Sunday, September 7, 2014

Wealth From Vices: James Buchanan Duke

James B. Duke
Cigarettes are vices for some, but a necessity for others. Regardless, some business profit from cigarettes, especially during its advent in the late 1800’s. It revolutionized how people can consume tobacco for a way cheaper and easier way. One man from the era of big business came to dominate the whole tobacco industry with cigarettes as his source of his wealth. 

James Buchanan Duke (December 23, 1856 – October 10, 1925) was born to a family from the rural area of North Carolina. His family faced disaster during the Civil War when they were in the side of the Confederate. Later on, during when the country was on the path of reconstruction, his family to faced rehabilitation and eventually found prosperity. This prosperity came from tobacco and brought fortune to the family. After studying, James B. Duke eventually took over the family business and brought it to new heights. He was not just interested to dominate the US, but also he aspired to dominate the world market of tobacco. Later on, when the period on crack down on business came to him, he complied he received. He moved towards new businesses and activities that would give benefit to many.

James Buchanan Duke was born to the farmlands of his family. He came from the family of Washington Duke and Artelia Roney. At a young age, tragedy hit the family when during the infant years of James’ mother died suddenly. If the death of his mother was terrible, it soon followed by a Civil War that brought hardship even more. His father took part on the Confederate Army, and resulted to their land being idle. Later on, when Union Soldiers came, produce were either destroyed or taken. Soon after the war, his father returned. The task that faced them was daunting. They have to recover from the devastating war that brought turmoil. They then saw tobacco leaves growing in their farm and decided to take a chance on it. Their family planned to sell it to make money. So they took the tobaccos leaves and placed it in small packages with the label “Pro Boro Publico.” They then brought their packaged tobacco to the southern part of the state where they can easily sell them because of the lack of tobacco in the area. They’re not disappointed. Quickly their tobaccos were sold and they earned money enough to buy more tobacco to process. The Duke family business, which would later be named the W. Duke Sons & Company, began. In a while, they managed to build a small log house where the processing of tobacco was done.

Tobacco brought prosperity to their family. They became well known to their town for the part they play to the local economy. The young James Duke received benefits from this newfound wealth. He received good education. His father sent him to a local academy where he proved his prowess in mathematics. Later on, he studied at a boarding school in Guilford County. But his stay in the boarding school proved to be short. He later moved school and studied at the Eastman Business College in New York. It some sort of a preparation for Duke for the future responsibilities he would take.

At a young age of fourteen, he returned home. His father eagerly placed him to manage young boys working at their factory.  Four years later, he joined his older brothers to become a member of the W. Duke sons & Co. Afterwards; he became a travelling salesman where he learned what a good advertisement could do to a product. In 1881, James B. Duke became the president of the family business.

As president of W. Duke, Sons, & Co., he presided over changes as well as the unprecedented growth of their company. He began by changing the number product of their company. He chose to change their goods from tobaccos for pipes to cigarettes. This was to take advantage of the growing popularity of cigarettes and because it was more suitable to the variety of tobacco growing in their area. To bring the company on the top of cigarette production, He decided to begin the mechanization of his factory. He began to use James Bonsack’s cigarette-rolling machine. With the help of William O’Brien, the device was even more improved. The machine that they placed in their factory had a profound effect on the business. It did not only produce more cigarettes, it reduced cost of production because it needed lesser workers to operate. He then pioneered the way that cigarettes were packed. He started to package cigarettes in packs inside cardboard boxes with designs and the label. Soon, other companies followed and it became a standard for cigarettes to be inside cardboard boxes.

That rise of his company to top then began with one government reform. The Federal government decided to lower the taxes imposed on cigarettes by two-thirds. It became a chance for cigarette companies to lower their prices. Duke also saw this opportunity and knew that all other would take it. To get the edge from his competitors, he invested a lot of money in advertising his products to billboards, newspapers, and magazines. He made sure that many customers can see and be attracted to his product. His investment on advertisement soon became an apparent success. His company began to be on the top of the cigarette industry. His company grew large enough that it allowed him to build a factory in New York City in 1884.

His goal to be on the top eventually even became closer when a war broke out between the five biggest cigarette companies. Duke’s company, W.S. Kimball & Co., Goodwin & Co., Kinney Brothers, and Allen & Ginter began a war over the dominance of the industry. They began aggressive advertisement campaigns. Price wars soon followed. It almost became in situation that companies were willing price their products at a loss level just to defeat other companies. Duke’s company was not immune from this war. Several times, competitors proposed to buy him out of competition. Duke, off course, declined. In 1890, the companies grew tired of their fierce and suicidal competition, to stop the competition; they decided to form one company. Duke eventually presided over for the consolidation of the companies. The result of the consolidation was the creation of a monopolistic company over the cigarettes industry, the American Tobacco Company, with James B. Duke as the president and a capital of $25 million.

The company main line cigarettes that became bestseller were that Lucky Strike and the Pull Mall. With these products and others, the American Tobacco Company owned a 90% market share of the US cigarette market.

American Tobacco Company continued to grow and showed it monopolistic tendencies. In 1895, the company continued to grow by combining smaller firms to the company. In 1896, a great boost to company happened when it became a part of the foundation of the Dow Jones Industrial Average. Duke also flexed his company’s muscles when it began not just to dominate the cigarette industry but the whole tobacco industry itself. In 1898, he became the president of a consolidation of plug tobacco companies, which resulted to the formation of the Continental Tobacco Company which has a capital of $75 million. In 1900, he founded the American Snuff Company. In 1901, he tried to dominate the cigar industry by establishing the American Cigar Company, however, it did not succeeded that much. He also decided that he would not just be in charge of manufacturing but he wanted also to sell it, so he then established the United Cigar Stores Company. He then tried to establish a holding company, the Consolidated Tobacco Company, which would serve as the parent company of all his assets. This, however, did not materialize because of the start of the government’s crackdown on trusts or monopolies.

His plan, to have a holding company, failed, but it did not much matter because he had already had his interest in the world market. He wanted to dominate the world market of cigarettes and began with the country that owned much of the world trade, Great Britain. He began by buying a tobacco company in England called the Ogden Ltd in 1900’s. This move, however, conceived as a threat by other tobacco companies in England. The British tobacco companies then decided to consolidate themselves to become stronger. The result was the formation of the Imperial Tobacco Company. They countered Duke’s incursion to British market by attempting to open a factory in America. After some battles between the American and the British company, they reached to an agreement in 1902. The giant companies agreed that they would stay away from each other’s turf; American Tobacco Company in US, and Imperial Tobacco Company in Britain. The two companies also decided to form a company that would managed the world trade of the two companies, the British American Tobacco Company. Duke eventually was the winner because he became its chairman   which he would held till 1923.

Successful abroad, however, in the US, he faced a huge challenge that would bring down his work. In 1907, the US government filed an anti-trust suit against the American Tobacco Company. A long court battle ensued four years. Sadly, for Duke, the Supreme Court decided that American tobacco Company was guilty for the violation of anti-trust laws. The SC ordered the breakdown of the company into four companies. Duke had no other choice but to comply and from American Tobacco Company, came the Liggett and Meyers, P. Lorillard, R.J. Reynolds, and American Tobacco Company itself. In 1912, he decided to give his shares on each of the companies to the British American Company. This, however, was a smart move, because he dominates the British American Company. Moreover, he might not dominate the US market, but he still controls most of the world tobacco trade.

After his loss in the lawsuit, he gave more attention to his other interest. Even eight years before the breakup of American Tobacco Company, he already showed interest in investing in electricity, in particular, hydroelectric power. He invested to a hydroelectric power station at Southern Piedmont and established the Southern Power Company (later known as Duke Power) to manage it. In 1922, he funded the construction a huge hydroelectric power station in Quebec.

Besides electricity, price had other business. It included finance, such as the Citizen’s National Bank, local railroads in his hometown, as well as real estate. He also engaged in philanthropic works. One of his most notable was the trust fund he provided for the establishment of the Duke University in North Carolina. He also established the Duke Endowment that aims to improve education and health status of citizens of North Carolina. In October 10, 1925, James Buchanan Duke died in New York City, leaving a wealth of over $100 million.

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“James Buchanan Duke.” American National Biography Online. Accessed on October 31, 2013. http://www.anb.orgl

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