“It is apparent to me that the possibilities of the aeroplane, which two or three years ago were thought to hold the solution to the [flying machine] problem, have been exhausted, and that we must turn elsewhere.” –– Thomas Edison, 1895
More than any era in American history, economics dominated the late 19th century. Presidents like Chester Arthur, Benjamin Harrison, and Grover Cleveland are virtually ignored because inventors and businessmen dictated the direction the country was heading in. In the 1872 presidential election, for instance, members of Western Union’s board of directors chaired both major conventions. Influence peddling is ongoing, though; what set this era apart was innovation. The Industrial Revolution had accelerated history since the 18th century, but the fifty years after the Civil War saw the most dramatic burst of technological ingenuity since the dawn of mankind. The rustic world of yokes and oxen gave way to combines, electricity, steam turbines, automobiles, planes, movies, phones, radios, record players, calculators/cash registers, petrochemicals, antibiotics, and running water/indoor plumbing. Many children were born into a world that more resembled the Middle Ages than the mid-20th century they’d live to see.
Visitors to the Philadelphia Centennial Exposition of 1876 who came to celebrate the nation’s 100th birthday saw bicycles, escalators, and typewriters amidst huge Corliss steam engines. They even tried a new concoction called Root Beer and an exotic, oddly shaped fruit called the banana. In 1882, the same year Thomas Edison built America’s first power station, German Karl Benz built a functional gasoline-powered car, paving the way for trucks, tractors, and boats/ships also powered by internal-combustion engines (Gottlieb Daimler was applying the engine to motorcycles and other vehicles around the same time). Visitors to the Chicago World’s Fair of 1893 saw its entire Columbian Exposition miraculously lit by electricity, and most had coal-fired electricity in their own homes by the 1920s.
Industrial titans pioneered modern business and became the richest men ever while the poor lived in squalor, grinding out long and dangerous workweeks. The middle classes boomed with rising standards of living, increased life expectancies and decreased infant mortality. The GDP (Gross Domestic Product), a crude but reasonably effective measure of overall output, grew most years. The exceptions were big recessionary panics, in the mid-1870s and mid-1890s. These booms and busts were a familiar part of the economic landscape and had been since the beginning of the Market Revolution that swept American farmers, craftsmen, and housewives into an integrated global economy.
By the Civil War, the U.S. was deep in the throes of an Industrial Revolution that began with the advent of steam power in England in the 18th century. Mechanical engineering, especially in textiles, and application of steam to factory production and transportation (locomotives and steamboats) took off around the War of 1812 when the U.S. was cut off from British trade. Slaves on southern cotton plantations kept the clothes made in northern textile mills affordable. Americans helped pioneer interchangeable parts and mass production in firearms, shoes, and sewing machines. Improved agricultural implements led to more crops, moved around the country on a water highway of rivers and canals, the most famous and important being New York’s Erie Canal (built 1818-25). Most industry was in the North. Southern cotton fed Northern textile mills, but only around 10% of factories were in the South, with most of those on the periphery of a vast agricultural area. After the war, Northern industrialism transcended its roots in the slave-based cotton economy, but it was beginning to even beforehand.
While it’s a bit of an oversimplification, one could view the Civil War as a contest between this newer economy of factories and large family farms versus a more traditional aristocracy in the South, where planters reinvested profits back into slaves rather than machines while poor whites made do on small family farms. The dynamic North prided itself as a land of opportunity while the South celebrated its stability and feudal ties to antiquity. The Civil War itself catalyzed industry by increasing railroad construction and demand for contractors to make weapons, sew uniforms, make soap, and slaughter meat for the Union Army. Post-war America confirmed the saying to the victor goes the spoils, embracing the northern vision of big banking, construction, high tariffs, family farming, and industry. Tariffs (import taxes) interrupted free markets but protected American industries from overseas competition, especially Europe, where manufacturers had access to cheaper labor.
Fueled by hard-working immigrants, abundant natural resources, and innovation — both technical and managerial — the U.S. led the world in manufacturing by 1900. Cars we’ll cover later (Chapter 7), after they start having a more mainstream impact. In this chapter, we’ll focus on key sectors in this emerging market, including finance, electricity, communication, aviation, railroads, retail, steel and oil. First, we’ll look at invention and innovation.
Free markets create demands that spur innovation, but governments play an important role too, at a minimum establishing sound currency and protecting property rights while providing military protection and basic infrastructure. They also provide a legal framework by guaranteeing inventors proprietary rights (short-term monopolies) for products they register with patent and trademark offices. The system doesn’t work perfectly because people still steal each other’s ideas but, without it, there’s even less motive for inventing other than for charity or tinkering. Patents have a long tradition in the West, dating back to ancient Greece and including the British colonies. The U.S. followed suit by passing its own Patent Act in 1790. These registrations benefit those willing to take time out from directly industrious pursuits to painstakingly develop new or better products.
Early U.S. history is littered with famous patent winners like Eli Whitney, Oliver Evans, Elias Howe, Charles Goodyear, and John Deere, who boosted productivity and created jobs for millions (though in the case of Whitney’s cotton gin, many of those jobs came without wages). Even Abraham Lincoln won a patent for a flotation device to help dislodge steamboats stuck on sandbars. Lincoln also worked as a patent lawyer, helping to sort out a controversy over the mechanical reaper. The Kohler Company in Wisconsin made life healthier and more pleasant with patented enameled cast-iron “bubblers” (aka drinking fountains) and bathtubs that were really just hog scalders with four legs. British plumber Thomas Crapper held nine patents relating to the flush toilet, though, contrary to convention, he didn’t invent it. The rate of patent registrations picked up after the Civil War.
Inventor Thomas Edison (above) went so far as to create entire factories devoted to inventions in Newark, Menlo Park, and West Orange, New Jersey. You could say he mass-produced inventions. The facility in West Orange — preserved as a National Historic Site — has been called the “Silicon Valley of the Industrial Revolution” because its productivity rivaled that of today’s Bay Area technology hub. Though a brilliant engineer, Edison was arguably an even better businessman. He had a staff he called “muckers” that helped him come up with the light bulb, phonograph, rechargeable nickel-iron batteries, X-Ray, mimeograph, burglar/fire alarms, talking dolls, and movies in the span of a few years. They didn’t succeed 100% of the time, but they didn’t expect to, and Edison once said, “Failure isn’t a failure.” From failure they learned new things they could apply to other projects; for example, their failed ventures with cheap iron ore morphed into a profitable Portland cement business.
Their relentless work paid off. Edison ended up with 1,093 patents, documented here at Rutgers’ Edison Papers Project. He bought others’ patents and described himself as “more of a sponge than an inventor.” Like many geniuses, he had a knack for applying and borrowing ideas. Big cities were then building networks to pipe coal-gas for lanterns, cooking, and heating. Unlike other inventors, who were testing light bulbs hooked to batteries, Edison foresaw that electricity would someday be sent across wires directly into homes and businesses, similar to the way coal-gas was distributed in his time. He developed an appropriate carbon-filament light bulb for that high-voltage system. Yet, the most important thing Edison invented was a system of inventing: a research and development (R&D) lab with a staff earning shares in the company while tapping others’ ideas. The romantic notion of geniuses working in isolation is a myth to begin with. All geniuses, whether musical composers or engineers, borrow from others. The reason is that all ideas are networked with, or recombined from, other ideas. Geniuses never work in vacuums. That’s why the light bulb couldn’t have been invented in the Middle Ages and why, likewise, we can only proceed gradually toward future innovations.
Motion pictures were one idea Edison pilfered, based on Eadweard Muybridge’s 1879 Zoopraxiscope. Muybridge built the device to help California Governor Leland Stanford win a $25k bet that horses’ hooves all leave the ground simultaneously when they gallop. Edison was locked in a patent contest with Louis Le Prince over claim to the first motion picture camera when Le Prince disappeared off a train, never to be heard from again. The Lumèire brothers of Lyon, France invented the cinematograph that used perforated rolled film for projection, borrowing the “grab advance” mechanism from sewing machines. Le Prince’s first movies, shot in Leeds, England in 1888, pre-date those of Edison and the Lumèires by five years. Kodak founder George Eastman’s invention of rolling film — a by-product of developing compact, user-friendly cameras for the mass market — made all these subsequent applications possible.
The point here is that inventions are never an easy thing to track to any one person. Cars, planes and flush toilets have the same tangled histories as film. Normally people point to individuals in their own country to describe an invention that was really a difficult-to-track, cross-fertilizing group process.
Dozens of inventors worked on light bulbs, for instance, hoping to improve on the natural gas lights and sperm oil and kerosene lamps then in use. In 1878, forty years after the first bulb was patented, Edison was trying to find a filament that didn’t burn out too quickly (metal conducts electricity too well). According to legend, he happened upon carbonated cardboard by tearing off a piece of a box that was sitting on his table. Hiram Maxim also claimed credit for the light bulb but the patent office disagreed, so he had to settle for the machine gun, mousetrap, menthol inhaler (for asthma) and curling iron. With its familiar vacuum-tube bulb and standard 27mm screw base, Edison’s incandescent light bulbs provided 1200 hours of light for the same amount of money as seven hours from a spermaceti lamp. However, the incandescent bulbs were less efficient than Peter Cooper Hewitt’s 1890 compact fluorescent lamps and, in 2007, the Bush administration mandated a transition to the more expensive but longer-lasting CFL’s. (LED bulbs are even more efficient than CFL’s and don’t contain mercury.)
Artificial light allowed factories to operate around the clock, for people to study and read at all hours, and made going out at night safer, boosting restaurants and any business or entertainment associated with nightlife. Prior to indoor lighting, people sat around fires all their lives, inhaling so much smoke that by middle age their lungs looked like what we’d see today only in a coal miner or heavy smoker. Candles reeked because they were made from animal fat.
Phonographs were another way that Edison changed people’s lives, allowing people to hear records of all styles and from all eras and regions. Previously, the only music anyone ever heard was live. Live music is great, but for most people it didn’t amount to much variety. Phonographs were initially used more for recording than playback, with early uses including stenography (taking dictation) and answering machines. Edison was interested in the Spiritualism movement and even hoped that albums would be able to record and play voices from beyond the grave — like today’s purported EVP. Motion pictures, based on Edison’s Vitascope patent, were originally conceived as cheap carnival attractions, with brief five-minute “keystone cops” type films. But movies flowered into an entire industry and art form in the early 20th century. The industry started near New York, with Edison’s own revolving “Black Maria” soundstage and Universal Studios and Fox in Fort Lee, New Jersey. Other companies popped up in New York and Philadelphia. However, since southern California was near deserts ideal for shooting westerns and close enough to the Mexican border to escape Edison’s patent lawyers, an orange grove called Hollywood emerged as the heart of the industry.
One of Edison’s first inventions was the stock ticker, an accessory to the telegraph that sent up-to-date stock prices all over the country. New York journalist Charles Dow then codified and cataloged price histories, allowing people to study charts in an (arguably futile) attempt to divine patterns or guess future directions for stock prices. He also created an index of top railroads, the biggest firms in America at the time and, in 1896, another of non-transportation companies known as the Dow Jones Industrials, thirty top companies that served as a bellwether of the market’s direction.
Americans had historically preferred bonds to stocks — Henry David Thoreau’s “joint stocks and spades” that were seen as too volatile and susceptible to manipulative schemes that emptied the pockets of unwary investors. Dow’s index and daily paper, the Wall Street Journal, didn’t eliminate these problems altogether, but seemingly tamed the markets enough to entice broader participation. This boosted public companies because they could raise more capital and spread more risk by selling public shares than by simply borrowing from banks or individual backers, or what we today call venture capitalists.
Funding played a big part in the War of the Currents, an engineering and public relations contest over which type of current would power America’s new electrical grid. The story illustrates how multiple inventors work on similar things simultaneously and how their competition spills over into their respective investors.
Edison, along with his financial backer J.P. Morgan and their corporation, Edison Electric Light Co., favored the direct current (DC) approach. Edison’s former employee Nikola Tesla and his patron, George Westinghouse, backed alternating current (AC). Having developed pioneering railroad applications, Westinghouse could mentor Tesla in bringing inventions to market. Pioneered by Michael Faraday and Hippolyte PIxii, AC was more promising for the grid since DC lost power over distance and, at the time, was intended mainly just for light bulbs rather than other machines and appliances. Alternating current was stronger but more dangerous. Both sides tried to convince the public that their system was safer and that the other would lead to unnecessary deaths. Edison staged public electrocutions of elephants and other animals, sometimes with “Old Sparky’s” power levels deliberately set to almost, but not quite, kill the victim. John D. Rockefeller, who dominated the kerosene market, had tried such shenanigans on Edison to scare people away from light bulbs. Edison’s staff invented the electric chair ostensibly as a humane alternative to lynching criminals. However, with Edison consulting and journalists observing, New York’s Auburn Prison set the prototype to torture convicted murderer William Kemmler before killing him. Edison hoped to create bad PR for AC current just as the two companies vied to win the contract for a large generating station at Niagara Falls, New York that would power much of the Northeast. Instead, the cynical ploy backfired and damaged Edison’s reputation.
Westinghouse wouldn’t have been able to under-bid J.P. Morgan, but Tesla generously agreed to forfeit all his AC patent royalties. That saved Westinghouse enough money that he won the bid to electrify the Chicago World’s Fair in 1893, which in turn won them the Niagara bid. The country’s first power plant, Edison’s Pearl Street DC station in lower Manhattan, that powered Wall Street and Morgan’s own home, gave DC the early edge. However, the AC system Tesla and Westinghouse pioneered at the Niagara Falls hydropower plant near Buffalo proved more efficient for a decentralized system of stations connected across the country in medium-length power lines. Tesla imported pole-mounted transformers that powered down AC’s 100k volts to the 110v or 220v used in homes, making it safer. Today, ~99% of America’s grid carries AC. Tesla, in effect, developed the system that powers America’s economy today. However, many household items run on converted DC, including computers and LEDs, and electric cars are DC. Edison’s high-voltage direct current lines (HVDC) are mounting a comeback because they’re practical for transmitting solar and wind power over long distances. Edison and Tesla both predicted the advent of solar energy.
The grid was one of the major if underrated engineering projects in American history and created thousands of jobs for line-workers. A Popular Mechanics poll of engineers rated it ahead of the 1969 moon shot. It was dangerous work, though, especially for those used to low-voltage telegraph/telephone wires. Over the rest of the 19th century, career linemen suffered a death rate of nearly 50%, far higher than soldiers in any American war. Later, J.P. Morgan ruthlessly threatened Westinghouse with lawsuits he couldn’t afford to extort Tesla’s AC patent rights for himself. Thus, the winner of the Current Wars was the financial loser and vice-versa. Then Morgan edged Edison out of his own Edison Electric Co. by buying up shares and created General Electric to dominate the future market in generators and appliances. General Electric is the only company on today’s Dow Jones Industrial Average that was on the original list.
Tesla rivaled Edison as one of the greatest inventors of the age and there was a personal backstory behind the War of the Currents. Born at midnight during a thunderstorm in Croatia in 1856, Tesla had a lifelong fascination with storms and electricity. He showed signs of genius at a young age, constructing toys powered by insects. After working in Edison’s Paris office, Tesla immigrated to America in 1884 and landed a job with Edison, but they had a falling out over approach and money. Edison always had his eye on practical application, whereas for Tesla science was an artform, spurred by fantastic images in his head. The uneducated Edison called Tesla a “poet of science.” According to Tesla, Edison challenged him to improve his “dynamo” motor designs by promising, “There’s fifty thousand dollars in it for you — if you can do it.” When Tesla solved the problem and asked for his money, Edison dismissed him and said, “Tesla, you don’t understand American humor.” Tesla refused a smaller pay raise and quit. Edison and Tesla’s subsequent feud over AC-DC is a good example of how overlapping ideas, patents, financing, and personal rivalries impact which direction technology takes us.
Electricity is also a good example of the difference between innovation and the widespread, practical application of technology. Nearly half a century passed between Edison and Tesla’s initial breakthroughs and the availability of electrical power for most American homes, businesses, and factories. Such was the case in steam technology, antibiotics, and robotics. Be wary of the “trough of disillusionment” phase after the initial hype cycles regarding biotech, nanotech, 3-D printing, improved robotics and renewable energy. Long periods of dashed hopes could ensue before today’s innovative technologies gain any traction or have a measurable impact.
Tesla invented generators, conductors, and engines that ran on AC current, including the induction motors used in today’s factories, appliances, and cars (see Nikola’s Revenge). Since the rotating magnets of these engines don’t touch, they generate less friction, heat, smell and smoke than motors running on DC. Tesla also worked on neon and wireless fluorescent lights (what he called “cold lights” because their coil-lit gasses don’t heat up), turbine engines, speedometers, and helicopters. In a failed effort to communicate with Martians, Tesla laid the groundwork for radio, the first “wireless.” The U.S. Patent Office credited him for his work on the radio posthumously in 1943 because Guglielmo Marconi utilized so many of his patents. Tesla died with over 700 patents.
Tesla invented remote control, demonstrated on toy boats, and worked on a death ray similar to today’s tasers. He envisioned solar and geothermal energy, claimed to have an earthquake machine that could bring down New York City, and hoped to develop a machine to control the weather. One of the reasons for his renewed popularity is that Tesla envisioned a system of beacons similar to today’s cell phone towers that would eventually replace landlines. From his Wardenclyffe broadcast tower on Long Island (right), he hoped to transmit wireless audio and video around the globe but his hopes weren’t realized and he sank into debt, burning through 150k of J.P. Morgan’s dollars before giving up.
Tesla was nuttier than a tree full of squirrels. He claimed to be in love with a pigeon in New York’s Bryant Park and, sadly, said he never recovered from the pigeon’s death. He was a germaphobe and couldn’t touch women’s hair. Tesla wrote, “I do not think there is any thrill like that of the inventor when he sees some creation of his brain unfolding to success. Such emotions make a man forget food, sleep, friends, love, everything. It is a pity, too, for sometimes we feel so lonely.” The eccentric inventor did all tasks in groups of three or nine. The U.S. government took his claims of earthquake machines and death rays seriously enough to rope off his room on floor 33 of the New Yorker Hotel and help themselves to his files and equipment upon his death in 1943. They suspected other countries would beat them to the punch if they didn’t. Today, Elon Musk’s company bearing Tesla’s name is marketing electric cars and batteries recharged by solar power.
Another inventor who took advantage of the patent system, beating rival Elisha Gray to the registration office on the same day, was Alexander Graham Bell. As the image above suggests, some historians suspect that Bell stole his key idea from Gray (controversy) and a patent clerk testified that Bell bribed him to see Gray’s application. This was a key debate as Bell went on to form one of the most profitable companies in history, his namesake conglomerate that monopolized the country’s phone lines until 1984 — parent of today’s AT&T, Verizon and CenturyLink. Bell said the clerk was lying and the judge tossed Gray’s case out of court based on insufficient evidence.
As a teacher of deaf students, Bell thought the Morse Code system of tapping used in electric telegraphs could be improved by assembling an artificial ear on either end, though the design was far simpler. Phones used the same wires already up for the telegraph and were initially thought of as something only the government, police or delivery boys would have any use for. Ironically, Bell didn’t like a phone in his own study because he found them intrusive. Just as people couldn’t see any broader application of movies beyond the Nickelodeon machines at fairs, they didn’t envision that people would want to talk on the phone just to catch up. In 1876, President Rutherford B. Hayes remarked, “It’s a great invention but who would want to use it anyway?” A visionary he wasn’t.
One inventor did foresee a problem with calling people who weren’t home; as mentioned above, Edison invented the phonograph partly as a telephone messaging system. Edison also popularized “hello,” which caught on instead of Alexander Graham Bell’s “ahoy” as a greeting among callers (hello isn’t a common greeting in England). Like Edison, Bell had an eye for talent; a member of Bell’s 1908 aviation research team, Glenn Curtiss, was a primary founder of America’s aerospace industry.
Contrary to the quote at the top of the chapter, Edison was wrong that planes would never fly. Orville and Wilbur Wright, two bicycle mechanics, figured out that one key was to give the wings flexibility, like those of a bird. According to legend, this insight on balance came from twisting a cardboard box and seeing how the ends turned in opposite directions. If the story about Edison’s filament inspiration is also true, cardboard boxes were quite influential in the 19th century. Like birds, the Wright Brothers’ wings’ flexibility would give their craft stability. With the help of staff at their bike shop, they built a lightweight aluminum crankcase for their engine. The brothers tested kites, then gliders, then boosted their glider with a 4-cylinder, 12-horsepower engine that connected to twin propellers with a sprocket chain drive similar to a bike.
After several trials, Wilbur got their namesake Wright Flyer off the ground for 59 seconds and crash-landed onto the sand dunes of Kill Devils Hill south of Kitty Hawk, North Carolina in 1903. It wasn’t a long journey; he could’ve taken off and landed inside the fuselage of a 747. However, their effort was the first sustained flight of a powered, heavier-than-air craft (not a balloon or glider). The Wrights figured out how to simultaneously stabilize three dynamics that powered flight must overcome: pitch, roll and yaw: up-and-down pitch with a forward elevator, lateral roll with wing-warping by manipulating the angles of the left and right wings, and yaw (or sideways, horizontal spin) with a rear rudder. Their rudder was connected to the cables that warped the wings. Yet, the Wrights didn’t get much credit at the time because few people saw the flight. They wanted it that way because they didn’t want anyone stealing their designs, but that proved to be a two-edged sword. Even their hometown newspaper in Dayton, Ohio didn’t recognize them as flying the first plane. The Wrights avoided air shows.
Consequently, Glenn Curtiss stole the spotlight by piloting the first public demonstration in 1908 for Scientific American magazine, flying his June Bug for two minutes and nearly a mile outside Stony Brook, New York. The Wrights’ biggest concern for patent theft was Edison, but they turned down an offer from Curtiss to improve their engine for the same reason. Eventually, the Wrights won Patent #821,393 for their “flying machine,” but their monopoly on warped wings only inspired Curtiss to improve on the idea. Instead of adjustable wings, he attached flaps (French: ailerons) onto fixed wings and boosted power with his 40-horse engine. Fixed-wing planes won out just as alternating current did in the Current Wars.
When the Wright Brothers agreed to showcase their own fixed-wing plane in 1908, they had mixed results. One flight crushed Curtiss’ record, staying aloft for over an hour, but another wrecked after its propeller shattered, seriously injuring Orville and killing Army Lt. Thomas Selfridge. They still won the initial U.S. Army Signal Corps contract they were bidding on, but Curtiss was in their heads. They were so obsessed with protecting their patents that they spent more time in courts than their shop and aviation passed them by, even as they won royalty suits and twice bankrupted Curtiss. Journalist Clive Irving wrote, “It’s as though Steve Jobs, having delivered the original 1984 Macintosh, had stopped right there.”
Curtiss got advice from the legal team of automaker Henry Ford, himself no stranger to patent wars, but time-consuming legal battles stifled American aviation while Germany made strides leading up to WWI. When war broke out, the government had to loosen up patent restrictions because, after Wilber’s death, Orville was in no position to fill demand. Germany, meanwhile, had 50k planes before the U.S. entered the war in 1917. Curtiss built a base in San Diego to train Army and Navy pilots and sold Uncle Sam 7k “Jenny’s” (JN-4), the surplus of which supplied the barnstorming craze of the 1920s.
Curtiss, along with William Boeing, turned aviation into a profitable business. Though only educated through the 8th grade, Curtiss got interested in mechanics working for Eastman Kodak. His interest in cameras and stencils eventually gave way to bicycles and motorcycles (Curtiss was a record-holding “Hell Rider” racer), and then to airplanes. Alexander Graham Bell considered Curtiss the “greatest motor expert in the country” but he also had a savvy head for business — earning millions even after his two bankruptcies — and his background as a daredevil allowed him to pilot his own designs. Curtiss helped the U.S. keep pace with Japan in developing seaplanes and “flat-tops” (aircraft carriers) critical during and after World War II.
After the three erstwhile bicycle mechanics died, their companies buried the hatchet and merged into Curtiss-Wright (est. 1929), a leading contractor during WWII that is still around today. While planes didn’t gain significant commercial or military importance prior to WW I, stay tuned; we’ll return to aviation and aerospace in future chapters.
Trains, not airplanes, were the dominant mode of transportation in the post-Civil War phase of the Industrial Revolution. Investments and ingenuity accelerated all the major industries of the late 19th century, but none more so than the “iron horse.” The English invented trains in the early 19th century and they quickly made their way to America. Their impact was limited prior to the Civil War, though, because of mechanical drawbacks and no agreed-upon width for the distance between the rails, or gauge. Cars were difficult to stop without any braking system other than pure friction (brakemen pulled on levers) and men charged with hooking the cars together could be squashed between. George Westinghouse’s application of hydraulics (air pressure) to braking systems improved the former while automatic couplers solved the latter. Westinghouse made big contributions to both railroads and electricity, as we saw above.
During the Civil War, the North agreed on the standard gauge of 4′ 8.5″ (the origin of that exact width is a story in its own right, but it was first suggested by George Stephenson, the English inventor of the steam locomotive). That enabled an integrated system of rails to hook up, leading to the advent of freight companies. Before that, individual companies bought their own small lines and rolling stock. In the late 19th century, these freight networks became the heart and soul of the American economy. Trains not only moved products around, allowing for the growth of large companies, the railroad companies themselves were primary customers for steel (rails and cars), timber (ties and cars) and coal (to fire the steam engines). They also made men rich. The richest of all was former shipping magnate Cornelius “the Commodore” Vanderbilt, who consolidated eastern railroads, including the New York Central and built Grand Central Station. Vanderbilt preferred tactic was inflicting enough temporary damage on his rivals to lower their stock price, then scooping up enough shares at a discount to become majority shareholder.
When Abraham Lincoln arrived in Washington in 1861, he saw the U.S. as, in effect, three countries: the North, the Confederacy, and California. California was already a state, but developing an economy all its own, far removed from the line of settlement in the prairie states of the Midwest. Most of the Plains and mountains in between were unsettled by Whites, except for Mormons in the Great Basin. The North and South squabbled for years over where to best build a transcontinental route and, even aside from politics, multiple, unavoidable mountain ranges made the engineering challenging. When the South left the country in 1861 the Union could do as it pleased, and Lincoln and Congress immediately set upon building a track connecting the Midwest to California.
Lincoln doubled as a railroad lawyer along with being a politician and his administration thought the free market offered insufficient incentive for large-scale infrastructure (for an alternative view, see Thomas DiLorenzo). James Hill later built the Great Northern Railway with minimal public support, but the near consensus at the time was that tracks would cost more to build than any one company could ever pay off with freight or passenger service, at least within the lifetimes of the original investors. So the government offered loans, land grant subsidies, and exclusive rights-of-way for companies that could lay the most track. Predictably enough, the transcontinental project was plagued by corruption, bribes, kickbacks, and shoddily built lines.
Nonetheless, the Pacific Railroad Act of 1862 culminated in the first western route from Omaha, Nebraska to Sacramento, California by 1869. Since it took awhile to build the bridge from Omaha across the Missouri River to Council Bluffs and the “Iowa Pool” connecting to Chicago, the first western route actually used went through Kansas City. The Central Pacific Railroad built west from California with Chinese coolie laborers, while the Union Pacific used military-style discipline to drive ex-slaves, soldiers, and immigrants to lay ties and pound spikes across the Plains and through South Pass in the Rockies. It wasn’t easy work. Each side had progressed only about fifty miles by Lincoln’s death in 1865. But the pace picked up in the east after the war, and the Chinese were better able to blast tunnels through the Sierra Nevada Mountains after Swedish chemist Alfred Nobel invented dynamite in 1867, a more manageable way to stabilize nitroglycerine. By 1900, five routes crossed the west, including Hill’s, all used today by freight and Amtrak. Meanwhile, a precursor to Western Union built a transcontinental line of its own, connecting a telegraph wire from the eastern U.S. to San Francisco in 1861. By the time Lincoln died, the continental U.S. or “Lower 48” we see today was on its way toward becoming an integrated country. That wouldn’t have happened — at least not in the same way — without the Union winning the war and building the railroads and telegraph.
Railroads were America’s first big industry. Aside from creating a huge labor market, they led to other industries like traveling salesmen, circuses (e.g. Barnum & Bailey or Ringling Bros.) and national parks. James Hill’s son Louis Hill of the Great Northern Railway built chalets in Montana’s Glacier National Park, nicknamed “America’s Switzerland.” Railroads built park lodges and hired artists to promote tourism at Yosemite (Southern Pacific), Yellowstone (Northern Pacific) and Grand Canyon (Atchison, Topeka & Santa Fe), hoping to augment their freight business with more passenger traffic. Time Zones, originally the idea of Benjamin Franklin and later legalized during World War I, came into use to better coordinate timetables. Railroads were the first industry big and controversial enough to necessitate regulation from the national government, in the form of the Interstate Commerce Commission.
Railroads also changed political campaigning. Unable to get around and meet people effectively prior to the Civil War, candidates could now crisscross the country on whistle-stop campaigns, stop in every town en route, and step out the back car or caboose to give a brief speech. The festivities often included bands, bunting, and throngs of people anxious to hear and shake hands with prominent figures they’d otherwise have no way of ever meeting.
Railroads even changed our bodies. Refrigerated boxcars and steamboats allowed fresh produce to ship around the world all year, whereas people traditionally had only eaten local fruits and vegetables in season. Why were visitors to the 1876 Philadelphia Exposition so amazed to see bananas? Before refrigerated transport, produce couldn’t stay fresh between Central and North America, so no one in the U.S. had ever seen one. Access to better nutrition caused Americans to get taller. That’s why the door jams are noticeably lower and the beds shorter in 19th-century homes, and why Lincoln was seen as so tall at 6’3”. Having a president 6’3” during the Civil War would be like having one 6’6” today.
Moving goods over rail allowed for national companies. These same firms could become multi-national by linking up with steamships. Recognizable brand names like Kellogg’s, Standard Oil, and Coca-Cola could now be found all over the country and, soon, the world. Isaac Singer’s sewing machines and Henry Heinz’ pickles and ketchup could travel by rail across the country, then by ship across the oceans in the precursor to today’s container-based intermodal system. Advertising via women’s magazines like McCall’s and Ladies Home Journal reinforced brand recognition. It’s no coincidence that Coca-Cola, along with being one of the most profitable companies in history, is arguably the most successful and prolific advertiser in history. These companies were big enough to require specialists to run them. Unlike customary “mom-and-pop” operations where families ran the whole business, big firms needed departments of advertising, accounting, and management. Soon, colleges followed suit, offering business majors in these sub-fields.
Many companies headquartered in Chicago. Its location at the southwestern corner of Lake Michigan, western-most among the Great Lakes, made it a natural hub for western railroads. Other rail towns like Minneapolis, St. Louis, and Kansas City emerged to process grain but, initially, most livestock made their way to Chicago’s stockyards and slaughterhouses. Farm implements were manufactured there and in outlying areas of Illinois, along with train cars, both box and passenger. Large “departmentalized” stores like Sears & Roebuck and Montgomery Ward shipped products by rail from Chicago to rural communities. Subsidized public mail service kept their costs down. Retailers took advantage of subsidized mail the same way Amazon and eBay take advantage of the free Internet today.
Richard Sears started selling pocket watches but branched out to nearly everything then commercially available, including even build-it-yourself home and barn kits. Sears understood that economy of scale allowed him to undersell local merchants through his iconic mail-order catalogs, which doubled as toilet paper in thousands of outhouses across America before the invention of that now taken-for-granted product. Sears was detail-oriented. For instance, he observed that people stacked magazines and catalogs in a pyramid so he made his cover dimension smaller to end up on top. Sears’ stockers roller-skated from shelf to shelf loading goods onto trains in a centralized warehouse.
Eventually, pneumatic tubes moved goods around even quicker. Sears warehouses presaged the bulk stores of today and the assembly line system later implemented by Henry Ford. Ford studied Sears’ system and those of meatpacking plants in Chicago and Cincinnati. Sears sponsored Saturday night dance shows when radios came around and helped pioneer employee profit sharing and corporate philanthropy, building African-American schools in the South. With 1/30 American adults working at Sears in the early 20th century, it occupied a similar spot in the economy as Walmart does today. Walmart applies the same principles of efficiency, low prices, and intermodal transport, except on a more global scale.
While Sears developed a nationwide model, Memphis grocer Clarence Saunders reinvented interior food retail starting in 1916. In traditional grocery stores, customers placed an order at the counter and the clerk went back to the stockroom to retrieve the goods. Saunders brought the stock out into the open and had customers collect it themselves. While this introduced the potential downside of shoplifting, it was more time efficient. Saunders simple breakthrough is the sort that, after you learn about it, makes you frustrated that you hadn’t thought of it yourself. His Piggly Wiggly stores were the first supermarkets and their nonsensical name reinforced awareness as customers thought about what the name meant. Clothing, hardware, and other stores quickly adapted the customer retrieval model.
What Sears did for retail, Andrew Carnegie and John D. Rockefeller did for steel and oil, respectively. Carnegie emigrated from Scotland at age 12 with his mother and “pulled himself up by his own bootstraps,” as the saying goes. Rockefeller did likewise, supporting his family as a boy after his snake oil salesman father abandoned his family. Their stories were the classic fulfillment of what came to be known as the American Dream: that through hard work, ingenuity, and “keeping one’s nose to the grindstone,” anyone could make it rich in the Land of Opportunity. Ample opportunities for advancement set the U.S. apart from other parts of the world in the 19th century, at least for certain demographics. There were near limitless opportunities for northern white males from the right parts of Europe, just as there are for most of us today — something immigrants sometimes recognize more than native-born Americans. Those of us who don’t strike it rich today have mainly ourselves and our own lack of talent, skill, brains, good looks, ruthlessness, luck, or ambition to blame (along with our parents, since some rich people just inherit wealth). Only a small fraction of the poor and working classes actually pulled off the American Dream in the 19th century — more would’ve ruined the Dream — and today the U.S. has less upward mobility than Europe. But millions succeeded on a less dramatic scale than Carnegie or Rockefeller, as they do now. And today, over 70% of America’s billionaires are self-made, meaning that they didn’t inherit their wealth.
Carnegie succeeded on a colossal scale. He is a good example of being well situated, vocationally, to stay abreast of developments. He worked in the telegraph office of a railroad as a teenager, giving him an ideal vantage point on two leading industries and showing him the importance of steel to American’s future. He worked his way up through the Pennsylvania Railroad (PRR), the biggest corporation in the world at the time. His work as a subcontractor on the St. Louis Eads Bridge in the 1870s awakened him to the need for better and cheaper ways to manufacture steel. The bridge across the Mississippi River was the first use of structural steel as the primary material.
Carnegie built his own steel plant outside Pittsburgh, Pennsylvania. More than any industrialist of his era, he understood the importance of what’s now called Research & Development, or R&D. Rather than simply pocketing profits, he plowed them back into researching ways to make stronger steel and stay ahead of the competition. Carnegie outsourced some research to Edison’s lab in New Jersey. He was looking for better ways to transform iron, which is too brittle for big structures, into steel with the highest ultimate tensile strength (UTS). Structural steel, for instance, has a tensile strength nearly twice that of the wrought iron used in England’s Clifton Suspension Bridge (1864), then the biggest such span in the world. While on a working vacation in Germany and England, Carnegie researched the (Henry) Bessemer process of mass-producing steel from molten pig iron. Carnegie’s steel helped build America’s railroad tracks, suspension bridges, skyscrapers, and revamped Navy.
Steel skeletons could support skyscrapers that, in turn, brought about the elevator; otherwise, who’d want to work on the 50th floor? Elisha Otis patented the first safely functional elevator in 1854. At the New York World’s Fair, he personally demonstrated the safety brake that stops the elevator if the main hoisting cable fails (see image). Steel skeletons also allowed for lighter “skin” materials like glass on tall buildings, whereas it would’ve been impossible to build high with heavier stone or iron. Later, air conditioning made it more tolerable to work on high floors in the summer.
Carnegie steel built Louis Sullivan’s first skyscrapers in Chicago and the famous Brooklyn Bridge. Rival Bethlehem Steel built the Chrysler Building in New York and Golden Gate Bridge in San Francisco. Both contributed to the transcontinental rails and military. In his quest to stay ahead of the competition, Carnegie would close plants in his native Pittsburgh, often throwing hundreds out of work, and re-open better plants a few years later. The best was a plant outside Pittsburgh called the Homestead Steel Works. Homestead made many of the I-beams and girders that built America’s growing cities.
Working for Carnegie was hard and dangerous and the hours were long: 12-hours a day, six days a week. It was so hot in his mills that keys and coins melted into the skin of those who mistakenly left them in their pockets. Casualty rates were high in the mills. In the next chapter, we’ll see how Carnegie and his manager Henry Frick dealt with unhappy workers (spoiler alert: not nicely). In 1900, Carnegie sold his firm to banker J.P. Morgan for just under half a billion dollars (around $13.5 billion today), briefly making him the richest man in the world. Morgan merged Carnegie Steel with others, forming U.S. Steel, the world’s first billion-dollar company. Football fans will recognize the familiar logo on the Pittsburg Steelers’ helmets.
There was no federal income tax prior to 1913, so tycoons were richer in adjusted dollars than men like Bill Gates, Sam Walton or Warren Buffet. Like Sears — and, for that matter, like Gates, Walton, and Buffet — these industrialists gave back to society in the form of philanthropy. Carnegie built concert halls, libraries, and hospitals all over the country, and Rockefeller’s endowment later financed New York’s Rockefeller Center, Lincoln Center, and World Trade Towers, along with Teton National Park, a wing of the Metropolitan Museum of Art (and Cloisters), the University of Chicago and the United Negro College Fund. Rockefeller and Carnegie competed almost as hard giving money away as they had making it. Others like Cornelius Vanderbilt (shipping and railroads), Leland Stanford (railroads and timber) and James Duke (tobacco and utilities) founded colleges, as well. While some of Rockefeller and Carnegie’s money later went toward nefarious purposes like eugenics research (Chapter 4), it continues to fund charities and causes today. Their endowments, along with that of fellow industrialist and banking magnate Andrew Mellon, have helped transform Pittsburgh into a model “turnaround city” of clean, high-tech industries after the American steel industry began to fade in the 1970s.
Also similar to Sears, Carnegie and Rockefeller took advantage of economies of scale, in each case more ruthlessly. Both of these Robber Barons, as they were known to their critics, cut overhead costs by buying up the entire process of production — or supply chain — from extracting raw materials (“upstream”), to shipping, to manufacturing in factories or refineries, to more shipping, to point-of-sale/retail (“downstream”). If they’d only made steel or refined oil, they would have spent a lot of their profit paying others to mine iron ore, drill oil, ship materials on railroads and sell to the public. By buying the mines themselves and negotiating railroad discounts, they still had to pay overhead but not as much. They minimized their overhead as best they could through vertical integration.
Another example of vertical integration was the Hollywood studio system of the early to mid-20th century. Studios filmed in back lots rather than out “on location,” hired from a pool of company actors under long-term contracts, distributed the films, and owned their own theaters across the country. Boeing was originally more vertically integrated because they made their own engines along with fuselages and owned United Airlines, whereas today they mainly just assemble planes and missiles with parts from elsewhere. A modern example of vertical integration would be a search engine company like Google (part of Alphabet, Inc.) developing its own browser (Chrome), mobile operating system (Android) and broadband hardware (Google Fiber). Another example is Amazon doing its own shipping via drones or delivery subcontractors.
John D. Rockefeller’s Standard Oil employed vertical integration on a monumental scale, buying up ships and leveraging railroad discounts to move petroleum products. Later he got around railroads altogether by building his own pipeline, triggering a collapse in the railroad bubble in the 1870s. His Refinery #1 in Cleveland was situated near Great Lakes shipping and railroads. He bought coal mines in Colorado to run his ships and refineries until he transitioned to gasoline engines. Rockefeller wasn’t a total vertical integrationist, though, because he avoided the dicey business of extraction. Geologists at the time thought that oil moved around underground and, at first, it wasn’t subject to normal mineral rights law, but rather the English Common Law “finders keepers” rule applied to disputes between landowners and hunters (like wild game, oil moved and couldn’t be owned as property). “Wildcatters” could cut diagonally under landowner’s property or cheaply lease small patches just big enough for the oil well. Like gold and silver mining, drilling was a sort of “Wild West” business that mixed real engineering with bribery, violence, luck, and supernatural aids like divining rods and spiritualist consultants. Rockefeller recognized that the contentious, hit-and-miss world of drilling was for gamblers and focused instead on something boring that he could control: refining oil efficiently. Let others find it. The name Standard marketed his kerosene as safer and more dependable than that of his competitors; he wisely branded his company the “standard bearer” of the industry.
In Cleveland, Rockefeller was near some of the richest oil deposits in America. Edwin Drake of Pennsylvania successfully drilled oil on a worthwhile scale for the first time in 1858, and bigger strikes in eastern Ohio, southeast Texas/Louisiana, Oklahoma, and southern California (Kern Field) followed in coming decades. On the right is the Lucas Gusher in the Spindletop Field south of Beaumont, Texas. In the 1930s, “Dad” Joiner’s Gusher in the East Texas Oil Field supplied one-third of America’s total petroleum.
At first, oil was used mainly as a lubricant and to light kerosene lamps after the near extinction of whales. Rockefeller would have been rich just with these earlier uses given the growth of industry and the need for lubricants and light. You could even say that he lit the country before Edison. But what made him wealthier yet, and kept Standard on top after the light bulb, was the internal combustion engine’s application to cars, trucks, tractors, and ships (later planes). The concept had a long history in the 19th century (overlapping with steam) but, in 1876, German Nikolaus Otto developed the first efficient four-stroke engine that burned fuel in the piston chamber while producing any measurable power. The aforementioned Karl Benz used such an engine in his pioneering “motorwagen.” They used English railroad engineer Beauchamp Tower’s hydrodynamic technique to lubricate their engines with pressurized oil, reducing friction by maintaining a thin film between the moving parts.
Rockefeller worked with early automotive engineers to power engines with gasoline that, until then, had been a wasteful (and toxic) byproduct of petroleum refining. You might say he was an early and prolific recycler. Rockefeller pioneered gasoline power himself with the giant engines that ran his refineries. Oil was used in heating furnaces, too. The discovery of huge oil deposits drove down prices, steering the market toward gasoline and away from steam and electric-powered cars, both of which were common in early automotive history (gasoline engines continued to use electricity for the starter, ignition, and other systems). Even Henry Ford and Thomas Edison, famous respectively for their namesake internal combustion car company and New York’s Con Ed utility, pushed electrical cars as late as the 1910s, envisioning drivers powering their batteries back up at their own off-grid generators that, at first, would be powered by fuel but eventually transitioned to windmills. This clean, quiet, self-sustaining transportation system never came about because of oil’s declining costs, the greater range of gas-powered cars, the power of oil cartels, battery monopolies driving up prices, patent strangleholds, and problems with batteries either having too much resistance in nickel-iron form or being too heavy in lead-acid form. Ironically, the invention of the electrical starter in gas cars doomed electric cars (at least for a century) because it made gas cars easier to start than they had been with hand cranks. Finally, World War I created a huge need for vehicles just as internal combustion was gaining an advantage over electric. In ensuing decades, General Motors colluded with oil and tire companies to buy up and destroy cities’ electric streetcars, as we’ll see in Chapter 15.
Rockefeller was also a pioneer in horizontal integration, the process of monopolizing a sale or service to the greatest extent possible. While competition is a key advantage of capitalism from the consumer’s perspective, it’s easy to forget that sellers would prefer to eliminate their competitors or at least build “wide moats.” The goal of horizontal integration is to displace rivals so that you no longer have to compete with them. One technique is to undersell them until they go out of business, then raise prices. Another legal way to expand horizontally or vertically is through mergers and acquisitions. If a fast-food chain bought a rival, that would be horizontal integration; if it bought cattle ranches, potato farms, bakeries and a fleet of delivery trucks, that would be vertical integration. Horizontal integration is basically a fancy term for gaining a monopoly, or at least heading in that direction. The impact cuts both ways on customers because companies attain pricing or market power by eliminating competition, but economy of scale allows the monopolizer to lower costs.
Standard Oil lowered the price of kerosene five-fold between the Civil War and early 20th century. Rockefeller cornered the oil market by temporarily underselling local competitors long enough to drive them out of business, using moles to spy on their R&D departments and bribing politicians. At age 33, Rockefeller controlled 90% of North America’s oil market, creating the nation’s first monopoly, or what was then called a trust. Trust-busting became an early form of government intervention in the economy as ripped off consumers and exploited workers objected to such “concentrations.”
Even though its market share was slipping some, Standard Oil was one of the first major corporations the government broke up, in 1911, slicing it into 22 predecessors to many of the competitors you see now: ExxonMobil, Chevron, Conoco, and parts of BP. Regardless of what they charge at the pump, their gas stations are all selling the same oil. Why? Because Standard’s monopoly left one convenient legacy: a head start on today’s common pipelines. Don’t feel sorry for the already-retired Rockefeller because of the anti-trust case. He had substantial shares in all the “Baby Standards” before they went public and went on to become the richest man in modern history, worth over half a trillion in today’s money.