1.God has established order, intelligence, and truth in the universe and history
(Isaiah 42:5, John 1:1, John 1:14, Acts 17: 25 & 28, Romans 11: 36);
2.The Bible provides principles of ethics that guide our evaluation of people
and nations (Exodus 20: 1-17); and
3.The Bible teaches all men to recognize their human limitations. (Psalm 90,
Psalm 139).
Consider the definition of entrepreneurship presented at the beginning of the
course. Where do entrepreneurship and free markets fit within the principles
above?
David Kennedy arrived in Fink, Tennessee, in 1842 to start a dry goods store. Within a few years, his
reputation for solid business practices led to his election to the board of directors of the Fink branch of the
pow- erful Bank of Tennessee, and he eventually resigned to form his own bank, the Bank of Northern
Tennessee. He continued to run a prosper- ous but uneventful business until April 11, 1861. On that day,
the South Carolina “fire-eater” Edmund Ruffin touched off a cannon fuse that opened bombardment on
Fort Sumter, igniting at the same time the bloodiest conflict in American history. For the next four years,
while war raged, Kennedy’s banking business experienced swings as the Confederacy attempted to
persuade Kennedy to support the new nation with his bank’s gold (he would not) and then as Union
troops took Clarksville. As federal troops drew near, Kennedy loaded whatev- er gold he could carry on
his horse and made his way through Mississippi to a point that he could catch a steamer to New Orleans.
There, he transferred the bank’s assets to safety in an account in England. After the war, he withdrew the
assets and shipped the specie from England to Tennessee, where he reopened the bank, one of the few
in the entire South to survive the war. Kennedy’s difficulties during the Civil War, first in resisting confis-
cation of the bank’s assets by one government and removing them from the grasp of another,
underscores the tremendous difficulty in conduct- ing most businesses during time of war. While certainly
some business- es can prosper during wars, especially arms manufacturers, as a rule, businesses dread
the disruption of their markets and the human toll that war takes. Companies involved in interregional or
international trade suffer partic<ularly extreme hardships in time of war.
THE CIVIL WAR AS A BUSINESS STIMULANT
The American Civil War exacted such a cost on business. During the conflict, the Republican Congress
granted extensive lands to the rail- roads, enacted the Homestead Act, passed protective tariffs, and
estab- lished a system of national banks—all seen by many historians in past generations as supportive
of business, though increasingly challenged by more modern writers.1 The Civil War left more than half a
million men dead and inflicted long-lasting wounds on the Southern economy. But for the North (and, on
average, the nation as a whole), historians have debated the long-term effects. Some have contended,
beginning with influential early works by Charles Beard and Louis Hacker, that the war was a positive
development and a turning point for American economic and business growth.2
The Beard–Hacker thesis held that the shift of political power to Northern business interests from the
Southern “slavocracy” ended agrarian resistance to capitalist industrialism. By destroying slavery, the war
ended a feudal or precapitalist labor system. Finally, the wartime demand for goods and services in the
North accelerated the nation’s economy, despite the costs of the conflict. Beard went so far as to tout the
war as the “Second American Revolution,” opening the floodgates for corporate expansion and social
equality.
This turning point concept offered an attractive interpretation of the Civil War, except it wasn’t true.
According to the comprehensive analysis of recent research on the effects of the Civil War, Jeremy Atack
and Peter Passell conclude that “it is very difficult to identify the Civil War as the turning point in economic
growth or industrialization from the historical data.”3 The U.S. economy grew more slowly in the decade
after the Civil War than in the decade before it; the manufacturing sec- tor especially slowed down, falling
by 1.8 percent per year. During the 1860s, however—precisely the time that wartime economic expansion
should have been at its peak—commodity output fell by 2.6 percent.4
Clearly, however, national averages would include the ravaged South. What would happen if the analysis
could be limited to the win- ner—the North? Here, growth tests make a somewhat better case for the
Beard–Hacker thesis, although not much. From 1840 to 1860, per capita income in the North rose at an
annual rate of 1.3 percent, while from 1860 to 1879, the rate was 1.7 percent—an increase, though hardly
a revolution. A central question remains, however: To what extent did the period 1860 to 1879 merely ride
on the coattails of effi- ciency gains already put in place before 1860? The railroad, the reaper, the steam
engine, the telegraph, and dozens of other critical technolo- gies had just moved into the market. Would
not that alone have accounted for substantial post-1860 growth?
Indeed, some shocking anomalies exist for the proponents of the Beard–Hacker thesis, not the least of
which is the intriguing fact that boot production fell by 13 million pairs from 1855 to 1865! Considering that
boots were a staple of any army, shoe and boot manufacturing should have skyrocketed during the war.
Wool production rose sub- stantially because of the shift away from cotton, which the South had
embargoed as a strategic measure, and which failed miserably.
On the other hand, the Civil War inflicted huge economic costs, the most important of which were the
600,000 Americans killed and 500,000 wounded. In purely sterile terms, such as those used by insur-
ance companies’ actuarial tables, economists have put a value on those lives of approximately $2 billion.5
Static approximations, however, offer no way of guessing how many Andrew Carnegies, Cornelius
Vanderbilts, or, for that matter, Abraham Lincolns were among the dead. In other words, averages
provide at best a still photograph of a situation, but they can in no way capture the dynamics of people
who may have been in the infant stage of making a fantastic discovery, embarking on a nation-shaping
political career, or founding an extraor- dinary business when the war cut short their lives.
Nor when the cost of the destruction of physical property (exclu- sive of slaves) is calculated—which was
on the order of $1.1 billion to $1.4 billion—can it be estimated how many new factories on the verge of
exceptional production gains or new firms on the threshold of gain- ing remarkable management
efficiencies were abruptly ended. Of course, some factories were in the process of decline, or other busi-
nesses were failing—but the point is that no average or measurement can predict the appearance of an
individual genius or business super- star. Predicting what gains might have been made is an impossible
task, but the record leaves hints. For example, the banking system in some Southern states had achieved
a degree of sophistication unseen in the North through widespread branch banking. Tennessee, North
and South Carolina, Georgia, and Virginia all had thriving branch banking systems that virtually
evaporated with the Confederate defeat. In turn, that contribution could have been substantial. Had such
systems sur- vived intact and perhaps spread to other, newer Southwestern states, such as Oklahoma,
Colorado, or even into the Midwest, to Kansas and Nebraska, it is possible that much of the banking
collapse of the 1920s and 1930s might have been averted. And, to ignore the “elephant in the room,” the
instant legal conversion of billions of dollars’ worth of slaves from property into people was one of the
most important eco- nomic events in all of Western civilization.
C<IVIL WAR LEGISLATION AND BUSINESS GROWTH
Several measures passed by the Republicans during the war did bene- fit certain sectors of the economy
and specific businesses. Tariffs raised revenues and fulfilled the promises that Republicans made before
the war to Northern interests. The Homestead Act (1863) sold western government land at the minimum
price of $1.25 per acre or at a maximum price determined at an auction. With vast new acreages opening
up, and the advent of mechanical devices like the reaper, the man-hours of labor per acre of wheat
dropped from thirty-five to twen- ty between 1840 and 1880; for corn, the numbers dropped from sixty-
nine to forty-six. The number of farms rose from 2.6 million in 1870 to 4.5 million by 1890, and continued
to rise well into the twentieth centu- ry.6 Farm acreage shot up to 623 million by 1890, from 407 million
two decades earlier. While certainly many farmers would have moved west even without the Homestead
Act, it nevertheless contributed to the set- tlement of the Plains states and the extension of the farm belt.
Equally important—and perhaps more so—Congress passed a series of bills from 1862 through 1865
collectively known as the National Bank and Currency Acts. To finance the war, Secretary of the Treasury
Salmon P. Chase had chosen to avoid taxation as much as pos- sible, relying instead on bond sales. The
National Bank Act provided the mechanism for selling those bonds by establishing a new system of
chartering national banks that had to purchase U.S. government secu- rities with a portion of the charter’s
capital. In return, banks received National Bank notes (i.e., money) for up to 90 percent of the face value
of the bonds. Banks then emitted the banknotes through loans or in exchange for specie. Each national
bank had its name inscribed on the notes it received—an extremely valuable source of advertising.
Bank purchases of bonds proved critical to financing the war, but the national banks found themselves in
competition with state- chartered banks, and the restrictions placed on national banks, includ- ing lending
restrictions on real estate and higher capital requirements, made the federal charters less attractive than
those offered by individ- ual states. Consequently, Congress passed a 10 percent tax on all state
banknotes that drove out of circulation most state and private note issues. Without their note advantages,
state banks could no longer compete with the national banks, and the numbers of national banks grew
rapidly. As state banknotes disappeared from circulation, the United States found itself with a uniform
currency for the first time in its history. Until the national banknotes appeared, greenbacks consti- tuted
the primary currency for the first few years of the conflict. Issued by the Treasury, the government
declared them legal tender, meaning that citizens and merchants had to accept them for payment of
debts. With specie payments on banknotes suspended during the war, the greenbacks made up much of
the circulating medium in the North until the appearance of the national banknotes, and tended to
fluctuate in their gold value based on users’ assessment of Union war prospects.7 Greenbacks were not
redeemable in specie immediately after the war, but the government, true to its promise, redeemed them
in 1879.
As commercial and savings banks opened in the American West, they became ingrained in the romantic
images of the wild and woolly frontier, usually in the context of a bank robbery. Unfortunately for
Hollywood, there were no Western bank robberies to speak of in the horse-and-buggy era. Bank buildings
were located in the middle of town (so robbers couldn’t arrive unnoticed), usually with other build- ings
adjacent. They were, in fact, constructed not only with security in mind, but also with an eye toward
image. It was critical, for example, for a bank to look prosperous. Banks featured the finest cabinetry,
ornamentation, and metalwork, and they were likely to be the first to use masonry construction. In short,
banks gained the trust of cus- tomers because they appeared solid and safe. The remarkable security of
bank buildings constituted half of the visible symbols of safety that bank customers evaluated when they
decided to place their savings in a bank, with the other being the status and reputation of the banker.
Before a merchant could think about entering banking, typically he had to prove himself with years of
successful business experience, usually in a mercantile firm. Bankers had to have personal wealth, most
likely as a sign that they could be trusted with the cash of others. And to start a bank, an individual had to
provide most of the capital himself, signi- fying a long-term commitment to the community.8
For local economies, the unregulated banking system worked remarkably well. Few banks failed in
normal times, and even fewer unscrupulous characters bilked customers. Instead, bankers reinvest- ed
their earnings into mines, railroads, ranches, civic projects, and local charities. An even more important
financial sector, investment banking, had grown during the Civil War, and it brought to the fore a
remarkable salesm<an, Jay Cooke.
JAY COOKE’S BOND SALES
Born in Sandusky, Ohio, Jay Cooke grew up in a political family. His father practiced law, winning several
terms in the Ohio legislature before going on to the U.S. House of Representatives. Cooke attended local
schools, then Adams Academy, gaining enough skills to clerk in local stores and keep their books.
Eventually, he migrated to Philadelphia, where he worked for his brother-in-law, William G. Morehead, the
president of a prominent transportation company.
Cooke learned to craft eye-catching newspaper advertisements, well out of the normal style of such ads
in major papers. But only a year after he joined the Washington Packet & Transportation Company, it
failed (just as had a previous business). Rather than become depressed or consigned to lifelong failure,
Cooke instead took stock of his talents and searched for another job to pay the bills until he found his
career interest. While bookkeeping in one occupation, he came to the atten- tion of an exchange broker,
E. W. Clark, who had a Philadelphia bank- ing house. Within two years, Cooke’s skill at balancing
accounts and reconciling overdrafts of up to $100,000 gained him the opportunity to write business
columns for the Philadelphia Daily Chronicle. More important, his tasks at Clark’s bank familiarized him
with sales of fed- eral securities for the Mexican War, as well as municipal and state secu- rities issues.
Yet fate was not finished with Cooke. Clark’s numerous banking houses could not withstand the Panic of
1857, and the company dis- solved into several smaller units owned by the remaining investors. Cooke,
out of a job again, at least had a substantial “nest egg” from his employment, but he also had several
mouths to feed, being married with five living children (three others had died in infancy). Again, Cooke
demonstrated his character, settling his obligations stemming from the panic “so conscientiously that his
father and his brother Pitt reprimanded him for extreme generosity.”9 He spent approximately four years
working with railroad reorganizations, where he learned to price railroad securities and to evaluate the
companies’ books. Then, using money he saved from Clark, and just months before Abraham Lincoln
was inaugurated, he ventured out on his own. Jay Cooke & Company opened at the most inauspicious of
times, as the nation drift- ed toward war, markets soured, and the federal debt soared.
Cooke saw a silver lining around the cloud. Remembering the Mexican War experience, Cooke’s
company snatched up all the U.S. government bonds it could acquire at a time when other banks refused
them. As cannon shells hit Fort Sumter, Cooke’s firm obtained $200,000 worth of government securities
for resale. Using his newspaper adver- tising experience, Cooke reasoned that he could market bonds to
the general public with a patriotic sales pitch. His first chance came with a bond issue in Philadelphia,
where he distributed handbills across the state urging the public to come to the aid of the Commonwealth
in its
“hour of trial,” and reminding patriotic investors of the bonds’ 6 per- cent interest rate! Cooke sold every
bond he had, not to mention some he did not have. The loan was oversubscribed, requiring Cooke to pur-
chase still other bonds from the state.
In 1862, Cooke opened a partnership in Washington, D.C., that pro- vided entry into the Treasury circles.
The Union government struggled to sell its 6 percent, $500 million bond issue, and Treasury Secretary
Salmon Chase turned to Cooke, naming Cooke’s banking house as its special agent for the marketing of
securities in 1862. Although he was not the “exclusive agent,” Cooke alone aggressively pushed the
bonds, engaging 2,500 agents to one issue. Employing posters and handbills to great effect, Cooke also
used his staple advertising medium, newspa- pers, which he enjoined to run favorable stories about the
bonds in return for advertising business. He pressed his own writing skills into the service of the Republic,
as when he wrote a pamphlet entitled “How to Organize a National Bank Under Secretary Chase’s Bill” to
promote the National Bank Act of 1863.
Although the national banking system pushed bond sales to new heights, it was Cooke’s strategy of
involving average American families in bond sales that changed the nature of the market, as more than a
mil- lion citizens held the securities by 1863. Cooke’s firm made little profit on all this activity—an
astonishingly low one-sixteenth of a percent! Yet politicians and those newspapers in which he did not
advertise car- ried stories of outlandish returns to the company. His personal commis- sion totaled
$300,000, but his contributions to the Union victory could not be measured. When Chase’s successor,
William Fessenden, tried to eliminate Cooke (and his commission), the Treasury’s agents sold only $133
million worth of a new issue of bonds, whereupon he contritely begged Cooke to reassume his old duties.
In less than six months, Cooke sold $600 million, most of that after Appomattox. By 1865, the
Philadelphia house had earned profits of $1.13 million, of which Cooke sent 10 percent to charities.
Memorials appropriately remembered the efforts of gallant soldiers who fell in combat, but the man who
ensured that they had adequate boots and bullets went largely ignored. No coins celebrated his
accomplishments; no statues marked the deeds of the financier of Union victory. Nevertheless, in only
three years, Jay Cooke had revolutionized the sales of securities to the American middle class.
BUSINESS<AND THE STATE IN THE UNION AND CONFEDERACY: “YANKEE LEVIATHAN”
The activities of the federal government during the Civil War and the ostensible states’ rights emphasis of
the Confederacy have led many scholars to assume that the Union succeeded in part because it had bet-
ter planning and federal direction of the war effort. Certainly, the land grants to railroads, the National
Bank and Currency Acts, tariffs, income taxes, and the Homestead Act all reflected an activist govern-
ment role, and one not seen prior to 1860.
At the outset of war, the Union had substantial military, material, and economic advantages over the
Confederacy. Yet the federal govern- ment managed to allow the market to provide the necessary war
materiel with a minimum of statist controls. A remarkable study by Richard Bensel comparing Union and
Confederate wartime mobiliza- tion concluded that “the Northern war effort left the industrial and agri-
cultural sectors almost untouched by central state controls and only skimmed the surface of Northern
labor pools....”10 Union officials informed businessmen and factory owners of their needs, provided a
means to pay, and then allowed the business sector to meet the demand. Northern inventors churned out
a torrent of new military devices, including the Sharp’s breech-loading rifle, the Spencer repeat- ing rifle,
and Dr. Richard Gatling’s rapid repeating “Gatling gun.” Not only did Northern enterprise rise to the
occasion, but the response left the federal armies with few shortages.11 Rounding out the Union effort, a
mature railroad system, which was in place prior to Fort Sumter, con- tributed mightily to the
comprehensive economic mobilization in the North and its ability to provide military supply.12
But the surprising fact of the Civil War was not that the Union did not use statist policies to direct the
business community as a whole, but that the Confederacy did. In the Confederacy, “the all-encompassing
economic and social controls ... were in fact so extensive that they call into question standard
interpretations of Southern opposition to the expansion of federal power in both the antebellum and post-
Reconstruction periods.”13 If, however, as has been argued here, the South was not so much a capitalist
region as precapitalist, with pock- ets of market sophistication, then the concept does not appear quite as
novel. In fact, a commonsense understanding of the situation puts Civil War mobilization in perspective.
When a society has the necessary open-market mechanisms for supplying the military with wartime
materials and for financing that expansion, government can simply skim the surface of private enterprise
and its productivity. However, when a society lacks an abundance of industrial resources, as did the
Confederacy, the state must force production in necessary areas.14
Constant deficiencies of resources afflicted the South throughout the war. The planters’ concern with
maintaining their postwar cotton monopoly led them to retain all their slaves in the production of cotton.
But cotton was not exported due to the Confederate embargo, denying the South either the income from
cotton or the slave labor that could have been used for war-related tasks such as repairing railroads,
build- ing forts, or otherwise doing tasks that kept white soldiers from the front. Worse, the Confederacy
“simply took away the corn, mules, food it needed.... It was easiest, if harsh, to take corn and mules from
the small farms,” run by the wives of soldiers on the battlefields.15
The absence of a widespread, thriving industrial sector on the same scale as in the North handicapped
the Confederacy, and even as it cre- ated arsenals, foundries, and munitions works, Southern production
of small arms was “woefully deficient,” as Secretary of War Judah P. Benjamin noted.16 Southern
businesses did contribute to the war effort in substantial ways—Georgia entrepreneurs Louis and Elias
Haiman manufactured swords, then branched out into sidearm production, while private production of salt
in Florida occurred despite constant federal raids—but the South lacked a strong manufacturing base,
and when the war created a sudden demand by the government, interfer- ence from bureaucrats
effectively squelched any early burst of capital- ism.17 Moreover, the industrial expansion that did occur
relied exclu- sively on demand provided by government.18 Perhaps the Confederacy’s greatest success
came in its improvement of an internal railroad sys- tem. Although construction and renovation was
uneven and incom- plete, the resulting network of routes cultivated by the Confederacy may have been
the rebellion’s most lasting geographical and physical legacy EMAN<CIPATION AND ENTERPRISE
Lincoln’s Emancipation Proclamation, the symbolic expression of Union victory, constituted perhaps the
single most significant business- related event of the war. While having no immediate effect—it freed not
one slave in the Confederacy, and it did not affect slavery in the border states or territories—the long-term
impact of this executive order changed forever Southern enterprise. Some Lincoln critics con- tinue to
invoke the “needless war” arguments to contend that slavery would have disappeared due to market
forces, and that the growth of government in the North over the long term “enslaved free men.”20 Slavery
was certainly not on the verge of extinction, and the suggestion that Lincoln provoked the South has been
laid to rest by a generation of historians.21 Ultimately, the only defense of the so-called states’ rights
position relies on Calhounian interpretation of the Constitution as a compact of states, not people, which,
of all the founders, perhaps only George Mason really accepted. Moreover, the promises to protect life,
liberty, and the pursuit of happiness demanded that no individuals could be denied their constitutional
rights. Lincoln, therefore, priori- tized the protections of liberty inherent in both the Declaration of
Independence and the Constitution, applying the protections to all. His actions had three dramatic
consequences, two of which are well dis- cussed and a third, which is important to business history, that
has not been quite so deeply examined.
First, when emancipation became the war aim, no longer would any debate exist over the personhood of
slaves. In essence, the Proclamation symbolically extended the “free labor” umbrella to all workers and
made the South itself free soil. Second, the ex-slaves not only constituted a change in the labor force—a
point beaten to death by historians and economists—but also embodied a huge addition to the nation’s
consumers, for in the technical sense the slaves had not been consumers in that they had no choice
about their consumption. The addition of 3 million consumers to the nation would have demand- ed
remarkable changes; but when they were contained almost exclu- sively in the South, it represented a
revolutionary transformation. Third, free slaves, both men and women, often became entrepreneurs
themselves, and among the 3 million souls able to use their skills, tal ents, and ideas for their own
purposes, thousands of self-employed business owners would emerge.22
Most, of course, began as farmers or sharecroppers, and based on evidence from North Carolina, at
least, a surprising number of blacks owned their own land by 1870.23 Sharecropping arose out of the
unique situation in the South after the war in which, previously, “labor was wealth and wealth chiefly
labor.”24 It entailed the sharecropper “paying” up to one-third of the cotton grown on the land to the
landowner. That arrangement worked well for a society in which blacks had no land or capital but had
labor, and whites had no labor supply but still retained their land. It offered a sense of independence and
entrepreneurship in that the freedmen could gain personally by increasing production. However, it had a
drawback in that, without ownership, the freedmen had little incentive to invest in long-term improvements
on the land (digging ditches, building fences, and so on), and without the full prof- its from the crop, and
with tenants who often had few alternatives, the owners usually did not improve the land.
By 1880, blacks owned a small percentage of the land in the cotton South and tenanted approximately 30
percent, sharecropping two- thirds. At the turn of the century, blacks owned 27 percent of the land they
worked and rented 36 percent.25 Freedmen acquired land, although it was a slow process. Still, as
Robert Kenzer’s study of North Carolina showed, in five counties black ownership of town lots rose from
11 percent in 1875 to almost 19 percent by 1890, despite the fact that cultural attitudes, legal codes, and
racism all presented barriers.26 Free blacks before the war, especially mulattoes, had distinct advan-
tages over the freedmen. Nevertheless, by 1880, in an economy in which whites owned most available
land already and dominated the political structure, blacks already owned 8 percent of the total land in the
South. Farming paid well enough that some wage laborers could choose to farm rather than work for
wages, and whites comprised the majority of sharecroppers (60 percent by 1900).27
Alabamian Nate Shaw, an illiterate tenant farmer who grew up in a society of ex-slaves, moved from farm
to farm, expanding his share and using his mules to haul lumber or do other odd jobs on the side. Despite
the fact that he faced competition from an influx of poor whites, unscrupulous landlords who repeatedly
attempted to defraud him of his crops, and merchants unwilling to extend credit, Shaw became self-
sufficient and eventually became a leader in the Sharecroppers Union. Hauling lumber paid well, but
Shaw was determined to become com- pletely independent of others. Even after he joined the
Sharecroppers Union and went to prison in a protest against land seizures by sheriff’s deputies in the
1930s, the land he had worked to secure remained in the hands of his family.28
Andrew Jackson Beard, a slave born in Jefferson County, Alabama, owned a farm near Birmingham.
Once he tried to sell apples in Montgomery using a team of oxen to pull his wagon, but after the trip took
three weeks, he quit farming and constructed a flour mill in Hardwick, Alabama. Experimenting with plow
designs, Beard patented a plow in 1881, and then sold it in 1884 for $4,000—a fantastic sum at the time.
He continued to refine plow designs, then, with his total sav- ings—approximately $30,000—Beard
entered the real estate market. Still, he continued to invent, creating a remarkable rotary steam engine
patented in 1892. Early work in railroad yards provided Beard with a firsthand exposure to the hazards of
hooking railroad cars together. The process was done entirely by hand, requiring a worker to stand
between cars and place a metal pin in the coupling devices at the very instant that the cars came
together. Fingers, hands, and arms all fell prey to accidents with the metal couplers, and Beard suffered
the loss of a leg in a coupler accident, focusing him on a solution. In 1897, he received a patent for the
famous “Jenny” coupler, in which the coupling devices secured themselves when bumped together, like in
a hand- shake. An improved version of the Jenny remains the foundation for the modern automatic
coupler, and Beard saved untold hundreds of railroad employees from severe personal injury.29
Even before the Civil War, a few slaves had established an entrepre- neurial legacy. “Free Frank,” the
slave of George McWhorter, managed his owner’s estate and received permission to hire himself out for
the purposes of buying his own freedom. After securing his own emancipa- tion in 1819, along with that of
his wife, he engaged in a wide range of business enterprises in Pulaski County, Kentucky. Migrating to
Illinois, Frank acquired hundreds of acres of land that he improved, then sold, and founded the town of
New Philadelphia, selling lots in the town and continuing to purchase slave children to free them.30
Of course, not all the new entrepreneurs in the black community were either freedmen or self-manumitted
former slaves. Elijah McCoy, born in Canada where his parents had fled to escape slavery from Kentucky
in 1837, had benefited from his father’s successful lumber business by going to Scotland for training in
mechanical engineering. After becoming a master mechanic and engineer in Edinburgh, McCoy returned
to the United States after the Civil War and settled in Ypsilanti, Michigan, where he worked for the
Michigan Central Railroad. His skills and technical training qualified him for a position as a fireman— no
lowly position but a prestigious job “somewhat equivalent to the copilot of an airplane” today.31 McCoy
surpassed the requirements of his job, using his technical skills to address problems with the locomo-
tives, especially their tendency to overheat. The locomotives needed regular engine oil, but if they
stopped frequently, the delays cost the company time and money. McCoy invented a device that
lubricated the engine parts while the train was in motion, securing a patent in 1872 and making constant
improvements to the design. White workers degraded the devices, at first, but then “they listened carefully
when the oilers were installed and he gave instructions on their use.”32 Imitators attempted to sell their
own lubricating cups, but McCoy maintained a standard of quality so high that people referred to his parts
as “the real McCoy.” At age 77, he patented an improved air brake lubricator, and that same year (1920)
he founded the Elijah McCoy Manufacturing Company in Detroit, although he owned little stock, having
sold rights to the patents for cash to develop still other inventions.33
Overall, black entrepreneurs comprised a substantial portion of the business community in the South. No
comprehensive study is available, but snapshots tell a great deal. For example, from 1865 to 1879, R. G.
Dun & Co.’s credit records for the state of Virginia contained credit information on up to 1,000 enterprises,
of which more than 220 were operated by blacks (based on notations made in the record books). Despite
the fact that Southern whites wrote the credit reports sent to Dun, many of the personal evaluations
testified to the high character of black entrepreneurs. Although black businesses were usually located in
towns of higher-than-average black population, the advertising from the businesses indicated that black
entrepreneurs had white customers and seldom appealed to strictly black customers. Most of the Virginia
black businessmen in one study were in either a mercantile business or a skilled trade, and almost 80
percent were single-owner firms. The owners apparently gained experience in business, because over
time the ratio of new firms to failed firms dropped after 1869, and many businesses were considered
failed simply because the proprietor died.34 In fact, the Virginia data showed virtually no difference in
failure rates
between black merchants and white merchants from 1870 to 1875
(which included the panic years): Of black merchants in business in
1870, 71.2 percent survived through 1875, compared to 71 percent of
<35 the white merchants.
OLD SOUTH, NEW SOUTH
Many whites, like the freedmen and the yeoman farmers of the antebel- lum period, remained on the land
and struggled to create a New South. Cotton prices, though falling in the Reconstruction period, remained
higher than other commodities, making it attractive to farm.36 Manufacturing, however, marked the New
South far more than it had the old: In 1860, the South had approximately 30,000 manufacturing
establishments; by 1870, it had 50,000, then, by 1890 the number rose to 60,000.37
Southern entrepreneurs established themselves in traditional industrial enterprises, beginning with
railroads, creating a construction boom.38 In the 1880s alone, railroad mileage in the South increased by
108.6 percent, with more than $150 million invested between 1879 and 1881 alone. Birmingham,
Alabama, emerged as the center of the new iron business that served the railroads. Milton Hannibal
Smith, who headed the Louisville and Nashville (L & N) for half a century, helped direct more than $30
million of railroad money to furnaces and iron ore production. But just as the iron mills depended on the
railroads as their primary consumers, the railroads benefited from shipping iron. In 1888, the L & N carried
more tonnage in pig iron and minerals than the annu- al average weight of the entire cotton crop of the
nation for the previ- ous fifteen years. Henry DeBardeleben, the son-in-law of the powerful New
Englander, Daniel Pratt, mobilized a coal and iron empire that included seven blast furnaces, seven coal
mines, and 900 coke ovens, as well as quarries and railroads. After once bragging that he “wanted to eat
up all the crawfish [he] could,” DeBardeleben “was himself soon gobbled up in a series of buyouts.”39
Another road to success in New South businesses came from tex- tiles, where Henry Hammett, George
Gray, and Daniel Tompkins rose to the top ranks of enterprise in the late 1800s. Hammett, a North
Carolinian, had been born of a yeoman family and worked in a cotton broker’s office in his youth. He
learned the trade, gaining promotion to business manager, and after a brief fling with railroads, he
founded the Piedmont Manufacturing Company at the peak of the Panic of 1873. By 1890, he had three
mills that made better grades of cloth; “his buildings and villages became models for other mills, while his
plants served as training schools for future owners and managers.”40
George Gray swept factories in twelve-hour shifts for ten cents a day when he was eight years old. Later,
he applied a natural mechani- cal ability to mill machinery, attracting the attention of his supervisors. His
expertise gained him repeated promotions until he became mill superintendent; then, in 1888, he founded
the Gastonia Cotton Manufacturing Company at Gastonia, North Carolina. Within twenty years, he had a
dozen plants that featured the most recent technology and hydroelectric power.
Daniel Tompkins, on the other hand, was born into affluence. His family’s plantation survived the war, and
Tompkins went to the University of South Carolina and Rensselaer Polytechnic Institute. Over a nine-year
period, he worked at Bethlehem Iron Company, gain- ing experience in the iron business. He moved to
Charlotte, North Carolina, where he eventually established mills and newspapers that emphasized
industrialization.
While Hammett, Gray, Tompkins, and other New South entrepre- neurs moved into the industrial vacuum
created by the Civil War, a broader trend encompassed business enterprise in all regions as the
managerial revolution accelerated. By the postbellum period, the man- agerial hierarchies that had
originated in the railroads spread to firms in four areas: 1) users of continuous process technology; 2)
processors of perishable products; 3) machinery makers who required specialized marketing services;
and 4) manufacturers of large-scale, specialized machinery. Starting in the 1880s, mass production met
mass distribu- tion in each of those areas as managers embarked on the strategy of vertical integration.
For a brief period, production capacity surged ahead of distribution networks; but quickly businesses
shifted their focus to sales, marking a traditional ebb and flow of business manage- ment strategy. Each
of the four areas of focus can be closely identified with one or two well-known entrepreneur
CONTIN<UOUS PROCESS TECHNOLOGY AND THE FATHER OF “BIG TOBACCO”: JAMES B. DUKE
High-volume production machinery permitted managerial change in the first area: that of continuous
process technology. When automation technology appeared, as in the adoption of the Bonsack cigarette
machine or mechanized canning and jarring processes for food, hand production virtually overnight
transformed to mass production. James B. Duke’s American Tobacco Company illustrates not only the
rapidity of change, but the scope of dominance one company could have. Washington Duke, a former
Confederate soldier who had returned to his Durham, North Carolina, farm to find it looted by scavengers,
took advantage of the only resource untouched by the vandals—a store of tobacco. With his two sons,
James Buchanan and Benjamin, Washington Duke cured and prepared tobacco for sale in packages
under the brand name “Pro Bono Publico.”41 Within a decade, Duke’s backyard operation became W.
Duke, Sons & Co., which competed directly with the major chewing and leaf tobacco manufacturer
Blackwell & Carr and its “Bull Durham” brand. By that time, James Duke, who directed the operations,
chose to target another product, rolled tobacco, assisted by a cigarette roller he had helped develop in
1878. The Bonsack machine made packaged cigarettes possible, for a single Bonsack could produce
120,000 cigarettes a day. Since the major markets were in the North, the company established an
operation in New York City in 1884, where it advertised heavily. Production soared, well above the
capacity of his existing network to sell or distribute the cigarettes, leaving Duke with warehouses of
unsold product.
Duke embarked on a program of developing an extensive sales organization, complete with marketing
agreements with wholesalers around the world. He established advertising campaigns, purchased
storage and curing facilities, and systematized the flow of cigarettes, to the point that Duke’s company
grew to be the largest manufacturer in the industry. By 1889, Duke’s machines produced more than 830
million cigarettes with sales of excess of $4.5 million. When competitors attempted to compete with Duke
on his own grounds of high produc- tion and marketing, Duke’s advertising costs soared—as did their
own. Although competitors hoped to buy out Duke’s business, instead he offered a consolidation: In 1890,
the four major cigarette manufactur- ers merged into the American Tobacco Company, with Duke as
presi- dent. American Tobacco controlled 90 percent of the market, with products ranging from smoking
tobacco and chewing tobacco to ciga- rettes and tobacco retailing. Duke abhorred inefficiency and
constant- ly emphasized cutting waste. Like other successful entrepreneurs of his day, he left a vast
fortune—$100 million—to charities, much of which went to Duke University, which created a famous
medical school known today for its research into lung cancer.
Similar mechanization and processing changes took place in busi- nesses engaged in producing canned
and bottled goods. Heinz pickles and Campbell’s soups were introduced after the Civil War to also serve
the soon-to-emerge consumer market. Henry Heinz was surrounded by bricks as a child. He worked in
his father’s brickyard and even pur- chased an interest in this family business from the proceeds of his
“other” business, selling a horseradish he bottled. Although he had a knack for business, Heinz at a
young age learned the harsh realities of the market when he and his partners drove their pickle company
into bankruptcy. When he was only twenty-five years old, Henry Heinz was arrested twice for fraud
related to the bankruptcy—although he was cleared both times—and his reputation was all but destroyed.
At that point, most people would have retired to the safe confines of the fami- ly brickyard, but not Heinz.
With $3,000 he borrowed from relatives, he again entered the food business. More conservative with his
cash this time, he audaciously marketed his name, emphasizing brand names for bottled and canned
goods. He used one of his best-known products—pickles—as a market- ing tool. His remote location at
the 1893 Columbian Exposition Chicago World’s Fair made it easy for fairgoers to ignore Heinz’s booth.
He quickly assessed the problem and had a local printer make thou- sands of small white cards that
offered a free pickle to anyone present- ing the card at the Heinz booth. Located on the second floor, the
booth suddenly attracted such large crowds that fair officials had to strength- en the supports of the
gallery floor. By the time the Chicago World’s Fair ended, Heinz had given away one million pickles, but
had also gained advertising that would have cost far more if he had paid for it directly. Newspapers and
magazines further publicized the stunt, so that schoolchildren soon begged for a “Heinz pickle” lapel pin.
Heinz had turned the corner. He also had a “hook”—something with which to grab the public’s attention.
In the 1890s, Heinz had seen an ad for a local shoe company that promoted “21 styles of shoes.” The
idea of identifying the product with a number led Heinz to create the slogan “57 Varieties,” even though
he already had more than sixty dif- ferent kinds of pickles alone. Before long, “Heinz 57 Varieties” graced
billboards and railroad cars, making the Heinz products a household name without naming a particular
product. Heinz, too, had a new name: the pickle king. He increased his efforts to improve his product and
expand advertising. The company built a huge industrial complex in Pittsburgh, a building designed so
well that it won architectural awards, and he offered guided tours of the plant. In 1900, Heinz erect- ed a
huge billboard that was among the first to use electric lights, cost- ing the then-astronomical price of $90 a
night to illuminate.42
Heinz’s pickle company and Campbell Soup both made use of new technology. There were thousands of
years of history behind preserv- ing food in containers. For canned food, until the Civil War increased
demand, each can was made by hand. Glass jars, too, changed, with molded glass making containers
cheaper and consistently strong. Heinz and others developed canning and jarring production lines to turn
out millions of items a year. Joseph Campbell, who founded Campbell Preserve Company, packed
products under several private labels, including Crescent and Joseph Campbell & Company. Not until the
1890s, however, did the company produce its trademark soup. Dr. John Dorrance, a nephew of Arthur
Dorrance, who had run the company after Campbell’s retirement in 1893, discovered that for all the
products Campbell’s offered, it did not make soup. Dorrance, a chemist, devised a process to condense
soup so that its ingredients did not separate after canning. Even so, the public “had to be educated to eat
soups.”43 Cookbooks omitted soups entirely (since, for a typical soup, the recipe would have been to
“take any food you have and add water to make it seem like more food”). Franco-American and Hutchins
both represent- ed strong competitors, too. But Dorrance had created a high-quality product that the
company produced more cheaply than its rivals. With Dorrance’s intense advertising campaign, including
clear instructions on how to prepare the condensed soup, Campbell’s soon stood alone at the top, selling
more than 16 million cans of soup by 1904.
Concern for efficiency constituted a dominant theme with all pro- ducers using continuous processing. As
a result, the use of waste prod- ucts gave birth to entire new industries that themselves used continu- ous
processing, such as soap and candles made from animal fat obtained from slaughterhouses. One of the
most famous soap manufac turers, Procter & Gamble, was created from a partnership between a candle
maker and a soap maker from the pork production capital of the nation, Cincinnati.44 British-born soap
maker William C. Procter and his brother-in-law, James Gamble, began processing and selling lard, can-
dles, and soap in 1837. The Civil War brought new contracts for candles and soap for the Union Army
and made “P & G” a nationally known company. Procter & Gamble used mechanical processes to mix
and crush the products used for bar soap, turning out 200,000 cakes of its Ivory Soap daily by 1880.
Gamble conceived of the new soap in 1878, charging his chemists to achieve the fineness of luxury soap
without using expensive olive oil that constituted the major ingredient of fine soaps. While working on the
new product, an employee ran a mixing machine too long, puffing the soap mixture more than usual so
that it floated. That gave Gamble the advertising hook he needed: It Floats! The company’s analysis of
the composition of Ivory showed it contained only 0.56 percent useless impurities, allowing the company
to declare the product was “99 and 44/100 percent pure.”45 P & G placed itself at the vanguard of the
new marketing wave, spending $400,000 on advertising by 1905. But the company went beyond
marketing, and in 1886, P & G built its Cincinnati plant, introducing labor programs that others considered
radical, including giving workers Saturday afternoons off with pay and, in 1887, instituting one of the first
profit-sharing plans in the nation.
S E M <I - P E R I S H A B L E P A C K A G E D PRODUCTS AND GUSTAVUS SWIFT
The second category of industry in which managerial hierarchies reshaped consumer habits was in the
production of semi-perishable packaged products. In the case of meat, the movement of those prod- ucts
over short distances had relied on ice cakes cut from lakes that were used to cool crude refrigerator cars.
For shipping over longer dis- tances, however, live animals had to be transported in cars for local
slaughter and processing. In the 1870s, Gustavus Swift implemented a more efficient approach. Born in
Sandwich, Massachusetts, into a fam- ily of twelve, Swift worked at his brother’s butcher shop. There, he
“perceived the simplicity of the business” that allowed a butcher to pur chase an animal, slaughter it, and
carve it into cuts and then sell the parts for more than the cost of the whole animal.46 He soon had his
own shops, purchasing local cattle and extending his sales operations to Albany and Buffalo, New York.
Swift recognized that most beef came from the West and was shipped live to markets in the eastern
United States—a process that embodied substantial waste and inefficiency. Almost two-thirds of an
animal was inedible, yet the whole cow was transported thousands of miles. If the cattle could be
slaughtered in Chicago, with only the processed meat shipped east, lower freight costs alone would make
beef cheaper. Chicago butchers had already experimented with ship- ping meat in refrigerated cars, so
Swift moved to Chicago in 1875, where he purchased a local slaughterhouse and used the strategy of
shipping meat hung in cars, relying on cold winter air to keep the meat fresh. But Swift sought a better
alternative. In 1877, he hired a refriger- ation engineer named Andrew Chase to develop a completely
insulated refrigeration car that had ice packed into the roof. The car required Swift to acquire a secure
source of ice along the route and to sell the meat immediately once it arrived, or again refrigerate it
quickly.47 Using his own shops and storage houses, Swift employed local sales forces to move the
dressed meat in refrigerator cars to nearby locations. His shops placed a few select cuts of meat on
display—usually the slower-moving cuts—in glass cases. After early resistance, competitors soon
followed Swift by building comparable networks of branch hous- es, including Chicagoan Philip Armour
and the Cudahy brothers in Omaha.48
Obsessed with efficiency and eliminating waste, Swift introduced overhead conveyors to transport the
animal carcass to each processing station within the slaughterhouse. His focus kept returning to
Chicago’s Bubbly Creek, which ran behind one of his yards and into which the effluent from his
slaughterhouses ran. Swift continuously examined the water for its fat content, and was convinced that
any fat in the water meant that too much of the animal carcass was discarded. Thus, for economic, and
not environmental, motivations, Swift cleaned up the water by finding ways to use virtually all parts of beef
and pig carcasses. He developed a series of by-products that included glue, soap, fertilizers, beef extract,
and bone products, joining the many uses for other parts of the animals—leather shoes, gloves, baseball
covers, even red paint made from animal blood—already in place. A century later, the process that Swift
started reached almost 100 percent effi- ciency, but even during his time Swift accurately could boast that
“we use all of the hog but the grunt.”49
<MACHINERY MAKERS: ISAAC SINGER’S SEWING MACHINES
Manufacturers started to bypass wholesalers in another area, that of new machines produced in high
volume that nevertheless were not especially simple to operate. Such machines not only required a
skilled sales force capable of explaining and demonstrating complex products, but also demanded
mechanical expertise to service and repair the devices. One example of a device that required special
sales training and a qualified repair staff was the sewing machine.
By the 1850s, the sewing machine industry had given birth to sev- eral competitors, each with a staff of
sales agents and marketing orga- nizations. Agents operated on a small salary and a commission, but
lacked any means of extending credit to buyers and often personally had little understanding of the
machine itself. Isaac M. Singer, an actor in a onetime theatrical troupe in Fredericksburg, Ohio, was the
individ- ual who revolutionized the industry. Out of work and nearly broke, Singer found employment at a
printer’s type factory. There, he invent- ed a type carver that he hoped to sell to New York and Boston
publish- ers. During his unsuccessful sales trip, he observed a sewing machine in a Boston shop and
immediately saw opportunities to improve the design. Indeed, “Singer’s changes constituted a new
invention” that formed the basis of his company, which he founded in 1851.50 A New York lawyer named
Edward Clark acquired an interest in the business to manufacture the Singer products. Singer, however,
was soon served with a lawsuit by Elias Howe claiming Singer had replicated his patent- ed needle and
lockstitch. Clark fought the suit on behalf of the compa- ny for years, until the court ruled that Singer had
to pay Howe a $25 per machine royalty. Undaunted, Singer mass-produced the machines with a heavy
reliance on hand-finishing.
One area where Singer had modernized, however, was in copying the tactics of a rival to establish branch
sales offices, each with a female demonstrator, a sales staff, and a full-time mechanic. Offices provided
credit to purchasers, endowing Singer with important advan- tages over enterprises relying on
commission agents. Although he was not the industry leader at the time, Singer nevertheless dominated
the market: Singer and two other competitors controlled three-fourths of the industry’s output by 1860,
with Wheeler & Wilson manufacturing 85,000 sewing machines a year and Singer coming in second at
55,000.
After 1860, Singer began to establish branch stores supervised by full-time sales agents.51 Clark had
convinced Singer of the shortcomings of a commission-oriented staff, which failed to manage inventories,
waiting too long before ordering new machines, then telegraphing large orders. Singer turned the
business over to Clark in 1863, whereupon Clark expanded and reorganized marketing and extended
overseas operations.52 Singer Sewing Machines built factories around the world, including the largest
ever constructed, in 1871, in Elizabethport, New Jersey. The Kilbowie, Scotland, plant had the capacity to
manufacture 10,000 machines a week, whereas less than a decade earlier it had taken thirty-one boys
and men in a Glasgow factory to produce thirty units. To prevent delays or other interruptions in work, the
company had its own timberlands, iron mill, and railroads.
Other businesses imitated the organizational structures of the sewing machine industry. Cyrus
McCormick’s reaper company began to employ full-time sales staff and territorial agents who provided
repair services and credit. John Deere & Company used its expertise in plows to market other, less
complex farm implements through its sales organization. Each company constantly looked for
opportunities to expand beyond its original product, but into machinery that required similar expertise or
production skills.
E. Remington & Sons, for example, had become famous for manu- facturing the modern breech-loading
rifle. Although the company was quite familiar with mass-production manufacturing, producing an
astounding 350 barrels a day at each of four furnaces at the hands of only four men, Remington also
made use of the contractor system.53 After the Civil War, the company searched for nonmilitary
customers, investigating products to fabricate in its metal-manufacturing facilities. When the company
moved into farm implements, it did not employ the McCormick-type sales force—and failed. Likewise,
when approached by a former Singer executive to develop a new sewing machine, Remington, despite
having a technically superior sewing machine, failed to create the necessary sales force, and failed again.
At that point, many people would have, literally, stuck to their guns. Not the Remingtons. An inventor
named Christopher Sholes visited the Remingtons in 1873 with his new device, the typewriter. Moving
con- servatively this time, the Remingtons worked with a firm that had exist- ing networks and finally
established a solid business. Unfortunately, when Remington attempted to sell the typewriter overseas,
the compa- ny approached Singer, which had the best foreign network. When Singer refused to market
the typewriter, E. Remington & Sons was forced to establish its own, expensive organization. That, and
the recession in the firearms industry, pushed Remington into bankruptcy in 1886, at which time the
typewriter division was sold off as Remington Typewriter.
HEAV<Y SPECIALIZED EQUIPMENT AND GEORGE WESTINGHOUSE
Just as Andrew Jackson Beard had saved countless railroad workers’ limbs and fingers with his Jenny
coupler, George Westinghouse saved untold numbers of lives and injuries with his compressed air brake.
Westinghouse was only twenty-two years old when he approached a group of railroad executives to
demonstrate his invention in 1868. During the test, a horse would unseat its rider onto the rails in the path
of an oncoming train. Westinghouse and the railroad executives were standing off to the side. To stop a
train, it typically took a large crew of burly brakemen to manipulate the heavy brake shoes then in use, but
during this demonstration, a single engineer activated the Westinghouse brake and the onrushing train
ground to a halt only four feet from the hapless horseman. At the end of the test, no executive needed
any further convincing. Within a year, Westinghouse Air Brake Co. began filling orders for the air brake
from its Pittsburgh factory, and by 1873, Westinghouse air brakes appeared on more than 10,000
locomotives and cars.
Not yet thirty years old and a millionaire, Westinghouse went to work every day as if he was a brakeman
himself, and he never stopped inventing. During the 1880s, he started work on alternating current (AC)
electrical systems, a superior alternative to the direct current (DC) systems then in use. Whereas AC
could travel over longer dis- tances, its high voltage made it more difficult to control. Westinghouse
founded Westinghouse Electric Company in 1886 to build the equip- ment needed to control AC,
developing a system of transformers and generators. He proved the reliability and safety of the AC
equipment, but found himself in competition with the legendary Thomas Edison whose devices used DC.
Edison’s company enthusiastically publicized accidents from AC voltage, to the point of conducting
experiments in which cats were electrocuted to show its dangers. Newspapers cooper- ated with stories
whose headlines read “Electric Wire Slaughter” and “Another Lineman Roasted to Death.”54 After the
state of New York adopted electrocution (using AC) as its means of capital punishment, Edison officials
referred to it as “Westinghousing” the condemned.
Most people who worked with electricity knew better. In 1892, Westinghouse won the contract to provide
lighting for the Chicago Columbian Exposition, proving to the world the safety and efficiency of AC power.
Over a six-month period, the fair was illuminated nightly with safe AC electricity without a single accident.
That was the break- through Westinghouse needed, and contracts to provide electricity to homes and
businesses flooded Westinghouse Electric. In his mid- sixties, Westinghouse retired, confined to a
wheelchair. His relentless inventor’s spirit still propelled him to create, however, and he spent his last year
working on an electric wheelchair.
Large machinery of types other than electric dynamos also demanded specialized sales and technical
service, requiring well- trained and skilled technicians. Elisha G. Otis understood that assuag- ing the
public’s fears of elevators depended in no small part on his rep- utation for installing and servicing his
elevators, and after his death his sons centralized the administration of the business and oversaw the
vertical integration of the company. The family-owned Otis Company was, by the late 1890s, a “big
business,” yet because it did not separate ownership from management, it did not fit the Chandler
definition of a modern business organization. But the neat, clean separation of man- agement and
ownership did not always occur in the emerging corpo- rate giants, as seen in the case studies of
Frederick Weyerhaeuser’s lumber business.
F R E <D E R I C K W E Y E R H A E U S E R , ENVIRONMENTALIST AND LUMBERMAN
Driven from Germany at a young age by revolution, Frederick Weyerhaeuser found employment as a day
laborer on construction crews, a lumber grader, and a bookkeeper. In 1857, the Illinois lumber- yard he
managed went bankrupt, putting Weyerhaeuser on the street and out of work. He managed to raise the
necessary funds to purchase the bankrupt lumberyard, then, using the wood to barter, Weyerhaeuser
worked a number of trades with local farmers. Leasing an idle sawmill in Rock Island, Illinois, he
purchased logs and hired a miller to saw them, then used the cut wood to construct houses and other
buildings.
Already, Weyerhaeuser had vertically integrated, obtaining raw lumber, owning the processing facility,
and selling the final, finished product. Although never a woodcutter himself, Weyerhaeuser filled almost
every other position in the company at one time or another, overseeing the production, accounting, sales,
and financing. Earnings were solid, but not spectacular—$8,000 for the first year and nine months. When
the Civil War brought new demand, Weyerhaeuser joined with his brother-in-law to expand further, taking
advantage of the relative dearth of lumberyards and abundant timber in the Midwest.
Weyerhaeuser employed a firm called the Beef Slough Company to collect logs, float them down the
Mississippi, and sort them for cutting. But he realized that at any time his supply could be interrupted by
man- agement decisions at Beef Slough or by natural impediments to ship- ping. He therefore started to
purchase his own timberland of yellow pine in Wisconsin. Along with other loggers, he formed his own
river transportation company. By 1885, the firm processed more than 500 million board feet of lumber.55
The phenomenal amount of timber that passed through Weyerhaeuser’s mills only convinced him further
of the need to maintain his own supplies of raw timber, leading him to embark on an ambitious land
acquisition program. He held more than 300,000 acres by 1879, but already focused on the newly
developing western territories. In 1891, he moved to St. Paul, Minnesota, residing next door to James J.
Hill, whose Great Northern had become a major purchaser of Weyerhaeuser’s timber for railroad ties. Hill
already understood the value of having consumers next to his road, and Weyerhaeuser appreciated his
largest customer. By the 1890s, the Great Northern Railroad had sold some of its own timber- lands to
Weyerhaeuser, including 900,000 acres in 1900. The sale required $5.4 million, forcing Weyerhaeuser to
put together a large syn- dicate under the name Weyerhaeuser Timber Company. When he sent
inspectors to the lands, however, Weyerhaeuser learned that they were not as rich in virgin timber as he
had believed. At about that time—per- haps because of that sudden awareness—Weyerhaeuser started
to devote considerable resources to reforestation, soil erosion, and fire prevention.
Then, as today, more net forest lands are lost due to fires (most of them natural, caused by lightning) than
are lost due to harvesting. Stephen Pyne’s magisterial book on fire, for example, records that in the period
from 1940 to 1965, lightning ignited more than 228,000 fires in the United States.56 The very remoteness
of such fires has made it dif- ficult, if not impossible, to fight them, which made the fires phenome- nally
destructive, often burning more than one million acres of forest!57 Weyerhaeuser recognized the threat
nature posed to his empire and fully realized that without trees, he had no business. Certainly he could
not contribute to deforestation. Thus he embraced conservation, which as a movement was in its infancy.
The strategy of replacing forests had started in the timber business, including measures far more
aggressive than just “not cutting.” Already all the major users of lumber and paper products had adopted
reforesta- tion measures. International Paper, which owned land since 1898, estab- lished its own
nurseries, by the 1990s turning out 190 million seedlings a year. As of 1924, International Paper
controlled 20 million cords, or 4 million more than it consumed, and added 800,000 new cords of wood
every year through forestry methods already in place.58 (By the 1990s, International Paper alone planted
more than 48 million trees a year— five times more than it harvested—and donated or sold the rest for
addi- tional reforestation.) Another producer of paper products, Kimberly- Clark, in 1902 embarked on the
first long-term woodlands management program that employed hundreds of professional foresters.59
In one sense, Frederick Weyerhaeuser and other lumber producers faced unique problems from other
entrepreneurs in that they dealt with a resource that, unless replenished by humans, could have been
deplet- ed entirely, especially given the time lag between planting a tree and harvesting it. Cotton growers
or textile manufacturers did not face the same resource problem. From another perspective, though,
Weyerhaeuser typified several of the major entrepreneurs of the day, for even amid the managerial
revolution, he maintained control and ownership over his organization. Adopting the structure of
managerial hierarchies, he retained the substance of entrepreneurship.
In farming and food sales, entrepreneurs also sought ways to adopt new management methods to family-
owned firms. Innovators in agri- culture perceived that the days of the small acreage, limited crop farm
had ended. Successful food-oriented businesses, even if families retained control, had to incorporate
elements of the new management structures and extend their markets. A. P. Seabrook, for example, had
farmed a relatively small acreage in Bridgeton, New Jersey, in the 1880s—an unlikely prospect for
evolving into the world’s largest farm.60 Seabrook specialized in peas, beans, limas, and spinach of such
quality that others contacted him about furnishing seed. His vegetables, packed in ice and shipped by rail,
reached Philadelphia, New York, and Baltimore. After learning of a Danish process for growing cauliflower
using overhanging pipes that sprayed water, the family installed the system and realized a profit of
$25,000 on the operation. By the early 1900s, the Seabrook family started to can its own foods and
mechanize its farming.
Weyerhaeuser in lumbering, A&P in grocery stores, Seabrook farms, Jack Daniel with his whiskey, and
Dr. Welch’s juice company— all demonstrate how family businesses had started to make the transi- tion
to modern corporations. None of them, however, better bridged the gap between the traditional structure
of an owner-controlled busi- ness and the new organizations relying on professional managers than the
greatest nineteenth-century entrepreneur of them all: Andrew Carnegie. <
ANDREW CARNEGIE AND AMERICAN STEEL
Enough chroniclers have told Carnegie’s story that all the details need not be repeated here.61 A Scottish
immigrant raised in poverty, Carnegie rose to the pinnacle of American business, becoming the greatest
steel- maker in history. Carnegie left Scotland when he was thirteen. With lit tle formal education, he and
his family located in Pittsburgh, where he worked a number of jobs, including one as a bobbin boy. He
toiled twelve hours a day for $1.20 a week, and by 1849 he had a better position at the O’Reilly Telegraph
Company, where his keen memory and ability to translate Morse code without writing it down first made
him a valuable employee.
By age 16, Carnegie earned more than his father, but his career had only started to develop. His
telegraph talents had caught the eye of Thomas Scott, district superintendent of the Pennsylvania
Railroad, who hired Carnegie as his personal secretary. In a few years, Carnegie had gained precious
experience in two booming industries: steel and railroads. Scott even educated Carnegie on the stock
market and loaned him money to purchase stock in Adams Express Company. Several transactions
followed, with Carnegie making a small fortune in each. With his available cash, Carnegie invested in
Keystone Bridge Company, where he became a partner. That investment served as the “parent of all the
other works” and proved a brilliant choice. Railroads had started to stretch across the nation, and at each
valley or river they required a bridge. Thus, as one Carnegie biographer observed, “Carnegie’s deci- sion
to found a company to build iron bridges put him into the middle of one of the most rapidly changing
technologies of the day and at the same time opened spectacular opportunities for achievement.”62
The short jump from bridge construction to steel manufacturing seemed natural to Carnegie, who had
invested in iron forges in 1861 and had organized the Cyclops Iron Company in 1864. Whether in bridge
construction or iron production, Carnegie energetically devoted himself to controlling costs. When it came
to manufacturing iron, he learned that few of the experienced iron manufacturers even knew their costs,
with owners providing tons of raw materials to mills daily without an accurate accounting of the supplies
delivered. His account- ing systems detailed the expenses of every department, at which point Carnegie
reduced costs. But his most significant efforts to control costs involved backward and forward integration.
The Cyclops and Union mills supplied iron plates and beams to Keystone Bridge, and in 1870 he ordered
construction of the Lucy blast furnace to provide pig iron to the mills. That furnace turned out record
tonnage of iron—642 tons in one week, compared to an industrial average of 350, and 100 tons in a
day—and Carnegie’s blast furnaces worked so hard that he had to reline the interiors every three years.
American technology lagged behind that of the British, espe- cially after the introduction of a new process
designed by Henry Bessemer, who discovered that he could purify hot pig iron of its car- bon with a blast
of cold air. Bessemer’s converter looked like a large, open-topped egg, with air blasted into the molten
iron through vents in the bottom. The infusion of oxygen cleared the iron of silicon, and it was not long
before steel masters were able to control the exact con- tent of carbon in the steel through the Bessemer
process. Alexander L. Holley of Connecticut, who studied Bessemer’s plants in Sheffield, England,
returned to America to create his own Bessemer furnace in Troy, New York, in 1864.
Carnegie recognized the technology as the wave of the future and entered into Bessemer steel
production in 1866, using imported British equipment. Attracting other investors, Carnegie maintained the
con- trolling interest in a new company, Carnegie, McCandless & Company, with the goal of producing rail
steel with the Bessemer process. Always aware of the contributions of experienced and talented
employees, Carnegie hired many of the best iron and steel men in the industry, and more than a few
came to him because of his reputation. One of the best, “Captain” Bill Jones, proved a superior plant
manager. Others, such as Julian Kennedy, constantly improved Carnegie’s plant technol- ogy,
contributing more than 100 patents (of which more than fifty found their way into Carnegie’s plants during
Kennedy’s lifetime). Carnegie did not hesitate to employ any technology—homegrown or otherwise,
regardless of cost. He hired Alexander Holley to build a mill near Pittsburgh, naming it the J. Edgar
Thomson Steel Works—ever with an eye to his chief customer, the railroads.
Carnegie attracted most of his senior managers with shares of own- ership. Only Bill Jones declined such
an offer and instead demanded “one hell of a big raise,” which Carnegie paid ($25,000, then a fantastic
sum). The Carnegie companies were partnerships, with Andrew Carnegie the majority partner. In an age
when ownership and manage- ment of corporations were separated, Carnegie merged the two as never
before. All new partners came into the firm under the “Iron Clad Oath,” in which they agreed to offer their
shares for sale back to the other partners before putting them on the open market. In that way, Carnegie
constantly built up his ownership position when partners left or, in some cases, were forced out. Giving
the top managers a share of ownership produced unmatched gains in output, although, again, Jones was
the exception. After he received his big raise, he promised Carnegie that his mills would outproduce the
Cambria Iron Works, and they did, turning out 8,000 more tons of steel in 1881 than Cambria. The
partnership business form that Carnegie took allowed him to finance virtually everything internally,
providing a constant circle of profits back into the business, to the consternation of some stockhold- ers.
Carnegie virtually never paid dividends, and while the stock value soared, the partners received little cash
flow other than their salaries. Internal financing gave Carnegie the enviable advantage of having money
when no one else did. In depressions, such as the Panic of 1873, he bought when others sold at bargain-
basement prices. He eagerly scooped up new mills and equipment from overextended competitors, often
obtaining state-of-the-art machinery at a bargain. And in all of his dealings, Carnegie stayed focused on
the bottom line of cutting costs in order to reinvest and expand. Hardheaded at times, Carnegie could be
persuaded when confronted with evidence, especially if it showed lower costs.
Those traits made him a ruthless competitor—even more so because “his competitors were considered
enemies, not gentlemanly rivals.”63 There was none of the collusion that had befallen the railroads with
Carnegie, who sought to bury his challengers, not praise them. When he acquired the Homestead Steel
Works, he offered the owners cash or the equivalent stock value in his own company; they foolishly took
cash. The only investor who took stock saw his $50,000 stake grow to $8 million in a fifteen-year period.
To the dynamic Carnegie, the key was action: The Scotsman “bought in depressions, rebuilt in
depressions, restaffed in depressions, and then undercut his competi- tors when business was good.”64
In so doing, Carnegie performed an extraordinary public service, as he forced prices for steel downward
until it became a basic metal. He, of course, did not refuse government help when he got it, supporting
the steel tariffs of the 1870s, although he contended that “even if the tariff were off entirely, you [British]
couldn’t [sell] steel rails west of us.”65
A conspicuous exception to his obsession with lowering prices involved hiring and retaining expensive
labor. Carnegie reasoned that the most expensive labor in a free market was also the most valuable due
to its productivity. In this, he was persuaded by Jones, who argued on behalf of an eight-hour day
because “it was entirely out of the ques- tion to expect human flesh and blood to labor incessantly for
twelve hours.”66 Others, particularly union leaders, often failed to understand Carnegie or, conversely,
understood precisely that his relationships with labor required thoughtful workers willing to bargain
individually. That was anathema to union organizers, who fought Carnegie repeat- edly over collective
bargaining. Carnegie did not mind paying higher wages, as long as individuals negotiated them. Indeed,
nowhere in the American labor movement does the fundamental philosophical differ- ence appear starker
between those who believed that individuals were helpless and those who thought that all power
emanated from the indi- vidual than in the clashes between Carnegie’s company and the unions.
By the time the issue came to a head, however, Carnegie had left for Scotland, leaving a man of less lofty
ideals, Henry Clay Frick, to pre- side over one of the worst strikes in American history. Frick was not
without his own success story to tell, starting as a clerk in a department store. By age 22, Frick had his
own firm, having founded the Henry C. Frick Coke Company in 1871, forging it into one of the most
powerful businesses in America, and bringing him into Carnegie’s orbit. In 1882, to ensure a steady
supply of coke for his steel mills, Carnegie had pur- chased half of Frick’s interests, making Frick a
Carnegie partner. At that time, Frick, age 33, wielded control over 1,200 coke ovens. A few years later,
Carnegie made Frick president of the Carnegie companies, reorganized yet again in 1891 as Carnegie
Steel Co.
Carnegie already had crossed swords with the Amalgamated Association of Iron and Steel Workers when
it won a strike at Homestead in 1889. The new contract came up for renewal in 1892, by which time
Carnegie had left the tactical details to Frick, although advising his president to shut down the plants and
let the workers decide to come back. Instead, Frick provoked a fight, turning Homestead into a fortress
with armed guards. When the entire work- force went on strike, Frick tried to break it by hiring Pinkerton
guards who were little more than otherwise unemployed riffraff. The Pinkertons, supposing to take the mill
under the cover of darkness, arrived from the river to avoid the picket lines; but they were spotted, and a
miniature war broke out on the riverbank. After the Pinkertons surrendered, they walked through the town
that had felt the brunt of the labor policies. A crowd turned into a mob, killing several Pinkertons and
beating most of them. After that, the union’s advisory committee, in full control of Homestead, “ran the
town with a heavy hand reminiscent of Robespierre’s Committee of Public Safety.”67 The governor called
in the state militia to restore order, and then Frick reopened the plant with nonunion workers—although
union workers were invited back on a prestrike basis, and after the strikers realized they had lost, they,
too, returned to work. Homestead operated as a nonunion plant, with each worker signing an individual
agreement with the company. In a statement to the Pennsylvania grand jury related to the case, Chief
Justice Edward Paxon of the Pennsylvania Supreme Court reiterated the fundamental rule of free
markets: “The relation of employer and employee is one of contract merely. Neither party has a right to
coerce the other into the making of a contract to which the mind does not assent.”68
Ironically, both Carnegie and the union emerged as villains, while Frick survived just short of a hero—at
least, temporarily. Frick’s status derived from an unsuccessful assassination attempt on him during the
strike by an anarchist. Alexander Berkman burst into the president’s office, shot Frick twice in the neck,
then attempted to commit suicide and blow up the room by biting down on a capsule of fulminate of mer-
cury. After the maniac was subdued, Frick sat in his chair while a doc- tor removed the bullets without
anesthesia. Not only did Frick remain at his job that day, but he wrote his mother a letter in which he
scarce- ly mentioned the incident. Meanwhile, editors and labor leaders heaped scorn on Carnegie, who,
they argued, could have prevented the episode at Homestead with a word. (Carnegie, of course, had no
more control over Frick than did the union.) The Amalgamated suffered a fatal blow to its prestige from
the ease with which modern production methods replaced the skilled craftsmen, who learned that
mechaniza- tion had made the craft unions obsolete. Even Frick, though, ultimate- ly had to pay for his
role in Homestead, finding himself pushed to the periphery of Carnegie’s business. Frick still owned his
Frick stock, resulting in a bloody battle with Carnegie to exact full payment for his shares. After a suit,
Carnegie paid Frick $31 million, then did not speak to him again, except once, in old age, when the
Scotsman offered to reconcile. Frick told the intermediary, “Tell Mr. Carnegie I’ll meet him in hell.”
Carnegie turned his company over to a young genius, Charles Schwab, who had started as a stake driver
at the Edgar Thomson plant, rising to the top of the corporate world as the president of Carnegie Steel at
age 35. Schwab knew how to persuade Carnegie, barraging him with data on savings until he achieved
his goal. Schwab continued the Carnegie evolution of integrating the company entirely. Although
Carnegie Steel owned its own sources of coke and limestone, it still had to purchase iron ore. That
weakness became all too apparent when John D. Rockefeller purchased control over the rich Mesabi,
Minnesota, iron ore range, making Carnegie dependent on him for his raw materials. Carnegie moved
quickly, working out a lease arrange- ment with Rockefeller for the land. He built his own railroad to haul
ore from Lake Erie to Pittsburgh, saving the company $1.5 million annual- ly. Next, he acquired a fleet of
ore boats that saved an additional $2 mil- lion, all the while increasing his capital investment in his main
busi- ness, steel.
Those improvements, and Carnegie’s good sense in attracting tal- ent, made Carnegie Steel the most
efficient steel manufacturer in the world. Between 1888 and 1898, the company’s capital rose from $20
million to $45 million while its production tripled, rising to 2 million tons of pig iron a year and 6,000 tons of
steel a day. By 1900, Carnegie accounted for one-third of all the steel produced in the United States and
had surpassed the British in efficiency.
Called a “robber baron,” Carnegie astutely summed up the entre- preneurial realities: Two pounds of iron
shipped to Pittsburgh, two pounds of coal (turned into a quarter pound of coke), a half pound of limestone
from the Alleghenies, and a small amount of Virginia man- ganese ore yielded one pound of steel that
sold for a cent—“that’s all that need be said about the steel business,” he adroitly noted.69 But that was
not all that needed to be said about Carnegie. He once admitted that his life’s goal was to give away $300
million, but he did not do it: He gave away more! His Carnegie Institute of Technology received $27
million, and his retirement fund for teachers netted $10 million. By 1904 alone—about the time he started
giving away money full-time—he already had donated more than $180 million to charities.
Most of that money came from the sale of Carnegie Steel in 1900. For some time, J. P. Morgan had
listened to Schwab explain the advan- tages of streamlining the steel industry. Morgan had reorganized
rail- roads and thought structure could be brought to steel, too. Morgan was aware that Carnegie had
considered selling the company, flirting briefly with a syndicate involving John W. “Bet-a-Million” Gates of
Chicago. Gates, who had founded a thriving barbed-wire business, was known for his outlandish bets, yet
the key sale of his life—of barbed wire to a group of San Antonio ranchers—was hardly a gamble. Gates
had chal lenged the ranchers to bring their steers to town to test a fence made of his wire. Suspecting
that no rancher would risk his own cattle, Gates had his own wild-looking (but actually docile) steers run
into town, where, promptly, they stopped at the wire and ensured his sale.70 But the sale of Carnegie
Steel to the Gates group fell through, and Morgan talked further with Schwab. The banker asked Schwab
to serve as the courier and asked Carnegie to fix a price. Dutifully, Schwab, the presi- dent of one of the
largest companies on earth but reduced to the capac- ity of a courier, transmitted Morgan’s request to
Carnegie on the golf course. Schwab and Carnegie made a few calculations, then Carnegie scratched a
figure—$480 million—on a small piece of paper. When Morgan saw it, he said, “I’ll take it.” The titans
finalized the deal aboard Morgan’s yacht, the Corsair, with Morgan extending his hand to Carnegie,
saying, “I congratulate you on becoming the richest man in the world.”
Although Carnegie’s role in his steel company ended, Morgan, true to his vision, reorganized Carnegie
Steel into U.S. Steel Corporation, which included Federal Steel, National Tube, American Steel and Wire,
American Steel Hoop, American Tin Plate, American Sheet Steel, American Bridge, Shelby Steel, and
many other holdings. The final business, capitalized at $1.4 billion, constituted the world’s largest cor-
poration. Under Schwab’s leadership, the company maintained unprecedented production levels. But
under Morgan, Schwab managed a much different steel business than he had under Carnegie. Unlike the
Scotsman, Morgan wanted stability instead of innovation, and he failed to see the elegant simplicity of
cost-cutting to obtain market share. Soon, Schwab was gone.
The young executive had not abandoned Carnegie’s concepts, how- ever, and at his own private
company, Bethlehem Steel, Schwab quick- ly repeated, and even surpassed, his performance at
Carnegie. He selected fifteen young men “right out of the mill and made them my partner,” Schwab
recalled.71 Within ten years, the New York Times called Bethlehem “possibly the most efficient,
profitable, self- contained steel plant in the country.”72 The workforce at Bethlehem doubled every five
years; U.S. Steel’s workforce shrank.
Schwab proved that it was not the size of the company that mat- tered, nor even its heritage. No company
was better grounded to cap- ture the American steel market entirely than U.S. Steel after Morgan finished
his consolidation. Instead, U.S. Steel abandoned the vision and faith that had created it. Morgan should
have known better: As a banker, he broke new ground constantly, taking unimaginable risks. But as a
manager of a steel empire, he lost sight of the soul that gave life to Carnegie’s structure, namely, the
willingness to sacrifice existing plants and systems for the potentially better and cheaper processes. All
Morgan had to do was to heed Carnegie’s words: “Watch the costs and the profits will tak<e care of
themselves.”
BIG BUSINESS, BANKING, AND J. P. MORGAN
It was fitting that Morgan took over for Carnegie, much the way only a Joe DiMaggio could wear the
Yankee pinstripes made legendary by Babe Ruth. Morgan also personally represented the fusion of the
sole- proprietor entrepreneur with the managerial approach of the new inte- grated industries. He attacked
problems aggressively and individually, relying on the help of syndicates but never becoming beholden to
them. More than any person, Morgan reorganized businesses with manageri- al hierarchies, introducing
them to stability and conservatism. Yet Morgan’s deals themselves epitomized entrepreneurship and risk
tak- ing—the exact opposite characteristics embodied in the managerial revolution.
Raised in a home as luxurious as Carnegie’s was bleak, Morgan increasingly focused his career on
rescuing distressed railroads. As the price for his support, Morgan insisted on managerial changes. He
merged unprofitable lines with sound railroads, underwrote securities to equip roads that lacked internal
funding, and corrected abuses in chronically overextended roads such as the B & O. During the process
of selling securities for the New York Central, Morgan obtained a seat on the board of directors. From an
inside position, Morgan demanded management changes, setting a pattern for Morgan’s future dealings.
While reorganizing the Reading Railroad, he perfected the voting trust, giving bankers control over a
company until the company met pre- scribed performance objectives. Not surprisingly, by the late 1800s,
railroads came to look like banks with their professional management structures. Morgan’s more
important accomplishments, however, involved his contributions to investment banking and, indirectly, the
structure of the American banking system itself.
By the late 1800s, national and state banks provided the commer- cial funds and circulation needed for
daily economic life. Large invest- ment banks, such as Morgan’s, handled the issue of securities for new
firms or to recapitalize old ones. When necessary, the syndicates formed by the investment banks could
supply even the U.S. govern- ment with cash. Thus, while historians have referred to the “dual bank- ing
system” of state and national banks, really there were two sets of systems, one involving regulatory
oversight and control and the other dealing with the types of services and funds provided. Both, however,
suffered in the event of a depression or panic.
In 1873, the failure of Jay Cooke’s bank triggered runs and a panic. The system lumbered along for two
more decades, struggling to pro- vide enough cash in flush times or to contract the money supply in tight
periods. With the amount of national banknotes tied to the amount of bonds that the banks had on deposit
with the government, expanding the money supply rapidly proved difficult. Moreover, the seasonal nature
of a still-strong agricultural sector placed particular demands on certain areas of the country that were not
shared by the large industri- al centers. Political shenanigans with silver (the Bland-Allison Act of 1878
and the Sherman Silver Purchase Act of 1890) tended to exacer- bate the institutional problems with the
money supply, ultimately con- tributing to the Panic of 1893. The overvaluation of silver caused money to
flow out of the nation at unprecedented rates, threatening the financial structure of the United States
itself.
Into the breach stepped J. P. Morgan. He formed a syndicate with August Belmont & Company and the
European bankers, the Rothschild family, to deliver to the Treasury 3.5 million ounces of gold—certainly
the largest private “bailout” of the government in history. “For a private banker to stem the gold outflow of
the United States was a breathtak- ing feat,” but to some, Morgan’s assistance represented the worst of
the American business system and the weaknesses of the banking system that still required the efforts of
one man to set it right.73 Many saw it as a sign that the nation needed a central bank capable of doing
what Morgan did, supplying money in recessionary times. Several monetary reform movements were
spawned during the late 1800s, most of them somehow tied to the creation of the American Bankers
Association in 1876. The association initially focused on making uniform state bank- ing laws, but at its
Baltimore convention in 1894, Alonzo B. Hepburn and Charles C. Homer put into motion a plan that
ultimately served as the basis for the Federal Reserve Act, reforming the financial system.
Indeed, no term better captured the thrust of the new business- government relations than reform.
Americans came to view big busi- ness increasingly as bad business. Labor unions, social activists, politi-
cians, editors, and others complained about monopolies, the profits earned by “robber barons,” and
inordinate power of large corporations over American politics and life. An entire political movement, the
Progressive wing of the Republican Party (then later, the Progressive Party itself), stood for reform of all
aspects of society, including sever- al aspects of business and the economy.
In some ways, then, Morgan’s actions in 1893 marked the tempo- rary end of a relatively brief period in
the nation’s business history when a small minority of talented individuals completely dominated the
scene, improving the lives of everyone in quantum terms. Thomas Edison not only provided light, he
changed American nightlife and the landscape of the cities. Carnegie not only produced cheap steel, he
made buildings, railroads, and ships safer than ever before. Swift did not just find a more efficient way to
produce beef and pork, he improved the dietary habits and health of generations.
Perhaps it was the very fact that not everyone could accomplish those great feats—that a chasm stood
between the vital few and the average American. Yet countless numbers of average Americans suf- fered
setbacks and financial failures before developing products and services that changed all our lives for the
better. But the convergence of large-scale industry, combined with a national market and the ele- ments
of mass production and marketing, allowed anyone of excep- tional talent to rise to unprecedented levels
of success. Right behind them, however, marched an army of professional managers, more con-
servative by nature, who could not replicate the feats of the captains of industry. The appearance of the
professional managers fit nicely with the new Progressive movement, which reveled in constant,
evolution- ary reform toward an ill-defined notion of perfection. Progressives not only viewed human
control over commerce as superior to that of the market, but also assumed that their own intellect was
superior to the collective wisdom of the market.
1
Entrepreneurship and Christian Principles
Student's Name
Institutional Affiliation
Course Number
Instructor's Name
Date
2
Entrepreneurship and Christian Principles
Entrepreneurship occupies an unheralded place in the Christian worldview due to the
knowledge and skills it encompasses. It equips entrepreneurs with the attributes that seek and
grasp opportunities as they surface while constantly envisioning the dimension that is likely
to be affected by their interests. In the process, they can recognize and possess opportunities
as they develop, a crucial notion in the Christian vocation. This is contrary to the typical
opinion that entrepreneurship gives people tremendous income, representing a failure to
recognize that it equips people for a given role.
1
Historians are compelled by the biblical
worldview founded on the principle that God establishes order, intelligence, and the truth
experienced in the universe and throughout history. Significantly, the Bible provides guiding
principles of ethics that inform how people from different backgrounds evaluate others while
detailing the significance of people realizing and recognizing their limitations as mortal
beings. As such, this essay aims to assess how entrepreneurship in a capitalist environment
integrates the aforementioned biblical principles.
God equips human beings with strength, intelligence, the truth of their surroundings,
and order which compels them to utilize their talents and abilities in His honor. This is
because humans are depicted in God's image, and their engagements should be focused on
praising and glorifying Him. Talents and abilities are utilized to showcase the purpose of
human life, and the establishment of truth and intelligence allows for the total exposure of
God's intentions.
2
Entrepreneurship provides a platform where people can showcase their
talents and utilize God-given gifts. Humans are called to ensure full utilization of their gifts
and talents in glorifying his name as exhibited in various parts of the Bible where it states,
1
Patricia Tsague, Biblical Principles for Starting & Operating a Business: The Biblical Entrepreneurship
Marketplace Series, p. 15
2
Degner, Jeffery. "The Biblical Ethic of Free Market Exchange." MISES: Interdisciplinary Journal of Philosophy,
Law, and Economics 9
3
"…who has given much, much will be demanded…."
3
This paints entrepreneurship in the
free market as a way of allowing humans to seek opportunities to showcase their talents as
they are required to access risks and resolve encountered problems.
4
In the process, they
engage in business stewardship encompassed in the Bible, and the profits generated are
rewards for their intelligence and talents, as incorporated in the biblical principles.
The entrepreneurial landscape is uncertain, and the biblical principles require business
individuals to pray daily while carrying out their routine practices to ensure God is honored
through their deeds. The desire to utilize their God-given gifts prompts people to seek
opportunities to showcase their potential by developing goods and services that can benefit
the masses.
5
Reality integrates God's established order and truth concerning the universe and
history, and the human order, which comprises the government, ought to promote order,
intelligence, and truth. This takes into account the business environment in a free market to
ensure civil laws are upheld, and injustice is alleviated in line with principles.
The Bible details ethical principles that facilitate the people's evaluation of others and,
subsequently, ensure their actions are warranted and they can accept their replication onto
them. This implies human beings feature God-given resources bestowing responsibilities onto
them and ensuring they are committed to His virtues and values. According to the Bible,
everyone is equal and, as such, will be rewarded equally.
6
The talent a person is blessed with
is supposed to be advanced to yield fruits and rewards, which in this case, are the profits. The
significance of entrepreneurship, based on biblical principles, highlights the importance of
people knowing the consequences of their actions and responsibilities.
7
They are called to
3
Luke 12:48 - New International Version
4
Schweikart, Larry., Doti, Lynne Pierson. American Entrepreneur: The Fascinating Stories of the People who
Defined Business in the United States. United Kingdom: American Management Association
5
Schweikart, Larry., Doti, Lynne Pierson.
6
Patricia Tsague, Biblical Principles for Starting & Operating a Business: The Biblical Entrepreneurship
Marketplace Series, P, 18.
7
Patricia Tsague, Biblical Principles for Starting & Operating a Business, P. 20.
.
4
ensure their actions benefit others in society as their core goals and consequently refrain from
exploitation of others. Entrepreneurs in the free market are able to align their activities with
biblical principles, eliminating greed and selfishness and instead working towards ensuring
the prosperity of everyone and benefits for the consumers they serve.
The biblical principles hold that men ought to recognize their limitations as mortal
beings and, as such, should ensure they remain productive, as God rewards humans'
productivity and shuns unproductivity through punishment. This implies that human beings
have an obligation to ensure the land and the God-given resources are protected for elevated
productivity. The inability to be productive implies the nation's economies will be highly
impacted and, consequently, the people's livelihood due to underdevelopment. Organizations
that participate in social responsibility enhance the communities' livelihood and ensure they
tap the existing resource to spur development.
8
Even though the business environment in a
free market may be marred by unfairness, God's people have an obligation to ensure their
actions pleases God. As such, the Christian vocation aligns with the need to advance
entrepreneurship and consequently contribute to the wealth development of the nations to
ensure they are self-sustainable.
9
Through innovation, entrepreneurs can impact society
positively as they ensure human society is advanced in line with the promotion of free
markets and biblical principles.
In conclusion, the biblical principles are compatible with entrepreneurship in the free
market. The Bible instructs people to ensure they carry out their activities in a way that serves
to honor God. This implies an entrepreneur in a free market should be governed by the
intention to make a difference and contribute to the positive development of people's lives,
8
Blanchard, Kathryn D. The Protestant ethic or the spirit of capitalism: Christians, freedom, and free markets.
Wipf and Stock Publishers,
9
Tsague, Biblical Principles for Starting & Operating a Business: The Biblical Entrepreneurship Marketplace
Series, p. 10
5
and their focus should not be glued to profit making. Making a difference in their doings
equates to honoring and glorifying God despite human limitations as mortal beings.
6
Bibliography
Blanchard, Kathryn D. The Protestant ethic or the spirit of capitalism: Christians, freedom,
and free markets. Wipf and Stock Publishers, 2010.
Degner, Jeffery. "The Biblical Ethic of Free Market Exchange." MISES: Interdisciplinary
Journal of Philosophy, Law, and Economics 9 (2021).
Tsague, Patrice. Biblical Principles for Starting and Operating a Business: The Biblical
Entrepreneurship Marketplace Series. AuthorHouse, 2006.
Schweikart, Larry., Doti, Lynne Pierson. American Entrepreneur: The Fascinating Stories of
the People who Defined Business in the United States. United Kingdom: American
Management Association, 2010.
Outline
Entrepreneurship and Christian Principles
Entrepreneurship occupies an unheralded place in the Christian worldview due to the
knowledge and skills it encompasses.
It equips entrepreneurs with the attributes that seek and grasp opportunities as they
surface while constantly envisioning the dimension that is likely to be affected by
their interests.
God equips human beings with strength, intelligence, the truth of their surroundings,
and order which compels them to utilize their talents and abilities in His honor. This is
because humans are depicted in God's image, and their engagements should be
focused on praising and glorifying Him.
The Bible details ethical principles that facilitate the people's evaluation of others and,
subsequently, ensure their actions are warranted and they can accept their replication
onto them. This implies human beings feature God-given resources bestowing
responsibilities onto them and ensuring they are committed to His virtues and values.
The biblical principles hold that men ought to recognize their limitations as mortal
beings and, as such, should ensure they remain productive, as God rewards humans'
productivity and shuns unproductivity through punishment.
In conclusion, the biblical principles are compatible with entrepreneurship in the free
market. The Bible instructs people to ensure they carry out their activities in a way
that serves to honor God.
