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article number 267
article date 09-05-2013
copyright 2013 by Author else SaltOfAmerica
Our View of Big Business and Government Control, 1946
by Eugene Barker, Henry Commager & Walter Webb

From the 1946 book, The Building of Our Nation.

EDITOR’S NOTE: Reviewing a history of our nations politics is the major purpose of our topic. Finding political tones in the writings is of added interest. How well do you think our authors avoid political bias in this 1946 High School text?

HOW “BIG BUSINESS” BEGAN. If we think back over some of the chapters we have read, we will see that we already know something about the conditions that helped bring about “big business.” The Machine Age and the Industrial Revolution brought new ways of making more products, and these had to be sold.

The development of modern transportation and communication, and the use of science and invention to improve conditions of American life brought a demand for more products, and these had to be made and sold.

Business had to grow in order to make and to sell the products of more factories, more farms, more laboratories. The growth of business could not be avoided.

HOW “BIG BUSINESS” GREW AND CAUSED DISCONTENT. The purpose of this chapter is to describe the rise of large-scale business. The War between the North and the South did much to start the rise of “big business” in the North. Factories were rushed to fill orders for clothing, guns, machinery, and equipment for the northern armies. After the war the growth of business continued, and new forms of business companies had to be created.

These new companies, called corporations and trusts, controlled enormous sums of money and were able to do business on a scale never before dreamed of. They had great powers for both good and evil. As time passed, it became evident that the government must pass laws, or regulations, to check the powers of the corporations and trusts and prevent them from injuring the people.

This chapter tells: (1) how the age of “big business” developed; (2) how corporations and trusts grew up and took over much of the business of the nation; (3) how the methods which “big business” sometimes employed caused discontent and protest among the people; and (4) how our government has tried to regulate business practices to prevent injury’ to the people.


1. The Age of Big Business

THE RISE OF BIG BUSINESS. The United States in 1860 was a nation of farmers, laborers, and small business men. There were a great many factories, but these were, for the most part, small factories, employing only a few workers, and owned and managed by a single family.

There were a great many banks, but these were, for the most part, small banks, doing only a local business.

There were a great many railroad and canal companies, but as yet there were no large railroad systems with lines crossing several states.

Business was conducted on a small scale, and each business man managed his affairs as he pleased. Most business men worked for themselves, not for others. Grocery stores, drugstores, carriage shops, bakery shops, were independent; that is, they were owned by a single person. They were not part of some nation-wide chain.

Even as early as 1900 this condition had changed. Business became “big business,” and big business grew bigger and more powerful all the time. Great corporations came into existence—that is, companies like the Standard Oil Company, the United States Steel Corporation, the New York Central Railroad, the International Harvester Company, and others.

In time, some of these great companies grew to be more powerful than the governments of American states. In one year, for example, the United States Steel Corporation employed over 200,000 workers—seven times as many as were employed by the state government of New York in the same year.


Beginning about 1900 the small independent store or shop was threatened by competition from chain stores and mail-order houses. That competition did not become serious until the 1920’s, but by the 1930’s independent grocery stores had lost about half their business to chain stores such as the Great Atlantic and Pacific Tea Company or the National Tea Company.

Tobacco shops gave way to chains like the United Cigar and the Schulte stores, and notion stores to chains like Woolworth and Kresge. Independent carriage shops changed into gas stations run by the great oil companies. Little dry-goods stores lost business to chain stores like Penny’s or to great mail-order houses like Montgomery Ward and Sears Roebuck.

Laws passed by many states in the 1920’s and 1930’s checked this chain-store development for the time being. In the 1930’s the outlook for the independent store improved. However, in industry and in business most workers, instead of setting up a shop or business for themselves or working for some small, independent owner, came to work for some large corporation.

The old-fashioned “general store” is an example of the independent business enterprises that were most common in America before the rise of “big business.” Courtesy Keystone View Co.
Giant mail-order houses are prepared to sell practically anything to any person in any part of the world. This scene shows the packages being billed before mailing. Courtesy Sears, Roebuck & Co.
The chain store idea was developed on a large scale by the five-and-ten-cent stores of which this is a typical example. Today many other kinds of stores are owned and managed as “chains.”
The big business enterprise of the city retail trade is the department store. This is a view of the main floor in a modern store during a normal Saturday afternoon shopping rush. Courtesy, Carson, Pirie, Scott Co.

WHAT CAUSED THE RISE OF BIG BUSINESS? The causes for this rise of big business are not hard to find. First in importance was the discovery of natural resources. Hard and soft coal were found in Pennsylvania, Alabama, and Colorado; iron ore in northern Michigan, northern Minnesota, and Alabama; oil in western Pennsylvania, Texas, Oklahoma, and California; and copper in Montana.

Many new fields of resources were discovered only in the years after the War between the North and the South. These abundant resources gave men the material from which to make products to sell, and big business grew.

The second factor, or cause, for the rise of big business was science and invention. We have already seen how important a role science and invention played in building up such great industries as the iron and steel, the oil, the rubber, and the electrical industries. What is true of these is true of almost all other industries. Imagine, for example, trying to build the modern automobile, with all of its hundreds of delicate parts, without the aid of science and of machines developed by inventors.

But it was not enough to have the natural resources and the machinery. It was necessary to have, in addition, enough money with which to build and run large plants, enough workers to man the machines, and finally the markets in which to sell what was made. These three factors, too, helped to develop big business.

Men with money to invest joined together and established a large company, called a corporation. That corporation then sold stock, or shares, to the public in order to get more money for manufacturing or for building. Many foreigners as well as our own people bought shares of stock and thereby became members of the company.

The labor supply, too, was ready at hand. We shall see how millions of immigrants poured into the United States in the years after the War between the North and the South. Most of these stayed in the towns and the industrial centers and went to work in the mills or the factories, in the mines or on the railroads. Business had no trouble in getting labor, and labor was, on the whole, cheap.


Finally, the United States grew so fast, so many people came here to live, that industry had little trouble selling all the goods it could make. And what could not be sold in the United States could be sold in other countries—in Europe, in Latin America, in China and Japan. Big business, as it developed in the twentieth century, reached out and touched nearly all parts of the world.

THE CIVIL WAR AND RECONSTRUCTION ENCOURAGE THE GROWTH OF BUSINESS IN THE NORTH. The growth of big companies began during the War between the North and the South. The needs of war put heavy burdens upon industry. It was necessary to manufacture shoes and clothing, arms and ammunition, for the soldiers. It was necessary to build railroads and ships and to extend telegraph wires. It was necessary to grow enough food to supply the armies.

All of this could not have been done without the use of machinery and of new invention . Thus the use of the McKay sewing machine made it possible to supply the armies with boots and shoes. The use of the McCormick reaper made it possible to raise and harvest enough wheat to feed the nation, and even to send wheat to England and Europe.

Then, too, the Civil War brought about enormous spending of money. Hundreds of millions, of dollars were borrowed by the Federal government and spent on supplies. Other hundreds of millions were raised later for the building of the transcontinental railroads. Still other hundreds of millions went into such new industries as the oil industry, the meat- packing industry, and the flour-milling industry.

Finally, the policy of the government was to encourage business, manufacturing, and banking, and laws were passed with this end in view.

At the same time new natural resources were discovered and used. It was in 1859, as we saw, that prospectors struck oil in western Pennsylvania. In the same year gold was discovered in Colorado, and for the next ten or twelve years new gold and silver mines were opened up throughout the West. During these years, too, the iron-ore fields of the Lake Superior region, in Minnesota, were used to supply ore for the manufacture of iron and steel.

Basics of modern industry: Transport, Ore, Coal and Lumber.

Nor was there any trouble about the labor supply. During the Civil War, machines took the place of the workers who had been called to the armies. After the war, hundreds of thousands of immigrants from Europe poured into the country and took jobs in the mines or the mills; thousands of soldiers took off their uniforms and put on overalls for work in the factories.

So, during these years of war and reconstruction, there was a tremendous industrial boom in the North. More factories were built, more miles of railroad were laid, more telegraph and cable lines were strung, more banks and insurance companies were established, than ever before in our history.

These were the years when men like Cornelius Vanderbilt and Cyrus McCormick and Cyrus Field laid the foundations for big business.

THE NEW SOUTH. The growth of business and industry in the South came later than it did in the North. The war had destroyed the factories of the South and had caused ruin and bankruptcy everywhere. It was many years before the South began to get back any of her former wealth.

But in the 1870’s Southerners began to build little cotton and tobacco and lumber mills, and the change of the South to a manufacturing country was under way. Soon the coal and iron mines of northern Alabama were discovered. Within a few years the South was manufacturing iron and steel, and Birmingham, Alabama, had become the “Pittsburgh of the South.”

: The steel industry is one of America’s biggest businesses. In times of prosperity smoke pours from its countless chimneys; in depression periods the furnaces are cold. Courtesy, Sarra, Inc.

It was entirely natural that Southerners should build their own factories and mills and manufacture their own products.

In the first place, the South was rich in raw material, in cotton and tobacco and pine wood, in coal and iron ore and oil. In the second place, the South had, in its mountains, wonderful resources of water power. Fast-flowing streams rushed down from the mountains to the sea. In the third place, the South had ready at hand a large body of laborers, the Negroes and the small farmers.

This South of textile mills and iron and steel furnaces, of furniture and of tobacco plants, is often called the New South. It is a New South in the sense that it is interested in manufacturing as well as farming.

A loom for weaving towels. In the great textile mills of the South cotton is spun and woven into many kinds of cloth. Courtesy, Cannon Mills, Inc.

THE UNITED STATES BECOMES THE FOREMOST INDUSTRIAL NATION IN THE WORLD. All through the last quarter of the nineteenth century the growth of business and of industry increased. By 1900 the United States had passed Great Britain in the manufacture of iron and steel; twenty-five years later American steel mills turned out six times as much steel as did those of Great Britain. The same thing happened in one industry after another.

By the time of World War I, the United States was without question the foremost industrial nation in the world. America produced more coal, more iron, more oil, more gas, than any other nation. Americans manufactured more machines, more farming tools, more cotton goods, more tobacco, than any other people.

American goods began to find their way everywhere in the world. Today, Englishmen ride in American automobiles, Russian farmers use American reapers and tractors, Chinese coolies wear American cotton clothes. American business has spread throughout the world.

2. Big Business Combines to Make Bigger Business

HOW BUSINESS COMBINED. The most common way by which small business grew into big business was by combination. That is, a number of manufacturers, all making the same thing, would combine to make one large company.

Thus, a number of manufacturers of iron and steel would come together and create one big steel company, like the United States Steel Corporation.

A number of manufacturers of farm machinery would come together and make one big farm-machinery company, like the International Harvester Company.


A number of producers of oil would come together and make one great oil company, like the Standard Oil Company.

There were many advantages in combination. The first advantage was that combination got rid of competition. Suppose, for example, that fifteen manufacturers all make rubber boots. The business of making and selling rubber boots is then divided up among fifteen different manufacturers, and each one scrambles as hard as he can to get the largest share of business.

Each one lowers his prices in order to get business away from, his rivals. The result is that none of the manufacturers makes very much money. But if they all combine into one big rubber company, they can control the sale of rubber boots everywhere in the country. They can fix their own prices. Competition is done away with, and profits rise.

At the same time, by combining, the manufacturers can often produce goods more cheaply and sell to the public more cheaply than small producers are able to. Thus there may be some advantage to the public in the forming of large companies.

For the last sixty years this process of combination has been going on steadily. It has been going on not only in manufacturing, but in railroads, shipping, telegraph and telephone companies, light and gas companies, in banking and insurance—in short, in every field of American business.

Trusts. These combinations in the field of business are called trusts. A trust is a company which holds in trust the stock of a large number of smaller companies. Thus when our rubber companies, for example, wished to combine, they established a trust company. Each one of the fifteen separate rubber companies turned over its stock to the new trust, and the trust acted as trustee for them all.

This is exactly what happened when, in 1892, fifteen different rubber companies came together and formed the United States Rubber Company, one of the first of the important trusts.

In time, people came to call all great combinations of industry or railroads or banks, trusts. They came to speak of the Standard Oil trust, the steel trust, the beef trust, the match trust, the leather trust, and so forth.

Let us examine the growth of some trusts in the fields of manufacturing, transportation, and banking.

COMBINATION IN MANUFACTURING. Large-scale combinations among manufacturers began in about the 1880’s. The Standard Oil trust, as we have seen, was formed in 1882, and it was followed shortly by the sugar trust, the tobacco trust, the rubber trust, the leather trust, and others of the same kind.

The great period of combination began just at the end of the nineteenth century, with the organization of such trusts as the United States Steel Corporation and the International Harvester Company. From that time to the present, combination has gone forward increasingly in every department of American manufacturing.


What has been the result of this process of combination? The answer is that many small businesses have been swallowed up or ruined by large corporations, because they could not carry on the work of a factory or store as cheaply and as well as could the corporations.

In time, a handful of corporations came to control most of the natural resources and most of the business of the country. A few examples will show this.

By 1936, eight companies owned and controlled four-fifths of the hard coal of the country. One company controlled over half of the iron ore of the country. Four companies controlled over half of the copper in the country. One company controlled almost all of the nickel in the whole world. Five companies controlled one-third of the production of oil in the country. Three large companies manufactured over nine-tenths of all the automobiles that were made.

In 1930 there were over 300,000 business corporations in the United States. The 200 largest did almost half of the business of the entire country. The rest of the business was divided up among the remaining 299,800 corporations.

COMBINATION IN RAILROADS AND COMMUNICATION. The same thing was going on among the railroads of the country. In the beginning there was a very large number of independent railroads. Many of these were unable to earn their expenses. Soon the stronger ones began to take over the weaker ones. A few great “railroad systems” came into existence.

Thus, the New York Central Railroad took over scores of smaller railroads to make the great New York Central system. By 1900 there were nine or ten great railroad systems, made up of hundreds of smaller roads that had lost their independence.

This was good for the public in some ways, because it increased efficiency, but it meant that a handful of men controlled the railroads of the nation.


What was true of railroads was equally true of such businesses of communication as the telephone; telegraph, radio, electricity, and moving pictures. These things which affected the life of every person in the country were controlled by a small group of great corporations.

One corporation, for example, the American Telephone and Telegraph Company, controls almost all of the telephone communication business in the country.

COMBINATION IN BANKING. Combination went on in banking as in industry and in railroads. One hundred years ago banks were small local affairs, and each banker usually knew all of his customers. But gradually the small banks were taken in by the larger and stronger banks which were located in the cities.

Chain banks, like chain stores, began to appear. Forty or fifty small-town banks would be controlled by one large bank in a big city. Great and powerful banking houses arose in Boston, New York, Chicago, San Francisco, and other cities, and these banking houses controlled billions of dollars.

In 1930 there were about 25,000 banks in the country, but 250 of them had half of all the bank money. Following the hard times that began in 1929 the number of banks steadily declined. By 1938 there were only about 15,000 in operation.


These great banking houses had enormous sums of money to invest. When they invested their money in an industry or an insurance company or a railroad, they could control that business. In time, the banks of the country came to control and even to own many of the largest businesses.

Banking houses like that of J. P. Morgan and Company in New York controlled hundreds of separate businesses and industries and railroads, with wealth running into tens of billions of dollars.

In 1912 Congress looked into the control of business and industry by a few great banks. The report of Congress showed that an enormous “money trust” had come into existence. After that time the power of the “money trust” grew rather than declined.

3. The Protest Against Big Business

HOW TRUSTS AFFECTED SOCIETY. In some respects, as we have already learned, society benefited by the growth of trusts. Trusts provided better management and, therefore, gave the public better service. It was, of course, more convenient to have one central telephone system in a town than to have three or four separate telephone companies, each having its own subscribers, its own telephones, and its own lines.

But along with these conveniences went many inconveniences. Before the trust movement had gone on very long, thoughtful men began to complain that it was harmful to society.

On what grounds did men object to trusts? In the first place, they objected to the control of the natural resources of the nation by a few men. They felt that it was dangerous to permit a few men to own or control the coal, the iron, the oil, the gas, the forests, the water power, of the nation.

In the second place, Americans came to fear the control of industry, of business, of transportation, and of banking by the directors of a small number of corporations. They felt that no man was wise enough or good enough to be trusted with absolute power over a dozen or a score of great businesses. They said that no man should have control over the railroads of ten or twenty states, or over banks scattered throughout the country.


When they read that a single banking house owned or controlled tens of thousands of miles of railroads, dozens of industries and of banks, they felt that that banking house was too large and too strong for the welfare of the country. Such control gave the bank power to injure as well as benefit the country.

In the third place, the growth of trusts hurt the small business man. The corner grocer could not hold his own against the chain store. The small cobbler could not compete with the great shoe companies. The local manufacturer of iron or steel was driven out of business and ruined by the great steel corporation. As a matter of fact, many of the trusts had waged war on small business men and had put many of them out of business, sometimes by using unfair methods.

How trusts affected labor. Labor, too, came to fear the growth of trusts. Laborers knew that it was much harder to bargain with a large corporation than it was to bargain with a small manufacturer or a local merchant.

The great corporation was rich enough and powerful enough to defy labor. It could afford to hire other men if the regular employees refused to work. It could even afford to shut down its plants and wait until laborers were ready to come back to work. Many of the great corporations were able to prevent their workers from joining labor unions.

HOW TRUSTS AFFECTED POLITICS. Finally, thoughtful men came to object to trusts because trusts had too much influence in politics. Great industrial and railroad corporations were able to contribute money to the campaign expenses of political parties and to demand favors of those parties. They were able to influence legislators and thus to influence the making of laws.

They were rich enough to keep their agents in the state capitals and even in the national capital. These agents would work for the kind of laws the corporation wanted.

Thus, whenever a tariff law was to be passed, the agents of great industrial corporations would hurry to Washington and try to influence the writing of the tariff, so as to benefit the corporations. Whenever a railroad law was to be considered in Congress, the agents of the great railroads would be on hand to see that the law did not hurt the railroad interests.

Wall Street, financial center of America, on a holiday. The low building (center) is the “House of Morgan.” Just beyond is the stock exchange building. Courtesy, Keystone View Co.

THE DEMAND FOR GOVERNMENT REGULATION. Thus, by the end of the nineteenth century many men became convinced that the growth of trusts was harmful to society and dangerous to democracy. This opinion was well expressed by a justice of the Supreme Court. “All who recall the conditions of the country in 1890,” said Justice Harlan, “will remember that there was everywhere among the people, generally a deep feeling of unrest. The nation had been rid of human slavery but the conviction was universal that the country was in real danger from another kind of slavery. . . namely the slavery that would result from . . . capital, in the hands of a few. . . controlling for their own advantage the entire business of the country.”

Soon political leaders of both parties were saying the same thing. Theodore Roosevelt, a Republican, and Woodrow Wilson, a Democrat, both agreed that the time had come for the government to step in and regulate big business, railroads, and banks. They agreed that it was necessary to “curb the trusts.”

4. How the Government Regulated Big Business in the Interests of Society

How the government regulated the railroads. Government regulation of business began with the railroads. The reasons why the people demanded regulation of the railroads are not hard to understand. In the first place, the railroads were the first big business to build up enormous wealth and power. In the second place, farmers and small shippers began to feel that the railroads were treating them unfairly.

They felt that the railroads charged too much for hauling wheat and corn and cotton and other products to market. They believed that the railroads were giving low rates to big companies and high rates to the small shippers. In the third place, they felt that the railroads had altogether too much influence in politics and used this influence against the welfare of the people.

In the fourth place, the railroads were clearly national in character. The same railroad sometimes ran through a large number of states. Such railroads could not well be regulated by individual states. If they were to be regulated at all, they would have to be regulated by the Federal government at Washington.

(a) The Interstate Commerce Act. The demand for the national regulation of railroads was met by Congress in the Interstate Commerce Act of 1887. This act provided that all rates charged by the railroads should be fair and reasonable. It provided further that all rates should be equal for all. There should no longer be one rate for the great steel or oil company and another rate for the small farmer.

(b) Later railroad legislation. The Interstate Commerce Act was a good beginning, but it did not go far enough. Railroads continued to grow in size and power, and continued to charge rates that farmers and shippers thought too high. When in 1901 Theodore Roosevelt came to the presidency, he said that there must be still more regulation of the railroads. Congress then passed a law which gave the government the right to say what rates the railroads should charge.


During the First World War, all railroads of the nation were taken over and operated by the government. In 1920, after the close of the war, the government handed the railroads back to their owners. By this time the railroads were in need not so much of regulation as of protection.

They were making far less money than before the war, and they were not able to give satisfactory service. Congress therefore passed a law intended to help the railroads give more efficient service. This law recognized that all of the railroads of the country should be treated as a single system, though owned and managed by different companies.

From that time to the present, the efforts of the government have been directed toward saving the railroads and making them useful and efficient.

How the government regulated big business. Government regulation of trusts began about the same time as regulation of railroads. We have already seen some of the reasons why people felt that trusts were dangerous. In the beginning, the separate states tried to regulate the trusts, but they soon found that the trust problem, like the railroad problem, was a national one.

(a) The Sherman Anti-Trust Act. Because the states could not handle the trust problem, Congress stepped in. The result was the Sherman Anti-Trust Act of 1890. This act declared that all business combinations or trusts that interfered with commerce passing from one state to another were illegal.

It made it a crime for any trust to get so large a part of the trade in any one article that it could control the price of that article.

For some years this anti-trust act had very little effect. But when Theodore Roosevelt came to office, he began to enforce the anti-trust act. He started a period of so-called “trust-busting.”

One trust after another was broken up—the Standard Oil Trust, the Tobacco Trust, the Packers Trust, and others equally large and powerful. President Taft continued the work that Roosevelt had begun.

Teddy Roosevelt, the trust buster.

President Wilson was just as strongly opposed to trusts as Roosevelt and Taft had been. Like them, he wanted to preserve the small business men. To carry out his wish, Congress passed additional anti-trust laws. These laws were designed to keep up competition in business and to discourage the growth of great industrial or banking trusts.

(b) The trust problem remains. But none of the anti-trust laws brought about the desired results. Laws or no laws, trusts and business combinations continued to grow. As we have already seen, industrial and banking trusts were larger and stronger in 1930 than they had ever been before. It was clear that laws merely forbidding certain practices were not enough. It was too easy to get around such laws.

When Franklin D. Roosevelt came to office, he started a new policy of dealing with big business and the trust problem. At his request, Congress passed the National Industrial Recovery Act to regulate business practices. Before the law could be fully tested and improved, the Supreme Court declared it unconstitutional.

THE DEMAND FOR GOVERNMENT REGULATION OF BANKS. The regulation of banks and banking has always been a matter of special concern to our government. You will remember that at the very beginning of our history Congress established the first United States bank. The second United States bank came into existence in 1816, but in the 1830’s President Jackson succeeded in destroying it. Finally, during the War between the North and the South, Congress set up a new national banking system.

This national banking system worked efficiently and honestly, but it was disliked by many farmers and small tradesmen. They did not like it because they felt that it worked for the benefit of the bankers and speculators of the large cities, and because they thought that it neglected the welfare of the people.

They wanted, instead, a banking system that would be controlled by the government for the benefit of the common man.

The struggle over the banking system went on constantly in the two generations after the War between the North and the South. The Populist party, in the 1890’s, demanded the end of the national banks. Then William J. Bryan and the Democrats took up this cry and insisted that the government should take control of money and credit and place the banks under very strict supervision or regulation.

THE FEDERAL RESERVE ACT. President Wilson and the Democrats got control of the government in 1913. One of the first things the Wilson administration did was to pass a law providing for an important change in the banking system of the country. This law gave us the Federal Reserve Act of 1913, setting up twelve Federal Reserve Banks.

Federal Reserve Districts.

The Federal Reserve Act had two purposes. The first one was to bring all of the national banks in the country under the more direct control of the government. The second one was to make it easier for borrowers to get money.

The depression brings a demand for further government regulation. By 1920 the principle of government regulation of all business was established:
- Congress had passed railroad legislation which brought the whole railroad system of the country under strict supervision and control.
- It had passed anti-trust legislation which attempted to do away with trusts and to preserve competition in business.
- It had passed banking legislation which provided for government regulation of all national banks and for easier ways to borrow money.
- It had declared that business was a public matter and must be conducted according to law.
- It claimed the right to protect society from unfair business practices.

But the great depression which began in 1929 showed that this kind of regulation was not enough. It was not enough that the government should act as umpire to see that the rules of the game were obeyed. It was necessary for the government to step in and help the players to continue the game.

It was necessary for the government not only to give protection to the public, but also to give aid to business, to railroads, and to banks. We shall see in future chapter how President F. D. Roosevelt tried to respond to this new need.

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