DuBoff - Telegraph in Nineteenth-Century America

The Telegraph in Nineteenth-Century America: Technology and Monopoly
Author(s): Richard B. du Boff

Source: Comparative Studies in Society and History, Vol. 26, No. 4 (Oct., 1984), pp. 571-586
Published by: Cambridge University Press
Stable URL: https://www.jstor.org/stable/178440
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The Telegraph in Nineteenth-Century
America: Technology and Monopoly
RICHARD B. DU BOFF
Bryn Mawr College
I. INTRODUCTION
In the United States, the technological optimism th

and diffusion of the magnetic telegraph between
predecessors-if any. Commercial telegraphy was bar
when the telegraph was seen as "facilitating Human
ing Harmony among Men and Nations. . ... [I]t may b
tant element in Moral Progress."' "The telegraph
business journalist declared twenty years later, "an
shall have been completed of the great chain tha
nations into instantaneous communication with eac
found to be the most potent of all the means of ci
effective in breaking down the barriers of evil pre
interfere with the universal exchange of commoditi
Financial Chronicle even foresaw improvements "up
sphere of the nations thus brought into closer moral
and a decline in "international hostility. . . . The ha
unceasingly to freedom, and whenever science achi
loosened from the chains of the oppressed."3
In the world of business and finance, the telegraph
an agent for expediting competition and perfecting
time: intermarket price disparities would be diminis
l "The Electric Telegraph," Daily Chronicle (Cincinnati), 16

Telegraph Collection, Scrapbook I, Smithsonian Institution Arc
2 "Influence of the Telegraph on Commerce," Hunt's Merc
1868), 106-7.
3 "The Atlantic Telegraph," The Commercial and Financial Chronicle, 1 (8 July 1865), 34.
James D. Reid, telegraph journalist and an early associate of Samuel F. B. Morse, recounted how
the first president and chief builder of the Western Union Telegraph Company, Hiram Sibley,
made an Episcopal clergyman "wince . . . as [Sibley] eloquently contended that the telegraph
was the missionary of peace and good will to the world," just as much as was "The Church."
The incident apparently took place in the late 1850s. J. D. Reid, The Telegraph in America. Its
Founders Promoters and Noted Men (New York, 1879), 211. See as well Reid's own remarks on
the telegraph's "humanizing influence" (p. 596).
0010-4175/84/4111-2309 $2.50 ? 1984 Society for Comparative Study of Society and History
571
572 RICHARD B. DU BOFF
prices of goods and quantities available was henceforth to be ava

everyone on an equal basis. Sources of monopoly power would be wea
"The telegraph being alike open to all puts the whole community upon
and will thus 'head off the most adroit speculators, because they wil
have the power to monopolize intelligence," a Philadelphia business w
predicted in 1846.4 Everything about the "lightning wires" appeared t
small business enterprise and the decentralization of economic decision
ing. To borrow Werner Siemens's later evaluation of another electric
vation, the fractionalized-horsepower electric motor, the telegraph mig
been expected to "produce a complete revolution in our conditions of
in favor of small-scale industry."5
For a time, some of these prognostications seemed to be borne
concrete economic developments. The telegraph did bring about reduc
regional price differentials, as well as radically lower costs of gather
distributing information. For business firms, it saved time, cut down t
for large inventories, decreased short-term financing requirements,
lowed for elimination of middlemen and wholesalers. It assured access to
commodity and financial markets for merchants and producers across the land
and, with the railroad, enabled the forces of competition to override regional
and local barriers to commerce so that a truly national market came into being
by the 1890s.6
But reality has a habit of confounding the technological optimists. In simul-
taneously promoting both competition and monopoly, the telegraph serves as
an object lesson in how "external economy" improvements in communica-
tion interact with market structures to perpetuate, or widen, inequalities in
initiatory power-power over pricing, investment choices, product and pro-
cess innovation, labor utilization, and even over agenda setting for the politi-
cal economy as a whole. It also helps explain why big business emerged so
swiftly in the last third of the nineteenth century in the leading capitalist
economies. Not fortuitously, the telegraph industry became the first industrial
monopoly in the United States when the Western Union Telegraph Company
swallowed up its last two rivals in 1866. Yet only in the United States and
Canada did the telegraph remain under private control after 1868 (when Great
Britain nationalized all inland telegraph companies). "Natural monopoly"
elements inherent in the industry led every nation except those of the "North
4 "The Magnetic Telegraph West," Public Ledger and Daily Transcript (Philadelphia), 24
August 1846, Henry O'Rielly Documents Collection, Journalistic Series I, New York Historical
Society, New York City.
5 F. Klemm, A History of Technology (New York, 1959), 354.
6 While telegraph and railroad marched across North America extending trading frontiers and
saving labor, capital, and time, the telegraph actually preceded the railroad in the expansion of
commerce westward. On this, and the market-perfecting effects of the telegraph, see R. B. Du
Boff, "The Telegraph and the Structure of Markets in the United States, 1845-1890," in
Research in Economic History, 8 (1983), 255-65.
AMERICAN TECHNOLOGY AND MONOPOLY: THE TELEGRAPH 573
American core" to conclude that the telegraph should be placed in the

trust.
II. TELEGRAPHY AND THE ROOTS OF MARKET POWER
Economic power must be defined not primarily in

manifestations (monopoly or oligopoly) but by i
change is a source of economic power; and the teleg
most nineteenth-century examples. It demonstrate
communications too, competitive market forces con
options into monopoly power. They do so throug
effects, intelligence effects, and concentration of in
Scale Effects
The representative business firm seeks to expand sal
ket it serves; this has long been a constant of entrep
the telegraph, however, market outreach was const
commercial contact. But when the telegraph began
communication at speeds literally unimaginable just a
mation and transaction costs of serving a given mar
1851 a ten-word message could be sent from New Y
New York to Chicago for $1.00, New York to New
between Washington, D.C., and Cincinnati for $0
messages sent fell to $1.05 in 1868 and $0.39 in 187
were even larger, since the over-all price level rose
The spatial reach made possible by the expandin
tandem with railroads, raised the thresholds of
firms grew as more of them probed for sales outsid
zones. Distant markets beckoned firms the momen
businessmen to "speak to" a correspondent or banker
New York "and to get a response, in the same hour
merchants were promised "the business of the far
ness which New Orleans must shortly pour in [once
from Philadelphia to Louisville should be consum
1860s "the volume of sales which a single firm h
annual value of tens and hundreds of thousands of dollars to tens of millions
of dollars. Data on wholesalers in cities other than New York suggest that as
7 Western Union Telegraph Company, Annual Report, 1873, p. 6; 1878, p. 9; Alexander

Jones, Historical Sketch of the Electric Telegraph: Including Its Rise and Progress in the United
States (New York, 1852), 109.
8 "The Telegraph," Republican (St. Louis), 23 November 1847, O'Rielly Documents, First
Series I.
9 Report of the Proceedings of a Meeting of the Stockholders of the Atlantic and Ohio
Telegraph Company, Philadelphia, July 19, 1849, O'Rielly Documents, First Series II.
soon as they reached out for the markets of the hinterland, they be
large as any mercantile enterprises in history," with annual sales fig
$10 to $50 million and higher. ' Such changes "turned the region east
Mississippi into a single market for most commodities and integrated a
portion of the trans-Mississippi West (Minnesota, Iowa, and eastern
and Nebraska) into this now near-national market."11
In the years following the Civil War efforts to forge a national m
turned considerably more aggressive. The leaders in nationwide mark
ation-the sewing machine and dressed beef industries-took part
vigorous action to penetrate local markets, hitherto the preserve of t
proprietorship and the hand trade. Their tools were the telegraph, the
and well-financed legal assaults on state and municipal barriers to "f
corporations.'2 In other industries like apparel and footware, tobacco
ucts, matches, soap, beer, oatmeal and flour milling, and canned mea
soups, national sales organizations were built to internalize the twin b
of continuous-process production methods and market penetration tec
furnished by the telegraph and railroads.13 The telegraph was a prere
for efficient scheduling and dispatching of freight and passenger trains,
mention the extension of trunk lines west and south. As with any ind
which unit costs of production fall when output expands, potentially
economies of scale created strong centralizing incentives for the tele
industry-and for its business customers, who were increasingly enco
to lower their own unit costs through mass merchandising of brand
goods soon familiar to New Yorkers and Iowans alike.
For that matter, the first business institutions which were actually
by electronic communications were inherently nationwide. These we
seven major commodity exchanges formed between 1845 and 1854-th
same years of the initial growth phase of commercial telegraphy. Spec
exchanges for wheat, corn, oats, and cotton were established in
(1845), Chicago (1848), Toledo (1849), New York (1850), St. Louis
Philadelphia (1854), and Milwaukee (1854).14 Their dependence on the
graph was unmistakable; and from the start they "were almost who
voted to the [national] grain trade rather than the general commercial
of the cities in which they were located."''5
10 Alfred D. Chandler, Jr., The Visible Hand. The Managerial Revolution in Ameri
ness (Cambridge, Mass., 1977), 218.
11 Lance Davis and D. C. North, Institutional Change and American Economic Grow
York, 1971), 170.
12 Charles McCurdy, "American Law and the Marketing Structure of the Large Corpo
1875-1890," Journal of Economic History, 38 (September 1978), 632; Chandler, Visib
403-6.
13 Chandler, Visible Hand, ch. 9.
14 See S. S. Huebner, "The Functions of Produce Exchanges," Annals of the America
Academy of Political and Social Science, 38 (September 1911), 319-53.
15 Morton Rothstein, "Antebellum Wheat and Cotton Exports: A Contrast in Marketin
Organization and Economic Development," Agricultural History, 40 (April 1966), 96.
Control Effects
The expected saving from a given market search will be higher the gr
dispersion of prices and other relevant information and the larger the
ture on the resource or service sought. For example, the only way to
the prices which various buyers and sellers are quoting at a given m
would be to bring about a complete centralization of the market; only
costs of canvassing, or search, be at a minimum. Conversely, with
decentralization these costs will reach a maximum. To lower them, it
centralize-to reduce spatial dispersion and the number of independe
sion makers.
The telegraph opened the way toward such cost savings, which virtually
invited centralization of executive powers. The prime example is the railroads
themselves, the first enterprises to face problems of administration on a recog-
nizably modem scale. The New York and Erie, the first railway to use the
telegraph in scheduling and dispatching operations, employed a "Superinten-
dent of Telegraph" in 1855. "Hourly reports are received by telegraph,
giving the position of all the passenger and the principal freight trains,"
according to the Erie's 1855 Annual Report.16 By 1870 several roads had
special telegraph departments with their own lines and operators, making
possible the "control through statistics" that became a hallmark of corporate
management. 17
The first of the mass retailers, the department stores, appeared in the 1860s
and 1870s, "as soon as they were able to exploit a market as large as that
covered by the wholesalers." 18 Concentration of population in cities and the
spread of railroads were both reducing the costs of distribution, but depart-
ment stores like Macy's, Arnold Constable, Marshall Field, and Wanama-
ker's depended on fast inventory turnover of a wide variety of consumer
goods. For these stores, effective inventory management by means of the
telegraph was the opening wedge toward competitive advantages which could
then of course be enhanced by mass communication in the form of advertis-
ing. For meat packers, the head offices were "in constant telegraphic commu-
nication with the branch houses and commission agents during the progress of
the sale of each carload of beef, obtaining information and giving advice."
Remote control was imperative in a nationwide business based on bulk pur-
chases of cattle, small margin between cost and selling price, and prompt sale
at specific times to avoid spoilage.19 In the cotton trade following the Civil
War, the telegraph was employed by a new class of dealers to purchase cotton
from planters, farmers, and storekeepers at the railheads and to sell directly to
16 Alfred D. Chandler, Jr., ed., The Railroads. The Nation's First Big Business (New York,
1965), 102-5.
17 Chandler, The Railroads, 97-100.
18 Chandler, Visible Hand, 224.
19 United States Bureau of Corporations, Report of the Commissioner of Corporations on the
Beef Industry. March 3, 1905 (Washington, D.C., 1905), 207.
New England and English mills. Although the telegraph thus decentralized
cotton marketing, moving it away from the few southern port cities where
most sales had been handled by middlemen-factors-and relocating it in-
land in numerous small markets, the net effect was to concentrate the buying
of cotton in the hands of strategically placed cotton dealers at the premanufac-
turing stage of the production and distribution process. Between 1870 and
1900 a small number of cotton merchant firms, American and European,
came to dominate the business, transferring cotton by telegraphic orders
throughout the world.20 Dispositions of basic commodities as different as
grains and iron represented other cases of backward integration and removal
of middlemen, with railroad-telegraph networks behind the shift toward
monitored marketing by large-scale commodity dealers or integrated
producers.21
Extending control over far-flung operations naturally drew attention to
problems resulting from congestion in chains of orders, trans-shipments, and
production. The existence of the telegraph induced firms to internalize ex-
changes that normally required market mediation-and positive transactions
costs. Through intrafirm coordination of transportation, delivery, inventory
holdings, and output rates, the successive stages of processing could be man-
aged so as to reduce errors stemming from limited knowledge and uncertain-
ty. After 1870 vertical integration not only undercut the function of mid-
dlemen but helped producers to achieve a regulated, uninterrupted flow of
materials all the way to their retail outlets. Horizontal mergers too appeared
on a national scale "only as the railroad and telegraph network went into full
operation in the 1870s and 1880s."22
Intelligence Effects
Speed and secrecy are ingredients essential to any successful intelligence
operation-military, political, or economic. For private enterprise, the attrac-
tion of the telegraph lay in its unmatched speed of communication, and speed
was relatively more important for business than any off-setting cost of tele-
graph service.23 It follows that ultimately the telegraph may have improved
efficiency between the command centers of business firms even more than it
increased efficiency among markets. Communication technology in the nine-
teenth century, in other words. promoted large-scale bureaucratic organiza-
20 Harold Woodman, King Cotton and His Retainers. Financing and Marketing the Cotton
Crop of the South, 1800-1925 (Lexington, Kentucky, 1968), 288-89.
21 John Clark, The Grain Trade in the Old Northwest (Urbana, Illinois, 1966), 256-58; Glenn
Porter and H. C. Livesay, Merchants and Manufacturers. Studies in the Changing Structure of
Nineteenth-Century Marketing (Baltimore, 1971), ch. 3.
22 Chandler, Visible Hand, 316.
23 On the low price elasticity of demand for telegraph service on the part of business users, see
R. B. Du Boff, "Business Demand and the Development of the Telegraph in the United States,
1844-1860," Business History Review, 54 (Winter 1980), 461-62.
tion at least as much as it promoted better functioning of markets, esp

since market perfection itself was also contributing to the growth of la
size business firms.
Glenn Porter has observed that "it was the telegraph which first brought the
speed of electronic communication within reach of the potential empire
builder."24 The "imperial" features of the telegraph in business operations
were prominent from the outset. Not only could agents be controlled and
geographically scattered units brought under centralized supervision, but im-
mediate transmission of orders and requests was now assured. Secrecy for
users of the wires was guaranteed through the use of elaborate codes, as well
as by strict telegraph company rules, designed to ensure confidentiality of
messages. These intelligence dimensions were understood from the first days
of the telegraph era. Cipher systems and code language, replete with common
commercial and financial phrases, were worked out in 1844 and 1845 when,
for instance, "cotton is on the rise" and "stocks have fallen" were rendered
by one company as "Zqoq&wfq&ots lwfs" and "foqzuftrgsxrvs&."25 Pri-
vate telegraphic codes were employed by several large firms. The Du Pont
Powder Company had a code manual that grew to 600 pages by the turn of the
century, with phrases like "adermennig" ("carload not ready") and "hab-
itadme" ("how many were killed?"). Its distribution was restricted to 305
employees in 1901-1905.26 The telegraph also helped employers combat
unions by allowing speedy circulation of blacklists of known labor organi-
zers.27
Private telegraph lines augmented the intelligence value of the telegraph. In
1849, R. M. Hoe, a director of the Magnetic Telegraph Company, had a line
erected from his New York City telegraph office to his nearby printing equip-
ment factory. "Its value was at once evident. The master was felt to be among
his men although two miles intervened."28 With the high-speed printing
inventions of 1867-80, which made the telegraphic word more accessible
still, private lines spread rapidly. The Gold and Stock Telegraph Company,
organized in 1867 to use the Calahan printer in supplying special telegraph
services for banks and brokerages in the New York City area, soon added a
24 Glenn Porter, The Rise of Big Business, 1860-1910 (New York, 1973), 43. Similarly,
Chandler, Visible Hand, 287, states, "The new mass producers were keenly aware of the national
and international markets opened up by the new transportation and communication infrastruc-
ture."
25 Alfred Vail, The American Electro Magnetic Telegraph with the Reports of Congress, and
a Description of All Telegraphs Known (Philadelphia, 1845), 49.
26 Du Pont de Nemours Powder Company, Private Telegraphic Code 1905 (Philadelphia,
1905), 58, 194; idem, List of Holders of Private Telegraphic Code of E. I. Du Pont de Nemours
Powder Co. (Wilmington, Delaware, 1906) (both in Du Pont Company Archives, Eleutherian
Mills Historical Library, Wilmington, Delaware).
27 Thomas Cochran and William Miller, The Age of Enterprise. A Social History of Industrial
America, rev. ed. (New York, 1961), 66.
28 Reid, Telegraph in America, 596.
private line department. It began furnishing complete telegraph lines, type-

printing instruments, batteries, and trained operators "at a very moderate
annual rental."29
By 1878 Gold and Stock, now part of a market-sharing "cooperative
union" with the Western Union Company, controlled all fast "stock
printers" of proven commercial feasibility and was renting and servicing 300
private lines with 1,200 miles of wire iin and around New York City alone,
with underwater cables connecting New Jersey and Long Island. It entered
similar contracts in Cleveland, Baltimore, Louisville, Cincinnati, Buffalo,
Chicago, and elsewhere.30 In 1884 Western Union started leasing its own
wires to brokers and large retail establishments, as well as to banks and press
associations, during certain hours; these arrangements allowed the lessees to
employ their own operators and enjoy exclusive use of the wires. By the
mid-1880s leasing of wires became "so much more profitable than handling
messages that the company had considered a suggestion that it cease to handle
messages entirely and turn its entire attention to leased-wire business."31
The new modes of power inherent in telegraphic communication ran from
the simple manipulative to the marginally cumulative. Newspaper dispatches
of 1846-50, the opening years of commercial telegraphy, were laden with
reports of the feeding of false price and quantity information by "spec-
ulators" over the wires. According to a New Orleans newspaper in 1847,
Crescent City merchants had been so badly victimized by seemingly deliber-
ate doctoring of telegraphed commercial and financial reports that they ex-
pressed as "their most fervent wish, that the telegraph may never approach us
any nearer than it is at present.' 32 But approach them it did, and within three
years. By then, however, probably fewer New Orleans merchants and bankers
remained convinced that nothing but chicanery flowed over the wires. Slight
distortions of factual dispatches must have had magnified effects on informa-
tion-hungry businessmen; indeed, even correct market information can be
seriously destabilizing under certain circumstances.
An example of the latter is the more rapid spread of financial panics, with a
premium placed on obtaining the information quickly-obviously, the first to
acquire such news gained a substantial advantage. "During the week of
financial excitement, in October [1857], the exaggerated reports of which
were carried with the speed of lightning to every part of the land, this new
medium of communication (the telegraph) filled our banks with imperative
29 George Prescott, Electricity and the Electric Telegraph (New York, 1877), 682.
30 On private telegraph lines, see Reid, Telegraph in America, 621-26; Prescott, Electricity
and Electric Telegraph, 672-82.
31 United States Congress, Senate, Investigation of Western Union and Postal Telegraph-
Cable Companies, 60th Cong., 2d sess., S. Doc. 725 (Washington, D.C., 1909), 21-22.
32 "The Southern Telegraph," New Orleans Commercial Times, 13 July 1847, O'Rielly
Documents, Journalistic Series I.
orders for the immediate return of their deposits, in specie," Ja

observed in 1859.33 In 1873 New York banks again were flooded
telegrams from correspondents nationwide demanding funds to st
ic.34 The then dean of American economists, David Wells, noted i
while the telegraph had brought "command . . . of instantaneou
tion throughout the world of the conditions and prospects of all ma
commodities" and had imparted a "steadiness to prices,"
"spreading in a brief time the same hopes and fears over the w
world [and] made it impossible any longer to confine the speculat
any one country."35
The disequilibrating impacts of new communications on the sta
produced incentives and opportunities for cornering the marke
intelligence. Even a temporary advantage could prove hard for
overcome. Intelligence, moreover, is not purely economic but in
nonmarket activities-if that distinction is of any real importan
information, political lobbying, pressure tactics and coercion, an
of options to competitors have long ranked high among techniq
italist entrepreneurs in any dynamic setting. Unorthodox method
must be regarded as inherent in the competitive process; the ends
are the same as those pursued in the formal marketplace.
Concentration of Sources of Information

Most economists describe moder labor markets as models of bilateral mo-
nopoly-one buyer (a large employer) versus one seller (a labor union).
Collusion, if implicit, is frequently the result, at least as far as raising product
prices to consumers is concerned. The telegraph may have given rise to the
first instance of bilateral monopoly in a major market, the market for tele-
graph services. The outcome appears to have been similar: the social costs of
monopoly of supply and monopsony of demand were externalized-passed
on to the public in steeper and discriminatory telegraph rates.36
For its chief users, the business and financial sectors, the telegraph pro-
moted organizational concentration through another type of scale effect, in the
form of "central place" advantages that acted as external economies to firms
located in major cities. These firms have greater opportunity to initiate or
exploit changes in demand and supply because of the high volume and effi-
33 J. S. Gibbons, The Banks of New-York, Their Dealers, the Clearing House, and the Panic
of 1857 (New York, 1859), 356-57.
34 0. M. W. Sprague, History of Crises under the National Banking System (Washington,
D.C., 1910), 43-44.
35 D. A. Wells, Recent Economic Changes and Their Effect on the Production and Distribu-
tion of Wealth and the Well-Being of Society (New York, 1889), 82.
36 See Frank Parsons, The Telegraph Monopoly (Philadelphia, 1899); and Gardiner Hubbard,
"Government Control of the Telegraph," North American Review, 324 (November 1883), 521-
28.
ciency of contacts normal to large cities.37 Telegraph users could reap bene-
fits of urban scale that were by-products of the high frequency of transactions
and communications emanating from central places. In essence, these were
little different from the external economies of "the same neighborhood of
industries" familiar to students of Alfred Marshall.
In the pretelegraph period, as Allan Pred has shown, "spatial biases"
existed in the flow of information among east coast cities as a function of
geographic location and distance. But Pred seems to say that trade flows
follow information flows: trade adjusts itself to avenues of communication
because spatial biases are a function of geographic distance, which can be
shortened only by improvements in transportation and communication. In
fact, however, the telegraph itself had little impact on the location of commer-
cial activity. While telegraphy removed some of the pure spatial biases, it
facilitated long-distance, extralocal interactions and thus reinforced the ad-
vantages of the older urban centers over smaller places with less effective
channels of communication.38 Goods flows and information flows necessarily
share the same spatial bias, but the flow of information, rather than playing an
autonomous biassing role, followed the simultaneous flow of commerce, just
as the geographical diffusion of the telegraph followed established routes of
travel or trade. Larger cities, and the businesses attracted to them for their
superior access to market information and their auxiliary services, were pre-
cisely the ones the telegraph first linked together-New York, Philadelphia,
Boston, Washington, New Orleans, and St. Louis. Access to the telegraph
thus became a matter of queuing. It was further constrained by geographical
and institutional factors, combined with technical considerations of maximum
wire capacity.
In concrete terms, telegraph users in smaller towns often found that the
lines were tied up by heavy volumes of messages travelling between and
within major cities. The situation was aggravated by the priority status given
to government, police, and some press dispatches. In 1848 a business reply
sent in New York state from Troy to Rochester took more than twenty-four
hours to be transmitted to Rochester "solely because the [Troy] operator
could not get his turn at the wires." A dozen attempts by the Rochester
telegraph office to inquire about the status of the message met with frustra-
tion: "In the morning, two or three of the most important stations, such as
New York, Albany and Buffalo, have exclusive possession of the wires till
their business is completed [and this leads to] a struggle for the wires." In
37 See Allan Pred, City-Systems in Advanced Economies (New York, 1977).

38 The rank order of cities by population remained the same as in the pretelegraph era, and
persisted through the period 1850-1900; and the largest urban areas grew faster than smaller
cities in population, manufacturing employment, and manufacturing output. See Pred, City-
Systems, 85-88; and Lance Davis, R. A. Easterlin, and W. N. Parker, American Economic
Growth. An Economist's History of the United States (New York, 1972), 600-602.
addition, there were periodic breakdowns in service, a continuing "general

scramble among the operators for the wires," and top priority "private mes-
sages for the President of the company." "Before these were finished," the
Rochester Monroe Democrat complained, "Troy had gone to bed."39
Incidents like this one appear to have been common, and they persisted into
the era of improved instrument technology after 1870.40 Commercial mes-
sages took up more wire time; they concerned large sums which had to be
relayed exactly, requiring repetition and verification. Waiting time for any
telegraph station depended on the number of messages being transmitted by
"higher order" stations ahead of it, an advantage which the busier stations
automatically passed on to their best customers. Pure spatial biases of geo-
graphical location and distance were replaced by informational biases with
scale effects that related to larger market areas, with the second feeding back
to the first. This hypothesis is further supported by data from telegraph com-
panies in the antebellum period showing that demand on the lines was un-
evenly distributed, with a handful of urban stations generating 65 to 80
percent of total company revenues.41
If users of telegraph services exploited opportunities for strengthening their
market positions, suppliers of information over the wires moved just as
adroitly to monopolize the field. The New York Associated Press was estab-
lished in 1848 by six New York City newspapers which agreed to unite "for
the purpose of collecting and receiving telegraphic and other intelligence" at
shared cost. As this collective effort overcame the unwillingness of individual
newspapers to finance an externality with potential benefits for all of them,
publishers in other parts of the country moved to avail themselves of the
services of the new press association, which finally became known as the
Associated Press.42
The advantages provided one another by the Associated Press and Western
Union hardened monopoly control in both industries-a classic complemen-
tary monopoly case where "substitution" is impossible and interindustry
competition cannot express itself. "As the only nationwide telegraph system,
Western Union had a mutual aid understanding with the Associated Press by
which Western Union protected the Associated Press and its affiliated local
39 Quoted by Alvin Harlow, Old Wires and New Waves. The History of the Telegraph,
Telephone, and Wireless (New York, 1936), 150-51.
40 Reid, Telegraph in America, 168-69; Government Telegraphs. Argument of William Or-
ton, President of Western Union Telegraph Company on the Bill to Establish Postal Telegraph
Lines (New York, 1870), 18; and United States Congress, Senate, Committee on Post-Offices
and Post-Roads, To Provide for the Establishment of a Postal Telegraph, 48th Cong., 1st sess.,
S. Rept. 577, pt. 2 (Washington, D.C., 1884), 63-64, where Gardiner Hubbard points out that
the heavy flow of messages between the mercantile exchanges of New York and Chicago clogged
lines and excluded many smaller users from the lines.
41 Du Boff, "Business Demand," 470-71.
42 R. L. Thompson, Wiring a Continent. The History of the Telegraph Industry in the United
States, 1832-1866 (Princeton, 1947), ch. 14.
newspapers from competition by refusing wire service to others who sought to

establish news wire service for the use of new newspapers in their local
markets. In return, the Associated Press (and necessarily its affiliated news-
papers) took its policy on news, and hence political matters, such as the
issue of public ownership of telegraphy and railroads, from Western Union.
It was a rough but efficient means of managing the news to control the agenda
set by the mass media of the late nineteenth century."43
Western Union's meteoric rise to domination of the industry after 1854
made this outcome practically inevitable. In 1866, when the Western Union
monopoly was completed, United States Senator B. Gratz Brown of Missouri
warned his colleagues that "there is no competition now in the telegraph
system and cannot be any unless the Government interposes. . .. The mo-
nopolies that now control the dissemination of news to the public press by
controlling the lines would be broken up and newspaper enterprise would be
thrown open to the whole country instead of being concentrated in the hands
of a few journals in the city of New York."44
Not only were Brown's hopes for nationalization of the telegraph to be
dashed-after 1868, as noted, telegraph systems remained in private hands
only in the United States and Canada-but his fears of monopoly over news
sources proved justified. Wire services narrowed the base from which news
was distributed. Telegraphic technology required the rapid gathering of news
at a single place; it placed a premium on fewer, standardized sources of
information whose dispatches could be quickly sent out, cover wider geo-
graphic areas, and speak to problems national in scope.45 This one-way,
routinized version of news dispatching, essential for low-cost utilization of
the telegraph, enlarged the area in which news could be received and dissemi-
nated, but it fostered monopoly much the same as growth of national markets
elicited large business firms.
The regimentation required for efficiency in big business thus found its
counterpart in the realm of electronic communication. Mechanized "top-
down" news reporting undermined localism. At the same time, it accelerated
the process of political fragmentation in the United States. While various
European countries were beginning to fashion political institutions to deal
with pressing new economic problems at a national level-central banking,
social insurance, health, factory, and minimum-wage legislation-the federal
government in the United States was effectively blocked from this approach
43 Dallas Smythe, Dependency Road: Communications, Capitalism, Consciousness, and Can-

ada (Norwood, N.J., 1981), 59.
44 The Congressional Globe: The First Session of the Thirty-Ninth Congress, 23 February
1866 (Washington, D.C., 1866), 979-80.
45 Even before 1861, "lightning" telegraph dispatches in southern newspapers tended to push
local news aside, so that differing world views were clashing in the very heart of the old south. I
am indebted to Louis Ferleger for furnishing me with this finding from his own research.
by a combination of factors, economic as well as constitutional. Only in

"regulation," which benefitted the regulated industries as much as their
customers, did the federal writ expand at all by the decade 1900-10. Commu-
nications technology was instrumental in tipping the balance of power from
the public toward the private sector. As Harold Innis wrote some three dec-
ades ago, "The telegraph and the fast press in the metropolitan areas de-
stroyed the power of party based on the post office, the exchange system, and
state capitals. Instability weakened the position of a central authority after
1840. Power shifted from Washington and issues were no longer settled in
Congress. The metropolitan press destroyed a centrally directed govern-
ment." 46
III. CONCLUSION: TECHNOLOGY AND THE BALANCE OF POWER
In a capitalist economy, business enterprises, individ

compete for critical resources and marketplace advan
acquiring them are always scarce relative to dema
new decision-making centers in the economy, so that
opment fostered by expansionist societies not only fa
of "harmony among men and nations," "moral progr
it intensifies the competitive struggle at the same tim
players to change the rules of the game and relegate o
positions of dependency. Economic power rests o
market position-the strategic objective of all compet
peter's "perennial gale of creative destruction" and M
cive laws" of capitalist production remain the best g
the monopolization process as it has unfolded over
years.
By providing differential and asymmetric access to
ness firms within the system, telegraphy greatly st
tendency of competition to produce concentrations
hypothesis clashes with the microeconomic literatur
search"-much of it from the Chicago School-wh
information as merely furnishing competitors with t
natives, whether it be through formal submission o
advertising.47 This static and unidimensional view of
fectly competitive" parameter that minimizes price
lenged even in terms of "the law of one price," whic
supposedly it should, in markets approximating the
46 H. A. Innis, The Bias of Communication (Toronto, 1951).

47 See, for instance, George Stigler, "The Economics of Infor
Economy, 69 (June 1961); Lester Telser, "Advertising and Comp
Economy, 72 (December 1964); Phillip Nelson, "Advertising as Inf
cal Economy, 82 (July/August 1974).
petition. It is thoroughly misleading when applied to an economic world of

technological dynamism, ignorance, risk and uncertainty, and gross in-
equalities in initiatory power. Ahove all, in an economy in which some agents
have far more market power than others, relevant market information covers
an extremely wide array of phenomena; it is not subsumed in prices.
A further issue is why these same economic forces gave rise to forms of
monopoly organization in the capitalist economies of Western Europe which
were different from those which emerged in the United States. The answer
may be that anything that increases scale, control, and secrecy thresholds is
per se monopolizing when such power attributes are unaccompanied by ex-
pansion of government controls or public enterprise. It is hard to imagine a
better description of the heroic age of entrepreneurial capitalism in the United
States from 1840 to 1890. As an organizing principle for society, the pecuni-
ary culture of business was virtually unchallenged. It is not surprising that in
America the telegraph was used almost exclusively to facilitate commerce and
to widen the market for output from the private sector, while in Europe this
business effect was much less prominent.48 The result was a more indepen-
dent and implacably individualistic business sector in the United States, one
which culminated in the trust form of corporate organization, comparatively
free of outside financial control by commercial and investment bankers, and
virtually untouched by public authority until the 1890s, if then. The telegraph
industry itself, monopolized in 1866, was a product of the same environment.
Consequences such as those were never simply products of "institutional
innovation" induced by impersonal changes in perceived cost-benefit
ratios.49 The structure of costs and benefits in a given environment grows out
of the entire body of political institutions, economic expectation, and socializ-
ing experiences of decision makers in public and private sectors alike. Any
other view invariably shares the quaint assumption of a harmony of interests
reposing in market equilibrium as the most reliable form of social control-a
profoundly conservative history of institutional change.
This certainly is not to deny the centralizing effects of telegraphy through-
out the world. Since 1850 the communications sector of industrial economies
has grown at a rapid rate, with displacement of one mode by another in turn-
telegraph, telephone, radio, computer, satellite. The telegraph led the way,
altering means of production and methods of exchange on a global scale. Its
monopolizing characteristics were identical in every nation, though indige-
nous political institutions and entrepreneurial patterns distributed the gains
and losses differently. In France, for instance, the telegraph was a state
monopoly from the outset, with military and police priorities dominant. There
48 See Du Boff, "Business Demand," 465-66.

49 See Davis and North, Institutional Change, for a representative effort to explain "organiza-
tional innovation" in terms of narrowly specified neoclassical economic theory.
was considerable public comment regarding repressive use of the telegraph by

the Minister of the Interior. French telegraph lines existed for six years before
they were made available to private citizens in 1851.50 "Austria," the Vienna
correspondent of the London Chronicle reported in 1854, "feels a greater
degree of security against another rising of her subjects, in the fact that she
possesses and controls an extensive system of telegraphy, than she would feel
if surrounded by a well-organized army in her pay."51
Decentralized government in the United States mitigated this kind of en-
croachment on political liberties but at the cost of a virtually unfettered
freedom for private capital. Under these conditions, telegraphy reinforced
tendencies favoring centrifugal politics: technologies were utilized in ways
that restricted further development of the public sector and left government
with almost purely reactive functions. Public enterprise, which had blazed the
way toward interregional commerce through internal improvements (post
roads, turnpikes, canals) between 1810 and 1840, was denied even a custodial
role for a radically new technology that, after 1868, remained under private
control only in North America. In effect, government was excluded from the
semblance of an entrepreneurial function even where nationwide monopolies
were being created. Meanwhile, the telegraph industry, along with the major
railroads and other large business firms, played off one level of government
against another. These corporations continually appealed to overriding federal
principles to deny states and municipalities the right to prevent market entry
by "foreign" firms; simultaneously, the telegraph industry used state law to
fight off a nationalization movement involving the takeover of telegraph
service by the United States Post Office Department, invoking state incorpo-
ration statutes to challenge any federal right to intervene in the telegraph
business. Finally, in 1877, the Western Union Telegraph Company, followed
nine years later by the railroads in the Wabash case, convinced the United
States Supreme Court to overturn the right of state governments to regulate
firms doing business in interstate commerce. Henceforth it became difficult to
deal, in any more than a piecemeal way, with economic and social problems
that were becoming increasingly national in scope.
However, the curious division of power and responsibility among three
distinct levels of government has not consistently served the interests of
private business. Discordant or even contradictory policies have frequently
been adopted by various bodies of the different governments, resulting in
serious impairment of the functioning of the economic system as a whole.
This dilemma still exists, and we may expect uncontrolled technology to
exacerbate it, as in the past. If, as now seems to be the case, local economic
shocks are transmitted internationally through trade flows and financial mar-
50 Louis Girard, La politique des travaux publics du second empire (Paris, 1952), 107-8.
51 "The Telegraph," De Bow's Review, 16 (March 1854), 253.
kets, efforts to free the process of innovation in this country from all kinds of
public control or guidance could generate social dislocations greater and more
widespread than anything experienced during the first communications revo-
lution of 1840-1910.

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The Telegraph in Nineteenth-Century America: Technology and Monopoly

Author(s): Richard B. du Boff

Bryn Mawr College

In the United States, the technological optimism th

l "The Electric Telegraph," Daily Chronicle (Cincinnati), 16

prices of goods and quantities available was henceforth to be ava

American core" to conclude that the telegraph should be placed in the

II. TELEGRAPHY AND THE ROOTS OF MARKET POWER

Economic power must be defined not primarily in

7 Western Union Telegraph Company, Annual Report, 1873, p. 6; 1878, p. 9; Alexander

tion at least as much as it promoted better functioning of markets, esp

private line department. It began furnishing complete telegraph lines, type-

orders for the immediate return of their deposits, in specie," Ja

Concentration of Sources of Information

37 See Allan Pred, City-Systems in Advanced Economies (New York, 1977).

addition, there were periodic breakdowns in service, a continuing "general

newspapers from competition by refusing wire service to others who sought to

43 Dallas Smythe, Dependency Road: Communications, Capitalism, Consciousness, and Can-

by a combination of factors, economic as well as constitutional. Only in

III. CONCLUSION: TECHNOLOGY AND THE BALANCE OF POWER

In a capitalist economy, business enterprises, individ

46 H. A. Innis, The Bias of Communication (Toronto, 1951).

petition. It is thoroughly misleading when applied to an economic world of

48 See Du Boff, "Business Demand," 465-66.

was considerable public comment regarding repressive use of the telegraph by

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