Founding of International Harvester Company Summary

  • Last updated on November 10, 2022

The founding of International Harvester created a manufacturing giant and brought some order to the fiercely competitive farm machinery industry in the United States.

Summary of Event

After much deliberation and several failed attempts, International Harvester Company was formed on August 12, 1902. With assets valued in excess of $110 million and control of nearly 85 percent of harvester and reaper production in the United States, the company was a combination of the McCormick Harvester Company, Deering Harvester Company, Plano Manufacturing Company, Milwaukee Harvester Company, and Warder, Bushnell & Glessner Company. The creation of International Harvester, along with similar mergers that led to the formation of Allis Chalmers in 1901 and Deere and Company in 1911, grew out of the severe economic hardships and uncertainty of the 1890’s and the fierce competition that had come to dominate the harvester and farm machinery industries in the United States. Competition had become so harsh and so damaging to its participants that the era is often referred to as that of the “harvester wars.” The consolidation of bitter rivals, most notably the union of McCormick and Deering, was an attempt to bring stability and ultimately profitability back to an industry reeling from years of cutthroat competition and costly patent disputes. International Harvester Company Manufacturing;farm machinery Mergers;U.S. Farm machinery industry [kw]Founding of International Harvester Company (Aug. 12, 1902) [kw]International Harvester Company, Founding of (Aug. 12, 1902) [kw]Harvester Company, Founding of International (Aug. 12, 1902) International Harvester Company Manufacturing;farm machinery Mergers;U.S. Farm machinery industry [g]United States;Aug. 12, 1902: Founding of International Harvester Company[00550] [c]Trade and commerce;Aug. 12, 1902: Founding of International Harvester Company[00550] [c]Manufacturing and industry;Aug. 12, 1902: Founding of International Harvester Company[00550] McCormick, Cyrus Hall Deering, William Perkins, George W. Gary, Elbert Henry

The manufacture and distribution of harvesters and reapers was by the late nineteenth century one of the most conspicuous industries in the United States. It was also an industry dominated by a few large firms held within families, notably the McCormicks and the Deerings. The McCormicks had been in the reaper business from its inception. McCormick reaper[Maccormick reaper] Cyrus Hall McCormick secured his first patent on a mechanical reaper in 1834 and began selling reapers in 1841. By 1847, he was building a factory in Chicago that would help make him one of the nation’s most prosperous business leaders. William Deering was not an inventor, and he entered the harvester trade in 1870, a generation after McCormick, but through aggressive policies and business abilities he posed a formidable challenge to McCormick for leadership in the industry. Despite being challenged by Deering and a handful of other firms, and even after the death of Cyrus Hall McCormick in 1884, the McCormick Harvester Company McCormick Harvester Company[Maccormick Harvester] remained the dominant force in the harvester industry.

The heated rivalry that existed between McCormick and Deering had over the years taken its toll on the profits of both companies and had created costly inefficiencies in distribution, losses to dealers, and oversaturation of the domestic reaper and harvester markets. Even though the so-called reaper kings recognized that an end to their costly rivalry would in the end be in both of their interests, all earlier attempts at combination had failed. In 1891, in 1897, and again in 1901, some type of an agreement seemed close at hand, but the differences and old rivalries were always too great to overcome. When William Deering retired in 1901, his sons, Charles and James, took over the management of the company. This renewed hopes that some sort of an agreement finally could be reached in the harvester industry.

The merger was accomplished with the intervention of outside business interests and the assistance of some of the nation’s most prominent business leaders, who had a vested interest in restoring and promoting economic stability in a leading American industry and also had personal ties with both the McCormick and Deering families. One of these businessmen was John D. Rockefeller, Jr., Rockefeller, John D., Jr. (1874-1960) whose sister Edith had married one of the sons of Cyrus Hall McCormick, Harold, in 1895. Along with Elbert Henry Gary, chairman of the United States Steel Corporation and a former attorney for William Deering, Rockefeller helped foster the merger that ultimately brought an end to the harvester wars.

Cyrus Hall McCormick.

(NARA)

Established business leaders had reason to fear the instability and destructiveness produced by price wars and cutthroat competition. In early 1902, Gary telephoned the McCormicks to discuss what he and others perceived as a disruptive development in the harvester industry. In an attempt to cut the rising cost of raw materials, the Deerings recently had purchased iron ore deposits and were building their own rolling mill. This development held the potential to prolong and intensify the harvester wars. Even worse for Gary and other industrialists, it could have broadened the type of predatory competition that monopolies and established business leaders were eager to avoid. The last thing Gary and U.S. Steel wanted was large manufacturing firms beginning their own steel operations. It became apparent that a consolidation of the leading harvester companies held distinct economic advantages for firms in that industry as well as for others.

The details of the merger were worked out over the summer of 1902 in various New York hotel rooms and in the Wall Street offices of J. P. Morgan & Company. The chief negotiator for Morgan was George W. Perkins, then the youngest partner at the firm. Perkins is widely credited with accomplishing what for so long had seemed beyond reach, the creation of a harvester trust. The merger that created International Harvester was organized by the Morgan firm and carried out by Perkins. It was even Perkins who suggested the name for the new corporation. The McCormicks and the Deerings both acknowledged the fact that overseas markets were going to be a large and profitable part of future expansion, prompting inclusion of the word “international” in the new company’s name.

International Harvester was the sum of the assets of the five smaller harvester companies from which it was created. To avoid costly antitrust litigation, the merger called for the purchase of the physical assets of the companies rather than of stock in them. After the merger, to provide continuity, to protect the new corporation from speculators, and to attempt to keep peace between the McCormicks and the Deerings, control of the new corporation was placed in a voting trust for the first ten years. This voting trust was given absolute control over the operation of the corporation and acted on behalf of all stockholders. The trust was made up of Cyrus Hall McCormick’s eldest son, Cyrus; William Deering’s eldest son, Charles; and George Perkins.

The operation of International Harvester was at first a literal combination of the properties and departments of the five companies that had merged. The corporation’s executive officers were named to provide a balance of power among the old rivals, but given the initial leverage of the McCormick Harvester Company, the balance leaned somewhat in favor of the McCormick family. Cyrus McCormick was named the first president of International Harvester, and Charles Deering was named chairman of the board. Harold McCormick, James Deering, J. J. Glessner, and William H. Jones of the Plano Manufacturing Company all were named vice presidents of the new corporation.

Significance

The creation of International Harvester, like similar mergers in steel, electrical manufacturing, and other heavy industries, signaled both an end to the traditional, family-oriented firms that had dominated in the nineteenth century and the emergence of the modern corporations that would come to dominate in the twentieth century. Modern corporations tend to hire professional managers, exploit economies in production, operate across large markets, and rely on public and sophisticated methods of finance. Ultimately, International Harvester accomplished these things and became a modern corporation, but first it had to be forged out of the rivalries of the leading and distrustful harvester companies.

The emergence of International Harvester also signaled the importance and the impact of the interactions among many of the leading industries in the United States. Industrialists attempted to protect their markets and tended to rely on large trusts to provide a more stable economic environment. Clearly, the involvement of Elbert Henry Gary in the negotiations to create International Harvester demonstrates that U.S. Steel, the nation’s largest steel manufacturer, was concerned about protecting its market. The list of prominent American bankers and industrialists involved in the creation of the harvester trust implies that many business leaders had influence and interests across industries.

The substantial role played by J. P. Morgan & Company in the formation of International Harvester emphasizes how the role of financing had changed by the beginning of the twentieth century. Because of the size and complexity of emerging corporations, the days of widespread internal and family-based financing were gone. Corporations and even the federal government had been turning to J. P. Morgan Morgan, J. P. in the 1890’s and 1900’s to help settle financial problems. In addition to its role in the International Harvester merger, Morgan’s firm had played a role in the formation of General Electric, American Telephone and Telegraph, Federal Steel, and U.S. Steel.

The formation of such large manufacturing enterprises as General Electric in 1891, U.S. Steel in 1901, and International Harvester in 1902 was indicative of the trend among American corporations to develop and exploit economies of production. Larger firms hoped that by increasing their scales of output they could accordingly lower their average costs of production, distribution, and financial management by avoiding duplication of tasks. After the merger, International Harvester pursued a policy of enlarging both its scale of production and its scope of operations.

In the years after the merger, International Harvester expanded its own production facilities, acquired additional machinery shops, and developed new product lines. The development of new product lines was easier after the merger, because intense competition during the harvester wars had led to reductions in budgets for research and development. The company now could afford to devote resources to long-term research. It began experimenting with gasoline-engine tractors in 1905 and within a few years was marketing a successful line of tractors. Eventually, the company’s product lines included trucks, automobiles, construction and earth-moving equipment, lawn and garden equipment, compressors, generators, and pumps for mining natural gas.

Another significant aspect of International Harvester was the company’s part in the movement of American manufacturing firms into international markets. In the period from 1903 through 1909, International Harvester opened production facilities in Canada, Sweden, Germany, France, and Russia. True to the name of the new corporation, it began to market its growing line of farm machinery aggressively across Europe, Africa, and South America. In four years, its volume of trade with Russia reached a level equal to the total volume of U.S. farm machinery exports at the time of the merger.

The formation of International Harvester created a manufacturing giant but did not immediately end the years of rivalry within the harvester industry. Although the merger technically created a harvester trust, the corporation retained the old companies as separate divisions of the new corporation. These separations were easy to define, as the new corporation kept the separate brand names as late as 1909. Despite the efforts of George Perkins, it became obvious that old rivalries were not going to disappear simply because of the merger.

Unfortunately for International Harvester, it paid a price for the continuation of these old, and now internal, rivalries. The company’s early years did not produce the economic bounty that was expected. Profits were lower than anticipated, and production declined. Perkins, again with the help of Gary, sought in 1906 to negotiate a settlement between the McCormicks and the Deerings. This time the agreement meant a reorganization and restructuring of the company. After these reforms, which further reduced the direct influence of the family managers, the corporation went public in 1908. International Harvester then entered into an era of substantial expansion and prosperity marred only by a protracted antitrust battle with the U.S. Department of Justice. International Harvester Company Manufacturing;farm machinery Mergers;U.S. Farm machinery industry

Further Reading
  • citation-type="booksimple"

    xlink:type="simple">Casson, Herbert N. The Romance of the Reaper. New York: Doubleday, Page, 1908. A history of the mechanical reaper in the United States. Tells the story of the McCormick, Deering, and International Harvester companies.
  • citation-type="booksimple"

    xlink:type="simple">Garraty, John A. Right-Hand Man: The Life of George W. Perkins. New York: Harper & Brothers, 1957. A well-written and thorough biography of the man who negotiated the creation of International Harvester. Presents a detailed and documented account of the formation of the harvester trust.
  • citation-type="booksimple"

    xlink:type="simple">Hutchinson, William T. Cyrus Hall McCormick. 2 vols. New York: D. Appleton-Century, 1935. The standard and detailed biography of McCormick. The volumes are subtitled Seedtime, 1809-1856, and Harvest, 1856-1884. They deal with the invention of the reaper, the operation of the company’s factory in Chicago, numerous patent disputes, and various aspects of McCormick’s public and private lives.
  • citation-type="booksimple"

    xlink:type="simple">McCormick, Cyrus. The Century of the Reaper. Boston: Houghton Mifflin, 1931. A history of the reaper and farm equipment industry written by the grandson of Cyrus Hall McCormick.
  • citation-type="booksimple"

    xlink:type="simple">Roderick, Stella Virginia. Nettie Fowler McCormick. Rindge, N.H.: Richard R. Smith, 1956. The story of the life and times of the wife of Cyrus Hall McCormick, who played a significant role in the family business. In a different era, she likely would have become the McCormick company’s president after her husband’s death in 1884.
  • citation-type="booksimple"

    xlink:type="simple">Tarbell, Ida M. The Life of Elbert H. Gary: A Story of Steel. 1926. Reprint. Whitefish, Mont.: Kessinger, 2003. A valuable biography of Gary, describing his career as one of the leading industrialists in the United States.
  • citation-type="booksimple"

    xlink:type="simple">Wendel, C. H. One Hundred Fifty Years of International Harvester. 1981. Reprint. Osceola, Wis.: Crestline, 1993. An insightful history of the reaper and the companies that came together to form International Harvester. Includes an impressive collection of pictures and diagrams that provide a wonderful overview of the farm equipment industry as illustrated by the evolution of its products.

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