He was true to his promise. In 1882 his Edison
Illuminating Company opened a power station in
New York City and began to supply current for light-
ing to eighty-five consumers, including the New York
Times and the banking house of J.P. Morgan and
Company. Soon central stations were springing up
everywhere until, by 1898, there were about 3,000 in
the country.
The substitution of electric for steam power in fac-
tories was as liberating as that of steam for waterpower
before the Civil War. Small, safe electric motors
replaced dangerous and cumbersome mazes of belts
and wheels. The electric power industry expanded
rapidly. By the early years of the twentieth century
almost 6 billion kilowatt-hours of electricity were being
produced annually. Yet this was only the beginning.
Edison,The Success of the Electric Lightat
http://www.myhistorylab.com
Competition and Monopoly: The Railroads
During the post–Civil War era, expansion in industry
went hand in hand with concentration. The principal
cause of this trend, aside from the obvious economies
resulting from large-scale production and the growing
importance of expensive machinery, was the down-
ward trend of prices after 1873. The deflation, which
resulted mainly from the failure of the money supply
to keep pace with the rapid increase in the volume of
goods produced, affected agricultural goods as well as
manufactures, and it lasted until 1896 or 1897.
Contemporaries believed that they were living
through a “great depression.” That label is mislead-
ing, for output expanded almost continuously, and at
a rapid rate, until 1893, when production slumped
and a true depression struck the country. Falling
prices, however, kept a steady pressure on profit mar-
gins, and this led to increased production and thus to
intense competition for markets.
According to the classical economists, competi-
tion advanced the public interest by keeping prices
low and ensuring the most efficient producer the
largest profit. Up to a point it accomplished these
purposes in the years after 1865, but it also caused
side effects that injured both the economy and society
as a whole. Railroad managers, for instance, found it
impossible to enforce “official” rate schedules and
maintain their regional associations once competitive
pressures mounted. In 1865 it had cost from ninety-
six cents to $2.15 per 100 pounds, depending on the
class of freight, to ship goods from New York to
Chicago. In 1888 rates ranged from thirty-five cents
to seventy-five cents.
ReadtheDocumentCompetition cut deeply into railroad profits, caus-
ing the lines to seek desperately to increase volume. It
did so chiefly by reducing rates still more, on a selec-
tive basis. The competition gave rebates (secret reduc-
tions below the published rates) to large shippers in
order to capture their business. Giving discounts to
those who shipped in volume made economic sense: It
was easier to handle freight in carload lots than in
smaller units. So intense was the battle for business,
however, that the railroads often made concessions to
big customers far beyond what the economics of bulk
shipment justified. In the 1870s the New York Central
regularly reduced the rates charged to important ship-
pers by 50–80 percent. One large Utica dry-goods
merchant received a rate of nine cents while others
paid thirty-three cents. Two big New York City grain
merchants paid so little that they soon controlled the
grain business of the entire city.
Railroad officials disliked rebating but found no
way to avoid the practice. “Notwithstanding my hor-
ror of rebates,” the president of a New England trunk
line told one of his executives in discussing the case of
a brick manufacturer, “bill at the usual rate, and
rebate Mr. Cole 25 cents a thousand.” In extreme
cases the railroads even gave large shippers drawbacks,
which were rebates on the business of the shippers’
competitors. (For example, the same New England
trunk line not only made Cole’s competitors pay
higher freight rates but also returned a percentage of
the income from those rates to Mr. Cole!) Besides
rebating, railroads issued passes to favored shippers,
built sidings at the plants of important companies
without charge, and gave freely of their landholdings
to attract businesses to their territory.
To make up for losses forced on them by competi-
tive pressures, railroads charged higher rates at way-
points along their tracks where no competition existed.
Frequently it cost more to ship a product a short dis-
tance than a longer one. Rochester, New York, was
served only by the New York Central. In the 1870s it
cost thrity cents to transport a barrel of flour from
Rochester to New York City, a distance of 350 miles. At
the same time flour could be shipped from Minneapolis
to New York, a distance of well over 1,000 miles, for
only twenty cents a barrel. One Rochester businessman
told a state investigating committee that he could save
eighteen cents a hundredweight by sending goods to
St. Louis by way of New York, where several carriers
competed for the traffic, even though, in fact, the
goods might come back through Rochester over the
same tracks on the way to St. Louis!
Although cheap transportation stimulated the
economy, few people benefited from cutthroat com-
petition. Small shippers—and all businessmen in cities
and towns with limited rail outlets—suffered; railroadCompetition and Monopoly: The Railroads 465