Chapter 2

The Industry

The geological forces that transformed primeval slime into anthracite coal created four basins with contrasting terrains. Steep mountains and narrow valleys covered the three southern basins, while the northern basin was hidden under the broad and fertile Wyoming Valley. It was inevitable that the more attractive area would yield first its secret cache of mineral wealth.

The conflict between Connecticut and Pennsylvania over the possession of the Wyoming Valley led to the discovery and use of anthracite. In 1762 John Jerkins, mapmaker for the Susquehanna Company, reported the existence of coal in the Wyoming Valley, and six years later the survey of Sunbury Manor revealed the presence of anthracite on Ross Hill in what is now Edwardsville.¹ Enterprising Yankees quickly found a use for the new fuel; in 1769 Obadiah Gore successfully burned the native coal in his forge.²

Wyoming’s anthracite apparently remained a regional fuel until 1775, when patriots shipped “stone coal” from the valley to the Continental armory at Carlisle, Pennsylvania.³ Although the Wyoming Valley’s anthracite trade began during the Revolution, statistics are not available until 1807.⁴

As can be seen in Table 1, the Wyoming Valley possessed an expanding coal industry by 1820, the generally accepted date for the opening of the southern basins.

Discovery of the southern basins quickly followed the detection of the northern field. In 1770 William Scull placed the legend “coal” near present Pottsville and on the Mahanoy Creek on his famous map of Pennsylvania.⁵ Another early map of the region, this one by Jacques Nolin, contained the inscription “Charbon de terre” at the confluence of Norwegian Creek and the Schuylkill River.⁶ But “Saint Anthony’s Wilderness” swallowed the cartographers’ information until folk heroes rediscovered the coal. In 1790 Neco Allen, a local hunter, made camp near present Pottsville and awoke during the night to find the earth burning—his campfire had ignited an outcrop of the southern basin. One year later another hunter, Philip Ginter, stumbled over a fallen tree near Summit Hill and discovered another outcrop.⁷

Ginter gave a sample of his discovery to Colonel Jacob Weiss who, in turn, sent it to Philadelphia for analysis. Upon learning that Ginter’s black stones were coal, Weiss, with Robert Morris, Jacob Cist, and others, formed the Lehigh Coal Mine Company and began buying land. By 1793 the company controlled 7,108-3/4 acres and was looking forward to a prosperous future. But the high hopes were unjustified.

Before an anthracite industry could develop, it had to be demonstrated that the product would burn with relative ease. Anthracite’s high carbon content made it difficult to ignite, and many dismissed the new fuel as stone. In 1803 the city of Philadelphia graveled footwalks about the water works with hard coal after it failed to ignite.

The efforts to convince the public that anthracite would burn anticipated Madison Avenue. The Lehigh Coal Mine Company distributed handbills in both German and English which described the proper method for burning its coal, and accompanied the notices with affidavits attesting to anthracite’s value.⁸ The Delaware and Hudson Company installed stoves fired with hard coal in its New York banking house. In Boston a Mr. Badger hung iron cages which contained burning anthracite from the trees in Bowdoin Square.⁹

It was the War of 1812 which provided a large market for anthracite. The British blockade of the eastern coast diminished the supply of Richmond and Liverpool coals. The scarcity of bituminous coal, plus the increasing cost of wood, caused many to experiment successfully with anthracite. Although the public returned, temporarily, to the more familiar fuels at the end of the war, the growing knowledge that anthracite would indeed burn provided the industry with the opportunity to develop its markets.

Anthracite found its first use in the processing of iron, but it was not until the 1830s that it was used to smelt the ore. In 1820 the Lehigh Coal and Navigation Company, successor to the Lehigh Coal Mine Company, built an anthracite iron furnace at Mauch Chunk. The furnace was a failure, but enterprising iron masters were not dismayed. Experiments continued until 1830 when Frederick W. Geisenheimer received a patent for making pig iron using anthracite.¹⁰ Geisenheimer’s success prompted others to enter the field. The anthracite pig iron industry can be dated from 1839 when William Lyman of Pioneer Furnace near Pottsville received a $5,000 prize for making pig iron with anthracite continuously for 100 days.¹¹

Anthracite quickly replaced charcoal as the most important iron-smelting fuel. Iron masters favored the new fuel because “Its [anthracite’s] comparative freedom from waste by transportation, and its little liability to change by atmospheric influences, have marked it as singularly for use in furnaces at a distance from the place of its origin”¹² More important than hard coal’s transportability, however, was its relative cheapness. Some iron masters claimed that the cost of anthracite was half that of charcoal, a saving of from $10 to $14 a ton. After 1875 the major iron-producing fuel became bituminous coal and coke, but, as is evident in Table 2, iron furnaces remained a sizable market throughout the century.

Anthracite also found other industrial markets. Hard coal was used in the steam engine as early as 1825, but its intense heat burned out the grate. By 1830 this problem was solved by making the grate heavier in the center than at the ends. Superiority over wood made anthracite better suited for small markets. Great savings for lime burners were reported. Two cords of wood (at a cost of $3.50) were needed to produce 100 bushels of lime. The same amount of lime could be produced with a half-ton of anthracite, which cost only $1.50, a saving of 57 percent. Use of anthracite further reduced fuel costs by providing a more efficient kiln: “. . . by burning with coal, we can keep on hand a constant supply of lime, whereas by using wood, the lime must be all hauled off before we can renew, but by using coal we can continue burning and hauling at the same time.”¹³

The brick industry found that coal offered it the same advantages; William Everhart reported that the increase in production achieved by burning coal instead of wood covered the cost of coal; he could burn 1,000 more bricks per load when using anthracite.¹⁴

Although anthracite’s cheapness recommended its use to many industries, the greatest use of it was as a domestic heating and cooking fuel. Smokeless anthracite was a natural household fuel, but the obvious economy of using hard coal overrode every other consideration. By the 1840s anthracite was a necessity for rich and poor.

By 1860 anthracite was firmly established as an important industrial and domestic fuel. To a degree, the industry owed its growth to advertising, but the most important factor was efficiency. Anthracite’s natural advantage, however, could be realized only when it was delivered to market at competitive prices.

Irregular terrain and distance from main markets, plus coal’s bulkiness and low unit value, were the greatest hindrances to low prices.¹⁵ Overland hauling was prohibitive; expenses for the trip ($25 a ton) could not be covered. The rivers draining the coal fields offered more risks than efficient transportation. In 1803 the Lehigh Coal Mine Company lost four of the six arks it sent to Philadelphia.¹⁶ Even if river transportation had proved feasible, the cost of hauling coal from the mines to the river was high. In 1815 Jacob Cist paid Aaron Dean $4.50 a ton to haul 60 tons of anthracite from Summit Hill to the Lehigh River, a distance of six miles.¹⁷ In the northern basin the cost of transporting coal from Carbondale to the Wallenpaupack ran $2.50 a ton. The need to cut the exorbitant hauling costs makes the history of anthracite “first and last a story of transportation.”¹⁸

Canals provided the first high-capacity, low-cost transport system. Two private companies and the state improved the three rivers draining the coal region. The Lehigh Coal and Navigation Company and the Schuylkill Navigation Company tamed their respective waterways, while the Susquehanna became part of the Pennsylvania State Canal System. The Commonwealth also improved the Delaware, thereby making possible slack-water navigation from Mauch Chunk to Philadelphia. Because they had to follow the southern flow of water, the three canals did not provide direct access to the lucrative New York market. The Delaware and Hudson Canal opened the New York trade for the northern basin, and two canals—the Morris and the Delaware and Raritan—crossed New Jersey to tap the Lehigh fields. By 1846 the anthracite canal system totaled 643 miles and brought about a substantial decrease in transportation costs.

Water transportation, however, suffered from serious defects. Travel, paced by a mule’s gait, was necessarily slow. Freshets could wipe out improvements overnight; the 1827 flood destroyed the upper sections of the Lehigh Canal. Water transportation was doomed by the more efficient railroad.

High transportation costs from the mines to the canals compelled the building of feeder railroads. The Lehigh Coal and Navigation Company constructed a gravity road from its Summit Hill mines to its canal and realized a savings of 64-3/4 cents per ton in haulage. The economies of rail transportation, plus the imperious attitude of the canal owners, led capitalists to construct railroads as competitors, not as feeders for the canals. By the end of the nineteenth century 11 railroads served the anthracite regions.

Development of the transport system accentuated the regions’ geological differences and created three geo-economic units. The western middle and most of the southern basins comprised the Schuylkill region, which found its market in Philadelphia via the Philadelphia and Reading Railroad. The extreme eastern section of the southern basin and the eastern middle basin formed the Lehigh region, which, served by the Lehigh Valley and the Central of New Jersey Railroads, shipped to New York and, to a lesser degree, Philadelphia. The northern basin, better known as the Wyoming region, shipped over the Delaware and Hudson Canal and the Delaware, Lackawanna, and Western Railroad and found its major market within the New England–New York–Buffalo area. Within each of the three regions the transport companies became dominant, not only as carriers but as miners.

The anthracite regions were one of the first areas in Pennsylvania to yield to corporate control.¹⁹ The concentration of ownership into the hands of the few carrying companies proceeded with a logic that led one group of observers to conclude: “There is probably no other commodity entering into human consumption which possesses so much the character of a natural monopoly as the anthracite coal of Pennsylvania.”²⁰ The compactness of the anthracite regions explains in part the ease with which concentration was accomplished; but the main explanation lies in the industry’s economics.

Capital needs formed one of the jaws of the vise that squeezed the individual entrepreneur out of the industry. The cost of entry became increasingly prohibitive as the industry matured. The first consideration, thanks to speculation, was the rising cost of land. Indeed, some regarded speculation in coal land as the primary source of profit in the anthracite industry. Purchase of land formed only a part of the entry costs; there remained the expenditures for opening the mine. As the outcrops became exhausted, the mines became deeper, requiring increased outlays for pumping water and for coal-hoisting machinery.

Certain special features of the market also caused increases in the initial outlay. For example, the customer became more fastidious—he demanded a clean and uniform product. To meet the demand the mine operator installed coal-breaking, screening, and -cleaning machinery in a separate building called the “breaker.” As the breaker became more sophisticated it appreciated in value; the Lehigh Coal and Navigation Company reported an expenditure of $16,998.56 for a new breaker in 1857, and by 1876 a moderate-sized breaker cost over $77,000.²¹ Increasing land values, deeper mines, and more sophisticated preparation processes denied the individual entrepreneur access to the industry.

Mining also required a great deal of operating capital. Many individuals received no return until their coal was sold at retail, which often took months. Capital was needed to meet current expenses during the interim. And current expenses were burdensome. Below-water-level mines had to be pumped continuously; timbering had to continue. Indeed, the fixed operating costs were so great that operators found it more economical to sell at a loss than to suspend operations. By so doing, they at least covered part of their operating costs.

Falling prices due to overproduction was the other jaw of the vise closing on the individual operator. It is ironic that an industry requiring great capitalization suffered from overproduction resulting from overinvestment. But the very nature of the market made for overinvestment. Heavily dependent on the domestic fuel market, the anthracite industry had to have an overbuilt plant in order to meet sporadically heavy demands.²²

Given the need for overinvestment, the industry’s mechanics provided overproduction. We have already noted how heavy fixed operating costs, to say nothing of increasing capital charges, compelled the operator to continue mining at a loss. The land system also provided for overproduction. Many operators saved initial outlay by leasing their land, but most leases called for the raising of a minimum tonnage on which a royalty had to be paid. The minimum royalty forced operators to cut their losses by producing at least that amount of tonnage regardless of price. High fixed costs placed the operators on a vicious carrousel: low prices prompted greater production which resulted in still lower prices.

Eckley B. Coxe, a wealthy mine operator, admitted that only a few entrepreneurs caught the carrousel’s gold ring: “The actual fact is, that until a comparatively recent time, out of every ten men who went into the coal business, nine of them have become bankrupt.”²³ Franklin B. Gowen, president of the Philadelphia and Reading Railroad, warned that success might be more painful than failure:

I practiced law for seven years in the County of Schuylkill, and in all that time, and up to it, there were but three men who ever retired from the business of mining coal with any money, and one of those died in an insane asylum and another had softening of the brain. The shock was too great to their systems.²⁴

The tendency toward collapse of the entrepreneurial order can be seen in Schuylkill County, long considered the bastion of individual enterprise. In 1865 Schuylkill County boasted 109 shippers controlling 146 collieries and shipping 3,735,806 tons. But the top 25 shippers accounted for 60 percent of the production, while the top 10 operators shipped 35 percent.

Increasing demand for capital, coupled with falling prices, destroyed the individual mine operator and set the stage for domination by the carrying companies. Being corporations and enjoying intimate contacts with the money market, the transport companies were better prepared than the entrepreneur to meet the industry’s insatiable appetite for capital. Furthermore, their strategic position at the industry’s “bottleneck” enabled them easily to exert control.²⁵ But access to the money market and strategic position only explain the power to implement the decision to rule, not the decision-making process.

Fear, not imperial designs, governed that process. The transportation companies, with the exception of the Philadelphia and Reading Railroad, enjoyed mining privileges, but their primary interests were in carrying coal. The failure of the independent operators created a power vacuum which, each company feared, a competitor might rush to fill.²⁶ Once created, the atmosphere of fear and distrust led to a cycle of defensive buying of coal lands. In 1867 the Lehigh Coal and Navigation Company’s managers reported to their stockholders that the Delaware and Hudson Company bought some coal land near Wilkes-Barre and explained:

This movement following others of like character, less threatening, perhaps, but all indicating the same disposition to monopolize, as far as possible, the coal land of Wyoming to one or other of the three great mining and transporting companies in that valley with their capital and principal offices located in the City of New York, excited the apprehensions of your managers, lest at some future day there might be a deficiency of trade from that quarter. . . . It was thought advisable, therefore, to endeavor to secure the control of coal lands in the Wyoming region with the view of making them tributary to our improvements.²⁷

At first the transporting companies limited their defensive scramble for coal land to the Lehigh and Wyoming regions where they held mining privileges. But in the late 1860s the northern companies began to extend their lines into the Schuylkill region. Threatened by a loss of tonnage, the Philadelphia and Reading, which heretofore had opposed the union of the mining and carrying operations, decided in 1871 to go into the mining business. The Reading’s decision to enter the mining sector of the anthracite industry sealed the independent operators’ doom. The percentage contract, which consigned the independent operator’s entire output to the transporting company for a percentage of the tidewater price, reduced the few remaining entrepreneurs to vassals of the railroads.²⁸

Control of the mines forced the carrying companies to confront the problem of falling prices. Conceiving the problem as one of restoring the market to a profitable equilibrium, management sought to equalize production with demand. Under Franklin B. Gowen’s leadership the carrying companies formed their first pool in 1872. The pool maintained prices despite the depression the following year, but its very success spelled its doom. In 1876 the Lehigh Valley, in anticipation of greater profits, broke the agreed-upon limitation on its production and the other companies followed its lead. Other pools followed the first; the pattern of the various pools were the same. The carrying-mining companies assigned each other quotas based on the company’s productive capacity. Each company was honor bound to observe its quota, and in one pool, to pay a fine for exceeding its quota.

Restriction of output maintained prices, but it failed to solve the basic problem of overinvestment. Indeed, the pools accentuated the problem as each company strived for a larger share of the total allotment by increasing its productive ability. In so doing, management reacted to social pressures. Expansion, not stabilization, was the hallmark of economic success of an industry and, within that industry, of each company. Managers had an obligation to the owners and to their own reputations to promote growth. In addition, they did not realize that expansion for expansion’s sake could result in overinvestment; an abiding faith in the economy as a self-adjusting mechanism precluded such an expectation. Trapped by an intellectural framework that was fast becoming obsolete, management found itself in a vicious spiral of increasing investment to offset overinvestment.

Overinvestment was new (and eventually destructive) to the anthracite industry; in the long run, it spelled bankruptcy to management as ever-increasing capital charges had to be earned by a decreasing percentage of capacity. The precarious fiscal position can be demonstrated by correlating the various pools’ failures with the Reading’s bankruptcies. The pool failed in 1883, and within the year the Reading went into receivership. During the competitive years 1893-96 the Reading failed twice—once in 1893 and again in 1896.

Labor also suffered from the industry’s overinvestment. Faced with a precarious capital position, management had to keep large profit margins even if it meant the depression of wages. And surplus of labor had to be kept within the region to keep the unnecessary plant operative. Management met the requirement for excess labor by instituting three-quarter, one-half, or one-quarter time and, whenever necessary, laying off men altogether. The miners’ twin plagues of low wages and less work were rooted not in the operators’ parsimony, but in the impersonal logic of an industry staggering under the burden of overinvestment.

The anthracite industry grew from a precarious birth into a giant. But despite its impressive growth, it remained basically sick. Management diagnosed the symptom—overproduction—as the sickness and treated it in a manner that aggravated the real illness—overinvestment—with the resultant bankruptcy and labor discontent, both of which boded ill for the communities of the anthracite regions.