Robber Baron: The Life of Charles Tyson Yerkes

Published by EH.NET (July 2008)

John Franch, Robber Baron: The Life of Charles Tyson Yerkes. Urbana, IL: University of Illinois Press, 2006. vii + 374 pp. $25 (paperback), ISBN: 978-0-252-07517-9.

Reviewed for EH.NET by Robert Whaples, Department of Economics, Wake Forest University.

It?s tough to feel sympathetic toward Charles Tyson Yerkes, nor have historians ? including John Franch ? treated him kindly. Yerkes rose from obscurity to amass a fortune as Chicago?s traction king in the late 1800s. Because the fates of mass transit lines were in the hands of politicians and Chicago was graced by a notoriously unsavory political culture, it was almost inevitable that a talented but conniving man would be at the reins of the industry as its street railways moved from the era of horse-drawn cars into the age of electricity. Yerkes?s penchant for bribery, blackmail, and brilliant, self-serving financial maneuvers became so legendary and public concerns about the congestion and other shortcomings of the city?s mass transit became so pervasive that he was singled out as public enemy number one. Yerkes was the leading villain in muckraking journalist William Stead?s If Christ Came to Chicago and was fictionalized as the amoral Frank Cowperwood in Theodore Dreiser?s Trilogy of Desire. A mansion overlooking New York?s Central Park ? which proudly displayed a bust of Nero and paintings by Millet, Raphael, Rembrandt, and Rubens ? and rumors of an army of mistresses completed the portrait of this unscrupulous ?robber baron? in the public mind.

Franch?s biography sets Yerkes in his milieu and frequently presses to interpret his psychological state and ultimate motives. It begins with young Charles (born 1837) being weaned on the ?gospel of success? in Philadelphia, part of the Gilded Generation that ?worshipped at the altar of materialism.? Yerkes took a job at a commission house, working without pay for a year as he learned the ropes. He opened his own brokerage at 22, beginning as a banknote trader and was immediately successful, reporting a profit of $12,000 in his first year (that?s over $300,000 in today?s dollars, according to our colleagues at measuringworth.com). Yerkes was obviously a shrewd and energetic judge of financial opportunities, but much of his subsequent wealth arose through political connections, as he arranged a series of lucrative deals and insider trades in which government officials gave him temporary use of public funds for a cut of the proceeds.

Then one of these surefire deals unexpectedly and spectacularly backfired. With insider knowledge of a soon-to-be-announced court ruling, he reasoned that Pennsylvania Railroad stock would rise and borrowed heavily in the summer of 1871 to leverage any gains. Unfortunately for Yerkes, the Chicago Fire rattled markets driving all stocks down and leaving him far overextended. As his finances collapsed, he was put on trial for embezzling public funds since much of the ?borrowed? funds he used in this scheme were ?lent? to him by city and state officials. His defense team argued that there was no crime, since Yerkes never intended to defraud anyone and was merely the victim of circumstances ? that he was only playing by the unofficial rules of the game, a tool of public officials who were elected with the understanding that it was their privilege of office to use public funds for private advancement. The jury took twenty minutes to find him guilty and he was sentenced to confinement at labor for two years and nine months. However, Yerkes had an ace up his sleeve. His threat to name names made him so certain that a last-minute pardon would be waiting at the penitentiary gates that he brought a return ticket with him. The wheels of corruption sometimes grind even slower than the wheels of justice, as it took seven months of threats and deal making to win freedom. Here Franch suggests that the pardon was crucial to swinging the presidential election of 1872 in favor of Ulysses Grant, but this seems a bit overinflated.

Upon his release and a cancellation of his debt by the Philadelphia City Council, Yerkes quickly resurrected his financial career and entered the service of Philadelphia?s ?traction twins? Peter Widener and William Elkins, before decamping westward so that he could divorce his wife and remarry a much young woman. After resettling in Chicago, he quickly established himself as a successful member of the Board of Trade. Still, Yerkes would have been an obscure historical footnote had he not possessed an empire-building drive that expressed itself in an attempt to control Chicago?s mass transit. Learning that the owner of the North Chicago City horse rail line was ready to cash out, in 1886 he put together a syndicate with his Philadelphia collaborators to take control of the line, inserting himself as president. The next year he gained control of the West Chicago Street Railway Company. In the ensuing thirteen years Yerkes tripled track mileage on the North Side and doubled it on the West Side ? while introducing a cable car system and then electrified trolleys. Simultaneously, he took control of and built up the Consolidated Traction network of suburban lines, as well as the Northwestern Elevated and the famous Union Loop. By the end he controlled a network of well over 500 miles of rails that carried about 250 million passengers each year.

Throughout this period, however, Yerkes was in a somewhat vulnerable position as the franchises of his major lines relentlessly ticked toward expiration. Was it wise to sink so much capital into his lines in the face of Illinois? Horse and Buggy Act of 1874, which limited franchises to a twenty year life span? Yerkes ventured that it was and simultaneously worked to have the statue amended in his favor. These maneuvers became the stuff of legend, including accounts of wholesale bribery in the state legislature, the use of professional vamps to entice and then blackmail opponents, and Governor John Peter Altgeld?s report of turning down a million dollar payoff in vetoing Yerkes?s pet bill. Next he worked the Chicago City Council to amend and extend his franchises. However, public opinion recoiled against him and the election of reformist council members foiled these plans. Franch portrays each one of these defeats as devastating to Yerkes, but it appears that they weren?t and that his properties maintained significant value as the franchise clock ticked down. It would have been very helpful if Franch had closely tracked movements in Yerkes?s companies? share prices, as Werner Troesken does for the parallel case of Chicago?s gas companies during this period.[1]

Finally, in 1899 Yerkes sold his two main lines for $9.36 million (about $250 million in today?s dollars), but Franch alleges that the buyers were blindsided by ?the most devious maneuver of a very devious career? (p. 269), a hidden agreement that gave Yerkes?s Consolidated Traction Company the right to run its suburban cars into the city?s heart over the tracks of the North and West Chicago lines at no charge, and years of diversion of the city lines? profits to the suburban lines. I?m skeptical that these savvy investors were such uninformed saps and the accounts of these events appear overly melodramatic.

After unloading many of his other Chicago area assets, Yerkes went to London in 1901 and soon won the confidence of the city?s financiers. Finding the ?boodle-free British Parliament a refreshing change of pace? (p. 300), his Underground Electric Railways Company quickly raised $50 million and successfully constructed a series of subway lines. At the peak of his career in 1905, Yerkes succumbed to nephritis, leaving much of his estate to establish an art museum and a hospital. Completing the legend, the estate was besieged by an army of creditors and much of it melted away, with the art works auctioned off for $2 million 1910.

Robber Baron is a work of significant scholarship, but it?s difficult to know what to make of it. At times it passes along rumors essentially implying that they should be taken as fact. It tells an immensely interesting tale, but seems to be bent more on dramatizing events and excoriating Yerkes and his fellow ?robber barons? than giving a balanced account of its subject. Is it time to formally bury this ?robber baron? term? Historians like Maury Klein certainly make a good case for doing so.[2}Who did Yerkes actually rob? Franch suggests that he robbed practically everyone from his employees, to his partners and other unwary investors, to his customers, but there are reasons to be skeptical. His firms hired labor in very competitive markets, making systematic exploitation of workers virtually impossible. The evidence that Yerkes defrauded investors and partners during his Chicago years isn?t presented convincingly, largely amounting to the posturing of rivals in the court of public opinion rather than serious legal analysis.

Were customers ?robbed? and abused by Yerkes? Answering this question is very difficult because of the need for an adequate counterfactual. To what should we compare Yerkes?s treatment of consumers? To their treatment in other cities? Unfortunately, measuring quality and holding all other relevant factors constant makes this task nearly insurmountable. To their treatment on Chicago?s South Side, which Yerkes didn?t control? It?s not clear which line offered riders a better deal. The franchise agreements on the South Side and in Yerkes?s domain required the railways to sweep the streets between their tracks, remove snow in the winter and limit their fares to 5 cents per ride in return for the privilege of laying track on public property. What bothered riders most was that their rush hours trips to and from the downtown area were becoming increasing uncomfortable and unreliable due to congestion caused by the city?s population growth and commercial layout. Because of their local monopoly positions both firms were able to respond by allowing rush hour cars to become intensely overcrowded. However, they also enacted a number of improvements to speed up traffic flow and were hemmed in by political barriers in coordinating their operations and building additional infrastructure to alleviate the problems. The deeper problem was a legal arrangement that gave the city little room to offer mass transit firms the right incentives to provide good service. Instead, under the prevailing institutional arrangements ?each request from an existing company for permission to extend its lines provided yet another occasion for graft.?[3]

Yerkes was caught in a web, understanding just how to work the system for maximal profits, but his bold attempts to alter the rules of the game by pressing for a half-century franchise and leeway to make the transit system more efficient alienated practically everyone. Because mass transit involves non-redeployable investments, it is especially open to political opportunism and it becomes practically inevitable that investors will move to rewrite the rules and that politicians will parry these moves as both sides grope toward a new set of more efficient arrangements. Werner Troesken ably explains how these forces played out in Chicago?s gas industry during Yerkes?s era. His insights are invaluable for a deeper understanding of investors who found themselves in Yerkes?s shoes. Franch?s book, which does a remarkable job of recapturing the drama of the age, would have benefited from more careful, systematic attention to these deeper structural forces

References:

1. Werner Troesken, Why Regulate Utilities? The New Institutional Economics and the Chicago Gas Industry, 1849-1924, University of Michigan Press, 1996.

2. Maury Klein, The Change Makers: From Carnegie to Gates, How the Great Entrepreneurs Transformed Ideas into Industries, Henry Holt, 2003.

3. Paul Barrett, The Automobile and Mass Transit: The Formation of Public Policy in Chicago, 1900-1930, Temple University Press, 1983, p. 16.

Robert Whaples is the former Director of EH.NET. His lecture series, Modern Economic Issues is available from The Teaching Company at http://www.teach12.com/ttcx/coursedesclong2.aspx?cid=5610&pc=SiteIndex. It includes 36 30-minute lectures on CD and DVD. The topics range from productivity growth and inflation to global climate change, immigration, Wal-Mart, conspicuous consumption and economists? expectations about the future.