The First Telecom Revolution and the Last Day of Dirt-Cheap Oil
On this day in economic and financial history...
The New York and Mississippi Valley Printing Telegraph Company, predecessor to Western Union , was founded in Rochester, N.Y., in April of 1851. It was less than 15 years after Samuel Morse successfully tested the telegraph and only eight years removed from Morse's successful lobbying for the nation's first "long-distance" telegraph line. The Smithsonian's HistoryWired site describes the telegraph's business climate at the time:
By 1851, there were over 50 separate telegraph companies operating in the United States. This corporate cornucopia developed because the owners of the telegraph patents had been unsuccessful in convincing the United States and other governments of the invention's potential usefulness. In the private sector, the owners had difficulty convincing capitalists of the commercial value of the invention. This led to the owners' willingness to sell licenses to many purchasers who organized separate companies and then built independent telegraph lines in various sections of the country.
Hiram Sibley moved to Rochester, New York, in 1838 to pursue banking and real estate. Later he was elected sheriff of Monroe County. In Rochester, he was introduced to Judge Samuel L. Selden who held the House Telegraph patent rights. In 1849, Selden and Sibley organized the New York State Printing Telegraph Company, but they found it hard to compete with the existing New York, Albany, and Buffalo Telegraph Company.
After this experience, Selden suggested that instead of creating a new line, the two should try to acquire all the companies west of Buffalo and unite them into a single unified system. Selden secured an agency for the extension throughout the United States of the House system. In an effort to expand this line west, Judge Selden called on friends and the people in Rochester. This eventually led in April 1851 to the organization of a company and the filing in Albany of the Articles of Association for the "New York and Mississippi Valley Printing Telegraph Company," a company which later evolved into the Western Union Telegraph Company.
Western Union was created five years later after Selden and Sibley had acquired 11 competitors -- and the rights to the vital Morse technology. Western Union paid its first dividend at the end of 1857.
By the eve of the Civil War, a transcontinental telegraph line was seen as a vital element of national commerce, and by the war's outbreak it became important to the national defense as well. Sibley was the most ambitious of the telegraph company leaders, and he won the bidding to build a line that would link the east and west coasts. The effort succeeded within one year, ending the Pony Express and establishing Western Union's dominance over the maturing telegraph industry.
Western Union's lead was insurmountable by the 1880s, as the company had grown to control 432,000 miles of telegraph wiring by that time. It was in the 1880s that Western Union also helped standardize the time zones we now take for granted.
Western Union would also be responsible, albeit indirectly, for the rise of the telephone, which Alexander Graham Bell began developing while he worked in a Western Union lab. This new technology eclipsed the telegraph with such rapidity that Western Union found itself acquired by Bell's AT&T in 1909. This tie-up lasted a mere five years before the federal government split the two entities, but Western Union's time had already passed. It reached a peak of 100 million telegrams in 1916, and its telegraph services would last another nine decades until the company ended the service for good in 2006.
Better recognize
The Dow Jones Industrial Average was only five years old when it added U.S. Steel to its 12-member roster on April 1, 1901. The steelmaking giant was only a month removed from its epic creation, engineered by J. P. Morgan as the world's first billion-dollar corporation and a de facto monopolist of the American steel industry from day one. It was only logical, then, for the Dow to include this industrial bellwether. U.S. Steel would remain on the Dow until 1991 -- a streak of membership exceeded by only one other company in the index's history.
During its Dow tenure, U.S. Steel helped end the Panic of 1907, survived a huge antitrust suit, and fended off a short-lived government attempt to nationalize the steel industry in 1952. However, competition and modernization would erode U.S. Steel's position in ways the government never could, and although it remains the largest American steelmaker, it's only the 13th-largest in the world.
Black...fool's gold?
The price of crude oil briefly fell to $9.75 on April 1, 1986. It would be the only time in New York Mercantile Exchange history that the price would ever drop below $10 per barrel, and even in adjusted terms it is still a modern-day record low. In nominal terms, prices had not been below $10 since the mid-'70s, a time of economic turbulence immediately following the first devastating OPEC oil embargo. However, by day's end, crude-oil futures rose past $11 per barrel on news that Vice President George H. W. Bush was set to speak with Saudi leaders regarding their extended stretch of overproduction.
In the markets, (nearly) everything that comes down must eventually rise again. ExxonMobil and Chevron, the two oil companies on the Dow in 1986 (Texaco was also a component but would later merge with Chevron), went on to post market-beating returns over the following two decades as the price of crude oil grew by 275%. From 1986 to 2006, the Dow returned 185%, but Chevron (in lockstep with the price of oil) grew 275%, and ExxonMobil gained 455%. Such growth may not be in the cards for oil today, but its rebound from such low prices offers hope for today's bruised commodities investors that their shares will also recover in due time.
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