ROBBER BARONS

MORGAN AND THE RAILWAYS

DURING the post-war years of misery and exaltation the communities of bankers established in the great American cities had been flourishing.  The national banking act of 1863 and the banking law of 1865 had done away with the confusion of local currency, and permitted the bankers to buy government bonds which were interest-bearing, and then on the security of these bonds to issue their own banknotes to borrowers at the current loan rates.  But though national and private bankers alike were mightily enriched during the war, they were further benefited by the establishment of “sound money” in 1873, when the government stopped silver coinage.  By “resumption” the tremendously inflated debts which creditors had contracted with the money-lenders in paper were thenceforth to be honored in gold.  There were, to be sure, hungry and hazardous years during the ’70s ;  but by 1879, when crop failure in Europe brought a great influx of gold to the United States, full “recovery” was enjoyed.

The traditional character of the banks, private or national, was but little altered from that given by the elder mercantilists of the 1830s and 1840s, such as Moses Taylor, founder of the City Bank, and George Peabody, who laid the foundation for the present J.P. Morgan & Co.  The money-lenders, as they had been since the Middle Ages, were but the agents of government and industry ;  as intermediaries, they received deposits, sold or bought bills of exchange and made loans against dry goods and other merchandise but with the view to earning interest and security of principal.  Yet the increased wealth and size of the banks and the momentous economic shiftings of the period were to bring at last deep changes as well in banking practice.  Here too a tremendous and revolutionary process of centralization was to take place by which the rule of money-lender or “financier” was to supplant that of the “manufacturer” or the undertaker of business projects.  In this significant transition, the forty-year-old banker, J. Pierpont Morgan, who had steadily kept himself abreast of his fellows, the Taylors, Rothschilds, Belmonts, Seligmans and Mortons, was to be a famous innovator.  The contradictions of the business period in which he lived, the quarrels of rival barons, their disasters, led him more and more to abandon the passive rôle of the intermediary, receiving and lending moneys, and to attempt more and more often direct intervention in national industrial affairs.  The times, the advanced stage of the industrial revolution, bringing catastrophes in measure with the augmented size of all operations, called for such intervention, such centralized control as he offered ;  the boldness of Morgan’s character, moreover, fitted him for the rôle he would assume.

Quitting the underworld of Civil War profiteers and the equally shady political henchmen of the Erie affair, Morgan in his middle years frequented decidedly better company.  In 1873 he competed successfully with Jay Cooke for the distribution of government bonds ;  and then, with a syndicate of leading New York and Philadelphia bankers, successfully carried out the great refunding operations of 1877.  Thus the wartime “6 per cents” were replaced with “4 per cents” to the extent of $235,000,000 ;  and additional quantities of government loans were floated for the purpose of buying gold abroad and effecting specie resumption.  In these divers operations of a season or two, the associated banks had earned commissions of $25,000,000, and of this Drexel, Morgan & Co. had garnered a large share.  With sound money reestablished and business reviving slowly, it was high time that the bankers resume the work of raising long-term credits for the heavy construction so sorely needed.  To this work the broodingly silent, brusque-mannered Morgan who was then, as later, a “bull on America,” now gave himself con amore.

In 1879, William Vanderbilt had entrusted the sale of 250,000 shares of New York Central stock to Morgan, whereby the latter with his colleagues had taken a quick profit of $3,000,000 as his commission ;  in addition, Morgan became a director of the New York Central.  A year later we find Drexel, Morgan & Co. participating in the banker’s syndicate which raised $40,000,000 in bonds for the badly battered Northern Pacific Railroad, again at a charge of 10 per cent.  These were only two of a number of remarkable operations, remarkable for their size at the time, which Morgan carried out with much technical skill.

The chief object of the investment banker in his floatations of securities was to capture the differential between the price he arranged to pay for capital and the price which he could induce a broad public of savers or investors to pay him for it when he distributed it piecemeal.  With funds of his own which he had accumulated, let us say five or ten millions, Morgan could obtain options on railroad or industrial capital, giving advances to the needy borrowers, and then in a campaign of some days or weeks in the security exchanges or money centers, land the capital upon the public at home and abroad.  By working with a syndicate of investment bankers who shared his commissions and provided more customers of their own, he could indefinitely extend the scope of his operations.  Furthermore part of the money realized for the railroad or other enterprise being kept on deposit either in his own or in associated banks could be used again and again for the buying and selling of capital, while the commissions from the turnover grew like a snowball.  It is little wonder then that Morgan’s enthusiasm for big projects mounted ;  he became a recognized leader in railroad ventures and each success augmented his prestige among a following of capitalists.  He would probably have thrown himself into investment promotions without restraint or fear of the future if it were not for his hard-bitten banking partner, Drexel.  For Morgan was a “plunger,” according to the financial gossip of his contemporaries, and Drexel, who always clung grimly to his gold, had occasion to bail him out when he exceeded himself.

But no matter how much Morgan’s appetite was whetted for large-scale investment banking, the condition of the railroads after 1873 gave him pause.  “By the 1880s,” writes John Moody, “about twice as many railroad lines had been built as the country could profitably employ.”  In 1876 two-fifths of all railroad bonds were in default ;  in 1879 sixty-five roads, capitalized at $234,000,000, were foreclosed, and between 1873 and 1879 it was estimated that European investors had lost $600,000,000 through bankruptcies and frauds.  In 1884, after a brief whirl of “prosperity,” conditions were little better.  Poor’s Manual stated that the entire capital stock of the railroads, then about four billions of dollars, represented water ;  all of the share capital, and a large portion of the bonded debt issued in the preceding three years, was “in excess of construction” pure hopes, sold to the public.  Yet unremitting competition in the railway field continued.  By 1884, five trunk lines ran between New York and Chicago, and two more were building, though three would have been ample, and most of these roads were on the verge of bankruptcy.  The Empire-Builders had continued their building only so long as stocks and bonds could be landed on the public.  But thereafter in the contest for the existing business they fought and destroyed each other without quarter.  In the East, the Pennsylvania contested the entrance of the B. & O. into New York ;  in the West, Hill relentlessly carved into the Northern Pacific’s freight territory and pressed Villard toward bankruptcy ;  in the canyons of the Rockies railroad gangs waged hand-to-hand fights for the capture of the new mining centers.  Charles Francis Adams, who had become president of the Union Pacific in 1882, complained bitterly of the condition of his business some time later, before a Senate Committee.  “Everywhere,” he said, “there is an utter disregard of fundamental ideals of truth, fair play and fair dealing.”  Cut-throat competition, secret rebates, blackmail had brought conditions which were intolerable even to the primordial individualists of the 1880s.  Stockholders complained, directors were bewildered, bankers were frightened ;  the railroad system as a whole seemed headed for financial disaster.

The sudden panic of 1884 which was precipitated by the machinations of the broker, Ferdinand Ward, a Pied Piper of Wall Street who with his magic tunes led hundreds of investors, including his partner, the son of Ulysses Grant, to their ruin, deepened the anarchy of the money markets.  Despite the wealth of the republic and its pressing needs prospects were now so gloomy for the holders of American securities that commentators in the English press were advocating “some heroic remedy.”  At this moment Cyrus Field, the distinguished New York capitalist of ocean cables and elevated railway lines, sent a despatch over his own wires to Junius Morgan in London, a week after the Grant & Ward failure :

Many of our business men seem to have lost their heads.  What we want is some cool-headed strong man to lead.  If you should form a syndicate in London to buy through Drexel, Morgan & Co. good securities in this market, I believe you would make a great deal of money and at the same time entirely change the feeling here.

Thus, as Corey comments in his study of the House of Morgan, the anarchic market clamored for leadership, and had begun already to turn to one house for such strong leadership.

Neither the elder Morgan nor the already formidable “young Morgan” hastened to the rescue of their confreres.  Pierpont bided his time ;  whatever his plans were, he spoke his mind to no man.  His character as it now formed itself showed a kind of stubborn courage, tremendous arrogance and cynicism.  To Owen Wister he said :  “A man always has two reasons for the things he does—a good one and the real one.”  He nowadays seldom gave more than the “good” reasons for the things he did.  He longed to “consolidate” things, to impose the stabilizing order of high finance on “competitive skullduggery.”  Self-confident, solid, owning high credit, Pierpont Morgan extended his power slowly over men and groups.  By his conception of financial statesmanship he would struggle for a central control of the economic machine.  For now between 1877 and 1885, there came the catastrophe of labor war, augmenting the effects of the destructive duels between railroad barons.  Morgan approached his problem in detail through the business before him.  As Lewis Corey relates :

The immediate task, seldom the far-flung objective, absorbed Morgan, at once the strength and weakness of the man.  Concentrating upon immediate tasks, determined by the dynamic problems and changes of American enterprise, Morgan moved unimaginatively, massively, but irresistibly, with the irresistibility of economic compulsion, to the “Morganization” of industry by means of new financial procedure and institutions, imposing the control of the financier over industry and integrating industry and finance.

In October, 1884, the aging William Vanderbilt made a confidential statement to the Board of Directors of the New York Central :

I can tell you one thing :  our old road will not be behind any of its rivals, whether they are young or old.  The rates to the West may be any figure that the other lines may choose to make them. . . . The fact is that there has got to be a further liquidation.  Some companies among the trunk lines have confessed that they were not making much money. . . . I feel the depreciation.

Thus, in somber vein, Vanderbilt dwelt upon the intermittent rate wars on west-bound freight to Chicago, which made the seasons that followed memorable.

The Pennsylvania Railroad, most powerful of the Central’s competitors, held a far more complete monopoly over the traffic, the industry, and even the laws of its state.  Over the adjacent region as well, the oligarchic band which headed the Pennsylvania extended their sway rapidly by the construction of numerous branch lines.  With Thomas Scott now retired, the younger men in command, G.B. Roberts, Frank Thomson, and A.J. Cassatt, managed the system so aggressively that its traffic greatly exceeded that of any other railroad.  From the most intensely industrialized part of the country, between the seaboard and the tier of big cities, Chicago, Cleveland, St. Louis, Cincinnati and Pittsburgh, all the grains, coal, oil, iron and machinery were forced through the arteries of their road.  But the astonishing prosperity of the Pennsylvania system gave joy neither to its public nor to its neighboring railroads.  South of the Pennsylvania’s traffic belt the Baltimore & Ohio’s trunk-line business was eaten away ;  northward, the New York Central too saw that the vigorous growth of its competitor promised to be achieved at its own expense.  The building of the West Shore line along the Hudson River, directly parallel to Vanderbilt’s road, was believed by Vanderbilt to be instigated by the Pennsylvania ring.  The West Shore enterprise, mentioned earlier, in which men like George Pullman, Astor and General Horace Porter were involved, penetrated the heart of the Central’s territory.  More than mere “blackmail,” as Vanderbilt had called it, it was a prelude to the entrance of Pennsylvania into New York, which Cassatt ultimately accomplished many years later by his great tunnel under the Hudson.

Peaceful though he was, Vanderbilt had been goaded at last into a war of extermination.  He had cleared the decks for action, cut labor costs and freight rates heavily.  In addition he searched for a means of striking a deadly blow at his rival.  Toward 1883 his chance had come.

In the anthracite-coal region of Pennsylvania, the small Philadelphia & Reading Railroad had been accumulating a coal monopoly ;  grown quickly rich, it almost alone offered a lively threat to the Pennsylvania Railroad.  The Reading, as it was called, sought access to the sea on the one hand, and connections with the Western markets on the other.  Taking this strong young road as the nucleus for a parallel system, Vanderbilt had come forward with the project of the South Pennsylvania Railroad, which as a continuing line from the Reading in the East would free western Pennsylvania, and especially the industrious city of Pittsburgh, from the “thraldom” of the Pennsylvania.  Carnegie, for instance, who must send three-fourths of his heavy steel wares over the Pennsylvania tracks at “noncompetitive” rates, had for years been groaning at the exactions of the great railroad to which he owed his schooling and his early success.  Some time before he had subscribed funds to build the Pittsburgh & Lake Erie, then he had seen this gobbled up by the Vanderbilts, who immediately came to terms with the Pennsylvania.  But by 1883 Vanderbilt had turned to Carnegie with his own maturing plan ;  a line to connect with the Reading and to extend across Pennsylvania to Pittsburgh—a bold thrust at the Pennsylvania “sphere of influence.”

“What do you think of it, Carnegie ?” asked Vanderbilt.

“I think so well of it,” replied Carnegie, “that I and my friends will raise $5,000,000 as our subscription.”

“All right,” said the head of the New York Central, “I’ll put in $5,000,000.”

With Vanderbilt and Carnegie there were associated certain financiers of oil, William Rockefeller and the brilliant newcomer William C. Whitney (allied with O.H. Payne recently by marriage).  These were also eager to weaken the hold of the Pennsylvania over the Oil Regions.

As the West Shore Railroad had proceeded up the Hudson River to prey upon the New York Central, so Vanderbilt and his associates menaced with their own campaign of spoliation the length and breadth of Pennsylvania.  Work was started at furious speed ;  men blasted their way through the mountains, leveled roadways, and built bridges (one of which still stands uselessly across the Susquehanna).  And with equal despatch an “inside” construction company was set up, which began using the proceeds of some $40,000,000 in stocks and bonds issued to the public.  The economic duel which now raged, though it meant a war of rates for a time, no longer served the public interest in any way, and was generally “viewed with alarm.”  Wages would be forced down, and losses would be borne by both adversaries, a condition which would soon reflect itself in the bankruptcy of one or the other, as well as in declining markets and business activity.  “Competition between railroads is well-nigh impossible,” as John Moody points out.  Building two lines over the same route simply means enormous waste of capital which impoverishes society in general.  And in the aftermath of the struggle, all charges, freight and passenger, would be raised excessively to the bewilderment of the population.

All this grotesque wastefulness of the “American system”—especially in the light of its destructive effects upon the securities, the railroad paper which lay in the strong boxes of the banks—was as fully seen by Pierpont Morgan as by anyone on the spot.  In England whence he returned in June, 1885, he had heard most unpleasant views of American financiering and “railroad-wrecking.”  The New York Central stock which he had sold abroad had suffered a dividend reduction of from 8 to 4 per cent.  His own future as an investment banker was now closely linked with the fate of the great railways and heavy industries ;  and as he himself testified in the following year, he “became satisfied that something should be done to bring more harmony among the trunk lines.”  He was resolved to do his part ;  and soon, as he tells us, he conceived a way by which “sufficient pressure could be brought on Mr. Vanderbilt to induce him to sell out.”  What this pressure was is not clear ;  but even the richest railroad barons when engaged in war need the ammunition which the banker keeps in his till.

It is the theory of Gustavus Myers, historian of many of our men of great fortune, that most of them, like Vanderbilt and even Carnegie, lacked the attributes of physical courage, whatever other ferocity they might possess.  The massive Morgan, on the other hand, with his bold and measured address, his meaningful silences, whose whole truculent person suggested dogged courage, seemed to cow the others like some old Viking captain.  His handling of the sale of New York Central stock, several years earlier, had already gained for him the confidence of Mr. Vanderbilt ;  and the latter entrusted to him finally the task of “adjusting the difficulties between the Central and West Shore roads.”

Morgan’s plan, set forth with much firmness upon his return from Europe, was to end hostilities and competition all along the line.  He proposed that Vanderbilt sell out his piratical South Pennsylvania construction to the Pennsylvania at a low price ;  in return the Pennsylvania group would sell out the “blackmailing” West Shore line (now operating under receivership and cutting rates all the way to Buffalo) to Vanderbilt.  As a final measure Morgan invited the quarreling barons on an afternoon of July, 1885, to come on board his yacht, which, by a happy notion, he had tastefully named the Corsair, and there make their peace.

A memorable peace conference, as it was a memorable conflict, no longer of individuals engaged in a race for accumulation, but of grouped monopolistic interests :  an oligarchy of oil, steel, and railroad overlords in conflict with the power of another railroad monopoly.  Here were profound symptoms of a new phase of the industrial or capitalist revolution :  the great monopoly or Trust can make unlimited profits when confronted with unorganized, divided sections of consumers and vassals ;  on such ground it is irresistible.  But confronting other organized, powerful groups, its gains are checked ;  and in the ensuing struggle for advantage, the fate of the whole economic society seems at stake.

The opponents were inconceivably bitter.  Vanderbilt, having recently been blackmailed in the “Nickel Plate” road, was stubbornly set against buying in the West Shore.  The Pennsylvania men on the other hand refused to buy the South Pennsylvania construction, Roberts having exclaimed impatiently to Morgan’s partner, Drexel :  “I am not anxious to buy a hole in the ground.”  But Morgan insisted that Pennsylvania take over Vanderbilt’s pirate project in return for 3 per cent debenture bonds to be assumed by them.  “I decided that something should be done,” concluded the rising dictator.

The Corsair steamed idly to and fro, in the outer New York harbor and along the Hudson, carrying its strange crew of latter-day pirates.  “Roberts and Chauncey Depew of the Central did the talking ;  Morgan, six feet and two hundred pounds of him, sprawled in a chair, smoking his eternal black cigar, intervening in the discussion now and then in his sharp, brusque fashion.”  The Corsair steamed idly on until nightfall, Morgan apparently bent on holding his guests till they came to terms with each other.  Roberts continued most obdurate.  If the Pennsylvania bought the “South Pennsylvania” it would simply be pulling the other faction out of a scrape.

“Oh, no!” growled Morgan.  “They’ll not get out whole.”  The New York Central too would have heavy costs in acquiring the West Shore.  At last Roberts came around.  “We then went to work with Vanderbilt . . .” Morgan’s testimony proceeds.  He must have exercised an almost hypnotic influence over both Depew and Vanderbilt.  At sunset the pipe of peace was smoked.  Morgan, as Roberts related, had brought about a general understanding “with a view to securing remunerative rates of traffic and . . . harmony along the lines.”

But a provision of the Pennsylvania state constitution forbade the railways of that state to purchase a competing line.  Morgan, on the witness stand afterward, explained candidly how he evaded this law :

Roberts said it was necessary for someone to be the purchaser of the South Pennsylvania other than the Pennsylvania Railroad.  As a firm we [Drexel, Morgan & Co.] could not do it, but as an individual feeling the importance of what was at stake, I was prepared to do what I could and to give the use of my name and signature to act as purchaser of one for the other.

It was an evasion of the law.  But what of that ?  Ten years later, as Ida Tarbell tells it, the barrister Elbert Gary, speaking of some daring proposal of Morgan’s, remarked with cautious formality :  “I don’t think you can legally do that.”  And Morgan replied stormily :  “Well, I don’t know as I want a lawyer to tell me what I cannot do.  I hire him to tell me how to do what I want to do.”

As a consequence of these vast negotiations, Morgan was entrusted with the business of “reorganizing” the two pirate properties which were exchanged.  The South Pennsylvania had its capital written down to $3,5oo,000 in 3 per cent bonds guaranteed by the Pennsylvania, which covered more or less the actual cost of the thing ;  and at the same time the West Shore had its bonded indebtedness cut in half, approximately, while the stock was assessed.  Despite the “wry faces” often made by passive investors who lost heavily in the process, Morgan generally put through his capital reorganizations in high-handed fashion and with “unusual success,” since the securities, once the “water” had been squeezed out of them, gained a better standing in the market.  For this surgery, the “Doctor of Wall Street” exacted high fees ;  his official historian Hovey tells us :  “From $1,000,000 to $3,000,000 is generally put down as the commission going to the House of Morgan . . . for knowing how to do it and doing it.”  Part of this might be paid in bonds or new stock, and brought Morgan representation on the board of directors of the new company, which he usually demanded in order to oversee the management.  Out of the tremendous conflict of the railroad barons, Pierpont Morgan’s were the only gains.  He had an extraordinary way of bludgeoning the contestants into accepting his terms under pain of bringing down the whole structure upon their heads.

One element of discontent showed itself after the Pennsylvania Central treaty.  The interests in charge of the Philadelphia & Reading road protested that they had been betrayed.  Encouraged to expand yesterday, and brimming with natural ambition to rival the great trunk lines, they now saw that Vanderbilt had “let them down” after committing himself to a “gentlemen’s agreement” to aid them and causing them to incur larger expenditures.  He was no gentleman, they cried loudly.  But they too were in a condition of bankruptcy, and Pierpont Morgan set upon them at once to reorganize them as drastically as ever, by reducing existing bonds and assessing the stockholders.  Taking command of the weakened coal road, Morgan pledged himself “to bring about satisfactory agreements with all the anthracite roads and also the trunk lines which shall secure to the Philadelphia & Reading, when reorganized, its just share of the business at remunerative rates.”  This harmony, this complete collusion with large confreres in the field, they could not have reached themselves, apparently, without Morgan’s intercession.  Here one saw the power and the transcendent value of this man of “heroic remedies,” this domineering “man of destiny” who became the decisive voice in the economic order.

In the Reading settlement there was much bitterness at Morgan, and a prolonged legal suit followed in which the facts set forth above were freely aired.  But it availed little to combat the Corsair, who largely carried his points everywhere and though already a director of numerous roads East and West, forced himself upon the board of the coal railroad.  Then—having gained the utter, crest-fallen respect of the lords of the railroads, the Vanderbilts, Robertses, Huntingtons, Garetts—he proceeded to link one coal mine and coal road with the other in a strong monopoly, along the lines of his own plan.

2

The task which Pierpont Morgan had set himself was no easy one.  Peace and “community of interest” might be enforced upon the Eastern front, but in many sectors in the West, from the Mississippi River to the Pacific Ocean, in the mountains and over the plains conflict still raged.  Along the Canadian border, the weakened Northern Pacific carried on without Henry Villard ;  but Jim Hill continued his raiding tactics.  It is evident from the guarded correspondence of Hill and Mount Stephen that certain powerful banking interests in New York—most likely Morgan—attempted to call a halt to the rate war between the two “Granger” roads in the Northwest.  But Hill, while concealing his design of building to Puget Sound, continued his attacks.  In the Southwest Gould held the region in an uproar by his conduct of the Missouri Pacific system ;  while Huntington, suddenly extending his line along the 36th parallel to Norfolk, Virginia, fell into difficulties, the new Chesapeake & Ohio Railway needing the services of a financial rescue-party headed by Morgan.  But most alarming of all to Morgan were the predations of a bold new gladiator, Edward H. Harriman, a New York stockbroker who became the active head of the Illinois Central Railroad in 1887, and immediately showed himself a man of elemental force, formed by the times.

The figure of the dynamic Harriman, much younger than the others, and arriving therefore late on the scene, is worth studying.  Born in Hempstead, Long Island, in 1848, the son of a disappointed, far-wandered minister, Edward Harriman received almost no schooling.  At the tender age of fourteen, in wartime, he went to work as a “pad-shover” or quotation-boy in Wall Street.  Here in the quicksands and jungles of the market he gathered with precocious talent a thorough education in capitalism during seven years of close observance.  Watching the shrewd and jovial “Commodore” Vanderbilt, the tigerish Gould, the solemn “Deacon” White, the lonely “Wizard” Jim Keene, he soon learned how “corners” and “pools” were devised, how financial ambuscades were laid and pits were dug, and how all the thousand and one disasters and joyless triumphs of the stock market came about.  By disposition Edward Harriman was a bear ;  and in September, 1869, while still a head clerk in a broker’s office, he used all his small means to sell the market short on the occasion of Jay Gould’s Black Friday conspiracy.  So at the age of twenty-one he possessed the $3,000 needed to equip himself with a seat in the Stock Exchange, acquiring clients and gambling in his own name as well.

At the outset a skillfully executed raid on Deacon White’s cornered coal stocks had brought Harriman overnight a booty of $15o,000 and achieved for him a reputation as a floor broker.  There were reverses too.  A few years later, in selling short the stock of Delaware & Hudson, he met with an unexpected and crushing defeat, at the hands of powerful interests like the Astors, and saw his till emptied bare of cash.  Thenceforth he proceeded with more wariness ;  he would need ammunition ;  he must accumulate a war chest patiently.  At any rate, his clients numbered August Belmont, members of the Vanderbilt family and its lieutenants, and even occasionally Jay Gould.  Brilliantly deceptive in his day-to-day operations, impassive, laconic, quick-thinking and far-calculating, this young man came to be known as a gifted technician of Wall Street offenses and sieges.  This he would have remained, in view of his native capacity for turning defeats into victories, escaping again and again from pitfalls and whirlpools, and lurking beasts of prey.  He would have continued so—always relentless in his business, religious in after hours—had he not married in 1879 a Miss Averill, the daughter of a small railroad-owner, William J. Averill of Ogdensburg, New York.  Thereafter he had grown interested in all the particular problems of his father-in-law’s little Ogdensburg & Lake Champlain Railroad which was located in the northeastern part of New York State.  In time, sensing the financial advantage of the situation, he determined to press the majority stockholders of the road to sell out to him.  This done, he repaired and reorganized the property and then jockeyed the New York Central (Vanderbilt) group into bidding against the Pennsylvania gang, while developing his little line’s “nuisance value” to the highest pitch.

In this first coup d’état of Harriman’s, we are innocently told by his official biographer, George Kennan, nearly all the principal stockholders of the Ogdensburg & Lake Champlain Railroad had become “discouraged by President Macy’s last report” of their business condition.  It is a curious coincidence that Harriman was not so “discouraged,” but instead, “at a meeting of the board of directors in October 1883, named a price at which he would either sell his own stock [knowing it would not be bought] or buy the stock of the other owners. . . .”  So the others “decided to sell” and “Mr. Harriman thus became practically the sole owner of the property.”  This he ultimately landed on the Pennsylvania Railroad, who hastened to buy it, merely in order that Vanderbilt might not have it.

During the “railroad-mad” period of the 1880s, Harriman, like many others, bought and sold the pieces of paper which represented railway constructions, on an ever increasing scale.  In a season of panic, due to the assassination of President Garfield in 1881, he had entered the market boldly and “held up” the shorts in one sizable Western railroad, the Illinois Central.  When he was done he had squeezed enough profit to become, after some opposition, one of the directors of this respectable company, whose president was a distinguished member of the New York aristocracy, Mr. Stuyvesant Fish.

Edward Harriman’s reputation at this time was somewhat unpleasant.  Like Jay Gould he was thought to be a pretty cold-blooded gambler in the securities which make up Wall Street’s stock in trade, rather than a “sound” or “responsible” leader of shipping and transportation affairs.  His reputation would cling to him all his life, though thanks to his great mental agility he did learn much about managing railroad systems, and especially “financiering” them, a game at which he soon surpassed nearly everyone ranged in the field.  It was rumored that Harriman, in the classical way of Gould, would soon “break” his railroad.  But instead, the Illinois Central under his guidance flourished sensibly and advanced itself in its territory.  Thus came the first clash with J.P. Morgan, who in 1886 was now directing the expansion of the New York Central lines into Iowa, on behalf of the heirs of William Vanderbilt.

The trouble between the two railroad systems came from their simultaneous desire to invade Iowa and wrest from each other the Dubuque & Sioux City Railway which traversed that state.  The Illinois Central had leased the smaller line, and in 1886 its directors authorized Harriman to get control of the road by negotiation or purchase.  Through bold market operations, Harriman outmaneuvared Morgan and gained a large ownership though not quite a majority in Dubuque & Sioux City.  The remaining stockholders, led by Morgan, were determined to block the Illinois Central at the approaching stockholders’ meeting by demanding an extortionate price for their retirement.  Morgan intended to “squeeze” Harriman or hurl him out of his path.

The meeting, however, proved to be a deadlock.  Though the Morgan faction held a scant majority of the shares, Harriman cleverly seized upon a legal formality, the failure of the banker to have the “assignment” of the stock authenticated in the State of Iowa.  By sharp legal practice, despite uproarious protests, Harriman as chairman of the meeting proceeded to reject all the Morgan proxies and vote the remaining shares, as he desired, into the control of his own railroad.  Morgan fumed over this defeat, and would never forget nor forgive “that little fellow” Harriman.  These men were to cross each other’s path again and again as unyielding antagonists ;  one was as arrogant and as overweeningly ambitious as the other.  Harriman, according to James Stillman, liked most of all to “plan something that everyone says is impossible, then to jump in with both feet and do it.”  His acts of hostility did not lessen the confusion, the “anarchy” which J.P. Morgan fought against in the railroad world.  Besides, it was apparent after a few years had passed that the successes of Harriman had brought to his following the most powerful of money lords, the men of the Standard Oil.

3

Since 1879, when the Hepburn Committee in New York State had made its exposures and its quite moderate recommendations, the hue and cry after the railways had known no abatement.  Universally the evils of powerful combinations in industry and trade were traced to the conspiratorial action of the railroad masters.  Moreover the scandals of stockjobbing and railroad-wrecking multiplied in the early ’80s.  Tales of the quick fortunes seized by the men who possessed themselves of the common carriers, and of the purses they maintained for political corruption, aroused hot resentment in the breasts of honest middle-class Americans of almost every section.  Even Henry Clews commented toward 1884 in his memoirs :

If any facts could be supposed to justify the doctrines of socialism and communism it would be the sudden creation of such fortunes as these which within a very few years have come into the hands of our railway magnates.

What then must have been the feeling of the politician, his nose scenting nervously each change in the voters’ temper ?  The “Millionaires’ and Monopolists’ Banquet” to Blaine at Delmonico’s, in the summer of this year, did not help that colorful statesman in his contest with the “reformer” Cleveland.  That he should dine with Jay Gould, “one of the most sinister figures that have ever flitted bat-like across the vision of the American people,” and with H.H. Rogers, Cyrus Field, Russell Sage and Armour, and at Delmonico’s to boot “where champagne frothed and brandy sparkled in glasses like jewels,” to the members of the popular press was but a sign of Blaine’s desperate drive for a “corruption fund.”  Nor did it escape the eye of politicians that farmers and tradespeople throughout the Southwest, where a great strike raged along Gould’s Missouri Pacific, aided the workers heartily in their struggle.  In these years, whenever business flagged in the state legislatures or in the halls of Congress the statesmen rose from their seats and denounced the railway “robbers” in furious rodomontades.  That railroads like the Union and Southern Pacific, which owed their inception to federal subsidies of cash as well as land, refused to repay the government mortgage added fuel to the flame of the statesmen’s rhetoric.  Their proposals varied from divers plans of regulation to the construction of a People’s Railroad by the government, upon a narrow gauge, for the cheap transport of freight ;  from a nation-wide People’s Canal System to legislative acts compelling the humane treatment of immigrant and native passengers—propositions which were always speedily voted down, thanks to the watchful lobbies maintained by the Collis Huntingtons, Goulds and Vanderbilts.

Resistance to government measures came not only from men like Huntington but also from enlightened publicists such as Lawrence Godkin, editor of The Nation, who fought as in a sacred cause against the “confiscation of private property,” giving warning that the holdings of owners and investors would soon be transformed into “eleemosynary or charitable institutions” once the government intervened.  Hitherto the state legislatures had passed many acts designed to control the roads—though to be sure many of them, as in New York or Pennsylvania, were conceived at the instance of the railroad chieftains themselves in order to hold down rivals.  Yet the constitutional right of the state legislatures to intervene had often been sharply questioned ;  and upon this issue the Supreme Court finally ruled in the celebrated Wabash vs. Illinois decision of 1886.  According to the highest court of the land, the different states had no right to regulate interstate commerce or interfere in any way with traffic moving across their border.

In railroad circles there was now high jubilation at this judicial victory ;  but popular opinion, expressed by farmers, labor unions, and, significantly, large shippers, was whipped up to rage, and demanded federal action as a last resort.  With eminent good sense the Congress now decided that something must be done, that the appeal of the people must be heeded, if we would not make ready, as John Sherman said, “for the socialist, the communist, the nihilist.”

For a year the Interstate Commerce Act was debated ;  the Representatives and Senators persisted in long disagreements upon their respective measures.  Nearly all of them seemed honestly bewildered by the problem.  Many of them wished not to harm the existing railway system ;  others wished honestly to do the least that was expected of them.  Before such technical and economic problems, the “modesty, meekness and confessions of ignorance” of most seemed amazing to some of the members.  Finally, with dead hearts, both chambers passed the Interstate Commerce Act, and the great “revolution” of 1887 was effected—“a bill that no one wants . . . and everybody will vote for,” as one Representative shrewdly remarked.  By this measure, “competition” in general was to be fostered, rebates were forbidden, as was pooling, or exacting higher freight tariffs for short hauls than for long hauls, or discriminations between persons, places and commodities ;  further, reports and accounts were required of the railroads, shippers were permitted to sue them for as much as $5,000, and a Commission to carry out these measures was set up.

Soon it appeared that these orders were instrumented in practically no way.  And then the old guardsmen of the Supreme Court harried the Act on every flank for nearly twenty years, limiting the powers of the Commission, defending private property by their own decrees, preventing the Commission from fixing rates—thus turning the momentous act into little more than a “scarecrow,” as the Beards have said.  As to the demand for accountings of their affairs, the railroad officials soon found that they could refuse these with impunity ;  and protestant shippers forced to bear costs of prosecution soon learned that complaint was useless.

This happy turn of events by which it was arranged that the “agrarians” and “communists,” as Huntington called them, had their law, and the barons had their railways, was not clearly understood at the start.  The railroad people passed through a season or two of terror, as shown by many a private letter of the time.  Gloomily they announced their official abandonment of pools and resumption of uncontrolled competition, while in actual practice all their movements were now conducted with profound secrecy.  A certain uneasiness and even panic spread over the markets.  In 1888 railway rates fell, and despite a general increase in gross revenue, a dangerous decline in the net earnings of the great systems was reported everywhere.

The intrusion of the popular sovereignty had produced a veritable emergency.  No sooner had the government attempted to impose its control on behalf of the mass of consumers, and outlawed all collusive practice such as pooling and rebates, than it became clear to the railroad leaders that a real control, fashioned for totally different ends, must be laid down.  The vital error of the bill was its failure to control rates.  “Competition was well-nigh impossible” for these giant machines with their tens of thousands of workers, as Moody has said ;  their large scale, their profoundly coöperative, economic character called for a true control from within if, under the existing scheme of capitalism which the government and nation still sanctioned, complete breakdown were to be avoided.  The moment called for action and Pierpont Morgan, who had watched these developments with deep anxiety, now came forward with his further plans for “community of interest.”  In the face of the confusing laws of the land he would set up his own machinery of control through concentrated financial power.  In December, 1888, Drexel, Morgan & Co., Brown Brothers & Co., and Kidder, Peabody & Co., as a combination of investment-bankers, at the instance of Morgan issued a “Private and Confidential Circular” to all the heads of the large American railway systems, calling them to conference on matters of state.  Under the stress of the emergency the “nation within” and its leaders swung into action.

The first conference began in the richly furnished library of Morgan’s house on Madison Avenue.  Here amid the paintings, the ancient manuscripts, the objects of antiquity, the glowing tapestries, which this man of “gorgeous tastes” had assembled, the barons of the railroads came together on January 8, 1889.  Present were the saturnine Jay Gould and his son George for the Missouri Pacific, Charles Francis Adams for the Union Pacific, Frank Bond of the Chicago, Milwaukee & St. Paul, A.B. Stickney of the Chicago, St. Paul & Kansas City, George Roberts of the Pennsylvania, and Chauncey Depew of the Vanderbilt-owned New York Central, as well as half a dozen other magnates.  The meeting was secret, though rumors of its occurrence, and afterward statements by participants, were spread in the press and corroborated the existing impression that it was one of the grandest, most solemn and momentous events in American high finance, bearing on nothing less than the disposition of supreme industrial power in the country.

Morgan’s private circular had stated as the ostensible object of the meeting :  to enforce provisions of the Interstate Commerce Act and “maintain public, reasonable, uniform and stable rates.”

Here were stubborn railroad presidents, the peers of the age, accustomed to brook no one’s command and habitually mistrustful of each other, given in Machiavellian fashion to spying out the other’s secrets and falling upon each other from ambuscade.  Now they were brought together at the instance of the pontifex of banking to compose a Magna Carta of Railroad Barons !  Some of them had refused to come ;  one even declaring publicly that “no combination of bankers can set up to whip the country’s railway managers into line like so many senseless cattle.”  The Chicago & Alton president, for instance, had denied having any “responsibility” to “Wall Street” whatsoever.  But the rest represented perhaps two-thirds of the nation’s carrier mileage.

Morgan, as chairman, in his “usual direct fashion,” as brusque and forthright and frowning as ever, read an ultimatum :

“ The purpose of this meeting is to cause the members of this association to no longer take the law into their own hands when they suspect they have been wronged, as has been too much the practice heretofore.  This is not elsewhere customary in civilized communities, and no good reason exists why such a practice should continue among railroads.”

As Hovey, official biographer of Morgan, relates, “The men who ran the railroads and the men who furnished the money to construct them were face to face for the first time at a formal meeting. . . . To put it simply, the representatives of capital intended to show the railroad men the whip.  They intended to convey to them . . . that further misbehavior would be punished by cutting off the supplies.”

Morgan talked sharply of lawless conditions in the railroad trade, and of the evils they bred for the financial community.  Indignantly then President Roberts of the Pennsylvania oligarchy retorted :

“Speaking in behalf of the railway people of this country, I object to this very strong language, which indicates that we, the railroad people, are a set of anarchists, and this is an attempt to substitute law and arbitration for anarchy and might.”

A Western railroad president, Stickney, spoke up warningly.  “The public,” he said, “are sure to think we are conspiring to do something that we ought not to do.”

And Charles Francis Adams, who had for seven lean and tempestuous years now been president of the Union Pacific, and who a year later was to be ambushed and discarded by Jay Gould, spoke with remarkable bitterness of the common situation in which they found themselves.  The great difficulty in railroad affairs, in his mind, lay “in the covetousness, want of good faith, and low moral tone of railway managers, in the complete absence of any high standard of commercial honor.”  There was the Interstate Commerce Act, which he himself had helped to frame.  It must be enforced, he insisted, “both among yourselves and all others—it is a law, and as such it should bear with equal weight upon all.”  The great question was whether “any gentleman representing a railroad company is prepared to stand up and say before the public and before us that he is opposed to obeying the law, and further, that in matters of controversy he prefers to take the law into his own hands rather than submit to arbitration.”

There was the rub.  Could a railroad president be a “gentleman” and adhere to a “gentlemen’s agreement”?  None could forsake his own covetousness and the hope of fulfilling it by force of arms whenever necessary, nor trust the wisdom and justice of a council or a chosen arbiter from among his fellows.  It was too hard.  Yet Morgan pressed his proposal—evidently a permanent (and secret) rate-making organization, that which government had not dared to accomplish.  A committee of three was elected by the conference, after high wrangling, to devise a governing organization among the “anarchist” railroad presidents, in effect a nation-wide pool ;  it would have established fines, regulated and settled all disagreements over rates or service.

At the resumption of the conference two days later, January 10, there was a renewal of acrimonious discussion and plain speaking.  As Hovey says :  “At times the meeting resembled a meeting of the chiefs of the fighting clans of Scotland.”  Roberts of the Pennsylvania made great murmur at Morgan’s severity, concluding “but I can stand it I suppose if the others can”;  then turning upon Morgan, he mocked at those bankers “who, with all their horror of railroad wars and rate-cutting, are usually ready to help along disturbing factors by selling the securities of any parallel railroad originated.”

To this charge Morgan made a reply which was an important, a solemn pledge, backed by the associated bankers, Kidder, Peabody, Brown Brothers, the Barings, all in a massed union on his side :

In regard to the remarks made by Mr. Roberts in regard to the bankers and the construction of parallel lines, I am authorized to say, I think, on behalf of the [banking] houses represented here, that if an organization can be formed . . . [practically upon the basis submitted by the committee], and with an Executive Committee able to enforce its provisions, upon which the bankers shall be represented, they are prepared to say that they will not negotiate, and will do everything in their power to prevent the negotiation of, any securities for the construction of parallel lines or the extension of lines not approved by the Executive Committee.  I wish that distinctly understood.

With a show of satisfaction and confidence, Morgan announced after the conclusion of the first stormy meetings :  “I consider the Western rate wars as practically at an end.”  Had not the magnates present pledged their “personal word of honor” to abide with each other peacefully ?  The Gentlemen’s Agreement of 1889 represented a “revolution” in the country’s industrial affairs, as the Commercial & Financial Chronicle of New York commented at the moment.  But at heart, Morgan found its results disappointing to his vision of a supreme economic control.  Factions among the railroad barons hailing from the Chicago region had simply sneaked around the corner and made a pool of their own, resolving to “separate the discussion from the banking interests.”  As one of them related afterward :  “We did not swallow the whole arrangement evidently prepared for us.”

The glaring weakness of this first effort of Morgan’s at nationwide government of the American railway system was seen in the very season that followed.  In the Northwest, Jim Hill, who had refused to attend the conferences of 1889, brought his Great Northern line at last to the sea in 1890, and thus helped fling the rival Northern Pacific into bankruptcy.  At the same time the Union Pacific, under the leadership of Charles Francis Adams, underwent sore trials ;  its secret floating debt had never been erased since the management of Gould, a decade before ;  the government mortgage and all the accrued interest still unpaid overhung the company like a sword.  And in the meantime, Adams in revelations published in the posthumous notes of Barron tells us how the transcontinental railroad was being undermined, how its credit was cut off, and how a “mysterious increase in operating expenses in 1890” brought it again to the verge of failure.  In the background there hovered the evil genius of the Union Pacific who up to the hour of his death, in 1891, schemed to possess himself of the road once more.  Adams relates :

In the meanwhile I was receiving assaults from all quarters of the West, from a hand which I could not see, and could not understand.  There would be something published in Chicago, and then copied in the East, attacking our credit, and then there would be an attack upon us in some Salt Lake City paper, or at Portland, Oregon, and the ball would move around the country to hit us in the back.  I thought it was some attack from our rivals in the railroad business.  I even suspected the Vanderbilts, and the lines to Chicago that were opposing the Northwest Alliance. . . . It was none other than the hand of Jay Gould.  Of that I am satisfied.  He would throw a ball against the wall in the West, and see it bound back in the East.  Having me in this position with money tight, and a large floating debt, my resources failing, the western management crippled, the earnings showing poorly, where they should have shown handsomely, the Gould trap came into play.

Finally Mr. Gould threw off the mask, and came out openly in an interview in the New York Evening Post, in which he attacked me, and the credit of the company, and said that as a large stockholder he was going to turn me out of office, and take the management of the company himself.

For two years Morgan, who had brought a certain measure of peaceful confederation to the Eastern front, saw only intestinal struggle and “anarchy” among the Western trunk lines.  He could wait.  But as his official biographer observes, it was only too clear “what the future aim of a man of Mr. Morgan’s type was bound to be.”  If he could not influence men by talking to them, he was bound to seek to control them by force.  “Everything taught him the need of getting control himself in order to accomplish his ends.”

Morgan by reputation was now a “national figure”;  his reputation was of power, of success.  He called a second general conference for December, 1890 ;  and the railroad magnates came again, sheepish and somewhat chastened by events during two hard years which had made them needier of credit than ever before.  Collis Huntington, Jim Hill and Russell Sage were new additions to the meetings ;  there were casualties to be noted, such as the missing Adams who had been made to “walk the plank” by Gould.  These men now seemed almost ready to accept their fate at Morgan’s hand.  They attempted to relieve the gloom by a little jesting at their own expense.

“I have the utmost respect for you, gentlemen, individually,” says President A.B. Stickney, “but as railroad presidents I wouldn’t trust you with my watch out of sight.”

And to this Jay Gould, grown mellow, in a rare moment of levity, adds a story about Daniel Drew which is cited by Lewis Corey :

At one time Drew went into a Methodist Church while a revival was in progress, and listened to a convert telling how sinful he had been, lying, cheating and robbing men of their money in Wall Street.  Greatly interested Drew nudged a neighbor and asked :

“Who is he, anyhow ? ”

“That’s Daniel Drew,” was the reply.

Morgan had recently effected an agreement between the Vanderbilt family and the Pennsylvania Railroad, for coöperation between them “with power to decide all questions of common interest, to avoid wasteful rivalry and to establish uniformity of rates between competitive points,” by means of an advisory council which he himself dominated.  He now proposed the same plan for the group of Western trunk lines.  An advisory board was set up, though without stipulated absolute powers.  No fines or penalties were provided for.  However, in Wall Street the triumph of Morgan was now sensed.  A total change in “the animus of management” had been effected by him, according to the Commercial & Financial Chronicle.  The freebooter was no longer to be tolerated either by the “parties that furnished all new money needed” or “the party that owns the old money invested.”  And Morgan himself exulted :  “Think of it—all the competitive traffic of the roads west of Chicago and St. Louis in the control of about thirty men.  It is the most important agreement made by the railroads in a long time, and it is as strong as could be desired.”

In the protracted campaign against self-seeking railway barons, against money-lenders who financed parallel construction, against the political system of government, Morgan was spreading his own direct, secret authority by the tactics, destined to become famous, of interlocking directorates.  He acted moreover as fiscal agent for numerous great systems, in which he held a share of the stockownership, and saw to it that one or more directors represented him.  Within a decade of campaigning which now began, he would have more than a voice, he would have virtually absolute control in twelve great systems :  The Great Northern (Hill), the Northern Pacific, the Chicago, Burlington & Quincy, the Southern Railway, Central of Georgia, Louisville & Nashville, Reading (Jersey Central, and Reading Coal & Iron), Erie, Hocking Valley, Lehigh Valley, Santa Fe (in part), St. Louis & San Francisco (in part)—some 55,555 miles of track, over $3,000,000,000 in capital.

The inevitable drift to concentration was completing itself.  Society had called forth a Morgan, political government having abdicated or deliberately refused to accept its functions ;  and Morgan was perfecting an organization which was ready to account for the Supreme economic control of the country.  Under him were the brilliant financial lieutenants who carried the burden of detail in the House of Morgan toward 1890, such as Egisto Fabbri, Charles Coster, J. Hood Wright and the others who were once known as the “Apostles” of “Pierpontifex Maximus.”  In the railroad field itself he soon had the direct alliance not only of the Vanderbilt and the Pennsylvania rings, but also of the remarkable Jim Hill, whom he had met for the first time in 1890, and who had won his unstinted confidence.  With such massed force and wealth as his system of alliances, his “money Trust,” represented, he could push on rapidly toward the subjugation of those few remaining adversaries who, themselves in possession of associated monopolies, were in a position to dispute his authority.  The contests of the future were to be not between men, but between economic dinosaurs of elemental power.