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Robber Barons or Industrial Statesmen

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By Edited Aug 6, 2016 0 0

Carnegie, Rockefeller, Ford, Morgan, and Gould

This article discusses the question of whether big business leaders like Carnegie, Rockefeller, Ford, Morgan, and Gould were Robber Barons or Industrial Statesmen. Did they, in following their self-interest, fleece the public and hinder economic and social developments? Or did they develop the productive and organizational forces of the economy in ways that were beneficial for the social as a whole, even if their own motives were purely “selfish?” Some historians such as Solganick, Veblen, and Josephsonfeel that the powerful industrialists of the Gilded Age earned the title of robber barons, portraying them as cruel and ruthless businessmen who would stop at nothing to achieve great wealth.  These robber barons were accused of exploiting workers and forcing horrible working conditions and unfair labor practices upon the laborer.[1]

The country was ripe for it

The evolution of business would have happened anyway – as Porter suggested “the country was ripe for it.” The hands-off attitude of the government and the technological advancements in transportation and communications actually made big business possible. We can’t forget that this was or is the fabled land of opportunity and those individuals with the cunning, foresight, audacity, luck, and persistence could or would succeed. Big businesses and opportunists such as the subjects of this paper were an inevitable result of capitalism. This system of economy enjoys and thrives on the survival of the strongest idea as much as it does competition. It is in this idea that the public fears come from. The revisionist view of this period interprets these business giants as making positive contributions by improving the efficiency and profitability of their respective industries and to the economy. Hence, we have the “industrial statesman” point of view.

The Robber Barons

Most of these key business leaders were more opportunists as opposed to being Robber Barons. Some of these business leaders deserved the title while others fell somewhere else on the scale of ethics and integrity. Rockefeller, Carnegie, Ford, and Morgan may not have won any popularity contests in society however they did not quite reach the level of contempt society had for Jay Gould. Shady dealings, corruption, and ruthlessness practiced by some of them were a natural and integral part of capitalism and its gospel of profit. Though Gould, and some others like him, took this to extremes. These Robber Barons, as they were coined, were simply opportunists taking advantage of the lack of limits on business practices and the newness of big business. Individual morality and sense of ethics colored by personal pride comes into play when these individuals take action.

Jay Gould (1836-1892)

Gould

Jay Gould was a character that never even bothered to learn anything about the railroad business, its’ operations, costs, or technology; while Secretary of the Erie Railroad, Jay Gould refused to enter the shares that British investors had bought on the company's books, resulting in disenfranchising foreign investors. The Erie's stock price plummeted, as investors concluded that Jay Gould was paying the railroad's money into shell construction companies that Gould owned and were doing no work. Gould planted information true or false about his own railroad business to manipulate the stock prices. Then he would sell off and buy back the business to make money on the sale of stock – then repeat rumors of the failing financial status of those businesses and come back to buy back the falling stock prices and again control the business he just sold off. Eventually Jay Gould mortgaged his other assets, bought up shares of the Erie, and announced his retirement from involvement in the railroad. The Erie's stock price jumped--investors rejoiced that Gould would not be around in the future to loot the railroad. But approximately one-fifth of the capitalized expected future value of not having to deal with Jay Gould in the future went straight into Gould's own pocket.

Andrew Carnegie
Carnegie

Sometimes these big businesses were the result of efforts to reduce raw material costs and supplies. Carnegie, for example:“marshaled capital and invested it in the latest, most technologically advanced production facilities” (Porter 57).[2] By acquiring and controlling his own raw materials, and the processing of these materials, he could reduce his costs making his enterprise “nearly independent of the general market” (Porter 57).[2]  As Harold C, Livesay states, “Carnegie made good use of his knowledge of management and accounting practices first worked out on the railroads” (Porter 57).[2] This was one of the benefits or lessons learned from this era.Other industries were soon to follow and began integrating and adopting Carnegie’s modern managerial and accounting practices.

Andrew Carnegie was a mass of contradictions, an industrialist and a philanthropist. He was the son of the Scottish peasant, who felt it necessary to go to America after the landlords wanted to replace peasant farmers with grazing sheep; an extremely energetic and intelligent young man who started his career in the U.S. telegraph and then in the railroad industries. He alsohad the insight to a better way of making iron and steel and the best business sense to capitalize on it. In contradiction with much of what he wrote and portrayed himself to be – he was also a union-buster. Through his lieutenant Henry Clay Frick, he destroyed the Amalgamated Iron and Steel Workers union's control over the Homestead, Pennsylvania steel plant: one of the bloodiest episodes in the already-bloody nineteenth century history of American labor relations.

JP Morgan

Carnegie convinced the financial capitalist J. P. Morgan to purchase his steel empire. Morgan did so, and claimed that he had made Carnegie the richest man in the world. As philanthropist, Carnegie trying to figure out what to do with all his money decided that the thing to do was to establish the Carnegie Endowment for International Peace, and to subsidize the building of libraries all across the United States. He was a man of great powers, of great flaws, of great benevolence, and great ruthlessness.

The public’s seal of approval

Porter suggests that the American people gave big capitalists their seal of approval. Henry Adams in 1905 wrote,

For a hundred years the American people had hesitated, vacillated, swayed forward and back, between two forces, one simply industrial, the other capitalistic, centralizing, and mechanical. The rejection of the populist crusade in 1896 was for Adams the decisive moment.  After that it was clear that ‘a capitalistic system had been adopted, and if it were to be run at all, it must be run by capital and by capitalistic methods; for nothing could surpass the nonsensity of trying to run so complex and so concentrated a machine by Southern and Western farmers in grotesque alliance with city day-laborers.” (Porter 99)[2]

The Federal Government and Law

In spite of Porter’s view, the nation’s legal system eventually banned monopolies under common law; “27 states and territories by the close of 1890 had seen fit to pass laws intended to prevent or destroy them” (Stricker 86). Solganick argues that society did not accept big business and offers the creations of the Grangers, Greenbackers, Populist, National Labor Union, A.F.L., and numerous other groups of discontented citizens as proof” (Stricker 84).  However, trade unions existed even before big business. This is the nature of the beast in a capitalist driven work environment. Most people do not look fondly on those that get rich off of the work of others, and every worker looks for an angle to make more money or gain some advantage for his or her own benefit. Unions or trade guilds are a natural method of gaining power and an ability to gain and flex influence in business.  

Robber
The role of the government did shift dramatically after the rise of the robber barons. One of the most important acts was the Sherman Anti-trust Act of 1890.  This act prohibited the conspiracies of big business and also monopolization and prohibited agreements/contracts that strained trade or prohibited competition. Price fixing schemes often used by the Robber Barons were also illegal. However, through the government regulation some monopolies were still allowed to exist when it was considered more efficient (i.e. Phone, power).

Economic Depressions

Solganick infers that the depression periods were a result of the big business efforts.I propose that the depression periods could be just as likely a result of government intervention against big business during this period.  It is just as likely that the Government intervention caused the destruction of big business into smaller less profitable ventures. Shortly after the passage of both the Sherman Antitrust Act and the Interstate Commerce Commission, the most significant economic depression occurred unparalleled in American history to date. It lasted only four years (1893-7), but was followed less than ten years later by another panic-breeding recession. Today, we have a serious recession every ten to fifteen years. It is endemic to a mixed economy that booms and busts are cyclical.

Villain or Good Capitalist

Were all these men villains or simply good capitalists when they sought to reduce labor costs by destroying unions? I would not necessarily call them good capitalist, since their efforts for the most part chiseled away competition – a necessary element of a capitalistic economy. Capitalism can be at times its own worst enemy.  In absence of new technology, improved production methods – improvements in quality, or marketing prowess, the simplest way to gain increased market share is by simply lowering prices. However, when the whole of the industry is using the same techniques, prices can be driven down to a point whereby the participants all lose out until someone or group takes control as in the cases of Rockefeller and Carnegie.

John D. Rockefeller 1885
Rockefeller

As for Rockefeller, competition and over production in the oil refinery industry drove costs ever downward to the point that the refineries began to panic. “In order to improve their own economic position – they attempted a trade association, the National Refiners Association, begun in 1872 with Rockefeller as the president” (Porter 68-69).[2]  This failed because firms outside the association and some on the inside broke the agreements or ignored agreements for their own profits. This shows that the money-grubbing was not a unique condition to the richest and most successful.  This attitude of make a buck anyway you can – and honor and integrity be damned, was a nature of the beast called capitalism. This is why men like J. D. Rockefeller and other industrial leaders decided to create a single large organization to control the industry. In Rockefeller’s case many of those that sold out were promised compensation both monetary and in stock. This became the model for other industries to follow until the Supreme Court of 1911 dissolved Standard Oil into a number of firms rather than one.

Concentration and Consolidation

The tendency toward concentration was useful and inevitable.  The producers of raw material to these larger businesses may not see it his way since they were no longer able to compete.  However, for these big businesses and potentially for the consumer reduced costs were a potential. Were some combinations good and some bad, it depends on whose seat you’re in. As to the consumer during this period, once a monopoly was established, the potential for consumer savings was there. Standard Oil, as it was with many monopoly like industries, as pointed out by Solganick, “the combinations had increased the margin between raw materials and finished products” (Professor Stricker).” It was up to the businesses to pass the savings on to the consumer – or as it usually happened – keep the money in house. Concentration was inevitable in a competitive business environment. Many small businesses came to the idea of merger and consolidating operations in order to reduce overhead costs and have the ability to reduce their own prices in order to continue competing in a capitalist market. This process was not unique to the characters known as robber barons. Profit is the name of the game. If you can’t get and maintain a margin of profit, then you have little or no incentive to play the game.

Growth

Whether or not these business leaders retarded or promoted the growth of material wealth and the advancement of social progress can be argued on each individual case. Solganick may not agree with this statement because in his paper, The Robber Baron Concept and Its Revisionists, he groups all these leaders under one argument with respect to technology. Solganick would have us believe that these leaders did retard the growth of material wealth and the advance of social progress. His argument (and Veblen’s) is that these leaders were actually “saboteurs” of technology and lacking in the trait of risk taking; however, this is not the case for each of the business leaders. Carnegie and Ford for example exploited technology for their respected industries. 

Henry Ford 1919
Automotive Industry

Porter, on the other hand, points out that it was the automobile industry, and above all the Ford company that would dominate that industry in its early stages –– that would in time come to stand for the worst in the dehumanization of work that began with the rise of the factory system. Henry Ford’s objective was to make a car that could be produced at a cost within the reach of the average man. This required a major change to the way cars were built. As a result, in 1910 he opened a huge plant in Highland Park, Michigan. To Ford this was the wave of the future – mass production. To the labor force it spelled the reduction in skilled labor jobs and reduced income for the laborers. Porter states that automotive site quickly came to symbolize for many the evils of unrestrained mass production(Porter 102). The result was workers that were trained to do routine jobs and could be easily replaced – “machine tenders” as Henry Adams puts it.

The actions of some of these business leaders did provide benefits to the American people. Carnegie gave away an estimated 80-90% of his vast fortune for social programs, the arts, and many charities. Rockefeller began producing kerosene for oil lamps to replace the more expensive and difficult to acquire whale oil. Henry Ford pursued the making available an affordable car for the average man, despite some of the negative fallout of the period. We still have mass production and in today’s industry the trend to dehumanize work continues with computer automation efforts.

The Final Word

The objective of this article was to discuss whether business leaders like Carnegie, Rockefeller, Ford, Morgan, and Gould were Robber Barons or industrial statesmen. Part of this is an argument of personal and business ethics. It is true that all these gentlemen fleeced the public, their worker, and other businessmen. These were men seeking their fortune by whatever means necessary during a time of limited laws and limitless business opportunities. It is doubtful however, if all their efforts hindered economic and social development in the United States as some critics have suggested. 

Consolidation, a practice of this era, provided a way for businessmen to control and improve their raw materials, production control, and provide potential savings to the customer (or at least enlarge the margin between production costs and retail sales. Americans in the later decades see big business in a different light. Big business is an accepted creature of progress and as such is nurtured by both society and the government. Porter proposes that the political and social question now turn to: how do we keep big business big and gain more opportunities for more jobs (Porter 124)?[2]

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Bibliography

  1. "Robber Baron." About Education. 4/04/2015 <Web >
  2. Porter, Glenn The Rise of Big Business, 1860-1920 (The American History Series) 3rd Edition. Wheeling: Harlan Davidson Paperback, 2006.

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