he Politics of Business in California 1890-1920 SI 2.50 The Politics of Business in California. 1890-1920 Manse/ G. Blackford The American experience between the Civil War and World War I can perhaps be best understood as an attempt to reorder national life in the wake of a radical social and eco­ nomic disruption that was brought on by rapid industrialization. In California, even more than in other areas of the nation, fundamental and dramatic changes were to occur throughout the period as various sectors of the state's rapidly ex­ panding economy became both increasingly differentiated and more closely interdependent. Through a series of mergers and consolida­ tions, large, diversified, integrated, and multi­ level firms came to replace smaller, more specialized, independent, and single-level companies. Trade associations, marketing com­ bines, and other affiliations served to organize these emergent firms within each industry; and businessmen, acutely aware of a need for recognition of their status as members of a profession, began increasingly to act in con­ cert as a special-interest group, both in public, in their representations to legislative bodies, and in private, as apologists for commercial practice and as agents working to suppress competition and increase efficiency. Professor Blackford examines three of Cali­ fornia's more important basic productive in­ dustries—agriculture, oil, and lumber—and three of its principal supportive businesses — banking, investment banking, and insurance — together with two major issues that cut across industry lines: the growing movement to bring about state regulation of railroads and public utilities, and the effort to effect tax reform. The California experience, he finds, clearly suggests that on the local as well as (Continued on back flap) The Politics of Business in California, 1890-1920 Mansel G. Blackford The Politics of Business in California, 1890-1920 Ohio State University Press: Columbus A portion of Chapter 4, "The Movement for Scientific Forestry," was previously published in Business and Economic History, 2d ser., vol. 4, ed. Paul Uselding, and is reprinted here by permission. Portions of Chapter 5 appeared as "Businessmen and the Regulation of Railroads and Public Utilities in California During the Progressive Era" in Business History Review 44 (Autumn, 1970): 307-19, and is reprinted here by permission. Chapter 6 was previously published as "Banking and Bank Legislation in California, 1890­ 1915" in Business History Review 47 (Winter, 1973): 482-507, and is re­ printed here by permission. Copyright ® 1977 by the Ohio State University Press All rights reserved Manufactured in the United States of America Library of Congress Cataloging in Publication Data Blackford, Mansel G 1944­ The politics of business in California, 1890-1920. Bibliography, p. Includes index. 1. California—Economic conditions. 2. California—Industries- History. I. Title. HC107.C2B55 330.9'794'O4 76-27319 ISBN 0-8142-0259-4 To Victoria Contents Preface ix Acknowledgments xiii 1. California's Changing Economy 3 2. Agriculture: Growers Against Consumers 13 3. The Oil Industry 40 4. The Lumber Industry and Scientific Forestry 60 5. Railroad and Public Utility Regulation 78 6. Banking and Bank Legislation 96 7. Investment Banking and the Blue-sky Law 117 8. The Insurance Industry 128 9. Big Business and Tax Reform 146 10. The Politics of Business 161 Appendix 173 Abbreviations 173 Notes 177 Bibliography 205 Index 217 Preface In recent years historians have been reevaluating late nineteenth- and early twentieth-century American history. Led by the synthetic efforts of Samuel Hays and Robert Wiebe, they have recast much of the thinking on the nature of American society, culture, politics, and business during this period.1 Their studies stress the problems Americans faced in coming to grips with the rapid industrialization of their nation and suggest that much of the American experience between the Civil War and the First World War can best be understood as an attempt to reorder American life in the wake of social and economic disruption.2 Historians have come to view the re­ sponse of Americans to the disruption of their lives in terms of the growing organization of American society. This interpretation, which has become known as the "organizational synthesis," emphasizes the spread of bureaucratic organizations and the growth of professions, together with a heightened awareness of the need for order and efficiency, as the themes best explaining the course of American development in this period. As a corollary, many scholars adopting this approach have abandoned political discontinuities, and especially the dichotomy between reform and reac­ tion, as the key to the recent history of the United States. Rather, their interpretation stresses more the continuity of the response of Americans to the modernization of their nation.3 In the following study I examine the findings of the organizational synthesis interpretation by analyzing how Californians, and particularly x Preface various groups of California businessmen, reacted to the forces of economic change that were transforming their state between roughly 1890 and 1920.1 deal with what were three of California's most important basic productive industries—agriculture, oil, and lumber—and three of its most significant supportive businesses—banking, investment banking, and in­ surance. In addition, I examine two major issues that cut across industry lines and that involved a wide variety of businessmen: state regulation of railroads and public utilities and tax reform movements. My account reveals that businessmen tried to solve their difficulties through a complex combination of private and public actions that, taken together, compose what I have labeled the "politics of business." In the private realm, businessmen restructured their firms and industries as they sought to control their changing economic environment while trying to achieve or maintain competitive advantages over each other. In the sphere of public politics, businessmen sought the same goals. Through state or, on occa­ sion, national legislation they hoped to both channel and limit the impact of the forces of change while also often using the altered economic situation to obtain competitive advantages. Historians have long been engaged in chronicling how businessmen restructured their firms and industries as they tried to cope with changes occurring in their business environment, but much remains to be done in this field.4 Business historians have prepared numerous company histories and studies of single industries; and, somewhat less frequently, historians like Alfred Chandler, Jr., have compared the experiences of businessmen in different companies and industries as a basis for generalization.5 These studies have proven to be intrinsically valuable and useful as building blocks for further research; but, because most of them have focused too closely upon the internal business decisions of management and the chang­ ing structures of business firms, they have missed much of the significance of the social and political environments within which businessmen operate. More efforts need to be made in connecting the private, internal- management business decisions with the public, external environments surrounding businesses.6 A growing number of historians have been trying to unravel the connec­ tions between the difficulties businessmen encountered as a result of the modernization of the American economy and their involvement in politics. Gabriel Kolko's analysis of the relationship between business and the Progressive movement broke new ground in this respect.7 Other studies, particularly those of Robert Wiebe, indicate, however, that Kolko's in­ Preface xi terpretation is simplistic and that patterns of business political engagement were considerably more complex than Kolko's work suggests.8 The ques­ tion of the extent to which businessmen influenced legislation and state regulation of their industries during the Progressive Era certainly requires closer inspection. And, in examining this subject historians can, perhaps, help political scientists and sociologists reach some conclusions on the more general question of the extent to which modern American govern­ ment has been pluralistic or elitist in nature.9 By investigating how businessmen in one specific locale, the state of California, responded to economic modernization, I hope to strike a balance between specialization and generalization. My study should add to our still incomplete knowledge of the economic and political development of California. Although not a detailed analysis of all aspects of the Progres­ sive movement in the Golden State, my work should also supplement, and in places modify, the interpretations of the movement put forward by George Mowry and Spencer Olin, Jr.10 Their works deal, of course, with much more than the business legislation of this period, but my findings suggest that, at least in this realm of study, their conclusions need to be reexamined. I hope, too, that my research will help explain in more depth the interaction between groups of businessmen and state officials in the formulation of economic policy and legislation in California, a task ably begun by the historian Gerald Nash.n I believe my work has implications for the study of recent American history in general. In the broadest terms, this investigation should heighten our understanding of the ways businessmen and others sought to control