The Great Pierpont Morgan (12 page)

Finally, McLeod, when Morgan remonstrated with him,
had been openly defiant. Had he not been heard to say that he would rather run a peanut stand than be dictated to by J. P. Morgan?

Very well, then; if McLeod wanted war, he should have it. Morgan was no peacemaker when he felt that he himself or his interests had been attacked. Now he made it clear to those to whom he talked that he was through with McLeod's management of the Reading, and that he would have no use in the future for anyone who came to McLeod's aid. Then, on February 17, 1893, there was a sudden onslaught on the stock of the Reading Railroad—and also the New York & New England Railroad—on the Stock Exchange: a cascade of selling orders which was widely, and probably with good reason, attributed to Morgan's hostility to McLeod.

The result came swiftly. Only a few days later the officials of the Reading Railroad had to go into court and ask for the appointment of a receiver. As McLeod later said, “The raid drove our securities down until we had no recourse but to entrench ourselves behind a receivership. The attack was on both sides, for it not only shut off our source of supplies and impaired our credit, but brought upon us demands from creditors which we could not comply with.”

Thereupon the job of reorganizing the road went to Morgan. McLeod departed under pressure. And—lest anybody try such nonsense again—the reorganization provided for a voting trust to run the road for at least five years, and a board of directors which included Coster, Stetson, and several Philadelphians who saw eye to eye with them.

4

Morgan not only meant to make it impossible for any road for which he had assumed responsibility to squander its funds or to invade his friends' territory; he also meant to make it impossible for any speculator to upset his orderly plans. During this same period the officers of the Richmond Terminal came to him and suggested that he reorganize the property. Now the Richmond Terminal (or, more formally, the Richmond & West Point Terminal Railway & Warehouse Co.) was the nucleus of a group of loosely connected Southern railroads. Its stock had long been a football of speculation; to large numbers of men in the Wall Street area the job it did in carrying
freight and passengers was of trivial interest compared with the gyrations of the price of its shares on the stock market. Morgan investigated the situation, found that most of the common stock was then held by a few men, and decided that he would not touch the reorganization job unless these men would deliver their shares into his keeping while the intricate negotiations were going on. He didn't want to run any risk of these men playing any speculative game while he was at work. The principal owners were Calvin Brice, Samuel Thomas, and W. P. Clyde. They came into the office of Drexel, Morgan & Co. to talk the thing over. According to the subsequent memory of a man who was present at that session, Clyde, the last to come in, settled himself on the long sofa in the partners' room, listened to Morgan's proposed terms, and then drawled, in a voice which suggested a smacking of the lips:

“Well, Mr. Morgan, I've bought Richmond Terminal at 7 or 8 and sold it at 15 twice in the last few years. I see no reason why I shouldn't do it again. So I fear I cannot join with the others in asking you to deal with the property.”

Under the circumstances, Morgan was quite content to have somebody else try to reorganize the Richmond Terminal. The Central Trust Company undertook the job; and only when the Central Trust's scheme had failed, and Morgan was approached again, and the owners dutifully agreed to deposit their shares with him for safekeeping, did he proceed. And this time, in order that the future of what became the Southern Railway might not be jeopardized by speculators less intent upon seeing that it was soundly managed than in riding its shares up and down hill, he tied up its control tightly. Samuel Spencer went in as president, and the last word in the direction of the system lay with a voting trust of three men: Morgan himself; his frequent ally and trusted collaborator, George F. Baker, head of the First National Bank of New York; and his old and intimate friend and fellow-member of the Corsair Club, Charles Lanier.

5

In each of these specific cases which I have been describing, the company in question came—as many other concerns, railroad, industrial, and banking, were in the future to come
—under what was known as Morgan control. This involved immense power. But the nature and limitations of that power have often been misunderstood, and therefore a word or two of explanation and interpretation may be in order.

The word “control” brings to mind a picture of a sort of omnipotent being sitting at a central switchboard from which he manipulates every policy and every transaction of a concern. Yet any large business concern is a loose aggregation of departments which run to a very large extent on their own, facing problems many of which are puzzling even to the head of the concern; and if this is true of a single company, it is all the more true of a varied collection of companies and of the men who sit in a banking office and supposedly “control” them. Usually the representatives of the House of Morgan on the board of directors of a company were content to sit and listen to what went on, merely assuring themselves that the company's funds were not being wasted, that its executives were not going berserk in their competitive battles with other concerns, and the stock-market plungers were not playing hob with it. Even when—as in the three cases of the Baltimore & Ohio, the Reading, and the Richmond Terminal—voting trusts were set up to prevent such abuses, the grasp of Morgan and his friends upon the company's affairs, while strong as iron, was sometimes so loose as to be almost impalpable. The members of the voting trust might know only two or three of the company's executives by sight, let alone know about the decisions which these men faced from day to day, or what sort of enterprises the various departments of the business were engaged in. Neither Morgan nor Baker nor Lanier, for example, could probably have told you what were the chief operating problems of the Southern Railway. (Indeed it can be argued that the very fact that the supreme authority over a railroad so often lay in the hands of men inattentive to engineering advances tended to prevent that rapid renovation of equipment for the lack of which the industry later suffered.) These bankers saw a railroad company as a group of men and a set of books; if the figures were satisfactory, and were vouched for by reliable men, everything was all right and no further attention need be paid to its affairs.

Yet that is not quite all. For beyond this extremely limited control reached the Morgan influence, a thing impossible to
measure because it was based upon imponderables. These included the desire, on the part of company executives and bankers and the men of the business community in general, to remain on good terms with a man whose backing had a solid dollars-and-cents value; the knowledge that business deals in which he took part had a way of becoming extremely profitable, and that if you played ball with him you might have a chance to reap some of these profits; the feeling that his judgment was so weighty among bankers that if you went counter to it, some banker whose favor you might need in the future might look upon you with a bilious eye; and the final fact that there emanated from Morgan himself a personal force which men felt it was rash to challenge. A question asked by him at a directors' meeting, a remark attributed to him in the gossip of the Street, carried inordinate weight. This sort of authority could not be diagrammed as the Pujo Committee tried to diagram it, but it was very real.

There is one more thing to be noted. Pierpont Morgan felt that the corporations for whose securities he had assumed responsibility must be in “safe hands.” That meant, primarily, the hands of men who were not dreamers, or irresponsible, or crooked. He wanted no Jay Goulds within reach of any corporate pocket which he had helped to fill. He wanted no reorganization plan of his to be subject to upset by a holdup action like Belden's, or by what he thought of as trickery of any sort. He took an active dislike for Edward H. Harriman because Harriman, opposing his plans for the Dubuque & Sioux City Railroad in 1887, managed to have the votes of a majority of the stockholders—votes which had carefully been assembled by the Morgan forces—thrown out on the ground that proxy voting was illegal in the State of Iowa. It
was
illegal; Morgan's lawyers had slipped; but Harriman's tactics seemed to him shifty, and so he included Harriman, too, among the owners of unsafe hands.

What, then, were truly safe hands? Well, those of honest and capable men who lived by a code of conduct which permitted one to rely upon oral agreements with them. There were a good many businesses in which, if one were dealing with the head executives, one knew one would have to watch one's step. Some of these men one couldn't avoid dealing with, for they had indispensable knowledge and authority. When,
for example, Morgan subsequently organized the Steel Corporation, he had to rely heavily for the time being upon many steel executives who were plungers by nature, and possessed what one of his partners subsequently referred to, very delicately, as “an undeveloped sense of trusteeship.” But he preferred to deal with men of his own sort, who followed the code of the gentleman. When he asked railway presidents to meet him on his yacht, or in his library at home, this was partly to be out of the reach of prying eyes, but it was also, I think, because he had a sense that an agreement reached in a personal setting such as these would have the same sort of validity as one reached over the coffee cups at a private dinner party; if the men who made it were fit to associate with, they would feel constrained to live up to it, even if no contract had been written down on paper. Morgan was attempting to enforce the code of the gentleman.

It was easier, of course, to deal with men who were recognizably gentlemen in the first place. And if one happened to be—by nature and by long association with the men of the English banking world—patrician in one's tastes, this often meant men who belonged to the same club, as it were, whose intellectual and social background was similar. With them one knew just where one stood and the understanding could be complete. And it was better yet to deal with tried and trusted friends; their hands were the safest of all.

Now as it happened, Morgan was a man of increasingly formidable will, whose friends tended to agree with him, or be swayed by him, because of the sheer weight of his personality. Thus it was likely to happen that these friends dealt with things very much as he would, or even consulted him and did as he advised. And so, in the end, it not infrequently turned out that the “safe hands” were hardly distinguishable from his own.

6

After his series of reorganizations, in the mid-nineties, Morgan occupied a position unprecedented in American railroading. He had long been influential in the councils of the New York Central; now he was at least influential, if not dominant, in those of the Erie, the New Haven, the Reading, the Norfolk & Western, the Southern Railway System, and the Lehigh
Valley (in which his friends now had gained voting control). In alliance with James J. Hill, he was influential in the Northern Pacific, the Baltimore & Ohio, and Hill's own Great Northern. The Jersey Central was dominated by his close ally, George F. Baker of the First National Bank. And the Pennsylvania, Lackawanna, and Delaware & Hudson were all in hands generally friendly to him and his notions of community of interest. In short, the managements of most of the leading railroads of the East were at least deferential to his wishes, and through the Great Northern and the Northern Pacific his sphere of influence reached all the way to the West Coast.

The authority that Pierpont Morgan exercised over this great network of lines was very limited indeed, as I have already tried to suggest. At the most, it amounted to a veto power over anything that he and his colleagues regarded as hurtfully competitive or financially reckless; at the least, it amounted to little more than an opportunity to keep informed as to what was going on. In any case, it was sufficient to assure that no new Jay Goulds or Daniel Drews could run amuck, and that the management of American railroads would be more respectably and responsibly conducted than in earlier years. From the evidence available, I do not believe that it was Morgan's primary and conscious intent to build a “railroad empire.” Rather, he believed in order, believed in reducing competition to a minimum, believed in protecting the solvency of properties which he had backed; and the logical way of producing this state of affairs seemed to him to be to provide the railroad managements with supervisors who would see things as he did, and to make war on all disturbers of the peace. But his confidence in his own rightness was so colossal that it was not always clear whether the primary offense of a man like McLeod was that he had been reckless or that he had got in Morgan's way. And so the pattern of domination and influence and friendly consultation that had emerged by 1897 looked to observers very much indeed like a railroad empire, with Pierpont Morgan as the emperor.

VII

GOLD FOR THE GOVERNMENT

1

President Grover Cleveland was desperately worried. Ever since the beginning of his second term, misfortunes had rained upon him. He had been established in the White House only a few weeks when the Panic of 1893 had convulsed the business world. In the wake of the panic had followed other troubles—widespread and acute unemployment, the Pullman Strike, a tragic destruction of the corn crop by drought, and a fall in the price of wheat to less than fifty cents a bushel. Worst of all, in the eyes of this stubborn, conscientious, conservative President, the credit of the United States Government had been a recurring source of deep anxiety. For the Treasury's reserve of gold—the buttress of its stability—had been dwindling.

This reserve had been alarmingly depleted when Cleveland had taken office. Again and again it had been shored up by emergency measures—and then had crumbled away again. And now, as the month of January 1895 drew to a close, it seemed all too likely to vanish utterly within a few weeks—or even a few days. The President faced the grim prospect of a new panic.