Podcast # 38: The Gilded Age and the Rise of Big Business Part 2

Now, lets talk a bit about J P Morgan. His is a different story than Carnegie. He grows up in a wealthy family and is afforded with just about every privilege possible as the time. His first job was at the NY Branch of the firm his father worked for. Like Carnegie he is also able to avoid fighting in the Civil War by paying for someone to fight in his place. His father, Julius is a man of great wealth and influence and is a partner in a European Financial company. He surrounds his son with successful men who are slightly older, have more experience and can help him sharpen his skills. They created a company known as Dabney Morgan and Co. This company would grow into what would become Drexel, Morgan and Co. in 1871 and then simply JP Morgan and Co. He invested heavily in the Railroad industry. He would often take positions on the boards of the companies he owned stock in. This put him in the position to be able to direct the actions that company would take. He often settled disputes and helped to make deals between competitors. He owned a vast estate in upstate NY where he lived with his family and bought a yacht to travel back and forth into NYC. There is a story that I love of Morgan using his yacht to help settle a dispute between two of the biggest railroad executives. He invited them aboard his yacht and then refused to bring them ashore until they agreed to his terms. It was a bold move but it avoided a potential bankruptcy of the railroad industry which would have destroyed the US economy. His terms also benefited him tremendously as well. He wasn’t satisfied with just running railroads and financing major deals, he set his eyes on the steel industry as we discussed earlier as he created the countries first Billion-dollar company after he purchased Carnegie’s steel company and renamed it US Steel.

John D. Rockefeller – started early. There is a story how at the age of 7, he raised Turkeys and sold them for a profit. He is known for being one of the richest men in history. He also has a very interesting story. His father was actually a traveling merchant and had all sorts of other women that he had children with and would bring back home thinking they would all live under the same roof. John Rockefeller had to go to work as a child in order to help bring in money for the family. He had a number of odd jobs. He worked as a food clerk, saved his money, worked hard and listened to how every aspect of the business worked. He soon owned his own food company. He did well, but it was when he invested in the oil business, that his wealth and business really flourished. In 1859 when oil was discovered in the US, it opened a new emerging market. He quickly realized that the real money in the oil industry was in refining oil. New technologies not only allowed him to sell the oil but also the byproducts such as paraffin wax, tar, and even Vaseline. He goes on to own a majority of the refineries in Ohio and would control 90% of the oil production in the US. Now, how did he go about creating that monopoly. Rockefeller built his oil empire differently than Carnegie built his monopoly over the steel industry. I mentioned how he controlled 90% of the oil production in the US. Through purchasing competitors or drastically cutting prices to force competitors to close down. He soon became one of the only shows in town. Once he seized control over the market, he was able to raise prices. He moved his company to another state to avoid anti trust laws. So just as a Horizontal line goes across from left to right, Rockefeller got control over oil company after oil company. While Carnegie – picture a vertical line in your mind – controlled each step of the process in producing steel. The mines, plants and railroad lines – he didn’t have to rely on any other business to make his product.

Standard Oil was later broken apart in 1911 by the Supreme Court Case Standard Oil of NJ vs US – he was found guilty of monopolizing the oil industry. His company was broken up into 34 different entities. Many of which, years later would end up merging back together.

Government policies that allowed individuals to amass such wealth

There was No Regulation – we talked about that term Laissez Faire Earlier. As a small number of individuals gained control over entire industries, you begin to see complaints. Complaints from the working class and the average American citizen. There are some great political cartoons from this time period which show how these titans of industry had members of the legislative branch in their pocket. Paid with stock, campaign contributions, jobs for their children, they either turned a blind eye to their practices or agreed to pass legislation that benefited those companies. As the uproar in American society increased, the federal government had to act. It will not be until the Progressive Era which we will discuss in a later podcast that necessary changes like child labor laws, the rise of labor unions will help to change the dangerous and terrible conditions of the American Worker. Unions at this point are being stamped out as much as possible and the Supreme Court targets unions as being a detriment to the ability of an individual to negotiate a fair contract with their employer.

Congress has the right to regulate trade not only with foreign governments but also trade amongst the states. So in IN 1887 – The Federal government began to regulate interstate trade through the ICC which is the Interstate Commerce Commission. At first, it was solely tasked to regulate the railroad industry. Additional laws would be needed to enforce regulations over the industry and the ICC would go on to regulate additional industries.

President Theodore Roosevelt went after monopolies but not all of them. In fact, he became known as a Trust Buster. As anger increased over the practices of some monopolies – not just prices but also the ways in which these businesses treated their workers. These big businesses were able to buy influence within Government. We talked a bit about that earlier – The Government needed to Act. The Passage of the Sherman Anti-Trust Act in 1890 which was named after for US Senator John Sherman from Ohio, who was also at one point the Sec of the Treasury and a secretary of state. With this law, the government hoped to break apart the “Bad Monopolies” that sought to dominate a particular market. The law also allowed for the targeting of Unions as they were seen as a trust and a way to limit competition within an industry. The Act did a number of things. 1. It restricted the ability of a company to monopolize an industry. 2. It prevented the creation of anti-competitive agreements, allows for companies to be sued for violating the rules stipulated by the law – those lawsuits can come from private parties or the Government.

“Let there be competition Let it be fair”

The 1890 Law wasn’t enough; additional laws would be needed to be passed to get rid of loopholes. In 1914 for example, The Clayton Anti-Trust Act was passed. It singled out certain business practices as being illegal price fixing and targeted discriminatory shipping agreements.

In addition to a variety of laws, a number of different agencies were created as well.

In 1903, President Teddy Roosevelt created a number of government agencies to act as an overseer for big business and to gather data that would help break down monopolies but to also protect the American worker and the ability to earn a living wage.

The Bureau of Corporations was created and its sole purpose was to gather data on both industry and government policy and be able to provide the President or members of Congress with reports as needed. If you want more information you can go to FTC.org to learn more. The FTC is the Federal Trade Commission and replaced the Bureau of Corporations in 1914 and its mission is to protect the American Consumer and to promote competition and innovation in the US Economy. They will investigate news of unfair business practices and bring lawsuits against individuals and companies who break the law and monitors and reviews business mergers that have the potential to create monopolies over an industry.

The Dept. of Commerce and Labor was created in 1903. Eventually in 1914, the Department was split into two different departments. The Department of Commerce and The Department of Labor. Each of these departments have a number of different agencies that help the Secretaries of Commerce and Labor carry out the missions of their respective departments.

1912 Pujo Committee – went after JP Morgan and other bankers – especially on Wall Street. Debates on whether or not the Federal government had the right to tax income had been on and off since the civil war. The Supreme Court had overturned a graduated income tax law and so the thought was, let’s try a constitutional amendment. The process is lengthy and honestly, most people never thought states would approve or ratify the amendment. Well, they did and income has been taxed ever since. When we talk about the Progressive Era, we will get more into the 16th Amendment. The Federal Trade Commission was also a byproduct of the Pujo committee.

Modern Day Monopolies

At &T is a great example of a more recent example of a monopoly. Most people today have cell phones, especially smart phones, and I know I’m always on the hunt for a better carrier option and to lower my bill and improve my service. Imagine if there was only 1 major provider. The US Government broke apart AT&T and forced the owners into creating 12 different regional telephone companies. Like Rockefeller, some of those Baby Bells as they were called merged together years later.

Google another great example – think about how people access information and the search engine they use to get it. Most people will use the phrase “Let’s Google it” when they don’t know an answer. They have done an impressive job of just leaving other companies behind in the dust. I think it’s important to play devil’s advocate a bit… can they, should they be taken on by the federal government? If you have built a company that has just out performed its competitors, do you deserve to be looked at as the big bad wolf? Is it merely survival of the fittest?

Facebook. Many people argue that Facebook is a modern day monopoly. It had bought 4 out 5 of the most widely used social media platforms. When you think about how most people communicate, get their news, or even how businesses advertise, Facebook ranks at the top of those areas. The political impact that Facebook had on the most recent US Presidential elections is cause for great concern among lawmakers. It will be interesting to see how it plays out. The debate over Facebook blocking certain posts about Covid 19 or Covid Vaccines. How much influence should one company have?

How should history remember men like Carnegie, Rockefeller, JP Morgan and Cornelius Vanderbilt? Is society today still somewhat of a gilded age. At the surface, do things look one way but in reality it’s a whole other story? Do current campaign finance laws still allow wealthy business owners to pressure or strong arm politicians in getting certain laws passed or getting the to stall or completely stop needed laws from being passed? How much does the average person turn a blind eye to corruption? Are the stories of the conditions for workers at Amazon Facilities getting similar attention that stories of poor working conditions in factories in cities in the early 1900s? Why do we allow career politicians? Has it done American society any good to have the same people in public office for decades? To quote Mark Twain “Politicians and diapers must be changed often and for the same reasons”.

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