Modern Capitalism: Mergers and Syndicates
Productivity rose almost six-fold in the United States during the era of railroad expansion. Thomas McCraw, Isidor Straus Professor of Business History, Emeritus, at Harvard Business School, explains that during this period, “the growth of big business was the central trend of the American economy.”35 By the dawn of World War I, America’s journey from an agrarian society to a leading industrial power was complete, with the United States’ international industrial output surpassing that of France, Germany, and Great Britain. The railroads not only set in motion the combined forces of mass production, distribution, and communication under which the American economy grew by leaps and bounds, they also shaped the foundation of modern capitalism.
As the railroad network fanned out across the United States and connected with lines in Canada and Mexico, smaller railroad companies consolidated as a way to ensure the regular flow of traffic, reduce competition, and avoid price wars. Interstate and transcontinental lines became possible because of laws in favor of the railroads and firms having interests in each other. “[The railroads] sought to influence the people who could regulate and control the bottlenecks and choke points of legislation and administration,” Richard White contends. “The more the playing field narrowed, the more potent the transcontinental [railroad] became.”36 Regulation supported the abilities of companies in other industries to become larger corporations as well, and companies sometimes subsumed other organizations with related functions required for their operations. Strong anti-trust factions emerged represented by labor and farm parties and union activists. Growing political debates centered on matters of scale, and anti-trust issues became concerns not only for the railroads but in the telephone, oil, and steel industries as well.
A dramatic spike in the formation of what would become Fortune 500 companies occurred from the late 1800s to the early 1900s. Among the top corporations formed before World War I were many names we recognize today, including American Express, American Telephone & Telegraph, Exxon Corporation (Standard Oil), General Electric, John Hancock Mutual Life Insurance, Hershey Foods, Johnson & Johnson, USX Corp. (United States Steel), Westinghouse Electric, and Weyerhaeuser.
The railway system, as historian Henry Adams explained in his celebrated 1907 autobiography, “required new machinery to be created-capital, banks, mines, furnaces, shops, power-houses, technical knowledge, mechanical population, together with a steady remodeling of social and political habits, ideas, and institutions to fit the new scale and suit the new conditions.”37 The rise of modern American capitalism, enabled by the expansion of the railroad, was one of the transformative developments of the nineteenth century-and one that historians refer to as the second industrial revolution.