The Mckinley Era Mega-merger

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Once again it’s merger-mania time in the United States as a new century draws nigh. Headlines proclaim the impending or actual union of Capital Cities/ABC and Disney; of Turner and Time Warner; of Chase and Chemical; of USAir and United—or perhaps American. Others doubtless wait in the wings. As the consolidators line up to woo the stockholders’ votes, I find myself looking for explanatory perspectives. The words that leap to mind are: “So what’s new?”

Corporate concentration was at least as much a part of the business scene a century ago, and despite the antitrust fervor that flourished alongside it, The New York Times could announce on New Year’s Day of 1900 that after a decade of continued trust building “the era of consolidation was on all sides proclaimed as present and as full of blessings.” Almost exactly a year after that, the deal was struck that gave birth to the United States Steel Corporation, the first billion-dollar consolidation in our history. U.S. Steel went on to become a foundation stone of American industrial power. So did other consolidations, despite still another legislative “guarantee” of free competition, the Clayton Antitrust Act of 1914.

I like to recall the story of that prophetic turn-of-the-century steel merger because it involves two of the livelier individuals in the annals of American capitalism and because it harks back to the days when the principal business of the United States was manufacturing durable goods rather than providing informational and financial services. Life had hardships now too easily forgotten, but there were plenty of jobs for people without diplomas, and plenty of men who created those jobs, such as Andrew Carnegie and John Pierpont Morgan.

One has to begin with steel’s rock-bottom importance. From the 1859 introduction of the Bessemer converter, tough and flexible steel became the core element in the American rush to industrialism. Steel for the hundreds of thousands of miles of new railroad construction; for the skyscrapers of the booming cities; for the armor plating of the ships of the modern navy; for canned goods and streetcars and the machine tools that made the machines that spun the yarn and ground the wheat and sawed the planks and drilled for the oil and moved the coal that provided the power that went into the wealth that factories built.

In the 1890s the king of steelmakers was Andrew Carnegie, a Scottish immigrant child who began working in a Pennsylvania textile mill for $1.20 a week, then climbed his way upward to telegraph delivery boy, then telegrapher, next private telegrapher and secretary to the president of the Pennsylvania Railroad. Steady saving and prudent investment had made him affluent by his thirty-fifth birthday in 1870. Soon afterward he put all his eggs into a single basket—steelmaking—and by then watching the basket (his own phrase), he turned them into more gold. By timely purchases to integrate steps in the process, technical innovations, shrewd pricing, good choices of managers, and ebullient salesmanship he drove down all his costs—including wages—and had his Carnegie Steel Company sitting atop the industry by 1899.

This was not enough for Carnegie, whose family included voracious readers and working-class radicals. It became his fancy, then, to be something special—a thinking man’s capitalist. At one time he planned to quit moneymaking in his mid-thirties and retire to a life of self-education and philanthropy in Great Britain and the United States. He missed that target by thirty years, but in his sixties he was a respected friend of influential intellectuals in both nations. He had written Triumphant Democracy , a boosterlike paean to American institutions, and was also the author of a so-called gospel of wealth, which argued that self-made rich men deserved their winnings but had an evolutionary duty to plow them back into improving society through gifts to educational and character-building institutions. In that way they became nature’s chosen agents of inevitable progress.

Morgan was something else altogether. Unlike Carnegie, he was born (in Connecticut in 1837) to silver teething rings and private tutors. His banker father educated him abroad and brought him, aged twenty, into the family business. Young John took masterful advantage of ‘its international connections, plus his understanding of the new links between finance and industrial capitalism, to make the “house,” in forty years, the most feared and respected on Wall Street.

Morgan’s well-proclaimed Episcopalianism did not interfere with his enjoyment of his fortune, which he spent with the efflorescence of Renaissance princes. It is likely that he shared Carnegie’s then-fashionable social Darwinism, which held that those atop the economic heap were the naturally selected survivors in a competitive struggle for existence.