Chapter IV. The Training of a Monopolist

Becoming a monopolist at the age of eleven when a railroad conductor gave me a corner on the sale of newspapers is without doubt the thing which made me look out for a business in which there was little or no competition, and the accident of being taken into a street railroad office was what caused me to select that particular line of non-competitive enterprise as my field.

One isn’t conscious of the significance of these events at the time but as a man looks back over his life he can put his finger on the few experiences which are responsible for his most profound convictions and which have determined his general line of conduct.

My experiences with William H. English impressed upon me the necessity of looking very sharply to my own interest in all future enterprises, but the relation between his business and the municipal government of Indianapolis passed entirely over my head. I was very young and not in the least conscious of the connection between business and politics. It was reserved for Mark Hanna to teach me that.

When I read Henry George I came to a realizing sense of the menace of Privilege, and what I saw at Johnstown, following the flood of 1889, caused me to realize the menace of charity – a fact not so commonly recognized, I believe, as the dangerous power of Privilege and not always correlated with it in the mind of the student of social conditions.

It was a new invention which led to my going into business in Johnstown. I had invented a girder groove rail, or thought I had.

Subsequent developments showed that a similar rail had been made earlier in England. Mine was a steam railroad T rail with a street railroad wearing surface. Attempts to manufacture these rails from iron at Birmingham Alabama, and Louisville, Kentucky, had failed so completely as to cripple the concerns that had made the experiments. There were insurmountable mechanical difficulties in using iron, and our failures led us to look for a firm which would manufacture them for us from steel. We proposed making these rails for the market as well as for use in our street railways.

Just as I thought I had invented the rail, so my associate, Arthur J. Moxham, thought he had invented the best process for rolling them. Both the rail and the manufacturing process, therefore, were protected by patents, not very strong patents, to be sure, but they served as a good business bluff and kept others out of the field.-Special privilege again! Not typified by a friendly train conductor this time, but by the patent laws of the United States!-In due time we were so strongly entrenched in a business way that we didn’t need patent protection.

We selected the Cambria Iron Company at Johnstown, Pennsylvania, as the concern which should manufacture our rails. We wanted to make the best possible terms with them. Realizing our importance as customers, they were eager to meet us half way. We exchanged courtesies at a lively rate. Mr. Moxham and I were frequently entertained by them at the club and invited to the houses of the officials to dinner and other social affairs. I managed to get out of these engagements whenever possible, leaving the social responsibilities to Mr. Moxham who was admirably qualified for them. He was a delightful entertainer. It was when our negotiations had reached a critically important stage that, returning from a dinner at the home of one of the Cambria officials one night, he found me playing checkers with the bootblack at the club. This was too much! If I would leave the social amenities to him, I might at least so conduct myself in his absence as not to scandalize the community and jeopardize our interests. He scored me roundly for my exhibition of bad taste, “if not disgraceful conduct.” When he was at the height of his indignation, I broke in with my defense:

“But Arthur, you don’t know what a hell of a good game of checkers this boy plays!”

Happily the checker game didn’t interfere with our negotiations, and presently the day on which we were to sign the agreement came round. We approached the conference in fear and trembling, for in our minds there had arisen the question of how long the contract should run. We wanted a short contract but were perfectly sure the Cambria people would hold out for the long one. To our surprise D. J. Morrell, the president, suggested a contract terminable at the will of either side on three months’ notice. This was exactly what we wanted but I couldn’t refrain from asking Mr. Morrell why his side proposed such terms. His answer taught me a lesson which I never forgot.

He said that in making contracts with the public for franchises or public rights or grants, one should strive for a long time contract or one in perpetuity if possible, since public interests in contest with private rights were rarely successful; but that between private interests long contracts were foolish, since the contract never survived the mutual desires of the contracting parties; that if either side wished to terminate the contract it was always possible to find a way to do so.

“The greatest strength of private contracts,” said he, ” is not expressed in words or legal phrases but is in the fact that such a contract pays.”

In his long experience, he said, he had found private contracts profitable to one side only, usually productive of so much bad blood as to prevent favorable modifications, and not worth the paper they were written on.

He had there a glimpse of a great truth which had come to him through observation and actual experience and not by abstract reasoning or philosophizing.

A. V. du Pont, the elder of the du Pont brothers already referred to, with Mr. Moxham, myself and a few smaller stockholders now established at Johnstown a plant for manufacturing curves, frogs and switchers out of the girder rail which the Cambria people were making for us.

At the same time I was interested in many other enterprises. Our street railway operations were going well and making money. My inventions were paying. Some Chicago bankers, interested in street railroads in their own city, had bought our Indianapolis railroad, assuming the bonded indebtedness and giving me one check for about eight hundred thousand dollars, nearly half of which came to me as my individual profit, the rest going to my father and the other stockholders. This had enabled me to pay all my debts and embark in new enterprises with a surplus.

I was one of a group of men which purchased the Sixth street railroad in St. Louis. We were opposed by all the other street railways and our line was kept out of the center of the city for a long time. Some years later after the introduction of electricity in operating we sold this road at a handsome profit.

Richmond, Virginia, was the first city to operate its cars with electricity and in 1889 A. V. du Pont and I went down there to investigate the practicability of this kind of operation. Firmly convinced that we should find the new power inadequate when it came to taking cars up hill, the first thing we saw was cars climbing Richmond’s steep streets as easily as they glided along the level ones. Our report to the street railway companies in which we were interested in several large cities was quite different than we had expected it would be.

At about the time I went into the St. Louis enterprise I purchased a street railway franchise in Brooklyn which later became involved in litigation and was tied up in the courts for a long time. Eventually I got my principal and interest back but no profits. Before the litigation I had sold a lot of bonds in this enterprise to some Louisville people. When the court proceedings threatened protracted delay I bought back all these bonds at a higher price than the purchasers had paid for them. I was under no legal obligation to do this, of course; and my reasons for doing it were purely selfish. First, I couldn’t endure the thought of having persons who had invested because of their faith in me lose, and second, it was better for my future credit to retain their confidence. Perhaps

I myself thought I was acting generously, so frequently are motives inspired by business interests mistaken for personal virtues.

Once or twice in my life I have been forced to take over the management of a street railroad that didn’t pay, but in these cases I had no hand in the original acquisition of the properties. I never made an unfortunate street railroad investment.

Our contract with the Cambria people proved so profitable that we presently decided to build our own rollingmill. Though this decision cost the Cambria an excellent customer, they cooperated with us in every way in building our plant which was situated in the center of the large level tract of land in a new suburb known as Moxham. We had purchased all the land in that locality which was suitable for building purposes, and our holdings reached quite to the edge of the great perpendicular bluffs which enclose the valley. We placed the mill with a view to profiting by the increased land values which would follow the growing up of the community around it, and we made money out of both.

Protected now by special grants in the highway, but the tariff, by patents and by land monopoly my training as a monopolist had gone far. No wonder I liked my business. It was not the money making end alone that appealed to me; I liked the whole game, but the fact that I was getting rich and seeing my associates prosper may have been my greatest stimulus.