railway, thousands of men, tens of millions of revenue, and hundreds of millions of capital. The strength implied in all this they wielded in practical independence of the control both of governments and of individuals. . . Thus by degrees almost the whole of the system of internal communication through the northern half of the United States has practically been partitioned out among a few individuals." With legislatures and courts so easily upset by an unprincipled financier like Daniel Drew, the ordinary shippers had little chance. They were at the mercy of the roads, both in quality of service rendered and in the costs. The published rates had little relation to the charges; they were put out to edify the unsophisticated. If there was any guiding principle in determining how much any particular person should pay for freight transportation, that principle was the very simple one: charge all that the traffic will bear. Roads charged less for long hauls, where they were subject to competition, than they did for short hauls, where they could do as they pleased. Deviations from published rates were so common that they were taken for granted. Sometimes these were in the form of peculiar privileges granted to favored patrons. Perhaps the best example of this sort of thing was the agreement made in 1872 by the South Improvement Company-a forerunner of the Standard Oil Company-with the New York Central, the Erie, and the Pennsylvania. The Company was in a position to deliver to any one of these roads a large share of all the oil shipped, so it could name its own terms. According to this arrangement The South Improvement Company received a rebate on all its shipments; competing companies paid the full charge, and got no rebate. But the difference between what they paid, and what the South Improvement Company paid was turned over by the roads to the South Improvement Company. Practically the South Improvement Company got a commission on every barrel of oil shipped by its competitors.

The consolidation of the short lines had eliminated nearly all of the small scale competition, but the rivalry between the trunk lines became far keener and more intense than that of the little roads had ever been. In carrying on their schemes of cut-throat competition the roads often carried freight at considerably less than cost. At one time roads carrying cattle between the Missouri River section and Chicago cut their rates to eighty-one cents a carload! Some of the eastern roads were caught in the cattle carrying rate war. Gould of

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the Erie and Vanderbilt of the New York Central cut under each other repeatedly, until both roads were losing heavily on every carload shipped. Finally the New York Central freight men reported that the traffic was increasing so heavily that they could not handle the cattle turned over to them for shipment. The next report showed that cattle had stopped coming over the Erie. On investigation Vanderbilt found that Jay Gould was out west, buying up cattle, and shipping them over his opponent's road, at rates ruinous to it!

In order to put a stop to this waste, competing roads began to form "pools," by which they divided the traffic on a percentage basis, and distributed the profits or apportioned the losses on the same basis. In 1877 the roads between New York and Chicago ended their competition in the following manner: the New York Central and the Erie each received thirty-three per cent of the business, the Pennsylvania twenty-five, and the Baltimore and Ohio nine per cent. Once this was done, the ordinary shipper was worse off than ever. With no effective system of regulation, and no limit to what they might charge, the roads could reimburse themselves for losses incurred during the days of unrestrained competition. It remained to be seen whether or not a democracy could regulate these great organizations.

CHAPTER LI

"BIG BUSINESS"

In spite of the financial excesses of their managers, the railroads were laying the foundations of a new economic structure in the United States. For all practical purposes, the country was made smaller in size, and the different parts were really brought into touch with each other. By this means every section was freed from dependence upon merely local sources of supply, both of food, and of manufactures, and as the nationwide market was gradually opened, business men were ready to supply it. The development of this new business organization is one of the most extraordinary stories of the nineteenth century, a story of an unprecedented utilization of natural resources, and of concentration and consolidation similar to that going on among the railroads.

BUSINESS BEFORE 1861

Even a cursory survey of the facilities available for business purposes in 1865 brings out the extent of the change. At the close of the Civil War not one of the transcontinental railroads was approaching completion; in fact only one was even started. The eastern trunk lines had not been created. The telephone, the trans-Atlantic cable, the radio, the electric light, the electric trolley car, the hydroelectric plant, the automobile, and the "skyscraper" were all unknown. Most of the cities were without adequate sewerage systems, without pavements. The great natural resources of copper, coal, and even iron, had hardly been touched, while the possibilities of petroleum were just beginning to appear. Modern industrialism was made possible by the railroads, but it is founded on two elements: petroleum and iron. Down to 1869, the United States had mined only about 50,000,000 tons of iron ore. Between 1869 and 1910 it mined 685,000,000 tons.

In 1865 the United States was still a nation of farmers, artisans, and independent, small-scale business men. Over eighty per cent of the total population lived in rural districts, farms, or small villages.

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In 1890 thirty per cent lived in cities, in 1900 forty per cent, in 1910 forty-six per cent, in 1920 about fifty-one per cent. And, even as late as 1890, there were only six cities with over half a million inhabitants apiece, only twenty-eight with over one hundred thousand apiece. There were fifty of these in 1910. It was moreover a nation in which wealth was distributed less unevenly than at present. In 1855 in New York, there were only nineteen men who had fortunes of over a million dollars apiece, and the wealthiest of the lot had only six million dollars. At that time, Cornelius Vanderbilt who left a fortune of $104,000,000, had only $1,500,000. In those days the men of wealth were merchants rather than manufacturers, railroad magnates, or stock market manipulators.

Business enterprises now concentrated in the hands of a few men were then widely scattered. In 1850 there were over fifty separate companies engaged in the telegraph business. The first "trust" was the Western Union Telegraph Company, formed, under pressure of war needs, out of this collection of small competing concerns. In New York City in 1865, when horse-cars furnished transportation, there were thirty separate companies in the business; almost every street had its own independent line. Every city and town had its own slaughter house. As a result the by-products were mostly wasted. In 1865 thousands of independent companies were drilling for oil in Pennsylvania, and there were over two hundred refiners. A few years later over ninety per cent of all this petroleum industry was in the hands of the Standard Oil Company. Throughout the country there were over two hundred companies manufacturing agricultural machinery, seventy-five of which were in New York City. Many of these were later united to form the International Harvester Company. Lively competition prevailed everywhere, and no single firm or corporation seemed likely to get more than its due share of the business.

INDUSTRIAL DEVELOPMENT

During the Civil War the country began the process of transforming itself into a highly complex industrial state. Railroad consolidation had been stimulated by the necessity for moving troops by the hundred thousand. At the same time the demands of war gave a great impetus to the production of scores of commodities needed to make the contest a success. The persistent call for woolen cloth for

uniforms and blankets brought about extensive increases in facilities for production. The absence of labor doubled and trebled the demand for farm machinery, while the abnormal demand for food pointed toward the establishment of the great packing houses.

Nor did the demand stop with the war. The rapid settlement of the West, with its thousands of new farms, meant a larger market and a fairly steady sale for manufactured goods. Also, as the South began to recover, its people had to purchase heavily to make up for goods lost, confiscated, destroyed, or worn out during the war. Because of the steadily increasing production of raw materials, manufacturers found it easy to keep pace with their orders.

During the fifteen years immediately after the Civil War there was a remarkable expansion in textile manufacturing, both cotton and woolen. There was, too, an even more striking increase in the output of iron and steel, as the following figures show.

As the railroads brought the whole country to the very doors of the most enterprising manufacturer, the business became too large for the single individual or for the ordinary partnership to handle. But the corporation proved to be admirably adapted to the new commercial needs. With this type of organization it was possible to secure all the capital necessary for a growing business, together with the concentration of authority in the hands of a small body of directors, or of a single executive.

With the multiplicity of small firms competition was rarely severe enough to make it possible for one particular company to annihilate its rivals. With the advent of the corporation all this was changed. The larger concern, with heavy financial backing, under able officials, was ready and glad to drive its smaller neighbors to the wall. In various branches of industry therefore the old-fashioned small firm began to disappear. This process left the larger corporations to fight it out with each other, and they did so, very much as the railroads were doing, by suicidal competition.

The logical remedy for that impossible situation was the combina