Blessed Barons

By Ron Chernow

Staring out from their photographs, they are the archetypal tycoons: one a steely-eyed Scot with a spade-shaped white beard; another a craggy, Ichabod Crane look-alike; the third a fat cat in striped pants with a watch chain strung across an ample paunch.

Today they have the look of fossilized reactionaries, but these turn-of-the-century titans were men who lived in booming, anarchic times and thrived on them. The Gilded Age was a turbulent period of unfettered capitalism and unfathomable wealth for them and their peers--an environment free of income tax, meddling regulators and other curbs on the animal spirits of freewheeling entrepreneurs. Yet these febrile decades, forever decried as the era of the robber barons, forged the tremendous engine of economic growth that propelled the country from rural isolationism in the 19th century to world industrial leadership in the 20th.

Three men--Andrew Carnegie, John D. Rockefeller and J. Pierpont Morgan--personified this sweeping turn-of-the-century transformation. Imbued with all the greed, guile and enterprise of the age, they exhibited a bullish faith in America's future despite the depressions, strikes and financial panics that punctuated these tumultuous years. In their different ways, each dealt a mortal blow to the small-scale economy of the early republic, fostering vast industries that forever altered the size and scope of the nation's business.

In crafting the first major multinational corporation, Standard Oil, Rockefeller (1839-1937) provided a sneak preview of the 20th century. At his zenith, he refined, distributed and marketed nearly 90% of America's oil. The unlikely offspring of a raffish snake-oil salesman and a strict Baptist mother, Rockefeller grew up in several rustic hamlets in upstate New York and Ohio. He began his career as an assistant bookkeeper in a Cleveland, Ohio, commodity-brokerage house in 1855 and invested in his first refinery during the Civil War.

When he co-founded Standard in 1870, the oil fields of western Pennsylvania--the heart of the new industry--were in a chaotic state as gluts dragged down prices below production costs. Rockefeller then began to employ the tactics that made him a legend. Imposing his own granite discipline on the industry, he bought up rivals, modernized plants and organized the oil industry on an enduring basis.

Never the curmudgeon of myth, Rockefeller had a droll, genial personality that masked supreme cunning and formidable self-control. It is certainly true that he was not the least bit squeamish about tough tactics. He colluded with railroads to gain preferential freight rates, secretly owned rivals, bribed state legislators and engaged in industrial espionage. From Cleveland, he rolled up one refining center after another until his control was absolute. He was still in his 30s, the boy wonder of American business. At the same time, he was a devout Baptist with a ministerial air, who professed to have no less a business expert than the Lord on his side.

Rockefeller believed in a new economic order that he dubbed "cooperation." President Theodore Roosevelt and his trustbusters had another word for it--monopoly--and the Lord proved no help to Rockefeller against T.R. Rockefeller's tough tactics forced America to define the limits of corporate behavior. Since Rockefeller managed to figure out every conceivable anticompetitive practice, the authors of the Sherman Antitrust Act in 1890 simply had to study his career to draw up a reform agenda.

In the end, Rockefeller amassed a fortune that beggared description. When his net worth peaked at $900 million in 1913, it was equivalent to more than 2% of the gross national product; such a share today would be worth $190 billion, or nearly three times as much as Bill Gates' wealth.

Carnegie (1835-1919), the son of a master weaver in Dunfermline, Scotland, saw his boyhood paradise torn asunder when his father's skills were rendered obsolete by the power loom. The Carnegies had to emigrate to the foul Pittsburgh, Pa., slums when Andrew was 12. Quick-witted, shrewd and resilient, he survived a Dickensian adolescence that included working as a bobbin boy in a textile mill.

His first breakthrough came when he landed a job as secretary and telegrapher to Tom Scott, a powerful overlord of the Pennsylvania Railroad. At 23 Carnegie headed Pennsy's Pittsburgh division and began to rake in a small fortune from outside investments ranging from oil to iron bridges. When he was 33, the rich young man privately lectured himself that his continued pursuit of wealth "must degrade me beyond hope of permanent recovery." Yet he couldn't abandon the money chase. "Put all your eggs into one basket," Carnegie once advised, "and then watch that basket." For him that basket brimmed with steel. Fiercely competitive, obsessed with innovation and efficiency--he would unhesitatingly scrap a relatively new plant to erect a more modern one--Carnegie imported the Bessemer forced-air steel process to America. Such innovation permitted him to reduce the price of rails--the product that initially drove the industry--from $160 a ton in 1875 to $17 by 1900. His steel furnished the sinews of America's burgeoning towns and factories.

A prolific writer and autodidact who authored eight books and 70 magazine articles, Carnegie was a voluble, if sometimes naive, adherent of the Victorian faith in mankind's progress. His quixotic ideals often clashed, however, with the brute realities of his steel mills, where men toiled 12-hour days, seven days a week. If Carnegie fancied himself the friend of the workingman, he had to face the ultimate comeuppance in 1892 when his associate Henry Clay Frick brutally suppressed striking workers in Homestead, Pa., in the bloodiest clash in U.S. labor history.

After selling his empire to J.P. Morgan in 1901 to form the centerpiece of the new behemoth, U.S. Steel, Carnegie devoted himself to good deeds. A prodigious philanthropist, he created 2,800 free libraries worldwide. "The man who dies rich dies disgraced," he declared bluntly. Like Rockefeller, Carnegie endowed large corporate foundations with elastic charters that took on an autonomous existence. At his death he had disbursed almost his entire $350 million fortune.

If Rockefeller and Carnegie built the industrial age, then Morgan (1837-1913) financed it. The most imposing personage ever to bestride Wall Street--his nickname was Jupiter--Morgan had a thunderclap voice, a ferocious glare and a grotesquely disfigured red nose that, he once ruefully joked, had become "part of the American business structure." Where Rockefeller and Carnegie endured hardscrabble boyhoods, Morgan came from a well-to-do Hartford, Conn., family, and his appetite for bosomy women, enormous yachts (his 300-ft. Corsair lent him a piratical image) and exquisite art was legendary.

After studying in Switzerland and Germany, the cosmopolitan young Morgan arrived on Wall Street in 1857, serving as agent for his father Junius Spencer Morgan, who had taken over a London merchant bank. Though Pierpont participated in refinancing the Civil War debt in the 1870s, he acquired true imperial status in underwriting America's railroads.

Morgan issued stocks and bonds for railroads (think of them as you would software companies today), brokered deals among them and dominated their boards. He recapitalized so many bankrupt railroads--Morganized them, as wits said--that by the 1890s he controlled one-sixth of America's railway system.

Like Rockefeller, Morgan scorned competition as wasteful and ran afoul of federal trustbusters who broke up his railroad holding company, Northern Securities, in the early 1900s. The apex of Morgan's power came in 1901 with the creation of U.S. Steel, the first billion-dollar corporation. This was followed by International Harvester, the farm-equipment trust, and the International Mercantile Marine, the North Atlantic shipping cartel. In fact, Morgan presided over so many large-scale industrial consolidations that he recast the banker's role from that of handmaiden to master of industry.

Between 1836 and 1914, the U.S. lacked a central bank; Morgan stepped boldly, sometimes magnificently, into that breach. When gold reserves backing the country's legal tender dipped perilously low in 1895, he masterminded a bond issue in New York and London that replenished the gold stock--one of many acts he performed that preserved America's credit abroad and evinced a new financial maturity that won the confidence of foreign investors.

During the 1907 Panic on Wall Street, an aging Morgan mobilized the city's bankers in his solemnly ornate library and got them to commit money to a rescue fund that ended the bank runs convulsing the city. It was the last hurrah for a self-regulated financial system: Morgan's dazzling improvisation proved the urgent need for a central bank, setting the stage for the passage of the Federal Reserve Act in 1913.

Rockefeller, Carnegie and Morgan were not the only robber barons, of course. Edward H. Harriman fought Morgan for control of the railroads. Andrew and Richard Mellon founded four major companies, including Alcoa. But the scale on which Rockefeller, Carnegie and Morgan operated was unprecedented, paving the way for a world of global companies and capital flows. And their money built a platform for philanthropy that has grown every bit as much as their corporations.

Ron Chernow is the author of Titan: The Life of John D. Rockefeller Sr. He has also written a biography of J.P. Morgan