In 1895 the gold reserve of the United States was depleted, while twenty-six New York City banks had $129 million in gold in their vaults. A syndicate of bankers headed by J. P. Morgan amp; Company, August Belmont amp; Company, the National City Bank, and others offered to give the government gold in exchange for bonds. President Grover Cleveland agreed. The bankers immediately resold the bonds at higher prices, making $18 million profit.

A journalist wrote: "If a man wants to buy beef, he must go to the butcher… If Mr. Cleveland wants much gold, he must go to the big banker."

While making his fortune, Morgan brought rationality and organization to the national economy. He kept the system stable. He said: "We do not want financial convulsions and have one thing one day and another thing another day." He linked railroads to one another, all of them to banks, banks to insurance companies. By 1900, he controlled 100,000 miles of railroad, half the country's mileage.

Three insurance companies dominated by the Morgan group had a billion dollars in assets. They had $50 million a year to invest-money given by ordinary people for their insurance policies. Louis Brandeis, describing this in his book Other People's Money (before he became a Supreme Court justice), wrote: "They control the people through the people's own money."

John D. Rockefeller started as a bookkeeper in Cleveland, became a merchant, accumulated money, and decided that, in the new industry of oil, who controlled the oil refineries controlled the industry. He bought his first oil refinery in 1862, and by 1870 set up Standard Oil Company of Ohio, made secret agreements with railroads to ship his oil with them if they gave him rebates- discounts-on their prices, and thus drove competitors out of business.

One independent refiner said: "If we did not sell out… we would be crushed out… There was only one buyer on the market and we had to sell at their terms." Memos like this one passed among Standard Oil officials: "Wilkerson amp; Co. received car of oil Monday 13th… Please turn another screw." A rival refinery in Buffalo was rocked by a small explosion arranged by Standard Oil officials with the refinery's chief mechanic.

The Standard Oil Company, by 1899, was a holding company which controlled the stock of many other companies. The capital was $110 million, the profit was $45 million a year, and John D. Rockefeller's fortune was estimated at $200 million. Before long he would move into iron, copper, coal, shipping, and banking (Chase Manhattan Bank). Profits would be $81 million a year, and the Rockefeller fortune would total two billion dollars.

Andrew Carnegie was a telegraph clerk at seventeen, then secretary to the head of the Pennsylvania Railroad, then broker in Wall Street selling railroad bonds for huge commissions, and was soon a millionaire. He went to London in 1872, saw the new Bessemer method of producing steel, and returned to the United States to build a million-dollar steel plant. Foreign competition was kept out by a high tariff conveniently set by Congress, and by 188 °Carnegie was producing 10,000 tons of steel a month, making $1 1/2 million a year in profit. By 1900 he was making $40 million a year, and that year, at a dinner party, he agreed to sell his steel company to J. P. Morgan. He scribbled the price on a note: $492,000,000.

Morgan then formed the U.S. Steel Corporation, combining Carnegie's corporation with others. He sold stocks and bonds for $1,300,000,000 (about 400 million more than the combined worth of the companies) and took a fee of 150 million for arranging the consolidation. How could dividends be paid to all those stockholders and bondholders? By making sure Congress passed tariffs keeping out foreign steel; by closing off competition and maintaining the price at $28 a ton; and by working 200,000 men twelve hours a day for wages that barely kept their families alive.

And so it went, in industry after industry-shrewd, efficient businessmen building empires, choking out competition, maintaining high prices, keeping wages low, using government subsidies. These industries were the first beneficiaries of the "welfare state." By the turn of the century, American Telephone and telegraph had a monopoly of the nation's telephone system, International Harvester made 85 percent of all farm machinery, and in every other industry resources became concentrated, controlled. The banks had interests in so many of these monopolies as to create an interlocking network of powerful corporation directors, each of whom sat on the boards of many other corporations. According to a Senate report of the early twentieth century, Morgan at his peak sat on the board of forty-eight corporations; Rockefeller, thirty-seven corporations.

Meanwhile, the government of the United States was behaving almost exactly as Karl Marx described a capitalist state: pretending neutrality to maintain order, but serving the interests of the rich. Not that the rich agreed among themselves; they had disputes over policies. But the purpose of the state was to settle upper-class disputes peacefully, control lower-class rebellion, and adopt policies that would further the long-range stability of the system. The arrangement between Democrats and Republicans to elect Rutherford Hayes in 1877 set the tone. Whether Democrats or Republicans won, national policy would not change in any important way.

When Grover Cleveland, a Democrat, ran for President in 1884, the general impression in the country was that he opposed the power of monopolies and corporations, and that the Republican party, whose candidate was James Blaine, stood for the wealthy. But when Cleveland defeated Blaine, Jay Gould wired him: "I feel… that the vast business interests of the country will be entirely safe in your hands." And he was right.

One of Cleveland's chief advisers was William Whitney, a millionaire and corporation lawyer, who married into the Standard Oil fortune and was appointed Secretary of the Navy by Cleveland. He immediately set about to create a "steel navy," buying the steel at artificially high prices from Carnegie's plants. Cleveland himself assured industrialists that his election should not frighten them: "No harm shall come to any business interest as the result of administrative policy so long as I am President… a transfer of executive control from one party to another does not mean any serious disturbance of existing conditions."

The presidential election itself had avoided real issues; there was no clear understanding of which interests would gain and which would lose if certain policies were adopted. It took the usual form of election campaigns, concealing the basic similarity of the parties by dwelling on personalities, gossip, trivialities. Henry Adams, an astute literary commentator on that era, wrote to a friend about the election:

We are here plunged in politics funnier than words can express. Very great issues are involved… But the amusing thing is that no one talks about real interests. By common consent they agree to let these alone. We are afraid to discuss them. Instead of this the press is engaged in a most amusing dispute whether Mr. Cleveland had an illegitimate child and did or did not live with more than one mistress.

In 1887, with a huge surplus in the treasury, Cleveland vetoed a bill appropriating $100,000 to give relief to Texas farmers to help them buy seed grain during a drought. He said: "Federal aid in such cases… encourages the expectation of paternal care on the part of the government and weakens the sturdiness of our national character." But that same year, Cleveland used his gold surplus to pay off wealthy bondholders at $28 above the $100 value of each bond-a gift of $45 million.

The chief reform of the Cleveland administration gives away the secret of reform legislation in America. The Interstate Commerce Act of 1887 was supposed to regulate the railroads on behalf of the consumers. But Richard Olney, a lawyer for the Boston amp; Maine and other railroads, and soon to be Cleveland's Attorney General, told railroad officials who complained about the Interstate Commerce Commission that it would not be wise to abolish the Commission "from a railroad point of view." He explained: