The failures of the Union Pacific and Central Pacific railroads actually led to new insights for many Americans: Why should government subsidize any business? Such subsidies increased graft and waste, and in the long run, the firms that received the subsidies either went bankrupt or had to be rebuilt.
Thus, during the three decades following the 1869 completion of the Union Pacific–Central Pacific rail line, most U.S. politicians abandoned talk of federal aid for business (other than occasional tariffs). This atmosphere of freedom ignited a burst of industrial production and invention that had never been seen before, and a new term for the late 1800s gained popularity: the Gilded Age.
Of course not all politicians during the Gilded Age resisted the temptations of voting for lucrative subsidies for companies in their home states. But if they tried to do so, they were stopped by constitutional presidents like Grover Cleveland, who vetoed 414 pieces of legislation from Congress during his first term alone.
With the failure of subsidized canals, steamships, and railroads, American leaders finally became serious about limiting government and cutting expenditures. After 1865, the United States had twenty-eight straight years of federal budget surpluses, and cut two-thirds of its entire national debt.1
The most prominent industrialists of the Gilded Age were John D. Rockefeller and Andrew Carnegie. Rockefeller founded Standard Oil to set the “standard” with his cheap and dependable oil. By the 1890s, Standard Oil had a 60 percent share of the world’s kerosene market; better still, homeowners could burn kerosene lamps in their homes for only one cent per hour, and the former need for whale oil for lighting was swept away. Rockefeller’s cheap kerosene may have saved more whales than any other strategy to date, even while he made the United States so dominant in the petroleum industry. Meanwhile, Andrew Carnegie cut the price of steel rails from $56 to $11.50 per ton, which made the United States the world leader in steel production. The United States entered the twentieth century with superior oil and steel industries.2
Ironically, both Rockefeller and Carnegie won their international competition in part by defeating foreign cartels, which were aided by foreign governments. While the United States followed the path of free enterprise in the late 1800s, other countries began regulating and subsidizing business in a big way. By 1900, for example, 275 cartels in Germany produced coal, iron, steel, and chemicals, and other products. In addition, Russia became a major oil producer, and its government regulated that industry and slapped a high tariff on American oil in order to hinder Rockefeller from selling Standard Oil products there, as did the Austro-Hungarian Empire.3
As a result of these trends, any American business trying to enter the chemical industry in the late 1800s also faced large and well-financed international cartels. Herbert Henry Dow, born in 1866 and a child of the Gilded Age, grew up in an era of innovations, but he would still have to be a tough competitor to beat the cartels and succeed in the American chemical business.
Dow had the advantage of learning from a skilled father who encouraged him to believe in himself and try new ideas. The senior Dow developed equipment for the U.S. Navy, so Herbert grew up eager to learn new scientific methods.4
During his senior year of high school, Dow watched the drilling of an oil well outside Cleveland, Ohio. At the well site, he noticed that brine had come to the surface. The oil men considered the oozing brine not as a by-product to be developed but as a nuisance. One of the well drillers took some brine to Dow and asked him to taste it. “Bitter, isn’t it?” the driller noted. “It certainly is,” Dow added. “Now why would that brine be so bitter?” the driller asked. “I don’t know,” Dow said, “but I’d like to find out.”5
He took a sample of the brine to his lab, tested it, and found lithium in the brine, which helped explain the bitterness, and also bromine. Bromine was used both as a sedative and also in photography to develop film. Dow wondered if bromine could be extracted profitably from the abundant brine in the Cleveland area. Others had extracted salt (sodium chloride), but perhaps he could do the same thing with bromine and sell it commercially.
The key to selling bromine was finding a way to separate it cheaply from brine. The traditional method was to heat a ton of brine, remove the crystallized salt, treat the remaining mixture with chemicals, salvage only two or three pounds of bromine, and dump the rest. Dow thought this method was expensive and inefficient. Why did the salt—which was often unmarketable—have to be removed? Was the use of heat—which was very expensive to apply—really necessary to separate the bromine? And why throw the rest of the brine away? Were there economical methods of removing the chlorine and magnesium also found in brine?6
After graduating in 1888 from Case Western Reserve, Dow took a job as a chemistry professor at the Huron Street Hospital College in Cleveland. There he had his own lab and an assistant. During the next year, he developed two processes—electrolysis and “blowing-out.” In electrolysis he used an electric current to help free bromine from the brine; in blowing-out, he used a steady flow of air through the solution to separate the bromine. Once Dow showed he could use his two methods to make small amounts of bromine, he assumed he could produce enough bromine to market it worldwide.7
Next, young Herbert Dow founded the Canton Chemical Company. With grand aspirations but no experience, he persuaded three partners in Ohio to invest in his blowing-out process. The bad news was that his cheap ramshackle equipment turned out only small amounts of bromine. His company was cash poor, and he went broke in less than a year. The good news was that Dow never saw failure as permanent, but only as a path to later success. He had proved he could make bromine, and if he had a better source of brine he just knew he would thrive.
Before starting another business, Dow scoured the Ohio-Michigan area for brine with high bromine content. His journey ended in the small town of Midland, Michigan, 125 miles northwest of Detroit. After testing the brine in Midland, Dow approached J. H. Osborn and several Cleveland-area businessmen. If they would supply him with the starting capital, he would repay them with profits from the sale of his bromine. Together they launched the Midland Chemical Company in 1890.8
But again Dow struggled. He never had enough money because nothing ever worked as expected. Electrolysis was new and untested. His brine cells were too small, and the current he passed through the brine was too weak to free all the bromine. When he strengthened the current, he freed all the bromine, but some chlorine seeped in, too. Instead of being frustrated, Dow would later go into the chlorine business as well. Meanwhile, the chlorine and bromine were corroding his equipment and causing breakdowns. He needed better carbon electrodes, a larger generator, and loyal workers.9
Dow found himself working eighteen-hour days and sleeping at the factory. Sure, he was making bromine with his new methods, but it wasn’t yet pure enough to market effectively. That made the Cleveland investors nervous, and they balked at sending Dow more cash. He went weeks with delayed pay, or none at all. When unpaid coworkers wanted their cash, Dow had to promise bonuses, and that led to more haggling with his investors.10
Dow economized to survive. He built his factory in Midland with cheap local pine and used nails sparingly. He saved twenty-nine cents buying a padlock in Midland instead of Saginaw. “Crazy Dow” is what the Midland people called him when he rode his dilapidated bike into town to fetch supplies. Laughs, not dollars, were what most townsfolk contributed to his visionary plans.11
Dow needed three years before he sold bromine at a profit. His investors finally relaxed, but Dow agonized about pouring the unused residue from the brine down the sewer. If he could use electrolysis to separate the bromine, why not try to separate the chlorine as well? So while his investors moaned, Dow began making the wood and tar cells that would help him produce chlorine from brine.12
Dow’s struggle to develop new products is common to many entrepreneurs. In Dow’s first experiment with chlorine, he blew up his building and destroyed the equipment. His investors were furious and demanded that Dow make bromine and forget the chlorine, which was more than Dow would agree to do. He left the Midland Chemical Company and returned to Ohio.
For Dow, the return to Ohio meant that he could work on his ideas to produce chlorine. In the town of Navarre, he worked in privacy with a small staff trying to produce chlorine safely by electrolysis. New investors took notice of this, and some of the old ones also became interested. By 1897, Dow was back in Midland as head of the new Dow Chemical Company.13
For Dow’s company to become a major corporation, it faced some giant hurdles. First was the European challenge. Germany in particular dominated world chemical markets in the 1800s. The Germans, and to a lesser extent the English, had experience and access to top-flight scientists and used them to monopolize world markets and control prices. The American chemical industry was almost nonexistent in the 1800s; whatever the Europeans charged, the Americans paid.
Dow’s first battle with the Europeans was in chlorine, a traditional disinfectant. But chlorine’s market as a bleach expanded in the 1890s because of newspapers. The inventing of the Linotype machine and the rotary press created a new demand for wood pulp as paper. The dozens of new companies making wood pulp needed tons of bleach each day to change the pulp from wood color to white.
More than forty companies throughout Great Britain began selling bleach to most of the world. They formed a cartel, or combine, called the United Alkali Company, which controlled the output of its members and set the price of bleach throughout the world. The members of the United Alkali Company controlled the huge potash deposits in Britain, from which they made their bleach. They were so dominant that Dow could only sell competitively in the Great Lakes states, where lower shipping costs and a protective tariff worked to his advantage.14
The optimistic Dow always believed he could match the United Alkali cartel in the price and quality of his bleach. What he didn’t foresee was the predatory price cutting they used to try to knock him out of business. Each December, United Alkali announced a price for bleach for the following year. Before Dow entered the picture, the standard price was $3.50 a hundredweight, a high figure that reflected United Alkali’s near monopoly of the world market.
Just when Dow came on the scene in the mid-1890s, the British cut their price almost in half, from $3.50 to $1.87. But Dow had improved his efficiency enough to match that price. When the British saw this, they cut the price again to $1.65. As Dow later said,
The reasoning that governed these prices is apparent; namely the United Alkali Company fixed the price in the United States at the highest figure they thought they could secure without bringing about competition. When they found competition was starting they realized their American price ($3.50) was too high and they lowered it (to $1.87 and then to $1.65).15
Even after this last cut, Dow increased his bleach production from 9 to 72 tons per day from 1897 to 1902. His electrolysis method of producing chlorine was efficient enough to match the British price. Other American firms were selling bleach, too, but the British went in for the kill. They decided to sell at a loss temporarily; this, they reasoned, would oust the Americans from the market. Then the British could hike prices when Dow and the others were gone.
Late in 1902, United Alkali announced another drop in bleach prices—from $1.65 to $1.25 (which included a twenty-cent tariff, plus freight charges). The other American companies shut down, and Dow must have been tempted to join them. But if he did he would lose not only a large part of his business; he would also lose the chance to improve his manufacturing process as he increased his output. Dow believed he was the most efficient producer; and besides, he hated giving in to a cartel.
When Dow agreed to match the British price, they slashed it again to $1.04. Dow barely survived during 1903, so the cartel announced it would sell bleach in 1904 for a large loss at only 88.5 cents a hundredweight. Dow countered by signing contracts for his entire 1904 output at 86 cents. That decision meant a $90,000 loss for his company. After he did this, United Alkali cleverly announced it was raising bleach prices to $1.25.
Even so, Dow still honored his 86-cent contracts. This was hard to do because the company was teetering on the edge of bankruptcy. Even before United Alkali’s last price cut, Dow’s company was $225,000 in debt and $92,000 overdrawn at a Cleveland bank. In fact, for Dow to get another loan to survive, each of the directors of the company had to endorse the notes. “It seems too bad,” Dow wrote a stockholder, “that we have to bear the entire cost of bringing the United Alkali Company to its knees.”16 But by matching the low British price and honoring his contracts, he earned respect. The British gave up trying to oust Dow from the chlorine business and kept the price steady at $1.25.
No sooner had the bleach war ended than Dow stumbled into a bromine war with Germany. In other words, his major chemicals—chlorine and bromine—were both under attack in the early 1900s. The Germans had been the dominant supplier of bromine since it first was mass-marketed in the mid-1800s. The vast potash deposits near Stassfurt supplied bromine to the Germans as a by-product. Only the United States emerged as a competitor to Germany in the bromine market, and then only as a minor player. Some small firms along the Ohio River sold bromine, but only within the country.17
Americans did not compete with the Germans because of threatened predatory price cutting. About thirty German firms combined to form a cartel, Die Deutsche Bromkonvention, which fixed the world price for bromine at a lucrative 49 cents a pound. Customers either paid the 49 cents or they went without. Dow and other American companies sold bromine inside the United States for 36 cents. The Bromkonvention made it clear that if the Americans tried to sell elsewhere, the Germans would flood the American market with cheap bromine and drive them all out of business. The Bromkonvention law was, “The U.S. for the U.S. and Germany for the world.”18
Herbert Dow entered bromine production with these unwritten rules in effect. And he followed them for a while. The bleach war, however, put him so deeply in debt that he decided to break the unwritten rules, challenge the Germans, and sell bromine in Europe to recover his losses.
Dow easily beat the cartel’s 49 cent price and courageously sold America’s first bromine in England. He hoped that the Germans, if they found out what he was doing, would ignore it. In fact, throughout 1904 he merrily bid on bromine contracts throughout the world.
After a few months of this, Dow encountered an angry visitor in his office from Germany—Hermann Jacobsohn of the Bromkonvention. Jacobsohn announced he had “positive evidence that [Dow] had exported bromides.” “What of it?” Dow replied. “Don’t you know that you can’t sell bromides abroad?” Jacobsohn asked. “I know nothing of the kind,” Dow retorted. Jacobsohn was indignant. He said that if Dow persisted, the Bromkonvention members would run him out of business whatever the cost. Then Jacobsohn left in a huff.19
Dow’s philosophy of business differed sharply from that of the Germans. He was both a scientist and an entrepreneur: He wanted to learn how the chemical world worked, and then he wanted to improve lives by making the best product at the lowest price. The Germans, by contrast, wanted to discover chemicals in order to monopolize them and extort high prices for their discoveries. Those like Dow who tried to compete with the cartel learned quickly what “predatory price cutting” meant. The Bromkonvention, like other German cartels, had a “yellow dog fund,” which was money set aside to use to flood other countries with low-cost chemicals to drive out competitors.20
Dow, however, was determined to compete with the Bromkonvention. He needed the sales, and he believed his electrolysis produced bromine cheaper than the German cartel could do. Also, Dow was stubborn and hated being bluffed by a bully. When Jacobsohn stormed out of his office, Dow continued to sell bromine to countries from England to Japan.
Before long, in early 1905, the Bromkonvention went on a rampage: It poured bromides into America at 15 cents a pound, well below its fixed price of 49 cents, and also below Dow’s 36-cent price. Jacobsohn arranged a special meeting with Dow in St. Louis and demanded that he quit exporting bromides or else the Germans would flood the American market indefinitely. The Bromkonvention had the money and the backing of its government, Jacobsohn reminded Dow, and could long continue to sell in the United States below the cost of production. Dow was not intimidated; he was angry and told Jacobsohn he would sell to whoever would buy from him. Then Dow left the meeting with Jacobsohn screaming threats behind him. As Dow boarded the train from St. Louis he knew the future of his company—if it had a future—depended on how he handled the German cartel.21
On that train, Herbert Dow worked out a daring strategy. First, Dow Chemical would sell a token amount of bromine in the United States at 12 cents a pound to persuade the Germans that they had a fight on their hands. Second, Dow told his agent in New York to buy hundreds of thousands of pounds of German bromine at their 15-cent price, without letting the cartel know who was receiving the bromine. Third, Dow repackaged the German bromine and sold it in Europe—including Germany!—at 27 cents a pound. “When this 15-cent price was made over here,” Dow said, “instead of meeting it, we pulled out of the American market altogether and used all our production to supply the foreign demand. This, as we afterward learned, was not what they anticipated we would do.”22
Dow had secretly hired British and German agents to market his repackaged bromine in their countries. They had no trouble doing so because the Bromkonvention had left the world price above 30 cents a pound. The Germans were selling in the United States at far below the cost of production, and they hoped to offset their U.S. losses with a high world price. Dow courageously repackaged and recycled their bromine and still made a profit. A. E. Convers, the worried president of Dow Chemical, backed Dow’s plan. “It seems as though the only way to bring Jacobso[h]n to terms will be to demoralize his market if possible at the point where he is getting his profit.”23
Meanwhile, the Germans were befuddled. They expected to run Dow out of business, and this they thought they were doing. But why was U.S. demand for bromine so high? And where was this flow of cheap bromine into Europe coming from? Was one of the Bromkonvention members cheating and selling bromine in Europe below the fixed price? The tension in the Bromkonvention was dramatic. According to Dow, “The German producers got into trouble among themselves as to who was to supply the goods for the American market, and the American agent [for the Germans] became embarrassed by reason of his inability to get goods that he had contracted to supply and asked us if we would take his [15-cent] contracts. This, of course, we refused to do.”24
The confused Germans kept cutting U.S. prices—first to 12 cents and then to 10.5 cents a pound. Dow meanwhile kept buying the cartel’s cheap bromine and reselling it in Europe for 27 cents. These sales forced the Bromkonvention to drop its high world price to match Dow and that further depleted the Bromkonvention’s resources. Dow, by contrast, improved his foreign sales force, often ran his bromine plants at top capacity, and gained business at the expense of the Bromkonvention and all other American producers, most of whom had shut down after the price cutting.
Even when the German cartel finally caught on to what Dow was doing, it wasn’t sure how to respond. As Dow said, “We are absolute dictators of the situation.” He also wrote, “One result of this fight has been to give us a standing all over the world. . . . We are . . . in a much stronger position than we ever were.” He also added that “the profits are not so great” because his plants had trouble matching the new 27-cent world price. He needed to buy the cheap German bromides to stay ahead, and this was harder to do once the Germans discovered and exposed his repackaging scheme.25
The bromine war lasted four years (1904–1908), when finally the Bromkonvention invited Dow to come to Germany and work out an agreement. Since they couldn’t crush Dow, they decided to at least work out some deal where they could make profits again. The terms were as follows: The cartel agreed to quit selling bromine in the United States, and Dow agreed to quit selling in Germany. The rest of the world was open to free competition. The bromine war was over, but low-priced bromine was now a fact of life.
While Dow was in Germany, he saw the bromine factories there and later the bleach plants in England. He concluded that his methods and factories for making both bromine and chlorine were the best in the world. “[W]e are therefore in a much stronger position than we ever were before,” Dow concluded, “by reason of the Germans having respect for us, which is a very hard thing to obtain.”26
Dow talked tough, but he knew he had to improve to survive. He constantly worked at finding new products and new markets for his chlorine and bromine. One of the first uses for his bromine was in making mining salts for separating gold from inferior ores. These mining salts became a major Dow export and were used in the gold rushes in Australia and South Africa. He also expanded into the bromine market in pharmaceuticals and photography. In 1908 Dow won Eastman Kodak’s business and personally serviced their large account for the rest of his life.27
As early as 1900, Dow also sold chlorine as sulfur chloride, used in the production of rubber. When sales to rubber producers dropped, Dow used his sulfur chloride to make chloroform, which became an important Dow product. Another use of chlorine was to make carbon tetrachloride, which is nonflammable and therefore used in fire extinguishers.
Selling these new bromine and chlorine products was crucial. Early on, Dow established his own sales department to push Dow products at home and abroad. The profits from these sales helped him survive the bleach and bromine wars. He promoted iron chloride for engraving work and zinc chloride as a soldering flux. Insecticides came next as the Dow product line expanded.
Jesse B. Fay, the company’s patent lawyer and a major stockholder, helped Dow patent dozens of his discoveries, and watched him turn a flow of chemicals into a mountain of cash. “So far as I am able to judge,” Fay told Dow,
your mind does not work according to any normal law. Logic seems superseded by inspiration. . . . Things that to the ordinary mind appear to be fixed facts and axioms, to you appear faulty and capable of being changed for the better in many ways. You start with one idea and before you can put it into words new avenues of thought open up to you that divert you from the original idea. . . . You should . . . not use up your energy in doing something that another man could do as well as you.28
Dow took Fay’s advice and delegated authority whenever possible. One thing that helped was that he hired the best scientists he could find and turned them loose to innovate. W. R. Veazey, one of his top scientists, later recalled, “He encouraged everybody to find out things in their own way. It was not uncommon for him to put several people or a group of people to work on the same problem at the same time and run the whole show like a horse race to see which one would come up first with the answer.”29
The better scientists imitated Dow’s creativity. Charles Strosacker, for example, was often the opportunist, taking abandoned materials and making a marketable product from them. Mark Putnam was the perfectionist, figuring out how to make products as pure as possible. Ed Barstow was the innovator, mixing new concoctions. Barstow worked out a way to treat chlorine with toluene to make benzoic acid, which could be converted into a popular preservative. Barstow also invented a complicated process that could separate calcium and magnesium from Michigan brine. That later allowed Dow to produce ammonia, Epsom salts, and calcium chloride, which was used for settling dust in mines and unpaved roads. When Dow pumped brine into his vats in Midland, more and more went into chemicals for market and less and less went into sewers as waste.30
Dow was a hands-on boss. Rarely was he in his office working. Usually he was in the labs talking shop or out on the floor giving advice. There was Dow, a shovel in hand, showing a man how to spread coal evenly over a fire. There was Dow, hands in the air, encouraging his chemists and arguing with them so vehemently that others all over the building could hear him. When problems were debated and resolved, however, Dow and his men were a united front.
Dow respected his employees, especially those loyal to him in the early and precarious years. In fact, one of the reasons Midlanders called him “Crazy Dow” was that he paid high local wages to get the best workers he could. Early in the company’s history, Dow started a plan to share 2 percent of the company’s profits with all employees each year. Dow knew this plan would make his workers more loyal and more eager to do their jobs well.
Money to Dow was a means to an end, not the end itself, which it was for the German cartels. Dow once said, “I’d rather work for myself for $3,000 a year than to work for someone else and make $10,000.”31 At Dow Chemical, he tried to create an environment where talented chemists would have satisfying lives helping him unlock the secrets of Michigan’s brine and making cheap products from it to sell to the world.
Even after Dow’s success in the bromine war, the dye business remained almost exclusively a German preserve. Ever since synthetic dyes had been produced from coal tars in 1856, German chemists put energy, capital, and manpower into producing and nearly monopolizing the world’s dyes. The German dye trust, like the Bromkonvention, shared secrets, fixed prices, and divided the world markets among its members. When rivals in other countries dared to compete, the dye trust cut prices and tried to knock them out of business. Those who bought dyes from rivals had to face an angry and vindictive dye trust—all of which helped keep prices high and the Germans on top.32
Herbert Dow had planned to attack the German dye trust for many years. He reasoned logically: Bromine was a major by-product of his brine; bromine was a key ingredient in the making of indigo; indigo was “the most important of all the dyes,” the favorite of most textile makers and the heart of German dominance. Therefore, Dow should hire organic chemists, give them space, and turn them loose to figure out how to make indigo, and make it cheaply. When Dow tried to do this in 1906—in the middle of the bromine war—his directors flatly refused to risk the capital or irritate the powerful German dye trust.
In 1914, the outbreak of World War I reopened the dye issue. With Europe at war, England used its navy to try to starve the Germans into surrendering. That meant blockading German ports, and that act was quickly felt in the United States. American textile manufacturers relied on the German dye trust; a blockade of Germany meant shortages, and shortages meant high prices for scarce dyes, even though the United States was still neutral.
At one point, Germany tantalized its American customers by exporting dyes to Baltimore in submarines. Usually, however, the Germans artfully manipulated the dye shortages to coax the United States into pressuring England to lift its blockade. Count Johann Heinrich von Bernstorff, the German ambassador in Washington, cabled his leaders “that the stock of dyes in this country is so small that by a German embargo about 4,000,000 American workmen might be thrown out of employment.”33
What a paradox this was! Before the war, the German dye trust threatened to ruin any American firm that bought dye from Dow or anyone else. Now Germany, through its manipulations, forced American textile men to rush to Dow and urge him to figure out how to make dyes as quickly as possible. As prices skyrocketed, newspapers echoed the cry, “Why haven’t our chemical companies experimented sufficiently to produce synthetic dyes, pharmaceutical products, essential oils, and synthetic perfumes, in the production of which Germany seems to have almost a monopoly?”34
With prices high, pseudo-chemists throughout the country went to work trying to make yellow dyes out of banana peels and green dyes out of grass. Dow was more realistic. With prices high and the dye trust on the sidelines, here was his chance to break into the indigo market.
In 1915, almost a year after Germany went to war, Dow made his move. He hired a top organic chemist from the University of Michigan and then exhorted him, and others on his staff, to unlock the chemical secrets for synthesizing indigo. The investment Dow made in cash, equipment, and manpower shocked some of his directors—who found out only after the fact what Dow was doing. They were horrified and raised the following objections.
First, the German cartel had taken many years of teamwork to figure out how to make indigo. Dow’s team would have to produce this same indigo more quickly with fewer scientists and less capital. If they were too slow, the war would end (which, of course, could happen anytime), and the dye trust would quickly recapture lost markets.
Second, Dow, by betting the company’s future on indigo, was bypassing the chance to invest in profitable but less complicated chemicals. Dr. Albert W. Smith, a chemist and a member of Dow’s board of directors, found this point to be compelling. “The indigo proposition,” he wrote Dow, “really seems the most difficult of many that might be tried. For that reason possibly the time and energy spent on that could be more profitably spent in making some of the other numerous organic chemicals that are very high-priced and whose manufacture would be decidedly simpler.”35
Third, even if Dow’s chemists could produce indigo in large and profitable quantities—which were two major assumptions—he would still have to fight the dye trust after the war and maybe during the war for every indigo buyer in the world. Even Dow admitted this to be true. “It will require . . . a very large investment to complete an indigo plant,” Dow told the Federal Trade Commission in 1915. “[T]he question will then arise as to whether the price will immediately be reduced the minute we start to manufacture.”36 Nobody doubted for a minute that the Germans would resume their customary price cutting in the dye industry, just as they had done with bromine ten years earlier.
With confidence and cunning, Dow believed he would discover how to make indigo and then sell it competitively after the war. In December 1916, eighteen months after Dow Chemical began work on indigo, the company shipped the first batch off to market at $1.50 per pound. At last, America was in the dye business to stay. When the Germans came back into the world market, Dow was ready for them. Through improvements in manufacturing, the price dropped to $.75 per pound a year after the war and was only 14 cents a pound by 1925, which was less than the Germans had charged. As Mark Putnam, a vice president at Dow Chemical, wrote years later, “This accomplishment, while important from an economic standpoint, was even more important from a moral standpoint because it tended to remove the heretofore strong doubts as to whether America could produce a self-contained and vigorous dye and organic chemical industry.”37
Dow’s massive and effective war production helped the United States win World War I and also helped to win the peace afterward. Many of the war chemicals Dow produced had peacetime uses as well. Phenol, for example, became a major ingredient in dozens of products, from aspirin to plastics. Acetic anhydride was also a key ingredient in aspirin, but that pain reliever had been a German monopoly before the war, with the Germans charging $8.50 per pound for it. During the war, Dow began shifting some of his acetic anhydride into the making of aspirin for the soldiers. Afterward, Dow had his costs of producing aspirin down to 60 cents a pound; he was ready to supply America’s needs and also to challenge the Germans for aspirin markets all over the world.
The Novocain story is yet another example of German inventiveness coupled with a tendency to monopolize and overcharge. Novocain was first synthesized by the Germans and sold as an anesthetic. They reaped monopoly profits and charged $1,600 per pound for Novocain before the war. But after the war, the defeated Germans had to turn many of their patents over to the Alien Property custodian. Dow applied for the patent for Novocain, learned how to make it efficiently, and quickly slashed its price to $30 per pound. As a result, dentists and doctors around the world could use Novocain to deaden pain.38
Dow’s last major battle was not with the Germans, but with the British. The two chemicals at stake were bromine and iodine, and the issue was usable gasoline for cars. The problem was that the low-octane gasoline of the early 1900s caused engines in cars to “knock,” which happened when the gasoline exploded unevenly in the cylinders. Scientists at General Motors had found that adding iodine to the gasoline eliminated the knock, but iodine was tightly controlled by a British-Chilean cartel that charged $4.50 per pound.
Dow’s scientists, working with those at General Motors, produced ethylene dibromide, which when added to tetraethyl lead, would stop the knock in engines. And it was about seven times cheaper than iodine. What was needed now was a cheap and plentiful source of bromine, which spurred Dow to mine bromine from the ocean by using his blowing-out technique to separate bromine from seawater.39
Mining bromine from the ocean was risky: Even if it could be done, it might be too expensive. Dow, therefore, hedged his bets with a two-pronged assault on the iodine cartel. One of his scientists, Coulter W. Jones, used Dow’s blowing-out process to separate iodine from oil field brine in Louisiana. When Dow died suddenly in 1930, his successor and son Willard helped Jones build an iodine plant in McDade, Louisiana. In the next few years, Jones was able to produce iodine so cheaply that they broke the iodine cartel and slashed the world market price from $4.50 to 81 cents per pound. Dow Chemical now had two products—iodine and ethylene dibromide—that removed the knock from gasoline engines, and this gave the company a solid stake in the booming auto industry. As for Britain, Chile, and Germany, they had done no better with their cartels than McKenney, Collins, and Dodge had done with their federal subsidies.
In 1866, when Herbert Dow was born, two major assumptions dominated the thinking of businessmen and politicians in the United States and abroad. First, that government assistance made good companies better. Second, that big cartels and oligopolies, with their near monopoly power, could not be beaten by any smaller, renegade entrepreneur. Herbert Dow’s astonishing career in the chemical industry refuted both of these assumptions again and again. “Your mind does not work according to any normal law,” Dow’s lawyer told him. Maybe not. But the legacy from Dow’s genius was wonderfully cheap products ranging from aspirin to gasoline, readily available to Americans and to the world.