Persecuted Pioneers: The Power Struggle Between Big Business
and Big Government
by Patricia Speer
Featured in the November
issue of Rationale
Picture yourself as an industrialist in the United States around the turn of the century: laissez-faire capitalism existed in this pre-socialistic environment, there was no income tax, and great opportunities for progressive growth and tremendous advances in technology were springing up more frequently than Rockefeller’s oil derricks.
Why was the industrialist drug down a road of regulation and restraints? What moved the mob of oppressive politicians to assert their authority over individuals who provided the country’s fuel, food, and transportation? One answer, one word, one reason: power.
In the mid 1800’s, a breed of men were born, and bred themselves to become the most powerful league of businessmen the world had ever seen: J.P. Morgan, John D. Rockefeller, Andrew Carnegie, Henry Ford, James J. Hill, and E.H. Harriman to name a few.
Each had their own interest whether it was steel, oil, the railroad; and each struggled to be innovative and inventive to develop greater technology and greater means to provide for a nation of demands. In exchange for their innovation and the development of new technology, these men were rewarded financially by becoming some of the richest the world had ever seen. And most importantly, they deserved every dollar!
How can we persecute the men who conceived light where there was none; created new forms of transportation to transport goods to distant locations at a quicker rate; produced the steel to make railroad cars which transported the goods, and thought of more efficient ways to manufacture and cultivate the goods themselves: cotton, sugar, oil, aluminum, coal, and whiskey.
What separated these men
from others was their ability to organize. They used their minds
to figure out better ways to do things. They used their minds to
devise ways to utilize our natural resources to increase our standard of
living.
Eli Whitney, famous for
the cotton gin, also devised a method of mass production. This meant
the difference between inefficiency and efficiency in the production of
goods. He believed things could be done easier, better,
faster, and by anyone. He believed in "using the skill of the machine
instead of the skill of the worker" and hence discovered a way to mass
produce products. Mass production provided the means to produce a
greater number of things at a lesser cost. In effect, more people
could afford goods that were mass produced. Nearly everyone benefited
from this invention. The businessman, because of the increased productivity
of his employee, the greater number of goods being produced, and
the number of people who could afford to buy the goods. The consumer
certainly benefited for now he was able to afford things that made his
life easier that otherwise he would not have. The worker certainly
profited for his wages became dependent upon his productivity. Now,
he could earn much more based on how much he could produce.
This astonishing new invention
gave birth to our current standard of living. At one time, the U.S.
was producing and consuming more than any other country in the world.
Almost everything could and would be mass produced.
The industrial revolution facilitated a transportation revolution.
Suddenly the vast number of goods being mass produced needed to be shipped,
hauled, and delivered to consumers. The same technology that powered
factories was applied to locomotives and boats: steam. This
new technology made it possible to ship goods across the country in a reasonable
amount of time.
In 1812 it took 75 days for a fully loaded wagon pulled by four horses to travel 1,000 miles. The tracks for the first transcontinental railroad in 1869 made it possible for goods to travel from ocean to ocean in one week! That’s four times the distance in one tenth of the time.
The economic boom in the United States was heard around the world. America became rightfully known as "The last best hope on Earth." In the 1820’s the U.S. would welcome 500,000 immigrants to its shores. In the 1830’s and 40’s that number would reach 2.5 million, and in the 1850’s alone, 2.7 million people emigrated to the U.S.
Rockefeller was the country’s
first pioneer of big business: he didn't invent things, he organized
them. In 1865 he bought his first oil refinery. The oil was
made into kerosene for lighting and also refined for lubricating machinery
parts and gears.
He became so successful, that he was able to railroad the railroad
industry by exploiting the two companies that ran through Cleveland and
transported thousands of barrels of oil for him. He demanded each
offer cheaper and cheaper rates to ship his ever expanding business or
he would only use one of the companies. He basically played one company
off the other. Ultimately, Rockefeller’s use for shipping sharply
decreased. He hired engineers to develop pipelines to replace
barrels in order to transport the oil more efficiently.
Rockefeller’s power became stronger and his business bigger with each company he forced out of the oil industry. He persuaded several men to sell their businesses, often at prices less than what they were worth and threatened their ultimate demise if they did not. He was as shrewd as his oil was crude.
Standard Oil became a global enterprise and included even China. He sold millions of lamps and the oil to fill them. Between 1865-1900 Rockefeller exported over half the lamps he sold. He truly lit up the world.
Of course, Rockefeller was
not the only one achieving such success. The government was paying
close attention to all this growth and it quickly became clear the corporations
were becoming more and more powerful as each year passed. A nation
founded on freedom found itself helplessly at the mercy of a mob
who wanted to oversee the distribution of wealth.
The government began implementing regulations sacrificing the purity
of capitalism for the "common good." The government observed the
power and profits Rockefeller, Morgan, Carnegie, and others attained and
sought to assert its own power by criminalizing capitalism.
On July 2, 1890, congress
handed the government a pistol by passing the Sherman Antitrust Law; and
in 1914 handed it an M-16 by passing the Clayton Antitrust laws.
The Sherman Antitrust Law stated, "Every contract, combination in the form of trust or otherwise, or conspiracy , in restraint of trade or commerce among the several states or with foreign nations, is hereby declared illegal." The government created the Antitrust laws to counter big business’s attempt to get around what was considered conspiracy and monopolistic dealings. Conspiracy was declared when companies got together and set prices-no-compete prices to be specific. John D. Rockefeller and some other major figures in business at the time borrowed an idea from the English-a clever way to limit competition by forming "trusts".
In England, businesses would create a "trust" for charities. "Trustees" set aside money and invested it to give to the poor and needy. Rockefeller saw this not as a way to give to the needy but to seemingly divide his holdings and set up separate business firms. Dividing a company like Standard Oil would avoid any laws against conspiracy or monopolistic dealings. The appointed trustees would control the companies in trust while the original owners who held trust certificates received the profits.
This ploy was effective for
many years and enabled companies to combine, limit competition, and increase
profits.
The language of the Antitrust Law was vague and without government
enforcement was ineffective at stopping powerful corporations from partaking
in such dealings. However, that all changed when Theodore Roosevelt
came into office.
Roosevelt settled a landmark truce between Philadelphia and Reading
Coal and Iron Company and John Mitchell’s strikers that proved the government
was not impotent to influence big business. This event apparently
gave Roosevelt a taste for blood, and not the blood of big game animals
he hunted in Africa, but the blood of big business.
His intrusion into the events of the Philadelphia strike was the beginning of his regulatory reign of terror over big business. Roosevelt would relish the destruction of Northern Securities Company and teaching big business a lesson once and for all by renewing the Sherman Antitrust Act.
Northern Securities Company was a corporation set up to hold controlling interests of other companies. The company was formed by railroad builder James J. Hill of the Great Northern, the Rockefellers, J.P. Morgan, and E.H. Harriman of Union Pacific to control four major railroads of the Northwest.
In 1904 the Supreme Court ruled 5 to 4 deciding the formation of the National Securities Company was a violation of the Sherman Antitrust Act and required its immediate dissolution.
After this victory, Roosevelt set his attention to destroying the beef trust, the oil trust, and the tobacco trust. His belief was that there were "good" and "bad" trusts. The "bad" trusts sought to eliminate competition by forming monopolies over a product or service and the "good" trusts were simply beating the competition through fair means-lower prices, better products, or better management.
Roosevelt went so far as creating a new addition to his Cabinet by establishing the Department of Commerce and Labor. Within that department, formed a Bureau of Corporations to judge which trusts were good and which were bad. The President declared "the government must be senior partner in every business".
Big Business realized defeat again in Woodrow Wilson’s administration with the inception of the Clayton Antitrust Act of 1914. Its aim was "to supplement existing laws against unlawful restraints and monopolies". The Clayton Antitrust Act prohibited a company from taking over the stock of another company if it created a monopoly; it forbade anyone from being a director of operations of more than two corporations when the effect was to lessen competition; and exempted labor and farm groups from prosecution as combinations in restraint of trade. This last issue was later overturned by the Supreme Court.
Under recommendation from a Boston lawyer Louis D. Brandeis, Wilson established the Federal Trade Commission in September of 1914. This committed the government to the regulation of business. The commission consisted of 5 experts in different fields of industry who drew up a list of "fair trade" rules and proceeded to regulate corporations. When the FTC found companies engaging in a practice that was unfair or in restraint of trade, it issued a "cease and desist" order. If the company disobeyed, its punishment was steep fines to persuade better behavior.
The main purpose of the FTC is to "help" individual businesses obey the law: call it what they will, it is evil. This "help" has hindered many businessmen, but on another level it breathed life into those who created and perpetuate organized crime. Prohibition necessitates a black market whose nature must be underhanded and criminal.
The United States has undergone tremendous economic regulation in the not-so-distant past, however it continues to contaminate our country. Today, we find Bill Gates financially strung up and quartered. MicroSoft Corporation is being fined a million dollars a day for conspiracy to monopolize the market with a microchip required to be in every computer with the MicroSoft Windows system. So how does someone such as Bill Gates exist in an economic environment that damns him? He pays million dollar a day fine and curses Janet Reno along with all of her socialistic predecessors, but continues to forge forward.
Even in an economic environment where capitalism is restrained by a bastion of bureaucracy, big business manages to survive and flourish. The essence of survival is courage, strength, and endurance. One cannot be held down by impotence.