We have all heard of Young America. He is the most current youth of the age. Some think him conceited, and arrogant; but has he not reason to entertain a rather extensive opinion of himself? . . . The iron horse is panting, and impatient, to carry him everywhere, in no time; and the lightning stands ready harnessed to take and bring his tidings in a trifle less than no time. He owns a large part of the world, by right of possessing it; and all the rest by right of wanting it, and intending to have it.
—Abraham Lincoln, 18591
Fifty-six miles west of Ogden, Utah, on May 10, 1869, the first of five transcontinental railroads was completed by a ceremonial golden spike that connected the Union Pacific and Central Pacific Railroads. Authorized by Congress in 1862 with the Pacific Railway Act, the transcontinental railroad linked the East and West. The North and South had already been riveted together in the Civil War of 1861–1865, with bullets and cannonballs.
As early as the 1830s, Americans discussed a transcontinental railroad. To facilitate a southern route, in 1853, a strip of land called the Gadsden Purchase was bought from Mexico and added to the former Mexican territories acquired by the United States after the United States–Mexican War. But rivalries between the North and South in Congress blocked agreement on a route.
The departure of southern representatives from the House and Senate during the secession of the southern states freed Congress and the Lincoln administration to charter two railroads with the Pacific Railroad Act that President Lincoln signed on July 1, 1862.
The bill chartered two companies, the Union Pacific and the Central Pacific, to connect Omaha and Sacramento. The Pacific Railroad Act authorized the Union Pacific to go west from Omaha, while the Central Pacific would go east from Sacramento. Each line was given twenty alternate sections of federal land for each mile built. The Union Pacific received twelve million acres of land and $27 million in government mortgage bonds, the Central Pacific nine million acres and $24 million in bonds. Later, the Texas Pacific received eighteen million acres and the Northern Pacific forty-four million acres. The two railroad companies raised additional private funds in the United States and Europe.
The Central Pacific broke ground in January 1863 in Sacramento, California. In December of the same year, the ground breaking of the Union Pacific took place in Omaha, Nebraska. The race to lay rails across the continent had begun.
Each railroad faced different kinds of obstacles. The Central Pacific had to grade and blast its way over the mountains. The Union Pacific, crossing the level Great Plains, was attacked by Sioux and Cheyenne Indians who were threatened by the invasion of their territory. At Plum Creek, Nebraska, Cheyenne warriors derailed and looted a freight train. Forts were established along the route and the workers were armed.
The workers who built the first transcontinental railroad included northern and southern veterans of the Civil War and freed slaves. The Union Pacific relied heavily on Irish immigrants, the Central Pacific on Chinese contract workers.
The tracks met in the Promontory Mountains in Utah. As delegates arrived to celebrate the project’s completion, the target date of May 8, 1869, was missed. On May 9 the final twenty-five hundred feet of track were laid. On May 10, two trains, the Union Pacific’s Number 119 and the Central Pacific’s Jupiter, stood facing each other. A little after noon an official from each company used a silver sledgehammer to tap ceremonial gold spikes into the final tie. A signal flashed across telegraph wires to bring the news to the rest of the country: “Done.”
In seven years the Union Pacific had built 1,086 miles of track, while the Central Pacific had built 690 miles. The Great Plains were opened to settlement, at the expense of the Plains Indians, who in the succeeding decades were confined to reservations. Before the transcontinental railroad, overland travel to the Pacific coast of the United States had taken months, as had the alternatives of sailing around the tip of South America or sailing to Central America, crossing the isthmus and boarding another ship. Now it was possible to travel from the East to the West Coast in less than a week for a fraction of the price.
RUINOUS COMPETITION
The railroad industry was America’s first big business. Not until the late nineteenth century did giant corporations emerge in many manufacturing and retail industries. Until then, production and distribution tended to be carried out by relatively small shops and stores.
In 1896, the railroad industry accounted for 15 percent of gross national product, more than federal, state, and local governments combined.2 The investment of $188 million in canals between 1815 and 1860 was dwarfed by the $1.1 billion invested in railroads between 1830 and 1859.3 Until the end of the nineteenth century, railroad stocks and bonds dominated the American stock market. Around 1870, 50 percent of America’s capital goods industries and 10 percent of its nonfarm labor were contributing to railroad construction.4
The railroad industry was afflicted by a problem that later injured a number of large-scale industries with increasing returns to scale—the problem caused by the gap between fixed costs (repayment of borrowing to build the physical structure) and variable or operating costs. The fixed-cost problem meant that the traditional answer to monopoly—increased competition—could not work and indeed would make matters worse. If a railroad was challenged by a rival line, the resulting price war could doom both the incumbent and the challenger to bankruptcy.
In addition to fixed costs, the railroad industry was characterized by network effects. A railroad line between only two cities would suffer if the economy in one declined. In contrast, regional networks including many points were more stable than local systems, and national systems had the greatest stability of all.
Britain permitted railroads to engage in cartelization and prohibited mergers, in order to avoid consolidation while enjoying the benefits of coordination.5 In France, with its tradition of administrative guidance of the economy, the government supervised management, regulated rates, and arranged mergers. Most European governments engaged in public rate setting, prohibited construction of competing lines, and enforced private cartels in the courts. By 1945, every major country in the world except for the United States, with the exception of the Wilson administration’s nationalization of the rails during World War I, had nationalized its railways.
In the United States, however, the Jeffersonian tradition of localism and laissez-faire dominated during the period of railroad construction between the Civil War and the 1890s. The result was massive overbuilding—by the 1880s the country had nearly twice as much track as it needed—and chronic bankruptcy: in the 1870s, nearly 40 percent of American railroad bonds were in default.6 In 1895, one-fourth of American railroads were in receivership as part of bankruptcy proceedings.7 Waves of bankruptcy in turn resulted in the consolidation of the railroads into a few networks by the early twentieth century. William Vanderbilt, an heir to Cornelius Vanderbilt and a railroad owner, predicted accurately that the alternative to government-sanctioned pooling would be the absorption of small firms by large railroads.8
Not until the early twentieth century did economists and public officials acknowledge the inapplicability of competitive market economics to railroads.9 The Transportation Act of 1920 permitted pooling by railroads subject to regulation by the Interstate Commerce Commission. Until 1980, the railroads were a consolidated, nationally regulated public utility. Following the deregulation of the railroads by the Staggers Act of 1980, the American railroads were quickly consolidated into a few private regional monopolies.
TRANSCONTINENTAL CORRUPTION
Ironically, the corruption associated with the construction of transcontinental railroads was the result of a system adopted in the hope of avoiding corruption. Direct federal construction of transcontinental railroads was rejected because, in the words of President James Buchanan in his annual message on December 6, 1858, government railroad construction “would increase the patronage of the Executive to a dangerous extent, and introduce a system of jobbing and corruption which no vigilance on the part of the Executive could either prevent or detect.”10 Another alternative, a private monopoly chartered by the federal government, was rejected in 1851 when the railroad promoter Asa Whitney asked Congress to provide him land grants for a railroad to the Pacific.11
In its final form, the Pacific Railroad Act that President Lincoln signed on July 1, 1862, was intended to minimize the possibility of corruption. The act provided that the railroads would receive federal lands only after the tracks were built; time limits were imposed; the railroads had to acquire sufficient private capital of their own, before using federal eminent-domain authority; and the twenty-member boards of the railroads included five government directors apiece.12
But greed found a way. In return for stock that they received in blatant violation of the bill itself, the government directors of the railroad companies looked the other way. While serving in Congress, Oakes Ames of Massachusetts, who with his brother owned one of the country’s biggest shovel manufacturing companies, sat on the boards of the Union Pacific and its construction company, Credit Mobilier. Ames bribed many members of the House, Senate, and executive branch with company stock in return for their support of legislation favorable to the corporation, like an 1864 law that doubled the land that the Union Pacific received and made the federal loan guarantees more favorable.13
Credit Mobilier charged the Union Pacific two or three times the actual cost of construction. The Union Pacific also used other front companies, including the Wyoming Coal and Mining Company, which sold the coal to the railroad at three times the real cost. There was no similar scandal involving the Contract and Finance Company, the Central Pacific’s equivalent of Credit Mobilier, because the financial records of the Central Pacific’s construction company conveniently disappeared.
In the wake of these scandals, Congress refused to charter any more railroads, following its charter of the Texas and Pacific in 1871. The corruption associated with the transcontinental railroads that were supplied with federal land grants and other aids is often invoked by those who argue that government promotion of infrastructure and industry is inherently flawed. “Never heard of the Great Northern?” Bill Frezza of the Competitive Enterprise Institute wrote in Forbes in September 2011. “That’s because they don’t teach about it in government schools. That transcontinental railroad, completed in 1893, was the only one built entirely with private money on privately purchased land, by a self-made railroad tycoon, James J. Hill. . . . Many believe Ayn Rand got her inspiration for Taggart Transcontinental in her novel Atlas Shrugged from the Great Northern.”14
In reality, Hill’s Great Northern depended as much on government land grants as the other transcontinental railroads. When they purchased the St. Paul and Pacific Railroad, which had gone bankrupt in the panic of 1873, Hill and his partners purchased the assets, which included a 2.5 million-acre land grant from the state of Minnesota. Out of seventy-five land grants given to American railroads between 1850 and 1871, Hill’s government land grant was the seventh largest.15
“THIRTEEN MILLION DOLLARS IS ALSO SOMETHING”
The centrality of railroad issues on Wall Street quickly led to the emergence of a breed of speculators who were interested only in gaming railroad stocks to make quick money. The most celebrated stock market struggle of the period was what became known as the Erie War.
In 1868 “Commodore” Cornelius Vanderbilt, having moved from the steamship business into the railroad industry, sought to take over the Erie Railway Company, which was the main rival of his own New York Central Railroad. What was at stake was control of the railroad traffic between New York City and the west.
The Erie was run by the seventy-one-year-old Daniel Drew. In Chapters of Erie, Charles Francis Adams, the son of John Quincy Adams and a railroad president in his own right, wrote: “Drew sought to carry to a mean perfection the old system of operating successfully from the confidential position of director, neither knowing anything nor caring anything for the railroad system, except in its connection with the movements of the stock exchange, and he succeeded in his object.”16 Unlike the patrician Adams, and like his rival “Corneel” Vanderbilt, “Uncle Dan’l” was a self-made entrepreneur who observed: “Book learning is something, but thirteen million dollars is also something, and a mighty sight more.”17
Drew’s allies on the Erie board included James Fisk and Jay Gould, both in their early thirties. Fisk, plump and outgoing, was a former circus worker and peddler who had smuggled cotton from the Confederacy into the North during the Civil War. The thin and introverted Gould was a sickly individual from a family of poor farmers in New York who had become a master speculator. When Vanderbilt’s agents tried to buy up controlling shares of Erie stock, the Commodore discovered that Drew, Gould, and Fisk secretly printed millions of dollars worth of new bonds in order to thwart the takeover bid. However, Vanderbilt arranged for a compliant New York judge named George Barnard, who belonged to the Tweed Ring run by the notoriously corrupt William “Boss” Tweed, to rule that the Erie directors had violated an injunction. In response, Drew, Fisk, and Gould fled to New Jersey, where friendly judges would shield them, and made their refuge, Taylor’s Hotel, into “Fort Taylor.”
The battle then shifted to the New York State legislature in Albany, where each side battled to bribe lawmakers. When Fisk won over Boss Tweed, who was elected to the Erie board of directors, the balance of power shifted to the Erie group. Defeated, Vanderbilt dropped charges against Drew, Fisk, and Gould, in return for being paid by Erie for half of the shares he had bought. Vanderbilt said that the incident “has learned me it never pays to kick a skunk.”18
Fisk and Gould went on to attempt to manipulate the gold market in 1869, with a scheme that implicated Abel Corwin, the brother-in-law of President Ulysses S. Grant. After being ejected as president of Erie in 1872, Gould captured the Union Pacific, assembled a railroad empire in the Southwest and West, took over Western Union for a time, and bought the New York World, which he sold to Joseph Pulitzer. He died at fifty-five in 1892. Fisk had died earlier, in 1872, at the age of thirty-six, shot by a former business partner who had taken up with his estranged mistress. He was memorialized in a folk song:
We all know he loved both women and wine
But his heart it was right, I am sure.
Though he lived like a prince in a palace so fine,
Yet he never went back on the poor.
If a man was in trouble, Fisk helped him along
To drive the grim wolf from the door.
He strove to do right, though he may have done wrong,
But he never went back on the poor.19
THE RISE OF WESTERN UNION
By creating a truly national market in a continental area, the railroads allowed other industries to reap the benefits of economies of scale. The first national industry to grow up along the railroads in the new national market they created was the telegraph industry.
Even though Congress had funded Samuel F. B. Morse’s successful development of the telegraph, it refused his offer to sell the rights to the device to the federal government. In Britain, the government nationalized the telegraph system by the end of the nineteenth century. But in the United States, the telegraph industry, like the railroad system, was developed by private enterprise.
The telegraph and railroad industries grew up together, as telegraph companies helped railroads coordinate schedules and took advantage of railroad rights-of-way. The telegraph industry was similar to the railroad industry in the importance of fixed costs, and network effects, which made it a natural monopoly or oligopoly. Just as the railroad companies experimented with pools and cartels, so the six largest telegraph companies created a pooling arrangement called the Treaty of the Six Nations to coordinate competition, regulate prices, and exclude new entrants. Like informal pools and cartels in the railroad industry and other areas, this attempt failed because of the lack of effective sanctions on defectors. As an alternative, the three largest telegraph companies merged to form a single company named Western Union in 1855. Western Union built the first transcontinental telegraph in 1861 and by 1886, after it absorbed the Baltimore and Ohio Telegraph Company, Western Union’s control of the telegraph industry was complete.20
In return for transmission of federal messages, the telegraph companies were given subsidies by the Pacific Telegraph Act of 1860. During the Civil War, the federal government took over and operated the telegraph system, and during the war it built thousands of miles of new lines. After the war the federal government gave them to the telegraph companies.
“EVERYTHING BUT THE SQUEAL”
Other industries expanded and adopted innovative reorganizations to take advantage of the continental markets created by the railroads. Many of the “tycoons” of the late nineteenth century made their fortunes during the Civil War.
Philip Armour was one. Plankton, Armour & Co., the firm that he founded with his partner John Plankton, became a major supplier of salt pork for the Union armies. Following the war, Armour moved his headquarters to Chicago, the center of the meatpacking industry, in order to be near the Union Stockyards, formed by a consortium of nine railroad companies. Armour pioneered innovations like the use of conveyor belts, airtight tin cans, and the slaughter and dressing of live animals at his meat-processing plants. He obtained lower rates from the railroad by operating his own rail cars. In 1874, Gustavus Swift’s development of refrigerator cars expanded the business further, enabling the sale of meat at all seasons to customers in the United States and Europe. Armour recycled the offal of the slaughterhouses as glue, drugs, and other products, using “everything but the squeal,” as he explained. Armour declared: “I like to turn bristles, blood, and the inside and outside of pigs and bullocks into great revenue.”21
JOHN D. ROCKEFELLER AND THE RISE OF STANDARD OIL
Another American tycoon who owed his fortune to skillful exploitation of the commercial possibilities created by the railroads was John D. Rockefeller. The son of a scandalous patent-medicine salesman and bigamist, the devoutly pious and disciplined Rockefeller paid to be replaced by a substitute in the Civil War, and while other Americans his age, including his brother Frank, were fighting for the Union, he was making money. His confidence-man father had included “rock oil” in the patent medicines that he sold. The son found a better use for the substance.
On August 28, 1859, near Titusville, Pennsylvania, Edwin Drake struck oil. Rigs quickly sprang up around what came to be known as Oil Creek. Kerosene lamps soon replaced whale oil and expensive coal oil for illumination, in homes, offices, and factories. Petroleum also provided lubricants for machinery. The outbreak of the Civil War ensured that government procurement would help the infant industry.
With two partners, whom he later bought out, Rockefeller founded a company in Cleveland in 1863 to refine oil. With his subsequent partner Henry Flagler, he flourished, thanks to ruthless cost cutting and determination to buy out his competitors or drive them out of business. In 1870, Standard Oil was founded. “The Standard Oil Company will someday refine all the oil,” a colleague heard him say.22
Following the conclusion of the war, Rockefeller secretly obtained discounts from rival railroads in return for his promises of large shipments. Then in the 1870s, he secretly connived with other big refiners and railroads to form a cartel, the South Improvement Company. When small producers learned about the cartel, the result was the “Oil War.” Following the collapse of the South Improvement Company, Rockefeller focused on expanding Standard Oil’s domination of the industry. He pioneered vertical integration, manufacturing railroad tanker cars, investing in pipelines, and buying up oil lands. By 1890, Standard was America’s largest producer of oil as well as its largest refiner. Rockefeller’s iron mines and fleet of ore boats, sold to J. P. Morgan, were the final ingredient of the United States Steel Corporation, which on its creation in 1901 surpassed Standard Oil as the largest corporation in the world. The development of electricity ended the age of kerosene lamps, but the new automobiles and aircraft needed gasoline, which had been treated as a useless by-product of the refining process. For a time Rockefeller was the richest man in the world. By 1904, Standard Oil controlled 85 percent of all sales and 90 percent of all US crude oil production. In 1911, the Supreme Court upheld an order to break Standard into more than two dozen companies, many of which, following multiple mergers, survive under different names today. For example, ExxonMobil, created in 1999, descends from two Rockefeller companies, Standard of New York (Socony), which merged with Vacuum Oil to become Mobil in 1966, and Esso, formerly Standard of New Jersey, which merged with Exxon in 1972.
“STEEL IS KING”
The railroads also made possible the success of the steelmaker Andrew Carnegie. Carnegie was born in a cottage in the Scottish town of Dumferline in 1835 into a family of weavers who worked in their home. When their business failed, they borrowed money from a neighbor and immigrated to Pennsylvania. While his father worked himself to an early grave and his mother took in washing, the teenage “Andra” worked at various jobs. His fortunes improved when an uncle helped him get a job with the Ohio Telegraph Company in Pittsburgh. By the age of fifteen, the messenger boy was a telegraph operator. In 1853, he joined the Pennsylvania Railroad as a clerk and secretary. Impressing Tom Scott, the president, Carnegie rose rapidly in rank.
By the age of twenty he was a capitalist, borrowing money to invest in the precursor to the Pullman railroad car company and oil land in Pennsylvania. At thirty he resigned from the Pennsylvania Railroad and invested in iron mills, selling iron from them to his own Keystone Bridge and Pittsburgh Locomotive Works. In 1868, he wrote a memorandum to himself: “Thirty three and an income of $50,000 per annum! Beyond this never earn—make no effort to increase fortune, but spend the surplus each year for benevolent purposes. . . . Amassing of wealth is one of the worst species of idolatry. . . . I will resign business at thirty-five.”23
Carnegie, however, postponed his resignation from moneymaking. He gained control of the Edgar Thomson Steel Company and obtained the Mesabi iron ore lands along Lake Superior from John D. Rockefeller. A good judge of talent, Carnegie picked a Welsh immigrant, Captain William R. Jones, whom he paid the equivalent of the salary of the president of the United States. After Jones was killed when a vat of molten steel exploded, Carnegie replaced him with a young man named Charles Schwab.
Skeptical at first about the Bessemer process that rapidly turned iron into steel, Carnegie was converted, declaring, “The day of Iron has passed—Steel is King!” The tariff of 1870, imposed as Bessemer mills in America lowered steel costs, helped to strengthen the US steel industry against British competition. Even in the depressed years of the 1870s, the steel industry grew at 10 to 20 percent a year.24 An absentee taskmaster, Carnegie bombarded his subordinates with notes urging them to cut costs from his Pittsburgh mansion, his New York office, and the Scottish castle he bought at Skibo.
One partner said: “Carnegie never wanted to know the profits. He always wanted to know the cost.” By 1890, Carnegie was the victor in the iron and steel wars, producing a quarter of American steel. He wrote: “Two pounds of iron stone mined upon Lake Superior and transported nine hundred miles to Pittsburgh; one pound and one-half of coal mined and manufactured into coke, and transported to Pittsburgh; a small amount of manganese ore mined in Virginia and brought to Pittsburgh—and these four pounds of materials manufactured into one pound of steel, for which the consumer pays one cent.”25
RAIL AND RETAIL
In distribution, as well as in production, the railroads created a national market that could be exploited by national firms. One was Sears, Roebuck.
In 1886, the railroads agreed to establish four time zones in the United States. The new precision of schedules led many passengers to rely on watches. In 1886, a railway agent at Redwood Falls, Minnesota, bought a shipment of watches after a local merchant refused them for fifty dollars and sold them to other railway employees and railroad passengers for five thousand dollars. Richard Warren Sears put the five thousand dollars in the R. W. Sears Watch Company and moved its headquarters from Minnesota to Chicago.
Needing a watch repairman, Sears brought on Alvah Curtis Roebuck from Indiana as a partner. In the 1890s, their mail-order catalog grew from one limited to watches and jewelry to a five-hundred-page compendium. When Roebuck retired, he sold his stake to two Chicago businessmen, Julius Rosenwald and his brother-in-law Aaron Nusbaum. Rosenwald took over Sears, Roebuck when Sears retired in 1908. The catalogs of Sears, Roebuck and Montgomery Ward became familiar fixtures in American homes. Legend has it that one child in a Sunday school class, when asked where the Ten Commandments came from, replied, “From the Sears, Roebuck catalog.”26
YELLOW JOURNALISM AND PULP FICTION
American publishing was another industry that was transformed by combinations of steam-engine technology and telegraphy in the half century that followed the Civil War. The formation of a national market made possible the first versions of the mass media.
In 1810, Friedrich Koenig, a German inventor living in Britain, patented the first steam press. A New York inventor named Richard Hoe improved upon it in 1843, creating a steam-powered rotary press with cylinders through which papers were fed. The steam press lowered the costs of printing dramatically. The beneficiaries included publishers of “dime novels” and inexpensive magazines, which, because they were printed on cheap paper pulp, came to be known as “pulp fiction” and “pulp magazines.” Low printing costs also led to the growth of mass-circulation newspapers that working-class readers could afford. The most important of these were Joseph Pulitzer’s New York World and William Randolph Hearst’s New York Journal. Their use of lurid headlines for sensational crimes and scandals inspired the dignified editor of the New York Press, Ervin Wardman, to dismiss them as “yellow kid journalism,” after the Yellow Kid, a popular comic strip character created for Pulitzer by Richard Felton Outcault.
PANICS
The enlarged national and global markets made possible by the railroad, the steamship, and the telegraph made tremendous improvements in productivity possible. But the damage done by financial contagion and business cycles was worse in larger, more integrated industrial markets. Some historians speak of a long depression between the 1870s and the 1890s, punctuated by major and minor panics.
On the evening of September 17, 1873, Jay Cooke received a guest at his two-hundred-acre estate outside Philadelphia, President Ulysses S. Grant. With five hundred other elite guests, Grant had attended the housewarming party of Cooke’s fifty-two-room mansion on its completion in 1865. The house, which Justice Salmon P. Chase called “Cooke’s Castle,” was named Ogontz after a local Sandusky Indian chief, who was immortalized in a bas-relief in the stairwell; other Indians were portrayed in stained glass windows.27 The grounds included Italianate gardens with statues and fountains and the ruins of a castle imported from Europe.
Cooke had grown wealthy during the Civil War, when he had obtained a monopoly on the sale of government bonds in the United States. Following the war, he moved into railroad finance, investing in a new transcontinental railroad, the Northern Pacific. At breakfast the morning after the housewarming, the financier known as the Tycoon (a variant of the Japanese title “shogun”) gave the president no indication of the distress he felt as he read alarming telegrams from his New York office of Jay Cooke & Co. Rushing to Philadelphia in his carriage, Cooke learned that the New York branch had closed. He ordered the closing of the Philadelphia headquarters and abruptly burst into tears.
The collapse of the largest bank in the United States led to a wave of bankruptcies of banks, railroads, and other companies. Mass unemployment produced civic unrest. In New York City, police beat hundreds of unemployed men and women in the Tompkins Square Riot of 1874. In 1875, a group of Irish coal miners, the Molly Maguires, went on strike, and in 1877 a nationwide railroad strike led to intervention by federal troops and the arrest of its leader, Eugene Debs, who later became the Socialist Party candidate for president.
Another panic in 1893 caused another recession, the original Great Depression. More violence between employers and workers followed, making the United States the Western country with the greatest amount of labor violence at the time. The distress of southern and western farmers sparked the populist movement, which frightened elites and culminated in William Jennings Bryan’s nomination for the presidency in 1896.
A PANIC-PRONE BANKING SYSTEM
Although the depressions of the late nineteenth century were global, the particular form they took in the United States was influenced by America’s peculiar banking system. Definitions of panics vary, but according to one account there were nationwide bank panics in the United States in 1819, 1837, 1839, 1857, 1861, 1873, 1884, 1890, 1893, 1896, and 1907, in addition to three waves of bank failures between 1931 and 1933.28 The United States continued to suffer from banking panics at a time when the problem was disappearing from other, similar countries. The explanation is found in America’s uniquely fragmented and brittle banking structure.
Banking panics have been relatively rare in countries whose banking systems are based on a small number of banks with many branches. Unique among modern countries, the United States had thousands of tiny banks, many of them “unit banks” with only a single office. These unit banks served the interests of the local elites who owned them and could loan themselves and their allies the money of their neighbors. The Jeffersonian and Jacksonian defenders of small country banks protected them from competition by big city banks by state laws and federal laws not only limiting interstate branch banking but also, in some states, banning branch banking within the state. In states that allowed branching, banks with branches were far less likely to fail than unit banks.29
National branch banking in nations like Canada and Australia that permitted it, reduced the fragility of local banks by reducing their dependence on fluctuations in the local or regional economy. While the United States had more than eight thousand independent banks in 1890, Canada at the same period had only about forty.30 In Canada a few individual banks failed, but thanks to branching there were no national banking panics after the 1830s.31 In Canada following World War I, there was only one major bank failure, in the 1920s, and no banks failed at all during the Great Depression. In Australia, where national branch banking was legal, there was only one national panic, in 1893, to interrupt a record otherwise free of them.32 In contrast, bank failures were common in the United States in the 1920s and in the Depression the entire system collapsed.
America’s fragmented system of tiny unit banks imposed other costs on the economy. Their greater riskiness meant that America’s small unit banks had higher reserve ratios and lower loan ratios than Canada’s larger, more stable branch banks.33 Another cost of American unit banking was variations in interest rates among urban and rural banks and regions like the East, West, and South.
The decentralized, fragmented nature of the US banking system, characterized by thousands of small banks, meant that functions performed in more centralized banking systems had to be carried out by arm’s-length transactions among separate institutions. One institution was the private clearinghouse system, which allowed banks to repay other banks with clearinghouse certificates based on bank assets. This freed up cash that the bank could pay out to depositors in panics like those of 1873, 1893, and 1907. In addition to private clearinghouse systems, there were private banks that acted as lenders of last resort, like the Suffolk Bank of Massachusetts, which played this role in New England during the Panic of 1837.
America’s peculiar system of decentralized one-office banks also produced the “pyramid reserve” system, with small banks keeping some of their money with big urban money-center banks. The money-center banks then made call loans to stock-market investors. This invited trouble, because when distressed country banks recalled their reserves, the money-center banks would demand repayment of their call loans from investors, which might trigger a stock-market panic.
HUDDLED MASSES
In 1867–1868, the United States surpassed Britain in gross domestic product (GDP), becoming the world’s largest economy.34 The growth of the size of the American economy was driven by a combination of productivity growth with a rapid increase in population, driven by mass immigration from Europe between the 1840s and World War I.
The US population increased from forty million in 1870 to seventy-six million in 1900. Two-thirds of the growth was the result of natural increase, one-third the result of immigration.
Of the seventy-six million Americans in 1900, a third were either foreign born or the children of foreign-born parents. In 1910, the foreign-born and their first-generation children accounted for more than 70 percent of the population in New York, Chicago, Boston, Milwaukee, and Detroit.35
The Statue of Liberty was unveiled at a ceremony attended by President Grover Cleveland on October 28, 1886. The New York Herald described the scene: “Amid the uproar and excitement that succeeded the consecration of the statue, there glided through the Narrows a huge steamship crowded with European immigrants. From her decks the eyes of the strangers were fixed upon the wonderful drama in progress before them. The cannon smoke and vapor rolled up, and ringed in a huge, fire-fringed semicircle, they saw before them the mighty figure of Liberty. Imagination can only conceive of what to their tired eyes, weary with the hardships, the hopelessness and the cruelties of the Old World, this apparition must have conveyed.”36
Although the purpose of the Statue of Liberty was to commemorate the French-American alliance during the American Revolution, it became an inspiring symbol to the millions of immigrants who passed it before arriving to be processed for entry to the United States at Ellis Island. The link between the statue and immigration was reinforced by “The New Colossus,” the 1883 poem by Emma Lazarus engraved into the base:
Not like the brazen giant of Greek fame,
With conquering limbs astride from land to land;
Here at our sea-washed, sunset gates shall stand
A mighty woman with a torch, whose flame
Is the imprisoned lightning, and her name
Mother of Exiles. From her beacon-hand
Glows world-wide welcome; her mild eyes command
The air-bridged harbor that twin cities frame.
“Keep, ancient lands, your storied pomp!” cries she
With silent lips. “Give me your tired, your poor,
Your huddled masses yearning to breathe free,
The wretched refuse of your teeming shore.
Send these, the homeless, tempest-tost to me,
I lift my lamp beside the golden door!”
Immigrants sometimes mistook the torch held aloft by the goddess of Liberty for something else. One Hungarian thought that Lady Liberty was holding a broom. In his novel Amerika (1927), Franz Kafka, with appropriate surrealism, describes the Statue of Liberty’s “arm with the sword.”37
The difficulties of immigrants with English sometimes produced comic results. When an Ellis Island official, reading off a checklist, asked a woman if she approved of the overthrow of the United States government by subversion or violence, she hoped to give the right answer by replying, “Violence.”38
In 1914, before World War I interfered with immigration, 878,052 of 1,218,480 immigrants to the United States entered through Ellis Island.39 One of the new immigrants was Rocco Corresca, an orphan from Italy who ran a shoe-shine business in turn-of-the-century New York. “I and Francesco are to be Americans in three years,” he told an interviewer. “The court gave us papers and said we must wait and we must be able to read some things and tell who the ruler of the country is.”40
“Ach, it is just like what I see when I dream of heaven,” a German girl said after she and a friend on a visit to a Coney Island amusement park had enjoyed the loop-the-loop, the razzle-dazzle, and the chute.41 Other immigrants found pain and abuse in their new home, like the Greek pushcart peddler who reported: “I could not speak English and I did not know enough to pay the police. . . . Once a policeman struck me on the leg with his club so hard that I could not work for two weeks. That is wrong to strike like that a man who could not speak English.”42
A Swede named Axel Jarlson followed his brother to America, after his uncle Olaf, a sailor, explained: “In America they give you good land for nothing, and in two years you could be a rich man; and no one had to go in the army unless he wanted to.”43 Jarlson, who settled a farm in Minnesota, told a journalist: “One thing I like about this country is that you do not have to be always taking off your hat to people. . . . Here any man of good character can have a vote after he has been a short time in the country, and people can elect him to any office. There are no aristocrats to push him down and say that he is not worthy because his father was poor.”44
LABOR’S CAMPAIGN FOR IMMIGRATION RESTRICTION
Most immigrants improved their lives by moving to the United States, in some cases dramatically. But their presence in the labor market drove down wages and permitted American employers to engage in divide-and-rule tactics. According to one estimate, in the absence of the immigration that took place after 1870, the US population in 1890 would have been 27 percent smaller in 1910 and the real wage would have been 9 percent higher.45
The 1911 US Immigration Commission concluded that “in many cases the conscious policy of the employers [is] mixing the races in certain departments and divisions . . . preventing concert of action on the part of the employees.”46 A manager of one of Carnegie’s factories in Pittsburgh explained in 1875: “My experience has shown that Germans and Irish, Swedes, and what I denominate Buckwheats (young American country boys), judiciously mixed, make the most effective and tractable force you can find.”47
In order to raise wages and bargaining power for workers, the labor movement campaigned for immigration restriction. Frequently it used racist arguments. In 1905, Samuel Gompers of the American Federation of Labor wrote that the “Caucasians are not going to let their standard of living be destroyed by Negroes, Chinamen, Japs, or any others.”48 Gompers coauthored a pamphlet in 1906 entitled Meat vs. Rice: American Manhood Against Asiatic Coolieism. Which Shall Survive?49
Between the 1880s and the early twentieth century, labor activists succeeded with a mixture of economic argumentation and racist rhetoric in prevailing on Congress to bring most immigration from Asia to a halt. The campaign by labor and old-stock nativists to restrict European immigration would not succeed until the 1920s, following the revival of immigration from Europe after World War I.
FROM THE KNIGHTS OF LABOR TO THE AFL
The American labor movement’s campaigns to restrict immigration were among its few successes. In the decades after the Civil War, the battles fought by organized labor, many of them violent, usually ended in defeat. In the late 1870s and early 1880s, the United States had five times as many unionized workers as Germany, at a time when the two nations had similar populations.50 There were more strikes in 1890—around twelve hundred—than in any other year in American history.
The National Labor Union, formed in 1866, became a third party and collapsed by 1872, bequeathing to posterity its campaign for the eight-hour day. Beginning in 1870 with nine members, the Knights of Labor had grown into a mass organization that numbered 728,000 by 1884 and admitted unskilled workers, blacks, and women. But it never recovered from the Haymarket riot.
In May 1886, during a strike against the McCormick Harvesting Company in Chicago, a police officer killed a striking worker. Anarchists called for a rally in Chicago’s Haymarket Square. When police moved to disperse the rally, a bomb went off, killing seven police officers. Police fired into the crowd, killing four civilians. In trials that have been criticized as abuses of justice, seven anarchists were convicted. Four were hanged, three were pardoned by Illinois governor John Peter Altgeld, and one committed suicide. Although Terence Powderly, the head of the Knights of Labor, denounced the anarchist movement, the Knights were tainted by association in the public mind and the number of its members shrank to ninety-five thousand in 1892 and none in 1901.51 In return for his support of the Republican Party in 1896, Powderly was appointed by President McKinley to be the second commissioner general of immigration. Serving from 1897 to 1902, Powderly used his prominence to campaign for protecting white American labor from Asian immigration.
The American Federation of Labor, led by British-born Samuel Gompers, who began as a worker in the cigar-making industry, presented itself as a moderate alternative to anticapitalist extremism. The AFL sought to organize only members of particular crafts, not all workers. Following its founding in 1886, the AFL grew to around 250,000 by 1892. Of these, 24,000 members belonged to its Amalgamated Association of Iron and Steel Workers. Gompers believed that the union movement should concentrate on obtaining higher wages for its members, not on broad political or social reform. Asked by a member of Congress what labor wanted, Gompers said: “More!”
Business and government were horrified by would-be industrial unions associated with radical politics, like the Industrial Workers of the World, the “Wobblies,” particularly during the Red Scare in the United States that followed the communist takeover in Russia in October 1917. But the more conservative craft unions of Gompers’s AFL were rejected by most American employers as well.
CLASS WARFARE
Labor violence was particularly intense in the railroad industry and in the new mass-production industries of the Steam Age.
In 1892, with the backing of Carnegie, who was vacationing in Britain, Henry Clay Frick locked out striking workers at the Homestead plant near Pittsburgh and fortified the steelworks, creating what some called “Fort Frick.” When Frick brought in armed Pinkerton detectives to guard the steel mill, nine strikers and seven guards were killed in a twelve-hour battle. To escort replacement workers or “scabs” into the mills, the governor of Pennsylvania sent the state national guard. The strike collapsed, and the workers who were not purged worked for less pay, twelve hours a day, seven days a week. Carnegie’s reputation was permanently stained by the incident. Frick, who was shot and wounded by an anarchist but recovered, eventually became his bitter enemy, passing along a message in his old age to his former partner Carnegie: “I’ll see you in hell.”52
In May 1894, thousands of workers for the Pullman Palace Car Company went on strike to protest wage cuts that followed the Panic of 1893. Led by Eugene V. Debs, the American Railway Union called on workers to refuse to work with trains that used Pullman cars. The attorney general of the United States, Richard Olney, who also happened to be general counsel for the Chicago, Milwaukee and St. Paul Railway, obtained an injunction against the strikers from a federal court, and President Cleveland ordered the US Army and US marshals to end the strike. By the time the conflict ended, thirteen strikers were dead and widespread damage to property had occurred. Radicalized by his arrest and imprisonment, Debs went on to run for president five times as the leader of the Socialist Party of America.53
Following the Civil War, there was a class war and the capitalists won. They won with the help of not only the national guard and the Pinkerton detective agency but also of the federal judiciary, which allowed the Sherman Act to be used to prosecute labor unions.54 When Progressives in Congress enacted the Clayton Act of 1914 to exempt unions from antitrust laws as long as they engaged in nonviolent activity, federal judges interpreted the Clayton Act to permit even more injunctions to be used against labor unions than before.55 By 1900, organized labor in any form was marginalized.
AMERICA’S INTERNAL EMPIRE: THE SOUTH AND WEST
Other than replacing Britain as the informal hegemon of Central America and the Caribbean and acquiring some Pacific island bases that could serve as coaling stations for the US Navy and American trading vessels, the United States engaged in less imperialism than the other major powers. It did not need to. America had an internal empire. The people of the South, white and black alike, provided a captive consumer market for the manufactured goods of the factories in the Northeast and Midwest, and the mines of Appalachia and the sparsely settled West and later the oil fields of Texas and Oklahoma supplied the industry of the American industrial core region with cheap and abundant ore, coal, and oil. The integrated northeastern-midwestern industrial complex was a nation within a nation, the equivalent of Britain or Germany or France. The South and West were America’s India and Africa and Central Asia.56
In the 1870s, the North abandoned its effort to restructure southern society. Federal troops were pulled out of the South following the Compromise of 1877. The desire of the northeastern bankers, the prewar allies of the South, for a rapid resumption of exports of cotton picked by a subservient labor force was fulfilled. The interests of most white and black southerners alike were sacrificed to a bargain between northern and southern elites, which granted the southern elite freedom to deal with its regional labor force as it pleased, in return for the South’s position as an internal resource colony and market for northern industry.
The South’s share of US wealth shrank from 30 percent to 12 percent between 1860 and 1870.57 By 1880, the gap in per capita wealth between the North and South was comparable to that between Germany and Russia.58 Many of the profits from southern agriculture, timber, and mining flowed out of the region to investors in the North and Britain. Southerners subsidized northerners by consumption of northern-made goods protected by high tariffs and by their taxes, which paid for pensions for Union war veterans from which Confederate veterans were excluded.
“I attended a funeral once in Pickens county in my State,” wrote Henry Grady, a prominent Southern newspaper editor. “This funeral was peculiarly sad. It was a poor ‘one gallus’ fellow, whose breeches struck him under the armpits and hit him at the other end about the knee—he didn’t believe in decollete clothes. They buried him in the midst of a marble quarry: they cut through solid marble to make his grave; and yet a little tombstone they put above him was from Vermont. They buried him in the heart of a pine forest, and yet the pine coffin was imported from Cincinnati. They buried him within touch of an iron mine, and yet the nails in his coffin and the iron in the shovel that dug his grave were imported from Pittsburg. They buried him by the side of the best sheep-grazing country on the earth, and yet the wool in the coffin bands and the coffin bands themselves were brought from the North. The South didn’t furnish a thing on earth for that funeral but the corpse and the hole in the ground. There they put him away and the clods rattled down on his coffin, and they buried him in a New York coat and a Boston pair of shoes and a pair of breeches from Chicago and a shirt from Cincinnati, leaving him nothing to carry into the next world with him to remind him of the country in which he lived, and for which he fought for four years, but the chill of blood in his veins and the marrow in his bones.”59
NEW FORMS OF SLAVERY
Immediately after the Civil War, southern states passed laws and constitutional amendments called “black codes,” designed to re-create the equivalent of slavery. The black codes were abolished by the federal government during Reconstruction, but after federal occupation of the former slave states ended in 1877, the white southern elite used law and violence to reduce the freedmen to the status of a subjugated, disfranchised labor force. New forms of serfdom in the South were devised for black agricultural workers. In 1910, 93 percent of black Americans were living in the South; 60 percent of adult black men worked in farming.60 Sharecropping and the crop-lien system forced poor whites and blacks alike into debt peonage. Another method of debt peonage took the form of the purchase by local oligarchs of the coerced labor of black men and women, by the method of paying their court fines for real crimes and trumped-up offenses alike.
In an exposé published in the North in 1904, an unidentified “Negro peon” told how he was tricked into debt peonage for a cotton planter known only as the Senator: “The next morning it was explained to us by the two guards appointed to watch us that, in the papers, we had signed the day before, we had not only made acknowledgment of our indebtedness, but that we had also agreed to work for the Senator until the debts were paid by hard labor.”61 The man ended up spending three years in the Senator’s peon camp.62
The convict-lease system was another method by which the defiant South re-created slavery in all but name. Southern state governments and county sheriffs made profits by arresting blacks, often for minor offenses, and then leasing their labor to big farmers, capitalists, and corporations.63 After Alabama established its convict-lease system in 1875, 20 percent died in the first year, 35 percent in the second, and 45 percent in the fourth.64 Southern blacks were prevented from migrating to the North. Southern sheriffs harassed agents of northern companies who tried to recruit black workers, while the white working class in the North carried out violent pogroms against black migrants whom they viewed as competitors for jobs and neighborhoods. The Great Migration of blacks out of the South took place only after World War I, and subsequent immigration laws cut off the supply of European immigrant workers in the North. The federal government’s indifference to de facto slavery in the South changed only when American racism became an embarrassment during America’s crusades against the racist slave empires of Germany and Japan and America’s Cold War competition with the Soveit Union to appeal to nonwhite populations in former European colonies.
THE WEST
In addition to the farms and timber plantations of the South, industrial America’s internal resource colonies also included the mines of the mountain West and the ranches and farms of the prairie and the Great Plains.
The age of the great cattle drives following the Civil War was brief, although it lives on in Hollywood mythology. The heyday of the long-distance cattle drives to the markets of the Midwest and North came after the Civil War, from the 1860s to the 1880s, before railroads and refrigerator cars made them anachronistic.
Enormous amounts of range land had been opened up for grazing after the US Army had forced the remaining Plains Indians onto reservations. The cattle business in the Great Plains was dominated by large cattle companies owned by eastern and foreign investors, such as the London-chartered Spur Land and Cattle Company and the Scotland-based Matador Land and Cattle Company. The XIT Ranch in the Texas Panhandle was the largest fenced range in the world, at one point covering parts of ten counties in Texas. It originated when the Texas legislature conveyed three million acres of state-owned land in return for the construction of a new capitol building in Austin to Charles and John Farwell, two brothers who had made a fortune in the dry-goods business in Chicago. The Farwells created a London-based corporation, the Capitol Freehold Land and Investment Company, which sold bonds to British and American investors.
After harsh winters between 1884 and 1887 decimated many herds, a number of the cattle companies sold their land to small farmers. Conflict with ranchers who considered the grassland to be a common resource often broke out when the farmers fenced off sections with barbed wire, invented in 1874 by J. F. Glidden of Illinois. Aided by another new technology, the water-pumping metal windmill, farm families sometimes lived for a time in sod houses before putting up frame houses protected from the prairie winds by windbreaks of clustered trees and shrubs.
Putting up windbreaks was one method of obtaining land, under federal law. The original Homestead Act was followed by the Timber Culture Act of 1873, which granted 160 acres to settlers who planted 40 acres of trees. Because this proved to be unrealistic in the prairie and plains environments, in 1878, the law was amended to provide 10 acres in return for the construction of shelterbelts or windbreaks. The Desert Land Act of 1877 provided 640 acres to settlers who irrigated desert land; this challenge had few takers. Under the 1878 Timber and Stone Act, settlers were permitted to buy federal land unsuitable for farming at a discount if they cut timber or quarried stone on it.65
In 1890, the Census Bureau reported the closing of the western frontier. The symbolic closing of the frontier took place a few years later, on September 16, 1893, in Oklahoma. At the signal of a cannon’s boom, a hundred thousand Americans, during one of the nation’s worst depressions, raced each other on foot, horseback, or bicycles to claim parcels of land in the Cherokee Strip. Many of the “boomers” who had patiently waited for the boom of the cannon discovered that they had been preceded by “sooners” who gave Oklahoma its nickname, the Sooner State.
In the same year, 1893, at the World’s Columbian Exposition in Chicago, the historian Frederick Jackson Turner delivered an influential paper to the American Historical Association entitled “The Significance of the Frontier in American History.” Turner argued that the frontier had shaped American democracy and speculated about how American society would be affected by its disappearance in the essay and, no doubt, in the classes he taught at Columbia University, where one of his students was a young man named Franklin Delano Roosevelt.
DEFEAT OF THE WHEAT
The very success of railroads in creating national and international markets created economic problems for farmers on both sides of the Atlantic. As American grain and meat transported overland by rail and overseas by steamships poured into the markets of Britain and continental Europe, prices fell in both Central and Eastern Europe and the American Midwest. According to one British observer, the “revolution in the food supply of European countries” was caused by “the American railroad.”66 In Europe the prolonged distress of the agricultural sector led to mass immigration to the United States and other lands of European settlement. Peasant parties anticipated the fascist movements of the twentieth century by blaming economic problems on conspiracies by Jews and foreigners.
Similar distress afflicted many of America’s farmers. As a result of the deflation produced by America’s resumption of the gold standard, many farmers were affected by falling prices for wheat, cotton, and other commodities and rising payments for farm mortgages. They were also frustrated by railroad rates.
The Grange, an agrarian reform movement, set the stage for the People’s Party, formed in 1887. The Populists’ Omaha Platform in 1892 included a number of reforms that would later be realized, including direct election of senators, a progressive income tax, civil service reform, and an eight-hour day, and some that would not be, including the nationalization of railroads, telegraphs, and telephones. The Populist manifesto of 1892 painted a frightening picture: “The urban workmen are denied the right to organize for self-protection, imported pauperized labor beats down their wages, a hireling standing army, unrecognized by our laws, is established to shoot them down, and they are rapidly degenerating into European conditions. The fruits of the toil of millions are boldly stolen to build up colossal fortunes for a few, unprecedented in the history of mankind.”67
Populists were instructed in the mysteries of finance by William H. “Coin” Harvey’s bestselling book Coin’s Financial School (1894), in which a fictional teenage boy in Chicago bests financiers in debate. The Populist movement included colorful characters like Mary Ellen Lease, known as “Mary Yellin” to her detractors, who moved on from populism to white supremacy, and Ignatius Donnelly, member of Congress, self-proclaimed expert on the lost continent of Atlantis, and author of Caesar’s Column, a novel about the overthrow of American democracy by plutocracy.
The Populists were not the only group to enlist fiction in their cause. With his bestselling book Progress and Poverty (1879), Henry George founded an international movement to tax the “unearned increment” derived from the appreciation in land prices.
Edward Bellamy presented a socialist utopia in his bestselling novel Looking Backward, 2000–1887 (1887). There were political novels defending contemporary American capitalism, as well. Using a pseudonym, John Hay, Lincoln’s secretary and later secretary of state under McKinley and Theodore Roosevelt, published an antilabor novel, The Breadwinners, in 1884. Hay portrayed unions as criminal conspiracies against the public.
THE GREAT COMMONER
During the Depression of the 1890s, the hard-money policy and repression of railroad strikers carried out by Democratic president Grover Cleveland, a New Yorker, alienated many Democrats in the South and West, which remained the regional bases of the party. At the 1896 Democratic Convention in Chicago, populists captured the party. On the third day of the convention, William Jennings Bryan, their charismatic hero, declaring, “You shall not crucify mankind upon a cross of gold,” mimed placing a crown of thorns on his head and stretched out his arms like the crucified Jesus Christ. According to the correspondent for the Atlanta Constitution, “Westerners shouted, waved handkerchiefs, hats, flags, canes, umbrellas and anything else conspicuous and portable. . . . Hundreds of umbrellas were opened by the apparently crazed people. Harmless missiles of paper and other things were hurled through the air on the delegates’ heads.”68
Appalled, like other northeastern patricians, Henry Adams wrote that “a capitalistic system had been adopted, and if it were to be run at all, it must be run by capital and by capitalistic methods; for nothing could surpass the nonsensity of trying to run so complex and concentrated a machine by Southern and Western farmers in grotesque alliance with city day-laborers.”69 To ensure a Republican victory, personal and corporate wealth were mobilized for a political campaign on a scale never before seen in the United States. Despite their efforts to reach out to northern industrial workers, the Democrats failed to expand beyond their southern and western agrarian base. In 1896, McKinley, campaigning on the slogan, “the full dinner pail,” won an electoral college majority of 271 votes to Bryan’s 176; in the popular vote, McKinley’s 7,102,246 defeated Bryan’s 6,502,925. A rematch between McKinley and Bryan in 1900 produced even larger margins for McKinley: 292 to 155 in the electoral college and 7,219,530 votes to 6,358,071.
The poet Vachel Lindsay recorded the agony that he shared with many others:
Election night at midnight:
Boy Bryan’s defeat.
Defeat of the western silver.
Defeat of the wheat.
Victory of the Letterfiles
And plutocrats in miles
With dollar signs upon their coats,
Diamond watchchains on their vests
And spats on their feet.
Victory of the custodians,
Plymouth Rock,
And all that in-bred landlord stock.
Victory of the neat.
Defeat of the aspen groves of Colorado Valleys,
The blue bells of the Rockies,
And blue bonnets of old Texas,
By the Pittsburgh alleys.
Defeat of alfalfa and the Mariposa lily.
Defeat of the Pacific and the long Mississippi.
Defeat of the young by the old and silly.
Defeat of tornadoes by the poison vats supreme.
Defeat of my boyhood, defeat of my dream.70
Subsequent generations have debated whether Bryan was a precursor of twentieth-century liberalism or a provincial reactionary. The same Bryan who supported federal regulation of railroads and industry and the rights of organized labor later, in the final act of his life, prosecuted a Tennessee teacher for teaching Darwinism in the 1927 Scopes “Monkey Trial.”
In 1896, Bryan was opposed by progressives including Robert La Follette, Louis Brandeis, and Woodrow Wilson. On becoming president, Wilson reached out to the populist wing of the party by making Bryan secretary of state, but complained to a friend that “the man has no brains. It is a great pity that a man with his power of leadership should have no mental rudder.”71 The socialist radical Jack London said he would vote for McKinley to stop Bryan.72 Theodore Roosevelt, who became McKinley’s second vice president in 1900 and his successor when McKinley was assassinated in 1901, warned that “if Bryan wins, we have before us some years of social misery, not markedly different from that of any South American republic.”73
If anachronistic labels like “liberal” and “conservative” are dispensed with, in favor of the concepts of Hamiltonian developmentalism and Jeffersonian producerism, then Bryan’s place in the American tradition is easily identified. Bryan declared: “What we need is an Andrew Jackson to stand as Jackson stood, against the encroachments of aggregated wealth.”74 Bryan was the last American presidential candidate to be an agrarian: “You come to us and tell us that the great cities are in favor of the gold standard. I tell you that the great cities rest upon these broad and fertile prairies. Burn down your cities and leave our farms and your cities will spring up again as if by magic. But destroy our farms and the grass will grow on the streets of any city in this country.”75
Bryan led the Jeffersonian backlash against American developmental capitalism in the era of the first industrial revolution and the railroads. He followed Andrew Jackson, who led the Jeffersonian backlash against the American developmental state in the preceding era of canals and water mills. And Bryan preceded Barry Goldwater and Ronald Reagan, who led a later Jeffersonian backlash against the version of the American developmental state identified with Franklin Roosevelt’s New Deal and Dwight Eisenhower’s Modern Republicanism in the second industrial economy, based on electrification and the automobile.
Bryan’s opponent William McKinley was the most important leader of the Hamiltonian tradition between Abraham Lincoln and Theodore Roosevelt. Having started out as an old-fashioned protectionist, McKinley had come to see that the success of America’s protectionist import-substitution policies meant that major industries would benefit more from access to foreign markets than from continued protection. In the speech he delivered on the day he was fatally shot by an anarchist named Leon Czolgosz, McKinley emphasized the need for the United States to pursue reciprocal trade liberalization with trading partners.
Bryan shared the antiblack attitudes of most of his southern and western supporters and refused to criticize the Ku Klux Klan, for fear of creating divisions in the Democratic Party’s base. In contrast, the Civil War veteran McKinley was fond of telling a story about a black flag bearer in Louisiana who died in battle during the Civil War: “Tell me that men made of that metal shall be deprived of their constitutional right! The fight will go on until every citizen will enjoy every right guaranteed by the constitution of the United States.”76 As governor of Ohio, McKinley used the national guard to protect black prisoners against lynch mobs. During a tour of the South in 1898, McKinley visited Booker T. Washington’s Tuskegee Institute in Alabama and the black Georgia Agricultural and Mechanical College at Savannah.77 His successor, Theodore Roosevelt, enraged white southerners by inviting Washington to dine at the White House.
Nor was McKinley the pawn of banking and business that generations of populists and progressives have caricatured. The heir to several generations of Scots-Irish manufacturers in the Midwest, McKinley, like many manufacturers, preferred bimetallism—in effect mild inflationism—to the deflationary gold standard preferred by creditors in the financial community. (In the slang of the time, this made him a “straddle bug” instead of a “gold bug.”)
The quiet McKinley has been overshadowed by his rambunctious successor Roosevelt. But he was the major transitional figure between the old Hamiltonianism of Hamilton, Clay, and Lincoln, and the new Hamiltonianism of progressives like Theodore and Franklin Roosevelt.
THE MYTH OF THE ROBBER BARONS
The Steam Age was the first stage in the transformation from the agrarian to the industrial economy. In the preindustrial biomass economy, the wealth accumulated by merchants like Stephen Girard and John Jacob Astor came at the expense of exploited labor (Indian fur trappers, fur traders, and slaves on plantations) or the ecosystem (the beaver population that Astor decimated). The mines that produced oil for Rockefeller and ore for Carnegie might have scarred local areas, but they did not produce deforestation and mass extinctions. Standard Oil’s kerosene helped to save the whales from extinction.
Americans have tended to judge industrial tycoons more harshly than landed plutocrats. The slaveholders of the Virginia dynasty like Washington and Jefferson, Madison and Monroe, are treated as noble statesmen, while the industrialists like Rockefeller and Carnegie and the politicians whom they supported and sometimes bribed are treated as villains. But even at their strike-breaking, influence-peddling, wealth-displaying worst, the northern railroad and industrial tycoons who dominated American politics and the economy in the second half of the nineteenth century represented a great improvement over the southern slaveowners who dominated the country in the first half of the century and then tried to destroy it. The northern industrialists may have repressed their workers, but at least they did not own them.
A plausible and dispassionate assessment of the period was provided by Franklin Delano Roosevelt in an address, drafted by Adolf Berle, that he delivered during his 1932 presidential campaign at the Commonwealth Club in San Francisco: “The history of the last half century is accordingly in large measure a history of a group of financial Titans, whose methods were not scrutinized with too much care, and who were honored in proportion as they produced the results, irrespective of the means they used. The financiers who pushed the railroads to the Pacific were always ruthless, we have them today. It has been estimated that the American investor paid for the American railway system more than three times over in the process; but despite that fact the net advantage was to the United States. As long as we had free land; as long as population was growing by leaps and bounds; as long as our industrial plants were insufficient to supply our needs, society chose to give the ambitious man free play and unlimited reward provided only that he produced the economic plant so much desired.”78