Monday, September 1, 2014

When the Two Richest Americans (Ever) Met

"When Commodore Vanderbilt began the world he had nothing, and there were no steamboats or railroads."

So begins one of the seminal pieces of business journalism, Henry Demarest Lloyd's Story of a Great Monopoly, published by "The Atlantic" in 1881.  "When he died," Demarest continued, "railroads had become the greatest force in modern industry, and Vanderbilt was the richest man in Europe or America, and the largest owner of railroads in the world.  He used the finest business brain of his day and the franchise of the state to build up a kingdom within the republic."

In 2007 the New York Times published a graphic showing the thirty or so wealthiest Americans, their accumulated riches measured as a percentage of the economy.  On the Times list, Vanderbilt is shown as the second richest American ever, topped only by one John D. Rockefeller.

Vanderbilt began work-life in the rough-and-tumble world of the Staten Island waterfront, was among the first to invest in steamships, and later assembled a railroad so large and menacing that it was capable of shutting down not just its competitors but the entire city of New York.  The Commodore was a bare-knuckled opponent and one mean cuss, forcing his wife for a time into a sanitarium because she objected to his peccadilloes.  This was indeed a guy who took no prisoners.

On the other hand, Demarest wrote, Rockefeller began as "a bookkeeper in some interior town in Ohio, and afterwards made a few thousand dollars by keeping a flour store in Cleveland."  In the early years of the Civil War, he partnered with Samuel Andrews, a day laborer who had devised a more efficient way to refine kerosene.  "Andrews' still and Rockefeller's savings," Demarest wrote, "have grown into the Standard Oil Company."

If Vanderbilt's railroad was enormous, Standard Oil was an octopus--which, thanks to Demarest, would become one of the most powerful and recurring images in business literature; one historian noted it "stuck to Standard. . .like the barnacles to the hulls of a tanker."  Taken together, the two enterprises were formidable.  Demarest noted that "current gossip among his business acquaintances in Cleveland" put Rockefeller's income "at a figure second only, if second at all to that of Vanderbilt."  Of one thing Demarest was sure: Standard Oil killed its rivals by getting the great railroad trunk lines to refuse to transport their product.

In other words, the two richest men in the country (and in American history) were in cahoots, reinforcing one another's monopoly and making each other ever richer.  Meanwhile, the courts and state governments looked the other way, themselves probably getting rich from payoffs.  Demarest's single best line in Monopoly was his conclusion that "the Standard has done everything with the Pennsylvania legislature except refine it."

Written 20 years before Ida Tarbell's more famous take-down of Standard Oil, Monopoly is believed by many historians to be the earliest example of professional muckraking, an expose that began to change America's relationship with Big Business.  Seven years after Monopoly came the Interstate Commerce Act, and two years later the Sherman Antitrust Act.  John D. Rockefeller's hostility to Lloyd, a wealthy lawyer turned financial journalist, was immediate and everlasting.

Demarest's catalog of sins--both railroad and oil--was long, detailed and shocking.  "Hundreds and thousands of men have been ruined by these acts of the Standard and the railroads," he wrote.  "Whole communities have been rendered desperate, and the peace of Pennsylvania imperiled more than once."  And not just Pennsylvania: the B&O Railroad strike in 1877 led to a national panic, with the governors of ten states calling out troops, the President issuing two national proclamations and calling soldiers back from the frontier, armed guards placed around Washington, D.C., French Revolution-style barricades thrown up in the streets of Baltimore, and 6,000 men patrolling the streets of Philadelphia. Stores and homes were burned in Pittsburgh.  Citizens were killed from Buffalo to Chicago to San Francisco.  "These were days of greater bloodshed, more actual suffering, and wider alarm in the North than that part of the country experienced at any time during the civil war," Demarest wrote, "except when Lee invaded Pennsylvania."

What Demarest also chronicled, though he could not have known it at the time, was the changing of the guard from old wealth to new wealth, and from the technology that moved the 19th century to the fuel that powered the 20th.

"Commodore Vanderbilt is reported to have said that there was but one man--Rockefeller--who could
dictate to him.  Whether or not Vanderbilt said it, Rockefeller did it."  That was the day Hank Aaron topped Babe Ruth, the day the meek bookkeeper from Ohio caught the brawler from Staten Island.

It's funny, but in today's world where monopolies reside quietly in virtual worlds, the two richest men in America trade books and share a fondness for playing bridge.  More than that, they like to encourage one another and their billionaire pals to give away wealth.  It sure beats arm-wrestling for better rates moving refined oil around on rail cars.

And how did Rockefeller feel in his dotage, after a long life of pillage that made him America's first billionaire?  He confided "how often I had not an unbroken night's sleep, worrying about how it was all coming out. All the fortune I made has not served to compensate for the anxiety of that period."

Demarest's Monopoly is an excellent reminder of what happens when good people look the other way while bad things happen.  It's a demonstration of what a healthy Fourth (and now Fifth) Estate can mean to healthy capitalism.  It's an indication (on this Labor Day) of what happens when Labor is excluded from the essential commercial equation.  And--at least in John D. Rockefeller's life--it's is a poignant reminder that being first is not just about how much you make, but about how you make how much you make that matters.