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The battle then shifted to the New York State legislature in Albany, where each side battled to bribe lawmakers. When Fisk won over Boss Tweed, who was elected to the Erie board of directors, the balance of power shifted to the Erie group. Defeated, Vanderbilt dropped charges against Drew, Fisk, and Gould, in return for being paid by Erie for half of the shares he had bought. Vanderbilt said that the incident “has learned me it never pays to kick a skunk.”
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Fisk and Gould went on to attempt to manipulate the gold market in 1869, with a scheme that implicated Abel Corwin, the brother-in-law of President Ulysses S. Grant. After being ejected as president of Erie in 1872, Gould captured the Union Pacific, assembled a railroad empire in the Southwest and West, took over Western Union for a time, and bought the
New York World
, which he sold to Joseph Pulitzer. He died at fifty-five in 1892. Fisk had died earlier, in 1872, at the age of thirty-six, shot by a former business partner who had taken up with his estranged mistress. He was memorialized in a folk song:

We all know he loved both women and wine

But his heart it was right, I am sure.

Though he lived like a prince in a palace so fine,

Yet he never went back on the poor.

If a man was in trouble, Fisk helped him along

To drive the grim wolf from the door.

He strove to do right, though he may have done wrong,

But he never went back on the poor.
¹⁹

THE RISE OF WESTERN UNION

By creating a truly national market in a continental area, the railroads allowed other industries to reap the benefits of economies of scale. The first national industry to grow up along the railroads in the new national market they created was the telegraph industry.

Even though Congress had funded Samuel F. B. Morse’s successful development of the telegraph, it refused his offer to sell the rights to the device to the federal government. In Britain, the government nationalized the telegraph system by the end of the nineteenth century. But in the United States, the telegraph industry, like the railroad system, was developed by private enterprise.

The telegraph and railroad industries grew up together, as telegraph companies helped railroads coordinate schedules and took advantage of railroad rights-of-way. The telegraph industry was similar to the railroad industry in the importance of fixed costs, and network effects, which made it a natural monopoly or oligopoly. Just as the railroad companies experimented with pools and cartels, so the six largest telegraph companies created a pooling arrangement called the Treaty of the Six Nations to coordinate competition, regulate prices, and exclude new entrants. Like informal pools and cartels in the railroad industry and other areas, this attempt failed because of the lack of effective sanctions on defectors. As an alternative, the three largest telegraph companies merged to form a single company named Western Union in 1855. Western Union built the first transcontinental telegraph in 1861 and by 1886, after it absorbed the Baltimore and Ohio Telegraph Company, Western Union’s control of the telegraph industry was complete.
²⁰

In return for transmission of federal messages, the telegraph companies were given subsidies by the Pacific Telegraph Act of 1860. During the Civil War, the federal government took over and operated the telegraph system, and during the war it built thousands of miles of new lines. After the war the federal government gave them to the telegraph companies.

“EVERYTHING BUT THE SQUEAL”

Other industries expanded and adopted innovative reorganizations to take advantage of the continental markets created by the railroads. Many of the “tycoons” of the late nineteenth century made their fortunes during the Civil War.

Philip Armour was one. Plankton, Armour & Co., the firm that he founded with his partner John Plankton, became a major supplier of salt pork for the Union armies. Following the war, Armour moved his headquarters to Chicago, the center of the meatpacking industry, in order to be near the Union Stockyards, formed by a consortium of nine railroad companies. Armour pioneered innovations like the use of conveyor belts, airtight tin cans, and the slaughter and dressing of live animals at his meat-processing plants. He obtained lower rates from the railroad by operating his own rail cars. In 1874, Gustavus Swift’s development of refrigerator cars expanded the business further, enabling the sale of meat at all seasons to customers in the United States and Europe. Armour recycled the offal of the slaughterhouses as glue, drugs, and other products, using “everything but the squeal,” as he explained. Armour declared: “I like to turn bristles, blood, and the inside and outside of pigs and bullocks into great revenue.”
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JOHN D. ROCKEFELLER AND THE RISE OF STANDARD OIL

Another American tycoon who owed his fortune to skillful exploitation of the commercial possibilities created by the railroads was John D. Rockefeller. The son of a scandalous patent-medicine salesman and bigamist, the devoutly pious and disciplined Rockefeller paid to be replaced by a substitute in the Civil War, and while other Americans his age, including his brother Frank, were fighting for the Union, he was making money. His confidence-man father had included “rock oil” in the patent medicines that he sold. The son found a better use for the substance.

On August 28, 1859, near Titusville, Pennsylvania, Edwin Drake struck oil. Rigs quickly sprang up around what came to be known as Oil Creek. Kerosene lamps soon replaced whale oil and expensive coal oil for illumination, in homes, offices, and factories. Petroleum also provided lubricants for machinery. The outbreak of the Civil War ensured that government procurement would help the infant industry.

With two partners, whom he later bought out, Rockefeller founded a company in Cleveland in 1863 to refine oil. With his subsequent partner Henry Flagler, he flourished, thanks to ruthless cost cutting and determination to buy out his competitors or drive them out of business. In 1870, Standard Oil was founded. “The Standard Oil Company will someday refine all the oil,” a colleague heard him say.
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Following the conclusion of the war, Rockefeller secretly obtained discounts from rival railroads in return for his promises of large shipments. Then in the 1870s, he secretly connived with other big refiners and railroads to form a cartel, the South Improvement Company. When small producers learned about the cartel, the result was the “Oil War.” Following the collapse of the South Improvement Company, Rockefeller focused on expanding Standard Oil’s domination of the industry. He pioneered vertical integration, manufacturing railroad tanker cars, investing in pipelines, and buying up oil lands. By 1890, Standard was America’s largest producer of oil as well as its largest refiner. Rockefeller’s iron mines and fleet of ore boats, sold to J. P. Morgan, were the final ingredient of the United States Steel Corporation, which on its creation in 1901 surpassed Standard Oil as the largest corporation in the world. The development of electricity ended the age of kerosene lamps, but the new automobiles and aircraft needed gasoline, which had been treated as a useless by-product of the refining process. For a time Rockefeller was the richest man in the world. By 1904, Standard Oil controlled 85 percent of all sales and 90 percent of all US crude oil production. In 1911, the Supreme Court upheld an order to break Standard into more than two dozen companies, many of which, following multiple mergers, survive under different names today. For example, ExxonMobil, created in 1999, descends from two Rockefeller companies, Standard of New York (Socony), which merged with Vacuum Oil to become Mobil in 1966, and Esso, formerly Standard of New Jersey, which merged with Exxon in 1972.

“STEEL IS KING”

The railroads also made possible the success of the steelmaker Andrew Carnegie. Carnegie was born in a cottage in the Scottish town of Dumferline in 1835 into a family of weavers who worked in their home. When their business failed, they borrowed money from a neighbor and immigrated to Pennsylvania. While his father worked himself to an early grave and his mother took in washing, the teenage “Andra” worked at various jobs. His fortunes improved when an uncle helped him get a job with the Ohio Telegraph Company in Pittsburgh. By the age of fifteen, the messenger boy was a telegraph operator. In 1853, he joined the Pennsylvania Railroad as a clerk and secretary. Impressing Tom Scott, the president, Carnegie rose rapidly in rank.

By the age of twenty he was a capitalist, borrowing money to invest in the precursor to the Pullman railroad car company and oil land in Pennsylvania. At thirty he resigned from the Pennsylvania Railroad and invested in iron mills, selling iron from them to his own Keystone Bridge and Pittsburgh Locomotive Works. In 1868, he wrote a memorandum to himself: “Thirty three and an income of $50,000 per annum! Beyond this never earn—make no effort to increase fortune, but spend the surplus each year for benevolent purposes. . . . Amassing of wealth is one of the worst species of idolatry. . . . I will resign business at thirty-five.”
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Carnegie, however, postponed his resignation from moneymaking. He gained control of the Edgar Thomson Steel Company and obtained the Mesabi iron ore lands along Lake Superior from John D. Rockefeller. A good judge of talent, Carnegie picked a Welsh immigrant, Captain William R. Jones, whom he paid the equivalent of the salary of the president of the United States. After Jones was killed when a vat of molten steel exploded, Carnegie replaced him with a young man named Charles Schwab.

Skeptical at first about the Bessemer process that rapidly turned iron into steel, Carnegie was converted, declaring, “The day of Iron has passed—Steel is King!” The tariff of 1870, imposed as Bessemer mills in America lowered steel costs, helped to strengthen the US steel industry against British competition. Even in the depressed years of the 1870s, the steel industry grew at 10 to 20 percent a year.
²⁴
An absentee taskmaster, Carnegie bombarded his subordinates with notes urging them to cut costs from his Pittsburgh mansion, his New York office, and the Scottish castle he bought at Skibo.

One partner said: “Carnegie never wanted to know the profits. He always wanted to know the cost.” By 1890, Carnegie was the victor in the iron and steel wars, producing a quarter of American steel. He wrote: “Two pounds of iron stone mined upon Lake Superior and transported nine hundred miles to Pittsburgh; one pound and one-half of coal mined and manufactured into coke, and transported to Pittsburgh; a small amount of manganese ore mined in Virginia and brought to Pittsburgh—and these four pounds of materials manufactured into one pound of steel, for which the consumer pays one cent.”
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RAIL AND RETAIL

In distribution, as well as in production, the railroads created a national market that could be exploited by national firms. One was Sears, Roebuck.

In 1886, the railroads agreed to establish four time zones in the United States. The new precision of schedules led many passengers to rely on watches. In 1886, a railway agent at Redwood Falls, Minnesota, bought a shipment of watches after a local merchant refused them for fifty dollars and sold them to other railway employees and railroad passengers for five thousand dollars. Richard Warren Sears put the five thousand dollars in the R. W. Sears Watch Company and moved its headquarters from Minnesota to Chicago.

Needing a watch repairman, Sears brought on Alvah Curtis Roebuck from Indiana as a partner. In the 1890s, their mail-order catalog grew from one limited to watches and jewelry to a five-hundred-page compendium. When Roebuck retired, he sold his stake to two Chicago businessmen, Julius Rosenwald and his brother-in-law Aaron Nusbaum. Rosenwald took over Sears, Roebuck when Sears retired in 1908. The catalogs of Sears, Roebuck and Montgomery Ward became familiar fixtures in American homes. Legend has it that one child in a Sunday school class, when asked where the Ten Commandments came from, replied, “From the Sears, Roebuck catalog.”
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YELLOW JOURNALISM AND PULP FICTION

American publishing was another industry that was transformed by combinations of steam-engine technology and telegraphy in the half century that followed the Civil War. The formation of a national market made possible the first versions of the mass media.

In 1810, Friedrich Koenig, a German inventor living in Britain, patented the first steam press. A New York inventor named Richard Hoe improved upon it in 1843, creating a steam-powered rotary press with cylinders through which papers were fed. The steam press lowered the costs of printing dramatically. The beneficiaries included publishers of “dime novels” and inexpensive magazines, which, because they were printed on cheap paper pulp, came to be known as “pulp fiction” and “pulp magazines.” Low printing costs also led to the growth of mass-circulation newspapers that working-class readers could afford. The most important of these were Joseph Pulitzer’s
New York World
and William Randolph Hearst’s
New York Journal
. Their use of lurid headlines for sensational crimes and scandals inspired the dignified editor of the
New York Press
, Ervin Wardman, to dismiss them as “yellow kid journalism,” after the Yellow Kid, a popular comic strip character created for Pulitzer by Richard Felton Outcault.

PANICS

The enlarged national and global markets made possible by the railroad, the steamship, and the telegraph made tremendous improvements in productivity possible. But the damage done by financial contagion and business cycles was worse in larger, more integrated industrial markets. Some historians speak of a long depression between the 1870s and the 1890s, punctuated by major and minor panics.

On the evening of September 17, 1873, Jay Cooke received a guest at his two-hundred-acre estate outside Philadelphia, President Ulysses S. Grant. With five hundred other elite guests, Grant had attended the housewarming party of Cooke’s fifty-two-room mansion on its completion in 1865. The house, which Justice Salmon P. Chase called “Cooke’s Castle,” was named Ogontz after a local Sandusky Indian chief, who was immortalized in a bas-relief in the stairwell; other Indians were portrayed in stained glass windows.
²⁷
The grounds included Italianate gardens with statues and fountains and the ruins of a castle imported from Europe.