Wall Street History: Railroads and Rockefeller

The week of May 10 saw the arrival of the Jamestown colonists, the beginning of the railroad era, and the age of monopolies. This week also shows us two sides of one of the most famous men in finance, John D. Rockefeller. It marks his time as a cutthroat tycoon as well as the launch of his massive philanthropic foundation. Here, we review some of the key events that marked the week of May 10-17 throughout history.

Key Takeaways

  • The week of May 10 saw many important events in the history of the United States and the financial world.
  • On May 13, 1607, British colonists first arrived at Jamestown, ultimately beginning the settlement of the United States.
  • The same week in May 1869 saw the birth of the railroad age in the United States, leading to the creation of major industrial conglomerates.
  • The Tokyo Stock Exchange was also launched in early May of 1878.
  • The week also saw the launch of the Rockefeller Foundation (1913).
Wall Street History

Investopedia / Ellen Lindner

The World Gets Smaller

On May 10, 1869, a golden spike was hammered in at Promontory, Utah, to mark the completion of the first transcontinental railroad in the United States. The history of the railroad and financial history are inseparable up to the 20th century—and with Buffett's high-profile buy of Burlington Northern in 2009, the connection is still persevering.

The railroads were among the first companies to issue bonds and stocks in the United States. They also sped up the flow of information and, by extension, the mechanics of investing. As railroads were laid, telegraph companies worked out a deal where their lines would follow the tracks. The transcontinental line and its accompanying high-speed communication (compared to mail horses) was one more link between the financial hubs and the industrial and agricultural centers across the nation.

Venture Capital and Jamestown

On May 13, 1607, English colonists arrived by ship at the site of what was to become the Jamestown settlement in Virginia. The Virginia Company of London, a collection of venture capitalists, funded the whole expedition. The thought was that unimaginable wealth was waiting in the new world. It turned out that there weren't nuggets of gold lying out for the taking, nor was the land unoccupied.

Between harsh winters and the occasional hostile raid, it took many more ships of settlers to establish a beachhead in the new world. The wealth that did eventually flow back to England was in the form of tobacco. The crown nationalized the private venture following the Jamestown massacre, declaring it a royal colony of Britain.

The Sherman Anti-Trust Act prohibits companies from colluding to set prices or engaging in anticompetitive business practices.

Douglas Fraser and Chrysler

On May 13, 1980, Douglas Fraser was appointed to the board of Chrysler. This marked the first time that a large American corporation picked a union member to join the board.

Fraser helped Chrysler secure a government bailout the previous year by winning concessions from the union, though Chrysler only made it 30 years before having to go completely into bankruptcy in 2009. As a board member, Fraser acted as the vote for the entire union, often opposing management stock options and cuts to worker benefits.

Anti-Monopoly Party's First Convention

Ambiguity in politics is the tiresome norm now, but on May 14, 1884, the Anti-Monopoly Party's goals were made crystal clear at its first convention. As the name suggests, the party was against large trusts with monopoly power—the ability to set prices and force out new competition.

General Benjamin Butler was their pick for the presidency, but Butler didn't quite make it into the oval office on what was essentially a one-issue platform. However, the party didn't fade completely after the loss. The monopoly issue was taken up on its populist merits and many of the reforms the Anti-Monopoly Party sought were brought about in the Sherman Antitrust Act six years later.

Rich Like Rockefeller

On May 14, 1913, New York Governor William Sulzer approved the charter for John D. Rockefeller's Rockefeller Foundation. Rockefeller created the foundation to carry out his charitable works, following in the footsteps of a fellow tycoon, Andrew Carnegie.

Starting with $35 million, the Rockefeller Foundation is now a billion-dollar organization carrying out the original mandate, "to promote the well-being of humanity around the world."

$6 billion

The current size of the Rockefeller Foundation's endowment.

Stocks Take Over Tokyo

In films, Tokyo is constantly being leveled by Godzilla, but the city saw a different type of beast arrive on May 15, 1878, when the Tokyo Stock Exchange (TSE) was formed. Following WWII, the TSE surged ahead with the development of Japan as an industrial and technological power.

The TSE has fluctuated between being the second- and fifth-largest exchange in the world, but it also brought Japan a Godzilla-like beating. In the massive Japanese bubble of the 1990s, many of the stocks on the TSE were used for collateral for loans of all types. The economic collapse resulted in a long period of stagnation and deflation that is today known as the "lost decade."

Sherman vs. Standard Oil, NFL, and More

On May 15, 1911, the Supreme Court ordered the dissolution of Standard Oil, the gigantic petroleum monopoly of John D. Rockefeller. The government previously used the Sherman Antitrust Act to break up the oil trust in 1892, but the trust was cleverly converted into a holding company.

After the court ruling in 1911, however, Standard Oil was carved up into smaller, yet still sizable, chunks. They've altered their names over the years, but Chevron, Exxon, and Conoco, among others, all share a Standard Oil pedigree. These companies had the advantage of Standard Oil's R&D and infrastructure, so they easily made the transition to gasoline producers as kerosene sales dropped due to Edison's electric light.

May 16, 1991, saw an antitrust suit filed against the National Football League (NFL). William Sullivan founded the Boston Patriots—now the New England Patriots—but was forced to sell the team due to financial problems. Sullivan launched the suit against the NFL because the league blocked him from raising financing from public investors via a stock sale of half the team. Sullivan settled with the league for $11.5 million.

Along with other pro sports organizations like Major League Baseball (MLB), the NFL has found itself facing antitrust legislation more than once. Many of the cases have centered around barriers to entry, but there are similar cases over licensing, television, and merchandise. Currently, the NFL is back in court amidst claims that the League conspired with retailers to prevent competitors from selling merchandise on Amazon.

How Did Railroads Create a Monopoly?

Railroads are considered a natural monopoly. Because of the extremely high start-up costs, it is not profitable to start a railway if there is already a railway line serving the same route. However, a successful railroad could provide enormous profits, which could then be reinvested by the railway owner to open new lines or used to lobby politicians for favorable dispensations. These features discourage competition among railway companies, encouraging the formation of monopolies.

Who Had a Monopoly in the Railroad Industry?

In the United States, the most famous railroad monopoly was launched by Cornelius Vanderbilt, an early investor in railroads and water transportation. Starting with a single boat, the Vanderbilts eventually controlled an enormous empire of shipping and railway routes.

How Did the Railroad Monopoly Affect Farmers?

Farmers needed railroads to ship their products, but because there was little competition in the railroad business they were often forced to pay whatever price the local carrier had set. In addition, railroads could also charge different prices to different customers, thereby helping their large partners to stamp out the competition. The lack of oversight created political pressure to regulate the railroads and prevent monopolistic practices.

What Was the Railroad Monopoly Breakup?

The Interstate Commerce Act, passed in 1887, and the Sherman Antitrust Act of 1890 prohibited companies from collaborating to set prices or engage in anticompetitive behavior. These laws allowed the federal government to take action against railway pools and other agreements between the owners of different railway companies.

Article Sources
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  1. Reuters. "Buffett Buys Burlington Rail in Biggest Deal."

  2. Encyclopedia Virginia. "The Virginia Company of London."

  3. New York Times. "Douglas Fraser, '91, Union Chief Who Helped Chrysler, Is Dead."

  4. Britannica. "John D. Rockefeller."

  5. Rockefeller Foundation. "The Rockefeller Foundation Releases New Policy on Ethical Investing."

  6. Pennsylvania State University. "The Dragon Slain: The Breakup of the Standard Oil Trust."

  7. Britannica. "Standard Oil."

  8. Associated Press. "Mistrial Declared in Former Patriots Owner's Antitrust Suit Against NFL."

  9. Law.com. "NFL, Fanatics Face New Antitrust Claims Over Licensed Merchandise Sales."

  10. The Conversation. "For Tech Giants, a Cautionary Tale from 19th Century Railroads on the Limits of Competition."

  11. National Archives. "Interstate Commerce Act."

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