ROBBER BARONS
CHAPTER THREEOF EMPIRE-BUILDERS
THE people here want to hear nothing now but the fife and drum,” commented Jay Cooke somewhat gloomily in the spring of 1861. He had just opened the newly established banking house of Jay Cooke & Co., on January 1, 1861, and there seemed literally no business to be done during the ominous lull before the first battle of Manassas. The tone of this man of money suggests clearly that while he might be loyal enough to the North, he did not share the martial fervor that swept through the crowd. This distaste for gunpowder was shown almost universally by the other members of the new Northern business class. Their attitude is very well typified by the colorful Judge Thomas Mellon of Pittsburgh, who in telegraphic orders at this time sternly forbade one of his elder sons residing in Wisconsin to enlist even for service behind the line. He then followed with a choleric letter :
I had hoped my boy was going to make a smart, intelligent business man and was not such a goose as to be seduced from duty by the declamations of buncombed speeches. It is only greenhorns who enlist. You can learn nothing in the army. . . . Here there is no credit attached to going. All now stay if they can and go if they must. Those who are able to pay for substitutes, do so, and no discredit attaches. In time you will come to understand and believe that a man may be a patriot without risking his own life or sacrificing his health. There are plenty of other lives less valuable or others ready to serve for the love of serving.
The father’s counsel prevailed, and the son, James Mellon, like John Rockefeller, Pierpont Morgan, Armour, Gould, and the other gifted young entrepreneurs who were of proper age, sent substitutes to the draft armies and as a rule found ways of displaying their patriotism without risking life and limb.
The rout of the first Union army spread gloom over the North, since it was now understood how heavy was the task of subduing the rebels ; it was not an engagement of professional armies : a whole “nation in arms” must be conquered in its homeland, and this European experts and other observers on the scene predicted to be impossible.
But under the political gloom a great economic exuberance was spreading as if by magic. The very reverses of the Union armies, creating the need for government funds, for vast quantities of war material, clothing, uniform, shoes, munitions, transport, and for a total reorganization of the national economy, soon changed the humor of the civilians. The very collapse of the government credit, the menace of defeat, bringing debasement of the currency, was a good, since there soon developed a cycle of inflation with its pleasing picture of soaring prices for goods of all kinds; while the great mass of citizens were quickly engrossed in all the multifarious industrial activities evoked by the immense destroying and consuming of a modern war.
Behind the army lines there were lucrative tasks to be done in short order. Bankers and investors must raise a million dollars a day in money for the war government ; food and produce must be multiplied ; woolen cloth must be manufactured in place of cotton ; rivers of pork must flow from Chicago ; the new free lands of the West must be opened up quickly for productive use ; the iron trade must be developed for wartime needs ; railroads, which quickly proved their great usefulness in the immediate war area for troop movements, must be extended across the continent to unify the country ; coal and minerals of all sorts must be dug from the earth ; innumerable oil wells must be opened ; farm machines must be fabricated to replace a million men in arms ; in short all the demands must be satisfied for the huge national market closed off by the protective tariffs of 1862 and 1864.
In this “War Between the States,” moreover, all the fullest energies of the long-retarded industrial revolution were liberated. Whether it sensed it or not, the war party headed by Lincoln hastened miraculously a transfer of power to the emergent groups of large-scale capitalism. Under Lincoln, after the Homestead Act, began the distribution of the public domain, which the federal government owned, in favor of its citizenry of free farmers and artisans : half the present area of the United States, or a billion acres of land, with all its subsoil. In a hurried partition, for nominal sums or by cession, this benevolent government handed over to its friends or to the astute first comers, the most daring undertakers, all those treasures of coal and oil, of copper and gold and iron, the land grants, the terminal sites, the perpetual rights of way—an act of largesse which is still one of the wonders of history.1 To the new railroad enterprises in addition, great money subsidies totaling many hundreds of millions were given. The Tariff Act of 1864 was in itself a sheltering wall of subsidies ; and to aid further the new heavy industries and manufactures, an Immigration Act allowing contract labor to be imported freely was quickly enacted ; a national banking system was perfected. And finally, to preserve the new alignment of interests, the cabalistic “due process clause” was inserted into the Fourteenth Amendment, by which the ostensible defense of Negroes’ rights, as the Beards have pointed out, was made the eternal bulwark of great property rights. Having conferred these vast rights and controls, the war government would preserve them, as Conkling termed it, so as to “curb the many who would do to the few as they would not have the few do to them.”
That enormous breaches were being opened in the defense walls of the old social order, breaches through which unknown adventurers and their mercenary soldiers would come raging for plunder, was perhaps not widely enough recognized at the time. Yet it did not take long for the meaning of these wonder-working changes to reach the brains of those other young men of ’61 whose training and appetite led them to the marketplace rather than the battlefields. Whether engaged in money-lending, “projecting,” speculating or hog-slaughtering, they sensed their chances instantly, and each in his way rushed to seize the resources, the key positions of the industrial society being hastily assembled. They would then find themselves, incredibly enough, commanders of strongholds, lords of “empires” in iron, beef, railroads or oil, to be held naturally for private gain, and once held, defended by them to the last breath of financial life against all comers. And then the triumph of the war party at the close of the rebellion would see the democratic sovereignty opening even wider the doors to treasures in lands, forests, mineral deposits, rights of way—by the only method and precedent known to a popular sovereignty : partition to those men among the people who were, as Bacon has termed it of “violent and undertaking nature.”2 It is this process of conquest and partition during the “feudal period” of our industrial development that we must follow in detail, especially with reference to the small group of talented men who were to be its chief beneficiaries.
2
In the several years which had preceded the war, Jay Cooke had won respect among the business people and politicians of Philadelphia. His serene and impassive face, covered with one of the biggest and finest of contemporary beards and surmounted with a famous wide-brimmed hat, completed the aspect of dignity which he wore.
Since 1857, having separated from the bank of Clark & Dodge, he had busied himself in divers projects of his own, especially in promoting the canal works and small railroad lines which were usually in those days inspired by state subsidies and managed by private undertakers. Those companies which fell into difficulties he and a party of friends bought cheaply, “reorganized . . . issued stocks and bonds, paid the state the price agreed upon and then retired with good round profits,” he relates. So adept was Cooke, so “efficient in getting up parties” for new ventures, as a local capitalist wrote him, that his moneyed friends begged him to lead them in further exploits, and with such encouragement he had launched what was soon to become the greatest private banking house in America at the inauspicious beginning of 1861.
In these first dark hours of the war Cooke saw a great light. Years before, while still with the Clarks, he remembered with pleasure having overreached the Secretary of the Treasury twice by ingenious arrangements regarding interest on Mexican War loans. “So we victimized him again,” he had commented in a letter on the second occasion. Why should not this great rebellion once more be “a grand time for brokers and private banking,” a time for “victimizing”?
But Jay Cooke, it must be noted, had a strain of genius, he had a style, which would make him “the first modern American” in the direction of large affairs. Knowing the motives of men shrewdly, he would color all his bold transactions with the red-white-and-blue of patriotism ; the “ballyhoo” of bond-selling campaigns was conducted by him with the fervor of a religious crusade. He knew the Ohio politicians well ; his brother Henry, a journalist, was attached both to Governor Salmon P. Chase and to the influential Congressman, John Sherman. Through these he followed every political move at the Capitol. It was the pressing need for money by the federal and state governments which caught his eye at once ; he resolved to devote himself entirely to government financing.
In June, 1861, the Pennsylvania State Legislature, which had called for 10,000 volunteers, sought a loan of $3,000,000. It was a moment when the credit of this commonwealth, owing to previous defaults, was at its lowest ebb, and Pennsylvanians a butt for the tirades of humorists such as the Englishman Sidney Smith. Now Jay Cooke, alone among the native bankers, came forward with the offer to sell the Pennsylvania 6’s “at not less than par”—on the grounds of patriotism. Bestirring himself with remarkable energy, he or his agents visited every banker or every merchant in the near-by country known to have something in his stocking. Exhorted “to strike terror into the rebels,” to send a flood of cash toward the front, the public oversubscribed what seemed then a large loan. Cooke caused this news to be advertised everywhere, especially in the South, where he made it known that “the millions of the North would be forthcoming to suppress treason and rebellion.” It was Cooke’s debut in national fame. It was considered, as he himself remarked, “an achievement as great or greater than Napoleon’s crossing the Alps”; he had earned $1,000 a day during the crossing.
Like Napoleon also, Jay Cooke neither halted nor rested after victory but pushed on. Together with Anthony Drexel, he would form, he announced to Secretary Chase, on July 12, 1861, a Washington banking house which was to be closely allied to the government :
We would wish to make our business mostly out of the Treasury operations and we feel sure that we could by having a proper understanding with yourself greatly help you in the management of your vast negotiations. . . . We could not be expected to leave our comfortable homes and positions here without some great inducement and we state frankly that we would, if we succeeded, expect a fair commission from the Treasury in some shape for our labor and talent. If you feel disposed to say to us . . . that you will give us the management of the loans to be issued by the government during the war, allowing us a fair commission on them . . . we are ready to throw ourselves into the matter heartily. . . .
It was a bold proposition, too bold for even the pompous, vainglorious Secretary Chase to accept, since it would create a monopoly for government loan commissions. Refused, Jay Cooke pursued the harassed Secretary with his offers of disinterested assistance in the complex financial operations of which Chase, to begin with, knew almost nothing. By dining and wining the servant of the people the Philadelphia banker had occasion to win his confidence, and accompanied him unofficially to New York in his first attempts to wheedle advances out of the unsentimental money-lenders of that city. These gentlemen named, the Ciscos, Mortons, Taylors, Belmonts, were not as yet certain that they liked the war, or the way in which it was being conducted, or Mr. Lincoln, whom they did not know. Grudgingly they offered small sums at high interest. They were old-fashioned ; they had neither the bubbling patriotism of Cooke nor his dazzling vision of low commissions for raising big quantities of paper money.
“. . . We shall go on the rocks together,” said the Secretary menacingly. “I will go back to Washington and issue notes for circulation. The war must go on until the rebellion is put down, if we have to put out paper and it takes a thousand dollars to buy a breakfast.”
Such threats brought at length $50,000,000 from the “shaving shops” of New York, and at 12 per cent ! They were “Wall Street Copperheads”; but as always they feared the evils of “inflation.”3
In the first great government war loans offered publicly, the “seven-thirties” of October, 1861, Jay Cooke did not have a monopoly, but his participation was so brilliant, he sold so much more than the other bankers (about one-fourth of the total), that his demands could not long be resisted. His methods had been a revelation to the banking community. He had advertised in all the press, paid all the financial reporters he could reach “with edibles and bibibles”; he had thrown agents all about the country, distributed circulars by the ton. Over his office he had hung out a flag with the legend “National Loan” emblazoned upon it ; he “kept the papers fired up daily”; he dunned each war contractor and military supplyer. Thenceforth he became the sole fiscal agency of the government. A branch office in Washington was soon opened directly opposite the Treasury building, and this office became the haunt of Congressmen, government employees, lobbyists and reporters.
At forty Jay Cooke was one of the leading counselors of the war government. He had insisted that by having the sole “concession” of government loans, he could effect great savings in the handlings. His charges were actually lower than those of the older bankers who now raged at him with envy. Moreover at great cost he built up by 1863 a far-flung organization of 2,500 subagents or “minutemen” who in that year helped him float $500,000,000 of “five-twenties” with enormous success. Before the age of the radio, the doctrine of Jay Cooke : “A national debt a national blessing,” was literally broadcast over the country. After the issues of legal tender, and suspension of specie payments, the dollar of course sank to from 40 to 60 cents in gold ; hence it was a stream of mere greenbacks, of paper money, which the moneyed public now rushed to lend to the war government. By selling huge quantities of the bonds, at the rate of $2,000,000 a day, Cooke’s commissions at .5 per cent rose to some $3,000,000 a year—though this did not include the very heavy expenses of promotion. These bonds Cooke supported in the market at par. Cooke’s directing hand was now felt in the gold market and the stock exchange of Wall Street, where he curbed or prodded the speculators as he pleased. He extended his interests with amazing rapidity and with quenchless optimism ; other banks came under his control ; his agents were everywhere. In onward rush he had scrambled over the heads of the older cliques of financiers. He had brought a new technique into the management of national finance, a form of mass distribution, as compared with the semiprivate disposal of government obligations to a few moneylenders in the past. Rising from obscurity, like the proverbial comet, he had come to hold the national purse-strings, and soon the expression : “As rich as Jay Cooke,” became a familiar folk-saying.
A government that leaned upon the spectacular patriot-banker, that opened all its affairs to him, saw him every day in its council halls, could not long resist his further encroachments. The man who raised nearly three billions in four years to support the army at the front could not be refused the concession by Congress of a horsecar line in Washington, on which soldiers and citizens must ride. He who had “hired friends” everywhere in the press and in Congress—for he knew how to be excessively hospitable and delicately assiduous to all who lent themselves to his ends—must be heard when he clamored for the dismissal of a McLellan. If rival bankers hinted that he debauched the press, his achievements made him immune to criticism. This financier who was called the “Robert Morris of the Civil War” extended his power steadily while rendering discreet financial assistance to a Chase or direct favors to a Blaine. Was not Cooke a figure of the war machine behind the lines ?4
His own partners in panic secretly contemplated flight with their capital. But he, with grandiose power, worked steadily to set in motion Chase’s national banking legislation, which helped to unify the confused currency and taxed state banks out of existence while freeing capital further. The salesmen of “this banking firm, made rich by the drippings of the Treasury,” as some Senators declared, promoted Chase’s aspirations for the presidency. And tomorrow Cooke would labor mightily, and with the collaboration of a band of war industrialists and financiers, for the resumption of specie payment, for the complete redemption by the government of all its depreciated obligations ; so that those who had invested their greenbacks, quickly won during the economic frenzy of the war, might be repaid in solid gold. After Appomattox, Cooke, scanning the plans for his million-dollar palace of “Ogontz” outside of Philadelphia, a dwelling such as the New World had not yet seen, would pine for greater projects, for new empires to seize—empires to be had once more by plunging his hands into the bottomless treasure-chest of the government.
3
For years, Oberholtzer relates, “the strong guiding hand of Mr. Cooke was felt in dominating the stock exchanges and the press.” And not without reason. The markets were transformed into infernos of speculation. In New York the Goldbugs to the strains of Dixie again and again “sold the dollar short,” while gold rose to a premium above 150 per cent. As the government’s most patriotic banker observed often when on punitive expeditions against the bears, “no one heartily loved their country better than their pockets.” What they wanted, as the press repeated often, if not gold, was “shares, shares, shares . . .” mining companies in Colorado, or the clouds, ministers as well as laymen, women as well as men. At times the doors and windows of the exchange actually burst under the pressure of the crowd outside. The fever-pulse of this speculative passion might be taken in the Gold Room of the New York Stock Exchange, where the dealers in gold surged every day around the tinkling fountain decorated with a spouting, gilded Cupid. Here new figures joined the older wrinkled ones of Drew and Vanderbilt, swimming through the whirling treacherous tides of the market, growing strong in its lore and craft, among them the furtive little Jay Gould, with his curly black beard, his piercing dark eyes, his hooked nose, and Pierpont Morgan, the tall and stolid banker’s son ; and the broad-girthed Jim Fisk, who had won many an easy dollar by “running” contraband cotton through the army lines from the South. “Along with ordinary happenings, we fellows in Wall Street had the fortunes of war to speculate about,” said Daniel Drew ; and the Great Bear added : “It’s good fishing in troubled waters.”
There was speculation in goods, in produce of all sorts. In Cleveland the young merchant Rockefeller prospered under the sun of rising prices for provisions ; his income early in the war increased to $17,000 in a year. In Chicago Philip Armour, who had returned from California to open a slaughtering business, sent forth salt pork and dressed beef to the Union armies and for export ; in Philadelphia, the butcher Peter Widener did a rushing trade in war provisioning. Even William, the slow-witted son of Cornelius Vanderbilt, from his farm on Staten Island sold hay for the cavalry troops quartered near by ; while the eldest son of Judge Thomas Mellon, the Pittsburgh banker, pleaded with his father to have money for speculation. People were making millions in wheat, he reported from Wisconsin : “They continue growing richer and don’t care when the war closes.”
4
After his apprentice years Pierpont Morgan in New York enjoyed, through his father’s intervention, the American agency for the banking house of George Peabody & Co. Junius Morgan, like the somewhat older and better loved George Peabody, was a man of the highest business probity. This meant that he was “conservative,” that in the pursuit of the most soundly profitable chances for gain he discharged his trust faithfully to those who entered into collusion with him. It meant being highly scrupulous, almost puritanical in fulfilling the letter of all contracts, so that the “good-will” of depositors and clients might be retained over a long period of years. For such qualities of conservatism and purity George Peabody & Co., the old tree out of which the House of Morgan grew, was famous. In the panic of 1857, when depreciated securities had been thrown on the market by distressed investors in America, Peabody and the elder Morgan, being in possession of cash, had purchased such bonds as possessed real value freely, and then resold them at a large advance when sanity was restored. In this way they had won the plaudits of such a statesman as Edward Everett, “for having performed the miracle by which an honest man turns paper into gold.”
For the same “conservative” reasons, Peabody and Morgan, as international bankers, busied themselves during the Civil War in conducting the flight of American capital which brought great sums of money to be placed with them in London. In the Springfield Republican, Samuel Bowles attacked them saying :
... They gave us no faith and no help in our struggle for national existence. . . . No individuals contributed so much to flooding the money markets with evidences of our debts to Europe, and breaking down their prices and weakening financial confidence in our nationality, and none made more money by the operation.
But such strange charges were based of course on an innocent misconception of the clear interest of the bankers, which confused their rôle with that of those common men who served because they loved to serve, as judge Thomas Mellon would say, at Gettysburg or The Wilderness. The saner and more widely accepted view was of course that expressed by Samuel Tilden at a public banquet to Junius Morgan, some years after the war, in which the father of Pierpont Morgan was lauded for “upholding unsullied the honor of America in the tabernacles of the old world. . . . While you are scheming for your own selfish ends, there is an overruling and wise Providence directing that most of all you do should inure to the benefit of the people.”
While full of probity like his father, Pierpont Morgan already under his silent, phlegmatic exterior nourished more impetuous ambitions to advance the common good. Early in 1861, when many pressed to fill war contracts, a wise Providence doubtless directed him upon a venture in war munitions, on the sensible ground that carbines were as keenly demanded as bags of coffee several years before.
A certain Simon Stevens, who had an option for 5,000 Hall carbines, through another dealer named Eastman, came to Morgan with an urgent request for a loan against this war material which he soon hoped to sell to the government at a profit. In advance, he had by telegraph arranged to sell them to General Fremont, who headed the Western Army quartered near St. Louis. Stevens, who had long been engaged in obscure transactions with customhouse officials, may or may not have divulged that he needed the sum of $17,486 from Morgan in order to purchase the carbines from the very same government at Washington whose army in the West clamored for guns. This paradoxical situation was caused by the fact that the carbines in question were found by inspection to be so defective that they would shoot off the thumbs of the soldiers using them. The quartermaster at Washington sold them for $3.50 apiece. “The government had sold one day for $17,486 arms which it had agreed the day before to purchase for $109,912,” comments the historian Gustavus Myers. That young Morgan knew of this situation is plain from the fact that after repudiation of the consignment of guns by General Fremont’s division, he bluntly presented his claim not for the money he had advanced, but for all of $58,175, half of the shipment having been already paid for in good faith.
Morgan’s claim for the full sum of $109,912, where he had loaned only $17,486, may have been an indication to the Congress that his part in the affair was something more than a passive money-lender’s. In the ensuing investigation, March 3, 1863, a Committee on Government Contracts, amid much outcry on “pillage, fraud, extortion” had demanded that Morgan disclose the terms upon which he had entered the transaction, though without breaking his obdurate silence. The Congressmen had not been convinced that this large and sullen young man’s operations “inured to the benefit of the people,” and had seen fit to lecture him. Of him and his fellows their report had said :
He cannot be looked upon as a good citizen, entitled to favorable consideration of his claim, who seeks to augment the vast burdens, daily increasing, that are to weigh on the future industry of the country, by demands upon the treasury for which nothing entitled to the name of an equivalent has been rendered. . . . Worse than traitors in arms are the men who pretending loyalty to the flag, feast and fatten on the misfortunes of the nation, while patriot blood is crimsoning the plains of the South and bodies of their countrymen are moldering in the dust.5
Thereafter Pierpont Morgan had confined himself to the routine dealings of the money-changer. When he wished for more bracing sport he frequently entered the gold market and as it was very fashionable to do at the time, sold the dollar short, that is to say, bought future options on gold at rising prices. Owing to the dark outlook for the Union cause these were reasonably safe operations usually attended with profit. Defeats for the Yankee armies, which came often enough, brought a proportionate rise in gold. In these ventures Morgan usually joined with a shifty young man named Edward Ketchum, son of the well-known banker, Morris Ketchum. At one time in 1863 while harassed merchants bid for gold to cover their currency needs, Morgan and Ketchum corralled a goodly part of the immediate supply and shipped away to London $1,150,000, driving the price up from about 130 to 171. Such speculative daring brought disapproval from official quarters. The Union League Club, very jingoistic, called for the erection of scaffolds to hang the gold speculators. The closing of the Gold Room in New York, however, created only a “black market”; the only remedy for excesses which carried gold to 285 in terms of dollars being the triumphs of General Grant in 1865. Morgan’s friend Ketchum was deeply involved when the approaching fall of Richmond brought a precipitous recovery in the dollar to almost par. To save himself, Ketchum absconded with money and securities from his father’s bank, as well as sums belonging to Morgan, then failed, and was sentenced to prison, branded as “the greatest defaulter of the age.”
It was by normal banking operations, however, in partnership with an experienced banker named Dabney, that Pierpont Morgan made his steadiest gains. The banker in those early days was chiefly the servant to the merchant or manufacturer, for a safe 9 to 18 per cent, rather than the manager of the total investment. At times Morgan’s business included also the sale of American railroad bonds, though they were in ill repute abroad. The bonds of the Erie Railroad were placed at 10 per cent while bonds of the ill-fated Kansas & Pacific actively sold as a “first-class investment” by Dabney & Morgan also had to be placed at usurious rates. Railroad securities were queer, new things over which Morgan pondered long and deeply. There were many strange tales of extraordinary operations by bold men such as Daniel Drew and Cornelius Vanderbilt in the securities and the treasuries of railroads, “while the directors are still wealthy—and out of prison.” Although he seemed to some contemporaries dull, gruff and brusque—at certain directors’ meetings he attended he was even opposed as a “dummy” director—Morgan’s ambitions must have seemed solid and large enough to lay the ghost of his father’s misgivings for him. Inarticulate, brief-spoken, he longed to dominate others, though he felt unable as yet to do so. Several years of further apprenticeship were to pass before he threw himself in earnest into those large railroad affairs which gave fitting scope for his ambitions and, in conflict with the strongest and most cunning adversaries, exposed his fierce will and high, truculent resolution. There is little doubt that as he grew slowly to full maturity young Morgan comprehended the future as well as anyone. In the closing weeks of the war there is record of a rare interview given by Pierpont Morgan, during a visit to London :
We are going some day to show ourselves to be the richest country in the world in natural resources. It will be necessary to go to work, and to work hard, to turn our resources into money to pay the cost of the war just as soon as it is ended.
Morgan was apparently among the few men of 1865 who sensed that the natural wealth of the country was really ample to pay for the cost of such a war.
5
The nimble Gould too was busily engaged in buying gold and selling the dollar since the opening of the Civil War. Tight-lipped, secretive, alert, he was naturally at home in the electric marketplace. He was reputed to have set up machinery whereby informants hurried news of victories or defeats to him by telegraph almost a day ahead of his rivals. Murat Halstead, a well-known contemporary journalist relates, admiringly :
During the war of the rebellion, Gould’s firm did a large business in railway securities, and also made a great deal of money speculating in gold. Gould had private sources of information in the field, and he was able to turn almost every success or defeat of the Union army to profitable account.
This purchased information of a military or political character gave him an almost certain revenue for the duration of the war. But his real ambitions at this time lay elsewhere.
After marrying, at the outset of the war, Gould with the aid of his father-in-law, a man of some means, secured control of a small railroad in northern New York, the Rutland & Washington, a short sixty-two-mile line which was in the last stages of decay. He occupied himself by surveying and investigating this property, and became at once its president, treasurer and general superintendent. Then after a year or two he sold it out at a profit of $130,000 to an adjoining road, the Rensselaer & Saratoga, with which it was combined. Thereafter he had undertaken more and more “operations” in the little railroads which in these bustling times were being thrown up and joined together and maneuvered in every direction. An acquaintance, who was in urgent need, sold him at a low price controlling shares in a small Ohio road, which he managed to dispose of to the great Pennsylvania Railroad (then rounding out its system) at three times the original cost. Thus, when still a youth of twenty-five Jay Gould evolved a technique as a railroad operator, a technique of seizure and “conversion” which was as magical as that of the alchemist who turned dross into gold. Henry Clews, the amiable financial authority and social lion, described it as follows :
To buy up two or more bad roads, put them together, give the united roads a new name, call it a good, prosperous line, with immense prospects . . . get a great number of people to believe all this, then make large issues of bonds, for further improving and enhancing the . . . property.
—then to sell it all at a profit to purchasers who came along. Should these be unable to run it profitably, and be obliged to go into liquidation, then Mr. Gould or his agents would very likely be found on hand at the sale and take back the road at a greatly reduced price.
Armed with this infallible recipe the young railroad captain ranged about the country, seeking out railroad properties which he could turn to use or dispose of through the brokerage house he had founded in New York, Smith, Gould and Martin. Early in 1865, saturnine and restless, Gould was busy purchasing pieces of near-by New England railroad property, which he might exploit for their nuisance value to the large Erie Railroad, when he met for the first time the remarkable chief of that corporation, Daniel Drew, and through him doubtless, the irrepressible James Fisk, Jr. Like Fisk, Gould willingly became a pupil of the Great Bear, the chief of Erie.
Jim Fisk, as he preferred to call himself, had become an agent of Drew’s in the closing months of the war. He was a man who had always loved both display and tumult. As a peddler in Vermont, selling silks, shawls, silverware and tin and Yankee notions, he made all the villagers believe that the circus came into town when his wagon arrived. For that matter he had once been employed by a traveling menagerie. During the war at some physical risk he had run contraband cotton for a Boston firm ; he had sold army blankets for war contractors at prodigious prices ; he had engaged in a thousand and one projects and maneuvers, with the result that his partners had paid him a great prize, something like a ransom of $60,000, to go elsewhere and leave their side, a prize which he had quickly lost in the whirlpools of Wall Street. One would never have thought that the man Fisk was a born “projector.” Big, stout, with blond hair, curling mustaches, wearing a velvet vest, his fat hands covered with rings, his flamboyant dress and his air of hearty good nature concealed a native shrewdness, a bluff courage, which never left him without resources.
What he offered to the crafty Drew was to negotiate the sale of a small Connecticut railroad, the Stonington, which he knew Drew controlled, to some Boston capitalists, at a goodly profit. The excellent results of this commission made Drew take a fancy to the odd young fellow, whose genial mask seemed such an excellent foil for his own stealthy and mournful aspect. (So Jay Gould too found him a helpful colleague.) Soon Fisk headed the brokerage firm of Fisk & Belden, which as an unknown house could execute secretly large market orders for Drew without the knowledge of rival speculators.
Within three years of his advent to Wall Street Fisk was considered to have made himself master of the situation. It was commented that his “right bower was shrewdness, his left bower was pluck, and his ace of trumps was good nature.” In the back rooms of his office he kept open house, a bottle of whiskey and a box of cigars standing always ready upon his desk for his regular customers.
Gould, who had had negotiations of a like nature with Drew, soon joined him and Fisk in elaborate Wall Street campaigns, especially with reference to the securities of the Erie Railroad. The wizard of speculation, under whom the two young men studied, for all his seventy years and his doleful air, was supreme master of the affairs of the Eastern trunk line whose stock was the speculative football of the day. It was said in Wall Street :
Daniel says “up”—Erie goes up. Daniel says “down”—Erie goes down. Daniel says “wiggle-waggle”—it bobs both ways !
Gould and Fisk too were soon “insiders” who might know in advance when the Erie shares would rise or fall, and smiling times began for them. Only a single cloud disturbed the busy gentlemen of the Erie ring ; it was the ponderous encroachments of a berserk force in the railroad field, the aged Cornelius Vanderbilt, whose seemingly resistless advance menaced them all with extinction.
6
Commodore Vanderbilt in his own way played a notable part in the national defense. With commerce-preying privateers swarming over the seas, his shipping business would have been greatly injured, or ruined, if he had not had the wisdom to withdraw in great part, investing on the one hand in a diversity of manufacturing, ferrying and coast-transport enterprises (now greatly stimulated), and on the other hand, throwing himself into loyal war service, much in the manner of Jay Cooke. Such ships as he still owned, he like other shipowners gladly sold or leased to the war department, though again like Cooke, not “without some great inducement.” Then because of the respect in which he was held, both for his wealth and for his known aggressiveness, this formidable old gentleman was thrown into the offensive against the rebels, as shipping agent for the War Department, authorized to buy or lease for such oversea expeditions as that of General Banks to New Orleans. Now in chartering ships, Vanderbilt acted only through a subagent named Southard, who exacted a purchasing commission of 5 to 10 per cent, while paying what were afterward thought high rentals of $800 to $900 a day for obsolete river or lake steamers. The most serious charge leveled against Vanderbilt, afterward, was that he purchased the ancient lake steamship Niagara for $10,000, when he was perfectly aware that it must be used for an ocean voyage carrying hundreds of Banks’s soldiers to New Orleans. Most of the vessels used were unfit for ocean travel, or were decayed and patched up and repainted, according to Gustavus Myers. No precautions were taken for the safety of the soldiers ; some vessels were inadequately provided with navigators and instruments and charts. Miraculously no storms were encountered off Crape Hatteras ; the sea was smooth and the troops arrived safely at their port.
But in the ensuing Congressional investigation it was related by Senator Grimes of Iowa that
in perfectly smooth weather, with a calm sea, the planks were ripped out [of the S.S. Niagara] and exhibited to the gaze of the indignant soldiers on board, showing that her timbers were rotten. The committee have in their committee room a large sample of one of the beams of this vessel to show that it has not the slightest capacity to hold a nail.
But it was a time of such notorious hurry and confusion, so much mischief was more or less unwittingly done, as General Grant and others complained, so many shoddy blankets, so many doctored horses and useless rifles, so many stores of sickening beef, were directed toward the front during the general excitement, that Commodore Vanderbilt’s errors or shortcomings were largely overlooked. And though the severe Gustavus Myers, in his account, holds that there are sufficient signs that Vanderbilt “split” all commissions with his agent Southard, such a procedure was perhaps not unusual. In the general jubilation at the close of the war, Vanderbilt was among those who were awarded a medal by Congress in approval of their loyal services.
Though in the ripeness of his old age, sixty-eight, and in possession of a fortune of $11,000,000, Vanderbilt in 1862, far from wishing ease or retirement, determined upon new and bigger projects, whose success was to be a tribute to his amazing vitality. It was no sudden whim or inspiration that brought him into the railroad field. Ever since a painful accident, thirty years before, when on a steamdriven train destined for Perth Amboy, New Jersey, he had nearly been killed together with many others, he had abhorred steam railroads. But now there was no longer doubt as to their practical usefulness and even comparative safety. And besides, strong in his appetite for money, he must have had a “vision” of the gains won by his friend and rival, Daniel Drew, who, controlling the Erie Railroad, manipulated its stock at his will.
With his great capital, the Commodore now quietly bought control of the New York & Harlem Railroad, running from Forty-second Street to Brewster, New York, at a cost of $9 per share. Once at the control, he kept buying Harlem stock until it soon climbed to $50, so that he garnered millions with remarkable speed. Then by liberal payments of money or stock to the interested members of the New York Common Council—in accordance with the usual requirements of “Boss” Tweed—he obtained a franchise to operate a streetcar line along Broadway, from Forty-second Street to the Battery. The acquisition of this vested right was thought to be worth so many millions more than it cost Mr. Vanderbilt that a further violent rise took place in the capital stock of the Harlem, until it was valued at more than ten times its original cost. The old shipmaster within little more than a year had won millions in personal profits without pain and proved himself a master of railroads in his own right.
An ill-timed conflict was soon stirred up by those who envied Vanderbilt his great good fortune. The politicians of the New York State Legislature, at the behest of a rival capitalist, George Law, claimed the exclusive right to grant such street-car franchises, and announced their intention of annulling Vanderbilt’s privileges. He protested loudly ; but the servants of the people by now had entered the game in deep fun, and meant to pluck him. They were bent on having his franchise annulled, while they sold Harlem stock short at $100 a share, a system then given greatest vogue by the operations of Daniel Drew, who was himself interested in the campaign against Vanderbilt. Scenting the plot, the shrewd Commodore had taken masses of money and bought up all the floating supply of Harlem stock, until it was cornered. Against the tactics of the Great Bear, Drew, the short sale, he had perfected the bull tactics of the corner as never before. The New York legislators were thus compelled to “stand and deliver,” in greatest anguish, at the high prices to which Harlem had been driven : $179 a share ! Old Vanderbilt had squeezed a million out of the politicians and their accomplices, half of it, according to general opinion, being taken from the hitherto invincible Daniel Drew. Appeals for mercy had been vain. Vanderbilt, as unrelenting as he was imperturbable, played whist while his enemies stripped themselves of their cash for him. The memorable Harlem stock, corner of 1864 provided a general sensation for the public ; Vanderbilt was regarded with awe, and his railroading science was considered nothing less than miraculous.
Once launched, Vanderbilt now marched vigorously upon a triumphant line of expansion. His overweening desire was to sweep in more adjoining railroad properties, to be combined with his profitable Harlem into a larger system. First he fixed upon the Hudson River Railroad which ran parallel to his own northward line, along the east shore of the river.6
Again the servants of the people barred his way ; this time there were curious complaints that the new baron of railroads was bent upon creating a “monopoly.” And once more the local statesmen demanded the usual inducements to soften their opposition. Vanderbilt according to his court-historians went to Albany with Mr. William Tweed, “and bent the whole force of his powerful personality to the task of obtaining authorization for the union of the roads.” For a time the Hudson River Railroad stock advanced buoyantly, from $25 toward $150—then suddenly despite Vanderbilt’s “inducements” to the legislators, wild rumors ran about of heavy counterbidding by enemy interests in Albany. Soon the hand of the deep Daniel Drew was perceived as, thirsting for vengeance, he smashed the Vanderbilt stocks in a furious bear raid, while it was now reported that the busy lawgivers were repudiating their consent to the railroad combination, betraying their trust and under Drew’s lead selling Vanderbilt’s stocks short in a grand effort to bring him to ruin.
“This was probably the darkest hour of the Commodore’s life,” Clews relates. “He hardly knew which way to turn. He was on the ragged edge. He has often pathetically described his feelings at this crisis to his intimate friends.”
He stood fast, however ; continued to play whist imperturbably at 10 Washington Place while he secretly raised a $5,000,000 “pool” among his associates to buy in all the Harlem offered. The nervous weeks succeeded themselves, while prices held up or advanced slowly, the Harlem stock was cornered and hidden away in strong boxes, and the politicians and the Drew crowd grew bewildered, “maddened.”
“Don’t them fellows need a dressin’?” Vanderbilt cried as he ordered his brokers to buy all stock available. His opponents had sold more stock than actually existed. When Harlem reached 285, he exclaimed : “Put it up to a thousand ! This panel game is being tried too often.” But finally he relented and agreed to settle with his adversaries at 285, when it was indicated to him that the whole financial district would suspend operations if he continued on his course.
The lesson of it all is contained in the famous couplet attributed to Daniel Drew :
He who sells what isn’t his’n
Must buy it back or go to pris’n.
Vanderbilt had laid his enemies low. In his own strongly flavored words, he had “busted the whole legislature, and scores of the Honorable members had to go home from Albany without paying their board bills.”
In the succeeding years everything seemed to favor his bold conquests, “even the presence of desolating war,” as his apologist says. With the great capital at his command, and groups of capitalists ready to follow him, he reached out easily for other steam highways running through the state of New York. The old New York Central, running between Albany and Buffalo, he captured by flank movements rather than by direct aggression. When its owners resisted his offer for control, he suddenly in midwinter broke connections between his own lines and the Central at the Albany bridge, refusing to handle any freight and passenger transfers. Passengers bound for New York were then compelled to walk across the frozen river from the west bank, into Albany.
At the ensuing investigation by the legislature, to which the New York Central appealed, Vanderbilt was obdurate, replying serenely that he knew nothing of what had transpired. “I was not there, gentlemen,” he said. “I was at home playing a rubber of whist, and I never allow anything to interfere with me when I am playing that game. It requires as you know undivided attention.”
His lawyers cited an old law which legalized his action, formerly enacted at the instance of his enemies. To those who protested at the inconvenience caused the public, the Commodore exclaimed impatiently : “Can’t I do what I want with my own ?”
Throttled, the group in control of the Central, including William Astor and Edward Cunard, surrendered to Vanderbilt, and prayed him to lead in their interests. Here was born the amalgamated New York Central trunk line, running between the seaboard and the Great Lakes.
He who had entered the fray, probably through zest for “cornering” opponents in the stock market, now expanded his railroad empire rapidly by acquiring broken-down companies, the pieces of which fell into his hands without resistance and “for a song.” He added new lines, unified the whole network into one profitable machine of what seemed enormous dimensions in those days, and created a new scale, a new tempo of industrial enterprise, much as Jay Cooke had discovered new dimensions of public finance. Cornelius Vanderbilt was one of the first modern captains of industry.
He had no recognizable system for running his railroads ; his books were kept in his head, or in an old cigar box, according to some reports ; yet so parsimonious, so stern in management was he that he was never known to lose a day’s interest on the smallest sums. He was prudent as well as bold ; he would invest neither in steamships nor in steam locomotives in their pioneering stage. But once he had judged an affair to be in the fruitful stage, once entered upon it, he drove himself, men, and things with reckless energy, and with an indifference to established custom and law which stood him in good stead.
“What do I care about the law ? Hain’t I got the power ?”
There was one sense in which Vanderbilt’s prophetic “vision” has received less than its just estimate. This was in his valuation of the consolidated properties he amassed. When on May 20, 1869, he secured by the passage of one bill the right to combine all his roads with the New York Central system, as well as certain perpetual franchises, he recapitalized the new corporation at nearly twice its previous market value by ordering a stock dividend of 80 per cent, or $44,000,000. Croffut relates :
One night, at midnight, he carried away from the office of Horace F. Clark, his son-in-law, $6,000,000 in greenbacks as a part of his share of the profits. And he had $20,000,000 more in new stock.
Thus Vanderbilt would appear one of the pioneers in the “watering” of stock, upon a scale also unknown before him. C.F. Adams, Jr., counted over $53,000,000 of “water” in the New York Central system, by 1873, and held that “$50,000 of absolute water had been poured out for each mile of road between New York and Buffalo.” But the Commodore, though he was to be abused by posterity, could pride himself upon being one of the innovators of modern corporate tactics : the capitalization according to earnings rather than in ratio to actual assets. Thus the Commodore was not deluded in his huge estimates ; his claims for the future seem indeed modest. The so-called watered stock took account of the boundless values which adhered to his property through its completion as a supreme monopoly over common highways of trade “greater than the Appian Way.”7
“Unconsciously to himself,” as Charles Francis Adams, Jr., son of the Ambassador to England, commented at the time, “working more wisely than he knew, Vanderbilt had developed to its logical conclusion one potent element of modern civilization.” He had taken the way of “imperialism” or monopoly which, in 1867, was almost a new, unseen force in the American economy. Step by step, from the manipulation of small railroad stocks, he had advanced to succeeding phases of combination, wresting profits many times the millions he originally possessed in short order, until his system of iron rails was fixed in the industrial heart of the country, all entrenched at its key positions. During the first stage of the wartime economic revolution, it was already perceptible that the railroads would have supreme power over all enterprise, provided they achieved a size consonant with the natural dominance of the vital transportation medium. And now, at the close of the great war, “bent upon fully gratifying his great instinct for developing imperialism in corporate life,” he pressed in every direction along a broad front.
It was not that he saw his trunk line extending to the most distant frontiers, as John Moody, lauding his vision, believes. Indeed he at first opposed, with alarm, going west of Buffalo, saying, “If we take hold of roads running all the way to Chicago, we might as well go to San Francisco and to China.” But circumstances altered his plans. The race for markets soon extended to Chicago ; and his position must be made secure from all aggression. Then he could levy such tariffs as he pleased, like the medieval barons of the toll roads who taxed all who passed through their domains, all the population, all the divers industries of a broad section.8 But to ensure this control he must continue relentlessly to crush out all opposition which, by offering a competing service, or holding similar key positions or near-by strongholds, threatened the prosperity of his system of iron.
Early in his impetuous career he had come to blows with Drew, the chief of the Erie trunk line. When he had sought to raise freight rates on his own system, the Erie would counter with rates 20 per cent lower. When he had severed connections with the New York Central at Albany, the gentlemen of that road had been able to divert traffic to Drew’s river steamboats, thwarting Vanderbilt’s attack until the river froze over and the boats could no longer run. Now in his line of march westward, the Erie again attempted to balk him at every step. The Erie was a “guerilla,” he said. He had become convinced at length that to have order he must “absorb” and control the rival trunk line himself, and in fact, began buying its shares after 1866. Pursuing his usual abrupt tactics, he commanded the purchase of Erie shares continually in the open market, hoping perhaps to “corner” Erie as he had done in the Harlem pool. But here to his rage and mortification he clashed with the wiliest, most resourceful, most ruthless of adversaries, in combination against him : the sanctimonious and treacherous Drew, the fearless Jim Fisk, the impassive, stealthy Jay Gould.
An “irrepressible conflict” between these two forces was at hand ; its aspects of violence, melodrama and low comedy—as they now appear to us—were to convulse the whole care-free nation. But though the struggle was waged now in the underworld and now on an opéra-bouffe stage, its prize, which so few saw or comprehended at the time, was actually the rule of an economic empire. And the more he was balked by the precious trio of slippery, conscienceless Erie “guerillas,” as he called them, the more furious, the more conscienceless became the onslaughts of the colossus, Vanderbilt.
1 For had not the Republican convention at Chicago, in 1860, placed the measure for a Pacific Railroad Bill on its platform under the urgings of young men like Leland Stanford who came hurrying from California to the banner of Lincoln, though without the slightest interest in the freedom of slaves ?
2 In the later transition of the Roman Empire, the “decline,” which is perhaps comparable to the disintegration of our landholding and planting rulership, the government in its weakness conferred the right of local administration upon the great proprietors in the provinces, or else permitted them to usurp these rights (by seizure) which then (by usage) became “legal.” In this way there arose the “dukes,” “barons” and other “nobles” of the Middle Ages. By other procedures, such as the precarium, small landholders, who felt the need of protection in troublous times, surrendered title to the Strong, as Taine has called them, the great armed proprietors themselves hardy fighters and commanders of combative field-hands and servants. The small landholder would thenceforth occupy his land as a tenant.
The patrocinium was the procedure by which those who lost their land would pray a landed proprietor for shelter and support in return for their labor.
By other procedures leading to the same end, land was partitioned by force, as by the Lombards in Italy, creating “dukedoms,” etc. (Cf. Thompson, J.W., “History of the Middle Ages,” Ch. XIX.)
3 There were many acrid debates on this score in Congress. Representative Kellogg of Illinois, on February 3, 1862, in a speech on the Legal Tender bill said :
“Mr. Chairman, I am pained when I sit in my place in the House and hear members talk about the sacredness of capital ; that the interests of money must not be touched. Yes, sir, they will vote six hundred thousand of the flower of American youth for the army to be sacrificed without a blush ; but the great interests of capital, of currency, must not be touched. We have summoned the youth ; they have come. I would summon the capital, and if it does not come voluntarily before this republic shall go down or one star be lost, I would take every cent from the treasury of the states, from the treasury of capitalists, from the treasury of individuals and press it into the use of the government.”
4 Military historians have traced clearly the influence of tremendous political-financial pressure in Grant’s disgraceful action at Cold Harbor : his hopeless frontal attack on Lee’s breastworks ; his refusal to acknowledge defeat or sue for permission to rescue the wounded and bury the dead during four hideous days. At this moment in 1864, the fall of the dollar, the fate of government loans which were in Cooke’s hands, the approaching election campaign seemed to paralyze the soldier.
5 More than half a century later, during the presidency of Woodrow Wilson, the late Mr. George Harvey appealed to Morgan’s patriotism in a quite conventional sense by citing to him the lines from Scott : “Breathes there the man with soul so dead, etc.” The banker’s eyes are said to have filled with tears, and with emotion he offered his fullest aid to the President. But he was then nearly eighty years of age. . . .
6 Croffut, official biographer of the Vanderbilt family, has summarized well the Commodore’s railroading technique :
“1, buy your railroad ; 2, stop the stealing that went on under the other man ; 3, improve it in every practicable way within a reasonable expenditure ; 4, consolidate it with any other road that can be run with it economically ; 5, water its stock ; 6, make it pay a large dividend.”
7 In merging the New York & Harlem and the Hudson River railroads, there was a striking disparity in the franchises of each railroad which presented its problem. The Harlem had a franchise for 999 years ; the Hudson for only 50 years ; but in combining the two roads Vanderbilt’s lawyers held that the longer lease of the Harlem (999 years) also applied to the franchise of the combined road. And in the course of time this view was upheld by the courts, though no legislative act sanctioned it. Questioned by a committee in after years upon this point, the Vanderbilt lawyers rested the case for their franchise for the combined system upon the precedent of a court case. A member of the investigating committee was Dr. Charles A. Beard, who has kindly called my attention to this incident. The Vanderbilts used the law of the land (legislative acts) as far as possible ; but where this did not cover sufficiently, they used the court.
8 To a few eyes it became perceptible shortly after the Civil War that the Vanderbilts would have a power of life and death over industry and distribution. It was known for instance that great shippers, such as the dry-goods merchant A.T. Stewart, received lower rates than small rivals, by its command of quantity service, thus permitting the great emporium to outdistance its competitors at an accelerating pace.
“What would be the result,” a New York newspaper comments in 1868, “if Mr. Vanderbilt were to obtain the control of the Erie as he has of the Central road, may be judged by the policy he has adopted since the latter fell into his possession. He has so raised the price of freights from this city to the various towns along its line that it costs as much to carry goods from here to Syracuse, Rochester and other such places as it does to carry them to . . . Chicago.”