All Commentary
Sunday, April 1, 1962

A Reviewer’s Notebook – 1962/4

The deity, in our secular age, re­ceives all too little homage, but we can’t get along without our Lucifers. Not so long ago Lucifer bore the name and visage of Joe McCarthy; today, he assumes a multiple shape in the membership of the John Birch Society. And, projected back into the nineteenth century, he has masqueraded in many other forms, chief of which was the Robber Baron.

The concept of the Robber Baron makes history easy to ex­plain. But was the Robber Baron, aside from a few quite untypical market operators of the stripe of Jay Gould, ever a reality? React­ing from the extreme interpreta­tions which followed in the wake of Gustavus Myer’s History of the Great American Fortunes, a school of historians has arisen to argue that the Robber Baron, though a selfish grabber, had his good side. He may have destroyed his competitors, but he gave the public cheap kerosene. He may have stolen the public domain, but he built railroads across the plains.

In short, as Stewart Holbrook and other recent historians would have it, there is a study that should be known as the social uses of demons. But if the demons were good for society, what, really, is the use of the muckraking his­torian? In invoking the figure of Lucifer to explain everything, even incidental benefits, isn’t the muckraking historian merely mak­ing an empty obeisance to an equally empty convention?

Disdaining the acceptance of any stereotype that would make use of demonology of any sort, Professor Edward C. Kirkland has chosen to build his Industry Comes of Age: Business, Labor, and Public Policy, 1860-1897 (Holt, Rinehart and Winston, $10) out of a fresh look at what men actually did and said in the post-Civil War period. The result, to say the least, is startling. We had known all along that, despite the strictures of Vernon Parrington and the early Charles Beard, the so-called Gilded Age was a time of great vitality. But Professor Kirk-land’s treatment of the era of the “great barbecue” is so absolutely fair-minded that even the most classic of our business scandals seem hardly scandalous at all when he is finished with explaining all the circumstances.

Credit Mobilier

There was, for example, the Credit Mobilier scandal. Virtually every history, even those that have been written by individuals not overly impressed by the Robber Baron thesis, has accepted the Credit Mobilier company as a whipping boy. This construction company, hired to build the Union Pacific railroad, was a false front for the chief stockholders and officials of the Union Pacific itself. Standing on two sides of the bargain, the stockholders and offi­cials chose to reward themselves handsomely out of a public sub­sidy for building their own rail­road.

So, at least, runs the standard tale of Credit Mobilier. But Pro­fessor Kirkland insists on viewing the whole operation from the standpoint of a most uncertain time, when railroading repre­sented a great risk. When the par­ticipants in the Credit Mobilier took Union Pacific bonds at pro­gressive discounts and received Union Pacific stock as a throw-in, they had no assurance that their venture would ever succeed.

The territory through which the Credit Mobilier proposed to build was a howling wilderness, popu­lated by fierce Indians who fol­lowed the buffalo. The price of iron rails was high; wood for cross-ties had to be packed in from east­ern forest lands that were far away. There was no way of calcu­lating gains in advance, no assur­ance that the railroad could origi­nate any ponderable amount of freight in the region that stretched between Salt Lake City and Omaha. The Credit Mobilier par­ticipants sought a profit of 25 per cent on the cost of construction, which was not out of line in a period in which capital was hard to come by. But if the Indians had been just a trifle more hostile, the 25 per cent spread would not have gotten the Union Pacific owners a railroad.

As for the stock bonus, it only seems great in retrospect, because the railroad turned out to be a success. Giving the back of his hand to the scandalmongers, Pro­fessor Kirkland sums it up by saying that “the financiers took awesome risks, which were less­ened by a construction company, limiting the liability of stock­holders for debts. No wonder the device built all the transcontinen­tals… in the end the Credit Mo­bilier successfully completed a road through unknown territory.” This was glory enough, even though the construction company “device” could not be defended at a later date, when a less specula­tive approach to railroad financing prevailed.

Railroad Rates

In his section on railroad rate-making, Professor Kirkland steers judiciously between the claims and counter-claims of railroad spokes­men and Granger and Populist critics. Though they represented a “natural monopoly,” the rail­roads were, actually, exceedingly competitive with each other until the period of consolidation and “community of interest” got un­der way in the nineties. To stop what they called cutthroat com­petition, the railroads tried freight pools, only to discover that “cheating” could not be eradi­cated. Agreements to share the traffic and the profits could not be enforced by law, even in pre-Sherman Antitrust Act days. So railroad rates were never extor­tionate, save in isolated patches that were not served by compet­ing lines or by water transport. Professor Kirkland, in another succinct summation, says: “Amid all the buffetings of competition and attempts to flee from it, amid railroad strategy of acquisition and integration, rates went down.

This was the primary fact through all the period.” (The italics are ours.)

The Company Town

Professor Kirkland does not plump for a return to the days of the company town. But he notes that in many industrial communi­ties of the nineteenth century, the need for houses provoked “com­pany” villages as “the inevitable prelude to employment.” Says Professor Kirkland, there was a vast difference between the “un­painted wooden houses struggling up the barren hillside of a coal town and Pullman, with its build­ings of ‘advanced secular Gothic’ along tree-shaded streets, and with the largest houses equipped with bathrooms.” The owners of com­pany housing did not ordinarily seek to make a profit on rents—in the town of Pullman, for ex­ample, the rents were “about three-fifths what they were” in nearby Chicago, and in New Eng­land cities of the Lowell type, “quarters outside company hous­ing cost two or three times the figure set by the corporations.”

In the light of such figures, Pro­fessor Kirkland feels bound to say that “the charge that company housing exploited workers is largely baseless.” The bad feature of the company housing project was that leases could be termi­nated on short notice. This meant that in the case of a strike or lockout, “loss of job meant loss of home.”

The Company Store

Professor Kirkland is much harder on the company stores of the nineteenth century than he is on the company houses. The mark­up in such stores was often un­conscionable, and the goods were sometimes shoddy. The justifica­tion for the company store, with its “scrip” money, was that the employer did not always have cash available to give to his workers on pay day. But this does not excuse high mark-ups on the goods that were offered in exchange for scrip. Just why the nineteenth century employer should have been less de­cent in the matter of providing groceries than he was in the mat­ter of satisfying his workers with living quarters may seem some­thing of a mystery. Professor Kirkland explains it by observing that housing was a “recruiting de­vice,” where the company store sought to recapture the wages of men who had already been re­cruited.

Labor historians have stressed the “class war” aspects of the late nineteenth century. But, despite the periodic eruptions of violence at “bloody Homestead” and at the company town of Pullman and elsewhere, only a handful of social­ists and anarchists believed in class war. Professor Kirkland ar­gues that the failure of union or­ganizers in the late nineteenth cen­tury was largely due to the indif­ference of the American working man, not to his fear of “Pinkerton men” or professional strikebreak­ers. The working man, living in a hopeful society, did not regard himself as a member of a “group apart from the community with no responsibility for the common wel­fare.” He knew that real wages were advancing every time a price was cut. Says Professor Kirkland, in a sentence that might serve as a definitive justification for the whole “robber baron” period: “The index of money hourly wages for men in all industries practi­cally doubled between 1860 and 1890; it shrank a bit in the mid-nineties. Since the index of com­modity prices fell rapidly after 1865, the purchasing power of wages, real wages, often attained a spectacular improvement.”

A New Approach To Indus­trial Economics By James F. Lincoln

. New York: Devin-Adair Company, $3.50.

Reviewed by Neil M. Clark

James F. Lincoln, chairman of the fabulous Lincoln Electric Com­pany, has, at 82, written a book outlining his revolutionary indus­trial philosophy, his two earlier books being devoted to the use of incentive as a management tool. In the book under review, he presents a blueprint for industrial opera­tions which discards factors that limit growth and encourages a break-through to new levels of progress.

Workers and visitors entering the Lincoln plant in Cleveland see in eye-catching white metal letters the following phrase from de La­martine: The actual is limited, the possible is immense. This has been a guide for Jim Lincoln ever since he assumed management of a little electric motor manufacturing plant founded in 1895 by his older broth­er. His management philosophy, however, did not come full-blown. It was worked out to meet prac­tical business problems.

As captain of his Ohio State football team, Lincoln had ob­served that star players alone did not make a great team; but when every player put everything he had into every play, some rather mediocre teams turned in spectac­ular performances. In business, Lincoln personally wanted to “win.” He met serious obstacles. Many workers dragged their feet. Their disinterestedness often worked against company success. He did not let himself think this was due to the innate cussedness of workers. Instead, he concluded that their attitudes naturally fol­lowed faulty leadership attitudes. Management, he decided, was not doing its job.

Improving this in his own com­pany took years. Results, however, proved startling. The company be­came, and remains, a world leader in its field. Lincoln workers today, man for man, are among the high­est-paid industrial workers any­where, not because of a paternal management attitude but because management enables them to earn what they get and keep what they earn. No limit is set on any Lin­coln man’s earnings. This has sparked constant product and cost improvements. Benefits go to con­sumers. Prices for Lincoln prod­ucts have steadily declined over the years despite a general up­ward price drift. There are no secrets about how it is done; Mr. Lincoln has beat the drum for his methods. In this book he goes further and explains the philos­ophy of industrial economics which his experience has taught him.

Lincoln holds that sound man­agement rests on the Christian ethic and the Golden Rule. He holds that serving consumers with better products at lower prices is the proper primary objective. He holds that this can be achieved in a given plant only when everyone there is fully rewarded for de­veloping his inherent capabilities. “Few managers,” says Lincoln, “give serious attention to the de­velopment of a man, particularly of a wage earner who does manual work.” Yet “the possibilities of man through development are al­most limitless.” Individuals even in the humblest jobs have demon­strated this time after time in Lincoln practice.

Mr. Lincoln has written a bold book, with vision. He lambastes managers for faulty leadership. But he also shows how they can make “the possible” in America as “immense” as he is certain it can be.

Buy Now—Pay Later BY Hillel Black

. William Morrow and Company. 240 pp. $3.95.

Reviewed by Robert M. Thornton

The thesis of this book, in Mr. Black’s own words, is that the American consumer “who buys on credit is often being abused and deceived and in some instances out­rageously swindled.” As a warning

to the credit buyer and an indict­ment of the undesirable members of the business community it is a praiseworthy and readable effort, for the author is unsparing in his accounts of sharp business prac­tices that might be legal but are hardly ethical. This book will have a sobering effect on any discrimi­nating reader who is or ever has been heavily in debt; and it may help stir those Mr. Black calls “debt merchants” to straighten up their own house.

The chief criticisms of this book have to do not with what the au­thor says, but with what he fails to say. He repeats that “too many people are being sold more debt than they can afford,” but he never says, as he might with equal truth­fulness, that too many people are buying more debt than they can afford. It still takes two to make a loan or an installment purchase but Mr. Black focuses critically on the seller. Like other contemporary social critics, he believes that busi­nessmen, by “using the techniques of Madison Avenue,” exercise vir­tually unlimited control over con­sumer buying habits. Tell this to the merchant with last year’s un­sold goods on his shelves! Many self-indulgent people who are over­loaded with debts are not innocent victims of “credit crooks,” “credit gougers,” or “debt merchants,” but of their own cupidity.

In his preoccupation with the “sale” of credit, Mr. Black fails even to mention one very important question: Why are so many people willing, yea even eager, to go into debt and live beyond their means? Several answers come to this re­viewer’s mind.

First, the heavy taxes most of us pay make it more and more difficult to save money for future pur­chases.

Second, the high prices brought by inflation and labor union mo­nopolistic practices are a burden on consumers.

Third, although there has been no panic as yet, many persons real­ize, however dimly, that their money is losing a little of its value every day due to the inflationary policies of the federal government. Hence they are quick to spend what they have before its purchasing power is further diminished.

Fourth, the constant threat of war—the crisis psychology that government provokes—is hardly calculated to encourage people to think and plan ahead and save for the future.

Fifth, government pressure to hold interest rates down makes borrowed money a bargain. When money is “easy,” lenders are more lenient in dealing with applicants for loans or credit.

Sixth, the fact that the national government stands ready to bail out all and sundry who are “in need” does little to foster a sense of individual responsibility.

Seventh, the government’s lack of concern about its rising debt and the policy of deficit spending—spend now, pay later—sets a poor example for the citizen. Thus the national government itself is, in a large measure, responsible for the credit boom—the increase in the numbers of those who wish to “buy now and pay later.”

Where does Mr. Black turn when he seeks a remedy for the “evils” of credit buying and borrowing? To the national government, alas, which should, he urges, pass a law regulating all credit and borrow­ing transactions. But legislation is no cure-all; Mr. Black himself notes that many laws governing lending institutions actually help rather than hinder the “loan shark”—the lender who operates outside the law.

We have not yet learned, appar­ently, that passing a law to protect people from themselves usually creates worse problems than those the law was invoked to solve.

  • John Chamberlain (1903-1995) was an American journalist, business and economic historian, and author of number of works including The Roots of Capitalism (1959). Chamberlain also served as a founding editor of The Freeman magazine.