Flagler Goes from Rags to Riches
When we left Henry Flagler in Part 1 of this story, he was living in Ohio and the Civil War had recently broken out. But it would be family tragedy, rather than any casualty of war, that devastated the Flagler household in 1861.
As you’ll remember, Flagler had married Mary Harkness in November, 1853 (daughter of his step-uncle, Lamon Harkness), a union which solidified Flagler’s connection to the prosperous Harkness clan. The couple had welcomed two little girls to their household – Jennie, in 1855, and Carrie, in 1858. But Flagler would suffer not one but two painful losses in 1861: his youngest daughter (Carrie) died from consumption, and his mother, Elizabeth, passed away that same year at just 59.
On the business front, Flagler was casting his eye about for fresh entrepreneurial horizons. He’d sold his interest in the partnership’s distillery business in 1858, and probably noted with a bit of chagrin that step-brother Stephen Harkness was doing a bang-up business in the liquor trade. So perhaps Flagler was eager to keep up with his well-to-do in-laws.
The Civil War was escalating the Union’s demand for salt – a commodity needed not only for soldiers’ rations but also to preserve meat to feed the troops. Salt deposits from a long-ago sea had already made Michigan an important salt-producer, and the Saginaw region was seeing astronomical growth.
By October 1862, Flagler had leaped full-tilt into the salt business, in partnership with brother-in-law-to-be Barney York. (York would marry Mary’s younger sister, Julia Harkness, the following year).
Financed in part by a sizable loan from their mutual in-laws (Lamon and David Harkness), the fledgling company of Flagler & York dropped $20,000 into the purchase of 16-1/2 acres of land on the east side of the Saginaw River, a parcel that came with two salt “blocks” (processing plants) housing 100 evaporating kettles plus a shared interest in a nearby salt well.
A barrel of salt at the time was commanding two to three times its cost of production, and in 1863, Flagler & York managed to turn out 15,000 barrels of salt. The profits were handsome – nearly $27,000. The partners were so encouraged by this early success that they quickly signed a five-year lease for an adjoining property, adding two more “salt blocks” and 100 additional kettles to the company’s assets, along with rights to a second salt well.
Flagler had brought his family with him to East Saginaw, and took an active role there in community and religious affairs. The population was growing rapidly, and in spring 1864, Flagler and his partner subdivided part of their land and began offering buildable lots for sale. Flagler became a director of the local Board of Trade that June. And in August, 1865, he was listed as a director for a newly-organized national bank, which the local paper expected to go into operation “as soon as the notes can be procured from Washington.”
But the end of the Civil War wrote “finis” to the salt-producing bonanza. By October, 1865, the price of Saginaw salt had dropped from $2 – $3 per barrel to just $1.50 – and kept dropping.
Somehow, this sea change in demand failed to register with Flagler & York. They kept their 208 kettles and 34 employees hard at work – for a while. By late 1866, however, the company was stuck with 3,500 unsold barrels of salt on its hands.
Meanwhile, other salt manufacturers had done a far better job of reading the economic tea leaves. As early as 1862, one salt producer had expressed interest in creating a coalition “free from competition among ourselves,” a step supposedly designed to ensure a uniform quality of salt and (even more important) a uniform price. Proponents of such a mutually-beneficial arrangement touted the “protection” it afforded to its members. They didn’t use the harsh word monopoly, of course. Instead they embraced a kinder, gentler term: combination.
Salt producers to the north eventually decided to form just such a “combination” – and by doing so, quickly proved the arrangement’s worth, commanding an extra $.20 to .30 cents per barrel for members. Soon, other companies in the Saginaw region embraced similar arrangements. Flagler & York wasn’t one of them.
By 1866, the firm of Flagler & York was bankrupt. Henry was forced to sell his beautiful Saginaw home in March, 1866, with most of the proceeds likely going to creditors. Henry Flagler left town roughly $100,000 in debt – at least half of which ($50,000) had been borrowed from father-in-law Lamon Harkness and Lamon’s brother, David Harkness.
Flagler returned to Bellevue, Ohio, briefly finding a job again in a retail store. But one can imagine that Flagler’s financial misadventure may have chilled his relationship with the Harkness family just a bit. Only a few months later, Flagler and his family were moving again – this time to Cleveland, where he accepted a position as a grain merchant with the same firm where his acquaintance, Rockefeller, used to work.
Flagler brought with him at least two hard-won business lessons. The first was the inherent danger in high-flying expectations and overly-rapid expansion. And the second, perhaps bigger, lesson he’d picked up simply by watching his competitors: the value of minimizing competition and maximizing profits through “cooperative” price-setting agreements. They were lessons he’d carry with him for the rest of his life.
Flagler may have been down, but he certainly wasn’t out. Surprisingly enough, Fate would soon shine on him again — and quickly. In Cleveland, Flagler renewed his acquaintance with young John D. Rockefeller. And the rest, as you might say, is history.
That’s where Part 3 of this story begins! Just click to read more about Flagler!