THE CONSOLIDATION OF BUSINESSES

John D. Rockefeller made millions through Standard Oil, as did Andrew Carnegie through U.S. Steel. During this period these businessmen and others attempted to further control the industries in which they were invested. Many of these schemes did allow the rich to get richer, with little or no benefit to those working under them.

Some of these organizational schemes were quickly squashed by governmental intervention. Influential stockholders of companies of the same industry would sometimes agree to limit production, set prices, and even share profits. This type of activity was outlawed in 1887 by the Interstate Commerce Act. This bill was passed with the intent of regulating the railroads, but it generally was not enforced. The commission in charge of enforcement was made of former railroad executives and others who favored the interests of the railroads.

Another popular method of business organization was the creation of trusts, an organizational technique perfected by John D. Rockefeller and Standard Oil. At the time, state laws prohibited one corporation from holding stock in another. However, it was legal to create a trust, by which stockholders in a smaller oil company could be “persuaded” to give control of their shares in that company “in trust” to the board of trustees of Standard Oil. Using this technique, Standard Oil established a horizontal integration of the oil industry in the early 1880s, meaning that the board of trustees of Standard Oil also controlled many other oil- producing companies.

Standard Oil expanded in the late 1880s even further by becoming a holding company. In 1888 New Jersey passed new legislation allowing businesses incorporated there to own stock in other corporations. Standard Oil stockholders began to buy up shares in other companies as well; under the regulations for a holding company, management of various companies could be joint as well. Standard Oil stockholders became the majority holders in other oil companies, allowing Standard Oil management to run these companies also. By the early 1890s Standard Oil had merged 43 oil-producing companies together under their control and produced nearly 90 percent of all oil in America. Standard Oil also achieved vertical integration when the company not only moved to control production hut also the marketing and distribution of the finished product. Similar examples of vertical integration were found in many other companies (Gustavus Swift exhibited similar control over the meat-processing industry). Carnegie’s steel operation is often cited as the best example of vertical integration in this era.

Those at the very top of the economic pinnacle were able to rationalize their incredible economic successes. American social philosopher William Graham Sumner wrote in this period about Social Darwinism, which proclaimed that God had granted power and wealth to those that most deserved it. Relievers in Social Darwinism could thus justify any scheme that could bring more money to the Rockefellers and the Carnegies of America, since God had wanted them to have that economic power. Carnegie spoke and wrote about the “Gospel of Wealth.” According to this theory, the major role of America’s industrialists was to act as the “guardians” of the wealth of America (and not to give this wealth out in the form of higher wages for the workers). Carnegie stated that is was the duty of the wealthy to return a large portion of their wealth to the community. To the credit of both Rockefeller and Carnegie, foundations they established have contributed over $650 million to various educational and artistic ventures since the time of their deaths. Observers with a less sympathetic view call the giants of business from this era “robber barons.”