of railway mail, and three years later, he became general superintendent. Hubbard then hired him to run the day-to-day operations at Bell.

From the beginning, telephony proved to be a very capital-intensive business, and in 1878, Bell and his partners sold a controlling interest in their enterprise to a group of Boston financiers in order to raise additional money. Because of the limited capital, Vail at first licensed numerous local exchanges, charging them twenty dollars a year per telephone, which allowed a rapid expansion of service at minimum cost to the company. As capital became available, however, the company also began taking an ownership interest and organizing the exchanges into larger, more efficient entities that were regional in scope.

In 1881, Vail purchased Western Electric to manufacture telephone equipment for the company and its subsidiaries. Finally, in 1885, he organized the American Telephone and Telegraph Company, as a subsidiary of Bell, to tie the various operating companies together with long-distance service. (In 1899, in an adroit move to escape the restrictive corporate law of Massachusetts, Bell Telephone became a subsidiary of AT&T, which was incorporated in New York.)

The first long-distance service, between Boston and New York, was initiated in 1884. The following year saw lines installed between New York and Philadelphia. By 1892, AT&T long distance reached as far as Chicago.

By this time, the Bell system, with its control of the largest operating companies and its spreading long-distance system, was dominant in the nascent American telephone industry. But, while it was increasingly a monopoly, its ever-greater need for capital to expand the system (the number of telephones in operation in the United States nearly quintupled in the 1880s) forced it to be relatively efficient in order both to minimize the capital needed and to be able to sell stocks and bonds.

The Boston financiers who controlled the company, however, were primarily interested in immediate profit, not long-term growth. Vail, a true visionary, wanted to plow profits back into expanding and improving the system. In protest, he resigned as president of Bell in 1887.

By the turn of the century, AT&T had assets of $120 million, while all independent phone companies together had assets of only $55 million. But the independents were expanding fast as the telephone began changing from a luxury to a necessity. To counter the new competition, AT&T was forced to slash rates and become much more customer-friendly. Still, it often acted like a monopoly in other ways. It refused to allow independent companies to connect with it, so these companies could not offer long-distance service. As a result, some cities had two different phone companies, one Bell, one independent. Increasingly, the Bell system used its monopoly of long distance as a lever to force the takeover of these independents.

But this rapid expansion stretched the company’s finances and forced it to issue ever-increasing quantities of stocks and bonds. J. P. Morgan became a major buyer of these securities, and by 1907, he had wrested

control of the company from the Boston financiers. Morgan, a visionary like Vail, immediately asked Vail to return to the presidency that he had resigned twenty years earlier.

AT&T had more than three million phones in service by this time, but the company finances were in terrible shape, as was its public image—thanks to often poor service and a still high-handed attitude. Staff morale was also very low. Vail set to work correcting these problems by creating a nationwide communication system that would be second to none.

He raised additional capital by offering securities at a discount to stockholders, a tactic the company would use over and over again as the Bell system expanded by a factor of thirty in the ensuing decades. He greatly increased spending on research and development, pointing the way to the establishment of Bell Laboratories in 1925. He required all employees to be polite, something that Americans who have never had to deal with a government-owned phone company tend to take for granted.

He also set out, with Morgan’s help, to control all telecommunications in the United States, buying 30 percent of Western Union, as well as continuing to buy up independent phone companies. He often made use of Morgan’s influence on Wall Street to squeeze their credit until they came to terms.

But anti-monopoly pressure, especially after the Wilson administration came to office, forced Vail to retreat. In 1913, after Morgan’s death, he sold Western Union and, for the first time, allowed the independent phone companies to connect with AT&T long-distance facilities.

Despite the changes that Vail initiated at AT&T and its continuing technological improvement, anti-monopoly pressure continued. And, in the peculiar tenor of the time, it was increasingly believed that the private quasi-monopoly enjoyed by AT&T should be converted into a complete public one, run by the Post Office. In the Wilson cabinet, the leading advocate of this idea, not surprisingly, was Albert Sidney Burleson, the Postmaster General. He began to lobby Congress to authorize a takeover.

Several liberal congressmen took up the cry. Notable among them was David J. Lewis of Maryland, who formally called for the “postalization of telephones and telegraphs.” Naturally, this caused the prices of AT&T securities to tumble, but Vail, in his annual report for 1913, advised his stockholders to “rest quietly.” Vail admitted that AT&T was effectively a monopoly, but he also pointed out, with a logic that the Left has never been able to grasp, that “all monopolies should be regulated. Government ownership would be an unregulated monopoly.”

A government takeover was not a serious possibility until the country’s entrance into World War I changed everything. The railroads were taken over temporarily in December 1917, and congressional hearings were held in July 1918 to consider a similar takeover of communications. Postmaster General Burleson was heard at length; AT&T was not invited to testify. A joint resolution passed easily, and Woodrow Wilson quickly took possession of “each and every telegraph system, and every part thereof, within

the jurisdiction of the United States, including all equipment thereof and appurtenances thereto.”

As a practical matter, the Post Office in effect hired AT&T to run its old business. But, while AT&T had had to ask to change rates, the Post Office could simply do so. It immediately did, and sharply upward, despite the fact that one of the primary goals of government control was supposed to have been lower rates. In addition to higher rates, the government inaugurated a service-connection fee.

Public support for a permanent takeover evaporated with the increased rates and the end of the war. AT&T (and other telecommunications companies) were returned to their owners only slightly more than a year after the takeover. Consequently, the United States continued to enjoy the finest, cheapest phone service in the world.