ROBBER BARONS
CHAPTER EIGHTEENBATTLE OF GIANTS
OPEN war in the steel trade, as the more temperate money masters realized, would have proved “disastrous to weaker combatants and costly and wearing to the strongest.” It would have exposed both ironmongers and investment bankers to the censure and attack of the public, which was instinctively felt nowadays to be the “common enemy” offering “common danger.”
Instead, a great dinner party to young Mr. Schwab, the president of the Carnegie Steel Company, was arranged for the evening December 12, 1900. It was one of those informal parliaments to which “all the biggest men in New York” would be invited, seventy-five of the ungartered peers of American industry, including Morgan. Here without the interference of police or Senators issues of heavy industry could be faced peacefully and a balance of power effected.
Was it a comedy, prearranged and managed from the wings by the crafty Andrew ? Mr. Morgan, Gates, the Moores, and behind them the great bankers and dealers in securities present at the dinner were now deeply enough involved in the new steel Trusts. They all suffered vertigo at the thought of forthcoming events, when “Smiling Charlie” Schwab arose to address them in his excellent tenor. A born actor, an emotional and imaginative after-dinner speaker, using a plain, hearty, workaday charm with real disingenuousness, Schwab played his part to perfection.
He began as usual by saying that there was only one subject upon which he could speak—steel. But he could sing siren-songs of steel. He took his hearers—and especially the great banker who had been tactfully placed at his side, and whom he must have kept always in the corner of his eye—“up to the mountain tops” to the future millennium of metal. The steel requirements of the country, this perennial optimist told his hearers, would be twenty million, nay, thirty million tons a year within a decade. Carnegie had made $21,000,000 last year ; 1900 was yielding profits at the annual rate of $40,000,000 net, and it was only a beginning ! It was a picture of eternal prosperity at which his boldest hearers gasped ; and to this was added a vision of the future steel Trust which the Carnegie men were building, having perhaps a hundred specialized plants, placed at the most rational sites possible, rather than a few mills turning out two dozen different steel products each. This was of course the plan of “integration” and expansion for its mines, ore, ships, railway, and mills which the Carnegie company had already announced. And so in finishing, Schwab gave not only his dream of future prosperity and unity, but also in the same breath a menace of ruin for the smaller steel works. To his auditors Schwab had painted both a scientific millennium and a financial hell of clashing interests.
Thenceforth everything worked like a charm. Morgan took Schwab aside and asked him a hundred rapid questions. He could no longer rest. Some weeks later, another meeting took place between Schwab and Morgan, and there was an “all-night symposium,” at which Schwab set forth statistics on the values and on the character of the companies which should be brought into the amalgamation. The plan roughly indicated that to the Carnegie and Federal Steel combinations as the two largest groups there were also to be added the wire-nail, tin-plate, hoop, and bridge Trusts. It was to be a combination of Trusts, of a size which only the charlatan “Bet-a-Million” Gates had hitherto conceived : “the billion-dollar corporation.” Now would the “old man” of steel sell ? It was dawn, according to Burton Hendrick, when at last Morgan said : “Go and find his price.”
There was little hesitation now in Carnegie. The great anxiety for him was now whether he would ask enough. After putting their heads together for a long time, Carnegie and Schwab scribbled a sum upon a piece of paper : in bonds and stock the price on the Carnegie Steel Company was placed at $492,000,000 !
In accepting, with a brusque decision, this stupendous ransom, of which Carnegie was to receive over $300,000,000 in bonds and preferred stock, Morgan did not see Carnegie. Only several weeks afterward in January, 1901, did they meet coolly for fifteen minutes’ brief interview, which according to Morgan’s statement “made Carnegie the richest man in the world.”1
The machinery of the House of Morgan now swung into action for its “biggest deal.” Day and night the two partners, Bacon Percival Roberts, labored together with Judge Gary and all the warring clansmen of the other steel companies. In the long and acrid debates, during which the Morgan partners kept the various steel barons caged in separate rooms, while Pierpont Morgan himself usually waited impatiently outside, it was finally arranged among other things to retire the swashbuckler Gates wholly from the steel trade. (At the moment the latest scandal raging over Gates had reference to his loss of a million dollars at a single throw of cards in a Pullman car to the son of Levi Leiter.) But to be rid of the old free-booter, the American Steel & Wire Company which he controlled must be bought in at a whacking big price. There was much growling, brow-beating and fist-pounding by Pierpont Morgan, and much patient pleading by Gary, nothing of which budged the king of barbed wire from his determination to have his price. Morgan was kept waiting outside in another room, as Miss Tarbell relates, while Gary “traded.” Finally, after hours had passed, beside himself with rage, Morgan came in, “big and fierce, his eyes like coals, of fire. ‘Gentlemen,’ he said, pounding the desk, ‘I am going to leave this building in ten minutes. If by that time you have not accepted our offer, the matter will be closed. We will build our own wire plant.’ And he turned and left the room.”
John W. Gates scratched the top of his head, wondering aloud whether “the old man” meant what he said, finally concluding :
“ I guess the will have to give up.”
Gary relates that he had never seen Mr. Morgan more elated in all his life, “like a boy going home from a football game.”
And Gates had gone off, hugely enriched, but unforgiving ; swearing to “have fun in the market,” to work mischief and set ambuscades at every possible moment for the masters of Trusts. The retirement of this gargantuan gambler was in itself a sign of the supplanting of captains of industry with investment bankers under the new dispensation.
But after several weeks of organization Gary and the other architects of the steel Trust called to Morgan’s attention that the affair must be still further enlarged.
“ We ought to have the Rockefeller ores,” Gary said.
“ We have got all we can attend to,” Morgan growled. Gary urged him nevertheless to see John D. Rockefeller.
“ I would not think of it.”
“ Why ?”
“ I don’t like him.”
It was remarkable how little love there existed between the greatest of the overlords of money. The stronger they were the more they hated each other. Even Pierpont Morgan could never browbeat Rockefeller and his associates, or force them to collaborate with him at his own terms. Nevertheless, Morgan reluctantly went to Rockefeller in person, and asked him point-blank for a “proposition” on the ore lands. According to Henry Frick’s account (as related by George Harvey) the oil baron, now in “retirement,” had refused to talk business, expressed regret that Mr. Morgan had put himself to unnecessary trouble . . . and suggested that he talk with his son, who had charge of such matters and would undoubtedly be pleased to wait on him.
After further calculation, Gary gave an “outside figure” as the bid for the great reservoir of underground iron ; and Morgan invited John D., Jr.—then twenty-seven years of age—to call upon him. Harvey relates :
“I understand,” said Mr. Morgan brusquely, “that your father wants to sell his Minnesota ore properties and has authorized you to act for him. How much do you want for them ?”
Young Mr. Rockefeller rose from his chair and, with an evenness of tone suggestive of his father’s, replied :
“It is true that I am authorized to speak for my father in such matters, Mr. Morgan, but I have no information to the effect that he wishes to dispose of his ore properties : in point of fact, I am confident that he has no such desire.”
“And what did Mr. Morgan say ?” quietly asked Mr. Rockefeller when his son repeated his remarks.
“Mr. Morgan said nothing, he sat quite silent.”
“And what did you do ?”
“I picked up my hat and, bowing as courteously as I know how, I said, ‘If that is all, Mr. Morgan, I bid you good afternoon,’ and walked out. Did I do right, sir ?”
Mr. Rockefeller meditated for an instant and replied thoughtfully :
“Whether what you said was right or wise, I would not venture to judge ; time alone can answer that question, but I may say to you, my son, that if I had been in your place, I should have done precisely what you did.”
Impossible to go on with the steel Trust. Without Rockefeller’s ore they were subject to an indeterminate extortion in the future. At this crisis, Henry Frick, whom Rockefeller had admired ever since the bloody victory of Homestead, was called in to act as go-between and lead through the impasse. The best he could do was to effect a settlement that was $5,000,000 above Gary’s “outside figure,” a price which Morgan sanctioned with some misgivings. The sum involved has remained a mystery, one authority fixing it at $32,000,000, and another at slightly less than $80,000,000. Rockefeller would never divulge his gains from the “squeezing” of the Merritt brothers ; on the other hand, he may have been chagrined at having sold too cheap. At the time, the most sanguine of engineers had been unable to calculate the limitless extent of the Lake Superior deposits, whose mere surface scoopings by steam shovel supplied more than half the Bessemer ore of the country.
The Super-Trust was a reality ; the long-awaited “billion-dollar corporation” with all its congeries of industries, its medley of mills and properties of all sorts, its 168,000 workers, and its vast tonnage production, was at last put together at Morgan’s bidding, and was formally introduced to the world on April 1, 1901, as an investment proposition. For though the economic purpose of “integrating” and stabilizing the steel trade upon a nation-wide plan was implicit in this “greatest of commercial transactions” the real motive of the investment banker now showed itself as overweighing all other possible social or technical considerations. The real business at hand was, through a species of inflation, to extract from the mass of middle-class investors a price in payment for stocks and bonds exceeding even the fabulous prices which Morgan had paid for the capital of the divers steel works.
Against tangible wets of $682,000,000 possessed by the “United States Steel Corporation,” Morgan underwrote and offered for sale whole masses of new securities : $303,000,000 in mortgage bonds ; $510,000,000 in preferred stock ; and $508,000,000 in common stock ; making a grand total of $1,321,000,000 to be taken from the community’s savings, as the economist would say, and poured into “long-term capital investment.” But of this capital approximately half represented purely “water”; two-thirds of the preferred stock, and all of the common could be accounted for only by “good-will.” Now this “good-will,” though it might have held some value—as for instance the “Carnegie” name or brand in a competitive situation—actually disappeared in a monopolized market. Whatever Morgan had paid under compulsion for his collection of “good-wills”—to men like Carnegie and Gates—was now worthless ; multiplied they were worthless still. In addition, the repeated fees to promoters of the underlying Trusts (such as Federal Steel and American Steel & Wire), when added to Morgan’s syndicate fee of $12,500,000 and subscription profits of $50,000,000, footed up to a grand total of $150,000,000 as the cost for launching the completed steel Trust. Promotion costs plus “good-will” would be imbedded forever in the capital structure of the steel industry, exacting immense fixed charges annually upon the whole community in the shape of interest payments and dividends. To support this inflated capital, to carry these charges, a levy would be made and resolutely maintained by keeping a profit margin as high as possible ; the price system must carry the load of fictive debt. One of the ways in which this was done is suggested by the manner in which steel-rail quotations were held stationary for thirteen years after the formation of the steel Trust, at $28 per ton. The wonder of it was that the toil of nearly 200,000 non-union laborers working twelve hours a day would support this burden ; the wonder of it was that the country, growing by leaps and bounds, needing steel in a thousand forms, would willingly pay toll to the bankers who commanded this key industry without owning it.
The amalgamation of the steel companies represented “progress,” was a predestined step toward a more centralized and coöperative economic system. But under the leadership of finance-capitalism inherent contradictions developed by which much of the gains were forfeited. The flotation of the steel Trust was characteristic of the recklessness with which capital was poured into heavy industry during years of frenzied finance with no thought of maintaining the buying power of the masses of consumers. Thus the tremendous overproduction of “future goods,” plant, machinery, raw material in their several processes, would set the stage for chronic depressions. There would be a few Trusts, making mountains of pig iron and cotton cloth, harvester machines and biscuits, which only Mr. Morgan or Mr. Rockefeller could pay for but could not use, while millions of potential consumers were held workless and penniless. And then to augment profits the great Trust would introduce new labor-saving machinery, a more intense division of labor, year after year, thus demobilizing additional masses of consumers.
Under the command of the investment banker, the industrial monopoly reached its final stage of large-scale production ; yet in the face of such great technical advantages, ways were found of nullifying much of the social gain to the community at large. How superior was the United States Steel Corporation to the preceding competitive system in a social sense we shall never know. Certainly this question which would be asked in a society ruled by workers and their engineers never entered the minds of the Morgans, Garys, Schwabs. We do know, for instance, that Schwab (in his private correspondence with Frick) actually indicated a cost to the Carnegie works of $12 per ton for steel rails, then selling at $23.75. The new Trust, which domestically found it necessary to bring about “moderate” increase in the price of steel rails to $28 per ton, became in a great degree more “inefficient,” judging by the yardstick of price, than the old Carnegie company.
Nevertheless there were halcyon days at Wall and Broad streets in the spring of 1901. There had been a “favorable” balance of trade in the three preceding years ; the country was prosperous, and the bankers’ syndicate easily gathered together a (pledged) fund of $200,000,000 with which to float the new steel stock. As the Morgan circular announcing the sale of the securities went forth, salesmen were thrown out over the country, a buzz of excitement and anticipation was created, so that the first days of trading in U.S. Steel resulted in huge turnovers. The old master, Jim Keene, at the head of a battalion of stockbrokers, created a “churning” activity for steel, under cover of which quantities of the common stock might be landed upon the public. One of the leading floor-brokers who carried on this exhilarating work has recalled that the stock pool would each day “sell 100,000 shares to the public and buy back only 10,000.”
All was well, and Mr. Morgan departed for European watering resorts to refresh his health. The world’s press was loud with stories of the “Economic Emperor”; in music halls in America the song was chanted :
It’s Morgan’s, it’s Morgans,
The great financial Gorgon’s ...
In the meantime a huge bubble was being blown in Wall Street, as a host of new steel millionaires, from Pittsburgh and elsewhere, descended upon New York and tossed their quickly won fortunes overnight into the market. After them followed a wild crowd, such as Wall Street had never seen—clerks, servants, waiters thronging the streets about the Stock Exchange, buying into the new Morgan Trust, one after another.
But the older, cooler heads among the steel masters, men like Henry Frick and Phipps of the old Carnegie Steel Company, quietly, cunningly sold out their holdings, contemplating with fear the Niagaras of “water” flowing into Wall Street, the stupendous bureaucracy of the Super-Trust in steel, the impending dangers for the national savings. For instance, Harvey says :
Mr. Frick was unquiet. He . . . appreciated the danger of the company’s heavy over-capitalization. . . . Careful study . . . convinced him that declines in earnings were inevitable, and he began to liquidate his holdings.
Carnegie, according to gossip, jested, half in earnest, that he would recapture his steel company by foreclosure, since he had been paid chiefly with its first mortgage bonds. . . . But soon the whole house of cards was to be rudely shaken from top to bottom by a cataclysm of epic proportions which engulfed the House of Morgan only four weeks after its triumph in steel.
2
In the Northwestern tier of states, Jim Hill, who, like Gary, acted nowadays as one of Morgan’s “field marshals,” rounded out an industrial and agrarian empire. Hill’s grain- and lumber-carrying lines ran through Wisconsin, Minnesota, North and South Dakota, Montana, Wyoming, Oregon and Washington, with no competition worth the name. They tapped also rich natural resources ; in Minnesota a fabulous ore acreage had been picked up with the purchase of a logging railroad which possessed an old land grant, and this, valued eventually at $450,000,000, was added to the United States Steel holdings. The Hill lines connected also with big lake steamers, chains of elevators and storehouses at St. Paul, Chicago and even Buffalo. All the network of this great modern trading company, spreading even across the Pacific, to Japan and China, was well built, financially solid to the weather.
The collapse of the paralleling Northern Pacific line had brought it into Hill’s hands in 1896, as we have seen, by Morgan’s reorganization. In defiance of state and federal laws, the Great Northern group held half of the common stock of Northern Pacific, providing, as Hill said, “dual control by the same interest”; there was, furthermore, an amount of Northern Pacific preferred stock outstanding. Here it is important to note that in the common stock of Northern Pacific (a large minority of which was held by Morgan and Hill) was vested the privilege of retiring all the Northern Pacific’s preferred stock at any of the annual meetings regularly held on January 1 of each year.
Through Hill’s roads Morgan’s railway system, industries banks dominated the northern half of the Great West. But against this grouping there was always the growing shape of Harriman’s gigantic combination. He too was financially solid. Like Hill, he had the air, as Otto Kahn said, “of bending men and events to his will.” But the various invasions of Harriman would have been impossible without tremendous draughts upon the reservoir of money at 26 Broadway. Else he could not have seized and rebuilt so quickly the Union Pacific ; nor added to this Collis Huntington’s huge Southern Pacific, which was “an empire, not a railroad,” as Harriman said. This company, besides its rich freight territories, dominated ocean shipping from the Gulf of Mexico to the Japan Sea. To carry these enterprises, Harriman’s biographer tells us, the men of the Standard Oil family “gave Harriman financial support when he needed tens of millions of dollars, in credit or cash.”
A terrific conflict prepared itself between these two giants of railroads, the one allied with Morgan and holding the northern half of the Great West, the other allied with the Rockefellers and dominating the southern territories west of the Mississippi. There were points of conflict at several points, as at the Oregon coast, where both systems competed, Harriman having captured for the Union Pacific Henry Villard’s old Oregon ship and railroad lines. To the south, Harriman feared that Morgan and Hill would occupy another transcontinental route, and he therefore took his own defense measures of seizing the ground himself. But in its expansion plans, the Morgan-Hill combination was actually moving in another direction ; it had concentrated upon the Middle West.
Hill planned long in advance and secretly to buy the rich Chicago, Burlington & Quincy Railroad, as a means of entrance to Chicago, and also as a great feeder network in the “garden of Paradise” of the Mississippi plain. He labored to this end in the face of Harriman’s anxious efforts to seize the same road. The Burlington would parallel the Union Pacific’s trunk line from Omaha westward to Cheyenne ; the Burlington would form, as Hill vividly expressed it, in relation to the twin transcontinental lines of Great Northern and Northern Pacific, “the point and moldboard of a plow, the beams and handle of which are constituted by the former system,” that is, Great Northern and Northern Pacific. Thus with the addition of this third large railroad, built long ago “on honor” by the early New England railroad captain Forbes, the Western transportation machine of Morgan and Hill would be rounded out, and the whole country mapped in huge, “regional systems” and “territorial combinations.”
“A big mosaic was being put together,” writes the enthusiastic Pyle, concerning Hill, “by forces so great, so far above any permanent individual contradiction or interference, that he [Hill] looked upon himself as their servitor. . . .” This spirit of serving destiny, of obeying “the constant drift of combination” did not at any time prevent Jim Hill and the Morgan Associates from “lining their own pockets,” in the vernacular of the time ; that is to say, purchasing long in advance at from $100 up to $175 large blocks Burlington’s $110,000,000 of common stock, which were later to be disposed of at $200 a share to the Great-Northern-Northern-Pacific system.
“It was the only price at which it could be bought and we had great difficulty in getting it at that,” Mr. Morgan would say afterward in explanation ; “and in the next place . . . it was worth a great deal more than that. . . .” Had it then been difficult to get the Burlington shares at less than 200 from the group of its stockholders, among whom were investors such as Jim Hill, long forewarned that the road was to be absorbed by the larger adjacent systems ? The price was paid ; the bargain struck.
Now Hill exulted in the giant combination he had devised, which balanced the westward movement of cotton, provisions and immigrants with the eastward returning movement of timber, and ore in bulk-making full cars both ways, the passion of any railroad man. But there were further great advantages. Hill writes to Lord Mount Stephen, early in 1901 :
We could not build a great permanent business, extending across the continent and even across the ocean, on the basis that tomorrow the rate might be changed, or the party with whom we were working to reach the different points of production had some other interests or some greater interests elsewhere. It was necessary that we should have some reasonable expectation that we could control the permanency of the rate and be able to reach the markets. . . .
Now we know that we are able, not to compete alone with railways, but to compete in rates with ships going from New Orleans, or any other system of transportation. Now we are able to make a rate that will take that business [meaning Southern Pacific’s].
He had needed the power to make a low, stable rate for a long haul across the prairies of the United States, over the Rockies, and then by ship to the Orient. Thus he began, like some great merchant of Renaissance times, “to reverse the needle of trade,” to send a flood of cotton to the Orient via his cars and lines and to bring back silks to Seattle.
This notion of controlling or easily competing with any service which could be given to the Orient by a parallel ship-and-rail system, that is, the Southern-Pacific-Union-Pacific, shows us how, desperate was the emergency for the other railroad party whose headquarters were really 26 Broadway. Henry Flagler and William Rockefeller, as owners of the Chicago, Milwaukee & St. Paul, had previously refused to sell their road to Morgan at any price, not wishing to provide the enemy Morgan-Hill lines with an entrance to Chicago. Harriman too had hoped to capture the Burlington, in order to ward off danger, buying a small stock interest here as well, late in 1900. But when it was learned that after swift, secret maneuvers, Morgan and Hill had captured the Burlington, there was high tumult at the rival headquarters ; the head of the Union Pacific saw himself outflanked in his own Middle Western territory.2
As soon as he learned of this stroke Harriman in a towering rage went to meet Hill in the home of George F. Baker. To the end, he and Schiff, banker for the Union Pacific, maintained that Hill had made his transaction secretly rather than “openly” as claimed ; and now Harriman on behalf of the Union Pacific asked to be given a one-third interest in the Burlington and offered to furnish one-third of the purchase money. This demand and offer Hill declined even to consider.
“Very well,” Harriman is reported to have said, “it is a hostile act and you must take the consequences.”
3
Thus as an accident of the particular, it was the Burlington that chanced to be the bone of contention. The opposing forces dispute the ownership of a Middle Western trunk line, described, to be sure, as the “finest railroad property” in its, region ; it is a gateway to Chicago, and its main line is susceptible of development into a new transcontinental route to the coast which would “neutralize” the power of the Union Pacific. But in reality the causes of the conflict are long smoldering ones ; with two such adversaries, either of whom is ready to strike for a complete economic hegemony, confronting each other, there is continual tension all along the line ; and any border incident is enough to light the explosive fuse.3
Pierpont Morgan, assured by Jim Hill that affairs were progressing satisfactorily, reposes in Aix-les-Bains after April 20, 1901, “enjoying the baths and basking under the bland, blond skies” of Alpine France. According to John Winkler’s account, he takes his ease after arduous campaigning, and in full view of the foreign colony diverts himself with the companionship of “a Frenchwoman of title and quality.”
In the meantime Harriman swiftly forms his plan to strike against the mighty machine of transportation raised by Hill and Morgan. The Burlington can no longer be bought ; its stock is locked up jointly in the treasuries of the Great Northern and Northern Pacific companies, and the gates are shut. But he had noted that the back door lay open. To be possessed of the Burlington, he would purchase the Northern Pacific, to which half of the Burlington stock had been allotted. He “would buy the mare to get the filly.” Through the jungles of the marketplace he knew his way ; he or his informants knew where stock was to be had, knew even that the Morgan people, who held with Hill some $35,000,000 of $155,000,000 common and preferred capital stock of the Northern Pacific, had been selling here and there to take advantage of the prevailing high prices, following the profitable Burlington acquisition. But where Villard twenty years before had needed $8,000,000 for his “blind pool,” Harriman in his secret raid would need $78,000,000. He would then control two-thirds of the railroad territory of the country from New Orleans to Seattle, from Winnipeg to San Pedro, California, and would have the Morgan-Hill system bottled up.
From the Union Pacific treasury, from the Standard Oil “gang,” from Kuhn, Loeb & Co., and the Rockefeller-controlled National City Bank, Harriman levied over $60,000,000, to which he added also all the credit he himself owned.
The boldness of the plan [writes J.G. Pyle] . . . allied it to a work of genius. From those two grim old lions [Morgan and Hill] who guarded the way, the quarry was to be snatched before they sensed the presence of an enemy. The implications of the project were tremendous. Suppose the Union Pacific interests gained control of Northern Pacific. At once the Great Northern would have had to make terms with its new owners, or bear the brunt of incessant hostile attack along two thousand miles of battle front. It would have been shut into the narrow strip between its line and the Canadian border. As the Union Pacific would succeed also to a half interest in the Burlington, the situation there would be a permanent deadlock. All the system of relations and the scheme of traffic worked out so carefully by Mr. Hill would have been either suspended or destroyed. There could be but one issue from a position so intolerable. He would have had to make the best terms he could....
Moreover the whole continuous traffic chain from New England and New York to Puget Sound, so patiently linked together by Morgan, would have been sundered. Hill afterward declared that in this event he would have recommended that his stockholders sell their line at once at the best terms they could get.
Domination of a railroad or industrial corporation is often feasible with only a minority interest of 10 or 12 per cent of capital stock held by an aggressive group. But in Northern Pacific Morgan and Hill owned almost 30 per cent control out of $75,000,000 preferred stock (then possessing voting rights) and $80,000,000 common stock, “larger than is usually held,” Hill said. It had never occurred to them that they would need more. “I did not think at the time that it was at all likely,” Hill afterward confessed, “that anybody would undertake to buy in the market the control of $155,000,000 of stock”—as a counterstroke to the acquisition of Burlington.
But the moves were well guarded. At a moment when the House of Morgan was heavily burdened with its involvements in the steel Trust, it chose to liquidate a block of 10,000 shares of Northern Pacific, which dropped into Harriman’s hands ; then another of 13,000, as the market steadily rose ; then from quarters friendly to Morgan, another block of 35,000 shares was dislodged. Then, after a last lightning-like assault on the market, Harriman saw that he had in his hands $42,000,000 of the preferred shares of Northern Pacific, or a clear majority of that issue, and somewhat over $37,000,000 of the common shares, “which lacked being a majority of the common by about 40,000 shares.”
The quiet, continuous rise of Northern Pacific stock (of about 20 per cent) had made Jim Hill in his office at Seattle increasingly uneasy ; it was to him “like a steady fall of the barometer.” Mr. Morgan was in Europe, leaving only the erratic Robert Bacon in charge at 23 Wall Street. Hill did not understand what was happening ; he thought that it would be better if he were in New York. Calling upon the officials of the Great Northern to give him a “special” to St. Paul, “with unlimited right of way over everything,” he made the quickest run to the Mississippi River that had been made up to that time and arrived in New York on the after noon of May 3. He proceeded at once to the offices of Kuhn, Loeb & Co., to see Mr. Jacob Schiff. They were old personal friends who had formerly been directors together on the Great Northern.
Schiff now freely admitted that Kuhn, Loeb & Co. were buying Northern Pacific on orders from Harriman.
“But you can’t get control,” cried Hill. “The Great Northern, Morgan, and myself were recently holding $35,000,000 to $40,000, 000 of Northern Pacific stock, and so far as I know none of it has been sold.”
“That may be, but we’ve got a lot of it. You secretly bought the I Burlington . . . now we’re going to see if we can’t get a share by purchasing a controlling interest in the Northern Pacific.”
Hill left the office of Schiff in bewilderment ; then he immediately had Bacon cable to J.P. Morgan in Aix-les-Bains for authority buy at least 150,000 shares of Northern Pacific, preferably the common stock, which was more valuable for purposes of control. Schiff had claimed that the Union Pacific party had on May 3 an overwhelming majority of the desired stock. But in reality, Harriman, stricken ill and confined to his home on May 4, was extremely worried, because, as he said, the common-stock control was still unsettled, and “the Northern Pacific could, on the 1st of January following, retire the preferred shares, of which we had a majority.” He therefore telephoned Kuhn, Loeb & Co. and advised that 40,000 more common of Northern Pacific be purchased on the morning of Saturday, May 4, 1901. But Schiff, as pious a man as J.P. Morgan or John D. Rockefeller, was at the synagogue, and was reached only after much delay. He counseled buying no further, so that the order of Harriman, sick abed, was ignored.
Morgan was fully apprised of all the dangers of this new crisis. He said, as quoted by Hovey :
. . . “When that news came to me, I hadn’t any doubt about the fact of the matter. And at the same time the news came so strong—whoever had acquired it—I felt something must have happened. Somebody must have sold. . . .
“I feel bound in honour when I reorganize a property and am morally responsible for its management, to protect it—and I generally do protect it. So I made up my mind that it would be desirable to buy 150,000 shares of stock, and with that I knew we had a majority of the common stock ; and I knew that actually gave us control, and they couldn’t take the minority and have it sacrificed to Union Pacific interests.”
During the night of Sunday, May 5, came the cable of authorization from Morgan to his lieutenants in New York. And on Monday, Northern Pacific “came strong from London, and opened with a burst of activity in the Street,” according to Harriman’s relation. The Hill-Morgan forces took the field ; their brokers led by Jim Keene swarmed over the floor bidding eagerly for Northern Pacific common and taking all that could be had at prices that advanced steadily from 110 to 131. Harriman now knew that all was not well, and stormed at Kuhn, Loeb. Tuesday, May 7, the Morgan brokers continued their aggressive buying, and ran the price of the common up to 149¾—an advance of nearly 40 points in two business days.
The spectacular contest, which no outsiders then understood, but which filled the mobs in the marketplace with money lust, was quickly concluded—both parties claimed—on the afternoon of Tuesday, May 7, when the Morgan crowd had snatched away their full 150,000 shares, giving them more than half the common stock of Northern Pacific. From France Morgan had ordered that the stock be bought at any price ; the cost of control was immaterial, so that he had it. It was by no means a “question of prestige,” as Hill afterward testified hypocritically ; but veritably “a life-and-death struggle” between the two moneyed hosts, in which, according to Barron’s gossip, John D. Rockefeller “expected Morgan to go at any moment . . .”
But then as a by-product of these agonies of high finance there was produced a general catastrophe in the form of a sudden panic, unforeseen, peculiarly atrocious and wanton.
Holding the price of “N.P.” far too high and ignorant of the serious cause, the crowds of speculators had begun to sell the stock short with the expectation of buying it back later at lower prices ; so that very quickly a large short interest was accumulated. But every share of Northern Pacific bought by the two adversaries was taken out of the market and was “going into the box” for control. Hence there developed, according to authorities on the subject, frightful corner, in the sense that no stock was available for repurchase to those who had sold it short. Speculators on May 9 made frantic efforts to cover as rumors of the corner spread, and wildly bid up the price to 300, to 500 a share. Finally in one hour, while all the financial world seemed to turn completely insane, Northern Pacific soared to $1,000 a share—while all the securities, stocks and bonds of the whole country simultaneously fell in a grand smash from 15 to 40 per cent. For money was now fearfully scarce, loaning at 40 to 60 per cent ; the shorts and the houses they dealt were believed to be ruined, and were forced to throw overboard everything else they possessed to repurchase Northern Pacific stock. It was, as Hovey relates,
a curious and terrible state of affairs on the Stock Exchange ; the extraordinary need for cash, for four or five days, had steadily forced the sale of all kinds of stock except “N.P.,” and now the selling movement suddenly became a deluge which swept all values madly downward. So many shares were sold that it was impossible to keep track of them all, while above this ghastly confusion end wreckage, balloon high, hung the perfidious cause of it all—the stock which no one could buy.
It was the lurid, melodramatic climax of a speculative mania which had gripped the country ever since McKinley’s inauguration in March, 1897, and the subsequent boom in Trusts.
The cataclysmic disturbance was felt in all the financial capitals of the world. In Europe Morgan rushed to Paris upon news of the Wall Street panic. From the offices of Morgan, Harjes & Cie., he issued emergency orders, swore at “idiots” and “rascals” who sought to interview him ; and, according to Corey, threatened one reporter with “murder.” To another, who asked him if “some statement were not due the public,” since Morgan was being blamed for a panic “that has ruined thousands of people and disturbed a whole nation . . .” he replied in memorable words :
“I owe the public nothing.”
A money pool was formed in New York to lend to needy houses ;—a syndicate in which it is noteworthy the Rockefeller-controlled National City Bank, largest in New York, did not participate—and the two adversaries agreed to delay demands for delivery of Northern Pacific stock and to fix the market price at no more than $150. As the smoke cleared away, and the financially dead and dying were borne off, the press headlines screamed :
“J. PIERPONT MORGAN CONTROLS NORTHERN PACIFIC”
Which was only partly true ; Harriman showed fight, insisted that the preferred stock could not be retired legally and secured legal opinions that he had formal control—but the Standard Oil family called off their dogs of war and Jacob Schiff especially sued for peace. For, as Mrs. Burr, writing on behalf of Stillman, said : “Both sides were . . . threatened from without,” by the enflaming of public opinion over the wanton conflict. In great haste and shame for their destructive mischief, they signed terms for an immediate armistice : on the new board of the Northern Pacific, Harriman and William Rockefeller at last were admitted as directors, while Morgan retained dominant control. Yet from the abyss of disastrous struggle, a final step toward lasting community of interest had been made.
4
One may imagine the temper in which Pierpont Morgan returned to New York. Only he and his closest associates knew how near the end the “system” which he had been so long building was brought by the onslaughts of those who, after the elimination of Carnegie, figured as his greatest adversaries. That this had been done, moreover, in his hour of fullest triumph, after the launching of the steel Trust, made the affair all the more bitter. It was his favorite Robert Bacon who probably bore the brunt of “Jupiter’s” rage and profanity, since all indications lead us to believe that upon Bacon lay responsibility in the emergency.4 But for many reasons, including especially the state of the public mind, the purpose that now dominated virtually all the participants in the historic market conflict of May 3-9, 1901, was to seek peace, to base their actions at last upon the principle of “community of interest” so that “such things could not happen again.”
The preferred stock of Northern Pacific, held by Harriman and the Standard Oil party, could have been retired at par at the approaching stockholders’ meeting, over which Morgan and Hill ruled by a slender majority. But to have ejected the enemy would have meant such a long contest of litigation, in full view of the public, as the hounds of the press thirsted for. In their egomania, the leaders of both sides “might have continued to tear up Wall Street and injure large property interests including their own,” comments Hill’s biographer. But every calm reasoning voice in their midst urged them to desist in their “thieves’ quarrel” over the spoils. Better enjoy these peacefully in union with those intruders who had proved the power of their arms, while defending themselves against “the common enemy,” the public, who, though menacing now in angry uproar, was truly the source of all enrichment.
The scheme for transpacific exploitation, writes Pyle, “was part of a commercial expansion greater than had been seen since Venice was in her prime.” It was for this prize that both railroad captains, Harriman and Hill, had so jealously competed as to cause a conflagration which “swept through Wall Street and threatened commercial solvency in many capitals of the world.” Was it not possible, Hill asked himself, “to build a strong fortress where, in peace or war, those who had seen the work of their hands grow great might establish it against all assaults and for all time to come ?”
The antagonists of yesterday meeting at a conference at the Metropolitan Club, May 31, now turned to Hill’s idea of a holding company, in which their peace pact might be perpetuated. Thus, instead of taking the perilous course of ejecting the Harriman-Rockefeller interest, as he would have liked to, Morgan launched the project of the Northern Securities Corporation. He himself said like the others that they “wanted peace in their time.” “My idea was, I can’t live forever, and J.P. Morgan & Co. may be dissolved.” He said further, concerning his investment in the Northwestern carriers, “I wanted to put it in a company with a capital large enough so that nobody could ever buy it.”
The device of the “holding company,” as proposed by Hill, was somewhat novel at the time, especially upon the scale (capitalization of $400,000,000) and with the purpose intended : to unite the warring financial interests in holy union. As a gigantic work of financial architecture, it was in many senses more remarkable, more significant even than the huge steel Trust, and merited fully the immense excitement it aroused throughout the nation.
Hill himself described the project clearly in a letter of May, 1901 :
The cost of administering the affairs of the holding company would be practically nil, as it would only draw dividends on the shares held by it and divide the money so received, by check, to its own shareholders. You will see how strong the holding company would be. It would control the Great Northern and Northern Pacific, and those two roads would control by ownership the Chicago, Burlington & Quincy . . . it could also . . . hold the shares of coal or other companies which, while of value in themselves and of value to the railway company for the traffic they would afford, the charters of the railroad companies are not broad enough to enable them to hold with safety. [My emphasis.] . . . For myself I feel that the future would be secure, and we would have certainty in the situation, and the control of these properties safe. Unless we do something of this kind, we will always be subject to attacks like the recent one to secure control of one or other of our properties.
These were the terms in which Hill and Morgan spoke of the Northern Securities Corporation in private ; such were the objects freely and openly discussed in the gossip of the financial press as well. Yet when the new corporation was announced in the autumn of 1901, it stipulated openly no other corporate purpose than that of investment in “valuable papers.”
The Hill-Morgan group now exchanged its shares of Great Northern and Northern Pacific stock for that of Northern Securities Company of New Jersey. The Union Pacific people did likewise with their hard-won Northern Pacific stock, for which they received $82,500,000 of the new holding company’s capital. Among the fifteen directors, Harriman and William Rockefeller figured, and Hill was elected chairman. The lieutenants of Morgan numbered ten out of the fifteen. But the Harriman-Rockefeller party were now admitted to the highest places in the Morgan hierarchy, being also directors of the Northern Pacific itself ; thus cabals behind closed doors of directors’ rooms were impossible. The peace conference at the Metropolitan Club was the conclusion of a “pychic victory” in which Morgan made concessions which were pleasing enough to the implacable enemy of yesterday.
It was with visible relief that announcements were sent forth from the offices of Kuhn, Loeb & Co. and also from J.P. Morgan & Co. that “an understanding has been reached.” Both parties, especially Hill and Harriman, publicly denied any part in “the supposed contest” of May 3-9. Jacob Schiff, the head of Kuhn, Loeb & Co., always full of “prudence” and “conservatism” and rendered sick by recent affairs, wrote unctuous letters to Morgan. Hill called Harriman “Ed,” and Harriman called Hill “Jim.” And all of them referred to the Northern Pacific panic as an “Indian dance,” an affair of ghosts with which they had nothing to do !
There was good reason, it was high time, for such explosions of fraternal love in the quarters of the oligarchs. On September 6, 1901, while these plans for the disposition of one-half the transportation system of the continent were reaching fruition, the anarchist youth Czolgosz assassinated the benign McKinley. Eight days later the well-loved President “of the chocolate éclair backbone,” to quote a famous phrase of his successor in office, passed away, while Mark Hanna looked on dazed with grief, and tremor after tremor shot through Wall Street. The panic of May was resumed. Morgan himself, hearing the news on the wings of wild rumors that fled through the financial district, “had wheeled like a man stricken”; had “cursed and staggered to his desk while his face flamed red and then turned ashen.”
The new President, vigorous and familiar figure, known the past twenty years and considered to be happily “shelved” in the vice-presidency, was that peculiar composition least understood by the barons, indeed less than the bearded anarchist or the red-shirted socialist : he was a “reformer.” There was no mitigating the alarm, the cold shudderings that passed through the steel masters, the oil barons and the railroad captains. All possible pressure was brought to bear upon the White House from quarters near and far, by friends and enemies, as Henry Pringle shows ; he was exhorted to be “close-mouthed and conservative,” to “go slow,” as Hanna said, and do nothing “to upset confidence”—tears were shed for “confidence”—by the very interests who were the most generous patrons of the Republican party chest.
Mr. Roosevelt did in truth proceed at the outset with a becoming prudence. But at last the greatly feared, the awaited and the inevitable happened. The reformist “Rough Rider” soon placed himself at the head of the extraordinary mass movement of protest, which after 1901 swept the country in a great wave, a wave that had swept it before, like the cyclones of Kansas, the grasshopper pests of the Northwest or the droughts, quite native to the climate, but leaving it afterward fundamentally unchanged and as much like itself as before.
Imperceptibly the atmosphere had been changing. Of late years the “yellow” press of Pulitzer and Hearst had been giving undue attention to the doings of the multimillionaires of industry and the Idle Rich : the construction of kingly palaces, the divorces, the costume balls of a stunning extravagance at the Waldorf-Astoria—of all these things there were gloating and lurid accounts, while the occasion was not lost to paint at the same time the naked wretchedness of miners and unemployed workers. To these “exposures,” the bombardments of comic weeklies such as Life as well as the caustic sayings of “Mr. Dooley” were added ; and also the harangues of “radicals” and “muck-rakers” who arose on all sides. The followers of the young governor of Wisconsin, Robert La Follette, as of William J. Bryan, or of Eugene Debs, seemed to be swarming over the land. In vocal adherence and color they ranged from the deep socialist red of disillusioned immigrants and brawny Pennsylvania miners to the pink of humanitarian ministers of the gospel such as Washington Gladden or crusading college professors—of whom there were many more than are easily recollected—and of the ineffable, silk-hatted “Goo-Goos” whom Lincoln Steffens in his memoirs has pictured for us unforgettably. But by many signs they gave warning that the wind had veered, and the tide was swollen to groaning volume, ready to break upon the heads of the “Plutocracy.”
There had been incidents provocative enough during the millennial administration of McKinley ; the barbarities of John Gates and other heroes of Frenzied Finance, the violent strikes, the successive announcements of monopolies and Trusts evoked by the magicians of the House of Morgan or of Standard Oil ; and finally the futile and baseless devastations of the Northern Pacific Panic of May 9—all this and more had been agitating the great crowd of respectable middle-class freemen. The ominous sense of a shrinking margin of practical liberties pervaded men, as each successive step in the nation-wide consolidation of the country’s resources and means of production brought no tangible gains to the population at large. The great coalitions of the barons seemed to be made with no eye to the needs of workers in the cities or of farmers and little trades-people in the broad rural regions. Certain of the Trusts, such as the Standard Oil or the American Tobacco and the meat-packers’ association, had spread undying hatred among the petty capitalists who had been ruthlessly expropriated. The cry had been rising always for the “regulation” of the Trusts who were “eating like a canker into the very vitals of society.” But when the young professor William Z. Ripley published his alarming analysis of the character and scope of Northern Securities, the vague fears of the populace focused themselves upon the newest corporate Frankenstein created by Morgan. The popular leader from the White House glimpsed with horror all the monstrous complot of the “subjects without a sovereign.”
The Northern Securities Corporation was smaller in size than the Standard Oil or the United States Steel monopoly ; but, as Ripley held, it was just such a Wooden Horse as the Greeks had reared to conquer the Trojans. Its two lines, comprising 9,000 miles of track which paralleled each other and were engaged in active competition for freight and passengers, “by making the stockholders of each system jointly interested in both systems, and by practically pooling the earnings . . . by vesting the selection of the directors and the officers of each system in a common body, to wit, the holding corporation . . . would promote the interests not of one system at the expense of the other, but of both at the expense of the public. . . .”
This was the ruling idea in all of the advancing, encircling chain of Trusts. But in the case of the Northern Securities the belief was voiced that by owning properties of all kinds, by exchanging its shares with those of existing capital securities—there was really nothing to prevent a corporation from eventually owning the whole of the United States, all up and down its whole length and breadth. The future of Abraham Lincoln’s “plain people” was by now seen as dark and almost hopeless, unless there was truth in the prophecy of one minister, who, rising at this time before a convention of “Christian Socialists” in Buffalo (a fellowship of those whom Mark Hanna styled “Moral Cranks”), said :
Some day after the Trusts have, with great labor and difficulty taken the cart up to the top of a long hill, we will relieve them of their labors. We will say, “This is our cart” and take it.
But in the temperament of Theodore Roosevelt the motives were mixed. As a gifted politician he sensed the tremors among the people. Moreover he himself was a descendant of that old mercantile “aristocracy” of New York which had been largely outstripped by newcomers in the hurly-burly of industrial revolution. Everything led him, as his most penetrating biographer, Henry Pringle, has shown, “to be alarmed and irritated at the great industrialists who complacently assured themselves that their power was greater than that of the Federal government.” As a municipal reformer, earlier, he had shrilly denounced the predations of Jay Gould and had actually opposed that Mephistophelian financier in the matter of New York’s elevated railroads. Now in the recent upheavals, such as the Northern Pacific Panic, he saw chiefly the unbridled hand of Edward Harriman, who was to his mind another Jay Gould. He had written :
In no other country . . . was such power held by the men who had gained these fortunes. . . . The power of the mighty industrial overlords of the country had increased with giant strides . . . the government [was] practically impotent. . . . Of all forms of tyranny the least attractive and the most vulgar is the tyranny of mere wealth, the tyranny of a plutocracy.
The new tyrants, whom he styled, in one of his memorable phrases, “malefactors of great wealth,” he now secretly prepared to attack. But while fearing the corporations, Roosevelt was admirably suited to step into the crisis of 1901. For him the only course would be the “middle road,” since he abhorred simultaneously the socialists, silver-standard people, and all the other demagogues “who raved against the wealth which is . . . embodied thrift, foresight and intelligence.” Roosevelt moved energetically to curb combinations both of capital and of labor, and to save the social order from fatal dissensions. He had felt the deep currents of discontent, the preparing strife, sooner than the great bankers, because they were perforce too busy at their architecture, and hoped by dealing with the tribunes of the “plain people,” the Quays, and Penroses, to spare themselves all further pains in this quarter. Thus, the apparent fact that Roosevelt, new idol of the great middle classes, was acting to avert a deeper, more implacable division in society, which might ultimately annihilate their system (as he himself interpreted it), escaped utterly the minds of old Bourbons like Pierpont Morgan and Jim Hill.
January 7, 1902, the State of Minnesota moved to attack the Northern Securities Corporation as a violation of its statutes. The Sherman Anti-Trust Law of 1890 had only once in a decade (in 1899) been used to halt conspiracies in restraint of trade (the Addystone Pipe Case). This move had been awaited. But soon afterward, when President Roosevelt, acting with profound secrecy, ordered his Attorney-General to prosecute the Northern Securities Corporation, on the ground of the Sherman Law, panic broke out in high quarters, where word of his move arrived in February, 1902. Morgan was at a dinner party at his home, and to all his companions expressed his “surprise” and “disappointment” at the President’s action. He had been assured that Mr. Roosevelt would “do the gentlemanly thing.” In reality the old banker was infuriated, and forced himself to visit the White House to protest at the secrecy of the government’s move against him.
“If we have done anything wrong,” said the imperious monarch of bankers, in words that have become immortal, “send your man [meaning the Attorney-General] to my man [naming one of his lawyers] and they can fix it up.” Roosevelt had demurred ; and Philander Knox, yesterday lawyer to Carnegie Steel Company, friend of Henry Frick and Andrew Mellon, cast now in a strange role, asserted that the purpose was not to “fix up” things. Then Morgan, anxious for his steel Trust, had asked whether it was the President’s purpose “to attack my other interests,” and had been courteously assured that no harm would befall them if they did no wrong.
Roosevelt said to Knox, after Morgan had left : “ That is a most illuminating illustration of the Wall Street point of view. Mr. Morgan could not help regarding me as a big rival operator, who either intended to ruin all his interests or else could be induced to come to an agreement to ruin none.”
Jim Hill, too, expressed himself with infinite bitterness, exclaiming : “It really seems hard . . . that we should be compelled to fight for our lives against the political adventurers who have never done anything but pose and draw a salary.”
In the days of the “gentlemanly” McKinley, there would have been hints or warnings sufficient for measures to be taken in time. But still there was the Supreme Court, which had fought many a battle for the combinations. Would they sustain the “Trust-busting” President ? The nation waited for their awful judgment, and Roosevelt himself suffered anxiety, while the monopolists vigorously pleaded their case during weary months. After two years of costly litigation, on March 14, 1904, the order of dissolution came from the Supreme Court, by a close five-to-four vote—Holmes dissenting. Jubilation. Roosevelt had “busted” his Trust, and now the country might go back to “business as usual.” The middle-class President had his victory. He could now proceed to attack other judiciously chosen malefactors, one at a time. And the barons had merely their own measures of self-protection to take.
The omnipotent Hill spoke further on this subject, though in private. “Two certificates of stock are now issued instead of one ; they are printed in different colors, and that,” as the monopolist laughingly said, “is the main difference.” These are the most trenchant words that have ever been said on the whole Northern Securities affair. “I’ve made my mark on the surface of the earth,” Hill added later, waving his hand toward a map of the United States, “and they can’t wipe it out !”
The Supreme Court decision did not “bring the ruin of the country,” as some prophesied, but caused fresh disturbance for a time since it ordered liquidation of the holding company’s assets on a pro rata basis. The Rockefeller-Harriman interests protested long and loud, because the securities returned to them were different from those they had put into the holding company, each owner receiving $39.27 of N.P. and $30.17 of Great Northern for his shares of Northern Securities. But eventually they accepted the situation with good grace. The new parcel of securities returned to the Union Pacific group for the old brought a windfall, and immense profit of some $58,000,000 in cash. Thus the wily Harriman, whom Roosevelt detested, wrested victory out of defeat. Then, imperturbably he marched with his great bag of plunder to new investments or conquests which further forged the chains of centralized control. The fact that Harriman or his agents, in the years after 1904, entered the directorate of the Baltimore & Ohio, the Atchison, Topeka & Santa Fe, the Illinois Central, and even the New York Central is in itself a clear commentary on the usefulness of Theodore Roosevelt’s crusades.
The sound and the fury were soon over, long ago. In 1904, the largest contributors to the election campaign chest—from which Roosevelt pruriently turned his eyes away—would be Frick, Harriman, Morgan, Stillman, George J. Gould, H.H. Rogers, Archbold, and H.B. Hyde, the notorious head of the Equitable Life Assurance Society. They had all learned, as Mr. Pringle relates, that after furiously advocating reform measures designed to stem radicalism, Roosevelt bestirred himself to conciliate the great industrialists. In this connection, the Rev. W.S. Rainsford, minister of Morgan’s St. George’s Church and his confidant, said to him : “The time will come when you will get down on your knees and bless Providence for having given us Theodore Roosevelt as our President.”5
By instruments more devious and impenetrable than ever, the retirement or expropriation of small-scale undertakers, the building of the giant Trusts into solid “community of interests” was continued unfalteringly during nearly three decades that followed the battles of Theodore Roosevelt. The unsocial excesses, the periodic impoverishment of consumers, the misdirection and mismanagement of the nation’s savings and natural wealth, were to be expiated through lean years (following fat years of “prosperity”) through depressions and by way of a World War. Fleeing disastrous competition and price contests, the industrial combinations, like the railroad groups managed by the banker-promoters, continued to form coalitions with each other by far more subtle or masked corporate devices such as lawyers were always willing to furnish.
Had not Theodore Roosevelt furnished a hint that no harm would befall the large combinations if they did no wrong ? Hence the “good” corporation came to flourish, fixing its margin of profits evenly, rather than scandalously, high. Like the one presided over by Elbert Gary, it might work collusively to sustain its price structure ; it might hold its men working twelve hours a day, and keep spies in its mills to weed out union agitators. But its directors were outwardly virtuous ; at board meetings, they were prohibited by Gary from gambling with the $20 gold pieces awarded them for their attendance.
What the giant Trusts learned from the era of “muck-racking” and the brandishing of the Big Stick was to move with a superior cunning and discretion about their tasks. Less and less did they act with the tactless arrogance of a Cornelius Vanderbilt or a Harriman, but sought nowadays to propitiate public opinion, hiring “public-relations counselors” who disseminated propaganda of great art, by which a mellower picture of themselves was presented. After so many storms, upheavals and trials which led to the Great Truce of 1901 between the House of Morgan and the House of Rockefeller, a period of comparative harmony ruled in these high quarters. It was shown at last how the national wealth might be peaceably and equitably divided, and conciliation practied even in the ranks of capitalists. The rivalries and picturesque combats of an earlier, less organized economy grew rare. It seemed in the end, as one commentator writing in the prosperous 1920s observed, that “the rival banking groups sank their jealousies in the face of a common danger. The era of creation and struggle has given way to one of maintenance and conservative mastery. A well-oiled and scientifically regulated machine seems the financial system of today, in comparison with that of the first decade of the century.”
“Scientifically regulated”? Perhaps for a few seasons.
Ever since the turn of the century the form of our economic organization was virtually crystallized ; the ownership of the means of production, the method of exploiting labor and natural resources, were fixed. To those who had known the technology of the Chicago slaughterhouses and of the Carnegie Steel Company, a Henry Ford was but a projection of the immediate past. To those whose memories were long enough to recall the era of Frenzied Finance, the Insulls and Van Sweringens of 1929 would be inevitable and repetitious figures of history. The successive periods of plethora and complacency, the intervals of tragic disillusionment, the waves of infantile reform launched by middle-road politicians, the recurrence of public corruption, financial madness and renewed crisis—all this would seem so much ironical and wearisome historical reiteration of a familiar system, did we not begin to perceive at last in this system all the fatal signs of a shortening rope.
Soon there would be few who hoped that the old economic rulership established by adventurers, plunderers and their children, could minister to the just interests of the masses of citizens, the workers in the mills, the tillers of the land, let alone preserve the population for long. And during long years of industrial lethargy, while grass literally grew upon the floors of magnificent factories, the lesson would be finally driven home of the fearful sabotage practiced by capital upon the energy and intelligence of human society.
For, the second generation of money-masters, masters, the sons of the barons, were weaker, less watchful and more vainglorious than their elders perforce. Extremes of mismanagement and stupidity would make themselves felt, as the more advanced cycles of the industrial revolution were attained and the economic organism became less susceptible of control. The alternations of prosperity and poverty would be more violent and mercurial, speculation and breakdown each more excessive ; while the inherent contradictions within the society pressed with increasing intolerable force against the bonds of the old order. Then in the days when the busy workers of our cities were turned into idle and hungry louts, and our once patriotic farmers into rebels and lawbreakers, there would arise hosts of men and women, numerous enough, who knew that “they could no longer live in a world where such things can be. . . .”
1 They met again a year or two afterward, on the deck of an ocean steam-ship. Carnegie said : “ I made one mistake, Pierpont, when I sold out to you. I should have asked you $100,000,000 more than I did.”
And Morgan, red-faced, glowering, said : “ If you had, I should have paid it to you,” adding, according to the legend, “—if only to be rid of you.”
2 Hill’s motives are explained in another letter to Lord Mount Stephen : “ The best traffic of the Great Northern and Northern Pacific is cotton and provisions west- and lumber and timber east-bound. The [Union Pacific] lines run through the cotton country, from New Orleans through Texas and Arkansas. The great provision centers are Kansas City, St. Joseph, Omaha, Chicago and St. Louis, none of which are reached directly by the Great Northern and Northern Pacific. Both companies have to divide the through rate with some other line to reach those important points. Now as to lumber from the Coast, we have to divide our rate with lines south to reach Chicago, Illinois, St. Louis, Iowa, Nebraska, Kansas, etc. The Burlington lets us into all these districts and commercial centers, over better lines and with better terminals than any other road.”
3 An example of the tension under which both parties now labored was collision early in 1901 at another outpost of the Harriman-Rockefeller system, in Utah. Harriman had been greatly aroused by the mysterious activities of Senator William A. Clark, the copper king, who was building a line from his Utah mines to Los Angeles and San Pedro on the Pacific, along a gorge called the Meadow Wash. The suspicion came to Harriman that Hill, with his southerly branches of the Burlington line reaching to Denver, would unite with Clark to seize the Union Pacific’s traffic across the Sierras. Rapidly preparing for the fray, he utilized an old right of way along this same Meadow-Wash gorge in Utah, and threw gangs of armed men into conflict with Clark’s workers, the two construction companies now fighting other in hand-to-hand combat, now crossing each other’s tracks during prolonged hostilities, until peace was effected all along the railroad front.
4 From the Harriman camp came the logical contention that since they had already gained effective control, it must have been “Robert Bacon, not Kuhn Loeb & Co., who bid the stock up from 112 to 149¾ in the attempt to get control of it.”
5 Morgan, a Bourbon to the end, was perennially disgusted with Roosevelt’s measures of “regulation” such as actually served to tranquilize a population of consumers. For his part he would have clubbed down all opposition at all cost. Not all of his associates agreed with him however ; George W. Perkins for instance expressed himself as friendly to such “reforms” as might allay popular mistrust and preserve the status quo. This view was actually advanced by Theodore Roosevelt, some years afterward when he spoke at a dinner of the Gridiron Club in Washington, at which Pierpont Morgan was present. He pointed seriously to the need of restoring stability and contentment to the masses. And in the course of his address, he turned suddenly and strode toward Morgan—who sat listening impassively—shaking his fist in the face of the financial colossus and shouting theatrically :
“And if you don’t let us do this, those who will come after us will rise and bring you to ruin !”
Nevertheless Morgan was unappeased. When Roosevelt, upon retirement from office, went to hunt in Africa, the banker remarked feelingly to a friend : “I hope the first lion he meets does his duty.”