Load-Bearing Walls, Steel Skeleton, Skyscrapers and Otis Safety Elevator

Posted by PITHOCRATES - May 22nd, 2013

Technology 101

Because there is no Elevator in a Brownstone the Lower Floors are more Valuable

If you live in Manhattan on the Upper West Side you may have a view of the Hudson River.  Depending on how high you live.  For the higher you are the better your view.  Which is why the best apartments are on the top floors of our high rises.  Interestingly, though, if you live in a 5-story brownstone the prime real estate in those buildings are on the lower floors.  Why?  Because they don’t have an elevator.

Early buildings had a limit on height.  Because they had load-bearing walls.  And as the buildings grew taller the walls grew thicker.  To support the weight of the buildings above them.  Consider the pyramid.  Large, tall structures made of stone.  Part of the reason why they were pyramid shape was the weight of these heavy stones.  Supporting these heavy stones above the ground required a wide stone base below them.  So as a building got taller the walls got thicker on the lower floors.  So thick that they had less useable space than the upper floors.

It’s also more difficult to put windows in load-bearing walls.  As an opening reduces the strength of those walls.  In your typical 5-story walkup brownstone you’ll have small window openings facing the street.  Making it hard to flood these spaces with natural light.  So buildings with load-bearing walls have a few drawbacks.  Thick walls shrink living space.  And reduce the amount of natural lighting.  Not to mention having to hoof it up all of those steps.  Which is why the lower floors are more valuable in a brownstone.  For no one wants to walk up and down 5 flights of stairs every time you leave the apartment.

With a Steel Skeleton replacing Thick Load-Bearing Walls we can Enclose a Building with Glass Curtain Walls

In the 19th century new building technologies addressed these problems.  Thanks to Henry Bessemer and his Bessemer process.  The first cost-effective way to produce large amounts of steel.  Steel is stronger than iron.  But early steel was brittle.  Because of a high carbon content.  So we used iron.  For our train rails.  And our boilers.  But we could not harden iron as much as steel.  Because of a lack of carbon in iron.  Which is why iron boilers had a tendency to explode.  And iron rails failed.

Henry Bessemer changed that.  By blowing oxygen through the molten steel.  Which removed impurities.  And excess carbon.  Andrew Carnegie used the Bessemer process on a grand scale.  Producing the steel that built America.  Mass producing the structural steel that changed the way we built buildings.  Bringing the word ‘skyscraper’ into the lexicon of building.  As Carnegie’s steel sent our buildings soaring to the sky.

Instead of building thick load-bearing walls we built a rigid steel skeleton.  We anchored it to the earth with some steel-reinforced concrete piers deep underground.  And steel piles driven down to bedrock.  Giving us a tall, sturdy structure to build around.  The structure being so strong we can support up to a hundred (or more) concrete floors from it.  With useable space on every floor.  And without thick load-bearing walls we can hang glass curtain walls from this steel skeleton.  Wrapping the exterior of the building in glass.  Flooding these floors with natural light.

Before Elisha Otis and Andrew Carnegie the Top Floor of any Building was the Hardest to Let

So the steel skeleton allowed us to build buildings taller than ever.  But it took something else to allow those buildings to reach skyward.  For people were just not going to walk up and down a hundred flights of stairs every time they left their home or office.  They may walk up and down 5 flights of stairs in exchange for a cheaper rent in a brownstone on the Upper West Side.  But no one is going to walk up and down a hundred flights.  Even if they don’t have to pay rent.  So it was the elevator that really allowed today’s skyscraper.  Tiny little cars suspended by a few cables in a very long vertical shaft.

Elevator safety evolved over time.  At first it was not that uncommon for people to fall to their death in an elevator car that broke free from its cables.  Elisha Otis solved that problem.  He attached the elevator cable to a flat-leaf spring attached to the car.  The tension on the cable from the weight of the elevator car compressed the flat-leaf spring.  Drawing in mechanical linkages.  If the cable broke the energy in the compressed spring released and pushed down on the mechanical linkages.  Which forced arms outward and into saw-tooth safety rails that ran the length of the elevator shaft.  Bringing the elevator car to an immediate stop if the cable broke.

This revolutionized elevators.  And allowed our buildings to reach skyward.  As people no longer feared getting into an elevator.  Thanks to Elisha Otis.  Who went on to found the Otis Elevator Company.  If you see the word ‘Otis’ in the elevator car you’re in you can thank Elisha Otis.  For you’re in one of his elevators.  And you can thank Andrew Carnegie.  For giving us tall buildings.  And whose company may have even built the steel of the building you’re in.  Before Otis and Carnegie the top floor of any building was the hardest to let.  Because no one wanted to climb up all of those stairs.  But with tall steel and a safe elevator the top floor in a building now commands the highest rent.  Because of the view.  And the ease at which we could enjoy that view.

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Iron, Steel, the Steam Engine, Railroads, the Bessemer Process, Andrew Carnegie and the Lucy Furnace

Posted by PITHOCRATES - November 21st, 2012

(Originally published December 14, 2011)

With the Steam Engine we could Build Factories Anywhere and Connect them by Railroads

Iron has been around for a long time.  The Romans used it.  And so did the British centuries later.  They kicked off the Industrial Revolution with iron.  And ended it with steel.  Which was nothing to sneeze at.  For the transition from iron to steel changed the world.  And the United States.  For it was steel that made the United States the dominant economy in the world.

The Romans mined coal in England and Wales.  Used it as a fuel for ovens to dry grain.  And for smelting iron ore.  After the Western Roman Empire collapsed, so did the need for coal.  But it came back.  And the demand was greater than ever.  Finding coal, though, required deeper holes.  Below the water table.  And holes below the water table tended to fill up with water.  To get to the coal, then, you had to pump out the water.  They tried different methods.  But the one that really did the trick was James Watt’s steam engine attached to a pump.

The steam engine was a game changer.  For the first time man could make energy anywhere he wanted.  He didn’t have to find running water to turn a waterwheel.  Depend on the winds.  Or animal power.  With the steam engine he could build a factory anywhere.  And connect these factories together with iron tracks.  On which a steam-powered locomotive could travel.  Ironically, the steam engine burned the very thing James Watt designed it to help mine.  Coal.

Andrew Carnegie made Steel so Inexpensive and Plentiful that he Built America

Iron was strong.  But steel was stronger.  And was the metal of choice.  Unfortunately it was more difficult to make.  So there wasn’t a lot of it around.  Making it expensive.  Unlike iron.  Which was easier to make.  You heated up (smelted) iron ore to burn off the stuff that wasn’t iron from the ore.  Giving you pig iron.  Named for the resulting shape at the end of the smelting process.  When the molten iron was poured into a mold.  There was a line down the center where the molten metal flowed.  And then branched off to fill up ingots.  When it cooled it looked like piglets suckling their mother.  Hence pig iron.

Pig iron had a high carbon content which made it brittle and unusable.  Further processing reduced the carbon content and produced wrought iron.  Which was usable.  And the dominate metal we used until steel.  But to get to steel we needed a better way of removing the residual carbon from the iron ore smelting process.  Something Henry Bessemer discovered.  Which we know as the Bessemer process.  Bessemer mass-produced steel in England by removing the impurities from pig iron by oxidizing them.  And he did this by blowing air through the molten iron.

Andrew Carnegie became a telegraph operator at Pennsylvania Railroad Company.  He excelled, moved up through the company and learned the railroad business.  He used his connections to invest in railroad related industries.  Iron.  Bridges.  And Rails.  He became rich.  He formed a bridge company.  And an ironworks.  Traveling in Europe he saw the Bessemer process.  Impressed, he took that technology and created the Lucy furnace.  Named after his wife.  And changed the world.  His passion to constantly reduce costs led him to vertical integration.  Owning and controlling the supply of raw materials that fed his industries.  He made steel so inexpensive and plentiful that he built America.  Railroads, bridges and skyscrapers exploded across America.  Cities and industries connected by steel tracks.  On which steam locomotives traveled.  Fueled by coal.  And transporting coal.  As well as other raw materials.  Including the finished goods they made.  Making America the new industrial and economic superpower in the world.

Knowing the Market Price of Steel Carnegie reduced his Costs of Production to sell his Steel below that Price

Andrew Carnegie became a rich man because of capitalism.  He lived during great times.  When entrepreneurs could create and produce with minimal government interference.  Which is why the United States became the dominant industrial and economic superpower.

The market set the price of steel.  Not a government bureaucrat.  This is key in capitalism.  Carnegie didn’t count labor inputs to determine the price of his steel.  No.  Instead, knowing the market price of steel he did everything in his powers to reduce his costs of production so he could sell his steel below that price.  Giving steel users less expensive steel.  Which was good for steel users.  As well as everyone else.  But he did this while still making great profits.  Everyone was a winner.  Except those who sold steel at higher prices who could no longer compete.

Carnegie spent part of his life accumulating great wealth.  And he spent the latter part of his life giving that wealth away.  He was one of the great philanthropists of all time.  Thanks to capitalism.  The entrepreneurial spirit.  And the American dream.  Which is individual liberty.  That freedom to create and produce.  Like Carnegie did.  Just as entrepreneurs everywhere have been during since we allowed them to profit from risk taking.

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Carnegie, Rockefeller, Morgan, Interstate Commerce Act, Sherman Antitrust Act, Sherman Silver Purchase Act, Federal Reserve, Nixon and Reagan

Posted by PITHOCRATES - January 31st, 2012

History 101

Government Induced Inflation caused the Panic of 1893 and caused the Worst Depression until the Great Depression

Britain kicked off the Industrial Revolution.  Then handed off the baton to the United States in the latter half of the 19th century.  As American industry roared.  Great industrialists modernize America.  And the world.  Andrew Carnegie made steel inexpensive and plentiful.  He built railroad track and bridges.  And the steel-skeleton buildings of U.S. cities.  Including the skyscrapers.  John D. Rockefeller saved the whales.  By producing less expensive kerosene to burn in lamps instead of the more expensive whale oil.  He refined oil and brought it to market cheaper and more efficiently than anyone else.  Fueling industrial activity and expansion.  J.P. Morgan developed and financed railroads.  Made them more efficient.  Profitable.  And moved goods and people more efficiently than ever before.  Raising the standard of living to heights never seen before. 

The industrial economy was surging along.  And all of this without a central bank.  Credit was available.  So much so that it unleashed unprecedented economic growth.  That would have kept on going had government not stopped it.  With the Interstate Commerce Act in 1887 and the Sherman Antitrust Act of 1890.  Used by competitors who could not compete against the economy of scales of Carnegie, Rockefeller and Morgan and sell at their low prices.  So they used their friends in government to raise prices so they didn’t have to be as competitive and efficient as Carnegie, Rockefeller and Morgan.  This legislation restrained the great industrialists.  Which began the era of complying with great regulatory compliance costs.  And expending great effort to get around those great regulatory compliance costs.

Also during the late 19th century there was a silver boom.  This dumped so much silver on the market that miners soon were spending more in mining it than they were selling it for.  Also, farmers were using the latest in technology to mechanize their farms.  They put more land under cultivation and increased farm yields.  So much so that prices fell.  They fell so far that farmers were struggling to pay their debts.  So the silver miners used their friends in government to solve the problems of both miners and farmers.  The government passed the Sherman Silver Purchase Act which increased the amount of silver the government purchased.  Issuing new treasury notes.  Redeemable in both gold and silver.  The idea was to create inflation to raise prices and help those farmers.  By allowing them to repay old debt easier with a depreciated currency.  And how did that work?  Investors took those new bank notes and exchanged them for gold.  And caused a run on U.S. gold reserves that nearly destroyed the banking system.  Plunging the nation in crisis.  The Panic of 1893.  The worst depression until the Great Depression.

Richard Nixon Decoupled the Dollar from Gold and the Keynesians Cheered 

J.P. Morgan stepped in and loaned the government gold to stabilize the banking system.  He would do it again in the Panic of 1907.  The great industrialists created unprecedented economic activity during the latter half of the 19th century.  Only to see poor government policies bring on the worst depression until the Great Depression.  A crisis one of the great industrialists, J.P. Morgan, rescued the country from.  But great capitalists like Morgan wouldn’t always be there to save the country.  Especially the way new legislation was attacking them.  So the U.S. created a central bank.  The Federal Reserve System.  Which was in place and ready to respond to the banking crisis following the stock market crash of 1929.  And did such a horrible job that they gave us the worst depression since the Panic of 1893.  The Great Depression.  Where we saw the greatest bank failures in U.S. history.  Failures the Federal Reserve was specifically set up to prevent.

The 1930s was a lost decade thanks to even more bad government policy.  FDR’s New Deal programs did nothing to end the Great Depression.  Only capitalism did.  And a new bunch of great industrialists.  Who were allowed to tool up and make their factories hum again.  Without having to deal with costly regulatory compliance.  Thanks to Adolf Hitler.  And the war he started.  World War II.  The urgency of the times repealed governmental nonsense.  And the industrialists responded.  Building the planes, tanks and trucks that defeated Hitler.  The Arsenal of Democracy.  And following the war with the world’s industrial centers devastated by war, these industrialists rebuilt the devastated countries.  The fifties boomed thanks to a booming export economy.  But it wouldn’t last.  Eventually those war-torn countries rebuilt themselves.  And LBJ would become president.

The Sixties saw a surge in government spending.  The U.S. space program was trying to put a man on the moon.  The Vietnam War escalated.  And LBJ introduced us to massive new government spending.  The Great Society.  The war to end poverty.  And racial injustice.  It failed.  At least, based on ever more federal spending and legislation to end poverty and racial injustice.  But that government spending was good.  At least the Keynesians thought so.  Richard Nixon, too.  Because he was inflating the currency to keep that spending going.  But the U.S. dollar was pegged to gold.  And this devaluation of the dollar was causing another run on U.S. gold reserves.  But Nixon responded like a true Keynesian.  And broke free from the shackles of gold.  By decoupling the dollar from gold.  And the Keynesians cheered.  Because the government could now use the full power of monetary policy to make recessions and unemployment a thing of the past.

Activist, Interventionist Government have brought Great Economic Booms to Collapse 

The Seventies was a decade of pure Keynesian economics.  It was also the decade that gave us double digit interest rates.  And double digit inflation rates.  It was the decade that gave us the misery index (the inflation rate plus the unemployment rate).  And stagflation.  The combination of a high inflation rate you normally only saw in boom times coupled with a high unemployment rate you only saw during recessionary times.  Something that just doesn’t happen.  But it did.  Thanks to Keynesian economics.  And bad monetary policy.

Ronald Reagan was no Keynesian.  He was an Austrian school supply-sider.  He and his treasury secretary, Paul Volcker, attacked inflation.  The hard way.  The only way.  Through a painful recession.  They stopped depreciating the dollar.  And after killing the inflation monster they lowered interest rates.  Cut tax rates.  And made the business climate business-friendly.  Capitalists took notice.  New entrepreneurs rose.  Innovated.  Created new technologies.  The Eighties was the decade of Silicon Valley.  And the electronics boom.  Powering new computers.  Electronic devices.  And software.  Businesses computerized and became more efficient.  Machine tools became computer-controlled.  The economy went high-tech.  Efficient.  And cool.  Music videos, CD players, VCRs, cable TV, satellite TV, cell phones, etc.  It was a brave new world.  Driven by technology.  And a business-friendly environment.  Where risk takers took risks.  And created great things.

History has shown that capitalists bring great things to market when government doesn’t get in the way.  With their punishing fiscal policies.  And inept monetary policies.  Activist, interventionist government have brought great economic booms to collapse.  Who meddle and turn robust economic activity into recessions.  And recessions into depressions.  The central bank being one of their greatest tools of destruction.  Because policy is too often driven by Big Government idealism.  And not the proven track record of capitalism.  As proven by the great industrialists.  And high-tech entrepreneurs.  Time and time again.

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Iron, Steel, the Steam Engine, Railroads, the Bessemer Process, Andrew Carnegie and the Lucy Furnace

Posted by PITHOCRATES - December 14th, 2011

Technology 101

With the Steam Engine we could Build Factories Anywhere and Connect them by Railroads

Iron has been around for a long time.  The Romans used it.  And so did the British centuries later.  They kicked off the Industrial Revolution with iron.  And ended it with steel.  Which was nothing to sneeze at.  For the transition from iron to steel changed the world.  And the United States.  For it was steel that made the United States the dominant economy in the world.

The Romans mined coal in England and Wales.  Used it as a fuel for ovens to dry grain.  And for smelting iron ore.  After the Western Roman Empire collapsed, so did the need for coal.  But it came back.  And the demand was greater than ever.  Finding coal, though, required deeper holes.  Below the water table.  And holes below the water table tended to fill up with water.  To get to the coal, then, you had to pump out the water.  They tried different methods.  But the one that really did the trick was James Watt’s steam engine attached to a pump.

The steam engine was a game changer.  For the first time man could make energy anywhere he wanted.  He didn’t have to find running water to turn a waterwheel.  Depend on the winds.  Or animal power.  With the steam engine he could build a factory anywhere.  And connect these factories together with iron tracks.  On which a steam-powered locomotive could travel.  Ironically, the steam engine burned the very thing James Watt designed it to help mine.  Coal.

Andrew Carnegie made Steel so Inexpensive and Plentiful that he Built America

Iron was strong.  But steel was stronger.  And was the metal of choice.  Unfortunately it was more difficult to make.  So there wasn’t a lot of it around.  Making it expensive.  Unlike iron.  Which was easier to make.  You heated up (smelted) iron ore to burn off the stuff that wasn’t iron from the ore.  Giving you pig iron.  Named for the resulting shape at the end of the smelting process.  When the molten iron was poured into a mold.  There was a line down the center where the molten metal flowed.  And then branched off to fill up ingots.  When it cooled it looked like piglets suckling their mother.  Hence pig iron.

Pig iron had a high carbon content which made it brittle and unusable.  Further processing reduced the carbon content and produced wrought iron.  Which was usable.  And the dominate metal we used until steel.  But to get to steel we needed a better way of removing the residual carbon from the iron ore smelting process.  Something Henry Bessemer discovered.  Which we know as the Bessemer process.  Bessemer mass-produced steel in England by removing the impurities from pig iron by oxidizing them.  And he did this by blowing air through the molten iron.

Andrew Carnegie became a telegraph operator at Pennsylvania Railroad Company.  He excelled, moved up through the company and learned the railroad business.  He used his connections to invest in railroad related industries.  Iron.  Bridges.  And Rails.  He became rich.  He formed a bridge company.  And an ironworks.  Traveling in Europe he saw the Bessemer process.  Impressed, he took that technology and created the Lucy furnace.  Named after his wife.  And changed the world.  His passion to constantly reduce costs led him to vertical integration.  Owning and controlling the supply of raw materials that fed his industries.  He made steel so inexpensive and plentiful that he built America.  Railroads, bridges and skyscrapers exploded across America.  Cities and industries connected by steel tracks.  On which steam locomotives traveled.  Fueled by coal.  And transporting coal.  As well as other raw materials.  Including the finished goods they made.  Making America the new industrial and economic superpower in the world.

Knowing the Market Price of Steel Carnegie reduced his Costs of Production to sell his Steel below that Price

Andrew Carnegie became a rich man because of capitalism.  He lived during great times.  When entrepreneurs could create and produce with minimal government interference.  Which is why the United States became the dominant industrial and economic superpower.

The market set the price of steel.  Not a government bureaucrat.  This is key in capitalism.  Carnegie didn’t count labor inputs to determine the price of his steel.  No.  Instead, knowing the market price of steel he did everything in his powers to reduce his costs of production so he could sell his steel below that price.  Giving steel users less expensive steel.  Which was good for steel users.  As well as everyone else.  But he did this while still making great profits.  Everyone was a winner.  Except those who sold steel at higher prices who could no longer compete.

Carnegie spent part of his life accumulating great wealth.  And he spent the latter part of his life giving that wealth away.  He was one of the great philanthropists of all time.  Thanks to capitalism.  The entrepreneurial spirit.  And the American dream.  Which is individual liberty.  That freedom to create and produce.  Like Carnegie did.  Just as entrepreneurs everywhere have been during since we allowed them to profit from risk taking.

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LESSONS LEARNED #20: “It is never a consumer that complains about ‘predatory’ pricing.” -Old Pithy

Posted by PITHOCRATES - July 1st, 2010

ECONOMIES OF SCALE and vertical integration can do two things very well.  Make industrialists rich.  And make the things they sell cheap. 

The more you make, the less each thing you make costs.  Businesses have fixed costs.  Big one time investments in plant and equipment.  Businesses have to recover these costs.  Each thing they sell has a portion of these fixed costs added to its price.  The more they sell, the less they need to add to each unit sold.  This is economies of scale.  Think of bulk goods.  Warehouse clubs.  Places where you can buy large quantities of things at lower unit prices.  You may buy an ‘economy pack’ of 3 bottles of shampoo shrink-wrapped together.  The purchase price of a 3-pack will be greater than the price of a single bottle of shampoo at your convenient corner drug store.  But the unit cost of each of the bottles in the 3-pack will be less.  You save more over time by buying 3 bottles at a time.  Spending more, then, means spending less.  In time.

Few of us buy raw materials.  Few have a need for crude oil.  Iron ore.  Coal.  Limestone.  Manganese.  But they make the stuff we buy.  A lot of things have to happen before those raw materials make it to us in those things we buy.  It has to be mined or drilled/pumped.  Transported.  Processed.  Stored.  Transported again.  Processed again.  Stored again.  Transported again.  There are many different stages between extracting raw materials from the earth and incorporating them into a final product we consumers buy.  At every stage there are costs.  And inefficiencies.  Which add to costs.  By reducing these costs along the way, the component materials used at the final manufacturing stage cost less.  This reduces the selling price of the final product.  This is what vertical integration does.  It puts everything from the extraction of raw materials to the incorporation of those processed materials into the final product for sale under control of the final user.  It brings in a high level of quality, cost containment and reduction of inefficiencies into the entire process resulting in a high quality, mass produced, inexpensive product.

Not everyone can do these things.  You have to live and breathe the industry you’re in.  You have to understand it intimately.  An industrialist at the top of his game can do this.  A politician can’t.  States trying to take control of their economy have failed.  Every time they’ve tried.  Why?  Politicians are ‘intellectuals’.  They’ve never run a business.  They only thought about it.  And, somehow, that gives them the moral authority to tamper in something they are simply unqualified to do.  And when they meddle, they destroy.  Purposely.  Or through unintended consequences.  In the process, though, they enrich themselves.  And their cronies.

ANDREW CARNEGIE WAS a brilliant entrepreneur.  After working for a railroad, he saw the future.  Railroads.  And he would build its rails.  And its bridges.  With his Keystone Bridge Company.  Which used steel and iron.  So he built his Union Mills.  Which needed pig iron.  So he built his Lucy blast furnace.  Which consumed raw material (iron, coke, limestone).  So he secured his own sources of raw materials. 

His Lucy blast furnace set world records, nearly doubling the weekly output of his steel competitors.  No one made more steel than Carnegie.  For less.  In about 20 years, he brought the price down for steel rails from $160/ton to $17/ton.  And got rich in the process.

Economies of scale.  Vertical integration.  And innovation.  Carnegie hired the best people he could find and used the latest technology.  Always improving.  Always cutting costs.  Always making steel more plentiful.  And cheaper.  His steel built a nation.  Dominated the industry.  And destroyed the competition.  Of course, that drew the attention of the government.  And they tried to break up the steel giant because it was unfair to the competition.  Who couldn’t sell steel as cheap as he could.

JOHN D. ROCKEFELLER was a brilliant entrepreneur.  After trying the oil drilling business, he saw the future.  The refining business.  For America lit the night with kerosene.  And he would provide that kerosene.  At prices that a poor man could afford.  And he did.  And he saved the whales in the process (his cheap kerosene put the whale oil business out of business).

Like Carnegie, cutting costs and production efficiencies consumed him.  He built his own kilns and used his own timber for fuel.  He made his own barrels from his own timber.  He used his own horse-drawn carts, boats, rail cars and pipelines.  He bought up competitors.  He grew to dominate the industry.  By far the biggest shipper, he got better shipping rates than his competitors.  And he constantly innovated.  When others were dumping the gasoline byproduct from refining kerosene into the river (no internal combustion engine yet), he was using it for fuel.  He hired the best talent available to find a use for every byproduct from the refining process, giving us everything from industrial lubricants to petroleum jelly (i.e., Vaseline).

His company, Standard Oil, was close to being a monopoly.  When they controlled 90% of the market kerosene was never cheaper.  He brought the price down from $0.26/gallon to $0.08/gallon.  And that was an outrage.  We can’t allow any one company to control 90% of the market.  Sure, consumers were doing well, but the higher-cost competitors could not stay in business selling at those low prices.  So the government broke up Standard Oil via antitrust legislation (the Sherman Act).  To protect the country from monopolistic practices.  And cheap kerosene, apparently.

BILL GATES WAS a brilliant entrepreneur in building Microsoft.  The personal computer (PC) was new.  You couldn’t do much with it in the early days unless you were pretty computer savvy.  But programs were available that made them great business tools (word processing and spreadsheet programs). 

IBM created the PC.  And they licensed it so others could make IBM-like machines.  IBM clones.  The PC industry chewed each other up.  But Gates did well.  Because all of these machines used his operating system (Microsoft’s Disk Operating System – DOS).  Apple developed the Macintosh (with a mouse and Graphical User Interface – GUI) but it was expensive.  Anyone who used one in college wanted to buy one.  Until they saw the price.  So they bought an IBM clone instead.  And when Gates came out with Windows, they were just as easy to use as the Macs.

Because of the higher volume of the IBM platform sold, Microsoft flourished.  Software was bundled.  New machines came preloaded with Windows.  And Internet Explorer.  And Windows Media Player.  You got a lot of bang for the buck going with a Windows-based PC.  And Windows dominated the market.  Consumers weren’t complaining.  Much.  Sure, there were things they did bitch about (glitches, drivers, viruses, etc.), but it sure wasn’t price.

Of course, Microsoft’s competitors were hurting.  They couldn’t sell their products if Microsoft was giving away a similar product free.  Because they were hurting their competitors, the government tried to break up the company with the Sherman Act. 

THE NORTHERN SECURITIES SUIT of 1902 found a holding company guilty of not yet committing a crime.  Teddy Roosevelt’s administration filed a Sherman antitrust suit against Northern Securities.  This was a holding company for Northern Pacific, Great Northern, and Chicago, Burlington, and Quincy Railroads.  What’s a holding company?  It replaced a trust.   Which large corporations created in response to government’s attacks on large corporations.

Small competitors feared large corporations.  They could not compete against their economies of scale and vertical integration.  The little guys couldn’t sell things as cheap as the big corporations could.  So the government intervened to protect the little guy.  So they could sell at higher prices.

But businesses grow.  All big corporations started out as little guys.  And the growing process doesn’t stop.  So the big corporations had to find other ways to grow.  They formed trusts.  Then the trust-busters busted up the trusts.  The next form was the holding company. 

The trust-busters said that the big corporations, trusts and holding companies were all trying to become monopolies.  And once they eliminated all competitors, they would raise their prices and gouge the consumers.  Northern Securities never did.  But they could.  So they were guilty.  Because they might commit a crime.  One day.

ALL BUSINESS OWNERS aren’t morally ethical and honest.  But the market is, albeit cruel.  Economies of scales will always put the little guy out of business.  Sad, yes, for the little guy.  But for every little guy put out of business, millions of consumers save money.  They can buy things for less.  Which means they have more money to buy more things.  New things.  Different things.  From new little guys who now have a chance with this new surplus of purchasing power.

But when politicians get involved, consumers lose.  When they help a competitor, they help them by keeping prices high.  To keep competition ‘fair’.  For the politically connected.

Consumers never complain about low prices.  Only competitors do.  Or their employees.  Those working on whaling ships didn’t like to see the low price of Rockefeller’s kerosene.  But the new refining industry (and its auxiliaries) created far more jobs than were lost on the whaling ships.  We call it progress.  And with it comes a better life for the many.  Even if it is at the expense of the few.

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