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Industrialization of America: A Refreshing Story

Posted in Business, and Wealth

I am reading History of the American People by Paul Johnson, a British citizen who has written a fascinating outsiders view of America after several books in that same genre. For another great story by the same man, check out A History of the Jews.

Part V of History of the American People is about the industrialization of America led by oil, steel, and railroads in the period from 1870-1912. Here are some comments from Johnson’s book about the birth and childhood of BIG OIL, unpopular then and now.

  • That Standard Oil (founded in 1870 by Rockefeller) was ruthless and predatory was obvious to all…”
  • “…its success stimulated exploration for and discovery of oil in various parts of the US and, later, abroad…”
  • “In its first big phase of expansion Rockefeller’s company was able to reduce the retail price of kerosene, used by every household in the US, by 70%.”
  • “But whether the total impact of Rockefeller’s Standard Oil ran against the public interest is doubtful. The rapid fall in oil prices, first in domestic oils, then in gasoline for transport, was largely its doing.”

I guess nobody likes BIG OIL and nobody ever has. My take away from all the comments in the book about Standard Oil is that for its competitors and potential competitors it was “ruthless and predatory” in the processes of driving down costs through innovation and economies of scale and gaining market share and thereby empowering the American citizens and small businesses that would thankfully use its products even as they gossiped about its aggressive business practices. That seems fine to me. We Americans are mostly suspicious of big business and big government, and we don’t, or at least didn’t, want either to operate free of restraint.

Some historians demonize Rockefeller and other industrialists and business people of that era as “Robber Barons” who exploited others and piled up riches to the detriment of the citizens. Johnson’s book takes a different slant, offering generally positive judgments, and of course, beyond the names and dates and official documents, all history is slanted some way, at the very least in the choices of stories to tell. At least Johnson warns us up front that, “I do not seek, as some historians do, to conceal my opinions. They are there for all to see and to take account of or discount.”  Well and lesser known accounts included in Johnson’s industrialization narrative are of:

  • Invention of a new low-cost barbed wire design that eventually enabled development of the American beef industry.
  • Invention of reapers, binders, and other farm equipment that enabled grain production to increase from 5.6 to 92 bushels an acre.
  • How the Deere family made a fortune in farm equipment.
  •  How the Armour family made a fortune in meat packing.
  •  How Thomas Lynch made a fortune as a distiller.
  •  How Busch made a fortune brewing beer.
  •  How Pillsbury made a fortune in wheat.

…all while enabling us to wine and dine ourselves with continually decreasing effort and declining prices.

Johnson wonders, “All these men made fortunes in a highly competitive world, and all made impressive contributions to the transformation of farming lives and consumer budgets. Where was the robbing?

But the real wealth and the truly infamous “Robber Barons” came later. Vanderbilt (blogged about here), Fisk, and Gould made fortunes driving down the cost of railroad freight from $0.20 per ton-mile to less than $0.02 per ton-mile and then, for the most part, gave their money away or spent it on lasting American icons shared by all. In the case of much of Gould’s fortune going to the National Trust for Historic Preservation, Johnson writes: “Thus as so often happens in American history, the public were the ultimate beneficiaries of a hard man’s graft…

And there was Andrew Carnegie who understood thrift and technology and hard work, who lived in a slum working for $1.50 a week as a child, who saved and invested his money, and who finally essentially owned the steel industry in America. He drove the price of steel rails down from $160 a ton to $17 a ton thus benefiting every aspect of the national economy. I love the way Johnson tells Carnegie’s story, how he was demonized as “the greediest little gentleman that God ever created,” and how he gave away his fortune, financing such as 2,811 public library buildings and 7,689 church organs.

Johnson also tells of J.P Morgan who essentially was the Federal Reserve before there was a Federal Reserve, the development of New York and Chicago, the creativity and genius of Edison and Tiffany, and the grocery and retailing revolutions brought about by Sears Roebuck (Sewing machines cut from $16 to $3) and The Great Atlantic and Pacific Tea Company that, through a strategy of price cutting and backwards integration grew from 200 stores in 1900 to more than 15,000 by 1936, bringing lower priced groceries to millions. I bet Sam Walton read their story carefully.

And there was Henry Ford who relentlessly drove down the price of his Model T from $850 to $360 while increasing wages from $11 a week to $40 a week, thereby enabling his employees to buy the cars they made. At the height of his success, Ford was the richest man on earth. And now the Ford Foundation, with assets around $10B, gives away a half billion or so every year to a variety of causes, many of which would probably cause Henry Ford great discomfort.

Here is Johnson’s conclusion about the generally accepted hostile view of the Robber Barons of The Gilded Age: “…this hostile view is not borne out by the facts, which display a panorama of general progress in which all classes shared and in which all intellectual and cultural interests were abundantly displayed – a panorama, indeed, highlighted by the emergence of quintessentially American geniuses.

And, of course the revolution has continued with such as Jobs/Apple, Gates/Microsoft, Groves/Intel, Walton/Wal-Mart, Dell/Dell, Smith/FedEx, Etc. Now what?  I’m thinking that Eisenhower, when he warned us about the military-industrial complex, should also have pointed out the danger inherent in government-business and especially government-health care complexes.

It seems to me that Johnson’s book would make a great high school American History textbook. At least he is honest in expressing his opinions openly rather than just presenting them as facts. In one online history textbook, Digital History, the description of the same period of time is totally about the labor movement response to industrialization and little or nothing about the benefits of industrialization or the people who led it.  The only biographies offered are of Eugene Debs, Emma Goldman, and Mother Jones.

There is one problem with Johnson’s book that will probably rule it out for classroom use. In his words, he has “not bowed to current academic nostrums about nomenclature or accepted the flyblown phylacteries of political correctness.”  To him, we are “all Americans, thrown together by fate in that swirling maelstrom of history which has produced the most remarkable people the world has ever seen.”

That is refreshing!

First Published May 17, 2011.

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