ROBBER BARONS
CHAPTER SIXTEENCONCENTRATION : THE GREAT TRUSTS
1893 : panic ! Like the tropical hurricane or the earth tremor, it breaks always with fearful suddenness for the great masses of men. Business men who yesterday were affluent tear up the day’s newspaper and fall sobbing at the feet of their wives, crying, “We are ruined !” So the reminiscences and engravings of the time picture the ravages of these regularly recurring economic storms. Behind the heavy red or green velours curtained windows of the thousands of middle-class American parlors, the national melodrama is reenacted in its familiar, classical form. A warm glow of gas lamps floods the rich interior with its bric-a-brac, its gilt and burled walnut furniture, its lacy doilies and what-nots. There is an ornate marble fireplace, and over it the legend : In God We Trust. Here sits the master of the house, with his plump cheeks, his full, curling mustaches, his fine Prince Albert, facing his wife, long-corseted, elegantly dressed in her gorgeous velvet robe. On her face there is a look of composed alarm ; upon his one of rending anguish. For ruin has fallen upon their house. Tomorrow their hopes, all their worldly possessions, their home with its Oriental bric-a-brac, gas lamps, what-nots, must disappear all together in the gulf of bankruptcy.
In reality the wreck of the small undertaker, pathetic though it seems, is of little moment compared with the mass effects of depression upon the general populace. Chiefly it signifies that transfer of individual fortunes, that expropriation of pygmy capitals by giant capitals which is so greatly hastened with each renewed phase of the economic cycle. Sometimes his individual folly or greed leads a man to the graveyard of business ; but more often nowadays it is the consequence of a “deliberate mismanagement,” skillfully applied under the system of absentee ownership. Large railroads and other enterprises, plunged in reckless expansions, are now seen by the disillusioned to have “officially overstated” their income, to have paid dividends out of capital, and to have given a semblance of extraordinary value to securities which were in fact worthless. At the beginning of 1893, the National Cordage Trust declares a 100 per cent stock dividend, in addition to its usual payments at the rate of 10 per cent in cash per annum. The investors who had entrusted their savings to this corporation are filled with joy. But a few weeks later, in May, the insolvency of the company is announced, a receiver is appointed, and the treasury is found to be empty. The mishaps of the Santa Fe and Baltimore & Ohio railroads, to mention only a few of the great enterprises that collapsed with incredible suddenness, showed a mismanagement and waste of capital no less grievous than that of National Cordage. Yet these alarming and cruel “deflations” do not seem to afflict giant fortunes, whose owners, forewarned and forearmed (as may be judged), pass calmly through the crisis to emerge relatively enhanced in strength.
Sore losses are met by the middle class of savers and investors ; but for the hosts of workers in cities and mills, or tillers of farms, the excesses of individual heads of overcapitalized enterprises result in more drastic and extensive derangements. As grains and stocks crash, factories and commercial houses to the number of 15,000 shut their doors, and 500 banks are plunged in bankruptcy, the “flight of capital” and the hoarding of gold mounts in pace with stark fear and hysteria. Through the whole economic organism, now more close-knit and interdependent than ever before, the general dislocation and paralysis is quickly transmitted. Uncomprehending the farmer stares at his cotton which is nearly worthless, his corn which he must use for fuel. And with even less comprehension the laborer feels his thinning pay envelope, or in extreme penury leaves the bitter hovel which he and his family may no longer occupy, to join in those mass uprisings which color the time : the great strikes in the industrial cities or the coal fields, the burning of railroad cars, the combats with soldiers. And before the year is out, while William Bryan thunders against the “Goldbugs in Washington,” “General” Jacob Coxey’s “Industrial Army,” uniformed in rags, but with flags and banners flying, begins its long march across the country to offer the President a “petition in boots.”
Disaster now literally seems visited upon the whole nation ; but it comes no longer through an Act of God, evil season, war or flood, or through weakening energy and skill of the people. It comes, though the whole continent still cries out for productive enterprise, because those who lead in such enterprise have no further wish to produce or to construct. They, the barons of industry, are now in the grip of the “rich men’s panic” (as the panic of 1893 and others were vaguely but truthfully called). No longer captains of industry “enriching others while they enrich themselves,” they wish only to see to their pecuniary interest, to vie with each other in converting all their capital investments into ready money or gold—so far as possible. Yesterday, they had been engaged in “over-saving” as J.A. Hobson interprets it. They had been setting aside more and more capital with which to pay for long-term improvements, drains, railroads, ponderous new machinery ; they had been preparing themselves ever for the day when they must bring forth still greater quantities of cotton cloth or steel, while making no provision that the buying power of the community increase enough to consume such quantities. The decline of such buying power, the stage when all prices and wages seemed to them “too high” had brought a sudden cessation of such capital investment or “saving,” and in its train “glut” and stagnation. Now, as J.A. Hobson interprets it :
The true excess shows itself in the shape of idle machinery, closed factories, unworked mines, unused ships and railway trucks. It is the auxiliary capital that represents the bulk of over-supply, and whose idleness signifies the enforced unemployment of large masses of labor. It is machinery, made and designed to increase the flow of production of goods, that has multiplied too fast for the growth of consumption.
Evidences of uncontrolled capital investment were the doubling of railroad indebtedness, in many cases, between 1880 and 1890, the tremendous increase in the size and range of industrial combinations of all sorts. But what else could be done under a scheme of distribution which brought to a few men incomes of from ten to twenty millions per annum, while even the skilled among the underlying population enjoyed a purchasing power of no more than $500 a year—and this by no means stable ? And even this mass purchasing power would be undermined by the masters. “The workmen now earns the equivalent of a barrel of flour each day,” William Vanderbilt had complained to the stockholders of the New York Central Railroad in advocating wage reductions. Yet at the same time preparations of all sorts were made to produce and market more flour, more goods, more railroad services than the people could afford to use.
The intimate statements, the authorized documents of the time show us that the income of the captain of industry is often so great that he literally cannot consume it himself or cause it to be consumed. Thus Murat Halstead tells us that toward 1890, a year before he died, Jay Gould’s income was approximately ten millions of dollars a year. “Mr. Gould cannot begin to use even a small portion for his own personal use—even a small part of the interest which his dividend money alone would yield. He must reinvest it, and he does reinvest it. It is safe to say that he takes this money . . . and buys other securities.” In other words, he makes new capital investments.
In the case of the Vanderbilts, we are also told that they applied their immense income from two hundred millions of securities to capital investments in new railroads lines, in opening more coal mines, and in introducing new machinery which diminished hand labor. We see Rockefeller also prompted by the same irresistible impulse—extending new pipe lines, erecting new terminals, building tank ships, acquiring new factories. “The more the business grew,” Rockefeller states, “the more capital we put into it, the object being always the same : to extend our business by furnishing the best and cheapest product.” Another industrialist states that “the first wedge calls as a rule for the second, and so the great railway I was building made further and further demands upon me. To satisfy these I extended my activities. . . .” And Andrew Carnegie, who said that he hoped that the time would come when he would no longer have to expand his business, remarks that he always found that “to put off expanding would mean retrogression.” We find him in 1885 reconstructing and altering his Pittsburgh works radically, so that steel may be produced more swiftly, with fewer hands. We find him later investing more capital in changing from the Bessemer converter to the improved open-hearth furnace—and always he, like Gould and Vanderbilt and others of their rank, seeks to resist the tendency of wages to rise and keep pace with the increasing prosperity and productivity of industry.
“They extended their activities.” During the whole period the race between overcapitalized industries continued ; railroads in addition to those already existing tried to reach Chicago or the Pacific through undeveloped territory. Industrialists, coming upon new machinery which gave them an advantage, tried to despatch rivals whose methods were obsolete, always adding to the output and the improvement of their plants far beyond the needs of the existing population or its current purchasing power. From beginning to end their whole policy of management, as Hobson has commented, served to spread “underconsumption,” to make depressions “deeper and more lasting.”
The approach of “hard times” was pretty largely foreseen by the more important captains of business enterprise, not because they possessed supernatural sight, but because they were posted at the very nerve-centers of the industrial system. Not only were they generally able to escape the heaviest blows of adversity and stand “like a rock against the wave,” but the end of the storm would see these powerful figures more solidly entrenched, the field swept clear of opposition.
In the Northwest we see Hill accumulating cash in the treasury of his railway, while watching uneasily the federal government’s fiscal policies. As fear of suspension of specie payments spread, we find Jim Hill hoarding, “always quietly on the watch.” In the notes of Clarence Barron, Samuel Hill, son of the railroad magnate, recalls the time of the Baring failure :
In May, 1890, James J. Hill told me : “We are going to have a panic next September. It will take five years to get over it.” He had advices daily from every capital of Europe. At that time he predicted within four days the exact date of the panic. Then he had nothing in his box. As he said, “Not a pound of meal.” He had only cash. He had sold everything in Great Northern and Northern Pacific. Perhaps he had $50,000,000.
These are no doubt boastful statements and should not be swallowed entire ; yet they indicate the tactics clearly. Hill, according to letters in Pyle’s biography, had also foreseen the failure of the rival Northern Pacific line which he longed to control, saying to his partners, “That company has run its length.” The depression, he judged accurately, would be more massive, more prolonged than ever before, because everything was “built-up,” we were “no longer a frontier country. . . .”
January 24, 1890, the brilliant Harriman wrote to the directors of his railroad, the Illinois Central, urging severe retrenchments. “It would be unwise at this time to pass any resolution adopting a policy for a large expenditure of money. . . . Our whole force should be devoted to making and saving money.” Thus while the Erie, the Baltimore & Ohio, Northern Pacific, Union Pacific, Reading, Sante Fe, and a hundred and forty-nine other roads capitalized at $2,500,000,000 collapsed, Harriman’s road went through the panic with no lack of resources. Then as the crisis deepened and passed its climax, we note also how Harriman was in position to use the chances it offered. Taking command of the huge but bankrupt Union Pacific, he would, according to the statement of Otto Kahn, levy great sums from his associates for equipment and improvements because “labor and materials were then extremely cheap.”
During the crisis those barons who had the largest war material, the heaviest reserves, the strongest positions at the “narrows” of trade, pressed their advantages without stint. The collapse of the ambitious Reading Railroad in the Pennsylvania coal regions would be the occasion for the Morgan-Vanderbilt combination to sweep together into one monopoly the mines and carriers of this field. The loss of gold from the federal Treasury in 1894 would furnish the chance for the pool of money-lenders which Morgan headed to make loans to the government at its own terms. In the year of the panic, finding opponents gathering in force to share his profits, Carnegie would break suddenly from the steel pool and cut prices sharply, saying to his rivals : “I can make steel cheaper than any of you. The market is mine whenever I want to take it.” In short, the more powerful the monopoly, such as that of Carnegie in steel, or of Rockefeller in oil, or of Havemeyer in sugar, the more they extended their domain over the industry they exploited, holding their margin of profit firm, while using to the full the demoralization of the rawmaterials industries which fed into their own.
Carnegie, for instance, not only expanded the capacity of his mills several times in the five years after 1893, but also made provisions for enormously increased sources of raw iron ore at low prices. The powerful alliance of the Carnegie and Rockefeller interests in the Lake Superior ore business, John Moody holds, “caused a great fall in the price of iron ore and forced many small producers to the wall. Their holdings were thereupon bought in by the Carnegie and Rockefeller combination.”
During all this period of economic misery, the great Trusts, as Montague concludes in his painstaking study of their activities “were scarcely inconvenienced.” Their steadfast growth, their large-scale economies and their stability, revealed how much they were on the side of destiny.
2
The ’80s had witnessed the emergence of industrial pools and loose or secret combinations of all sorts, until by 1890 there were, according to Ripley, approximately 100 such associations, in whiskey, sugar, tobacco, cattle feed, beef, wire nails and even bicycles and electric appliances. The Sherman Anti-Trust Act of 1890, designed to check such “conspiracies,” had caused, in truth, no more than a momentary, consternation. The owners of large business enterprises were not interested in statutes. “Forces greater than any man or group of men could cope with,” as Miss Tarbell writes, were leading them to combination.
Through the hard times, the sugar Trust no less than the Standard Oil was an instance of how successfully such things could be managed. By the Havemeyers’ consolidation of seventeen refineries into the American Sugar Refining Company in 1887, on the principle of Standard Oil, the firmest grip had been won over the field. The margin of profit at approximately 1.10 cents per pound had been constantly held in all weathers, and the American Sugar Refining Company had thus been able to pay on its magnified capital dividends of 9 per cent in 1892, 22 per cent in 1893, and 12 per cent in 1894-99. With opposition conquered, H.O. Havemeyer would quietly raise the price of the American breakfast : “Who cares for a quarter of a cent a pound ?” he would say blandly. Not only was the sugar monopoly sheltered by the protective tariff, which Havemeyer once called “the mother of Trusts,” but it prospered also during a long period of years from a collusive arrangement with customs officials for “short weights.” Some $2,500,000 (at a moderate estimate) had been diverted from the Internal Revenue department of the government in this manner. This was the sum, at any rate, which had to be disgorged one day upon public exposure of the affair.
Challenged in the State of New York as a monopoly, the American Sugar Refining Company had appealed to the Supreme Court in Washington, and ultimately received the sanction of the highest court in the land, which declared :
There was nothing in the proofs to indicate any intention to put a restraint on trade or commerce, and the fact that trade or commerce might be indirectly affected was not enough to entitle the complainants to a decree.
The celebrated Knight Decision of the Supreme Court in January, 1894, had shown once for all that the government of the United States had no intention of prosecuting the Trusts. This memorable decision, nullifying for the time the Interstate Commerce Act and the Anti-Trust Law, brought into being a great crowd of Trusts, combinations or “holding companies.” In the next five years, there were three hundred such monopolies formed, many of which sprang almost at birth to giant size.
The economic inventions of the Rockefeller associates were adopted in old and new industries with revolutionary effect. Corporation lawyers who could wriggle through the laws, or who were skilled in negotiating among irreconcilables and fashioning agreements between them, were now in demand. Elbert Gary, the Chicago lawyer, or George Perkins, the Morgan partner, or the firm of Sullivan & Cromwell who operated under the benevolent New Jersey corporation laws, were leaders in this work of legal reconstruction. They would bring together the suspicious and hostile individuals, placing them in different rooms, while the corporation lawyer or, as was often the case, a Morgan partner “kept them apart . . . and himself went from one to the other arranging terms.”
Between dawn and dark Trusts were thrown up. So a lawyer talking to Barron relates how in 1892
Sullivan and Cromwell transferred the Southern Cotton Oil Trust into a New Jersey Corporation in a single night. They locked their doors at six o’clock, drew one hundred and seventy-five agreements, and landed the Cotton Oil Trust under a New Jersey charter before daylight. They must have got at least $50,000 for this night’s work.
Sometimes, Barron tells us, the lawyer creating the combinations felt the laws of the states so strongly against him that he would have to “take his gripsack and papers and get out of the way over in New Jersey. . . .”
Thus Gary and John W. Gates, in short order, out of an industry in which “every man’s hand was against his neighbor’s” formed the wire-nail Trust. The Moore brothers, conquerors of Wall Street, and owners of a match monopoly, formed in quick succession the National Biscuit Trust, the tin-plate Trust and the steel-hoop Trust. In Chicago, large steel interests were grouped together by Gary to form the Federal Steel Company, second only to Carnegie’s group in size. At the same time, under the active stimulus of the House of Morgan, which now entered the steel trade with zest, there came tumbling forth—to Carnegie’s intense vexation—the National Tube, the American Bridge, the American Sheet Steel corporations ; while in another field there arose, with Morgan’s aid, the General Electric, a huge monopoly of a newborn industry. Moreover in the virgin field of public utilities, the forceful group of William C. Whitney, Thomas Fortune Ryan, Charles T. Yerkes, Peter A.B. Widener, H.H. Rogers, William Rockefeller, moved with “precaution and deviltry” to round up gas and electric companies and urban railroads. Still another group of aggressive Yankees led by Theodore Vail hastily swept together most of the new telephone companies into a nation-wide monopoly, which was to grow into the American Telephone & Telegraph Company ; while other interests, pouncing upon new industries created by technologists such as Edison, Westinghouse, Thomson and Houston, gathered in their own hands the production of all electric appliances and machinery required by the public utilities.
So in a greatly shortened period of time the new resources, gas and hydro-electric power, passed through such a process of centralization as had taken place in the railroads or the oil trade, nearly a generation before. The same principles and tactics were seen at work, though at a swifter tempo. The dominant men in each industry emerged after ruthless destruction of their adversaries. In the process of consolidation, there were the usual movements of treachery and ambuscade, of attraction and repulsion, and the usual effects—enforced delays by interests who held out for tremendous ransoms before they would retire from the field.
Backed by the House of Morgan, Charles Coffin, a rising entrepreneur of electrical machinery, erected a great enterprise on the basis of the patents of two English inventors, Thomson and Houston. The company which bore the name of the inventors was reorganized as the General Electric Company and the English partners, Thomson and Houston, “squeezed out” by financial sleight-of-hand. In a moment of confidence, Coffin, president of the General Electric Company, confessed to George Westinghouse (as Barron’s notes record) how he had done this trick :
He told me how he ran his stock down [says Westinghouse] and deprived both Thomson and Houston of the benefits of an increased stock issue. He was enabled by the decline in stock which he had forced, to make a new contract with both Thomson and Houston, by which they waived their rights to take new stock in proportion to their holdings under their agreement with the Company.
I said to Coffin, “You tell me how you treated Thomson and Houston, why should I trust you after what you tell me ? ”
For the General Electric was now engaged alternately in waging price wars against its adversaries, Westinghouse and Instill, and in coaxing them to enter into combination with itself. Coffin admits that he “had been cutting prices fearfully,” in order to “knock out” other electric companies. Then once having established his street-car motors or dynamos in a given district, though rivals might offer their own products at lower rates, Coffin could charge what he wished : “The users willingly pay our price as they cannot afford to change the system.”
Westinghouse stubbornly held to his own way : “I said most emphatically that I would not go into any electrical combination of which . . . I was to be the head. I had done work enough. . . . ” In vengeance the General Electric and the House of Morgan bombarded him on many fronts, not only in trade, but in the money markets where his credit was at stake.
From all the stock-market sub-cellars and rat-holes of State, Broad and Wall Streets crept those wriggling, slimy snakes of bastard rumors. . . . “George Westinghouse has mismanaged his companies . . . George Westinghouse . . . is involved beyond extrication unless by consolidation with the General Electric. . . .” There came a crash in the Westinghouse stocks.
So Thomas Lawson, the florid historian of “Frenzied Finance,” pictures the contest which was successfully terminated only when he, like a “broker-general,” “as an expert in stock market affairs, was called in for assistance” to Westinghouse and drove a heroic bargain.
Like Huntington, Gould and Archbold before him, Coffin perfected Machiavellian tactics for negotiating with the governments of the cities or regions to which he brought electrical illumination. Coffin at one time came to Westinghouse
and asked him to raise with him the price of lighting from $6 per [street] lamp to $8 per lamp. Westinghouse said that $6 gave fair manufacturing profit, but Coffin said that the Thomson-Houston policy was “boodle” and that it cost in payments to officials about $2 per light, and if they made the price $8 they could spend $2 with the aldermen, etc., and still get their manufacturing profit.
Thus in the new electrical industry the cost of political privilege came to be calculated with exact science. But in the field of public utilities, in the organizing of street-car lines, lighting and gas companies for the industrial cities of the country, the pace of exploitation was even more frenzied, while the barter of political patronage so necessary for the disposal of eternal franchises owned by the people was carried on with gargantuan cozenage and fraudulence.
In New York, William C. Whitney, who had helped Tilden and Choate to bring down the House of Tweed, used his own knowledge of local politics as well as his prestige as a former presidential cabinet member to obtain for a time virtual control of Tammany Hall. The new technology sometimes bestowed on aldermen or city government officials means to astonishing wealth. Thus a certain Jacob Sharp had bought a franchise for the Metropolitan Traction Company by payments of as much as $500,000. Denounced by Roscoe Conkling in a sensational prosecution, Sharp had been imprisoned, and died raving in delirium. But before his death, in 1887, he had sold his holdings to William Whitney and Thomas Fortune Ryan. These and other properties, such as the Brooklyn Railroad, were later combined under the head of a great “holding company” by Whitney and Ryan ; and by feats of stock-market legerdemain, and “trained mismanagement,” à la Jay Gould, the pair multiplied their original, trifling capital a thousandfold, emerging with two of the quickest and largest fortunes of the whole era of Frenzied Finance.
In Chicago the electric railroads were preëmpted by the former embezzler Charles T. Yerkes. Under his domination, writes Burton J. Hendrick, in “The Age of Big Business,” the Chicago aldermen “attained a depravity which made them notorious all over the world. They openly sold Yerkes the use of the streets for cash. . . .” Yerkes bought the old street-car lines, made contracts with his own construction companies for their rebuilding, “issued large flotations of watered stock, heaped securities upon securities and reorganizations upon reorganizations.” The maxims of the man whom Theodore Dreiser has dramatized in “The Financier” were in themselves fascinating. He would say : “It’s the straphanger who pays the dividends.” And further : “The secret of success in my business is to buy old junk, fix it up a little and unload it upon other fellows.”
This he did. After reducing the railway system of Chicago to chaos, he unloaded everything upon his old New York friends, Ryan and Whitney, and then decamped forever to London.
In Philadelphia, there was the former butcher Peter Widener, who stepped into Yerkes’s place after the latter had fled. He was suave, jovial and firm, successful in local politics, and in harmonious agreement with Senators Quay and Penrose, who controlled the political favors of the region. With the coming of the trolley car in 1887 and the incandescent lamp of Edison, Widener, grasping his opportunities, became a master of immense public utilities, ultimately of giant holdings which would have made old Vanderbilt and Gould turn over in their graves. No less than Yerkes was Widener credited with picturesque character and explosive sayings. One day a group of minority stockholders in one of the companies which he, together with Whitney and Ryan, dominated somewhat vigorously objected to a proposed change in their articles of incorporation. Whereupon Widener as chairman said to them firmly : “You can vote first and discuss afterward.”
In this wise the new reserves of natural power and the new machines devised by technicians during the decade that followed 1893 were seized and exploited with extraordinary despatch. The momentous grant of invaluable franchises—to provide cooking-fuel, electric lighting for streets and homes, to transport the masses of city dwellers back and forth to their tasks in the great urban conglomerations which dotted America—this, as well as the donation of invaluable hydro-electric power-sites to men of the caliber of Yerkes, Whitney, Ryan and Widener, was effected almost in the twinkling of an eye, and without a cry of protest. These possessions in turn were combined and pressed through the process of “trustification,” under which virtually all the industries of the country were being organized. It was these great promotions, not only in public utilities, but in steel, tobacco, cottonseed oil and a hundred other products which engaged the attention of the country, as examples of “Frenzied Finance” rather than the underlying process of consolidation that was going on. For though consolidation had come at first as a technical advance over unbridled competition, it ended by becoming a fantastically profitable occupation to the undertakers and bankers, wherein technical or economic gains from combination were secondary to the prospective profits from promotions.
Under existing corporation laws, the promoter would first set up a brand-new corporation of a stated capital in which, as a Trust, he intended to combine all his purchases. Then he would go out and form a syndicate of bankers or “underwriters” to furnish cash or credit with which to buy in the scattered properties. And once the properties were combined, the undertaker usually found ways of multiplying their market value ad infinitum, by the instrument of the stock market.
Rarely were two and two put together without footing up to five or seven or sometimes fifty in the terms of the new Trust capitalization. Thus in setting up the American Tobacco Company the artful allies Whitney and Ryan had begun by issuing to the public an initial capital of $10,000,000, which was increased in 1898 to $70,000,000 ; then finally, when they changed the company into a New Jersey corporation in 1909, they celebrated with a rousing recapitalization of $180,000,000 ! According to one of the fantastic legends of Wall Street, Whitney and Ryan together had used little more than $50,000 in promoting the tobacco Trust, and capturing its stock.
Other promoters and investment bankers, in the halcyon days of McKinley and Hanna, did no less. For promoting the American steel and wire Trust Gates got himself most of its $15,000,000 in stock, which he then sold up and down in the market. For promoting the tin-plate and steel-hoop Trusts, the Moores paid themselves $5,000,000 and $10,000,000 respectively. According to Montague, the National Steel Company, valued at $27,000,000, was capitalized at $59,000,000 ; the American Steel Hoop Company, with a money investment of $14,000,000, issued $33,000,000 in securities. The American Steel and Wire, with $80,000,000 capital, was later valued by Mr. Morgan himself at $40,000,000. But greater by far than all of these would be the “water” in the mammoth steel Trust which certain interests were now dreaming of.
A typical story of the madness of those times for industrial promotions, for the making and selling of pieces of capital, is told by Moody. When one of the smaller steel and iron Trusts was being formed, a party of steel men were on their way to Chicago one night after a buying tour. The men had been drinking and were in a jovial mood.
“There’s a steel mill at the next station,” one of them suddenly remembered ; “let’s get out and buy it.”
It was past midnight when they reached the station but, thundering at his door, they pulled the owner out of his bed and demanded that he sell his plant.
“My plant is worth $200,000—but it is not for sale,” he said irritably.
“Never you mind about the price,” answered the hilarious purchasers. “We will give you $300,000—$500,000.”
Yet even at these terms, fat profits were reaped from the amalgamations crazily patched together ; and hosts of new multimillionaires soon went cruising about the country in their “glittering trains” ordering new portraits of themselves and their wives and palaces in Newport or Florida.
Nevertheless a power which overshadowed all the rest remained in the hands of the earlier organizations created by the three foremost exponents of business enterprise : Morgan, Carnegie and Rockefeller. The first because he had created a virtual monopoly in banking, a “money Trust”; the second because of his death-grip on the key industry of the country ; the third, Rockefeller, because his amassing of industrial profits continued at such a high rate that an immense reservoir of cash was accumulated, which sought outlet through investment-banking operations of a size exceeding even those of Pierpont Morgan.
Let us glance at these three organizations, in their final stage of development, studying their tactics, scale of operations, and relations with each other.
3
The last decade of Carnegie’s career as steel master, after the Homestead battle, witnessed an unparalleled expansion to the very limits of his field. It was under the aggressive management of Henry Frick that the Carnegie Steel Company completed its organization as a vertical Trust, spreading its operations in a continuous thousand-mile-long chain from its own iron mines over its own ships and railroads to its furnaces and rolling mills.
In 1892 Frick had told Carnegie it was “hard to estimate what blessings will flow from our recent complete victory.” The cost of labor thereafter had been lowered by about 20 per cent, ultimately by far more, as technical economies were constantly attempted. In the lean years between 1893 and 1898 Carnegie, in accordance with his familiar maxims, proceeded to use cheap labor and cheap material in order to double the size of his plant. Some years before, S.G. Thomas’s open-hearth furnace process for the smelting of iron had been introduced to replace ultimately the less efficient Bessemer converters. Then, in 1890, one additional steel mill had been purchased ; and after 1892 the young superintendent Schwab had directed the building of another mill at Braddock. Finally, to keep pace with all these gains and with the swifter rhythm of production, the partners Frick and Carnegie had resolved to reach out for vaster reserves of iron ore.
Very early in his management Mr. Frick [writes Harvey] had realized that control of sources of supply of raw material was essential to full independence of the manufacturing unit in which he was welding the segregated and competing plants. Its own coke the company had ; its own ore it must have.
A Pittsburgher, H.W. Oliver, of the farm machine company bearing that name, had been among the first Eastern capitalists to “plunge” into the Minnesota ore fields, opening a mine in the Mesabi in 1892. During the Homestead strike he had begun to negotiate with Frick and Carnegie.
“Oliver’s ore bargain—nothing in it—just like him,” Carnegie said at first. But Rockefeller—to whom Carnegie referred in his private correspondence as “Reckafellow”—was now known to be acquiring large sections of the Mesabi Range, which in 1892 easily seemed as promising as the Pennsylvania oil lands in 1859. Soon “Reckafellow” would own all the railroads out there “and that’s like owning the pipe lines,” Carnegie commented with alarm. There would be a “squeeze,” he concluded.
“I was astonished,” says Rockefeller in his reminiscences, “that the steelmakers had not seen the necessity of controlling their ore supply.” If he could but “slip in,” he would, dominating petroleum already, truly become lord of the American underground. He might even begin to make steel at Lake Superior ports.
In the face of such a threat Carnegie moved swiftly. For $500,000, advanced as a mortgage loan, he obtained a dominant interest in the mining companies gathered in by Oliver. Then he began to “trade” with “my dear fellow-millionaire”—as he addressed “Reckafellow” directly—whom he considered a “hard bargainer” but always sought to mollify. By consenting to purchase no further ore lands in Minnesota, and pledging payments “in gold of standard weight and fineness,” Carnegie was able to obtain from Rockefeller a fifty-year lease, at extremely favorable terms, which brought ore in quantity to Erie ports at a net cost of $1.45 per ton. No other steel-producer in the world now had such a strategic grip on such abundant supplies. By lease or ownership Carnegie held two-thirds of the Mesabi deposits, the highest-grade Bessemer ore in existence. In two years the Oliver mining investments—purchased, as usual, “for nothing”—had paid for themselves, as annual output rose from 29,000 to nearly 2,000,000 tons of ore. As for the deal with Rockefeller, Carnegie always chuckled over it, saying long afterward, in 1912 : “It does my heart good to think I got ahead of John D. Rockefeller.” He was now equipped to undersell the world.
“Last year was really fine, under the circumstances,” Carnegie wrote to Frick, as he pondered the reports for 1894, which showed him $4,000,000 in net profits. “Next year may not be better. But a year comes when I think double.” His prophecies, couched in his own curious language, are sure. He watched the books like a hawk, he scanned the tonnage figures for the individual mills, the costs, the profits, and in person or over the cable always clamored for more ! more ! more ! When he came to Pittsburgh he wanted reports :
“Figures, my friend, figures !” he would say to Schwab. His visits were dreaded by his force ; none but the late Captain “Billy” Jones and Henry Frick dared to brook his cold will. At his lashing the clouds over Pittsburgh lay in an ever thicker pall, the smoke and flame by night grew more lurid still. It was a “continuous fire festival,” as a contemporary of the time noted ; and out of the “work and murk,” out of the rivers of black smoke and dirt and the weariness of legions of muscular men, the stream of steel ingots swelled always, the millions in gold piled higher and higher.
In all directions throughout the world, the great steel master extended his market. To Russia Carnegie sold armor plate for her navy ; and although a crusader for world peace he exerted himself also to build most of the big navy here too, sometimes attempting to “trim” the federal government itself in the process. In September, 1893, informants, former employees at the Homestead plant, brought to the Secretary of the Navy, H.A. Herbert, evidence that the Carnegie company had failed to temper armor plate “evenly and properly,” that they
had plugged and concealed blow-holes, which would probably have caused a rejection of plates by the government inspectors, and had re-treated, without the knowledge of the inspectors, plates which had been selected for the ballistic test, so as to make these plates better and tougher than the group of plates represented by them.
The informants stated that some of the plates, after having been selected and set aside for testing, “had been secretly and without the knowledge of the government inspector, re-treated at night—that is, reannealed and retempered.” Now the statements of Messrs. Schwab and Corey, the plant superintendents, sworn statements of precise time of treatment and heating of plates, were therefore alleged to be false. The investigations which ensued, directed by Captain Sampson in 1894, sustained all the charges, and recommended penalties of 15 per cent upon all the amount of armor. Schwab, Frick and Carnegie came to Washington, upon invitation, and expostulated, testified, in vain. Frick disclaimed all knowledge of the deception ; he attributed the surreptitious removal and “re-treatment” of plates by night to “over-enthusiasm” on the part of workers. Finally, Frick, who was now an art patron, wound up by saying that uniformity in steel was unattainable. Each beam or plate was like a poem. “You might as well say that a painter could execute an equally good picture every time. Millet painted but one ‘Angelus.’ ” Yet Mr. Cleveland had been unaffected by learning thus of the artistic temper of armor plate and, with a mild rebuke to the great steel company, imposed a fine of $140,484.94, or 10 per cent of the value of the steel.
Periodically the loyal, secretive band of Carnegie Associates met in grave conference of which the minutes were carefully kept. It needed unremitting vigilance, sleepless labor to carry on the Carnegie steel operations at the pace at which they were expanding. For by 1899 they had made stupendous gains : profits of $20,000,000 were garnered and 70 per cent of the country’s steel exports were made by them.
At such meetings all reports of the aggressions of new competitors or combinations in steel, of political problems connected chiefly with the protective tariff, or labor questions, were thoroughly aired and stratagems devised. A secret agent, for instance, would bring the alarming news that steel-makers in Chicago were obtaining from the Pennsylvania Railroad preferential shipping rates of $1 a ton less than those paid by the Carnegie company. At once Carnegie resolved to break the strong grip of the railroad monopoly over Pittsburgh. Secretly he bought control of a dilapidated railroad line, the Pittsburgh, Chenango & Lake Erie, extending from Conneaut Harbor, at the lake, to within thirty miles of his steel works. He then proceeded to complete a freight line serving his own properties solely and connecting with the ore vessels of the lakes.
In alarm the Pennsylvania officials hastened to offer concessions ; but Carnegie remained coy, evaded them. In the meantime, as they begged for interviews, he summoned a young man who was in charge of traffic matters.
“I must have the exact rebates that are being paid our competitors. How you are to get them I don’t know and don’t care. But I must have them.”
In short order, the young amateur of espionage—but why should one think espionage rare in heavy industry ?—placed the desired information in Carnegie’s hands, according to Hendrick’s account : “From that day to this no one has ever learned how he obtained these, the closest of all railroad secrets.” And, the biographer of Carnegie adds, with remarkable naïveté, the service was considered so great that the young man was “in due course” admitted to partnership in the Carnegie Steel Company.
Facing the lords of the Pennsylvania Railroad with precise evidence of their secret rebates to competitors, Carnegie was now able to beat down their huge overcharges of one million and a half per year. Peace was made at last, but Carnegie did not abandon the spur freight line to the lake, afterward renamed the Pittsburgh, Bessemer & Lake Erie. For all his promises and bargains he soon returned to complete this as one of the vital links in the chain of industrial units which composed his “vertical” Trust, and which was almost completely rounded out by the season of 1896-97. Such expansion was now imperative : a matter of immediate self-preservation.
Between 1896 and 1898, the large steel amalgamation in the West “framed” by that patient negotiator Elbert Gary in collaboration with Pierpont Morgan gave much concern to the Pittsburgh steel masters. But whereas the Federal Steel Company was vastly overcapitalized (at $200,000,000 against a book value of only $56,000,000), the Carnegie organization remained without “watered stock” or bonds on which payments must be met, with little debt to bankers, and possessed its own “war chest,” almost unlimited in size. The Carnegie Associates formed a “close” partnership of the old style rather than such a monopolistic bureaucracy as investment bankers these days were instituting in one trade after another. All of the combinations in raw steel, or pipe, or sheets, could soon be made to feel Carnegie competition painfully. He urged a policy of “armed neutrality”:
We should look with favor upon every combination of every kind upon the part of our competitors ; the bigger they grow the more vulnerable they become. It is with firms as with nations ; “scattered possessions” are not in it with a solid, compact, concentrated force.
Then when the National Tube Company (Morgan-inspired) was announced, he said :
I note pipe combine, which I hope is to go through. We want to play independent producer there, but should keep the matter very quiet.
To meet the maneuvers of the Carnegie Associates, wily and fierce, equipped to “rule or ruin” their field, was indeed a formidable task ; and Gary, who longed with Morgan’s aid to develop the steel mills he headed upon a grander design for the conquest of world markets, found it impossible to gain a foothold in the export trade.
In 1898, with the Spanish-American War looming, he had taken a dinner of canvas-back duck with Carnegie ; and between them, the two men had once more pooled half the rail tonnage of the country. While the people warred with a foreign power, the steel masters found it wise to make peace with each other. Prices were held high and enormous profits were taken for the season. But what if tomorrow Carnegie broke from the pool—then the future of the Morgan steel fictions trembled in the balance. Panic might be unchained.
In anxiety Gary would say to Morgan : “Now if we could buy the Carnegie company . . .”
And Morgan would answer : “I would not think of it ! I don’t believe I could raise the money.”
4
In the meantime, the years of depression after 1893 had wrought no less signal changes in the nature of the Standard Oil Company. This industrial empire, which continued to conquer markets and sources of supply in Russia and China as well as at the frontiers of the two Americas, was in no way checked by the period of general hardship. Nor had prohibitive laws, or condemnation of the company in certain regions such as the State of Ohio, hampered its progress in any degree. The order of dissolution in Ohio had simply been resisted by every legal subterfuge conceivable to its counsels ; and then after seven years the Standard Oil had simply sloughed off its skin, and appeared as a New Jersey holding corporation.
But after 1893 the Standard Oil Company had a dual character. It was no longer simply an industrial monopoly, composed of men who simply owned and managed their oil business ; it became, in great part, a reservoir of money, a house of investment bankers or absentee owners. So rapid had been the increase in annual profits, from $15,000,000 per annum in 1886 to $45,000,000 in 1899, that there was always more cash than could be used as capital in the oil and kindred trades. It became inevitable that the Standard Oil men make reinvestments regularly and extensively in new enterprises which were to be carried on under their absentee ownership. By a coincidence these developments came at a time when John D. Rockefeller announced his “retirement” from active business.
Moody in his “Masters of Capital” relates :
The Rockefellers were not the type of investors who were satisfied with five or six per cent. . . . They meant to make, if possible, as large profits in the investment of their surplus cash as they had been accustomed to make in their own line of business. But to make money at so rapid a pace called for the same shrewd, superior business methods. . . . To discerning men it was clear that ultimately these other enterprises into which the Standard Oil put its funds must be controlled or dominated by Standard Oil. William Rockefeller had anticipated this development to some extent years before when he had become active in the financial management of the Chicago, Milwaukee and St. Paul Railroad. But it was not until after the panic of 1893 that he and his associates began to reach out aggressively to control the destinies of many corporations.
John D. Rockefeller at this time possessed a fortune that has been estimated at two hundred millions ; his brother William owned probably half as much, while his associates who usually moved in conjunction with him or his brother, Rogers, Flagler, Harkness, Payne, and various others combined now to form a capital of a size probably unprecedented in history. Soon the money markets felt the entrance of the Standard Oil “gang” in strange ways, as they began buying and selling pieces of capital, industries, men and material. This omnipotent group had brought a “new order of things” into the world of high finance. They had introduced into Wall Street operations, according to Henry Clews, “the same quiet, unostentatious, but resistless measures that they have always employed heretofore in their corporate affairs.” Where a Gould might sometimes face the chance of failure, or a Commodore Vanderbilt have to fight for his life, Clews continued wonderingly, these men seemed to have removed the element of chance :
Their resources are so vast that they need only to concentrate on any given property in order to do with it what they please . . . that they have thus concentrated . . . is a fact well known. . . . They are the greatest operators the world has ever seen, and the beauty of their method is the quiet and lack of ostentation . . . no gallery plays . . . no scare heads in the newspapers . . . no wild scramble or excitement. With them the process is gradual, thorough, and steady, with never a waver or break.
In the conduct of these far-flung undertakings the Standard Oil family had always the loyal coöperation of the captains and lieutenants who wore their “collar” so contentedly, and who sent confidential news every day from all parts of the world. The “master mind” in these investment operations nowadays would seem to have been Henry Rogers ; while important alliances, as we have seen, were effected with Stillman, the astute commander of the National City Bank, and Harriman, the rising giant of railroads.
After the headquarters of Standard Oil had been removed from Pearl Street to the high building at 26 Broadway, the active leaders of The System, as Thomas W. Lawson termed it, would go upstairs every day at eleven o’clock, to the fifteenth floor, and gather together around a large table. It was the high council of a dynasty of money, and men everywhere now spoke with bated breath of the commands which went forth from this council, and of the power and relentlessness of The System. In his romantic history, “Frenzied Finance,” the stock-market plunger Lawson seems to blubber at the stupendous holdings of the Standard Oil “gang” toward 1900—“its countless miles of railroads . . . in every state and city in America, and its never-ended twistings of snaky pipe lines . . . its manufactories in the East, its colleges in the South, and its churches in the North.” The guarded headquarters of Standard Oil aroused and have always aroused an awe which Lawson accurately reflects :
At the lower end of the greatest thoroughfare in the greatest city of the New World is a huge structure of plain gray-stone. Solid as a prison, towering as a steeple, its cold and forbidding façade. . . . Men point to its stern portals, glance quickly up at the rows of unwinking windows, nudge each other, and hurry onward, as the Spaniards used to do when going by the offices of the Inquisition. The building is No. 26 Broadway.
John D. Rockefeller, with the aid of Stillman, had been making strategic investments in many banks, insurance companies, railroads, and public utilities ; but most of all his tastes led him to accumulate underground wealth in iron and coal mines as well as oil.
Far to the North in Minnesota, the Merritt brothers toward 1890 had stumbled upon the Mesabi iron range, gambled all the money they possessed to exploit it and connect it with civilization by a short railroad. Through Rockefeller’s clerical adviser, the Reverend F.T. Gates, a small loan was at first extended them and the bonds of the Merritts’ railroad spur passed into his hands. (His agents were early on the scene—even before those of Carnegie and the steel barons.) In the panic of 1893, the adventurers who had discovered the iron ore fields appealed to Rockefeller for further aid ; but with each negotiation, the grip of the oil baron upon the Mesabi deposits tightened, until the Merritts, ruined, must relinquish their hold and sink out of sight. Thus for a sum that the Merritts claim to have been only $420,000 Rockefeller acquired the largest iron deposits in the world, forming thereof the Lake Superior Consolidated Ore Mines, which he sold in 1902 to the United States Steel Corporation.
While the oil monopoly functioned automatically under the command of technicians and experts and smoothly extended its gains, all of the Standard Oil captains now practiced the arts of large-scale investment. Henry Rogers, often with the collaboration of one or the other Rockefeller, acquired possession of the new gas companies which offered such serious competition to the Standard’s kerosene business. Here he worked by preference with reputedly shady characters of the stamp of Addicks, a Boston gas-company promoter and debaucher of town councils, Lawson the manipulator of stock markets, and a shifty agent or spy named Burrage.1
Under Rogers the “money machine” of The System reached its highest perfection. Many feats of Wall Street magic were performed by him and his aides, in order to “have a little fun,” as he would say. The most notable example of all these ventures in investment banking was that of Amalgamated Copper, in which the Standard Oil men and the National City Bank collaborated. Through Thomas Lawson acting as broker, Rogers brought together several copper properties owned by the old prospector Marcus Daly. They included the Anaconda Copper Company costing $24,000,000 and certain others purchased for $15,000,000. Of this famous deal, John T. Flynn gives an excellent resume of the initial transactions :
First he [Rogers] and William Rockefeller took title to the mine properties, giving to Marcus Daly a check on the National City Bank for $39,000,000, with the understanding that the check was to be deposited in the bank and remain there for a definite time.
At the same time Rogers organized the Amalgamated Copper Company with a lot of clerks as dummy directors. Next he transferred all the mines to this Amalgamated for $75,000,000. The Amalgamated gave him not cash, but all of its capital stock. Then he took this $75,000,000 of stock to the National City Bank and borrowed $39,000,000 on it. This took care of the check to Daly and his friends.
Rogers and his party have the copper trust in their possession ; but they owe the friendly National City Bank $39,000,000 ; and besides nothing is further from their thoughts than to mine copper. That may be well enough for “captains of industry” of yesterday who like to own and oversee their business. But Rogers now engages the flamboyant Lawson and the shifty A.C. Burrage to stir up a market for Amalgamated shares at 100 to 125, and the whole $75,000,000 of stock is landed upon a public, largely in Boston, which is now frenzied for “coppers.” The bank is repaid its $39,000,000 and Rogers and company pocket $36,000,000 profit, without having used a dollar of their own. This was “The System” Rogers used, according to Lawson’s impassioned confessions, which tumbled ministers, doctors, lawyers and shopkeepers throughout the country to ruin, and sent “their innocent daughters out to walk the streets.”2
Such a “money machine” was unbelievably good. It is Flynn’s supposition that John D. Rockefeller himself refrained in great measure from the more audacious expeditions of his brother William, and of Rogers. But Barron’s journal refers frequently to the same procedure on John’s part. The broker F.H. Prince tells him :
John D. Rockefeller is worth a billion. He makes his money by simply tipping out $500,000,000 of securities, then the market goes down and he takes them back at his leisure. Of course the market cannot stand the weight of his selling. He is the one man who knows what everybody else is doing, and nobody knows what he is doing.
As a member of the board of directors of the Chicago, Milwaukee & St. Paul Railroad, William Rockefeller had long ago struck up a warm friendship with James Stillman, the president of the National City Bank. The latter, stirred at all he learned of the efficiency of the Standard Oil management, and of its hierarchic and centralized government, so much like that of the Roman Catholic Church, modeled his own bank after it. He bought Standard Oil stock and became one of the family. Sphinxlike, autocratic, silent, he came closer always to the Rockefellers whom he so much resembled. The Standard Oil Company, which had been up to now acting largely as its own banker, found an astute and discreet counselor in Stillman. Through him their money flowed to the new gas, copper and steel companies ; through him, finally, into the spectacular railroad operations of Harriman, whose rising star Stillman also perceived from the start. At any rate “the City Bank . . . from now on, in certain circles, became known as the ‘Standard Oil bank.’” It was the machine through which their greatest exploits were carried out.
Soon, John Moody relates, “the fifteen directors of the Standard Oil Company of New Jersey held directorships in innumerable banks, insurance companies, traction companies, electric light, gas and industrial concerns of every sort.” Through Stillman they dominated a constellation of banks : the National City, Hanover, Farmers’ Loan and Trust, Second National, United States Trust ; they were involved in the new American Smelting and Refining combination, in the copper mines of Montana and the iron deposits of Minnesota ; in United Gas Improvement, Interborough Rapid Transit (with Belmont), Brooklyn Rapid Transit, and Metropolitan Securities (with Whitney and Ryan). Finally, according to John Moody, Rockefeller even approached Carnegie, and “tried to buy him out.” It was Rockefeller’s desire to solidify his interests in his ore lands, his ore railway in Minnesota, as well as his fleet of freight vessels on the Great Lakes. But Carnegie, who had been offered $157,950,000 for his business by the Moore brothers in 1898, now demanded nearly twice as much. John D. retired, and bided his chance.
The banker Stillman had “gone right after Harriman, regarding him as the next great promoter after the Standard Oil group,” by his own account. After 1896, the flow of Standard Oil gold and credits into the little stockbroker’s railroad projects became a Niagara. For Harriman, as Stillman convinced the others, was a man after their own heart. The boldness of his schemes for combination, his ingenious devices for reciprocal purchases of stock in related railroads, and for interlocking directorates through “working majorities” (which were actually aggressive minorities dominating passive investors) and the quick, ripe fruits gathered from his undertakings—all this appealed to the Rockefellers strongly. Armed with such credits, Harriman now climbed swiftly over the heads of other railroad captains during the closing years of the century, to reign as a “Napoleon” of the national railway system during a brief, dazzling career which was ended suddenly by the complete exhaustion of his health and his early death.
This “human dynamo,” as his associates began to call him, had supreme confidence in himself. “When he started on a course, nobody could swerve him from it. He would go right through despite all opposition and carry the situation alone,” says a Union Pacific man. “He would not understand public sentiment or why he had public opposition in many cases.” With his gift for swift and elaborate calculation, he was instinctively impatient or scornful of the criticism of slower-witted folk surrounding him ; he feared neither God nor Morgan nor the pangs and scruples of conscience. An obituary notice of him declared that the secret of his victorious career was his utter lack of moral scruples. Had he not cast these overboard, he would have stumbled at the very first step he took. One of his last steps was that of breaking the man who had opened the gates of the railway paradise for him—Stuyvesant Fish. Fish himself was a fellow of smaller knavery ; and when Harriman found that his old friend could not be trusted with railroad treasury funds, he flung him aside without mercy or gratitude.
As he had once clashed with Morgan in 1887 over a small Middle Western feeder railroad, so he opposed him again in the “reorganization” of the Erie which Morgan initiated after its renewed failure in 1893. Acquiring some of the Erie bonds, he led a protective committee in vigorous opposition to the Morgan plan, and within six months he had been able to balk the great banker and force a change of capitalization. At the outset Harriman had distinguished himself among men by practicing a form of economic terrorism ; but soon he made bolder strokes.
Among the 156 railroads which collapsed in the depression of 1893-96 was the Union Pacific, whose history was as malodorous as that of Erie and which had also never completely recovered from the ministrations of Jay Gould. When it fell finally in 1895, its limbs and branches—the Oregon ship and rail lines united with it after Villard’s crash—were torn away, and its condition was so woeful that Pierpont Morgan, being appealed to, refused to assume charge of its affairs.
This would seem to be the great banker’s chief tactical error. With Morgan’s tacit consent, Jacob Schiff of the esteemed banking house of Kuhn, Loeb & Co. attempted the reorganization of the Western trunk line and induced the Vanderbilts to take part in his plan.
“But in the latter part of 1896, Mr. Schiff and his associates became conscious that some secret but powerful influence was working against them.” Schiff assumed that it was concealed sniping from the house at 23 Wall Street ; but at Morgan’s he heard : “It’s that little fellow Harriman, and you want to look out for him.”
“I am the man,” Harriman admitted when Schiff confronted him. What did he propose ? To issue $100,000,000 in bonds at 3 per cent, against the credit of Illinois Central which he controlled. Schiff could not get money under 4½ per cent. “I am stronger than you are,” Harriman wound up.
Schiff asked : “What is your price ?”
Harriman replied : “There is no price. I am determined to get possession of the road.”
After long delays, skirmishes and masked thrusts, Schiff returned finally to yield to Harriman, on behalf of his faction, chairmanship of the Union Pacific’s directors “if you prove the strongest man. . . .” The bargain was struck. Within a year, the defunct railroad was sold to the new interests according to the Harriman-Schiff plan ; $81,000,000 were easily raised to meet immediate government loans and other obligations. Then, under Harriman’s leadership, in anticipation of a boom which he forecast, $25,000,000 more capital was raised for the road. Schiff “walked the floor at night” in these days, while Harriman captured the old Oregon rail and ship lines of Villard, pushed new construction, built tunnels and great cut-offs with furious speed, with an amazing expenditure of energy. Thus, this new dictator of railroads saw his and the Rockefeller investments, according to his official biographer, increase in value 1,400 per cent within eight years ! In 1901, five years after the entrance of Harriman, John W. Gates commented that the Union Pacific was indeed “the most magnificent railroad property in the world.”
Harriman was not merely a bold and gifted administrator ; he had, to a degree which Morgan might keenly envy, skill in carrying out “reorganization parties” such as the notorious Chicago & Alton affair. According to Professor Ripley, the “reorganization” of this bankrupt road by the Harriman-Rockefeller-Stillman group was attended with the injection of $23,000,000 of water into its bonds and stocks. Then the new managers had paid themselves liberally, and sold their Alton stocks and bonds. Harriman was also not above selling railroad and other properties which he and his associates personally acquired to be merged into the larger Union Pacific system at a fine price, in the classic manner of Jay Gould. In the seven years following 1893, he accumulated one of the first fortunes in the country.
Yet these feats alone would not have offered so much menace to the system of “community of interest” which Morgan and his associates laboriously erected day by day over the economic life of the country. It was the spreading network of the Harriman Rockefeller railway and industrial investments that caused alarm. The Union Pacific itself had now become a mighty money-chest, its interlocking controls reached the middle roads, such as the Illinois Central Railroad of which Harriman still remained a director, and great Eastern systems such as the Baltimore & Ohio. But in 1900, when Collis P. Huntington died, Harriman and his band of multimillionaires were able to buy from Huntington’s widow the whole railroad empire he had built up : the Southern Pacific, with its direct line to San Francisco. For this transaction Harriman promptly raised over $50,000,000, which brought a majority stock control.
Harriman and the Standard Oil “gang” in alliance were now taking over the key railroads, as well as the chief underground resources of the nation in oil, iron and copper, while Morgan won over the banking system of the country, and at the same time Carnegie fastened his grip on the major industry of the country, steel. Such simultaneous concentration of force among the opposing dynasts furnished the materials for “irrepressible conflict.”
In the steel trade Carnegie must break forth to combat the encroachments of the new Morgan Trusts ; but having fought to a finish, the survivor would have to negotiate or fight for his life against the arrayed might of the Harriman-Rockefeller dynasty. And who could safely foretell a happy issue from such a contest ?
“How can you beat the Standard Oil party, with their sixty millions of income per annum ?” exclaims James Keene, the wizard stock-market leader who now acts as one of Morgan’s lieutenants. “They have control of all the industries, are getting all the railroads and the street railways, and will in a few years own the whole country. I can see no stopping them.”
1 An element of the underworld of finance colors the operations of Rogers, by several accounts. The man Burrage, according to Barron’s notes, attempted several times to betray the confidence of Rogers, yet Rogers continued for a time to invite him to his house, for reasons of his own.
Once when Rogers had A.C. Burrage at the foot of his table with four other guests, one of the guests said to Rogers : “How can you tolerate that Mr. Burrage opposite you at the table ?” Rogers said : “I am enjoying it immensely. I was thinking all the time how he would look after I had plucked him.”
2 Lawson’s highly colored account in his book “Frenzied Finance” is borne out by the secret notes of Barron, and reports of the time. One of the oldest and best-known Wall Street brokers, who witnessed these events from close at hand, assured the writer : “Lawson’s book is exaggerated but quite true.”
Later, as Rogers “plucked” Burrage, so he plucked Lawson, when the latter disappointed him as “a leader of the market.” On a further foray in Amalgamated—the process described above could be repeated of course as often as profitable—Lawson was left stranded when dividends were suddenly passed by “insiders,” causing him a ruinous loss. “I cannot be responsible for the cupidity of a Boston speculator,” Rogers is reputed to have said, and nothing more.