The industrial revolution had not advanced very far before an intense compet.i.tion began to force business men to combine to protect themselves against their own weapons. As early as 1879 certain oil interests of Cleveland, Pittsburgh, Philadelphia, and other centers had begun to control compet.i.tion by making agreements through their officers. Three years later, they devised an excellent scheme for a closer organization in the formation of a "trust." They placed all their stocks in the hands of nine trustees, including John D. Rockefeller, who issued in return certificates representing the proportionate share of each holder in the concern, and managed the entire business in the interests of the holders.

The trust proved to be an attractive proposition to large business concerns. Within five years combinations had been formed in cotton oil, linseed oil, lead, sugar, whisky, and cordage, and it was not long before a system of interlocking interests began to consolidate the control of all staple manufactures in the hands of a few financiers. Six years after its formation the Standard Oil Company was paying to a small group of holders about $20,000,000 annually in dividends on a capital of $90,000,000, and the recipients of these large dividends began to invest in other concerns. In 1879, one of them, H. M. Flagler, became a director of the Valley Railroad; in 1882, William Rockefeller appeared as one of the directors of the Chicago, Milwaukee, and St. Paul; in 1887, John D. Rockefeller was connected with a syndicate which absorbed the Minnesota Iron Company, and about the same time representatives of the Oil Trust began to figure in the Northern Pacific, the Missouri, Kansas, and Texas, and the Ohio River railways. Thus a perfect network of financial connections throughout the country was built up.

But on the whole the decades following the Civil War were characterized by economic anarchy, _laissez faire_ with a vengeance. There were prolonged industrial crises accompanied by widespread unemployment and misery among the working cla.s.ses. In the matter of railway management the chaos was unparalleled.

Shortly after 1870 a period of ruinous compet.i.tion set in and was followed by severe financial crises among the railways. Pa.s.senger and freight rate "wars" for the "through" traffic brought many roads to the verge of bankruptcy, in spite of their valiant efforts to save themselves by exorbitant charges on subsidiary branches where they had no compet.i.tion. Crooked financiering, such as the watering of stocks, misappropriation of construction funds by directors, and the purchase of bankrupt lines by directors of larger companies and their resale at great advances, placed a staggering burden of interest charges against practically all of the lines. In 1873 nearly half of the mileage in the country was in the hands of court receivers, and between 1876 and 1879 an average of more than one hundred roads a year were sold under the foreclosure of mortgages. In all this distress the investors at large were the losers while the "inside" operators such as Jay Gould, Cornelius Vanderbilt, and Russell Sage doubled their already over-topping fortunes.

A very good example of this "new finance" is afforded by the history of the Erie Railway. In 1868, Vanderbilt determined to secure possession of this line which ran across New York State in compet.i.tion with the New York Central and Hudson River lines. Jay Gould and a group of operators, who had control of the Erie, proceeded to water the stock and "unload"

upon Vanderbilt, whose agents bought it in the hope of obtaining the coveted control. After a steeple chase for a while the two promoters came to terms at the expense of the stockholders and the public. Between July 1 and October 24, 1868, the stock of the Erie was increased from $34,000,000 to $57,000,000, and the price went downward like a burnt rocket. During the short period of Gould's administration of the Erie "the capital stock of the road had been increased $61,425,700 and the construction account had risen from $49,247,700 in 1867 to $108,807,687 in 1872. Stock to the amount of $40,700,000 had been marketed by the firm of Smith, Gould, and Martin, and, incredible as it may seem, its sale had netted the company only $12,803,059."[11]

The anarchy in railway financing, which characterized the two decades after the War, was also accompanied by anarchy in management. A Senate investigating committee in 1885 enumerated the following charges against the railroads: that local rates were unreasonably high as compared with through rates; that all rates were based apparently not on cost of service but "what the traffic would bear"; that discriminations between individuals for the same services were constant; that "the effect of the prevailing policy of railroad management is, by an elaborate system of secret special rates, rebates, drawbacks, and concessions, to foster monopoly, to enrich favorite shippers, to prevent free compet.i.tion in many lines of trade in which the item of transportation is an important factor;" that secret rate cutting was constantly demoralizing business; that free pa.s.ses were so extensively issued as to create a privileged cla.s.s, thus increasing the cost to the pa.s.senger who paid; that the capitalization and bonded indebtedness of companies largely exceeded the actual cost of construction; and that railway corporations were engaged in other lines of business and discriminating against compet.i.tors by unfair rate manipulations. In a word, the theories about compet.i.tion written down in the books on political economy were hopelessly at variance with the facts of business management; the country was at the mercy of the sharp practices of transportation promoters.

However, emphasis upon this great industrial revolution should not be allowed to obscure the no less remarkable development in agriculture.

The acreage in improved farm lands rose from 113,032,614 in 1850 to 478,451,750 in 1910. In the same period the number of farms increased from 1,449,073 to 6,361,502. Notwithstanding the significant fact that "whereas the total population increased 21 per cent between 1900 and 1910, the urban population increased 34.8 per cent and the rural population 11.2 per cent," the broad basis of the population during the half a century here under consideration has remained agricultural, and in 1913 it was estimated that at the present rate of transformation "it will take a generation before the relative number of industrial wage workers will have reached half of all bread winners."

_The Development of the West_

When Hayes was inaugurated, a broad wedge of territory separated the organized states of the East from their sister commonwealths in the far West--Oregon, California, and Nevada. Washington, Idaho, Montana, Wyoming, Utah, Arizona, New Mexico, Dakota, and Indian Territory still remained territories. Their combined population in 1870 was under half a million, less than that of the little state of Connecticut. New Mexico with 91,000 and Utah with 86,000 might, with some show of justification, have claimed a place among the states because Oregon was inhabited by only 90,000 people. The commonwealth of Nevada, with 42,000, was an anomaly; it had been admitted to the Union in 1864 to secure the ratification of the Thirteenth Amendment abolishing slavery.

This vast and spa.r.s.ely settled region was then in the second stage of its economic evolution. The trapper, hunter, and explorer had gathered most of their harvest, and the ranchmen and cowboys with their herds of cattle were roaming the great grazing areas, waging war on thieves, land syndicates, and finally going down to defeat in the contest with the small farmer who fenced off the fertile fields and planted his homestead there. So bitter were the contests among the cattle kings, and so extensive was the lawlessness in these regions during the seventies and early eighties that Presidents were more than once compelled to warn the warlike parties and threaten them with the Federal troops.

Of course, the opening of the railways made possible a rapidity in the settlement of the remaining territories which outrivaled that of the older regions. The first Pacific railroad had been completed in 1869; the Southern Pacific connecting New Orleans with the coast was opened in 1881; and two years later the Atchison, Topeka, and Santa Fe was finished, and the last stroke was put on the Northern Pacific, connecting Chicago and Portland, Oregon. Thus four lines of communication were established with the coast, traversing the best agricultural regions of the territories and opening up the mineral-bearing regions of the mountains as well. Lawless promoters fell upon the land and mineral resources with that rapacity which Burke attributed to Hastings.

Utah presented, in the eighties, the elements of an ordered and well-advanced civilization and could with some show of reason ask for admission as a state. The territory had been developed by the Mormons who settled there, after suffering "persecution" for their religious opinions and their plural marriages, in Illinois and Missouri.

Notwithstanding an act of Congress pa.s.sed in 1862 prohibiting polygamy, it continued to flourish. The territorial officers were nearly all Mormons and the remoteness of the Federal authority prevented an enforcement of the law. Consequently, it remained a dead letter until 1882, when Congress enacted the Edmunds law prescribing heavy penalties, including the loss of citizenship, for polygamous practices. Hundreds of prosecutions and convictions followed, but plural marriages were openly celebrated in defiance of the law. At length, in 1887, Congress pa.s.sed the Edmunds-Tucker act authorizing the Federal Government to seize the property of the Mormon church.

Meanwhile the gentile population increased in the territory; and at length the Mormons, seeing that the country was determined to suppress polygamy and that, while the inst.i.tution was maintained, statehood could not be secured, decided upon at least an outward acquiescence in the law. After much discussion in Congress, and notwithstanding the repeated contention that the Mormons were not sincere in their promises, Utah was admitted as a state in 1895 under a const.i.tution which, in accordance with the provisions of the enabling act of Congress, forbade polygamous and plural marriages forever. Thus the inhabitants of the new state were bound by a solemn contract with the Union never to restore the marriage practices which had caused them so much trouble and "persecution," as they called it.

Although the Mormons were the original pioneers and homestead makers in that great region, theirs was in fact the last of the middle tier of territories to receive statehood. They had left the advancing frontier line far behind. To the northward that advance was checked by the enormous Sioux reservation in Dakota, but the discovery of gold in the Black Hills marked the doom of the Indian rights. Miners and capitalists demanded that the way should be made clear for their enterprise and the land hungry were clamoring for more farms. Indeed, before Congress could act, pioneers were swarming over the regions around the Indian lands. Farmers from the other northern states, Norwegians, Germans, and Canadians were planting their homesteads amid the fertile Dakota fields; the population of the territory jumped from 14,181 in 1870 to 135,177 in 1880, and before the close of the next decade numbered more than half a million. It was evident that the region was destined to be princ.i.p.ally agricultural in character, inhabited by thrifty farmers like those of Iowa and Nebraska. Pretensions to statehood therefore rose with the rising tide of population.

Far over on the western coast, the claims of Washington to statehood were being urged. The population there had increased until it rivaled Oregon and pa.s.sed the neighboring commonwealth in 1890. In addition to rich agricultural areas, it possessed enormous timber resources which were to afford the chief industry for a long time; and keen-sighted men foresaw a swift development of seaward trade. Between the Dakotas and Washington lay the narrow point of Idaho and the mountainous regions of Montana, now rapidly filling up with miners and capitalists exploiting the gold, silver, coal, copper, and other mineral resources, and rivaling the sheep and cattle kings in their contest for economic supremacy.

After the fashion of enterprising westerners, the citizens of these territories began to boast early of their "enormous" populations and their "abounding" wealth, and to clamor for admission as states. Finding their pleas falling upon unheeding ears, the people of the southern Dakota took matters into their own hands in 1885, called a convention, framed a const.i.tution, and failing to secure the quick and favorable action of Congress threatened to come into the Union unasked. Sober counsels prevailed, however, and the impatient Dakotans were induced to wait awhile. Meantime the territory was divided into two parts in 1887, after a popular vote had been taken on the matter.

As had been the case almost from the beginning of the Republic, the admission of these new states was a subject of political controversy and intrigue at the national capital. During Cleveland's first administration the House was Democratic and the Senate Republican.

Believing that Dakota was firmly Republican, the Senate pa.s.sed the measure admitting the southern region in 1886, but the Democratic House was unable to see eye to eye with the Senate on this matter. In the elections of 1888, the Republicans carried the House, and it was evident that the new Congress would take some action with regard to the clamoring territories. Montana was probably Democratic, and Washington was uncertain. At all events the Democrats thought it wise to come to terms, and accordingly on February 22, 1889, the two Dakotas, Washington, and Montana were admitted simultaneously.

With less claim to statehood than any commonwealths admitted up to that time, except Nevada, the two territories of Idaho and Wyoming were soon enabled, by the a.s.sistance of the politicians, to secure admission to the Union. Republican politics and the "silver interests" were responsible for this step. Although neither territory had over 40,000 inhabitants in 1880, extravagant claims were made by the advocates of admission--claims speedily belied by the census of 1890, which gave Idaho 88,000 and Wyoming 62,000. At last in July, 1890, they were admitted to the Union, and the territorial question was settled for a time, although Arizona and New Mexico felt that their claims were unjustly treated. It was not until seventeen years later that another new state, Oklahoma, modeled out of the old Indian Territory, was added to the Union. Finally, in 1912, the last of the continental territories, Arizona and New Mexico, were endowed with statehood.[12]

_The Economic Advance of the South_

Notwithstanding the prominence given to the negro question during and after Reconstruction, the South had other problems no less grave in character to meet. Industry and agriculture were paralyzed by the devastations of the War. A vast amount of material capital--railways, wharves, bridges, and factories--had been destroyed during the conflict; and fluid capital seeking investment had been almost destroyed as well.

The rich with ready money at their command had risked nearly all their store in confederate securities or had lost their money loaned in other ways through the wreck of the currency. Plantations had depreciated in value, partly because of the destruction of equipment, but especially on account of the difficulties of working the system without slave labor.

The South had, therefore, to rehabilitate the material equipment of industry and transportation and to put agriculture on another basis than that of slave labor. Surely this was a gigantic task.

The difficulties of carrying forward the plantation system with free negro labor compelled the holders of large estates (many of which were heavily mortgaged) to adopt one of two systems: the leasing or renting of small plots to negroes or poor whites, or the outright sale in small quant.i.ties which could be worked by one or two hands. This disintegration of estates went forward with great rapidity. In 1860 the average holding of land in the southern states was 335.4 acres; in 1880 it had fallen to 153.4; and in 1900 it had reached 138.2. The great handicap was the difficulty of securing the capital to develop the small farm, and no satisfactory system for dealing with this problem has yet been adopted.

The very necessities of the South served to bind that section to the North in a new fashion. Fluid capital had to be secured, in part at least, from the North, and northern enterprise found a new outlet in the reconstruction of the old, and the development of the new, industries in the region of the former confederacy. The number of cotton spindles in the South increased from about 300,000 in 1860 to more than 4,000,000 at the close of the century; the number of employees rose from 10,000 to nearly 100,000; and the value of the output leaped from $8,460,337 annually to $95,002,059. This rapid growth was, in part, due to the abundance of water power in the hill regions, the cheap labor of women and children, the low cost of living, and the absence of labor laws interfering with the hours and conditions of work in the factories.

Even in the iron and steel industry, West Virginia and Alabama began to press upon the markets of the North within less than twenty years after the close of the War. In 1880, the latter state stood tenth among the pig-iron producing states; in 1890 it stood third. The southern states alone now produce more coal, iron ore, and pig iron than all of the states combined did in 1870. The census of 1909 reports 5685 manufacturing establishments in Virginia, 4931 in North Carolina, 4792 in Georgia, and 3398 in Alabama.

The social effects which accompany capitalist development inevitably began to appear in the South. The industrial magnate began to contest with the old aristocracy of the soil for supremacy; many former slave owners and their descendants drifted into manufacturing and many poor whites made their way upward into wealth and influence. The census of 1909 reports more than thirty thousand proprietors and firm members in the South Atlantic states, an increase over the preceding report almost equal to that in the New England states. The same census reports in the southern states more than a million wage earners--equal to almost two thirds the entire number in the whole country at the opening of the Civil War. The percentage of increase in the wage earners of the South Atlantic states between 1904 and 1909 was greater than in New England or the Middle Atlantic states.

With this swift economic development, northern capital streamed into the South; northern money was invested in southern public and industrial securities in enormous amounts; and energetic northern business men were to be found in southern market places vying with their no less enterprising southern brethren. The men concerned in creating this new nexus of interest between the two regions naturally deprecated the perpetual agitation of sectional issues by the politicians, and particularly northern interference in the negro question. Business interest began to pour cold water on the hottest embers which the Civil War had left behind.

FOOTNOTES:

[7] The following brief chronology of inventions ill.u.s.trates the rapidity in the technical changes in the new industrial development:

1875--Bell's telephone in operation between Boston and Salem.

1879--Brush arc street lighting system installed in San Francisco.

1882--Edison's plant for incandescent lighting opened in New York City.

1882--Edison's electric street car operated at Menlo Park, New Jersey.

1885--Electric street railways in operation at Richmond, Virginia, and Baltimore.

[8] For the keenest a.n.a.lysis of this social transformation, see Veblen, _Theory of the Leisure Cla.s.s_ and _Theory of Business Enterprise_.

[9] See below, Chaps. VI and VII.

[10] See below, p. 234.

[11] Youngman, _The Economic Causes of Great Fortunes_, p.

75.

[12] By an act pa.s.sed in August, 1912, Congress provided a territorial legislature for Alaska, which had been governed up to that time by a governor appointed by the President and Senate, under acts of Congress.

CHAPTER III

THE REVOLUTION IN POLITICS AND LAW

The economic revolution that followed the War, the swift and potent upswing of capitalism, and the shifting of political power from the South to the North made their impress upon every branch of the Federal Government. Senators of the old school, Clay, Webster, Calhoun, Roger Baldwin, John P. Hale, James Mason, and Jefferson Davis were succeeded by the apostles of the new order: Roscoe Conkling and Thomas Platt, James Donald Cameron, Leland Stanford, George Hearst, Arthur P. Gorman, William D. Washburn, John R. McPherson, Henry B. Payne, Matthew S. Quay, Philetus Sawyer, John H. Mitch.e.l.l, and James G. Blaine. The new Senate was composed of men of affairs--practical men, who organized gigantic enterprises, secured possession of natural resources and franchises, collected and applied capital on a large scale to new business undertakings, built railways, established cities with the advancing line of the western frontier--or represented such men as counsel in the courts of law.