likes low prices, so everyone will go to that seller, forcing the competition, too, to lower their prices, in order to still have a clientele; yet smaller companies often cannot afford to keep this up for long, as they will not be able to make sufficient profits to stay functional, whereas a larger company, like Rockefeller’s Standard Oil, was able to sustain this price reduction; and ultimately, after some time, the smaller company, “driven to the wall”—forced to insufficient funds—would have two options: Go bankrupt or sell. Therefore, either way, Rockefeller gained: If his competition went bankrupt, he would have one less competitor; and if the company sold itself, then not only would Rockefeller have one less competitor, but he would add the company to his own as an asset, adding to his empire. Rockefeller can be likened to a vulture insofar as he waited for his prey to slowly die from starvation, only to sweep in at its weakest moment, when its emaciated body decayed, and eat its carcass. Between 1879 and 1890, Rockefeller owned between 90-95% of the entire refined oil business in the U.S. (only 10 years after creating his company)! Horizontal integration was frowned upon, so Rockefeller resorted to another, respectable method, “vertical integration,” in which a company produces its own Unknown-6.jpegresources needed to create its specific product. Think about it this way: If Rockefeller wanted to sell oil, he would first have to go through other companies, companies specialized in, say, refining oil or making barrels. In other words, in normal business, there is a middleman. Through vertical integration, a company gets rid of the middleman, becomes the middleman. Hence, Standard Oil, in order to become independent, in order to be fully self-sufficient, began producing resources such as barrels and cans and refineries on its own. This reduced the amount Rockefeller would pay to ship his oil, and it also expanded his business. Rockefeller also kept large amounts of reserve money in case of emergencies, lest a panic or depression come. Add to this the fact that Rockefeller, in addition to owning most of the railroads, owned a majority of the pipelines in the country. He shipped his oil more extensively as a result, and his competitors, left with barely any pipelines, had to fight amongst themselves for the limited supply that was left; and from these little wars, a victor and a loser would emerge, and Rockefeller would swoop in once more and eat the loser, while the victor, weakened from the battle, would struggle to recover, soon to be eaten itself by Rockefeller—it was only a matter of time. Because horizontal integration was so deadly, the Government caught on, and Rockefeller, with the spotlight on him, had to find some way of getting out of the spotlight while still keeping his supremacy. Subsequently, his lawyer, Samuel C.T. Dodd, devised something ingenious to counteract this obstacle: The trust. Thus, in 1882, theStandard_Oil_Trust_1883.JPG Standard Oil Trust was created. How it worked was, the trust incorporated 37 separate stockholders, some of which were in different states, and they were given certificates of trust. These interstate—in a different state—subsidiaries, or smaller companies that form a branch of the bigger company, gave these certificates to a board of nine trustees, kind of like spokespeople. A certificate showed that a company was invested in a bigger company, but it did not give the subsidiary any management over the bigger company. The trust was a clever move because it allowed Rockefeller to own interstate business, which thitherto was illegal—that is, to own a company outside of one’s own state. Accordingly, Standard Oil was not liable to be dismantled, seeing as it technically did not violate any laws. In fact, it had the added advantage of providing Rockefeller with high prices for his buyers and low wages for his workers. The state of Ohio brought the trust to court on the grounds that it was a monopoly, and the court promptly broke up the trust. But Rockefeller was not discouraged; he came back, stronger, smarter. In the late 1880’s—the date is not clear, maybe 1888—New Jersey passed the Holding Company Act, and Rockefeller saw an opportunity, swiftly moving to the state, in which he found refuge, establishing the Standard Oil Company of New Jersey in 1899. Whereas Ohio, for example, prohibited both horizontal integration and trusts, New Jersey was rather Unknown-8.jpegliberal in its economy, and Rockefeller used this wisely. As a holding company, Standard Oil could own the majority of the stock of another company, enough stock to properly own it. Now, Rockefeller had a legal precedent for an interstate enterprise. By the height of his career, Rockefeller was on the board of 37 separate companies. A deeply religious man, Rockefeller believed his wealth was divine, God-given. Consequently, he wanted to give back to his fellow men. It is estimated that, throughout his lifetime, he donated $540 million to hospitals and colleges, like the University of Chicago. Another thing worth considering: If Rockefeller revolutionized the sale of kerosene, thereby reducing whaling, then did Rockefeller help save the whales, too?


The next figure is the prototypical entrepreneur, called by pretty much every author on the subject the most genuine “rags-to-riches” billionaire. Andrew Carnegie (1835-1919) was born in Scotland, but he moved to Allegheny, Pennsylvania as a teen in 1848. He Unknown-9.jpeglived with his parents, who were poor, but he was determined to make a name for himself and his family, and his rise to power shows his sheer determination and passion. Carnegie’s first job was at a cotton mill, where he got very little pay, yet it was a start; from there, he went to work as the secretary for the Pennsylvania Railroad; later, on account of his skill, he became the superintendent, rising up the ranks, respected by his peers and superiors; and during the war, he made a telegraph system that aided the Union; but this was a temporary fix, replaced when he became a stockbroker on Wall Street, first selling bridges, then rails, and finally oil; but his real breakthrough came when he finally got into the steel and iron businesses. Then he really prospered. On a trip he took to England in 1872, Carnegie met an inventor named Sir Henry Bessemer, who revolutionized steel production with the “Bessemer converter,” which functioned by pushing air lots of air onto pig iron (from a furnace), making it into steel. The Bessemer process, as it came to be known, was both cheap and effective. Whereas theretofore making 3-5 tons of steel took a day, the Bessemer process reduced the same output to just a quarter of an hour! To put this in perspective, in 1860, the U.S. produced 13,000 tons of steel annually; twenty years later, when Carnegie utilized the Bessemer process, the U.S. produced 1.4 million tons of steel. Later, the Bessemer converter would be replaced by the open hearth furnace, which was even more effective than its predecessor. Another reference point: Once Carnegie got involved in the steel business, he single-handedly outproduced Great Britain. Schweikart, the author of A Patriot’s History of America, jokingly states that “B.C.” means “Before Carnegie,” in terms of the steel business. Before the late 1800’s, steel was hard to come by, yet highly needed, and it was Carnegie who took up this challenge. It is recorded that Carnegie’s factories made 642 tons of steel weekly. Eventually, after he Bessemer_process.jpggrounded himself in his business, quickly rising to the top as he had done at the railroad, he started investing in steel in 1873, which, conveniently, was an incredibly good time to be investing in steel, for just two years prior, in 1871, the Great Chicago Fire burned blocks upon blocks of buildings, and they needed desperately to be rebuilt, stronger, sturdier, and lighter. Seizing this opportunity, Carnegie used his massive supply of steel to build the skyscrapers that now stand today, laying the foundation for future architecture. When he was informed that his factories were out-of-date, Carnegie had them taken down then rebuilt. Competitive, industrious, sharp, efficient, pragmatic, and devoted, Carnegie differed from Rockefeller in that the former was entirely self-managed, which is to say that he owned his business solely, without any partners, and he did his work himself, without a board, because he wanted to avoid big business like Standard Oil. However, this could not last forever, so to keep up with the changing affairs, Carnegie started integrating vertically, producing, in addition to steel, things like fences made of steel—pretty much anything steel. He befriended Henry Frick, a wealthy coal and coke (fuel) investor who owned many Unknown-10plantations, which greatly benefitted Carnegie’s business endeavors. Unlike Rockefeller, Carnegie was more optimistic, and he since a young age envisioned an industrial U.S. where everyone could pursue their dreams and build their own businesses and get rich like he did, no matter the circumstances. Twice he donated $60 million, the first time to local libraries, the next to colleges, such as what would come to be called Carnegie-Mellon University, previously bearing the title of “Institute of Technology.” Further, he donated $50,000 to Marie Curie to aid her in her research. It was through the next Robber Baron that Carnegie would become one of the richest men in America.


25261-004-C26B9FA0John Pierpont Morgan, Sr., (1837-1913) was born in Hartford, Connecticut to a wealthy, aristocratic family. He attended education all throughout Europe. Morgan then worked under his father as soon as he completed his education. When the Civil War rolled around, Morgan was conscripted, but he managed to get out of service by bribing someone with $300 to take his place. In the meantime, Morgan served his country in another—let’s just say, less than honorable—way. Already economic-minded, Morgan purchased about 5,000 rifles, $3.50 each, from the Government, which he then resold, each of rifles $22, about 8 times the original price. Who did he sell these rifles to? Glad you asked: The Government from which he bought them. This scam, called arbitrage, consisting in buying something in one place then selling it for more in another, earned Morgan over $90,000 from his own government, during a time of war. Like Gould and Fisk before him, Morgan then got involved in the gold market to manipulate it, although not to the extent they attempted. He formed J. Pierpont Morgan and Company in New York in 1860 to help out his father’s bank in London. Morgan became the board director for his bank, investing in stocks and bonds. It is important to understand that, at the time, there were only a few big banks in the world, the best ones being in London and New York City, on Wall Street; therefore, any entrepreneurs looking to start a business had to begrudgingly go through Morgan, for they had no other choice, and this gave Morgan a lot of money through investments. Using this wealth from businesses that appealed to him, Morgan bought out a lot of his competition, just as Rockefeller and Carnegie had done, and he ended up owning ⅙ of the Panic_of_1893_02railroads in the nation after the Panic of 1893, during which many a railroad went bankrupt, being bought out by Morgan’s growing empire. Two years after the Panic of 1893, which was caused when the Government loaned out way too much money to corrupt railroad companies, the Federal Government itself neared bankruptcy, and seeing as desperate times call for desperate measures, the Government called on Morgan to bail them out—Morgan, who was amassing a fortune through his affluent banking, the man who bought their rifles then sold them back to them. So Morgan bailed out the Government: He delivered 3.5 million ounces of gold to President Cleveland, invested in this drop-off, then resold it, naturally, for $18 million. It should be noted that Morgan initially refused to bail out the Government since they had no collateral. Disaster struck again just over a decade later, when the Panic of 1907 deprived the nation of money once more. And just like last time, the Government, tail tucked between its legs, appealed to Morgan, who hesitatingly bailed them out for the last time, fearing the economy to be too much a burden for him to carry. Morgan over time consolidated his bank and railroad investment stocks, building up his fortune to match Rockefeller and Carnegie, placing himself on the pedestal of the rich and powerful, the elite of the Gilded Age. Some of his subsidiaries complained to him that they were facing too much opposition in the market. Like a uss-morgan-oct16protective father whose son was being bullied, he asked them with whom they were competing. Their answer: Steel magnate Andrew Carnegie. With Carnegie’s steel business, Morgan’s smaller companies could barely keep up, so they asked him to deal with Carnegie. At an important meeting, Morgan talked with Carnegie’s advisor Charles Schwab, who directed the former to Carnegie, with whom he presently had a discussion. A deal was made. In 1901, Morgan bought Carnegie Steel Company for $492 million, forming the United States Steel Company, which was worth a whopping $1.4 billion—astounding due to the fact that it was the world’s first billion-dollar company, whose price nowadays would be in the hundreds of billions. Morgan’s personal share was $300 million out of the deal. At the pinnacle of his career, Morgan was on 48 boards, compared to Rockefeller’s 37. And unlike either Rockefeller or Carnegie, Morgan was not as charitable. He is said to have replied, “I owe the public nothing.”[1]

 

 

 

 


[1] Dulles, The United States Since 1865, p. 60

 

For further reading: 
The United States: The History of a Republic 2nd ed. by Richard Hofstadter (1967)
The Oxford History of the American People Vol. 3 by Samuel Eliot Morison (1972)
The Historians’ History of the United States 
Vol. 2 by Andrew S. Berky (1966)
The Growth of the American Republic 
Vol. 2 by Samuel Eliot Morison (1955)
A History of American Life and Thought 
by Nelson Manfred Blake (1963)
America: A Narrative History
8th ed. by George Brown Tindall (2010)

A Patriot’s History of the United States by Larry Schweikart (2004)
A People’s History of the United States by Howard Zinn (1995)
Don’t Know Much About History
by Kenneth C. Davis (2003)

The United States Since 1865 by Foster Rhea Dulles (1959)
History of the United
 States by Douglas Brinkley (1998)

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2 thoughts on “Who Were the Robber Barons? [1 of 2]

  1. Pingback: Who Were the Robber Barons? [2 of 2] | Neologikon

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