Stanley K. Schultz, Professor of History
William P. Tishler, Producer
Businessmen and "That Creature" the Corporation
Names like James J. Hill, Andrew Carnegie, Cornelius Vanderbilt, and John D. Rockefeller have struck terror in the hearts of many, yet these same names have inspired millions of other Americans. Between 1870 and 1900, the United States became a world industrial power, in part, because of the trailblazing business practices of these individuals. Were these early industrialists "Robber Barons" or "Captains of Industry?" What about "that creature" the corporation and its monopolistic cousin, the trust? The debate over whether the business practices of the Gilded Age were corrupt or beneficial rages on even to this day. Even in our own times, corporate mergers, mass layoffs, deregulation, and Enron remind us that the line between corruption and progress is indeed a fine one.
Some questions to keep in mind:
The Gilded Age was a time of economic transformation in the United States. Immediately following the Civil War, America's industrial output paled in comparison to the mighty industrial powers of Western Europe, especially Great Britain. However, by 1900, only Great Britain's industrial production exceeded the total industrial production of the United States. Two major factors precipitated the rise of industry:
Historians often describe nineteenth-century businessmen in two contradictory ways:
The Erie Railroad Wars of the 1860s provide an example of the unscrupulous and often illegal business activities that transformed the nation during the Gilded Age. The "Wars" involved four men:
(1797-1879), financier. Born in Carmel, New York, Drew served briefly in the War of 1812 before beginning a livestock business, driving cattle and horses to New York City from upstate, and later from as far away as Illinois. He quickly acquired a reputation for sharp dealing and was known to feed salt to his cattle and then let them drink themselves full in order to increase their weight; this practice became known as "stock watering" and Drew was its master. In 1857, Drew became director and treasurer of the Erie Railroad line. A shrewd man, Drew used "watered stock" and other tools to try and squeeze every possible dollar out of the railroad and into his own coffers.
(1836-1892), financier. Gould grew up in relative poverty and received little formal
education. Nonetheless, he possessed a quick mind and had few
scruples, and searched for opportunities to make money. His earnings from three
years as a surveyor, and from the publication of his History of Delaware County, and
Border Wars of New York in 1856, enabled him to open a tannery in Pennsylvania. By 1860, he had begun speculating in railroad securities and became a
director of the Erie Railroad in 1867. Gould, working with co-directors Jim Fisk and Daniel
Drew, combined "stock watering" and bribes to New York City's "Boss"
William M. Tweed as well as state legislators, profited handsomely from the Erie
Railroad Wars. In
1872, Gould turned to Western railroads, where he eventually assembled an empire that
consisted of half the track mileage in the Southwest. A prototype of the "robber
baron" capitalist, Gould remained ruthless, unscrupulous, and friendless to the end.
(1834-1872), financier. Fisk received little schooling and in his youth held a variety of jobs from waiter to ticket agent for a circus. Fisk earned the title of "Barnum of Wall Street" for his flamboyant trading techniques. With the proceeds gained from his Wall Street endeavors, Fisk led the life of a sybarite, developing tastes for French theatricals, Broadway showgirls, expensive horses, and honorary but gaudy military posts. After becoming almost the epitome of the "robber baron," he continued his career as a voluptuary-about-town until, following a quarrel over certain business matters and a favorite mistress, the actress Josie Mansfield, he was shot by Edward S. Stokes on January 6, 1872.
Vanderbilt began purchasing stock in the New York and Harlem Railroad in 1862, and, by 1863, he controlled the line and used it to initiate New York streetcar service. He then battled Daniel Drew for control of the Hudson River Railroad. The two men again clashed over the New York Central Railroad, although Vanderbilt emerged victorious from the struggle and merged the New York Central with the Hudson River Railroad in 1869. Vanderbilt's acquisition of the Lake Shore and Michigan Southern Railroad completed the first New York-to-Chicago rail system. In every case, he made large capital investments in improved roads, rolling stock, and facilities. By ordering construction of Grand Central Terminal in New York City, he provided jobs to thousands of unemployed workers during the Panic of 1873. Historians estimate that Vanderbilt was worth $100 million by the time of his death on January 4, 1877.
Began when Cornelius Vanderbilt began buying shares in the Erie Railroad
Co. in an attempt to drive his only competition out of business. The treasurer of the Erie
Railroad Co., Daniel Drew, saw an opportunity to swindle Vanderbilt out of millions of
dollars. Drew, along with Jay Gould and Jim Fisk, printed up 100,000 worthless stock
which Vanderbilt promptly bought, although he soon realized the stocks had
Although Vanderbilt had once said, "Law, what do I care about the law? Ain't I got the power?"
he appeal to government authorities to arrest Fisk, Gould, and Drew.
Although American businessmen had always strived to make money, the Gilded Age saw the rise of new methods of capitalism that allowed individuals to limit their liability and maximize their profits.
"Before the Gilded Age, individuals had looted society. But the most characteristic economic institution of the Gilded Age no longer was the individual. Instead it was a collection of individuals together called the corporation" (Professor Schultz, videotape lecture #5).
The Corporation Revolution
Key features of corporations
One of the key features of corporations and the Gilded Age, in general, was an increasing concentration of power in large entities. Business and government became bigger while their respective operations became intertwined. Ever since the federal government had used its power and money to encourage businessmen to build railroads, all levels of government had become more involved in the nation's economic welfare.
What was a corporation?
A corporation was formed when a group of people requested a charter from the state legislature that provided them with a set of legal rights and (presumably) responsibilities. State law treated the corporation as an individual. Unlike a partnership, in which liability ran high for individual investors, the corporation involved limited liability. Limited liability makes individual investors legally liable only for their share of the investment. In partnerships, if a partner skips town or dies, the other partners are liable for any outstanding debts. In corporations, if an individual investor dies no other investors are affected. If the corporation goes bankrupt, the law only required investors to foot the bill for a percentage corresponding to the proportion of their investment. As corporations became more common in the mid-nineteenth century, the opportunity for wide numbers of people to invest in business greatly expanded, for individual investors could now invest without the fear of total liability. Another important result of the corporation revolution was that corporations became "immortal." Most state laws allowed corporations to buy, sell, and inherit property; thus, they took on their own identity. Individual investors may come and go, but the corporation has an indefinite lifespan.
Corporations in the past
Corporations were not a new invention of the Gilded Age. The first American colonies were the result of corporate activity. Corporations began to crop up well before the Civil War. By the 1850s, however, American businessmen began using corporations in new ways. After the Civil War, ownership of a corporation no longer meant control of the corporation. Whereas prior to the Civil War investors had retained a great deal of power over the means of production, the new concept of corporations allowed managers and directors to make money, while investors reaped only the benefits of limited dividends. This new management structure allowed a handful of corporate directors to profit enormously from other people's money with little personal risk.
Combinations of corporations
One of the most salient characteristics of the Gilded Age was the continual combination of corporations. Small corporations began to merge with one another to increase efficiency and profits. Americans soon knew these new "mega corporations" as trusts. In such trusts, a small board of trustees managed the means of production and distribution. Though trusts were certainly larger, more efficient, and more profitable than smaller corporations, they also destroyed the healthy competition that often makes capitalism a viable economic model.