The masters of capital ; a chronicle of Wall Street

THE
ASTERS OF CAPITAL

)OHN MOODY

THE I^IASTERS OF CAPITAL

ABRAHAM LINCOLN EDITION

• •

VOLUME 41

THE CHRONICLES

OF AMERICA SERIES

ALLEN JOHNSON

EDITOR

GERHARD R. LOMER

CHARLES W. JEFFERYS

ASSISTANT EDITORS

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J. PIERPONT MORGAN
Photograph by Pach Bros., New York.

THE
MASTERS OF CAPITAL

A CHRONICLE OF WALL STREET
BY JOHN MOODY

LVXET

NEW HAVEN: YALE UNIVERSITY PRESS

TORONTO: GLASGOW, BROOK & CO.

LONDON: HUMPHREY MILFORD

OXFORD UNIVERSITY PRESS

1919

«

i

Copyright, 1919, by Yale University Press

CONTENTS

I. THE RISE OF THE HOUSE OF MORGAN Page 1

II. MORGAN AND THE RAILRO-\DS " 19

III. THE IRONMASTERS " 35

IV. STANDARD OIL AND WALL STREET " 52
V. THE STEEL TRUST MERGER ** 70

VI. HARRIMAN AND HILL " 89

MI. THE APEX OF "HIGH FINANCE" *' 109

VIII. THE PANIC OF 1907 AND AFTER " 134

IX. WALL STREET AND THE WORLD WAR " 155

APPENDIX " 181

BIBLIOGRAPHICAL NOTE " 221

INDEX " 225

Vll

ILLUSTRATIONS

J. PIERPONT MORGAN

Photograph by Pach Bros., New York. Frontispiece

ANTHONY J. DREXEL

Photograph by Gutekunst, Philadelphia. Facing page 14

HENRY C. PRICK

Photograph by Pach Bros., New York. " " 76

EDWARD H. HARRIMAN

Photograph by Pach Bros., New York. " " H

ALEXANDER J. CASSATT

Photograph by Gutekunst, Philadelphia. " " 116

JAY COOKE

Photograph by Gutekunst, Philadelphia, " " 17i

THE MASTERS OF CAPITAL
CHAPTER I

THE RISE OF THE HOUSE OF MORGAN

The old meaning of the word "capital" — that is,
an accumulation of wealth, either money or sub-
stantial property, for use in the production of more
wealth — has been greatly enlarged within recent
times. In earlier days, under the crude methods
then prevailing, a given manufacturing plant might
earn, say, ten per cent on its invested capital; but
when power machinery and improved processes
came into use and earnings increased, say, to twenty-
five or forty per cent, the practice began of putting
a valuation on this increased earning power, and
the "value" of a given property, instead of being
based on its original or replacement cost, came to
be measured by its capacity to earn profits.

Upon this new basis, "capital," as expressed

2 THE MASTERS OF CAPITAL

through the issue of corporate stocks and bonds,
was created by leaps and bounds. As the indus-
try of the community became more eflGicient and
the unit of effort brought forth greater results, cor-
porate securities were created in an ever increas-
ing ratio. Then, as the new custom became more
firmly established, it was found that the limit of cap)-
italization was by no means reached when present
earning power alone was capitalized, for in a grow-
ing country like the United States, with population
practically doubling every generation, future earn-
ing power was seen to be vastly greater. So the
capitalists quite naturally took the further step
and issued corporate stocks and bonds based on
estimated future earnings.

Naturally, this modern practice of preempting
or capitalizing probabilities was overdone. Such a
process inevitably invited speculation ; and "boom "
periods, with recurring lapses and setbacks, became
characteristic of the times. Eventually, the capi-
talists learned that this new capital, which repre-
sented not only accumulated wealth and current
earnings but the future possible earning power of
the community generally, must be bolstered up and
insured by some artificial process. So long as nor-
mal growth in population and industry continued.

THE RISE OF THE HOUSE OF MORGAN 3

the capitalists could feel fairly secure, but dur-
ing industrial and banking crises, crop failures, or
other adversities, the earnings of capital might
decline to such a point as seriously to impair the
valuation. Thus there arose among capitalists —
large and small — a widespread demand for legisla-
tion and public aid to protect the integrity of the
values which they had set up — a demand that cus-
toms tariffs be made more rigid than before to pre-
vent foreign competition and for other measures to
preserve the status quo of the new dispensation.

The railroads, during the decade after the Civil
War, were the most conspicuous beneficiaries of
the new process; but when inventions came in,
such as the telephone and electric light and power,
as well as numerous other devices for economiz-
ing time and labor, the current results and future
possibilities of all these likewise were capitalized.
In case of public utilities the supposed value of the
franchise was made the primary basis of capitaliza-
tion. In the quarter century from 1890 to 1915,
the total capitalization in the form of stocks and
bonds of public service corporations in the United
States grew from less than two hundred million
to nearly twenty billion dollars.

This new capitalism is a phenomenon of far-

4 THE MASTERS OF CAPITAJ.

reaching magnitude in modern society. In the ag-
gregate it represents a valuation of about one
hundred billion dollars in a nation whose entire
wealth is roughly estimated at something more
than twice this sum. When it is remembered that
as recently as 1890 the wealth of the nation was
estimated at only sixty-five billions, and the cor-
porate capital at that time was only about twenty-
five billions, the significance of the development
during the last generation will be appreciated.
And when it is further realized that in the past
half century not only a new system of capitalizing
wealth-producing forces has grown up, but also a
concentration of control in small groups of powerful
men, the subject becomes intensely interesting.

The great financial houses of Wall Street, which
are today most closely identified with the organi-
zation and control of the great corporate enter-
prises of the country, nearly all started as fii-ms
engaged in the dry -goods or clothing business. Not
only the Morgans, but the Brown Brothers, Kuhn,
Loeb and Company, the Seligmans, and other
old private banking houses of New York, began
in this way. It was a natural beginning, for prior
to the period of modern machinery capital in large

THE RISE OF THE HOUSE OF MORGAN 5

masses was employed chiefly by merchants, and
the wholesale handling of merchandise was among
the most profitable of undertakings. Before the
idea of capitalizing potential possibilities took pos-
session of the minds of men, the purely competi-
tive commercial business, such as the wholesale
merchandising of goods, still held the center of
the stage, both in this country and Europe. Even
Nathan Rothschild, the most famous financier of
the early nineteenth century, had made his start by
financing the materials and products of the early
English cotton mills. So also in America, the
capital of the day tended to gather in the hands
of great merchants whose stock in trade was very
largely cloth or manufactures from cloth.

Most Americans have forgotten all this early his-
tory. Our "merchant princes " — only sixty years
ago models of aspiration for every American boy —
have passed out of mind. The business of security
making and selling — sixty years ago a small, local,
irregular peddling trade as compared to the busi-
ness of the big American merchant — now looms so
large that it seems to have been always important.
In England they remember better. The men whom
we in this country call "private bankers," such as
the Rothschilds, the Barings, and the Morgans, are

6 THE MASTERS OF CAPITAL

not, even today, known as bankers over there,
but as "merchants. " They are the lineal business
descendants of the great East India Company of
olden times.

In the United States one particular section de-
veloped the international merchant. Before the
days of the American Revolution the sharp-eyed,
bony men of New England had gone out scouring
the coasts of Africa and the islands of the sea for
merchandise. There were no better traders in the
world than they, and there are probably no bet-
ter traders than the Yankee now. Then, after the
shipping troubles caused by the War of 1812, the
men and money of New England turned to the new
business of the manufacture of cloth ; and thus was
laid the foundation of the great modern industry
of New England, the manufacture of cotton goods.

In the year 1811, a sixteen -year-old dry -goods
clerk, George Peabody, was thrown out of em-
ployment by the burning of his brother's little
store in the old town of Newburyport, Massa-
chusetts. He then went with an uncle to George-
town, D. C. (since incorporated with Washington),
and opened a small retail dry-goods store there.
After some years he moved to Baltimore and es-
tablished branches in Philadelphia and New York.

THE RISE OF THE HOUSE OF MORGAN 7

Finally, in 1837, at the age of forty-two, he went
to London and founded there the merchant bank-
ing house of George Peabody and Company, which
later became J. S. Morgan and Company.

George Peabody's departure for London was not
in itself notably interesting at the time. In London
he continued to be a " merchant " just as he had been
in this country, but in establishing himself in the
greatest mercantile and banking center in the world
he was really making an advance along unusual lines.
The kind of enterprise he founded is excellently
described by his biographer, Fox-Bourne:

In London and in parts of England, he bought British
manufactures for shipment to the United States; and
the ships came back freighted with every kind of Ameri-
can produce for sale in England. To that lucrative
account, however, was added one far more lucrative.
The merchants and manufacturers on both sides of
the Atlantic, who transmitted their goods through him,
sometimes procured from him advances on account of
the goods in his possession long before they were sold.
At other times they found it convenient to leave large
sums in his hands long after the goods were disposed of,
knowing that they could draw whenever they needed,
and that in the meantime their money was being so
profitably invested that they were certain of a proper
interest on their loans. Thus he became a banker as
well as a great merchant, and ultimately much more of
a banker than a merchant.

8 THE MASTERS OF CAPITAL

In London, the chief financial center of the
world, George Peabody represented the greatest
and most profitable field for the investment of
capital — the American continent, as yet prac-
tically unscratched. Literally millions of square
miles of the richest farming and mineral lands
were there to be had for the asking; valueless it is
true until populated, but potentially of vast value.
The men who acquired or preempted this vast El
Dorado, equipped it with power machinery, and
the means of transportation, thus setting labor
to work, would create values which would mount
for generations to come. Untold wealth would
continuously flow into their coffers.

To English and continental capital this prospect
was the dream of the ages. No such outlook or
opportunity had ever come to England or the old
countries. The natural resources of England were
already preempted when modern inventions first
began to come iuto use; the rich farming lands
and rural regions, while undeveloped, were and for
ages had been in the possession of a rich land-hold-
ing class ; labor could not be applied to them and
the modern generation of capitalists found no ex-
traordinary opportunities there for the produc-
tion of wealth. Thus English capital inevitably

THE RISE OF THE HOUSE OF MORGAN 9

turned to America, for America had few or no cash
resources and any development of the country on
a large scale must be carried out by those who
had the means. There was little capital anywhere.
Men were busily engaged, all along the Atlantic
seaboard, making their living in the ordinary, old-
fashioned way, and were not bent, to any great
degree, on amassing large fortunes. The specu-
lative era in America had not yet arrived, and,
though manufacturing had begun, we were still —
in the fourth decade of the century — a nation of
planters and farmers.

When Peabody took up his residence in London,
European capitalists were already competing for
the opportunity to exploit American enterprises.
Strong foreign houses were forming financial con-
nections between London and New York. The
Rothschilds had sent August Belmont to represent
them in New York in the same year that Peabody
had settled in London. The Barings had married
into a Philadelphia family in the early years of
the century and were also financially interested
in the United States. Peabody, nevertheless, set
out to be the chief representative of America in
England. Every year he made a point of getting
the leading men of both countries together, and

10 THE MASTERS OF CAPITAL

his Fourth of July dinners in London grew to
be notable occasions for promoting friendliness
between the business interests of England and the
United States.

Peabody never aspired to be an originator or pro-
moter of enterprises. This work he left to others.
His business was that of the financier, a "master
of capital. " In this field his success was enormous
for the times, and his name grew constantly in Eng-
lish favor. He finally amassed a fortune of twenty
million dollars, became the greatest philanthropist
of his time, refused a title of nobility from Queen
Victoria, and died in 1869 in the possession of the
thorough confidence of the English investing pub-
lic. After his death, his statue was set up in the
London financial district, not far from the dingy
little spot at Wanford Court which had been his
office during his entire London business life.

When Peabody retired, in 1864, Junius S. Mor-
gan became the head of the business. Morgan was
another Yankee dry -goods trader — a member of
the firm of J. M. Beebe and Company of Boston
— who had been taken into partnership by Pea-
body ten years before. He was now about fifty-one
and was fully capable of carrying on the high tra-
ditions of the Peabody firm — doing international

THE RISE OF THE HOUSE OF MORGAN 11

commercial banking, holding deposits of customers,
and buying and selling securities. The firm placed
considerable issues of American railroad bonds
in London and negotiated a loan to Chile. The
name of George Peabody and Company ended with
the death of Peabody, according to his own wish.
But the business was carried on without interruption
under the name of J. S. Morgan and Company.

Junius Morgan had a son, John Pierpont by name,
born in Hartford, Connecticut, in 1837, when his
father was in the dry-goods business there. This
son was educated partly at the English High School
in Boston and had finished his education at the Uni-
versity of Gottingen in Germany. After leaving
the University he had entered his father's office in
London. He was an extraordinary mathematician
and had been strongly tempted to take up the career
of professor of mathematics. But his father thought
otherwise, and in the offices of George Peabody and
Company young Pierpont got his first training in
the technicalities of commercial banking and no
doubt began the development of that unusual ca-
pacity for accurate and quick decision which so
strongly characterized his entire career.

It was in 1857, the year of a great financial panic
in the United States, that John Pierpont Morgan,

12 THE MASTERS OF C.\PITAL

a tall, taciturn young man of twenty, stepped on
the stage of American business. At that time the
house of George Peabody and Company was doing
its American business through the New York firm
of Duncan, Sherman and Company, and this firm
was so seriously crippled in the financial crisis that
in order to save the situation George Peabody
and Company had to appeal to the Bank of Eng-
land for assistance. This experience impressed the
London house with the vital importance of closer
control of its American business, and it was decided
to send young Pierpont Morgan to represent the
firm in New York as cashier of Duncan, Sherman
and Company.

In the offices of Duncan, Sherman and Com-
pany, Pierpont Morgan met Charles H. Dabney,
a partner in the firm and also the accountant. It
was through association with Dabney that Mor-
gan acquired his remarkable and accurate knowl-
edge of bookkeeping and accounting. But the con-
nection of the Peabody firm with Duncan, Sherman
and Company was not destined to last very long.
In 1864, the year in which George Peabody retired
and was succeeded by Junius S. Morgan, Pierpont
Morgan and Dabney formed a new firm under the
name of Dabney, Morgan and Company, with

THE RISE OF THE HOUSE OF MORGAN 13

offices in Exchange Place, New York. This new
firm became the correspondents of J. S. Morgan and
Company of London. A few years later, Duncan,
Sherman and Company failed and faded from view.

The house of Dabney, Morgan and Company
built up an excellent business in foreign exchange
and in the sale of miscellaneous securities and was
no doubt financially successful, for when Dabney
retired he was currently reported to have taken a
substantial fortune out of the business. But the
house had done nothing spectacular or striking;
it was not classed with the big bankers of the
Street; and its main prestige seems to have been
based simply on its connection with the strong
London firm of J. S. Morgan and Company. But
in the year 1871 a change came. Dabney retired,
the firm was dissolved, and young Morgan became
a partner with the Drexels of Philadelphia, under
the firm name of Drexel, Morgan and Company.
Anthony J. Drexel, the senior partner, then per-
sonally bought the southeastern corner of Wall and
Broad streets and built the Drexel Building, in
which the new firm began its great career.

The Drexels were sons of a German portrait
painter who had wandered about South America
and Mexico carrying on his profession. In the

14 THE :MASTERS OF CAPITAL

course of his wanderings in the United States he
had found that he could do a profitable businegs
buying and selling state bank notes, which formed
the "wildcat" currency of the time. In 1837, the
same year in which Peabody moved to London,
the elder Drexel had established himself in Phila-
delphia on a street known locally by the signifi-
cant name of the " Coast of Algiers," where he laid
the foundation of a great business in buying
bank currency, "shaving" commercial paper, and
financing corporations.

John Pierpont Morgan was thirty-four years old
in 1871 ; Anthony Drexel, his principal partner, was
forty -five — a conservative, intelligent, and popu-
lar man. There were four other members in the
new firm, all from the Drexel house in Philadelphia.
The new firm had advantageous alliances: on one
side of the Atlantic, one of the richest financial
houses in America; on the other, the great English
house of J. S. Morgan and Company, in close touch
with English capital — the greatest body of capi-
tal in the world. Its advantages were clear; but it
also had its disadvantages. In the chief business
of the day — the funding of the government debt
— it came into a field already pretty well occupied.

Some years before the combination of the Drexels

ANTHONY J. D REX EL
Photograph by Gutekunst, Philadelphia.

Ca. N y:

THE RISE OF THE HOUSE OF MORGAN 15

and the Morgans had taken place and while Dab-
ney, Morgan and Company were still doing a quiet
banking business, a financial operation of vast mag-
nitude had been carried on in America. It was the
flotation of the American Civil War debt. This debt
had been placed very largely through Jay Cooke,
a Philadelphia banker and promoter. Cooke was
the typical American pioneer of his time, a tremen-
dous optimist, a great employer of the benefits of
friendship in high places, a sort of financial P. T.
Barnum, who exploited the Government's securi-
ties and later his own. He organized a great
bond-selling campaign, giving "copy" to as many
as eighteen hundred newspapers at a time and
canvassing through his agents every hamlet in
the country. Later, he was naturally the man who
had the first opportunity to handle the great re-
funding operations in government bonds which
were put through in 1871.

Thus, the house of Jay Cooke and Company had
forged well to the front, and had built up very
strong connections abroad. During the Civil War
period, English capital as a whole had not flowed
very freely to the Northern States. Tied to the
South by the long established bonds of her cotton
trade, the English were at first more inclined to

1(5 THE MASTERS OF CAPITAL

buy Confederate than Union bonds. The Ger-
mans, however, as a whole were more sympathetic
towards the North, as the great body of German
immigrants following the uprising of 1848 were
Northerners and strong supporters of the Union.
And when the six per cent Union bonds had fallen
to sixty cents on the dollar in gold, the Germans,
and especially the rich South German Jews, began
to sell their own and invest in American securities.
To the German Jew, America became the "land
of ten per cent. "

Jay Cooke estimated that by 1869 at least a
billion dollars' worth of United States bonds were
held abroad, of which a large proportion were held
in South Germany. This large investment had
established a new and powerful business interest
in America — the Jewish bond dealers, with foreign
connections in the great European money center
of Frankfort. With this new group of financial mer-
chants Cooke had naturally allied himself, since
the greatest source of English capital was only to
be tapped through the Drexel-Morgan interests.

A keen contest arose between the Cooke interests
(with their German Jew backing) and the Drexel-
Morgan interests to secure the contracts for the
government financing. In this contest Cooke and

THE RISE OF THE HOUSE OF MORGAN 17

his party won and then carried through an extraor-
dinarily difficult operation so successfully that
the Rothschilds offered themselves as Cooke's as-
sociates in future enterprises. But the Morgan
interests kept after the business, and subsequently,
in combination with Levi P. Morton, secured a
half interest in the government refunding operation
of 1873, involving a sale of $300,000,000 of bonds
— an enormous transaction for those days. Later,
in the fall of the same year, Jay Cooke and Com-
pany failed and this left the field in the United
States for great financial operations entirely in the
hands of the Drexel-Morgan-Morton associates.

By this time the house of Morgan had made
great strides. But its position as the leading finan-
cial house of America had not come about alone
through the downfall and eclipse of Jay Cooke
and Company. A year before the formation of the
Drexel-Morgan firm, an event of great importance
had contributed vastly to the fame and standing
of J. S. Morgan and Company. Toward the end
of October, 1870, the city of London had been
stirred by the news that J. S. Morgan and Com-
pany had taken a French loan of 250,000,000 francs.
It was a syndicate operation and one of the largest
and boldest ever known. In the previous month

18 THE MASTERS OF CAPITAL

the Germans had crushed the French army at
Sedan, had taken the Emperor Louis Napoleon
prisoner, and had besieged Paris. The only au-
thority for the loan was a provisional government
at Tours. To take such a loan, even at the low
price of about eighty, was undergoing some risk
in view of the circumstances. One thing, however,
was very clear: the hand of a strong, bold man was
at the helm. The bonds were offered to the public
at eighty-five; they advanced at once in price and
within a year were selling fifteen points above what
they cost the Morgan firm. And the syndicate was
believed to have cleared $5,000,000 by the trans-
action. The reputation of the house of Morgan
was thus well established among European bankers
just at the moment when Pierpont Morgan, the
son of Junius, came to the front in combination
with the powerful Drexel interests, and just at
the moment when foreign capital was ready to
pour into America more freely than ever befiore.
This was the opportunity of the house of Morgan.
As the first big organizers of capital, the Mor-
gans — father and son — were to wield a mighty
influence in American finance.

CHAPTER II

MORGAN AND THE RAILROADS

The work of Drexel, Morgan and Company in the
refunding operations of the government debt, after
the failure of Jay Cooke and Company, added
greatly to American prestige abroad. For more
than forty years the United States had been a
burial ground for British capital. State bonds,
Confederate bonds, railroad bonds, had proved to
be disastrous investments. But now one single
monumental success had restored faith in Ameri-
can securities. In all, about $750,000,000 of bonds
were refunded, of which the Morgans handled a
large part, and this achievement reopened America
to British investors. In 1877 the financial mag-
nates of America gathered in New York at a dinner
to give thanks to Junius S. Morgan for "upholding
unsullied the honor of America in the tabernacle
of the old world, " as Samuel J. Tilden, the toast-
master, expressed the sentiment of the hour.

19

20 THE MASTERS OF CAPITAL

By 1879, with the financing of the war debt ac-
compHshed, American bankers were ready to turn
to a new field of activity. But leadership in the
dawning financial era was to fall to the younger
men. August Belmont, who represented the Roths-
childs in America, was now sixty-three years old;
Levi P. Morton, who had been Junius Morgan's
fellow partner in the dry-goods firm of James
M. Beebe and Company in Boston, was fifty-five;
Junius Morgan himself, now sixty-six and present-
ing the ponderous figure of an East India mer-
chant prince in an old English play, was retiring
from active business life. The younger Morgan
was then forty-two, just about the age of George
Peabody and Junius Morgan when they began
their great careers in London. Hitherto he had
been merely the son of his grim-mouthed father.
But he had learned the tools of his trade; he had
watched and helped to operate great syndicates;
and he was now well equipped to take his place in
the security markets of America.

Pierpont Morgan had watched the expansion of
the railroads for many years. He had witnessed the
most spectacular phenomenon of the period, for
he had seen Gould and Vanderbilt accumulate
their colossal fortunes largely by the manipulation

MORGAN AND THE RAILROADS ^1

of railroad properties. But he had taken little
part in the battle of the railroads. Back in 1869,
the firm of Dabney, Morgan and Company had
helped to wrest from Gould and his accomplices
the control of the Albany and Susquehanna Rail-
road, which was turned over to the Delaware and
Hudson Canal Company. Again in 1878, when a
rich comb manufacturer, Adolph Poppenhusen,
had collapsed in the wild exploit of gridironing
Long Island with railroad lines, Drexel, Morgan and
Company picked up for a nominal sum his hold-
ings, which were afterwards to be merged as parts
of the Long Island Railroad. But aside from these
minor incidents, the Morgan firm had not been
active in railroad financing and were not in any
sense known as railroad bankers.

In 1879, however, an incident occurred which
brought Morgan directly into the field of rail-
road finance. William H. Vanderbilt, president and
chief stockholder of the New York Central and
Hudson River system, was then being harassed
beyond endurance. Popular suspicion had been
excited by his accumulation of a fortune of one
hundred millions in ten years; and the New York
Legislature, reflecting public indignation, was in-
vestigating the management of the New York

22 THE MASTERS OF CAPITAL

Central and was proposing radical control of rail-
road management. Besides, the rate wars between
New York and Chicago were then raging. Finally,
to add to these vexations, Jay Gould was at-
tempting blackmail because Vanderbilt would not
take him into the New York Central directo-
rate. Vanderbilt's friends advised him strongly to
dispose of a substantial portion of his stock in New
York Central and thus avert the legislation that
was aimed at him. But how to unload his vast
holdings was a problem. To throw half of them
on the market would result only in a panic; to
distribute the stock by private sale in Wall Street
would also greatly disturb values. Besides, what
banker would undertake to put through such a
gigantic transaction.'^

Vanderbilt consulted J. Pierpont Morgan, and
Morgan devised a scheme whereby a large block of
New York Central stock could be sold secretly in
England without in any way disturbing the Amer-
ican security markets. This plan was adopted.
The Morgan firm, through its London house, formed
a syndicate and distributed 250,000 shares of the
stock to permanent investors abroad. The trans-
action was kept secret for a time, but after a few
months the details were all published in the New

MORGAN AND THE RAILROADS 23

York and the London papers. Vanderbilt then an-
nounced that a large part of the great sum of money
he had received had been reinvested in United States
government bonds. Thus, at one stroke, J. Pier-
pont Morgan not only solved Vanderbilt's difficult
problem and allayed public criticism, but inci-
dentally, it was said, he made a profit for his
syndicate of more than three million dollars.

The financing of American railroads had been
left hitherto largely in the hands of promoters
whose primary interest had been to build the
greatest possible amount of railroad, regardless of
whether there was need for it or not, and sell it out
for the highest possible price. This had been the
programme in the halcyon days after the Civil
War and in the speculative period following the
panic of 1873. The Northern Pacific had been
extended westward to the coast; the Atchison,
Topeka and Santa Fe had been built through the
deserts of Arizona and New Mexico; Gould had
radiated his more or less dubious lines throughout
sparsely settled sections west of the Mississippi;
the Union Pacific had entered upon that policy of
constructing or acquiring branch lines and feeders,
which a few years later was its financial undoing.
And in the East a no less reckless and ill-advised

'ii THE MASTERS OF CAPITAL

policy of construction had been going on. Most of
the older systems were carried away with the idea
of more and more mileage, more and more branches,
more and more parallel lines. By the early eighties
about twice as many railroad lines had been built
as the country could profitably employ, and there
had been issued about four times the amount of
securities that the country could pay interest or
dividends on. In 1884, Poor's Manual, the rail-
road authority of that time, stated with great
positiveness that the entire capital stock of the
railroads of the United States — then about four
billion dollars — represented "water." It esti-
mated that, in the three years ending December
31, 1883, two billions of capital and debt had been
created, and that the "whole increase of share
capital [about one billion] and a portion of the
bonded debt was in excess of construction."

It was a crucial time for genuine investors, both
at home and abroad. Thousands of these inves-
tors in Great Britain, on the Continent, and in
the eastern parts of the United States, who had
supplied, in one form or another, the cash for this
vast promotion of the American transportation
system, suddenly found their securities dwind-
ling away. There was urgent need for a strong

MORGAN AND THE RAILROADS 25

representative to champion their interests. After
his successful underwriting of the New York Cen-
tral transaction, Morgan began to be looked upon as
a rescuer of investors, a solver of difficult financial
problems. And he stood alone in this regard. The
great railroad names of the period — Jay Gould,
Russell Sage, Collis P. Huntington, Calvin Brice,
and others — connoted expansion and specula-
tion rather than wise control and conservative
management of railroad properties.

For a half dozen years the gigantic structure
of inflated railroad capitalization Jiiid over ex-
pansion stood — somewhat unsteadily — and then \
the crash came. By 1884 there were five inde-
pendent lines operating between Chicago and the
Atlantic seaboard, and two more were building.
Three roads would have been ample for all the
business. Railroad rates were torn to pieces; pas-
sengers traveled from New York to Chicago for
a dollar a head; grain was handled at an actual
loss of fifty per cent. Three of these five roads were
tottering on the edge of bankruptcy, one had gone
bankrupt, and the New York Central was on the
verge of cutting down its dividends. It was high
time for something of a constructive nature to
be done.

26 THE MASTERS OF CAPITAL

In the summer of 1885, William H. Vanderbilt
was again in dire need of a friend. The West Shore
Railroad was about to begin business as a com-
petitor of the Vanderbilt lines. The Pennsylvania
Railroad interests were supposed to sympathize
with the West Shore project, for the reason that it
promised to embarrass seriously their chief com-
petitor. At the same time Vanderbilt was support-
ing a project in Pennsylvania to parallel the main
line of the Pennsylvania Railroad. The West
Shore, according to the custom of the times, had
been heavily overcapitalized and, just as the road
was nearing completion, the company was dying
for want of cash. Unless the Pennsylvania interests
or some other strong capitalists should come to the
rescue, it evidently could not survive. Just at this
juncture Morgan came forward with the remedy.
He arranged to sell to the Pennsylvania interests
Vanderbilt's competing road in Pennsylvania and
to sell to the New York Central, practically at cost,
the West Shore Railroad.

Again, when the Philadelphia and Reading prop-
erty, in which large amounts of English capital
had been sunk, was facing bankruptcy, a Morgan
syndicate furnished the millions needed for its
reorganization. In 1887, when the Baltimore and

MORGAN AND THE RAILROADS 27

Ohio Railroad was suddenly found to be also in a
state of financial collapse, the Morgans stepped for-
ward, found new capital for it, and commenced
a policy of reconstruction — a policy, however,
which was interrupted for a while by successful op-
position from the old speculative interests. And
a year later a Morgan syndicate reorganized the
Chesapeake and Ohio.

Thus, before the panic of 1893, the firm of Drexel,
Morgan and Company built up its reputation as
the financier and reorganizer of mismanaged prop-
erties and in this respect stood in a unique position
among American bankers. The great Jewish se-
curity merchants had as yet little hold on Ameri-
can railways. The Rothschilds were content to
remain a close ally of Morgan rather than a com-
petitor, so far as the American field was concerned.
Kuhn, Loeb and Company had not yet become a
railroad power. The Speyers were strong but not
masterful. The Seligmans, who had been promi-
nent in the government refunding operations, had
not become a leading house of issue for railway
securities. Consequently, when more than half
of the railroad mileage of the United States went
into the hands of receivers, investors, both foreign
and American, looked to one man and one house

28 THE MASTERS OF CAPITAL

to defend their billions of investment in the rail-
roads — the house of Morgan and its strong bold
personality, John Pierpont Morgan, now known as
** Jupiter" Morgan.

First came the reorganization of the Southern
Railway. This system, whose connecting railroads
had been snarled into an inextricable tangle under
the Richmond and West Point Terminal control by
a group of New York and Richmond speculators,
fell into financial chaos. Morgan at first declined
to have anything to do with the mess. But, others
having tried in vain, the security holders finally be-
sought Morgan to undertake the task on his own
terms. In a comparatively short time a Morgan
syndicate had reorganized the company, and long
before the dire effects of the panic of 1893 and
the ensuing depression had spent themselves, the
Southern Railway system had advanced far on its
new career of progress and prosperity.

It was not direct financial profit for himself or
his firm that induced Morgan to undertake this
reorganization ; he was actuated by a larger, though
not entirely unselfish, motive. He felt obliged in
self-defense to see to it that the many millions of
capital (especially that of English investors) should
not be hopelessly wiped out. A firm whose greatest

MORGAN AND THE RAILROADS 29

specialty was the marketing of American securities
abroad could not afford to have these securities
pass as worthless paper before the eyes of the world.
The fame of the house of Morgan in London and
all its traditions were based on the greatness and
wealth of America, and both the Morgans, father
and son, had always been "bulls on America."

With the successful reorganization of the South-
ern system, Morgan at last had a firm grip upon
that slippery thing, the American railroad cor-
poration. For forty years American railroad pro-
moters, reckless optimists, gigantic thieves, huge
confidence men — magnified a hundred times by
the size of their transactions — had juggled and
manipulated and exploited this great business for
their own profit and the general loss of every one
else concerned. Morgan had been watching for
twenty years this manipulation of railroad prop-
erty. The control of the properties lay in the vot-
ing power of the stock; and, if the voting power
could not be controlled, little could be accom-
plished against opposition. His attempt to recon-
struct the Baltimore and Ohio in 1887 was defeated
entirely because the controlling interests check-
mated him by voting his representative out. He
devised a plan whereby he himself would control the

30 THE IVLVSTERS OF CAPITAL

voting power. Before undertaking a reorganiza-
tion or finding the new capital, he provided for
a "voting trust," a device which, for a number of
years, placed in the hands of a few trustees selected
by himself the entire voting power of the stock.
This scheme was followed in the reorganization
of the Southern Railway and was adopted in all
later instances.

The next drastic reorganization was that of the
Erie system. Before undertaking this task Mor-
gan was particularly careful to concentrate control
in his own hands. Years before, J. S. Morgan and
Company had been the fiscal agents of the Erie in
London and had placed large amounts of Erie
bonds among British investors. Morgan was there-
fore particularly anxious to protect these bond-
holders, and in the scheme which he devised he
saw that these bondholders themselves got enough
voting power to outvote the scattered stockholders,
though even the bondholders were controlled for
the time being by a Morgan "voting trust." It
was only fair that the stockholders rather than the
bondholders should suffer in the Erie reorganiza-
tion, because the great issues of Erie stock created
during the gambling days of Drew, Fisk, and Gould
represented little or no cash investment, while the

MORGAN AND THE RAILROADS 31

bonds had, for the most part, been issued for the
payment of actual property.

Other Morgan reorganizations now followed
apace. The Hocking Valley, a system of roads in
the Middle West, was placed on its feet; the North-
ern Pacific, after its checkered career of thirty
years of construction, collapse, and manipulation,
finally found permanent lodgment in the capacious
arms of the firm of Morgan. The Baltimore and
Ohio, the Atchison, Topeka and Santa Fe, and
several other large properties, although not exclu-
sively reorganized by the Morgans, came to life
again partially as a result of their work. The
Philadelphia and Reading system, an acute sufferer
from the wild gambling spirit of the previous dec-
ade, was also taken in hand for the second time,
and with a strong financial organization started
on its career as the dominating factor in the an-
thracite coal combination; and other properties
not completely wrecked in the smash of 1893,
among them the Lehigh Valley and the Central of
Georgia, were likewise rejuvenated.

Pierpont Morgan was by 1898 a towering figure
in the railroad and banking world. He had largely
reorganized the railroad system of America. He
was in complete voting control of the great network

3^2 THE MASTERS OF CAPITAL

of lines radiating throughout the South Atlantic
seaboard; he entirely dominated the Erie Railroad;
he was the chief factor in the policy of the Read-
ing; he controlled the vast Northern Pacific; he
had a powerful voice in the administration of the
Baltimore and Ohio and also an important inter-
est in the affairs of the Atchison, Topeka and
Santa Fe; he had the entire capital stock of the
rejuvenated Central of Georgia locked up in his
safe; he controlled the Hocking Valley, the Chesa-
peake and Ohio; and he was the real financial power
behind the vast system of the Vanderbilt lines.

Credit must of course be given to other men for a
substantial share in this great work. Aside from
the Drexels, Morgan had been fortunate for years
in securing the aid of partners of no mean ability.
Perhaps he trained them; perhaps their qualities
developed as a result of the environment in which
he placed them. In any event, in these earlier
years, several names stand out prominently. One
of these is Egisto P. Fabbri, a native of Italy, who
became Morgan's partner in 1876 and continued
until 1884. Other conspicuous names in these and
later days were J. Hood Wright, Charles H. God-
frey, George S. Bowdoin, and Charles H. Coster.
All these men either retired rich in middle life or

MORGAN AND THE RAILRO.\DS 33

died in harness. Coster was a notable example of
a man who worked himself to death. He was a
great master of detail, besides being a genius at
working out plans of reorganization. It is asserted
that all the successful Morgan reorganization plans
up to the time of Coster's death were his work.
Perhaps this is true; at any rate during these trying
years Coster was Morgan's right arm. He was
a familiar figure in Wall Street — a white-faced,
nervous man, hurrying from meeting to meeting
and at evening carrying home his portfolios. He
traveled across the country, studying railroad sys-
tems, watching roadbeds from the back platforms
of trains, evidently never getting a chance for rest
or leisure. When he died suddenly in the spring
of 1900, the newspapers pointed out that he had
been a director in fifty-nine corporations.

And now, as the period of railroad reorganization
closed and a new century was at hand, the house
of Morgan once more found itself with only one
commanding figure in its list of American part-
ners. Fabbri was dead; J. Hood Wright was dead;
Charles H. Coster was dead ; Walter Burns, the Lon-
don genius who had handled affairs there since the
demise of the elder Morgan, was also dead — all
having succumbed to the gigantic, nerve-racking

34 THE MASTERS OF CAPITAL

business and pressure of the Morgan methods and
the strain involved in the care of the railroad capi-
tal of America. Both the Drexels were also gone.
"Jupiter" Morgan had alone come through that
soul-crushing mill of business, retaining his health,
vigor, and energy.

CHAPTER III

THE IRONMASTERS

Andrew Carnegie came to America with his fa-
ther, mother, and brother in 1848, when he was
thirteen years old. His parents were utterly pen-
niless. They gravitated to Allegheny, where the
father secured work in a cotton mill, and young
Andy became a bobbin boy at one dollar and
twenty cents a week. His mother helped out by
taking in washing and binding boots for a shoe-
maker named Phipps, who had a small shop near
by. This shoemaker had a ten -year -old son called
Harry, and there it was that the tw^o small boys,
Henry Phipps and Andrew Carnegie, laid the foun-
dations of their long friendship.

Andy worked as bobbin boy for a year, then be-
came a stoker, and finally, at fifteen, he secured a
job as a telegraph messenger boy at three dollars
a week. He soon learned how to send and receive
messages, often practising with other boys before

35

36 THE MASTERS OF CAPITAL

the operator arrived in the morning. He had not
been a messenger boy long before he displayed
the striking quality which so characterized him in
after life — audacity. The boys were forbidden to
touch the instruments, but it one day happened
that an important message came over the wires
when the operator was out. Andy jumped to the
instrument and took the message. For this break-
ing of orders he was not only forgiven but was
promoted to be an operator at a salary of six dollars
a week, A few years later, his industrious efforts
and eflScient work came under the notice of Colonel
Thomas A. Scott, who was general superintendent
of the Pennsylvania Railroad in Pittsburgh, and
young Carnegie soon became a railroad telegraph
operator at a further increase in salary. He was
now nineteen years old, and his audacity and
initiative began to develop rapidly. One day,
during the absence of Colonel Scott, an accident
occurred on the lines, which tied up the traffic.
Immediately Carnegie wrote a dozen telegrams,
containing orders for setting the trains in motion
and signed them all "Thomas A. Scott." This
saved the day, and Scott, who recognized the great
qualities in the lad, made him his private secretary.
From the beginning of Colonel Scott's friendship,

THE IRONMASTERS 37

Carnegie's future was assured. In his new environ-
ment, he gained a wider outlook on life, and es-
pecially on business life, for Scott was an influential
man in Pittsburgh and had his fingers in all sorts
of business and speculative pies. Carnegie's first
money was made in an oil speculation, without the
investment of a cent of his own. He gave his note
for a block of stock in one of the smaller Pennsyl-
vania oil companies and then paid the note out
of dividends received on the stock within a single
year. This gave him a little capital and, under the
guidance of Scott, he began to buy, with his small
funds and with borrowed capital, shares here and
there in many enterprises. Most of these enter-
prises were things in which Scott was an "insider"
and thus Carnegie was able to make safe specula-
tions on "sure enough" information. In a little
while, he was the owner of shares in such companies
as the Columbia Oil Company, the Woodruff Sleep-
ing Car Company, the Pittsburgh Elevator Com-
pany, the Citizens' Passenger Railroad Company,
and the Third National Bank of Pittsburgh.

For ten years Carnegie continued at his work
as Scott's secretary and steadily added to his
investments and his capital. In 1864, when he
was twenty-eight, he succeeded Colonel Scott as

38 THE MASTERS OF CAPITAL

superintendent of the railroad. But young Car-
negie never planned to remain a mere employee of
a railroad or any other corporation. He meant, as
soon as his funds were sufficiently large, to have a
business of his own. His eyes and ears were always
open, and he watched his chances, profiting by the
inside information he obtained as Scott's secretary.
At first he had thought seriously of entering the oil
business on his own account; but evidently no real
opportunity presented itself and he resolved to
bide his time.

While the Civil War was drawing to a close, the
country about Pittsburgh was being agitated not
only by the petroleum boom, but by another type
of industry, which, like the oil business, was also
to leave its stamp on the economic life of America.
This was the manufacture of malleable steel by
the newly developed Bessemer process. Up to this
time not a yard of railroad track in the United
States had been laid with steel. American rail-
roads were then iron roads. There were frequent
references in those days to the "iron horse," and
"iron roads." But iron was really too poor a
metal for railroad rails, and men were constantly
looking for something harder and more durable.
Steel had been made for many years in small

THE IRONMASTERS 39

quantities, but the cost was far too great to bring
it into general use. Moreover, the demand, even
for iron, had not developed far enough to attract
capital in any great amount. Iron was produced
in small furnaces and in small quantities, and no
one dreamed that it would ever become anything
more than the precarious, poverty-stricken, uncer-
tain industry that it had always been. The best
furnaces in those days did not produce a thou-
sand tons of iron a year; and, because of the fluctua-
tions in demand, most iron makers were without
capital and constantly in debt. The panics of
1837 and 1857 had caused the failure of scores of
iron founders. Nobody with capital wanted to
put money into so precarious a business.

But, as railroad building expanded, the demand
for more durable iron began to increase steadily.
Steel was recognized as the ideal substance for
rails, but the cost of making it was prohibitive.
If some genius would only devise a method for
making cheap steel, he would be one of the bene-
factors of the century. And it usually happens,
when the demand for a given thing is insistent
enough, that the needed genius does arise. In 1847,
a young man of thirty-six, William Kelly, bought
the Suwanee Iron Works near Eddy ville, Kentucky.

40 THE MASTERS OF CAPITAL

Kelly was an inventiv^e character, but a poor busi-
ness man. He desired to specialize on good, high
class wrought iron for sugar kettles. To do this he
invented a new method for making larger kettles,
which soon became famous as "Kelly's Kettles."
But the process was the old slow one of using char-
coal in large quantities — a process which involved
much time and enormous quantities of charcoal.

Almost by accident Kelly discovered that there
was no need of charcoal; that air, too, was fuel.
Every iron worker from time immemorial had be-
lieved that cold air would chill hot iron. But Kelly
was something of a student of metallurgy and he
knew that carbon and oxygen had an affinity for
each other. Therefore when one day he saw his
yellow mass of mf^lten metal turn to a white
heat without charcoal, and simply because of the
air which happened to strike it, the truth flashed
across his mind in an instant. Of course, it was as
simple as breathing. When the air was blown into
the molten metal, the oxygen united with the im-
purities of the iron and left the pure iron behind.
Kelly was carried away with his discovery and im-
mediately proclaimed it to an incredulous public.
Instead of being rewarded, he was ridiculed. He
found it impossible to convince any one that he

THE IRONMASTERS 41

was sane, and his business was finally ruined be-
cause buyers of iron refused to take his goods unless
they "were made in the regular way. " But Kelly
persisted in his work, and within a few years he was
actually producing malleable iron in substantial
quantities.

But it took more than Kelly's discovery to bring
steel into use on any large scale. The process he
had worked out had to be put into general use
and accepted abroad before American users of steel
would have much to do with American-made steel.
Hitherto practically all the steel used in America
had been imported from England, and the tradition
held that steel was essentially an English product
and not a domestic article. Hence most people
looked upon American-made * ^eel as bogus and re-
garded the imported as the only real article. While
Kelly was experimenting, an Englishman, by the
name of Henry Bessemer, was also following out
the same idea. And soon, "Bessemer" steel be-
gan to appear in small quantities in the United
States. It was the same thing that Kelly had been
making since 1847 by the same process; but where-
as buyers at once accepted the imported "Besse-
mer steel," they still remained prejudiced against
Kelly's "fool-steel."

42 THE MASTERS OF CAPITAL

After this, Kelly's career was a checkered one.
It was not until many years afterwards that he
was really recognized as the discoverer of the proc-
Cvss in the United States. He finally secured a
patent but lost it through bad business manage-
ment, and it was long after the close of the Civil
War before he got any financial benefits for his
work. Ultimately, however, he was given full
credit by the world at large for his services to
the industry, and he is now universally recognized
as having discovered and perfected the Bessemer
process well in advance of Sir Henry Bessemer;
although the Englishman brought his work to
fruition far more rapidly.

During the latter days of the Civil War, with
big plans pending for the construction of the Pacific
railroads, the demand for railroad iron was taxing
all the plants in the country. And, as the cost of
production was falling to a point where it was
commercially possible for steel to be used, capital
in substantial quantities was seeking investment
in this new industry. It seemed at last as if the
iron industry might develop into a big money-mak-
ing enterprise after all. And so thought Andrew
Carnegie, for in May, 1864, we find him buy-
ing from Thomas N. Miller for $8920 a one-sixth

THE IRONMASTERS 43

interest in the Iron City Forge Company. The
other stockholders at that time were Carnegie's
boyhood friend, Henry Phipps, and Andrew Klo-
man. At about the same time Carnegie formed
the Keystone Bridge Company, inducing J. Edgar
Thomson, Colonel Scott, and other railroad officials
to join him in financing the enterprise. It proved
immediately successful, and in four years Carnegie
had paid for his own stock out of the profits. The
backing of the Pennsylvania Railroad, v/hich Car-
negie had shrewdly procured, was a gold mine to
him. This road was building steel bridges by the
score at this time, and of course the Keystone Bridge
Company got all the business it could handle.

After the Civil War, when prices fell, Carnegie's
steel business sufiFered reverses, but the bad times
were tided over. When business revived, Carnegie
emerged in complete control of the enterprise,
having bought out Kloman and Miller, and the
company never experienced real trouble again.
Andrew Carnegie made money with great rapidity
and long before the panic of 1873 he was a million-
aire several times over and one of the big ironmas-
ters of America.

It has often been asserted that Andrew Carnegie
was the first American ironmaster to make steel

44 THE MASTERS OF CAPITAL

by the Bessemer process. But this is not true. Car-
negie was not a pioneer in this industry any more
than John D. Rockefeller was in the oil business.
Like Rockefeller, he took no real interest in a new
idea until its practicality and future success had
been well demonstrated by others. When Carnegie
went into the iron business in 1864, he was still
wedded to the idea that wrought iron, made by the
old process, was to be the standard railroad metal
of the future. But by 1866, many manufacturers
were turning to the Bessemer process with evi-
dent success. At this time, William Coleman, one
of his partners, suggested that they begin making
steel by the Bessemer process. The other partners
agreed, but Carnegie strenuously objected. Indeed,
Carnegie was not a steel or iron expert in the real
sense. He was a financier, a capitalist, a business
booster. As his business developed, he spent less
and less time in the management of the concern,
and gave his best attention to popularizing the
Carnegie products among buyers throughout the
country. He promptly removed to New York and
began to make the acquaintance of all kinds of
people with a view to gathering prestige for him-
self and his business. He traveled widely and
began to make many trips to Europe. In England

THE IRONMASTERS 45

he soon heard of Bessemer steel and realized that
perhaps after all the new process was a sound one
that should be adopted. Investigation thoroughly
converted him to the idea. He rushed back to
Pittsburgh and to the astonishment of his partners
talked nothing but steel, steel, steel. Immediately
the firm of Carnegie, McCandless and Company
was formed with a capital of seven hundred thou-
sand dollars. Carnegie subscribed the bulk of the
amount needed and steps were at once taken for
the construction of a large plant.

The new plant was situated a few miles from
Pittsburgh and was named the Edgar Thomson
Works, after the president of the Pennsylvania
Railroad. This was another shrewd, calculating
move on the part of Carnegie, who wished to get all
the orders and advantages that could be obtained
from this big consumer of steel rails. Moreover
these were days of little or no railroad regulation,
and railroad rebating was customary in both the
oil and steel business. In fact, any large shippers
could usually obtain rebates from the railroads to
the disadvantage of the little shippers. In this
way, also, Carnegie felt that a close relationship
with the oflBcials of the Pennsylvania Railroad
would be an asset of value.

46 THE MASTERS OF CAPITAL

About the time that Carnegie was getting his
money ready to buy out the Iron City Forge Com-
pany, in 1864 a fourteen -year-old lad named Henry
Clay Frick was working as errand boy in a village
store at Mount Pleasant, about forty miles from
Pittsburgh. He was the son of poor parents, whose
ancestors had emigrated from Switzerland more
than a century before, a quiet, thoughtful lad, self-
contained and reticent. In those days a new in-
dustry was developing at Mount Pleasant, known
as coke making. Coal was mined and baked in
brick ovens until it turned into crisp gray lumps.
These lumps were very valuable to iron makers,
who used them in smelting the iron ore. It is
not probable that young Frick fully realized
what developments were ahead in the iron and
steel business of the country or that he foresaw the
age of steel in which coke making would become a
giant industry. But the boy saw in coke making
a lucrative opportunity and began to save his
money with the hope that in time he would have
capital enough to buy a small strip of coal land
and go into the business himself. In four or five
years he had saved enough to buy a little coal land,
and he then induced his grandfather and uncle to
buy some ovens which were oflPered for sale at a

THE IRONMASTERS 47

low price. But shortly afterwards the panic of
1873 set in, and the little enterprise was balked.
Frick had to continue working on a small salary
and became bookkeeper for his grandfather, who
was in the distillery business.

Young Frick had that audacity which is charac-
teristic of successful men, and particularly of men
who have made and developed great enterprises
in America. Carnegie displayed this trait at the
outset of his career, when he disobeyed orders
to save a railroad wreck; Rockefeller displayed it
when he plunged into the oil business with his little
savings of seven hundred dollars; Pierpont Morgan
displayed it in early life and it was his chief char-
acteristic all through his long, active career. One
day, after the smoke of the 1873 panic had dis-
appeared and business was reviving, a Pittsburgh
banker named Mellon received by mail a request
for a loan of twenty thousand dollars from an un-
known person by the name of H. C. Frick. No
security was offered but big profits were promised
if the money was advanced at once. The banker
liked the tone of the letter and sent his partner
to Mount Pleasant to investigate. Naturally he
expected to meet a man of wealth and property
and was surprised to find that *'H. C. Frick" was

48 THE MASTERS OF CAPITAL

merely a youth who was working for a few dollars
a week and living in one room of a coal miner's
house. But the banker had himself worked up
from poverty; he liked the honest, bright face of
the youth and was impressed with his sincerity
and intelligence. Careful investigation confirmed
his first impression, and the final result was that
the twenty thousand dollars was advanced to the
young operator.

Within a short time Frick became the foremost
coke maker in the neighborhood. The price of
coke kept rising in response to the great demand
from the steel makers, and in one year Frick and
his associates made a profit of one hundred per
cent on their capital. All the profits went back
into the business for the purchase of more coal
lands and the building of more ovens. In a little
while Frick was the coke king of Connellsville and
was piling his profits up into the millions. He was
more than a mere coke maker, however; he was
an organizer of the highest type. He brought order
out of chaos in the coke business; he induced
his leading competitors to combine with him, thus
eliminating cutthroat competition; he also settled
troublesome labor problems by importing Hunga-
rians and Slavs. His labor wars were not so much

THE IRONMASTERS 49

questions of wages as of law and order. On the
whole he raised wages and improved the villages
and mines in his region; but he was determined to
be the master of his own business.

When in 1882 the tendency toward consolidation
of interests had begun, it was natural enough that
the coke making and the steel manufacturing busi-
nesses should be drawn together. Both Frick and
Carnegie recognized the logic of the idea. Con-
sequently in this year Carnegie and his associates
bought control of the H. C. Frick Coal and Coke
Company. This change of ownership brought
Henry C. Frick into the steel business. He ac-
quired a substantial interest in the Carnegie Works
and an influence which became more evident from
year to year. His intelligence and masterful quali-
ties were exactly what the Carnegie organization
needed. A new chapter now opened in the affairs
of the company. Having acquired control of one
raw material by purchasing the coke business, the
company was now to make a further advance and
acquire ore beds. And, as the onlj' ore deposits of
value were far from Pittsburgh in the Lake Supe-
rior region, it became necessary for the company
to go into the transportation business also, to
establish steamship lines on the Great Lakes

50 THE MASTERS OF CAPITAL

and to build railroads from the water to its works
at Pittsburgh.

The Mesaba ore fields, acquired by the Carnegie
associates, had been first opened up by Louis
Merritt, who had sold his holdings to John D.
Rockefeller some years before. Rockefeller, know-
ing little at that time outside of the petroleum field,
afterwards thought he had made a bad investment.
But this was not the impression in Pittsburgh,
where the possibilities of wealth in the mining of
Lake Superior ore had now been fully recognized.
A man named Harry Oliver, who had been in the
steel business and had been a friend of Carnegie
in his early days, realized the possibilities of the
Mesaba Range and bought a large tract of land
there for a small sum of money. Soon afterward
Frick met Oliver on the street and suggested that
the Carnegie company go into the Mesaba ore
business with him. The terms suggested by Frick
were that Oliver should surrender five-sixths of his
stock, in return for which the Carnegie company
would advance half a million dollars for the de-
velopment of the mines. The bargain was made,
and thus the Carnegie company acquired a prop-
erty which in a few years was worth tens of millions
of dollars. But this was only one step in the

THE IRONMASTERS 61

control of the ore supply. A few years later, Frick
and Oliver joined forces with John D. Rockefeller
in the Lake Superior ore business. This powerful
alliance caused a great fall in the price of iron ore
and forced many smaller producers to the wall.
Their holdings were thereupon bought in by the
Frick and Rockefeller combination.

Thus from small beginnings the steel business
had grown into a gigantic industry. Meanwhile
railroads had spread over the continent and the
petroleum business had become a monopoly under
the control of the Rockefellers. The time was
at hand when the big bankers of Wall Street, al-
ready busy in the railroad field, would take part
also in petroleum, steel, and a multitude of other
industrial enterprises and utilities which had so
grown in size and value that they could no longer
remain independent of vast banking interests.

CHAPTER IV

STANDARD OIL AND WALL STREET

In 1859, ten years after the discovery of gold in
California, another epoch-making discovery was
made, this time in Pennsylvania. An enterprising
prospector in Venango County drilled a well and
produced a flow of petroleum, which was already
known to have great commercial value. It was
almost like finding liquid gold, for the stuff brought
twenty dollars a barrel and it flowed at the rate
of twenty-five barrels a day. In a few months'
time the narrow valley in northwestern Pennsyl-
vania where the discovery was made swarmed with
madmen tearing open the ground in the frenzy of
competition that characterizes all new mining dis-
tricts. So far as was known, the petroleum might
soon dry up and every one was hurrying to "strike
oil" before it should be gone.

About this time a young commission merchant
in Cleveland, Ohio, named John D. Rockefeller,

52

STANDARD OIL AND WALL STREET 53

had saved up about seven hundred dollars, nursing
it from nothing, a few dollars at a time. In 1860
he took a chance with three other men in the ven-
ture of mining petroleum, putting in a portion of
his seven hundred dollars. Within two years the
three men had run their investment up to about
four thousand dollars. They made a good burning
oil, and their profits, like those of all refiners at
the time, were amazingly large. During the next
few years, tens of thousands of dollars were made
annually by this concern. But instead of drawing
these profits out, Rockefeller, who dominated the
combination from the start, insisted that every
cent possible be reinvested in the business. " Take
out what you've got to have to live on, but leave
the rest in," he kept urging his partners. *' Don't
buy new clothes and fast horses ; let your wife wear
her last year's bonnet. You can't find any place
where money will earn what it does here. "

And this was true. But this new business had
peculiar risks. In the first place, the operators had
no experience to guide them. Indeed, no one knew
when this petroleum would give out; many feared
that it would be exhausted in a few years and that
they would be left with useless plants on their
hands. In the second place, it faced the reckless

64 THE MASTERS OF CAPITAL

competition of all enterprises promising fabulous
profits. Rockefeller was farseeing enough to re-
alize these dangers and shrewd enough to prepare
for them. Thus he early advocated the theory
that the oil business could only be made secure if
bolstered up at all times by large cash reserves.
He saw that, should more petroleum be discovered
and the business continue on a large scale, only
those concerns which had the immediate cash
resources could hope ultimately to dominate the
field. The producers and refiners who dissipated
or spent their profits as they made them would
have to succumb in the end to the stronger
financial interests in the same field of activity.

Hence, during the period when the business was
getting well established, the decade from 1860 to
1870, John D. Rockefeller and his friends year by
year added steadily and quietly to their cash,
until by 1867 they were in no sense dependent
on bankers or financiers, as were the railroads and
other large industries of the country. They were
their own bankers from the start and were in a
position even in those early days to snap their
fingers at Wall Street and Lombard Street. When
the Standard Oil Company of Ohio was formed in
1870 with one million dollars cash capital, it was

STANDARD OIL AND WALL STREET 55

undoubtedly the one great business corporation
of America which had no debts and no direct
banking alHances or affiliations.

There was, of course, a reason for this complete
absence of banking or investing interest, aside from
the announced policy of the Rockefeller group.
From the beginning, such banking houses as the
Morgans, the Drexels, and the foreign houses
with American connections, had kept away from
this new business, just as, until the twentieth cen-
tury, conservative capital in Wall Street to a large
extent kept away from precarious industries like
copper mining, electrical enterprises, and so forth.
The industry had not proved its permanence or sta-
bility and was therefore classed as a " speculation "
rather than a sure investment.

Rockefeller was farseeing enough to divine this
attitude and to take advantage of it by so form-
ing his policy that, if the industry should demon-
strate its permanent strength and earning power,
he and his associates would reap all advantages
and would never have to divide profits with bank-
ing interests or capitalists, in order to procure funds
to carry the business through lean or unprofitable
periods, as the railroad corporations had been
forced to do. Not long after 1870 the wisdom of

56 THE MASTERS OF CAPITAL

this policy was demonstrated. Hard times came,
and refiners in all parts of the country went to the
wall for want of cash. Bankers would not help
them because of the newness and precarious na-
ture of the business. Then the Standard Oil Com-
pany began to buy the weaker refineries at bargain
prices and to establish a chain of plants across the
country. This enabled it to organize production
on a large scale and to reduce the cost of re-
fining and distributing oil to a fraction of what
it cost most of its competitors. The company
then bought the pipes which connected the wells
in all parts of the country and laid miles and miles
of pipe lines of its own. This forced the railroads
to come to terms, as they had been large shippers
of oil; and they were obliged to accede to a policy
of secret rebating in the interest of Standard Oil
and at the expense of the independent refiners.
Ultimately, nearly all the competition in the oil
trade was eliminated by these methods, until, in
1879, the Standard Oil interests were the only
bona-fide buyers, the only gatherers, and the only
refiners of all but ten per cent of the petroleum
of the country. One by one, all the plants in the
business without sufficient cash capital had fallen
into the hands of the one firm supplied with cash.

STANDARD OIL AND WALL STREET 57

During the decade in which this expansion of
the Standard Oil Company took place, the policy
was never abandoned of accumulating and retain-
ing large cash resources. By 1875 the cash re-
sources had risen from about one million in 1870 to
over thirteen millions; half a dozen years later they
reached forty-five millions; and during that decade
the company and its subsidiaries had not only
bought up most of their competitors with ready
cash but in addition had paid out in dividends
over eleven million dollars.

Up to this period, most men had not foreseen
the possibilities of the petroleum industry. Least
of all had they thought of its bringing about a
concentration of capital. The great bankers who
were coming to the front, such as Jay Cooke and
Company, Drexel, Morgan and Company, and
the Jewish representatives of German and Dutch
capital in the United States were concentrating
their attention almost exclusively on the develop-
ment of steam railroads. The achievements of the
Cookes and of the Morgans and their colleagues
were the financing of governments and of railroads.
This fact remained true long after the Standard
Oil Trust had taken its place as the most powerful
"master of capital" on the continent. Thus while

58 THE MASTERS OF CAPITAL

the banking interests of America, as represented
by the Morgan type, were rising, there was also
growing a new banking power whicli for a long time
they persistently ignored. Adherence to the Rocke-
feller policy meant that the Standard Oil capital-
ists must organize in such a manner as to perform
banking functions; so the Standard Oil Company
of Ohio was from its very inception its own banker.
As this industry spread and subsidiaries were
formed in various States, it became necessary to
have the vast financial operations handled from
one central head. The New York office was then
organized and became the financial center of the
business. The numerous subsidiary companies all
became responsible to the New York office, and all
the cash and surplus funds gravitated to that point.
With the year 1882 begins the period when the
Standard Oil capitalists began to make their in-
fluence more directly felt in Wall Street. In that
year was formed the famous Standard Oil Trust
and "26 Broadway" became the official financial
and business center of the petroleum industry of
the country. In a little while, the Standard Oil
Trust was really a bank of the most gigantic char-
acter — a bank within an industry, financing this
industry against all competition and continually

STAND.\RD OIL AND WALL STREET 59

lending vast sums of money to needy borrowers
on high class collateral, just as the other great
banks were doing.

Standard Oil was swelling with cash assets,
and the small group of men who controlled its
destinies had become multimillionaires. Of the
dividends of over eleven million dollars distributed
between 1870 and 1882, John D. Rockefeller
had received the bulk, but Oliver H. Payne,
Henry M. Flagler, William Rockefeller, and a few
others received a substantial remainder. Natu-
rally these new millionaires sought investment for
their fabulous incomes, aside from such portions
of them as they were able to reinvest in the oil in-
dustry. They were soon impelled to turn to other
fields of enterprise, not only to employ their own
funds profitably but to find investment for the
steadily swelling surpluses and cash assets of the
Standard Oil Company itself.

Far back in the period prior to the Civil War
the great West India trading house of G. G. and
S. Rowland was doing business at the foot of Wall
Street. The last and possibly the greatest of the
old school of New York merchants — Moses Tay-
lor — served his apprenticeship there. He had

60 THE PIASTERS OF Cx\PIT/VL

been brought up in the strictest traditions of the
old-style merchants, for his father had been con-
fidential agent for the old fur trader, John Jacob
Astor. In 1832, when Taylor was twenty -six years
old, he started in the West India business for him-
self and became the chief figure in the great raw
sugar trade. In 1855 he became president of the
old City Bank — the bank of the merchants of
raw materials.

The rich Cuban planters deposited their money
with him and left in his care the reams of United
States government bonds into which they had
put their savings. The bank had also a strong
cotton clientele, and it handled the business of such
houses as the great importing metal firm of Phelps,
Dodge and Company. It was even then what a
strong bank should be — a federation of interests
still stronger and greater than itself. '

' In those days, the different classes of merchants had their particu-
lar banks, as indeed they have today to some extent. To the north
of Wall Street, towards the East River, where the tanyards lay in the
"swamp," were the banks of the leather merchants. The banks of
the dry-goods trade — such as the Park and the Chemical — kept
near these merchants as they edged up Broadway. The leading bank
of the raw materials' merchants — the City Bank — stayed where it
was first founded in 1812, in the old center, the ancient banking
row on the north side of Wall Street. It did not grow so fast as the
banks of the dry-goods merchants, but it was destined in the end to
outstrip all.

STANDARD OIL AND WAI.L STREET 61

Moses Taylor had his own ideas about running
a bank. First of all, it must be strong; his cash re-
sen'^e was his pride. The City Bank always had
a great holding of surplus cash. Whenever there
is a panic, everybody puts his money in the safest
place he knows. Moses Taylor's bank was safe
and strong; with every panic it grew stronger.
The story of the City Bank from the time Taylor
took charge of it is a record of steady appreciation
in credit and reputation. Behind it stood Moses
Taylor, with his enormous private fortune which
was estimated at fifty millions when he died in
1882. During that period Wall Street had grown
out of its swaddling clothes and had become a cen-
ter of finance and commerce far outreaching that
of any other city in the country. In the neighbor-
hood of the City Bank, and doing active business
with it, were still the sugar merchants, the cotton
brokers, the metal merchants, to whom had been
added, as the years went on, the important anthra-
cite coal interests, the leading New York gas com-
panies, and some of the railway companies of the
South and West.

When Moses Taylor died, the future of the City
Bank, as the strongest if not the largest institution
of its kind, was for a time uncertain. Percy R.

62 THE MASTERS OF CAPITAL

Pyne, a kindly, gentle man, who had charge of the
Taylor mercantile interests, ran the bank for the
next nine years; but during his administration no
startling developments took place. The bank held
its own; that was all. But, with the death of Pyne
in 1891, a real "master of capital" appeared as the
head of this famous bank. James Stillman was
born in Brownsville, Texas, in 1850, of New Eng-
land parents. He was a shy, reticent child, trained
from the first in the virtues and customs of the old
school merchant class. One of his earliest play-
things, which he always preserved, was a toy bank,
across the front of which he had printed "City
Bank," his father having been associated with
Moses Taylor and the City Bank interests. During
his teens his father was stricken with paralysis, and
young Stillman was thrown on his own resources.
At the age of twenty-one he was a member of the
firm of Smith, Woodward and Stillman, coiton
commission merchants on South Street, near Wall.
But Stillman did not care for ordinary mercantile
business. While his partners were actively carry-
ing on the mercantile end of the business with
great success, he associated himself more and more
with men of financial knowledge and power. In
the early eighties, he was elected to the board of

STANDARD OIL AND WALL STREET 63

directors of the Chicago, Milwaukee and St. Paul
Railroad, which was then seeking stronger financial
connections. At the same time William Rocke-
feller — whose bulging cash assets, as well as his
brother John's, were looking for an outlet — James
T. Woodward, president of the Hanover National
Bank, and Philip D. Armour, the great packer of
the Middle West, were elected to the same board.

Association on the board of directors of the St.
Paul property brought Stillman and Rockefeller
together, and their intimacy grew closer when in
1885 William Rockefeller was induced to become
a director of the Hanover Bank of which Stillman
was also a director. They became personal friends
as well as business associates; and when in 1891
the presidency of the City Bank was offered Still-
man, the Rockefeller business naturally began to
gravitate to that institution. But no one realized
at that time that Stillman was a great banking
genius or was consciously planning the union of two
great interests with the same policy of accumulat-
ing heavy cash resources — the City Bank and the
great Standard Oil Company.

The business of the bank displayed new life
almost immediately. In 1891 its deposits were
only twelve million dollars, but before the end of

64 THE MASTERS OF CAPITAL

the panic year 1893, they had risen to thirty-one
millions. In 1891 there were several New York
banks with double the deposits of the City Bank;
two years later it was the largest bank in New
York and was steadily becoming the greatest
reservoir of cash in America. Slowly but surely
the alliance with the Rockefeller interests became
closer. William Rockefeller, who for many years
had been in charge of the finances of Standard Oil,
invested more and more of its surplus through the
instrumentality of the City Bank. In the dark
days of 1893, whenever the Standard Oil stepped
into Wall Street to relieve the money strain by
lending its idle millions temporarily, the City Bank
handled the business. It was not long, therefore,
before the institution began to be known as the
"Standard Oil Bank."

But lending money in Wall Street was, indeed,
only a small job for Standard Oil, whose cash assets
grew, between 1882 and 1895, from $55,000,000
to over $150,000,000, while at the same time its
stockholders received no less than $118,000,000 in
dividends. This great accumulation of cash was
not needed in the oil business, and it had to be
put to some profitable use. The Rockefellers were
not the type of investors who were satisfied with

STANDARD OIL AND WALL STREET 65

five or six per cent; they had been educated in a
different school. 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 that had been followed
in the oil business. To discerning men, it was clear
that ultimately these other enterprises into which
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 became 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.

When in 1897, Edward H. Harriman and Kuhn,
Loeb and Company agreed upon the reorganiza-
tion of the Union Pacific, as will be narrated in
a subsequent chapter, they decided to finance the
undertaking through the City Bank. They chose
this bank because the Union Pacific reorganization,
involving a payment of over $45,000,000 in cash

66 THE MASTERS OF CAPITAL

to the United States Government, was then the
largest cash transaction of its kind, and the City
Bank, with its great name and resources, was the
fittest instrument for their purpose. In this way-
Standard Oil became associated with the Union
Pacific and with the Harriman and Kuhn-Loeb in-
terests. Among the first directors of the reorganized
Union Pacific were Jacob H. Schiff, Edward H.
Harriman, Henry C. Frick, James Stillman, and
WiHiam Rockefeller. The City Bank men did not
at first put much money into the Union Pacific;
but they were important factors in the underwrit-
ing syndicate, which got millions of stock as a fee.
Many more millions were later bought by the
members of the syndicate at from twenty to thirty
dollars a share, until ultimately about one-third
of the entire stock (practically the control) rest-
ed in the hands of William Rockefeller, James
Stillman, Edward H. Harriman, and Kuhn, Loeb
and Company.

From the very start the Union Pacific was fi-
nanced in traditional Standard Oil fashion. It
was a veritable bank. It kept and handled great
cash resources with all the skill of the strong finan-
ciers who were charged with its management. In
the following decade, through the brilliant and

STANDARD OIL AND WALL STREET 67

daring activities of Harriman, with the soHd back-
ing of Standard Oil, the Union Pacific rolled up
nearly a billion and a half of capital on its own
system and held the absolute control of about
two billions of other capital.

Meanwhile the profits of Standard Oil, and of
the Rockefeller group as a whole, were rolling over
and over and growing like a snowball. The Union
Pacific alone was not enough to keep this great
money mill working. Other outlets must be found.
William Rockefeller increased his interest in the
St. Paul; John D. Rockefeller, whose only impor-
tant activity outside of petroleum had been the
Lake Superior ore lands, now joined with the de-
cadent management of the Jay Gould estate, and
bought large investments in the New York, New
Haven and Hartford and other eastern railroad
systems. And still other activities engaged this
same group as the decade closed. The City Bank
— now the National City Bank — kad tradition-
ally been the bank of the metal merchants and
had always kept its connections with them. There
were also men in the Standard Oil group who were
identified with raw materials, particularly cop-
per. Henry H. Rogers, who was now vice-presi-
dent of the Standard Oil Company and practically

68 THE MASTERS OF CAPITAL

its manager and who had in recent years gone
extensively into copper mining, now formed a
gigantic holding company known as the Amal-
gamated Copper Company, which acquired con-
trol of the Anaconda Copper Company at Butte,
Montana. This syndicate was floated in Wall
Street through the National City Bank. The capi-
tal was $150,000,000, and Amalgamated Copper,
supported by Rockefeller money and the im-
mense prestige of Standard Oil, at once became
the favorite speculative stock of the day.

The deposits of the National City Bank had
now mounted to above $100,000,000, and its capi-
tal had increased from a nominal three millions to
twenty-five millions, with fifteen millions of sur-
plus. It overshadowed every other institution in
the country. The so-called Morgan banks, such
as the First National, began to look like pygmies
beside it. The bank now occupied a unique posi-
tion in the eyes of the American public; it was the
leading institution of the "Money Power." And
by "Money Power" was usually meant the Rocke-
fellers and their allies, who were constantly show-
ing their influence and power in new directions.
They had recently gone into public utilities, and
jointly with William C. Whitney, who was allied

STANDARD OIL AND WALL STREET 69

by marriage with Oliver H. Payne and had become
a large stockholder in Standard Oil, had secured
control of the Consolidated Gas Company of New
York. The latter company in turn had acquired
control of several competing gas companies, hither-
to identified with the old City Bank interests.
Then in 1899 had occurred the spectacular merger
with the Edison Illuminating Company of New
York. By one stroke all the lighting companies
in New York City were brought under one con-
trol. It looked as though the Morgan star was
about to be eclipsed by a more powerful luminary.

CHAPTER V

THE STEEL TRUST MERGER

In this story of fabulous wealth and phenomenal
prosperity we have almost lost sight of the disas-
trous panic of 1893, from which most of the large
industrial enterprises of the United States emerged
in a dilapidated condition. In the long depression
which followed, manufacturers everywhere were
forced into bankruptcy. Capital was scarce, the
demand for goods was small, and thousands of
plants remained in total or partial idleness for
several years. This was particularly true of the
steel and iron industry. Most of the steel plants,
always excepting the Carnegie Works, were dor-
mant or moribund. Dividends were discontinued;
foreclosures were the order of the day; investors
had lost their capital.

The tariff changes of 1894 had been a hard blow
to many industries which had grown up and fat-
tened in a quiet way during the long period of high

70

THE STEEL TRUST MERGER 71

protection from the close of the Civil War to the
second Cleveland administration. Then, too, the
Sherman Act of 1890, aimed particularly at com-
binations in restraint of trade, had frightened in-
vestors away from such "industrial trusts" as the
Standard Oil Trust, the Cordage Trust, the Sugar
Trust, and the Whiskey Trust which in the eigh-
ties had thrived, unmolested by the law. While
the}' were all finally reorganized in such a way
as to avoid the penalties of the law, banking and
investment prejudice was strongly against them.

But when the Republican party returned to
power in 1897 and immediately enacted a new
tariff law, with high protective duties, and when
at the same time certain court decisions were
handed down which seemed to limit the scope of
the Sherman Act, a wave of reviving prosperity
swept over the country, and capital turned with
new confidence to the industrial field. Several
of the earlier trusts besides Standard Oil had
survived the panic and had been reorganized to
conform to the law, notably, the American Sugar
Refining Company and the American Tobacco Com-
pany. The new industrial com.binations were mod-
eled after these. Instead of placing the control
of acquired plants in the hands of "trustees,"

72 THE MASTERS OF CAPITAL

holding companies were formed, which acquired
all or a majority of stocks in certain competing
plants and merged these plants under one control,
often by exchanging the stock of the holding
company for the stock of the plant.

The industrial consolidation movement was ag-
gressively under way by 1899, when the time for
it was ripe. Money was cheap, credit was every-
where available, and prosperity was rising through-
out the country. All the important railroad re-
organizations, as we have seen, had been carried
through, and the great bankers, whose coffers
swelled with huge underwriting commissions, were
looking for new business. When the promoters of
the new type of industrial combination sought
banking support in Wall Street, they met with
little difficulty. Wall Street was not slow to per-
ceive great possibilities in the financing of big in-
dustrial enterprises. A conspicuous example was
the American Tobacco Company, which had been
created in 1890 as a combination of Allen and
Ginter of Richmond, W. Duke, Sons and Company
of Durham, North Carolina, and a number of other
well-known manufacturers. Its original capital
had been ten millions of preferred stock, represent-
ing the cost of the properties, and fifteen millions

THE STEEL TRUST MERGER 73

of common stock, representing good will or "water."
But the business had forged ahead so rapidly
that by 1898 the "capital" was multiplied fivefold,
creating a new group of millionaires.

Then arose the great Amalgamated Copper Com-
pany, under the direction of Henry H. Rogers,
and speculation in "industrials" became more and
more the order of the day on the Stock Exchange.
In quick succession a long string of new combina-
tions followed; notably the American Smelting
and Refining Company, with more than one hun-
dred millions of capital and embracing over one
hundred plants; ,the American Woolen Company,
consolidating a large number of New England
woolen mills under a fifty million dollar capitaliza-
tion; the American Car and Foundry Company,
merging the large car-building plants; the Ameri-
can Hide and Leather Company, consolidating
over twenty large manufacturers of upper leathers;
the International Paper Company, a fifty million
dollar combination of paper manufacturers; and
a large number of other similar mergers in various
lines of industry. *

But the biggest of all the industrial trusts was
the merger of the steel and iron interests of the
country, which began with the incorporation of the

74 THE MASTERS OF CAPITAL

Federal Steel Company in September, 1898, as a
holding company to acquire the stocks of the Illi-
nois Steel Company, the Minnesota Iron Company,
the Lorain Steel Company, and the Elgin, Joliet
and Eastern Railway, a belt line operating about
the city of Chicago. The authorized capital of this
new concern was two hundred million dollars, of
which about one-half was issued at the start. It
was a powerful combination and was in the hands
of strong and able financiers. The firm of J. P.
Morgan and Company took a leading part in
financing the enterprise. The general counsel of
the Illinois Steel Company, Judge Elbert H. Gary,
a leading corporation lawyer of Chicago, thus came
into close touch with "Jupiter" Morgan and was
chosen as the first president of the new company.
The wisdom of the choice was well demonstrated
by subsequent experience.

Following came the American Steel and Wire
Company, with ninety millions of capital, fathered
by the well-known John W. Gates. This was a
combination of big western plants, many of them
specializing in barbed wire, nails, and wire fencing,
but including many other industries and encroach-
ing more or less closely on the field preempted by
the Federal Steel Company. Gates had originally

THE STEEL TRUST MERGER 75

been a barbed wire salesman and was a notorious
speculator. There followed still other companies:
the American Tin Plate Company, with fifty mil-
lions of capital, the American Steel Hoop Company,
the National Steel Company, and two Morgan con-
solidations, the National Tube Company and the
American Bridge Company.

Carnegie and his associates were watching the
situation closely. The great revival in steel and
iron had naturally favored them, and their power
was steadily growing. But Carnegie and his two
chief partners, Frick and Phipps, viewed the em-
pire of business from different angles. For a decade
or more Carnegie had been genuinely anxious to
retire. He had made his millions, he was getting
on in life, and he had no desire to become a great
banker with multitudinous outside interests, like
Morgan, William Rockefeller, or Stillman. Henry
C. Frick, on the other hand, was a natural master
of capital; he foresaw the trend of the times. To
his mind the days of one-man power were over;
great enterprises in the future would be dominated
and controlled by groups of capitalists of diverse
interests; and even complete industries, if they
hoped to live, would of necessity become allied
with others. He believed that combination must

76 THE MASTERS OF CAPITAL

take the place of competition and that he and his
associates must sooner or later become a part of
the consohdation movement. Carnegie saw in the
movement only an opportunity to sell out at his
own price. Naturally Carnegie and Frick quar-
reled. Frick was becoming more and more inter-
ested in matters outside of the steel business. He
had been connected with William Rockefeller and
Henry H. Rogers in various enterprises and was
even then one of the largest stockholders in the
Pennsylvania Railroad, a director in many corpo-
rations, and a conspicuous figure in Wall Street.
These activities displeased Carnegie. His other
partner, Henry Phipps, sided with Frick and so
also estranged himself from Carnegie.

Meanwhile a group of Chicago speculators and
promoters had come to the front. William H.
Moore, a daring promoter, had organized the Dia-
mond Match Company, the National Biscuit Com-
pany, and the American Tin Plate Company.
He and his associates had made several millions
out of the organization of the American Steel
Hoop Company and the National Steel Company.
Flushed with success and with big cash balances,
Moore now approached Carnegie and offered him
a million dollars fcr a ninety-day option on his

HENRY C. FRICK
Photograph by Pach Bros., New York.

[Sravure.Asiderse.i~Ls..7:b,[la H.y

THE STEEL TRUST MERGER 77

stock in the Carnegie Steel Company, the price
being $157,950,000 of which over a third was
to be in cash. Carnegie agreed, provided Moore
would take Frick and Phipps with him. Carnegie
guessed that while Moore single handed might not
be able to raise the money, Frick, Phipps, and
Moore together surely would. But it was not all
plain sailing. Morgan had not yet become con-
vinced of the soundness of the industrial move-
ment; the Rockefellers could not be made to see
the possibilities of such a gigantic scheme as this,
though John D. Rockefeller had personally taken
some interest in the Federal Steel Company. And
just then a temporary panic occurred in Wall
Street, as a result of the sudden death of Roswell P.
Flower, who had been the conspicuous operator in
the inflated bull market. This incident hampered
the efforts of Frick and Moore and before they
could raise the necessary money the ninety-day
option had expired. Carnegie refused to extend
it a single day and quietly pocketed the million
dollars which had been given him for the option.

As the steel business continued to flourish and
the country enjoyed great prosperity, Carnegie de-
cided that his first offer had been entirely too cheap,
and a little later, when John D. Rockefeller tried

78 THE MASTERS OF CAPITAL

to buy him out, he placed his price at $250,000,000.
It was Rockefeller's desire to solidify his interests
in the ore lands and ore railway in Minnesota,
as well as the capital invested in his fleet of ore-
carrying vessels on the Great Lakes. But Car-
negie's price was too high for Rockefeller, and
nothing came of the proposal.

When Andrew Carnegie was laying the founda-
tions of his steel and iron business, he built a small
summer bungalow at Cresson Springs, Pennsyl-
vania. Here there was a livery stable run by a
man named Schwab, from whom Carnegie was in
the habit of hiring horses. Schwab had a son
called Charlie who used to hang around the livery
stable, a merry, good-natured youngster whom
every one liked. The boy had a good voice and
interested Carnegie, who was very fond of music.
"When that boy of yours is ready for a job,
send him to me," said Carnegie to the father
one day.

And so, by good luck, in 1880, at the age of eigh-
teen, Charles M. Schwab entered the employment
of Carnegie in the Edgar Thomson Steel Works.
The young fellow made good and became chief
engineer and assistant manager. When Carnegie

THE STEEL TRUST MERGER 79

bought out an important competitor at Home-
stead, Schwab was selected as superintendent of
the plant and showed his mettle by promptly
making the Homestead Steel Works the most
profitable of all the Carnegie properties. In 1889
he was brought back to Braddock and placed in
charge of the Edgar Thomson Steel Works and
three years later was made general superintendent
of both plants.

Some time afterward Carnegie told Schwab
that he had decided to make him a vice-president,
to which Schwab replied:

"No, IVIr. Carnegie, I am no good carrying out
other men's orders, and I should have to do that as
a vice-president. As superintendent I am boss of
the plants I manage. "

Later again Carnegie approached him. "Well, "
he said, "if you won't be vice-president, I suppose
we'll have to make you president." And they
did. In 1897 Charles M. Schwab became president
of the Carnegie Steel Company.

Schwab naturally adopted Carnegie's ideas and
business policy. He was long opposed to Frick's
theory that the future of successful business lay
in combination and interdependence. "A big busi-
ness enterprise," he said, "is invariably built up

80 THE MASTERS OF CAPITAL

around one man. " But this was simply an echo of
the philosophy of Carnegie, and when the "com-
munity of interest" movement began to dominate
American industry Schwab gradually changed his
view. He was but thirty-eight years old, and his
life was still before him. Carnegie at sixty -five
was naturally wedded to the theories of the old
school. Besides, Carnegie wanted to retire from
business, while Schwab felt that he was just get-
ting into business. At a banquet given to him at
the University Club in New York, the younger man
came out strongly in favor of combination among
corporations and deprecated cutthroat competition
and the rule-or-ruin policy.

After the failure of the negotiations with Moore
and Rockefeller for the sale of his business, Car-
negie quietly bided his time until the Morgan in-
terests had plunged so deeply into the steel business
in connection with the Federal Steel Company,
the National Tube Company, and the American
Bridge Company, that they could not possibly
back out. Then he set on foot a series of opera-
tions designed to create havoc among all the steel
corporations of the country. To fight Morgan,
he announced that he would go into the tube busi-
ness in direct competition with the National Tube

THE STEEL TRUST MERGER 81

Company, and he actually acquired five thousand
acres of land at Conneaut on Lake Erie and let con-
tracts for the construction of a twelve million dollar
tube plant. To fight John W. Gates and his Ameri-
can Steel and Wire Company, he announced that
a gigantic rod-mill would be erected at Pittsburgh.
To fight Rockefeller, he ordered the construction
of a large fleet of ore-carrying steamships to oper-
ate on the Great Lakes. To fight the Pennsylvania
Railroad, he set a corps of surveyors laying out
a railroad route from Pittsburgh to the Atlantic
Ocean. He also planned the immediate construc-
tion of an ore-carrying railroad of vast capacity
from Lake Erie to the Pittsburgh district.

Such threats as these were taken seriously, for
everybody recognized that Carnegie had the power
to carry them through. Already he had the whip
hand in the steel world. The profits of his corpora-
tion in 1900 had been over forty million dollars;
he was already making over one-fourth of the
Bessemer steel produced in the country and half
of the structural steel and armor plate. His costs
were lower than those of any of his competitors,
and he had no debts. The entire steel trade of the
country was thrown into confusion. There was an
actual panic among the millionaires of Wall Street.

82 THE MASTERS OF CAPITAL

"We must get rid of Carnegie," they all shouted.
"He will wreck both himself and us; he is a busi-
ness pirate. " And the frightened financiers, whose
millions were tied up in Federal Steel, American
Steel and Wire, and the other great companies,
rushed to Morgan for help. The Standard Oil
bankers were appealed to; but the undertaking
called for such a gigantic outlay and was fraught
with such uncertainties, that even these bold finan-
ciers hesitated, evidently preferring that Morgan
should bear the brunt of the responsibility.

Just at this time, Charles M. Schwab and John
W. Gates put their heads together and agreed to
interview Morgan. Whether Schwab's overtures
were directed by Carnegie or not may never be
known, but Schwab by this time saw as clearly as
any one that interdependence in the steel busi-
ness was absolutely essential to its future prosper-
ity. As for Gates, his motives were clear enough :
he was one of the panic-stricken millionaires who
were threatened with disaster. Schwab and Gates
spent eight hours trying to convince Morgan of
the necessity of buying Carnegie out. Schwab set
forth the strong features of the Carnegie business
and the glittering possibilities of industrial peace
by means of a combination. Tradition says that

THE STEEL TRUST MERGER 83

he spoke with much eloquence; at any rate he
made the sale; Morgan agreed to pay Carnegie his
price. This price was much higher than that stated
to Frick and Moore only eighteen months before,
higher even than the price named to John D. Rocke-
feller the previous year. Frick and Moore could
have bought the entire Carnegie business for about
$157,000,000; it was offered to Rockefeller for
$250,000,000; but the amount Morgan paid in
January, 1901, was equivalent to a cash price of
over $447,000,000. This was represented by giving
Carnegie and his associates $303,450,000 in bonds
and nearly two hundred million dollars' worth of
stock which immediately had a market value of
about $144,000,000. It was the greatest sale in the
history of the world.

Carnegie was now definitely shelved, so far as
the steel business was concerned; his tube plant
scheme at Conneaut, his plans for a railroad from
Pittsburgh to the sea, and his big rod-mill project
at Pittsburgh were all abandoned. But Morgan
found his hands full when he came to deal with the
other big steel interests. The Federal Steel direc-
tors, aside from Judge Gary, had opposed the idea
of allowing Carnegie to sandbag them; Gates now
felt that Morgan should pay him a bigger price

84 THE MASTERS OF CAPITAL

for American Steel and Wire than he had first
named; Rockefeller, with his rich Lake Superior
ore beds, also wanted large concessions if he was to
become a party to the combination. In short, all
the companies which it was planned to put into
the merger suddenly discovered that their proper-
ties were worth millions more, now that the menace
of Carnegie had been removed.

It was indeed a diflScult task that confronted Pier-
pont Morgan. The various smaller steel '* trusts "
that had been formed during the two previous years
were overcapitalized and had issued reams of
"watered" stocks. For when the mania for con-
solidation was under full swing during the period
which began with the close of the war with Spain
in 1898, discretion had been thrown to the winds,
and industrial plants of every type had been bought
up by promoters regardless of price. An incident is
told which — whether true or not — will illustrate
the tendency. When one of the smaller "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 convivial
mood. Said one, "There's a steel mill at the next
station; let's get out and buy it." "Agreed!"

It was past midnight when they reached the

THE STEEL TRUST MERGER 85

station, but they pulled the plant owner out of
bed and demanded that he sell his plant.

"My plant is worth two hundred thousand
dollars, but it is not for sale, " was the reply.

"Never mind about the price," answered the
hilarious purchasers, "we will give you three
hundred thousand — five hundred thousand."

The story is not improbable, for most of the con-
stituent plants had been bought at prices far above
their true values. Consequently, the corporation
to be formed must have a fabulous capitalization ;
and stocks and bonds must be issued many times in
excess of what the properties would have brought
at forced sales in normal times. But Pierpont
Morgan was equal to the emergency. He first
called in his big lieutenants, one of whom was his
young partner, George W. Perkins — a man des-
tined to influence profoundly the policy and for-
tunes of the corporation about to be born — and
the magnates of the independent companies, in-
cluding Elbert H. Gary, Marshall Field, Norman
B. Ream, Henry C. Frick, and H. H. Rogers. It
was Morgan's plan at first to include in the com-
bination only those steel companies with which his
firm had already become identified, but it was soon
seen that it would be dangerous to exclude the

86 THE MASTERS OF CAPITAL

others. If the Gates interests were left out, they
might become a menace to the peace of the new
concern, for John W. Gates would surely attempt
to sandbag Morgan as Carnegie had done. If the
Moore brothers were left to shift for themselves,
they might get together with others and do the
same thing. The chief danger was, however, from
the Standard Oil. To allow John D. Rockefeller
to remain independent, with his big Lake Supe-
rior deposits and his fleet of ore-carrying vessels
on the Lake, might easily lead to disaster. A
second monster steel business might easily be
built up under Standard Oil control. Therefore it
must be a case of all or none. The steel industry
must be completely merged into one, and all com-
panies of strong financial connections or large
resources must be included.

Judge Gary was appointed to open up negotia-
tions with the independents. Daniel G. Reid, of
the American Steel Hoop Company, was brought
in, and he induced the Moore brothers to join
the combination. The Gates group received what
they demanded, and then Henry C. Frick was
sent to see what he could do with John D. Rocke-
feller. Frick's position at this time was somewhat
unique. Since his break with Carnegie a couple of

THE STEEL TRUST MERGER 87

years before he had become more of a Wall Street
speculator than a mere steel man. He had not
definitely allied himself with either Morgan or
Rockefeller but was on friendly terms with both.
He had close associations with Ilenry H. Rogers
and James Stillman ; he had gone into Federal Steel ;
he was a powerful factor in the affairs of the Penn-
sylvania Railroad; altogether, he was looked upon
as one of the leading protagonists of the "commu-
nity of interest" idea which had been so strongly
championed by Cassatt of the Pennsylvania Rail-
road, Harriman of the Union Pacific, and Hill of
the Great Northern.

Frick succeeded without much trouble in bag-
ging Rockefeller, although the price he paid looked
high at the time. Rockefeller received eighty mil-
lions in the stock of the new corporation, of which
half was preferred stock, besides eight and one-
half million dollars in cash for his ore-carrying
fleet. These were huge concessions, but the control
of the Lake Superior iron mines was absolutely
essential, for these deposits represented two-thirds
of the new corporation's ore supply.

Having thus gathered together all the important
steel interests of the country, Morgan launched
the United States Steel Corporation. The stock

88 THE MASTERS OF CAPITAL

capitalization was in excess of a billion dollars,
with a bonded debt of more than three hundred
millions, and both the big banking groups of Wall
Street were firmly tied to the enterprise. The great
merger dominated by Morgan drew into its orbit
even the Standard Oil "Money Power." Among
the big names included in the syndicate, aside from
Morgan and his partners, were H. H. Rogers and
Daniel O'Day of Standard Oil; Marshall Field,
William H. Moore, James H. Moore, Elbert H.
Gary, John W. Gates, H. H. Porter, and Norman
B. Ream, of Chicago; Samuel Mather of Cleveland;
Nathaniel Thayer of Boston; and Daniel G. Reid,
Henry C. Frick, Charles M. Schwab, and D. O.
Mills, of New York. So under the control of a
single corporation passed seventy per cent of the
American iron and steel industry. That industry,
instead of being operated on the old plan of in-
dividual control or independent corporate con-
trol, was now linked with scores of banks of great
power, with railroads, and with numerous other
corporate undertakings.

CHAPTER VI

HARRIMAN AND HILL

Edward H. Harriman was the son of a poor and
unsuccessful Episcopal clergyman who spent the
latter days of his life as a bookkeeper in the old
Bank of Commerce in New York. Born in 1848,
young Harriman was just fourteen years old when
his father obtained a job for him as oflfice boy with
DeWitt C. Hays, a Wall Street stockbroker. This
was just about the time when Pierpont Morgan
was preparing to get into business in America;
when Andrew Carnegie was accumulating his first
money in speculative oil and railroad ventures
under the tutelage of Scott and was scanning the
horizon of the new Bessemer steel business; when
John D. Rockefeller was laying the foundations
of Standard Oil; and when Henry C. Frick — one
year younger than Harriman — was doing duty
as an errand boy in Mount Pleasant.

From the very first, young Harriman displayed

88

90 THE MASTERS OF CAPITAL

unusual ability. He also had that trait of audacity
which had shown so conspicuously in the char-
acters of Frick, Carnegie, and Morgan. Almost
immediately he began to make a little money in
stocks. And he widened his acquaintance rapidly.
He became intimate with Lewis Livingston, a
member of one of the oldest New York families,
who had a son named James. When in 1870, after
having worked himself up to the position of book-
keeper of the Hays firm, young Harriman bought
a seat in the New York Stock Exchange at a cost
of about three thousand dollars, he induced James
Livingston to go into the stock brokerage business
with him and supply capita! through his father.
Harriman was successful at once — so successful
that within a few months he dissolved partner-
ship with Livingston and formed a new firm with
himself at the head and his brother William as a
partner. He cultivated the friendship of people of
means and social standing and in a few years be-
came prominent among the younger "aristocrats"
of New York. In this environment he ultimatel3'
came into close touch with the people associated
with the Illinois Central Railroad, which had been
built during the years prior to the Civil War and
had proved wonderfully successful from the start.

HARRIMAN AND HTLL 91

Running north and south, it caught broadside the
westbound tide of migration ; its government grant
of rich Mississippi Valley lands was sold early at a
good price; soon after it was built the Civil War
gave it a big business, and it escaped the ruinous
competition which so long devastated the trunk
lines running east and west.

A group of old New York merchants had built
this road. Though they sold five-sixths of its stock
in England and Holland, it became a favorite solid
investment for many of the old families of New
York. The Astors and the Goelets and the Cut-
tings were large holders of its stock in the seventies
and eighties. The Illinois Central, indeed, was
quite the "society railroad " of New York. During
the long period from 1857 to 1883 the property had
remained under the direct control and operation of
William Henry Osborne, an old Manila merchant
who had returned from the Philippines in the
fifties with a fortune and who had operated the
Illinois Central all these years as he would have
operated his own warehouse. Osborne had a sum-
mer home at Garrison, New York, where he was
a neighbor of the old and rich Fish family, a younger
member of which was Stuyvesant Fish. The latter
became Osborne's secretary in 1872 and a few

92 THE MASTERS OF CAPITAL

years later was made a director of the railroad. In
1883 when Osborne died, he practically bequeathed
the management of the railroad to his secretary,
although Fish did not actually become president
until some years later.

Harriman and Fish had known each other for
many years, and as young men had traveled about
town a great deal together. In 1880 they were
both directors in the Ogdensburg and Lake Cham-
plain Railroad, a property of which Harriman had
hoped to acquire the control, for by this time Har-
riman had made very substantial progress in busi-
ness, having accumulated several hundred thou-
sand dollars through shrewd trading in securities.
He was now beginning to turn away from mere
brokerage to railroad management and finance.

The Illinois Central had acquired control of an
extensive system of lines south of St. Louis, known
as the Chicago, St. Louis and New Orleans, and
Stuyvesant Fish had sought Harriman 's assistance
in placing the bonds. In this work Harriman was
notably successful. Meanwhile he had himself
acquired a large block of Illinois Central stock
and had become more and more the confidential
adviser of Fish. At that time there was a large
Dutch stockholding interest in the road, whose

HARRIMAN AND HILL 93

votes were cast collectively by the firm that had
originally placed the stock in Holland, Boissevain
Brothers. One member of this firm came on a visit
to America. Harriman met him, gained his confi-
dence, and then arranged to hold his proxies in the
Illinois Central meetings. Soon afterwards Harri-
man was elected a director and became the close
associate of Stuy vesant Fish in the actual operation
and control of the road.

No two men could have been more dissimilar in
personality and bearing than these two. Harri-
man was small, quiet, restless, and secretive; Fish
was a big, open-faced, easy-mannered young man,
whose blond hair and great stature had earned for
him in the financial district the name of "White
Elephant." For a time, however, the two men
worked together in harmony. They bought a por-
tion of the old Wabash, St. Louis and Pacific after
its failure in 1884; in 1887 they bought the Du-
buque and Sioux City Railroad; in the early nine-
ties they bought (much against the will of Collis P.
Huntington) the chain of roads with which Hunt-
ington had planned to hitch his Southern Pacific
system to the Atlantic seaboard; they bought an
important section of the St. Louis, Alton and Terre
Haute, which George Foster Peabody had been

94 THE MASTERS OF CAPITAL

developing in southern Illinois, thus securing an
entry of their own into St, Louis; and they pur-
chased a great number of small roads, until, from
the two thousand miles they had in 1883, they
owned and controlled in 1897 a system of over
five thousand miles.

This policy of expansion did not bring disaster,
as had been the case with so many other lines.
All through this period the road's credit remained
high, and even in the early eighties it was able to
sell three and one-half per cent bonds while other
roads of good credit were raising money at five or
six per cent. This high credit of the Illinois Cen-
tral was very largely due to the rigid policies which
Harriman introduced and developed. Harriman
was more than a mere banker or broker; he was a
practical railroad operating man. He had made
a thorough study of railroading and had early
adopted the theory that the first duty of railroad
management was to maintain the character of the
physical property and to consider mere current
profits as secondary. Thus, in the management of
the Illinois Central, he never "skinned" the road
to pay dividends; he never allowed the roadbed or
equipment to become ineflScient. Another sound
idea he adopted was always to provide ample

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EDWARD U. HARRIMAS
Photograph by Pach Bros., New York.

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HARRIMAN AND HILL 95

funds and reserves for contingencies; never to
allow his property to take financial chances in
times of dullness or depression. Even when he was
raising large amounts of new capital for extensions
or purchases, he always provided far more cash
assets than were currently needed.

Harriman had very soon grown powerful enough
to cross the path of Pierpont Morgan. In 1887,
Morgan held the proxies of the stockholders in the
Dubuque and Sioux City Railroad, which Harri-
man wished to buy for the Illinois Central. Harri-
man fought his plan through and defeated Morgan.
This coup was regarded as a ten days' wonder in
Wall Street. From that time on Morgan disliked
Harriman. Again, in 1894, Harriman and Morgan
crossed swords. Harriman owned a few hundred
thousand dollars worth of underlying bonds about
the time that Morgan announced his plan of reor-
ganization for the Erie Railroad. Harriman ob-
jected to the proposed treatment of his securities,
brought suit to prevent the drastic reorganization,
and in the end forced Morgan to make concessions.

Harriman was as yet little known outside of
Wall Street. Although chairman of the iBnance
committee of the Illinois Central and the power
behind the throne, he was eclipsed by the figure of

96 THE MASTERS OF CAPITAL

Fish. But in 1895 Harriman stepped to the front.
The Union Pacific Railroad security holders were
looking in vain for some strong banking interests to
finance their property. The road was a frightful
wreck with a tangled mass of subsidiary companies,
and the United States Government was aggres-
sively insisting on the payment of the huge debt
representing the original government loans, with
the interest that had accumulated since its build-
ing thirty years before. Morgan had rejected the
suggestion that he reorganize it, as he was too
fully occupied with the rejuvenation of many other
railroad systems. Harriman then saw his chance.
He decided to reorganize the Union Pacific himself,
to make it a subsidiary of the Illinois Central, and
to utilize the credit of the latter company for the
gigantic financing which would be necessary. But
before he had progressed very far in this plan he
met with opposition from Kuhn, Loeb and Com-
pany, who had become bankers for the Chicago,
Milwaukee and St. Paul, the Great Northern Rail-
way, and other properties, and now also were bent
upon reorganizing the Union Pacific.

A keen contest for mastery followed. At first
Jacob H. Schiff, the head of Kuhn, Loeb and
Company, persistently ignored Harriman, feeling

HARRIMAN AND HILL 97

confident that no interest in New York could suc-
cessfully reorganize the property except Morgan or
himself; but Harriman soon forced him to change
his mind. The two were brought together, and,
in Wall Street parlance, laid their respective cards
on the table. It was an interesting and convincing
show-down. Schiff could raise the much needed
hundred millions of new capital at five or six per
cent through his strong German connections; but
Harriman showed how he could raise this sum, and
more, on the Illinois Central credit, at from three
and one-half to four per cent. Schiff capitulated,
and finally reached an agreement with this new
master of capital. The road was reorganized by
Kuhn, Loeb and Company, and Edward H. Har-
riman was made the first chairman of its board
of directors and later its president.

Harriman had now leaped at a bound into pub-
lic notice. And, coincidently, as we have already
seen — an event of great significance — the power-
ful Standard Oil capitalists interested themselves
in Wall Street affairs.

Too much credit cannot be given to the men who
carried out this reorganization of the Union Pacific
Railroad. In the first place, they paid to the

98 THE MASTERS OF CAPITAL

Federal Government over forty-five million dollars
in cash on a bankrupt railroad — all the principal
and full interest at six per cent on the Union
Pacific debt, which had accrued for thirty years.
Then they put the bonds and preferred stock of
the reorganized road on a straight four per cent
basis; and finally after these prudential measures,
they began to spend money by the tens and hun-
dreds of millions upon this ramshackle property
running across the "Great American Desert."

In all these operations Harriman was the master-
ful leader. Fortune played into his hands. For
the first time in years the arid farming sections of
the West had copious rains and fine crops. The
Spanish-American War resulted in American oc-
cupation of the Philippines; and the Union Pacific
got a great business from these new possessions.
Harriman not only spent money but he spent it
quickly, accomplishing in two years' work what
had been estimated to take five. And he was reap-
ing the fruit of his enterprise. In three years, under
his direction, the system expanded from less than
two thousand miles to over fifteen thousand. The
old branches running up into the Oregon country
were all reabsorbed. After the death of Collis P.
Huntington in 1900, Harriman bought in forty-five

HARRIMAN AND HILL 99

per cent of the Soutliern Pacific Company stock,
principally from the Huntington estate.

But now, just about the time that the great
steel merger was being carried through, when the
big banking interests of Wall Street were every-
where hitching themselves to the Morgan star,
Harriman's gigantic railroad plans came into vio-
lent collision with the equally gigantic plans of
James J. Hill. Until a short time before this, Hill
had not been looked upon as a big operator in Wall
Street. He had won fame as the builder and suc-
cessful manager of the Great Northern Railway
system, but he had not been directly involved in
the large Wall Street deals. At first, as the Great
Northern emerged from the panic of 1893, the
firm of Kuhn, Loeb and Company had done most
of the Great Northern financing in New York.
But after the reorganization of the Northern Pa-
cific property by Morgan in 1897, Hill and Mor-
gan began to work closer to each other. Hill had
acquired a substantial stock interest in the Chase
National Bank, one of New York City's old and
strong institutions, while Morgan began to add to
his interest in the First National Bank, of which
George F. Baker was president. Baker and his
associates at this time also acquired a large interest

100 THE MASTERS OF CAPITAL

in the Chase National Bank, and the two institu-
tions became definitely allied in interest. Then,
as a natural step, James J. Hill acquired an im-
portant interest in the First National Bank. A
little later. Hill acquired a large part of the Mor-
gan interest in the newly reorganized Northern
Pacific property. This move brought Hill defi-
nitely into the group of Morgan financiers, while
Harriman was still closely associated with the
Rockefeller and City Bank interests.

Hill was now the controlling power in both
the Great Northern and the Northern Pacific sys-
tems and was becoming more and more of a com-
petitor of Harriman. The latter discerned the dan-
gers ahead and began to extend the Union Pacific
branch lines up into the Oregon district. But Hill
was looking to the East. Neither of his roads
controlled a connection to Chicago, the Northern
Pacific ending at St. Paul, and the Great Northern
at Duluth. The Union Pacific, on the other hand,
had a close alliance with the Illinois Central,
which entered Chicago, and maintained traflSc
connections with other lines. At this juncture
Hill decided to have the Northern Pacific buy the
stock control of the great Chicago, Burlington and
Quincy system. When this move was announced,

HARRIIVIAN AND HILL 101

it threw the Harriman people into confusion, for
it meant that the Union Pacific would have a di-
rect competitor a third of the way to the Pacific.
While the Burlington line was bought primarily
for the sake of its lines extending from St. Paul
southward to Chicago, yet the system had also a
lucrative line running to Denver and far beyond
into Wyoming.

Harriman now attempted to bargain with Hill
and to induce him to let the Union Pacific join in
the Burlington purchase and thus tie up all the
western systems in a common monopoly. But Hill
refused. Then, without the slightest hesitation,
Harriman quietly began to buy up the control of
the Northern Pacific in the open stock market.
In this way he hoped to checkmate Hill, as the
Northern Pacific (jointly with the Great Northern)
had been made the instrument to carry the Bur-
lington stock and Harriman reasoned that, while
a majority of Great Northern stock was doubtless
locked up in the strong boxes of Hill and his friends,
only a substantial minority of the Northern Pacific
stock was so held.

To buy up the control of such a property meant
the use of anywhere from $80,000,000 to $100,000,-
000 in cash. But Harriman knew where he could

102 THE MASTERS OF CAPITAL

lay his hands on the money. Already the Union
Pacific had a heavy balance in its treasury; it had,
besides, about $60,000,000 of unused bonds which
Harriman had the right to issue; and behind him
were the huge cash resources of Kuhn, Loeb and
Company and the City Bank, with the Standard
Oil alliance.

Harriman had gone far on the way to controlling
the Northern Pacific before the fact was known to
J. P. Morgan and Company. Morgan had gone on
his usual spring and summer trip to Europe, and
was on the ocean when the storm broke. Coster,
his chief lieutenant, had died the year before.
The Morgan firm was in charge of Robert Bacon,
a fine, upstanding young man, handsome as a Greek
god, but not of the Morgan caliber. He had been
called to the Morgan firm a few years before from
a brokerage house in Boston ; but he was not the
best substitute for Pierpont Morgan in a great
financial crisis.

On the 1st of April, 1901, Morgan and the Hill
people together held between $35,000,000 and
$40,000,000 of the Northern Pacific stock out of a
total of $155,000,000. They had paid an average
of about sixteen for this stock only two or three
years before and, seeing it rise beyond par, they

HARRIMAN AND HILL lOS

were tempted to sell some of their holdings. On
the 1st of May they held only $26,000,000 worth.
Then Harriman announced that he had bought
an actual majority of the Northern Pacific stock.
And he had; but there was a loophole which Harri-
man had overlooked. His purchases were in both
common and preferred stock, but the charter of
the company provided that the preferred stock
could be retired at the will of the directors., thus
leaving the voting power entirely in the common
stock. It soon appeared that Harriman had not
acquired enough common stock to give him con-
trol. So Hill and his friends, with the Morgan
house and its powerful connections, rallied and
employed James R. Keene, the famous stock mar-
ket manipulator, to buy a majority of the North-
ern Pacific stock for them. Between the 3d
and the 7th of May over $15,000,000 worth was
bought — enough, they thought, to give them an
actual majority.

But at the same time Harriman also was buy-
ing; and by the 9th of May both parties claimed
to have a majority. The stock had been "cor-
nered"; the price soared and soared; at ten o'clock
on the 9th of May it sold around $350 a share; one
hour later it was quoted at $1000 a share. Wall

104 THE MASTERS OF CAPITAL

Street plunged into a panic; stocks of every char-
acter dropped with a thud; it was plain that, un-
less something was done, every broker and every
banker in Wall Street would fail by nightfall. So
the two contestants had to suspend hostilities in
order to save the financial world they lived in. A
truce was signed pending Morgan's return to New
York in July. In November, Bacon retired, broken
in health by the gigantic strain of the Morgan busi-
ness, just as Coster before him had been. But his
place was more than filled by George W. Perkins.
In the formation of the Northern Securities
Company in the fall of 1901, another important
link was forged which served to weld the rival finan-
cial groups of Wall Street together. The North-
ern Securities Company was a holding corporation
with $400,000,000 capital, which was formed to ac-
quire by exchange of stock all the capital of the
Northern Pacific Railway and a majority of the
capital of the Great Northern, thus insuring control
of the Burlington, nearly all the stock of which had
been acquired by these companies. As the Union
Pacific and Harriman and Standard Oil interests
had bought a great block of Northern Pacific stock,
this agreement meant that they would control sub-
stantially half of the Northern Securities Company

HARRIIVIAN AND HILL 105

stock. Thus, by a gigantic stroke, railway com-
petition in the vast region west of the Mississippi
was eliminated, and a combination of capital,
far greater than that of the Steel Trust, was
formed. The Harriman properties now embraced
the Southern Pacific system, with its eleven thou-
sand miles of railroad radiating throughout the
entire Southwest, and the Illinois Central, with its
five thousand miles extending down the Missis-
sippi Valley to the Gulf. The Hill properties, now
jointly controlled and operated by Hill and Harri-
man, included over fifteen thousand miles of lines
radiating throughout the entu-e rich region north
and northwest of Chicago and extending through
to the Pacific by two distinct routes.

But this alliance of western properties by no
means represented all or nearly all the railroad
power of either Harriman or Morgan. Harriman
had caused the Union Pacific to acquire important
interests in the New York Central, the St. Paul,
the Atchison, and the Chicago and North- Western,
following out the "community of interest" theory
of which he was such a strong advocate. Morgan,
on his part, was just as firmly as ever in control of
his eastern properties, the Erie and the Southern,
and had important influence in the management of

106 THE MASTERS OF CAPITAL

the Reading, the Lehigh Valley, the Baltimore and
Ohio and, of course, the entire Vanderbilt lines.
Interlocking directorates were becoming the vogue
in the entire railroad world. The powerful Penn-
sylvania Railroad, under the remarkable and force-
ful personality of Alexander J. Cassatt, had pushed
the "community of interest" idea aggressively,
and its representatives were on the boards of di-
rectors of all of its competing and many of its con-
necting lines. In nearly all directions, the rail-
road systems of the country had now been welded
together under the financial control of practically
one powerful interest.

There was, however, one loophole left open. The
lucrative Louisville and Nashville Railroad was
still outside the breastworks, when John W. Gates
— who, since he had sold out his American Steel
and Wire Company to the Trust in 1901, had be-
come a notorious stock-market "plunger" — and
Edwin Hawley joined forces in 1903 and bought
a majority of the Louisville and Nashville stock.
Hawley had been one of the lieutenants of Collis
P. Huntington, after whose death and the sale
of the Southern Pacific to Harriman he had be-
come a free lance. He bought small railroads for
the purpose of selling them out at a profit, just as a

HARRIMAN AND HILL 107

smaller man would buy a block of stock for the
same purpose. He and Gates formed a strong com-
bination; but their reputation was that of manip-
ulators; and it was feared that they would wreck
the solid old Louisville and Nashville property
in short order by unsound financing and unprin-
cipled manipulation. In fact, this was their inten-
tion. They worked up an enormous speculation
in the stock, caught certain large insiders short,
and threatened to start another "corner" simi-
lar to that in the Northern Pacific. To prevent the
recurrence of such a disaster, Morgan stepped in
and took the Louisville and Nashville off their
hands at their own price. Later, Morgan turned
the control of this railroad property over to the
Atlantic Coast Line, which had been welded to-
gether by Henry Walters and was being operated
in harmony with the Morgan interests along the
South Atlantic seaboard.

There was now but one large system of American
railroads that actually escaped the control of con-
servative bankers of the Morgan and Standard
Oil type, with their "community of interest" for-
mula. This was the Chicago, Rock Island and
Pacific. In 1902, their pockets bulging with the
millions acquired in the big steel merger, the Moore

108 THE MASTERS OF CAPITAL

brothers, with Daniel G. Reid, and others, formed
a syndicate and bought the control of this property.
They immediately loaded it up with several hun-
dred millions of watered capital, and then so fixed
the voting power that they could sell practically
all of it to the public and yet still retain control
of the property. Thus, the Rock Island system
became simply a football for Wall Street gamblers;
its roadbed and rolling stock were neglected; the
road was "skinned" year after year to pay divi-
dends; and an extravagant policy of expansion
was pursued which in the course of time forced
the entire system into bankruptcy, and the flimsy
structure collapsed like a house of cards.

CHAPTER VII

THE APEX OP "high FINANCE*'

In 1903 the United Steel Corporation failed to earn
its dividends, its great issue of common stock fell
to a few dollars a share, and people began to think
that Morgan was no wizard after all. Carnegie,
the retired and intrenched multimillionaire, sat
back and laughed; Harriman, the enemy of Mor-
gan, gloated over the fall of his rival; the Standard
Oil magnates, always jealous of the Morgan power,
said little but watched and waited. But while the
fickle public cried calamity, Morgan kept on being
a "bull." He knew that the ebb was temporary;
that the tide would soon turn. He urged his clients
to buy steel and other good industrials. The de-
cision of the Supreme Court in 1904 ordering the
dissolution of the Northern Securities Company
caused a shiver in the framework of Morgan's gi-
gantic structure. But it was only a shiver. The
tide did turn, and big business went merrily on

109

no THE MASTERS OF CAPITAL

until the storm broke in 1907. Steel stocks
rose above their original figures, and the house
of Morgan regained its prestige and added to its
financial strength.

During these years Morgan formed the great
shipping combination known as the International
Mercantile Marine Company, which absorbed the
White Star Line, the American Line, the Red Star
Line, the Leyland Line, and many other trans-
atlantic companies. The idea of this combination
was to eliminate the cutthroat competition which
then existed in the transatlantic trade in freight
and passenger rates. The leading lines between
New York and England, which included the Cu-
nard Line, the White Star, and the American Line,
had suffered during the few previous years through
competitive conditions just as the trunk line rail-
roads had suffered for more than a decade prior to
the period when the Morgan idea of "combina-
tions" and "community of interest" had been
so widely introduced. It was felt that the same
methods of combination in the ocean carrying
trade might have equally beneficial results.

But the organization of the International Mer-
cantile Marine Company proved to be one of Mor-
gan's business mistakes — until the unprecedented

THE APEX OF "HIGH FINANCE" 111

demand for shipping in the Great War resulted
in large earnings. The vital fact was apparently
belittled or overlooked that a combination of car-
riers on the high seas cannot be welded into a
monopoly in the same way that a combination of
railroads can be. The ocean is free to all comers,
while a railway right of way is in its very nature
exclusive and grows more valuable as the territo-
ry covered increases in density of population and
wealth. It would be practically impossible, be-
cause of the stupendous costs, for a direct competi-
tor to be built today paralleling the Pennsylvania
Railroad between New York and Pittsburgh; but
it would be simple enough for an organization of
capital to establish an entirely new line of steam-
ships between New York aad Liverpool.

This was but one of the facts which were over-
looked by the promoters of the steamship combina-
tion. The competing lines controlled in England
and Germany were all the beneficiaries of large
government subsidies, whereas the new Morgan
combination, being under American control and
financed by American capital, could not enjoy
these benefits. Moreover, as soon as the new
combination began to compete aggressively with
the Cunard and German lines, both the English

112 THE MASTERS OF CAPITAL

and German Governments came to the rescue with
further large subsidies and benefits. The Cunard
Line was able to make an arrangement with the
British Government whereby the latter advanced
money at two and one-half per cent for the con-
struction of new liners of mammoth capacity, such
as the Lusitania and the Mauretania.

A more successful flotation by the Morgan firm
was that of the International Harvester Company.
This was a gigantic combination of manufacturers
of harvesting machinery and included the larger
plants in the United States and also many of those
in Europe. Its capitalization was large, but it dis-
tinctly stabilized business conditions in this line
of industry and prospered notably from the very
start. Credit was especially due to George W.
Perkins, Morgan's young partner, for forming this
new combination.

During a long period the Morgan firm had
been closely identified with the General Electric
Company, a great manufacturing concern which
had been building up a world-wide industry. But
the General Electric Company was now becoming
more than a mere manufacturing concern. With
its large capital and high credit it was steadily
going into the business of developing public utility

THE APEX OF "HIGH FINANCE" 113

operating companies. The old North American
Company, which had originated as the Oregon
and Transcontinental Company many years before
and had been the holding corporation for the in-
terests of Henry Villard in connection with the
Northern Pacific and certain Oregon railways, had
now been revamped as a public utility holding
company and had gradually acquired control of,
or large interests in the street railways and light-
ing companies of St. Louis, the Milwaukee public
utilities, and the Detroit Edison Company.

But perhaps the most striking development of
this time was the further unification of railroad
control. After the Supreme Court decision dis-
solving the Northern Securities Company was
handed down in 1904, the stocks of the Great
Northern and Northern Pacific railways which
had been acquired by this holding company were
returned to their holders. The Union Pacific
Railway received into its treasury an enormous
amount of both Great Northern and Northern
Pacific stock. At this time, these stocks were of
tremendous market value. Both roads showed
large earnings and were paying liberal dividends, be-
sides cutting "melons" by dividing surplus prof-
its in one form or another. The stock market was

114 THE MASTERS OF CAPITAL

booming, and the quotations in these stocks soared
to unheard-of heights. Great Northern stock sold
in 1906 as high as $340 a share and Northern Pa-
cific at about $230. The Union Pacific suddenly
found itself rich beyond the dreams of avarice; its
treasury was overflowing with valuable securities.
And when, after this dissolution, the Harriman
and Hill interests reached a definite agreement on
matters of policy and division of territory by carry-
ing the "community of interest" idea to its logical
conclusion, there was no further need of the Union
Pacific to retain control of these large amounts of
stock. So Harriman decided to dispose of them.
These sales, which were spread over a considerable
period, brought an immense amount of cash into
the treasury of the company and resulted in a
total profit to the Union Pacific of more than fifty
millions of dollars.

Thus the Union Pacific Railway had become a
veritable storehouse of cash, in fact, a bank of
enormous resources. But Harriman had no inten-
tion of allowing the raiiroad to remain a bank; he
had more ambitious plans. The Supreme Court
decision, while preventing the practical merger of
competing lines, said nothing about the control of
connecting lines. So the Union Pacific cash was

THE APEX OF 'HIGH FINANCE" 115

immediately employed in adding to the Union Pa-
cific's interest in connecting systems. It had always
been Harriman's ambition to control an ocean to
ocean railroad, and he now began to purchase in
the interest of the Union Pacific great blocks of
stock in the Baltimore and Ohio Railroad, be-
sides adding heavily to that already owned by
the Union Pacific in the Illinois Central. By the
early part of 1906, the Baltimore and Ohio was
practically an eastern arm of the Union Pacific
Railway. And inasmuch as the Baltimore and
Ohio already owned practically a dominating in-
terest in the Reading Company, with the control
of the anthracite fields, and the Reading controlled
the Central Railroad of New Jersey, with its en-
trance into the New York City district, the Union
Pacific now became a network of railway lines
extending from ocean to ocean.

In short, the general tendency was for all the
American railroads to become more and more close-
ly knit together in policy and interest. The St.
Paul in these years began to develop its west-
ern extension, and the Rockefeller interests, which
were so closely allied with the Harriman railroad
financiers, had complete control of the St. Paul.
The Gould properties were being linked into one

IIG THE MASTERS OF CAPITAL

harmonious whole, and a plan was under way for
a Gould transcontinental line also stretching from
ocean to ocean. The Western Maryland system
was acquired by the Goulds, with Rockefeller aid,
and it looked as though a great system would soon
be built up, side by side with the Harriman lines,
but in close control and with the maintenance of
harmonious relations.

The Hill and Morgan properties of course ex-
hibited this same tendency towards greater har-
mony and concentration. Hill's lines radiated
throughout the Northwest but worked in har-
mony with both the Harriman and the Rockefeller
interests. The Atlantic Coast Line, with the great
Louisville and Nashville system, under the man-
agement of Henry Walters and under the partial
control of Morgan interests, operated in complete
harmony with the Southern Railway system on the
one hand and with the Illinois Central on the other.
Morgan took care that his Erie system maintained
favorable and harmonious relations with the great
Vanderbilt lines, while the Pennsylvania system,
under the guidance of that master hand, Alexander
J. Cassatt, worked in complete harmony with all
the other large railroad interests.

The intercorporate relationships of the railways

ALEXANDER J. CASS ATT
Photograph by Gutekunst, Philadelphia.

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THE APEX OF "HIGH FINANCE" 117

reached their highest point before the panic of
1907. By the end of 1906, we find that of a to-
tal railroad stock capitalization of about twelve
billions of dollars, more than one-third was owned
by the railroads themselves. In the cases of com-
peting or parallel systems, minority interests of
sufficient amount were held to create a substantial
if not a dominating interest; but in the case of
non-competing lines, or connecting lines, majori-
ty control was often effected. The latter was the
case in New England, where the New York, New
Haven and Hartford system, under Morgan in-
fluence, had acquired complete control of prac-
tically all the means of transportation, including
the many coastwise steamship lines.

This remarkable welding together of great cor-
porate interests could not, of course, have been
accomplished if the "masters of capital" in Wall
Street had not themselves during the same period
become more closely allied. The rivalry of inter-
ests which was so characteristic during the reorgan-
ization period a few years before had very largely
disappeared. Although the two great groups of
financiers, represented on the one hand by Morgan
and his allies and on the other by the Standard Oil
forces, were still distinguishable, they were now

118 THE M.\STERS OF CAPITAL

working in practical harmony on the basis of a sort
of mutual "community of interest" of their own.
Thus the control of capital and credit through
banking resources tended to become concentrated
in the hands of fewer and fewer men.

The machinery for the control of credit had
become steadily more effective since the days of
the Steel Trust merger. Two groups of banks,
partially allied but still independent, had been
reaching out through the entire country. The
National City Bank, now under the management
of Frank A. Vanderlip, James Stillman having
practically retired, had grown tremendously in
power and with unusual rapidity. It had formed
connections with large institutions in various cities
of the country and had brought under its control
several great trust companies. The growth of the
Morgan banks and trust companies during this
period was no less notable.

In the same period began a contest for the con-
trol of lifejnsurance assets. In earlier days the life
insurance business had occupied a modest place
in the American financial world. The old, solid
companies had grown steadily and quietly year by
year, increasing their patronage and adding to
their assets in a staid, conservative way. But

THE APEX OF "HIGH FINANCE" 119

they were generally looked upon as a thing apart,
so far as banking connections or general financing
were concerned. The old Equitable Life Assur-
ance Society, although near the Wall Street dis-
trict, was as distinct from Wall Street influences
as though it had been located in Hartford or in
Philadelphia; and the same was practically true
of the Mutual Life Insurance Company and the
New York Life Insurance Company. The invest-
ments of these large and growing companies, as
well as those of a myriad of smaller ones, had from
time out of mind been confined to government
and municipal bonds and the highest grade of rail-
road securities. Each year had seen the surpluses
of these companies grow, but as a matter of course
their large cash resources were looked upon as un-
available for ordinary financial purposes. While
the laws regulating the investment of life insurance
funds were far more liberal than those pertaining
to the investment of savings bank funds, yet Wall
Street did not regard the one as any more liquid
or available than the other for its own uses. As
late as 1889 it appears that very little attention
had been paid to the possibility of making use, in
financial schemes, of the large hquid assets of these
great companies.

120 THE MASTERS OF CAPITAL

I~ But in the early nineties the trust company move-
ment began to get vigorously under way. Trust
companies, formed as they were under unusually
liberal banking laws, could not only compete with
the ordinary state banks and the national banks
in doing a straight banking business — receiving
deposits, discounting notes, and making loans on
collateral — but were fully empowered to do many
other lucrative things. They were perfectly free,
for example, to "underwrite" financial schemes
and to take large interests in promotions or finan-
cial enterprises of a more or less speculative nature.
Such underwritings or promotions frequently yield-
ed fabulous profits, and it was quickly seen that the
stock of a modern trust company was likely to pay
larger dividends than that of a bank, which operated
under rigidly restrictive laws.

These possibilities for lucrative profits began
to be more fully demonstrated as the readjust-
ment and reorganization period set in about 1893.
Up to that time trust companies had made a special
feature of acting as fiscal and financial agents,
paying coupons, dividends, and performing the
general work of trusteeship for both corporate
and individual interests. But now they began to
be the headquarters for bondholders' committees

THE APEX OF " HIGH FINANCE " 121

and the agencies for reorganization committees and \
the like. Soon a further step was taken; abandon-
ing the mere role of trustee, they began to be re-
organizers and financiers of corporations directl5\
Profits flowed in, the stocks of the trust companies
began to soar, and trust company dividends ranged
far higher than did old-line bank dividends. An
investment in the stock of a large Wall Street
trust company became far more lucrative than an
investment in a first class bank of the old style.
So trust companies began to be formed with
great rapidity.

But to form large companies with great re-
sources and substantial reserves required much
money. They were a new thing, and the type of
individual investor who was perfectly willing to
put money into a national or state bank was in-
clined to hesitate before embarking on this new en-
terprise. But money must be got somewhere ; so the
shrewd minds identified with or attracted by the
possibilities of the movement began to search for
untouched resources of some kind. Some success
was achieved in getting Standard Oil money into
the field, but only to a limited extent. For a while it
looked as though the trust company business would

have to take the usual course of any new business

- — J

122 THE MASTERS OF CAPITAL

with money-making ideas and prove its stability
with the lapse of time before it could hope to take
a permanent place in American financial affairs.

Suddenly a new and unexpected source of capital
opened. Identified with certain of the large life
insurance companies of New York, either as presi-
dents or managers, were a number of men of the
purely financial type, men who were more or less
involved in Wall Street interests and enterprises.
These men, with their swelling insurance assets,
were constantly looking for investments for the
surplus funds of their companies; and they were
not, as a rule, averse to making private fortunes
for themselves. Though the life insurance laws
restricted them to some extent in the use of the
policyholders' money, so that they could not, as a
private banker might, make use of this money in
any really free and speculative way, it was per-
fectly legitimate for a life insurance company to
invest its funds in any company operating under
the banking laws. There was therefore nothing to
prevent the Mutual Life or the Equitable Life
from holding the stock of a trust company. And
as the value of the capital stock of a bank or trust
company in those days depended largely upon the
character of its management or the personnel of its

THE APEX OF " HIGH FINANCE " 128

board of directors, it was soon found that a trust
company which was openly identified with a large
and powerful insurance concern would be assured
of success.

Life insurance money thus began to go into trust
companies, and officers and directors of life insur-
ance companies began to take conspicuous places
as directors of trust companies. And in addition,
these new directors began to grow rich; and they
grew rich in many cases where at the start they had
no capital whatever. In forming a new trust com-
pany or in enlarging an old one by the issue of
new stock, they not only would have their insur-
ance company subscribe to a majority of the stock
but would themselves subscribe to a minority on
the same terms, and then deposit their own stock
as collateral for a loan which they would obtain
from their own insurance company. It would
not in all cases be necessary for them to deposit
any cash "margin" in the loan, for almost invari-
ably the stock would be sold to them, as to the
insurance company, at a figure considerably below
its market value.

At that time there were no restrictive laws
which forbade an officer of a corporation to borrow
money from his own company on collateral, and

124 THE MASTERS OF CAPITAL

the president or director of an insurance company
was perfectly free to make use of the funds of his
own company provided he deposited necessary se-
curity. And as he was himself the authority who
scrutinized the collateral, it will be seen that his
path was generally a very easy one.

During the period from about 1890 to the open-
ing of the new century, this flow of life insurance
money into the coffers of the trust companies in-
creased rapidly. And as time went on, the move-
ment took on new phases. The life insurance
company, with its enormous cash assets, naturally
favored its own trust companies in the matter of
bank deposits and banking business generally. And
as the trust companies had also begun to go largely
into the investment business and dealt in stocks and
bonds with practically the same freedom that a pri-
vate investment banker did, it was not long before
practically all the investing of life insurance funds
w^as being done through the subsidiary trust com-
panies. Naturally, in many cases the chief desire
of the directors and large individual stockholders
of the trust companies (who were also directors or
officers of the parent life insurance companies) was
to make big profits for the trust companies; so
that, in many cases, the insurance companies were

THE APEX OF " HIGH FINANCE " 125

discriminated against in the matter of prices by
their own directors or trustees.

But discrimination did not stop here. As we
have seen, the trust companies early became pro-
moters, financial underwriters, and controllers of
big schemes. This sort of work involved the use
of much capital ; and the tendency was to get more
and more life insurance money into the coffers of
the trust companies, so that the latter would have
plenty of funds to work with. There was "big
money" in these things for the trust companies,
but the life insurance companies often received
only the normal rate of interest on their fat de-
posits which were used to make unheard-of profits
for their own directors.

Notwithstanding the fact that trust compan-
ies and interlocking directors were growing rich
through this use of insurance funds, the life insur-
ance companies also continued to prosper. It was
a period when practically the whole country was
prospering, when New York City especially was
waxing richer and richer, and when more and more
men were not only taking out policies but were going
into the life insurance business. Extraordinary ef-
forts were continuously made by the great insur-
ance companies to add to their lists of policyholders

126 THE MASTERS OF CAPITAL

and to increase their surpluses. Naturally, all life
insurance directorates which were also interested
in trust companies and in Wall Street affairs
generally, wanted to see the funds of their com-
panies flow in a never ceasing stream, and they
developed the most eflScient and far-reaching
organizations for getting new business.

By 1900 the assets of the great life insurance
companies in New York City had begun to loom
large in Wall Street operations. At the beginning
of the movement we have been following, many
more or less inconspicuous men were identified
with it, but it was not long before the larger bank-
ing powers of Wall Street began to realize the pos-
sibilities in the control of life insurance assets.
Prior to 1890 the "big three" New York com-
panies — the Mutual, the Equitable, and the New
York Life — had few conspicuous banking affilia-
tions. But about that time, the Morgan house be-
gan to identify itself more closely with the New
York Life, whose new president, John A. McCall,
became known before very long as a Morgan man.
The Equitable Life had had its various banking
affiliations, and its president, Henry B. Hyde, was
fairly close to Wall Street affairs. It had early
become the controlling factor in the Mercantile

THE APEX OF "HIGH FINANCE- 127

Trust Company, which, prior to the reorganization
period, had been prominent chiefly as a conserva-
tive, "old-Hne" trust company, confining itself
almost exclusively to the original business of per-
forming the work of trustee and agent, to which
its banking and deposit business was only inci-
dental. The Mutual Life, with Richard A. Mc-
Curdy at its head, had grown steadily and solidly,
but it was not until the early nineties that its
name became identified with a trust company or
Wall Street business. About this time, however, a
small trust company, known as the New York Guar-
antee and Indemnity Company, came under the
control of the Mutual Life. Its title was changed "^
to that of the Guaranty Trust Company, and cer-
tain trustees of the Mutual Life Insurance Company
became prominent in its directorate. Its capital was
enlarged, and with the new connection its credit im-
proved and its business grew by leaps and bounds.
The control of the United States Mortgage and
Trust Company was also acquired by the Mutual
Life and its business also took a spurt.

In the course of time, many trust companies of
less prominence became identified with the insur-
ance companies, and finally, Wall Street bankers
and financiers of the influential type began to flood

128 THE MASTERS OF CAPITAL

the directorates of the insurance companies and
the trust companies alike. Then came the period
of big financing, the decade of consolidation and
merger, followed by several years of feverish spec-
ulative activity in Wall Street and vast schemes
of promotion. All the large bankers were soon on
the finance committees of the life insurance com-
panies — such men as J. P. Morgan, several of his
partners, Jacob H. Schiff of Messrs. Kuhn, Loeb
and Co., Henry C. Frick, Edward H. Harriman,
and the Rockefeller representatives — indeed, all
the big captains and masters of Wall Street.

Life insurance assets had now become a large
factor in high finance and a vital part of the move-
ment toward the control and capitalization of in-
dustry in general. Banking power, as identified
with the different groups, now implied the control
not merely of groups of national hanks and trust
companies but also of the life insurance companies
with large assets and growing resources. Not only
were the " big three " involved in this steadily grow-
ing concentration of power, but other large com-
panies, such as the Metropolitan Life, the Prudential
Life of Newark, and several companies in more
distant cities, were becoming assets of importance
to the big contending groups in W'all Street.

THE APEX OF "HIGH FINANCE" 129

During that remarkable period from 1898 to
1904, when the industrial and commercial enter-
prises were being more and more heavily capi-
talized, when fabulous individual fortunes were be-
ing piled up, and when concentration of the control
of finance was rapidly hastening to its climax, the
assets of the insurance companies were handled
with steadily increasing recklessness. At first
considerable caution had been shown in the use
of these large sums, but towards the end of the
period they were more freely used in speculative
and uncertain enterprises. Both money and credit
were getting scarce under the strain of continued
capitalization and promotion; and in Wall Street
the period of "undigested" and "indigestible" se-
curities was arriving. Private bankers were not so
eager to secure large allotments in underwriting
syndicates; large bond and stock issues did not go
so well with the public as formerly. And yet all
the giant promoters, the Harrimans, the Morgans,
and their allies, needed cash and credit to carry
through vast enterprises. Naturally, therefore, in-
surance assets, on which there was little or no re-
striction, were used more and more. Not only
were insurance companies of great strength "allot-
ted" abnormally large amounts of syndicate under-

130 THE MASTERS OF CAPITAL

writings and securities by their own trustee bank-
ers, but their subsidiary trust companies and
other financial dependencies were also loaded up
in the same way. The method became so free and
easy that a great banking house engaged in carry-
ing through some gigantic operation would sim-
ply "allot" to a certain insurance company a spe-
cified amount of bonds or other securities and
would then instruct its president or trustees to
take them, willy-nilly.

Naturally, this loose and extravagant method of
making use of hundreds of millions of dollars be-
longing to hundreds of thousands of policyholders
bred extravagance and corruption in the ranks of
the smaller minds in the insurance organizations.
In the great companies particularly, extravagance,
waste, and inefficiency steadily grew. Millions of
dollars were spent annually in elaborate furnishings
for executive offices; all sorts of useless positions
were created for retainers and worthless officers and
clerks; money was wasted in buildings, in useless
advertising, and in many other ways. Graft in a
thousand forms began to creep in.

In 1903 occurred a semi-panic in the Wall Street
security markets. Business had fallen off notice-
ably in the industrial world; the railroads staggered

THE APEX OF "HIGH FINANCE" 181

in many cases under the heavy capitalizations
created during the speculative period of the few
years previous; and money was scarce and high.
President Roosevelt had attacked the Northern
Securities merger, and the Government had started
suit for its dissolution. The great Steel Trust had
fallen on evil days, and its stocks and bonds had
dropped helter-skelter to low levels. This was a
period of "undigested securities," and pessimism
reigned everywhere.

Because of the scarcity of capital and the low
credit of many concerns, a feeling of unrest and in-
security prevailed in financial circles. Some out-
side interests began to investigate the stability of
large concerns; and some banking and trust company
failures ensued. Then the security holdings of in-
surance companies, which were obliged to file an-
nual reports and lists of their securities, began to
be closely scrutinized, and it was realized that the
large companies were loaded up with many un-
profitable syndicate accounts and large invest-
ments which had undergone vast depreciation.
Criticism soon became rampant, and various suits
were started against companies and officials. But
little change occurred until the following year,
when strenuous efforts began to be made for a

lai THE INIASTERS OF CAPITAL

thorough investigation of the affairs and methods
of the companies.

A sensational insurance investigation which be-
gan in 1905 lasted for several months. Under the
direction of Charles E. Hughes, it disclosed to the
public the entire inside history of life insurance
finance during the previous decade, with all its
high finance, reckless manipulation of funds, waste,
extravagance, and graft. The result of this inves-
tigation was that new and far more stringent laws
were enacted looking to the safeguarding of the
assets of policyholders and the proper investment
of insurance funds.

Thus, at one stroke, a prolific source of free and
unrestricted cash was cut off from the speculator
and promoter. The hundreds of millions which
had for years been bandied about at the beck and
call and to the profit of small groups of powerful
men were no longer available.

The investigation of the insurance companies,
with its results, was undeniably one of the factors
which helped to save the situation when the
panic of 1907 arrived. Had not the reckless finan-
cial methods of handling insurance funds been
curbed a few years before, the crash of 1907 would
have been far more disastrous than it proved.

THE APEX OF " HIGH FINANCE " 133

The insurance companies were still loaded with
large amounts of unsalable securities, but they
bought no more, and under strict legal restric-
tions in the course of time they liquidated most
of their dangerous assets without material loss.

CHAPTER VIII

THE PANIC OP 1907 AND AFTER

It is not to be assumed that the concentratiou of
banking power and the control of corporate activi-
ties had no unfortunate accompaniments . Unques-
tionably the consolidation of the great railroad
systems of the country, under the "community
of interest" plan, resulted in greatly stabilizing
freight rates; it increased efficiency of operation; it
enabled the managements to develop large amounts
of new business and to show greatly increased prof-
its; and it bred a spirit of invincible optimism in
Wall Street. The large crops of these years, the
unusually heavy tide of foreign immigration, and
the boom in business generally, all helped to
increase this feeling of optimism in Wall Street.
Great material progress and prosperity, however,
inevitably invite speculation; and speculation, once
begun, grows by what it feeds on.

In the closing months of 1904 a great speculative

134

THE PANIC OF 1907 AND AFTER 135

movement in the stock market began and continued
almost without interruption through 190J and well
into 1906, The prices of railroad stocks soared
to unheard-of heights; Great Northern preferred
rose above 300; Northern Pacific above 200; St.
Paul to nearly 200; Atchison, Southern Pacific,
Union Pacific, New York Central, and the rest all
steadily climbed to higher and higher levels. In-
dustrial stocks, also, were having their day, and
new enterprises were being floated in Wall Street
by the hundred. Credit was easy to obtain; in-
terest rates were low; and after 1905, most of the
bankers and speculative investors had become so
accustomed to high prices and large speculative
profits that almost any financial "proposition"
found ready acceptance in Wall Street.

It was a new day for the underwriting syndicate,
and brokers eagerly sought for opportunities to un-
derwrite anything that promised profits, regard-
less of its merit. Many undertakings of extremely
doubtful or speculative nature were passed along
as sound without any real investigation whatever.
Many private banking firms, even of relatively con-
servative reputation, acquired the habit of join-
ing in questionable underwritings. The new era of
banking control, moreover, had brought with it a

136 THE MASTERS OF CAPITAL

superficial notion that financial panics like those
of 1873 and 1893 could never again occur. It was
frequently said that the coordination of American
industry, under the control of powerful banking
institutions, would always be a safeguard against
the dangers of inflation and over-speculation. Yet
in 1906 financial America was in a very true sense
riding for a fall.

The United States Shipbuilding Company,
known as "the Shipbuilding Trust," illustrates
the speculative spirit which was undermining the
financial credit of the country. This was a com-
bination of shipbuilding manufacturers, promoted
on the theory that Congress, under the control of
the Republican party, would soon pass a liberal
ship-subsidy law which would be followed by a
great revival in shipbuilding. This expectation
had also buoyed up Morgan's International Mer-
cantile Marine Company formed in 1902. No
legislation of the sort took place; but the promot-
ers of "the Shipbuilding Trust" continued their
efforts with undiminished fervor. A young man
named Daniel Le Roy Dresser organized the Trust
Company of the Republic and attempted to under-
write this United States Shipbuilding Company'.
Eight companies, one or two of which were fairly

THE PANIC OF 1907 AND AFTER 137

valuable, the rest being largely heaps of jimk, were
merged in the combination, the capitalization of
which was colossal. An enormous bonded debt was
created to raise funds to buy up the operating
companies at high valuations. One small plant,
which the owners a year before would have been
glad to sell for $100,000, was bought up at a valua-
tion of over $2^,000,000, one-quarter of which was
paid in cash.

The United States Shipbuilding Company had
hardly been formed when it began to fall to pieces.
The underwriters were not able to make good.
Then to the astonishment of everybody, its presi-
dent, Lewis Nixon, announced that the company
had bought the Bethlehem Steel Company from
Charles M. Schwab. This seemed incredible, as
the Bethlehem Steel Company was of more tan-
gible value than the whole outfit of shipbuilding
plants. Everybody thought Schwab was crazy, for
he was to be paid, so it was generally understood,
in bonds of the United States Shipbuilding Com-
pany, which promised to be worthless. But Schwab
was far from crazy. He had insisted that the
bonds carry voting power. Presently, when the
whole scheme went down with a crash, carry-
ing with it the Trust Company of the Repubhc,

138 THE MASTERS OF CAPITAL

Schwab was found in possession of the entire group
of plants, including the Bethlehem Steel. He then
lopped off the worthless properties and attached
the good shipbuilding plants as subsidiaries to the
Bethlehem Steel Company.

Another and equallj^ unsound type of promo-
tion was going on in banking. A number of smaller
financiers, trying to copy Morgan and Standard
Oil, would form a chain of banks with unlimited
capital, to promote their speculations. Notable
among these speculative bankers was Charles W.
Morse, a man of unusual ability. He had made a
large fortune in the American Ice Company and
in the manipulation of its securities in Wall Street;
he had also done something in shipbuilding and
operating steamships. By 1905 he had reached a
position of substantial power in Wall Street. He
acquired control of the Bank of North America,
one of Wall Street's old and solid institutions, and
began to make use of this bank's credit and re-
sources for financing his promotions. Finding him-
self in need of more capital, he acquired control
of other banks by making use of the resources of
the banks he already owned or controlled. By the
close of 1906, he had under his own sway, or that
of his close friends, seven or eight good banks,

THE PANIC OF 1907 AND AFTER 139

besides having considerable influence in a number
of others. He then launched an ambitious scheme
for consolidating all the coastwise steamship lines
on the Atlantic seaboard, paying fabulously high
prices for these lines and capitalizing them to the
moon. Having thus acquired nearly everything
afloat from Maine to Florida, he bought from
Morgan all the stock of the Central of Georgia
Railroad Company in order to get control of the
Ocean Steamship Company, a line which operated
from Savannah to New York and connected with
the Central of Georgia.

Meanwhile the great pot in Wall Street went
boiling on. In the summer of 1906 the Harriman
financiers added fuel to the fire by suddenly in-
creasing from six to ten per cent the dividend on
Union Pacific common, thus sending that stock up
forty points practically overnight. Discretion in
Wall Street was thrown to the winds; many of the
most conservative houses began to push securities
of more and more doubtful types. A mining stock
craze broke out, and in a few months the whole
country was madly buying up worthless shares in
a thousand or more gold and silver mines at ri-
diculously high prices and without thought of in-
vestigation. The Wall Street "curb" became a

140 THE MASTERS OF CAPITAL

bedlam of mining brokers, and even the Stock
Exchange gave dignity to a number of mining
ventures by listing their stocks. '

Long before the close of 1906 there were omi-
nous signs of danger ahead, and many thoughtful
men began to urge caution. The wild speculation
caused a steadily increasing strain on credit, and
demand loans in Wall Street rose in September to
the highest figure they had reached in years. In
the same month, the New York banks reported a
deficit in reserves and appealed to the United States
Treasury for surplus gold. This timely deposit
afforded temporary relief; but the year closed in
strain. Most of the Wall Street bankers, however,
persisted in the theory that fundamentally every-
thing was sound, that the outlook for 1907 was
distinctlj^ hopeful, and that after the turn of the
New Year all would be well.

Wall Street financiers, high and low, seemed to
be hypnotized by the long period of easy money,
rising prices, quickly made fortunes, and successful

' The immediate cause of the mining stock boom was the discovery,
in the previous year, of the great silver deposits in the Cobalt re-
gion of Canada and the gold deposits in the Gold6eld region of Ne-
vada. A few companies, such as the Nipissing mines in Canada and
the Jumbo mine in Nevada, were real bonanzas and paid millions
in time to their stockholders, but nearly all the others sooner or
later turned out to be worthless.

THE PANIC OF 1907 AND AFTER lU

promotions. Harriman certainly did not foresee
any bad turn in affairs, for in 1906 he caused the
Union Pacific and Southern Pacific companies to
employ their large surpluses in buying large addi-
tional blocks of railroad stocks at top prices; the
Morgan and Hill interests did not seem to foresee
trouble, for they were developing their railroad
properties and spending money like water on im-
provements; the City Bank or Standard Oil mas-
ters did not gauge the future accurately, for they
were not only doing nothing to stem the tide of
speculation, but were actually floating various
schemes of their own on the current. Certainly
smaller and more speculative men, like Charles W.
Morse, Charles M. Schwab, F. Augustus Heintze,
and Charles T. Barney of the Knickerbocker Trust
Company did not fear the future, for they were ex-
tending their operations in all directions. Schwab
had gone into mining on a large scale; Heintze
was promoting a balloon known as the United
Copper Company, aided by the credit of the
Mercantile National Bank, control of which he
had acquired; Morse was floating his ship bub-
ble; and Barney was sinking the funds of the
great Knickerbocker Trust Company in all sorts
of unsound ventures.

142 THE MASTERS OF CAPITAL

Little change in conditions occurred until Feb-
ruary, 1907, but with the opening of the month
the stock market began to crumble, and the banks
commenced to call in loans and mend their fen-
ces. But the real unsoundness of the day was not
understood until, a few weeks later, Henry H.
Rogers, vice-president of the Standard Oil Com-
pany, found difficulty in securing a loan of twenty
million dollars for his Virginian railway, which he
was at that time building to open up some soft-coal
fields in the western part of the State. Rogers had
to pay an equivalent of over eight per cent for this
loan, secure it with over thirty million dollars of the
highest grade investment stocks and bonds, and
personally endorse the notes, though his credit
was as high as that of any man in the United
States. This transaction created consternation.
If the vice-president of the Standard Oil Company,
that great reservoir of readj' cash, had to go into
the market for a pittance like twenty million
dollars and pay over eight per cent for it, then
indeed things were in bad shape.

The "March panic," or "silent panic" as it
was called, immediately followed. Stocks dropped
three to ten points at a time; money rates reached a
great height; banks closed their doors to borrowers;

THE PANIC OF 1907 AND AFTER 143

and stockbrokers began to fail. Speculators by
the thousands were wiped out; the mining boom
on the "curb" completely collapsed; and in Wall
Street financiers were seen daily and hourly, rush-
ing hither and thither, trying to devise ways
and means to weather the storm. But the high
money rates drew gold from Europe; the Secretary
of the Treasury deposited further funds in New
York banks; and as the crop-moving period had
ended, funds naturally gravitated to New York
City, and thus helped to relieve the situation.
The panic was stayed for the time being.

Wall Street still refused to believe that any fur-
ther trouble was ahead. Business throughout the
country continued at high pressure; railroad earn-
ings were large, and industries were booming; the
new crop outlook was favorable; and while money
rates were high, there seemed to be enough at the
moment to go round. Even the big "masters of
capital," although following a more cautious policy,
seemed to think that the worst was over. Nearly
everybody said, "Wall Street has now cleaned
house; we will soon be in a bigger boom than ever. "
All seemed to base their reasoning on the idea that,
with industry and business going on prosperously,
anv further trouble in Wall Street was unthinkable.

144 THE ]\L\STERS OF CAPITAL

After the 1st of July, however, there were de-
velopments which created disquietude in high
places. The United States Steel Corporation re-
ported an alarming falling off in unfilled tonnage;
railroad earnings suddenly began to sag; then the
money market tightened up, and the fear became
widespread that the fast approaching crop-mov-
ing period would create a great money stringency.
Presently came the collapse of Charles W. Morse's
shipping combination. Then, to cap the climax,
came the failure of the City of New York to sell a
large block of bonds in Wall Street. Altogether
August was an uneasy month for the "masters
of capital" and for their thousands of satellites
and followers.

September saw the heads of big business often
in consultation; the powers were at last awake to
the seriousness of the situation. The newspapers
were urged to talk encouragingly; Wall Street in-
terviews were uniformly optimistic. Clearly, stren-
uous efforts were being made to tide over the
crisis. But to no avail. In October came the
Heintze failure, involving first the Mercantile
National Bank and then the whole Heintze-
Morse chain of banks. Next occurred the run on
the Knickerbocker Trust Company, the suicide of

THE PANIC OF 1907 AND AFTER 145

its president, and the closing of its doors. Then
followed in quick succession the failure of the Na-
tional Bank of North America and runs on the
Trust Company of America, the Lincoln Trust Com-
pany, and a dozen other institutions. All these
disasters involved banks in other cities and pulled
down private firms and brokers. The accompany-
ing panic in the stock market completed the havoc.
The holocaust was on.

The small group of mighty financiers — the men
who had been chiefly responsible for the building
up of the great concentrated system of banking
power, corporate control, community of interests,
and interlocking relationships, all of which had
finally culminated in this terrific smash — these
were the men whose powers were now to be taxed
to save financial America. The morning after the
Knickerbocker smash, while the run on the Trust
Company of America was filling all Wall Street with
crowds of excited depositors, a man walked into the
office of J. P. Morgan and Company, pushed past the
guard, and entered Morgan's private room. Mor-
gan nodded and said, "Good morning, Mr. Frick."
The two men talked quietly for perhaps ten min-
utes. Frick went away ; then Edward H. Harriman
came in. Following him came other "masters,"

10

U« THE MASTERS OF CAPITAL

one by one or in pairs. Finally came James Still-
man, president of the National City Bank and
spokesman for the great Standard Oil interests.

That day many millions of dollars were doled
out to the banks by the Secretary of the Treas-
ury; government bonds were supplied by institu-
tions and private investors for temp>orary use,
John D. Rockefeller alone lending ten million dol-
lars' worth. Then both Morgan and Stillman
made arrangements to buy bills of exchange in
enormous quantities, and force gold shipments
from Europe. These measures began the relief
which the situation needed.

Yet one of the gravest dangers remained. This
was the position of the brokerage firm of Moore
and Schley, involved in a big speculative pool in
the stock of the Tennessee Coal, Iron and Railroad
Company. Moore and Schley had pledged over
six millions of the Tennessee Coal and Iron stock
for loans among the Wall Street banks. The banks
had called the loans, and the firm could not pay,
as was of course known to Morgan and the others.
If Moore and Schley should fail, a hundred more
failures would follow and then all Wall Street might
go to pieces. The only thing to do was to save
Moore and Schley.

THE PANIC OF 1907 AND AFTER 147

The Tennessee Coal, Iron and Railroad Company
was one of the chief competitors of United States
Steel and it owned enormously valuable iron and
coal deposits. It was Morgan's plan, in which
Frick, Harriman, and the others agreed, to buy the
Tennessee stock from Moore and Schley. In this
way the panic could be stayed and a big stroke of
good business done for the greater corporation.
Gary was called in to discuss the matter. The only
obstacle seemed to be the Government. Would a
purchase of this kind be construed as a violation
of the Sherman Act.? A deputation, consisting of
Gary, Perkins, and others, was dispatched to Wash-
ington to lay the matter before President Roose-
velt. The President promised immunity and the
purchase was then immediately consummated. The
United States Steel Corporation paid thirty million
dollars in its own bonds for the Tennessee stock;
these bonds were accepted as collateral by the bank
where the Tennessee stock had been refused; and
the firm of Moore and Schley was saved. The an-
nouncement had an immediate effect, and from
that hour matters began to mend.

Before the turn of the new year. Wall Street was
normal again. The prices of securities had rallied
substantially, the money market had grown much

148 THE MASTERS OF CAPITAL

easier, fear and fright had disappeared, and men
were looking forward with confidence into the
future. And, as the year 1908 wore on, it became
evident that the panic marked the culmination of
"high finance." The great banking groups were
still intact, to be sure, and their influence and
power seemed as far-reaching as ever. But the
glamour of speculation and promotion had largely
disappeared. The shock of the panic had put con-
servatism into the survivors and of course a great
horde of speculators had fallen.

Yet there was still rivalry between Harriman
and Morgan. In the fall of 1908 Harriman induced
the Mutual Life Insurance Company to sell him
half of the working control of the great Guaranty
Trust Company, with its one hundred million of
assets. And in the early part of the following year
Harriman obtained an option on a half interest in
the control of the Equitable Life Assurance So-
ciety. Harriman evidently proposed to form a
banking power greater even than that of the Na-
tional City Bank or of the Morgans, as a part of
a colossal scheme which he was developing. The
control of the Union Pacific system, the great-
est railroad system on the American continent —
for the Union Pacific at that time controlled two

THE PANIC OF 1907 AND iVFTER 149

lines to the Atlantic seaboard — did not satisfy
this man's ambition. He was working for a world
railroad empire. Before the panic year Harriman
had made his control of the Baltimore and Ohio
practically secure. During the dark days of the
panic he had taken over from Charles W. Morse
the stock of the Central of Georgia and had made
this railroad a subsidiary of the Illinois Central.
Now he was planning a railroad system in Asia
which would connect with the Siberian Railway in
Russia and finally work through to the capitals of
Europe. He had already secured an option on the
South Manchurian Railway in China and was en-
deavoring to obtain the cooperation and backing
of the Japanese Government to further his plans.
Had Harriman lived, no one knows what might
have occurred in railroad history during the follow-
ing few years. But he was playing a very difiicult
game and the strain was beginning to tell on him.
In the summer of 1909 he was taken seriously ill
and died in the early fall. The death of Harriman
caused an almost immediate change in the bank-
ing situation in New York. Within three months
Morgan and his associates had bought Harriman's
stock in the Guaranty Trust Company and with it
the holdings of the Mutual Lif einsurance Company.

150 THE MASTERS OF CAPITAL

Later Morgan acquired from Thomas F. Ryan
control of the Equitable Life Assurance Society,
which had fallen into Ryan's hands in 1905. Thus
we find Morgan in practical control of the "Big
Three" in life insurance in New York, for he had
already dominated the New York Life for many
years. He then merged the Morton and the Fifth
Avenue Trust companies into the Guaranty 2nd
this union gave him and his associates a domi-
nating position among the trust companies of New
York, since he already controlled the powerful and
growing Bankers Trust Company, which had been
formed a few years before. These moves also re-
sulted in giving him a closer grip on the affairs of
the National Bank of Commerce.

This growth of the Morgan banking power did
not, however, excite any spirit of competition or
rivalry between his interests and those of Standard
Oil, for the time had passed when rivalry in bank-
ing was the fashion. Before long it could be said,
indeed, that two rival banking groups no longer
existed, but that one vast and harmonious banking
power had taken their place.

Harriman was now dead; Henry H. Rogers was
dead; Alexander J. Cassatt, the great Pennsyl-
vania Railroad president, was dead; James Stillman

THE PANIC OF 1907 AND AFTER 151

had retired from active business; William Rocke-
feller was no longer an active business promoter.
Times were changing and new men were coming to
the front. Frank A. Vanderlip, the young head of
the National City Bank, was becoming more and
more the spokesman for the Rockefeller interests;
George W. Perkins was still active with the Mor-
gans, but the strong personality of Henry P. Davi-
son was beginning to dominate the firm. Though
Morgan himself remained in command until his
death in 1913, he was clearly growing old and
was placing more and more responsibility on his
younger partners.

These newer men in Wall Street were not the
products of the old time, when experience was
gained by building up and welding together the
parts of the vast modern industrial and banking
machine. They had not been educated in the hard
and struggling school for mastery through which
Morgan and Frick and Harriman and Rockefeller
had come. When they arrived, they found the finan-
cial machine already in motion; their work was to
perfect it and keep it well oiled. Consequently,
with the arrival of the new and younger school of
financiers, a less spectacular season set in for Wall
Street. Money power increased; intercorporate

152 THE :\L\STERS OF CAPITAL

relationships were maintained; but few further
steps were taken in elaborating or developing
the system.

Long before the panic of 1907, political rum-
blings had reached the ears of Wall Street. In
President Roosevelt's first term, the Sherman Act
had been invoked against the Northern Securities
Company, and that gigantic product of the spirit
of consolidation had been dissolved by decree of
court. A little later, new powers were given to the
Interstate Commerce Commission over the opera-
tion of the railroads, and for the first time the Com-
mission was fully empowered to regulate freight
rates. The New York insurance investigation
under Charles E. Hughes, with its astonishing dis-
closures, had shown growing public aversion to the
methods of "high finance."

The panic, with its accompanying disasters, had
a large share in prompting the Government at
Washington to take action against the trusts; and
before Roosevelt left the White House in 1909
suits had been brought against a large number of
industrial trusts, including Standard Oil and To-
bacco. Later, suits were instituted against the Steel
Trust, the Harvester Trust, and a great many
others. When Taft became President in 1909,

THE PANIC OF 1907 AND AFTER 153

many of the big combinations formed during the
previous decade were practically' under indictment.
In 1911 the Supreme Court ordered the dissolu-
tion of Standard Oil and Tobacco and of a large
number of smaller trusts as well. These decisions
brought about radical changes in the character of
the corporations. The original subsidiary compan-
ies were obliged to take over the properties under
nominally competitive conditions. Such dissolu-
tions proved in the end, however, to be mere changes
of form, for the various companies involved con-
tinued to be owned, controlled, and managed by
practically the same men, with little if any real
competition.

Later a drive against the railroads began in the
same way; the Union Pacific was forced to disgorge
its interest in the Southern Pacific Company, and
the Pennsylvania disposed of its control in its com-
petitor, the Baltimore and Ohio. The new federal
laws regulating freight rates made the "commu-
nity of interest" plan of interlocking control of lit-
tle use, so that the different railroads began liqui-
dating their interest in other properties to a large
extent. Within a few years, the ties binding to-
gether the big trunk lines and larger systems were
steadily loosened. And finally, Federal statutes

154 THE MASTERS OF CAPITAL

prohibiting interlocking directorates, not only
among competing railroad systems, but among
banks and industrial concerns, completed the proc-
ess of "unscrambling the eggs." Before the Great
War opened, the long chapter of "high finance,"
as understood during the wild and dramatic days
of 1901 to 1906, had practically closed.

CHAPTER IX

WALL STREET AND THE WORLD WAR

War is the great revealer; it demonstrates, as does
nothing else, the strength and weakness of a nation,
material and spiritual. The first two years of the
recent stupendous struggle disclosed the financial
and industrial greatness of the United States; the
last two years happily showed that the nation was
great in other things than money, munitions, and
food. Yet it became apparent, even in the days
of American neutrality, that the support of Ameri-
can agriculture and industry was practically indis-
pensable to the allied cause. America possessed
the largest available supply of that copper, steel,
cotton, and food without which the armies of
the Entente would have struggled in vain. Wall
Street became, at least temporarily, the internation-
al money market; more than a third of all the gold
in the world soon found its way to New York; and
the United States which, since the Revolution, had

155

156 THE MASTERS OF CAPITAL

been a debtor nation, soon discovered that Europe
owed her far more money than she had ever owed
Europe. The mere fact that, in 1916, the United
States produced 43,000,000 tons of steel, while
Great Britain, which normally ranks next to this
country in steel manufacture, produced 9,000,000
tons, not only indicates the extent to which Ameri-
can industry had expanded under the pressure of
war, but gives some indication of the part which it
was playing on European battlefields. Thus, long
before American armies gave Marshal Foch that
superiority in men which turned the balance from
defeat to victory, American mines, American steel
mills, American farms, and American money had
become powerful elements in the war.

Wall Street awoke rather slowly to its new posi-
tion as a maker of history. Its first reaction to
the European nightmare was one of bewilderment
and panic. In this it merely reflected the mental
state of the European bourses of which it had been
a dependent for many years. The hardest headed
American business man had diflSculty in keeping
his poise when all the Stock Exchanges of Europe
had closed their doors and when the news ticker
reported a run upon the Bank of England. Wall
Street had never faced such a crisis as that which

WALL STREET AND THE WORLD WAR 157

dawned on the morning of August 3, 1914. Only
once in its history of more than a hundred years
had this great market suspended operations, and
then only for a few days during the panic of 1873.
But the conditions facing it in August, 1914, were
unparalleled. The Kaiser's ultimatums to Rus-
sia and France, making war inevitable, caused
European investors to rush their securities to the
London stock market, which averted a panic only
by closing. Since all the important markets of
Europe and South America followed the London
example, there remained only one place in the
world where stocks could be sold — New York.
At that time European investors, for the larger
part British, held at least $4,000,000,000 of Ameri-
can securities. There was not the slightest ques-
tion that they would attempt to dispose of these
on almost any terms. There are experts now who
believe that the American market could then have
stood this strain, but there were few who enter-
tained such encouraging ideas in August, 1914.
The prevailing opinion then was that all American
securities would suffer such declines that a general
calling of bank loans would result and that the
country would be visited with the greatest financial
and industrial panic in its history. Yet Wall

158 THE MASTERS OF CAPITAL

Street was kept in suspense for twenty-four hours.
On Monday morning, the 3d of August, the usual
aggregation of brokers, most of them in a high state
of excitement, gathered on the floor. The gong
which announces the beginning of business rings
promptly at ten o'clock: the employee whose busi-
ness it is to ring it stood stolidly at his post, having
received no instructions not to give the signal. As
the pointer on the clock passed fifteen minutes to
ten and started towards the fatal hour, the nerv-
ous tension increased. The excited members all
had vast quantities of stocks which they had been
ordered to sell, and they trembled at what would
happen when they threw these on the market.
It was not until five minutes to ten that an officer
of the Exchange stepped upon the floor and read
the official notice that the market would be closed
indefinitely. The cheer that went up eloquently
voiced the relief which this step brought to a
chaotic situation.

This closing indicated that the United States
was still the financial dependent of Europe. The
Exchange remained closed four months; then, on
the 28th of November, it timidly opened its doors
and began trading again in restricted fashion. Ex-
ternally the position of Wall Street in November

WALL STREET AND THE WORLD WAR 159

seemed to have changed little from its position
in August. The great European exchanges were
still closed ; thus New York became the one market
on which European holdings could be "dumped."
Europe still held vast quantities of American se-
curities on which it might be expected to realize.
Yet, when the American market opened, some-
thing quite extraordinary took place. Europe, as
was expected, began to sell American securities in
large amounts, but stocks on Wall Street did not
decline; instead, they advanced. The reopening
of the Stock Exchange really started one of the
most sensational stock "booms" in the history of
that institution. Instead of having a panic on its
hands, as many had freely predicted, Wall Street
discovered that it had a bull market of unprece-
dented buoyancy. The real fact was that, in the
intervening four months, the financial prestige
of the United States had been enormously en-
hanced. Alone of all the great markets of the
world Wall Street had not had to resort to the ex-
pedients that commonly accompany panic condi-
tions. All European countries, including such a
financial giant as Great Britain, had declared a
moratorium, or a temporary suspension of the legal
obligation to pay debts, and most South American

l(;o THE MASTERS OF CAPITAL

countries had resorted to the same expedient. No
moratorium had been declared in the United States.
Practically all European countries, even including
England, resorted to various currency expedients
that amounted practically to inflation. The United
States resorted to no such unscientific expedients
as it had tried in the Civil War but met the de-
mands of the hour by supplying an elastic emer-
gency currency under the terms of the new Federal
Reserve Act. ' But certain developments even more
fundamental showed that this prosperity was not
fictitious. When war broke out, the United States
was harvesting the greatest wheat crop in its his-
tory, and at the same time the other great wheat
countries were showing a smaller production. The
closing of the Dardanelles kept Russia's wheat
from reaching its market. All the world now began
to bid for America's food supply, a demand im-
mediately evidenced in the startling increase in our
export statistics. Meanwhile the allied nations be-
gan scouring the United States for all kinds of war
supplies. They found little in the way of guns or
ammunition, but they did find industrial plants

' Congress still further facilitated the issue of emergency currency
by amending the Federal Reserve Act. At the same time clear-
ing-house associations in the larger cities arranged for the issuing
of certificates.

WALL STREET AND THE WORLD WAR 161

far greater than those of any other country which
could be very soon transformed into huge am-
munition factories. War orders for all kinds of
munitions started these plants going twenty-four
hours a day, while orders for clothing and other
indispensable materials of war put new life into
such great industrial regions as New England.
The result was a huge balance of trade in favor of
the United States. The gold supply of Europe be-
gan to find its way into the coffers of Wall Street,
a movement that was continuous until 1917, when,
of the approximately $8,500,000,000 outstanding,
nearly $3,000,000,000 was ultimately deposited in
American safety vaults.

In the early days of the war England had prac-
tically abdicated, for the time being, the position
of international banker which she had held for a
hundred years. In a single year Lombard Street,
up to the cataclysm of 1914, had invested over
a billion dollars in new securities, domestic and
foreign. Lombard Street had largely financed the
building of American railroads, had contributed
greatly to the financing of American enterprises
of all kinds, had been a large purchaser of govern-
ment and municipal bonds, not only in the United
States, but in South American countries. That

162 IHE MASTERS OF CAPITAL

familiar annual phenomenon in the United States,
known as "moving the crops," had been made
possible for many years with credits supplied by
England. But in the early part of 1915, the Brit-
ish Government vetoed all operations of this kind
and informed the bankers that their resources must
be used exclusively for war purposes. What mar-
ket could thus step into the position of interna-
tional banker which England by government fiat
had surrendered.'' Two years before, any sugges-
tion that Wall Street could do this would have been
regarded as absurd; yet the American market
adjusted itself to this position with comparative
ease. It not only supplied home demands for
ready money, but began making loans aggregating
hundreds of millions to Canada, Switzerland,
Norway, Sweden, and the South American re-
publics. Wall Street bought the bond issues of
Paris, Bordeaux, and Lyons, and even provided
funds for international trade. Soon it had to meet
new demands.

Up to 1914, Wall Street had played little part
in financing foreign governments, its activities in
this direction being limited almost to lending Great
Britain $200,000,000 at the time of the South
African War and Japan $50,000,000 at the time

WALL STREET AND THE WORLD WAR 168

of the Russian War. But as the war orders of the
Allies began flooding our markets, Great Britain
and France attempted to pay for their purchases
with cash, an expedient which drove British ex-
change up to a point which it had never reached
in the history of the New York market. It soon
became evident that, if the United States was to
do business with the Allies on this huge scale, some
other method must be adopted for settling the
account. What this method should be was clear.
Great Britain had built up her foreign trade largely
by lending to her customers the money with which
they purchased the goods. It was evident that we
should have to do the same thing. The simplest
way for the British and French Governments to
establish credits in the United States with which to
pay for war supplies would be to sell their bonds in
our markets. The money obtained from sales, when
deposited in American banks, could then be drawn
upon for settlements. Simple as this device might
seem in theory, it involved what seemed in 1915
to be insuperable diflSculties. American investors
had never shown any great eagerness to purchase
government securities, excepting their own. There
really existed no public market for such invest-
ments, in the sense that such a market had for so

164 THE PIASTERS OF CAPITAL

long existed in England, France, and other coun-
tries. Some of our supersensitive government
officials at first believed that such an operation
would be a violation of neutrality and a consider-
able pro-German element lifted up their voices in
protest. There were others who questioned the
soundness of the investment: the war threatened
world-wide bankruptcy, and there was a fear that
even so powerful a nation as Great Britain might
not be able to pay her obligations. Nevertheless,
in the latter part of 1915, a distinguished Anglo-
French mission arrived in New York for the pur-
pose of floating an American loan. The sum sug-
gested, $1,000,000,000, staggered Wall Street; no
Government had ever floated a foreign loan of
such proportions. In accordance with the advice of
American bankers the amount was cut to $500,000,-
000, and this was disposed of successfully. From
now on, all the purchases of the British and French
were paid for in this way. After this credit was ex-
hausted, these Governments continued to borrow in
Wall Street, usually pledging American securities.
Not only did England and France pay for their
supplies with money furnished by Wall Street, but
they made their purchases through the same me-
dium. As related in a previous chapter, the house

WALL STREET AND THE WORLD WAR 165

of Morgan has always maintained close and con-
fidential relations with the British Government
and the British public. The necessity of buying
materials by the billions in the United States soon
produced a state of chaos in London. Contract
hunters and contract jobbers pounced upon the
British War Office; all kinds of irresponsible per-
sons, American and European, obtained contracts
for speculative purposes. Unless disaster was to
result, it was evidently necessary to select some
trustworthy agency in this country which could
be depended upon to mobilize American indus-
try, place the European orders in the right quar-
ters, and attend to all the details. Inevitably the
house of Morgan was selected for this important
task. Thus the war had given Wall Street an
entirely new role. Hitherto it has been exclusively
the headquarters of finance; now it became the
greatest industrial mart the world had ever known.
In addition to selling stocks and bonds, financ-
ing railroads, and performing the other tasks of a
great banking center. Wall Street began to deal in
shells, cannon, submarines, blankets, clothing, shoes,
canned meats, wheat, and the thousands of other
articles needed for the prosecution of a great war.
This new function brought to the front an American

166 THE IVIASTERS OF CAPITAL

business man who had hitherto been practically
unknown. In looking for the man best quali-
fied to conduct this purchasing campaign the
Morgan firm discovered Edward R. Stettinius,
the president of the Diamond Match Company.
Stettinius in turn searched American industry
for the men best qualified to assist him in his gi-
gantic task, with the result that he got together a
force of 175, who organized themselves into a de-
partment known humorously as the "S.O.S. " —
or "Slaves of Stettinius." In a short time this
group found themselves purchasing supplies at the
rate of $10,000,000 a day. To a considerable ex-
tent the materials in which this agency dealt had
never been made in the United States before, at
least in appreciable quantities. They had to ex-
tend on a tremendous scale such munitions fac-
tories as already existed and to construct hun-
dreds of entirely new plants. American industry
adapted itself to the new demands speedily and
satisfactorily, and many concerns which had never
made munitions of any kind were soon turning
them out in perfect shape. So successfully was the
work done that up to September, 1917, the Mor-
gan firm had bought more than $3,000,000,000 in
merchandise and munitions and had, besides this.

WALL STREET AND THE WORLD WAR 167

marketed from $2,000,000,000 to $3,000,000,000 of
American securities which had formerly been held
by European investors.

With one American captain of industry the Brit-
ish Government dealt directly. He was a man
whose name has already figured in this narrative.
Indeed, next to J. Pierpont Morgan, the American
business man who was best known in England
was Charles M. Schwab. England understood even
better than Americans the proportions of the Beth-
lehem Steel Company and the manufacturing genius
of its head. When Kitchener became Minister
of War, one of his first acts was to cable Schwab
asking him to take the next boat for England. In
a few days Schwab and Kitchener were closeted at
the British War OfiBce. The Secretary's demands
were to the point. How many shells could Schwab
supply.'' A million.'' Yes. How long would it take
him.'* Ten months. Could Schwab furnish any
guns? Yes, and quickly. In this way Kitchener
rehearsed all his requirements and Schwab pledged
all the capacity of the Bethlehem Steel plant. At
the end of several days' conferences Kitchener ap-
proached a delicate point. He had only one anxiety
about the Bethlehem Company, he said, and that
was that German interests might purchase it.

168 THE MASTERS OF CAPITAL

Schwab immediately offered to sign an agreement
that the Bethlehem Company would not be sold to
any one so long as it had any British contracts under
way. And so this American manufacturer with the
German name became one of the strongest indus-
trial allies of the British Government. According to
the popular estimate he shipped not far from $300,-
000,000 worth of war materials to England in less
than two years. To do this he so increased his
facilities that the Bethlehem Company presently
became a larger munitions plant than the Krupps,
and Schwab's shipyards alone had a capacity for
turning out a larger tonnage than all the shipyards
in Germany. One of his particularly interesting
feats was the manufacture of twenty submarines,
which were sent in parts to Canada, where they were
pieced together and sent across the Atlantic under
their own power. A year or so afterward Ger-
many sent the submarine Deutschland to the United
States and widely advertised the performance as
something unprecedented !

Valuable as all this work was in promoting the
cause of the Allies, it had one result that was still
more important. For it prepared financial America
for war. When Congress declared war on April
6, 1917, America, as a nation, had made little

WALL STREET AND THE WORLD WAR 169

preparation for participating in the great conflict.
^Ve had an army only in skeleton; we had a navy
efficient in its personnel and in its ships but en-
tirel}' inadequate for the crisis; we had hardly any
mercantile marine. In only one part of the United
States had there been any real preparedness, and
that was the part which had for decades been per-
haps the most unpopular section of the country.
From August, 1914, Wall Street had displayed
an attitude that compares well with those ele-
ments in American life which had viciously assailed
business and industry. With the exception of one
or two Jewish-German banking houses, its sym-
pathies had been enthusiastically with the Allies.
And the part which it had played in financing the
Allies laid the foundations for the work it did in the
American period of participation. The outbreak
in 1914 had produced the wildest chaos in Euro-
pean business and finance: stocks had tumbled,
money rates had gone up, industry had ceased as
though stricken with paralysis, and general dis-
solution had been prevented only, as we have seen,
by resorting to a moratorium. But no such de-
moralization seized Wall Street when the United
States declared war. Instead of falling, the stock
market advanced — a movement generally hailed

170 THE MASTERS OF CAPITAL

as a fair augury of victory. Never had America
attained so sound and so preeminent a financial po-
sition. In two years we had ceased to be a debt-
or nation and now had Europe deeply in our debt.
We had lent foreign Governments, bankers, and
merchants not far from $2,000,000,000; yet so
plentiful was money in New York that the invest-
ment bankers complained because they could not
find enough securities to supply their customers.
Of the $4,000,000,000 American securities esti-
mated to have been held in England and France
in 1914, we had purchased all but $1,000,000,000,
and of this $300,000,000 had been pledged by the
British and French Governments as securities for
loans, while the remaining $700,000,000 lay in the
government exchequers for similar use as occa-
sion should arise. Thus there was no longer any
danger that these stocks and bonds would be sud-
denly unloaded on the American market with dis-
astrous results. At the beginning of the war our
gold holdings amounted to $1,887,000,000, while
by December 1, 1917, they had grown to $2,563,-
000,000. Moreover, there was no likelihood that
Europe could draw this away.

In recommending a declaration of war, President
Wilson said that we should extend to the allied

WALL STREET AND THE WORLD WAR 171

powers "the most liberal financial credits, in order
that our own resources may so far as possible
be added to theirs." At first it was thought that
perhaps our chief help to the Allies would be fi-
nancial and industrial. There were Germans, more
enlightened than the Prussian militarists and dip-
lomats, who did not regard such assistance with
indifference. "We are mad," said Albert Ballin,
the creator of the German mercantile marine, in
1917; "we have done a disastrous thing, a thing
which will throw its shadow over our economic life
for a generation. How are we to resume our for-
eign trade in the face of an Anglo-Saxondom which
loathes and must loathe our presence among them?
All the military victories and all the wild will-
of-the-wisps about Hamburg to Bagdad will not
help us. "

"Almost uncanny" was the comment of a Lon-
don observer on the quiet with which Wall Street
accepted the declaration of war. But events had
not progressed far when it became apparent that
this attitude was justified.

The way in which America's entrance first tan-
gibly affected the situation was that she imme-
diately took over the burden which Great Britain
had been carrying of financing the Allies. For

172 THE MASTERS OF CAPITAL

two and a half years Great Britain had not only
met her own expenditures, but had made advances
on a huge scale to France, Italy, Russia, Belgium,
Serbia, and the other Entente combatants. The
United States not onlj^ assumed these responsibili-
ties, but began advancing enormous sums to Great
Britain herself. These were not subsidies, such
as Pitt had given to England's allies in the Na-
poleonic wars; they were loans. In reality, the
United States placed its credit at the disposal of
its fellow combatants. It sold its own bonds in
the American market, advanced the money so ob-
tained to the European powers, taking in exchange
their bonds at the same rate of interest. The prac-
tical outcome of the operation was to save Eng-
land, France, and the other borrowers great sums
in interest. The several acts authorizing American
bond issues contained provisions empowering the
Treasury Department to make these loans to for-
eign governments; yet probably few imagined in
April, 1917, that these advances would ever be
so large. The mere fact that the United States,
besides spending enormous sums on its own mili-
tary preparations, was able to lend nearly $10,000,-
000,000 to European Governments in little less
than two years, gives some idea of the resources

WALL STREET AND THE WORLD WAR 173

which this country brought to bear in the Euro-
pean conflict. Despite these almost unimagin-
able expenditures, the nation, judging from all ex-
ternal signs, was suffering no discomforts, hard-
ly any inconveniences, and there were no indica-
tions that the people could not withstand the
strain indefinitely.

The fact was that financial America in 1919
was an entirely different nation from that of 1914.
The successive bond issues had transformed us
into a nation of investors. Despite the power
which American finance had developed in the
period of neutrality, there were many pessimists
in 1917 who declared that the first popular Liberty
Loan for $2,000,000,000 could never succeed. The
American people, it was urged, were not thrifty;
they had not developed the habit of purchas-
ing government securities; floating bond issues in
the United States had always been almost exclu-
sively a banking undertaking. This statement was
not quite historically correct. Indeed, the methods
of popular subscription which had proved so success-
ful in England were largely an American invention.
The first man who used somewhat spectacular
methods for selling government bonds to small
holders was Jay Cooke, the great financier of the

174 THE MASTERS OF CAPITAL

Civil War. Cooke's most remarkable feat — per-
haps the most remarkable of the kind until the
outbreak of the European War — was his success
in selling nearly $400,000,000 of the five-twenty
bonds of 1863. In order to market this — as de-
scribed in a preceding chapter — Cooke enlisted
a force of from two thousand to three thousand
canvassers, who visited all the towns and country
districts of the United States and made personal
solicitations from door to door, using handbills,
posters, brass bands, and parades for advertis-
ing purposes. Energetic as Jay Cooke was, how-
ever, it required a persistent campaign of this kind
finally to sell the issue; moreover, the bonds
brought considerably less than par and the inter-
est rate — six per cent — was high. This achieve-
ment had entirely passed out of the public mind
by 1917, when the Secretary of the Treasury be-
gan raising $2,000,000,000 by similarly intensive
methods. At first the gloomy prognostications of
those who foretold failure seemed justified. Wash-
ington made the mistake of announcing that the
public was rapidly oversubscribing the bonds, an
announcement that naturally somewhat cooled
popular enthusiasm. The financial houses of Wall
Street, however, presently abandoned routine busi-

JAY COOKE
Photograph by Gutekunst, Philadelphi».

ay^'yt i-^y.^K-T

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door, usint' ^'^^

ing T. . ■ ^- how-

tiiat Uie

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WALL STREET AND THE WORLD WAR 175

ness and placed all their machinery behind the
loan. In the last few days the subscriptions came
in at a tremendous rate, the result being that the
public which had been asked for $2,000,000,000
offered the Government over $3,000,000,000. The
succeeding loans, for rapidly increasing amounts,
were likewise phenomenally successful, the climax
coming in November, 1918, on the eve of the
armistice, when the American people, as the re-
sult of a three weeks' campaign, subscribed nearly
$7,000,000,000 in a single issue. This is the largest
loan which history records.

The united efforts of the whole American peo-
ple, ranging all the w^ay from the great W^all Street
banking houses to vaudeville performers, made these
loans successful. They indicated that Wall Street
was no longer a circumscribed geographical dis-
trict, but that — assuming that the phrase compre-
hends the financial resources of the United States
— it included every town, every farm, every cross-
roads in the country. One of the most satisfac-
tory by-products of the war, indeed, was the fact
that it brought together many elements in our
national life that had hitherto worked at cross
purposes. It even diminished somewhat the wide-
spread unpopularity of Wall Street, That the

176 THE IVIASTERS OF CAPITAL

money power in the United States has many sins
to answer for no rational person denies; happily for
the forces of great wealth, the war gave them an
opportunity to show that they, too, were American
first of all and that they placed the prestige and
dignity of their country above all personal sor-
did considerations. Only a few transparent dema-
gogues and pro-Germans raised the cry that the
struggle was "Wall Street's War. " The Washing-
ton Administration at first showed some suspicion
of the "interests," and for a time it attempted to
reorganize its departments and prepare for the
great struggle without the assistance of Big Busi-
ness. This unfriendly disposition proved almost
disastrous to the cause. It showed most conspicu-
ously in the matter of building ships and airplanes
— two things which seemed to be absolutely in-
dispensable to success. Both these departments for
a year were conducted by men who were entirely
inadequate to the task. England had undergone
a similar experience in the early days; she, too,
when the war started, had found that all her
big departments were headed by politicians, men
who had little training in practical life and who
w^ere thus incompetent to transact that great-
est of all modern enterprises — war. Gradually

WALL STREET AND THE WORLD WAR 177

Great Britain weeded out these men, replacing
them for the most part by business leaders. Ul-
timately President Wilson adopted the same view.
Strangely enough, one of the first appointees to
go from Wall Street to an important Washing-
ton post belonged to precisely the class which
had incurred the President's distrust. Bernard
Baruch all his life had been primarily a Wall Street
operator — a very successful one, it is true, but
a man who had had absolutely no business train-
ing in the "constructive" sense. Even Wall Street
itself gasped when it learned that the President
had made Baruch the head of the War Industries
Board, and, as such, the man who would do most
of the purchasing in this country for the United
States and the Allies. It is an evidence of the
flexibility of the Wall Street temperament that
Baruch, despite his lack of practical experience,
made a success of his job. When the war ended,
this official was buying war materials at the rate
of $10,000,000,000 a year and was unquestionably
the greatest "buyer" the world has ever known.

Wilson's other two conspicuous appointments
from Wall Street at first aroused great approval.
After the collapse of the aircraft programme, he
placed in charge of this work John D. Ryan,

12

178 THE MASTERS OF CAPITAL

president of the Anaconda Copper Mining Com-
pany. The result was the immediate revitahzing
of th^ department, although the war ended be-
fore Ryan had a chance to demonstrate his com-
plete success. But perhaps the Wall Street man
who scored the greatest triumph was Charles
M. Schwab. Wilson experimented disastrously
for more than a year with the Shipping Board,
the repeated failures of which almost disheartened
the American people and theh* allies. All this
time there was one man, and one man only, ideal-
ly fitted for the task. Finally Wilson sent for
the head of the Bethlehem Steel Company. At
first Schwab said that it would be utterly im-
possible for him to undertake the work. Being
pressed for an explanation, he declared that he
was no politician; the drastic reorganization he
would insist on making would be extremely un-
popular. The President immediately told him
that he should have an absolutely free hand and
that he would be required to do only one thing —
build ships. Schwab still hesitated; the first step
he should take, he informed the President, would
be to move the head oflSces of the Shipping Board
from Washington to Philadelphia. "You can
move them to Kalamazoo," the President is

WALL STREET AND THE WORLD WAR 179

reported to have answered, "if by doing so you
can build ships." This very satisfactory atti-
tude persuaded Schwab to take charge, which he
did with his characteristic enthusiasm and ener-
gy, and soon the vessels began to leave the ways
in great numbers. It is hardly too much to say
that Schwab's appointment sealed the fate of
submarine warfare.

Thus Wall Street emerged from the war with
greatly enhanced prestige. Without the financial
support which it placed at the Government's dis-
posal, without the mammoth industrial organi-
zation which America had developed since 1865,
the United States would have counted for little
in the struggle.

APPENDIX

EXTRACTS FROM CHAPTER THREE OF THE REPORT OF THE
COMMITTEE APPOINTED PURSUANT TO HOUSE RESOLU-
TIONS 429 AND 504 TO INVESTIGATE THE CONCENTRA-
TION OF CONTROL OF MONEY AND CREDIT (hOUSE REPORT
NO. 1593, 62d CONGRESS, 3d SESSION, 19i3^

Section 3 — Processes of Concentration

This increased concentration of control of money and
credit has been effected principally as follows:

First, through consolidations of competitive or poten-
tially competitive banks and trust companies, which con-
solidations in turn have recently been brought under
sympathetic management.

Second, through the same powerful interests becom-:
ing large stockholders in potentially competitive banks
and trust companies. This is the simplest way of ac-
quiring control, but since it requires the largest in-
vestment of capital, it is the least used, although the
recent investments in that direction for that apparent
purpose amount to tens of millions of dollars in present
market values.

Third, through the confederation of potentially com-
petitive banks and trust companies by means of the
system of interlocking directorates.

Fourth, through the influence which the more power-

181

182 APPENDIX

ful banking houses, banks, and trust companies have se-
cured in the management of insurance companies, rail-
roads, producing and trading corporations, and pubUc
utility corporations, by means of stockholdings, voting
trusts, fiscal agency contracts, or representation upon
their boards of directors, or through supplying the money
requirements of railway, industrial, and public utilities
corporations and thereby being enabled to participate in
the determination of their financial and business policies.
Fifth, through partnership or joint account arrange-
ments between a few of the leading banking houses,
banks, and trust companies in the purchase of security
issues of the great interstate corporations, accompanied
by understandings of recent growth — sometimes called
"banking ethics" — which have had the effect of effec-
tually destroying competition between such banking
houses, banks, and trust companies in the struggle for
business or in the purchase and sale of large issues of
such securities.

Section 4. — Agents of Concentration

It is a fair deduction from the testimony that the most
active agents in forwarding and bringing about the con-
centration of control of money and credit through one
or another of the processes above described have been
and are :

J. P. Morgan & Co.

First National Bank of New York.

National City Bank of New York.

Lee, Higginson & Co., of Boston and New York.

Kidder, Peabody & Co., of Boston and New York.

Kuhn, Loeb & Co.

APPENDIX 188

Section 11 — Interrelations of Members of the Group

Morgan & Co. and First Natio7ial Bank. — Mr. Mor-
gan, head of the firm of Morgan & Co., of New York,
and Drexel & Co., of Philadelphia, and Mr. Baker,
head officer and dominant power in the First Nation-
al Bank since shortly after its organization, have been
close friends and business associates from almost the
time they began business. Mr. Morgan testifying as to
their relations, said (p. 1034) :

Q. You and Mr. Baker have been old and close
friends and associates for many years, have you not?

A. For a great many years; yes.

Q. Almost since you began business?

A. Well, since 1873, at least.

Q. During that time your house has been of great
aid to the First National Bank in building up their great
prosperity and they have been of great aid to you?

A. I hope so.

Q. That is the fact, is it not?

A. That is the fact, I think.

Q. During that period you have made many pur-
chases of securities jointly and many joint issues of
securities, have you not?

A. Yes, sir.

Before becoming partners in Morgan & Co., Mr.
Davison and Mr. Lament, two of the most active
members of the firm, were vice presidents of the First
National Bank, and still remain directors.

Next to Mr. Baker, Morgan & Co. is the largest stock-
holder of the First National, owning 14,500 shares,
making the combined holdings of Mr. Baker and his son
and Morgan & Co. about 40,000 shares out of 100,000

184 APPENDIX

outstanding — a joint investment, based on the market
value, of $41,000,000 in this one institution.

Three of the Morgan partners — Mr. Morgan himself,
Mr. Davison, and Mr. Lamont — are directors of the
First National, and Mr. Morgan is a member of the
executive committee of four, which has not, however,
been active and has rarely met.

The First National has been associated with Morgan
& Co. in the control of the Bankers Trust Co. As be-
fore stated, when the company was organized, its entire
capital stock was vested in George W. Perkins, H. P.
Davison, and Daniel G. Reid as voting trustees. Mr.
Perkins was then a Morgan partner and Mr. Davi-
son and Mr. Reid were, respectively, vice president and
a large stockholder of the First National. Mr. Davison,
who has since become a Morgan partner, and Mr. Reid
have continued as such trustees. Mr. Perkins has been
succeeded by the attorney of the company, who is also
Mr. Davison's personal counsel. Mr. Davison and Mr.
Lamont, of the Morgan firm, and Mr. Hine, president,
Mr. Norton, vice president, and Mr. Hepburn, member
of the executive committee of the First National, are
codirectors of the Bankers Trust Co., Mr. Hine being
also a member of its executive committee.

The First National likewise has been associated with
Morgan & Co. in the control of the Guaranty Trust
Co., Mr. Baker of the former being joined with Mr.
Davison and Mr. Porter of the latter as voting
trustees.

In the Astor Trust Co., controlled by Morgan &
Co. through the Bankers Trust Co., Mr. Baker and Mr.
Hine, chief officers of the First National, are directors.

In the Liberty National Bank, controlled by Morgan

APPENDIX 185

& Co. through the Bankers Trust Co., Mr. Hine is also
a director.

Since its organization in 1894, Mr. Morgan and Mr.
Baker have been associated as voting trustees in the
control of the Southern Railway, of which, also, Mor-
gan & Co. and the First Security Co. are stockholders,
and Mr. Steele of the former and George F. Baker, Jr.,
and n. C. Fahnestock of the First National are directors.

Mr. Morgan and Mr. Baker are also associated as
voting trustees in the control of the Chicago Great
Western Railway.

Mr. Morgan and Mr. Baker are further associated as
directors and members of the executive committee of
the New York Central Lines and as directors of the
New York, New Haven & Hartford Railroad and the
Pullman Co.

At Mr. Morgan's request, Mr. Baker became and has
remained a director and member of the finance com-
mittee of the United States Steel Corporation, which,
as previously shown, was organized and always has
been dominated by the former. At the request of Mr.
Perkins, who, as a partner in Morgan & Co., was active
in organizing the International Harvester Co., Mr.
Baker became a director of that company, resigning
only recently.

Mr. Stotesbury, of Morgan & Co., and Mr. Baker are
associated as voting trustees in the control of the
William Cramp Ship & Engine Building Co.

In 1901 Mr. Baker and associates, cooperating with
Mr. Morgan, transferred to Reading Co. a majority of
the stock of the Central Railroad of New Jersey, there-
by bringing under one control railroad systems trans-
porting S3}/^ per cent of the anthracite coal moving from

186 APPENDIX

the mines and coal companies owning or controlling 63
per cent of the entire anthracite deposits. (Baker, R.,
1504, 1506, 1508.)

In the same year Mr. Baker cooperated with Mr.
Morgan in transferring to the Northern Securities Co.
controlling stock interests in the Northern Pacific and
Great Northern Railways, competitive transcontinental
systems.

One or more members of Morgan & Co. and one
or more officers or directors of the First National are
associated as codirectors in the following additional
corporations, among others:

The Mutual Life Insurance Co. of New York;

The anthracite railroads, including the Reading, the
Central of New Jersey, the Lehigh Valley, the Erie, the
New York, Susquehanna & Western, and the New York,
Ontario & Western;

The Northern Pacific Railway, in which also Mr.
Steele, of Morgan & Co., and Mr. Baker, of the First
National, are members of the executive committee;

Adams Express Co.;

American Telegraph & Telephone Co.; and

The Baldwin Locomotive Works.

But nothing demonstrates quite so clearly the close
and continuing cooperation between Morgan & Co.
and the First National Bank as their joint purchases
and underwritings of corporate securities. Since 1903
they have purchased for their joint account, generally
with other associates, 70 odd security issues of 30 differ-
ent corporations, aggregating approximately $1,080,-
000,000. (Ex. 213, R., 1895; Ex. 235, R., 2127.) A com-
plete statement of such joint transactions in securities
will be found in a subsequent part of this report.

APPENDIX 187

It is thus seen that through stockholdings, inter-
locking directors, partnership transactions, and other
relations, JMorgan & Co. and the First National Bank
are locked together in a complete and enduring com-
munity of interest. Their relations in this regard are,
indeed, a commonplace in the financial world. Thus,
Mr. Schiff being asked whether he knew "the close re-
lations between Messrs. Morgan and the First National
Bank," replied "I do." (R., 1687.)

Morgan & Co., First National Bank, and National City
Bank. — Mr. Stillman, as president, chairman of the
board of directors and largest stockholder, for a long
time has held a position of dominance in the National
City Bank corresponding to Mr. Morgan's in his firm
and Mr. Baker's in the First National Bank.

For many years while Morgan & Co. and the First
National Bank were in close business union the Na-
tional City Bank apparently occupied a position of
independence. More recently, however, it has been
drawn into the community of interest existing between
the two first named, as is evidenced by a series of
important transactions.

First. Within three or four years Morgan & Co.
acquired $1,500,000 par value of the capital stock of the
National City Bank, representing an investment at the
stock's present market price of $6,000,000, and J. P.
Morgan, Jr., became a director. (Morgan, R., 1036,
1075, 1076; Davison, R., 1879; Ex. 134-A.)

Second. In 1910 Mr. Morgan in conjunction with
both Mr. Baker, his long-time associate, and Mr. Still-
man, head of the National City Bank, purchased from
Ryan and the Mr. Harriman estate $51,000, par value,

188 APPENDIX

of the stock of the Equitable Life Assurance Society,
paying therefor what Mr. Ryan originally paid with
interest at 5 per cent — about $3,000,000 — the invest-
ment yielding less than one-eighth of 1 per cent. Mr-
Stillman and Mr. Baker each agreed to take a one-
fourth interest in the purchase if requested to do so
by Mr. Morgan. No such request has yet been made
by him.

No sufficient reason has been given for this transac-
tion, nor does any suggest itself, unless it was the desire
of these gentlemen to control the investment of the
$504,000,000 of assets of this company, or the disposi-
tion of the bank and trust company stocks which it held
and was compelled by law to sell within a stated time.
Mr. Morgan was interrogated as follows on this subject
(R., 1068, 1069, 1071):

Q. You may explain, if you care to, Mr. Morgan,
why you bought from Messrs. Ryan and Harriman
$51,000 par value of stock that paid only $3710 a year,
for approximately $3,000,000, that could yield you only
one-eighth or one-ninth of 1 per cent.

A . Because I thought it was a desirable thing for the
situation to do that.

Q. That is very general, Mr. Morgan, when you
speak of the situation. Was not that stock safe enough
in Mr. Ryan's hands?

A. I suppose it was. I thought it was greatly im-
proved by being in the hands of myself and these two
gentlemen, provided I asked them to do so.

Q. How would that improve the situation over the sit-
uation that existed when Mr. Ryan and Mr. Harriman
held the stock?

A. Mr. Ryan did not have it alone.

APPENDIX 189

Q. Yes; but do you not know that Mr, Ryan origi-
nally bought it alone and Mr. Harriman insisted on
having him give hira half?

A. I thought if he could pay for it that price I could.
I thought that was a fair price.

Q. You thought it was good business, did you?

A. Yes.

Q. You thought it was good business to buy a stock
that paid only one-niuth or one-tenth of 1 per cent a year?

A. I thought so.

Q. The normal rate of interest that you can earn on
money is about 5 per cent, is it not?

A. Not always; no.

Q. I say, ordinarily.

A. I am not talking about it as a question of money.

Q. The normal rate of interest would be from 4 to 5
per cent, ordinarily, would it not?

A. Well?

Q. Where is the good business, then, in buying a
security that only pays one-ninth of 1 per cent?

A. Because I thought it was better there than it
was where it was. That is all.

Q. Was anything the matter with it in the hands of
Mr. Ryan?

A. Nothing.

Q. In what respect would it be better where it is
than with him?

A. That is the way it struck me.

Q. Is that all you have to say about it?

A. That is all I have to say about it.

Q. You care to make no other explanation about it?

A. No.

190 APPENDIX

Q. I do not understand why you bought this com-
pany.

A. For the very reason that I thought it was the
thing to do, as I said.

Q. But that does not explain anything.

A. That is the only reason I can give.

Q. It was the thing to do for whom?

A. That is the only reason I can give. That is the
only reason I have, in other words. I am not trying to
keep anything back, you understand.

Q. I understand. In other words, you have no
reason at all.''

A. That is the way you look at it. I think it is a
very good reason.

Mr. Baker was asked the following questions (R.,
1466,1467,1469,1470,1535):

Q. Coming, now, to this transaction of the Equitable
Life. You remember when Mr. Morgan acquired the
control from Messrs. Ryan and Harriman, do you not.?

A. Yes, sir.

Q. When was it?

A. I could not tell you that date.

Q. It was in 1910, was it not.

A. If that is what you have in your record there,
that is correct, I suppose.

Q. I think that is correct. Is that your recollection?

A. No; it is not my recollection; but it is on the
record there.

Q. What is your recollection?

A. I know it was two or three years ago. That
is all.

Q. At the time Mr. Morgan acquired the interest

APPENDIX 191

in the Equitable, did he come with you?
A. Yes, sir.

q. And with Mr. Stillman?
A. Yes.

• • « • • • •

Q. ... I want to ask you further concerning this
Equitable Life transaction. Do I correctly understand
that at the time Mr. Morgan made the purchase you
and Mr. Stillman committed yourselves to take part
of it?

A. That was done so informally

Q. (interrupting). Did you.''

A. Yes; I will say we did.

Q. You were consulted before it was done and you
agreed to take a part of it?

A. Yes.

Q. Then, following that, about a year later, you
were asked to write this letter, were you not, confirming
that arrangement?

A. Yes. Mr. J. P. Morgan, Jr., wrote me a letter
and I put my initials at the bottom, saying it was so, or
something of that kind.

Q. Referring back, now, to the talk you say you
had with Mr. Morgan and Mr. Stillman about the pur-
chase of the Equitable stock; before it was purchased,
what reason did Mr. Morgan give for wanting to take
that stock from Mr. Ryan?

A. I can not remember that he gave any special
reason, except that he thought it would be a good thing
to be in his hands.

Q. When he said he thought it would be a good
thing to be in his hands, rather than in the hands of Mr.

192 APPENDIX

Ryan, what did you understand that to mean?

A. I did not understand that to mean much of
anything. I did not take much interest in it.

Third, about a year later Mr. Stillman and Mr. Baker,
pursuant to an understanding between them and J. P.
Morgan & Co., purchased approximately one-half of the
holdings of the Mutual and Equitable Life insurance
companies in the stock of the National Bank of Com-
merce, amounting altogether to some 42,200 shares.
Mr. Baker being a member of the finance committee of
the Mutual, it was arranged that he should purchase
the Equitable's stock — about 15,250 shares — and Mr.
Stillman the Mutual's. Pursuant to the understanding,
Mr. Stillman turned over 10,000 shares to Morgan &
Co., who already owned 7000 shares. Mr. Baker kept
5000 shares, turned over 5000 to the First Security Co.,
and distributed the rest among various persons; 3000
shares were allotted by Mr. Stillman and Mr. Baker to
Kuhn, Loeb & Co.

Mr. Baker testified as follows regarding this trans-
action (R., 1463, 1464) :

Q. Was the purchase of that stock the result of an
understanding between you and him and others.''

A. Yes, sir.

Q. Who were the others?

A. Some of the people at Mr. Morgan's.

Q. Who?

A. I can not remember whether it was Mr. Morgan
himself, or Jack — I mean Mr. J. P. Morgan, Jr. — or
dome others; I do not remember.

Q. Then the purchase altogether amounted to about
42,200 shares, did it not, from the two companies?

APPENDIX 193

A. Yes.

Q. What arrangement was there as to the distribu-
tion of that stock ; how it should be distributed between
Messrs. Morgan and Stillman and yourself?

A. I can not remember that there was any in par-
ticular. I disposed of mine as I have told you, and that
is as near as I can remember. I can account for the
bulk of it.

Q. Was there or was there not talk about the
distribution of that 42,200 shares?

A. There may have been, but I do not remember.

Q. You do not remember whether there was or not?

A. No, sir.

Q. And you can not tell what Messrs. Morgan &
Co. agreed to take before the stock was bought?

A. I do not know whether they agreed to take any.
I think Mr. Morgan took 10,000 shares, probably, from
Mr. Stillman.

Q. Before you bought the stock between you, these
three interests, was there not some understanding, and
if so, what was it, as to the way it should be divided up?

A. Possibly there was, but I do not remember
clearly enough to answer the question intelligently to
you. I am willing to admit, if it is of any interest to
the committee, that there was an understanding and
that we were to take it for joint account.

Q. The committee would rather not have any ad-
missions that do not agree with your recollection, if you
have no recollection of it at all.

A. I have not a definite enough recollection to state
under oath.

Q. Is it your impression that there was an under-
standing that it was purchased for joint account?

13

194 APPENDIX

A. Yes.

Q. Between those three interests?
A. Yes; that it would be divided. I do not think
they were for joint account.

The National City Bank, the First National, and
Morgan & Co. now have two representatives each on the
board of directors of the National Bank of Commerce
— Mr. Vanderlip, president, and Mr. Simonson, vice
president, of the first named; Mr. Baker, chairman of
the board, and Mr. Hine, president of the second; and
H. P. Davison and J. P. Morgan, Jr., of the last; whilst
six of its finance committee of nine (it has no executive
committee) consist of Mr. Vanderlip and Mr. Simonson
of the National City Bank, Mr. Hine of the First Na-
tional, Mr. Wiggin, president of the Chase National,
which, as appeared above, has for some years been
controlled by the First National, and Mr. Davison and
Mr. J. P. Morgan, Jr., of J. P. Morgan & Co.

Fourth, during the same period in which occurred the
three transactions just described — that is, within the
last four years — the National City Bank, the First
National, and Morgan & Co. (excluding issues in which
there were other parties to the joint account) have
purchased or underwritten in joint account thirty-six
security issues (including the impending issue of the
Interborough Rapid Transit Co.) amounting to $484,-
456,000 and they, with other associates, thirty-one ad-
ditional issues amounting to $548,027,000, making in
all sixty-seven issues aggregating over $1,000,000,000
in which the First National, the National City Bank,
and Morgan & Co. were joint purchasers or under-
writers. Further, in the same period, the National

APPENDIX 195

City Bank and Morgan & Co. and other associates,
not including the First National, have purchased or
underwritten in joint account twenty security issues
aggregating $333,385,000. On the other hand, in the ten
years prior to 1908 the National City Bank joined with
Morgan & Co. in but one purchase or underwriting of
securities and with the First National in not one.

The acquisition by Morgan & Co. of a large block of
stock of the National City Bank with representation
upon its board of directors, and the transactions that
followed, in which those two institutions and the First
National Bank were joined, as above set forth, show a
unison of interest and a continuity of cooperation be-
tween the three such as for many years previously had
existed between two of them — Morgan & Co. and the
First National.

Combined power of Morgan & Co., the First National,
and National City Banks. — In earlier pages of the
report the power of these three great banks was sepa-
rately set forth. It is now appropriate to consider
their combined power as one group.

First, as regards banking resources :

The resources of Morgan & Co. are unknown; its
deposits are $163,000,000. The resources of the First
National Bank are $150,000,000 and those of its ap-
pendage, the First Security Co., at a very low estimate,
$35,000,000. The resources of the National City Bank
are $274,000,000; those of its appendage, the National
City Co., are unknown, though the capital of the latter
is alone $10,000,000. Thus, leaving out of account the
very considerable part which is unknown, the institu-
tions composing this group have resources of upward of

19() APPENDIX

$632,000,000, aside from the vast individual resources
of Messrs. Morgan, Baker, and Stillman.

Further, as heretofore shown, the members of this
group, through stockholdings, voting trusts, interlocking
directorates, and other relations, have become in some
cases the absolutely dominant factor, in others the most
important single factor, in the control of the following
banks and trust companies in the city of New York:

(a) Bankers Trust Co., resources $205,000,000

(b) Guaranty Trust Co., resources.. . . 232,000,000

(c) Astor Trust Co., resources 27,000,000

(d) National Bank of Commerce,

resources 190,000,000

(c) Liberty National Bank, resources. 29,000,000
(/) Chase National Bank, resources... . 150,000,000
(g) Farmers Loan & Trust Co., re-
sources . 135,000,000

in all, 7, with total resources of 968,000,000

which, added to the known resources of

members of the group themselves,

makes $1,600,000,000

as the aggregate of known banking re-
sources in the city of New York under

their control or influence.
If there be added also the resources of

the Equitable Life Assurance Society

controlled through stock ownership

of J. P. Morgan 504,000,000

the amount becomes $2,104,000,000

Second, as regards the greater transportation systems.

(a) Adams Express Co. : Members of the group have
two representatives in the directorate of this company.

(6) Anthracite coal carriers: With the exception of
the Pennsylvania and the Delaware & Hudson, the Read-
ing, the Central of New Jersey (a majority of whose

APPENDIX 197

stock is owned by the Reading), the Lehigh Valley,
the Delaware, Lackawanna & Western, the Erie (con-
trolling the New York, Susquehanna & Western), and
the New York, Ontario & W^estern, afford the only
transportation outlets from the anthracite coal fields.
As before stated, they transport 80 per cent of the out-
put moving from the mines and own and control 88
per cent of the entire deposits. The Reading, as now
organized, is the creation of a member of this bank-
ing group — Morgan & Co, One or more members of
the group are stockholders in that system and have
two representatives in its directorate; are stockholders
of the Central of New Jersey and have four representa-
tives in its directorate; are stockholders of the Lehigh
Valley and have four representatives in its director-
ate; are stockholders of the Delaware, Lackawanna &
W^estern and have nine representatives in its directorate;
are stockholders of the Erie and have four representa-
tives in its directorate; have two representatives in
the directorate of the New York, Ontario & Western;
and have purchased or marketed practically all security
issues made by these railroads in recent years.

(c) Atchison, Topeka & Santa Fe Railway : One or
more members of the group are stockholders and have
two representatives in the directorate of the company;
and since 1907 have purchased or procured the marketing
of its security issues to the amount of $107,244,000.

(d) Chesapeake & Ohio Railway: Members of the
group have two directors in common with this company,
and since 1907, in association with others, have pur-
chased or procured the marketing of its security issues
to the amount of $85,000,000.

(e) Chicago Great Western Railway: Members of

198 APPENDIX

the group absolutely control this system through a
voting trust.

(/) Chicago, Milwaukee & St. Paul Railway: Mem-
bers of the group have three directors or officers in com-
mon with this company, and since 1909, in association
with others, have purchased or procured the marketing
of its security issues to the amount of $112,000,000.

(g) Chicago & Northwestern Railway: Members
of the group have three directors in common with this
company, and since 1909, in association with others,
have purchased or procured the marketing of its security
issues to the amount of $31,250,000.

(h) Chicago, Rock Island & Pacific Railway: Mem-
bers of the group have four directors in common with
this company.

(i) Great Northern Railway : One or more members
of the group are stockholders of and have marketed the
only issue of bonds made by this company.

(j) International Mercantile Marine Co.: A mem-
ber of the group organized this company, is a stock-
holder, dominates it through a voting trust, and markets
its securities.

(k) New York Central Lines: One or more mem-
bers of the group are stockholders and have four
representatives in the directorate of the company, and
since 1907 have purchased from or marketed for it and
its principal subsidiaries security issues to the extent
of $343,000,000, one member of the group being the
company's sole fiscal agent.

(/) New York, New Haven & Hartford Railroad.
One or more members of the group are stockholders
and have three representatives in the directorate of
the company, and since 1907 have purchased from or

APPENDIX 109

marketed for it and its principal subsidiaries security
issues in excess of $150,000,000, one member of the
group being the company's sole fiscal agent.

(m) Northern Pacific Railway: One member of the
group organized this company and is its fiscal agent,
and one or more members are stockholders and have
six representatives in its directorate and three in its
executive committee.

(n) Southern Railway: Through a voting trust,
members of the group have absolutely controlled this
company since its reorganization in 1894.

(o) Southern Pacific Co.: Until its separation from
the Union Pacific, lately ordered by the Supreme Court
of the United States, members of the group had three
directors in common with this company.

(p) Union Pacific Railroad: Members of the group
have three directors in common with this company.

Third, as regards the greater producing and trading
corporations.

(a) Amalgamated Copper Co.: One member of the
group took part in the organization of the company,
still has one leading director in common with it, and
markets its securities.

(6) American Can Co. : Members of the group have
two directors in common with this company.

(c) J. I. Case Threshing Machine Co.: The presi-
dent of one member of the group is a voting trustee of
this company and the group also has one representative
in its directorate and markets its securities.

(d) William Cramp Ship & Engine Building Co.:
Members of the group absolutely control this company
through a voting trust.

200 APPENDIX

(e) General Electric Co.: A member of the group
was one of the organizers of the company, is a stock-
holder, and has always had two representatives in its
directorate, and markets its securities.

(/) International Harvester Co.: A member of the
group organized the company, named its directorate
and the chairman of its finance committee, directed its
management through a voting trust, is a stockholder,
and markets its securities.

(g) Lackawanna Steel Co.: Members of the group
have four directors in common with the company and,
with associates, marketed its last issue of securities.

(h) Pullman Co.: The group has two representa-
tives, Mr. Morgan and Mr. Baker, in the directorate
of this company.

(i) United States Steel Corporation: A member of
the group organized this company, named its director-
ate, and the chairman of its finance committee (which
also has the powers of an executive committee) is its
sole fiscal agent and a stockholder, and has always
controlled its management.

Fourth, as regards the great public utility corporations.

(a) American Telephone & Telegraph Co.: One or
more members of the group are stockholders, have three
representatives in its directorate, and since 1906, with
other associates, have marketed for it and its subsidi-
aries security issues in excess of $300,000,000.

(6) Chicago Elevated Railways: A member of the
group has two oflScers or directors in common with the
company, and in conjunction with others marketed for
it in 1911 security issues amounting to $66,000,000.

(c) Consolidated Gas Co. of New York: Members

APPENDIX 201

of the group control this company through majority
representation on its directorate.

(d) Hudson & Manhattan Railroad: One or more
members of the group marketed and have large interests
in the securities of this company, though its debt is now
being adjusted by Kuhn, Loeb & Co.

(e) Interborough Rapid Transit Co. of New York:
A member of the group is the banker of this company,
and the group has agreed to market its impending bond
issue of $170,000,000.

(/) Philadelphia Rapid Transit Co.: Members of
the group have two representatives in the directorate
of this company.

(g) Western Union Telegraph Co.: Members of the
group have seven representatives in the directorate
of this company.

Summary of directorships held by these members of the
group. — Exhibit 134-B . . . shows the combined direc-
torships in the more important enterprises held by Mor-
gan & Co., the First National Bank, the National City
Bank, and the Bankers and Guaranty Trust Cos., which
latter two, as previously shown, are absolutely controlled
by Morgan & Co. through voting trusts. It appears
there that firm members or directors of these institu-
tions together hold:

One hundred and eighteen directorships in thirty-
four banks and trust companies having total resources
of $2,679,000,000 and total deposits of $1,983,000,000.

Thirty directorships in ten insurance companies hav-
ing total assets of $2,293,000,000.

One hundred and five directorships in thirty-two
transportation systems having a total capitalization of

!e02 APPENDIX

$11,784,000,000 and a total mileage (excluding express
companies and steamship lines) of 150,200.

Sixty-three directorships in twenty-four producing
and trading corporations having a total capitalization
of $3,339,000,000.

Twenty-five directorships in twelve public utility cor-
porations having a total capitalization of $2,150,000,000.

In all, 341 directorships in 112 corporations having
aggregate resources or capitalization of $22,245,000,000.

The members of the firm of J. P. Morgan & Co. hold
seventy-two directorships in forty-seven of the greater
corporations; George F. Baker, chairman of the board,
F. L. Hine, president, and George F. Baker, Jr., and
C. D. Norton, vice presidents, of the First National
Bank of New York hold forty-six directorships in thirty-
seven of the greater corporations; and James Stillman,
chairman of the board, Frank A. Vanderlip, president,
and Samuel McRoberts, J. T. Talbert, W. A. Simon-
son, vice presidents, of the National City Bank of New
York, hold thirty-two directorships in twenty-six of the
greater corporations; making in all for these members
of the group 150 directorships in 110 of the greater
corporations.

The affiliations pi these and other banking institu-
tions with the larger railroad, industrial, and public
utility corporations and banks, trust companies, and
insurance companies of the United States, are shown in
graphic form in two diagrams which are in evidence,
and are attached to this report as Appendices F and G.

Relations between Morgan & Co., First National Bank,
National City Bank, Lee Higginson & Co., Kidder, Pea-
body & Co., and Kuhn, Loeb & Co. — Besides the group

APPENDIX 203

composed of Morgan & Co. and the First National
Bank and the National City Bank, the principal bank-
ing agencies through which the greater corporate en-
terprises of the United States obtain capital for their
operations are the international banking firms of Kuhn,
Loeb & Co., of New York, and Kidder, Peabody & Co.
and Lee Higginson & Co., of Boston and New York.

While it does not appear that these three last-named
houses are affiliated with the group consisting of the
first three in so definite and permanent a form of alliance
as that existing between the latter, it is established that
as issuing houses they do not as a rule act independ-
ently in purchasing security issues but rather in uni-
son and cooperation with one or more members of that
group, with the result that in the vastly important
service of arranging credits for the great commercial
enterprises of the country there is no competition or
rivalry between those dominating that field, but vir-
tually a monopoly, the terms of which the borrowing
corporations must accept.

The full extent to which they participate in one
another's issues does not appear, owing to the absence
of data as to the names of underwriters, other than in
strictly joint-account transactions of the issues of securi-
ties made by Messrs. Morgan & Co., Kuhn, Loeb & Co.,
the First National Bank, and the National City Bank.
The distinction between the cases in which one of the
banks or banking houses assumes the relation of an
underwriter of an issue of securities made by one of the
others and that in which they act in joint account is
that in the former case underwriters do not share in the
primary bankers' profit, but insure the former against
loss, while in the case of a joint account they are part-

204 APPENDIX

ners and as such share in the original risks and profits.

The course of business is for the house acquiring
from a corporation the right of purchasing or under-
writing an issue of its securities to offer participations
in the purchase or underwriting to one or more of the
associates named. Taking as an illustration the latest
issue of the American Telephone & Telegraph Co., the
method of procedure is thus described in the testimony
of Mr. Schiff (R., 1664):

Q. And is there not an issue now in course of offer
to the public of American Telephone & Telegraph
bonds?

A. There is.

Q. Advertised in the last few days?

A. In course of offer to stockholders; not to the
public.

Q. They are in course of offer to the stockholders
and if the stockholders do not take them, are they then
to be offered to the public?

A. Then the underwriting syndicate will have to
take them, and whether they will offer them to the
public or not I do not know.

Q. But it is an issue that is publicly offered to the
stockholders?

A. It is going to be publicly offered to the stock-
holders.

Q. What is the amount of that issue?

A . I believe it is between $60,000,000 and $70,000,000.

Q. It is $67,000,000, is it not?

A. It may be $67,000,000 ; I do not recall.

Q. Is that a joint-account transaction between
Morgan, Kidder, Peabody, and yourselves?

A, It is a joint account transaction between

APPENDIX 205

Morgan's, First National Bank, the National City
Bank, Kidder, Peabody & Co., and Baring Bros.,
and ourselves.

Q. Baring Bros., of London?

A. Yes.

Q. Take that as an illustration; who made the deal
with the company.'*

A. I believe J. P. Morgan & Co.

Q. And they invited you to participate on joint
account with these other houses.''

A. They did.

It was admitted by Mr. Davison, of Morgan & Co.,
and other bankers that the practice of banking houses
becoming in effect partners in the purchasing and under-
writing of securities instead of acting independently of
one another is a development of recent years.

Mr. Davison testified as follows (R., 1854, 1855).

Q. Recently, within the last few years, many of the
issues of J. P. Morgan & Co. have been made jointly
with the First National Bank and the National City
Bank, have they not?

A. Yes.

Q. And many with Lee-Higginson and with western
bankers?

A. No; not very many with the western bankers.
As a matter of fact, I recall very few with the western
bankers. We have made them occasionally with Lee-
Higginson and with other houses.

Q. You have made them very largely with Lee-
Higginson?

A . It is comparative. I do not think we have, very
largely.

206 APPENDIX

Q. But your main joint-account transactions are
with the City Bank and the First National Bank?

A. I think they have been.

Q. Is it not a fact that in previous years you made
the issues largely alone, prior to five years ago?

A. I think more largely alone; yes, sir. They were
smaller in character.

Q. Within what length of time has it been that J. P.
Morgan & Co. have done most of their issuing business
in joint account? Has it been within your time?

A. No; I think it was a little before my time.

Q. You think it started a little before your time?

A. I think it started a little before my time. In
fact, the evidence shows that it did.

Mr. Schiff said (R., 1688) :

Q. Don't you know that most of the Morgan issues
in the past few years have been made jointly; that is,
that the City Bank has participated in them with the
First National?

A. I do.

Mr. Schiff is a director of the City Bank.

It will be noticed that Mr. Davison advances the
great size of present-day security issues in explana-
tion of why banking houses now purchase such issues in
combination or for joint account instead of independ-
ently, as formerly. The fact is, however, . . . that
not only are small issues still very frequent, but they
are purchased in concert as regularly as the larger issues.
Of the issues since 1907 . . . purchased or underwritten
by two or more of the banking houses there named acting
together, about ninety were for $5,000,000 and less, while
an additional sixty were for amounts between $5,000,000

APPENDIX 207

and $10,000,000. It also appears that forty -five of such
issues for $5,000,000 and less, most of them made since
1909, were purchased or underwritten by Morgan & Co.
in conjunction with associates.

Of course we do not suggest that banking houses may
not on particular occasions join in purchasing or under-
writing an issue of securities and yet remain entirely
independent and free to compete with each other gener-
ally in the purchase of security issues. But where a
group of such banking houses, pursuant to a settled
policy, regularly purchase these issues in concert, com-
petition amongst them in this vastly important com-
mercial function is effectually suppressed. And that is
the situation in this country. No less an authority
than Mr. Baker admitted as much (R., 1542, 1543):

Q. But among these banking houses that we have
named is there not a strong and continuous community
of interest in the purchase and sale of securities?

A. I think there is. We have always tried to deal
with our friends rather than with people we do not know.

Q. It is a good deal better to deal with your friends
and split it up than it is to compete for the securities?

A. Not necessarily.

Q. That is what happens, is it not?

A. Oh, I do not think so to any great extent.

Q. Have you ever competed for any securities with
Morgan & Co. in the last five years? If so, give us the
name of them.

A. I do not know that we have competed with them.

Q. You divide with them, do you not? You give
them a part of the issues when you have it?

A. We are apt to.

Q. And if they take a security they give you a part

208 APPENDIX

of the issue, do they not?

A. Yes.

Q. That is what is known as the modern system of
cooperation and combination as against the antique
system of competition, is it not?

A. That is rather a long name for me.

Q. You understand the question. I would like to
have you answer it.

A. I never heard it called in that way before.

Q. How would you call it?

A. I would not call it at all.

Q. You know what cooperation is, do you not?

A. Yes.

Q. Is that not cooperation as against competition?
That is the modern system of cooperation as against
the archaic system of competition, is it not?

A. I do not understand how you state that.

Q. That is right, is it not?

A. All right; yes.

Q. And that has been found to work very well, has
it not?

A. I think so.

Q. For the bankers?

A. Yes; and for others, too.

Moreover, the banking houses which have joined in
the plan of cooperation comprise the principal mediums
through which the greater corporations of the country
obtain their supplies of capital.

The charge for capital, which, of course, enters uni-
versally into the prices of commodities and of service,
is thus in effect determined by agreement amongst those
supplying it, and not under the check of competition. If

APPENDIX 209

there be any virtue in the principle of competition,
certainly any plan or arrangement which prevents its
operation in the performance of so fmidamental a
commercial function as the supplying of capital is
peculiarly injurious.

The possibility of competition between these banking
houses in the purchase of securities is further removed
by the understanding amongst them and others that
one will not seek by offering better terms to take
away from another a customer which it has theretofore
served, and by the corollary of this, namely, that where
given bankers have once satisfactorily united in bringing
out an issue of a corporation they shall also join in bring-
ing out any subsequent issue of the same corporation.
This is described as a principle of banking ethics. It is
thus stated by Mr. Hine, president of the First National
Bank of New York (R., 2045, 2046) :

Q. Recently your bank made an issue, jointly with
J. P. Morgan & Co. and the National City Bank, of
Chicago & Western Indiana Railway bonds, of ten
millions, did it not.''

A. Notes.

Q. Ten millions of notes, yes. Why was it necessary
that three great banking houses should join in an issue
of that kind?

A. I do not know of any reason.

Q. Was it not because they had been jointly
interested in previous issues of the same company?

A. I do not know that it was.

Q. Had they been jointly interested in previous
issues?

A. I think they had.

Q. Is it or is it not the custom when banking houses
u

^10 APPENDIX

are interested or become interested in one kind of
issues of a company that they retain that interest in
other issues?

A. Often it is so.

Q. That is part of the banking ethics, is it not?

A. Yes, I would say it is; on satisfactory terms.

Q. Is it another rule of banking ethics that bankers
shall not interfere with one another's customers?

A. The same ethics obtain in banking that obtain
in the legal profession and in the medical profession as
to infringing upon the preserves of others.

Q. Well, what are the ethics in the banking pro-
fession as to trespassing upon the preserves of others?

A. If you will tell me what the ethics are in the legal
world, I will answer youi question.

Q. No; I would rather have you tell me the ethics
in the world with which you are acquainted.

A. I can not state the matter any better than you
have. It is the custom — I am not dealing in ethics.

Q. What is the custom among bankers and banking
houses as to any one interfering with another's customer
in business?

A. I do not know whether there is any custom. I
think it is considered unprofessional.

Q. Unbusinesslike?

A. And not in good form according to the highest
principles of business practice.

Q. Is it not in accordance with banking ethics to
interfere with or take customers away from firms; to
take customers who have been doing business with
some other banking house?

A. I think that is ordinarily considered high-minded
practice not to do so.

APPENDIX 211

Mr. Davison testifying on the same subject said
(R., 1858, 1859):

Q, Then you know of these three instances — the
Chicago & Western Indiana Railway Co., the Kansas
City Terminal Co., and the New York Central, all made
within a few weeks jointly with other banking houses —
those we have been discussing. Is there any rule or
custom among bankers that where they make one issue
of a company or are interested together in one issue they
remain interested in subsequent issues?

A. For the same company?

Q. Yes.

A. As a matter of practice, if it was satisfactory in
every particular, I should say it was the custom; yes.
It is a matter of banking ethics.

Q. A matter of banking ethics?

A. I should say so; yes.

Q. If either one of the three thereafter gets an issue
of that company it is a matter of banking ethics that it
is for joint account, is it?

A. I should say that the natural way of handling
that business would be to have it go to the parties who
handled it before, if it were satisfactorily handled; yes.

Q. You mean if they have not had any differences
or disagreements between themselves?

A. Yes, if it was satisfactorily handled.

Q. Have you not within the last few weeks also
taken an issue of $67,000,000 of American Telephone
& Telegraph Co. bonds jointly with Lee-Higginson and
other banking houses?

A. No.

Q. You participated with them in that issue?

A. Excuse me, I was going to answer your question.

ZU APPENDIX

I think with others, not including Lee-Higginson & Co.
as principals, but with Kidder, Peabody & Co., the
First National, the National City Bank, Baring Bros.
& Co. (Ltd.), of London, and Morgan-Grenfell (Ltd.),
of London, we have underwritten an issue of $67,000,000
of American Telephone & Telegraph Co. bonds.

Q. Are they the same parties

A. I beg your pardon — and Kuhn, Loeb & Co.

Q. Are they the same bankers or banking houses
with which you had previously underwritten issues of
the American Telephone & Telegraph Co.?

A. Exactly; and that is a complete answer to your
question.

Q. You have together underwritten, I think, $150,-
000,000 of those bonds, have you not?

A. That is my recollection.

Q. So that the same rule of banking ethics required
the same disposition of this issue as of the others?

A. I would not say it required it.

Q. It resulted in it?

A. It resulted in it, exactly.

Q. As a matter of fact, in business morals it would
require it.

A. It would require it if everything was properly
and satisfactorily handled, and there were no other
factors in the situation which might make it inexpe-
dient. The situation, when a transaction comes up,
always governs.

Mr. Schiff was more guarded in his statement of the
practice (R., 1666, 1668, 1669) :

Q. And you would not, for instance, if you knew
the Southern Railway was going to make an issue of

APPENDIX 213

securities, be willing to bid on them, wouJd you?

A. We would not.

Q. In other words, these houses have their recog-
nized clients, have they not?

A. To some extent.

Q. And is it not also recognized that they are their
clients and that they are not to be interfered with?

A . 1 think that is going a bit too far, because there is
very frequently interference or attempted interference.

Q. Has there ever been any interference with your
exclusively handling the issues of the Union Pacific
Railroad in the last ten years?

A. I do not think so.

• • • • t • • •

Q. Have you any instance in mind in which in the
last five years you have invaded the field of Messrs.
Morgan & Co. or they have invaded yours?

A. I have not.

Q. Or have you in mind any instance in which you
have invaded the field of the National City Bank or
the First National Bank, or in which they have invaded
yours?

A. As to the First National Bank, I know we have
not. As to the National City Bank I can not say for
certain. I think they would do business to a certain
extent even where we are considered the agents, and
we would do certain business where they are considered
the agents; not to a large extent.

Q. Is not that where the corporation is a customer
of both of you? Is not that the only case in which the
corporation is claimed to be or regarded as a customer
of both of you or either of you?

A. It is in cases where a corporation is regarded as a

214 APPENDIX

customer of neither.

Q. That is, in a case in which the field happens to
be open?

A. Yes.

This custom, by whatever name it be called, and the
practice of these great banking houses which it supple-
ments of purchasing security issues in concert and not
independently can not have any other effect than the sup-
pression of competition in the purchasing of such securi-
ties, and the creation of a combination or community
of interest which may grant or withhold credit as it wills
and whose terms borrowing corporations must accept.

Undue concentration admitted. — Mr. Reynolds, presi-
dent of the Continental & Commercial National Bank
of Chicago, was outspoken in the view that concentra-
tion of control of banking resources has already gone so
far as to be a menace to the country (R., 1654, 1655):

Q. I suppose, Mr. Reynolds, that as president of a
great bank you have kept in touch with the very recent
trend toward concentration and control of money and
credit in the East?

A. Yes, sir; I have been constantly reminded of it
in the last year or so.

Q. You know the extent to which it has gone in the
last few years?

A. I have a general knowledge of it; yes, sir.

Q. Do you or not know the effect that has on the
marketing of securities of a great railroad and other
interstate corporations, and the trend of concentration
brought about through the concentration of this money
and credit?

A. I have read all that has been adduced at this

APPENDIX 215

examination, and a great many other things, and ray
information in detail is very largely the result of this
reading, rather than from personal experience.

Q. But you have information and knowledge of the
conditions in New York, for instance, as between the
great banking houses. That is a matter of personal
knowledge?

A. Yes; I have a fairly general knowledge of that,
I should say.

Q. What would you say as to that concentration of
the control of money and credit being a menace to the
country?

A. That involves a very deep question. Personal-
ly I am inclined to believe that an excess of power of
any kind in the hands of a few men might properly be
called a menace. I do not mean to say by that that the
people who had that control and power have used it
improperly. I do not mean to say that at all.

Q. Regardless of the way they have used it for the
time being, the question is, is it not, as to the way they
can use it?

A. I think a more wide distribution of the power of
credit, if that is what you mean, would really be better
in the long run.

Q. Taking the present situation as you find it, Mr.
Reynolds, what is your judgment as to whether that
situation is a menace?

A. I am inclined to think that the concentration,
having gone to the extent it has, does constitute a men-
ace. I wish again, however, to qualify that by saying
that I do not mean to sit in judgment upon anybody
who controls that, because I do not pretend to know
whether they have used it fairly or honestly or otherwise.

216 APPENDIX

Mr. Schiff also conceded rapid concentration of con-
trol of banking resources in New York in recent years,
but he stated that it caused him no anxiety so far as
the well-being of his own firm was concerned, as they
were able to take care of themselves. We quote (R.,
1686-1687. 1688):

Q. Have you been an interested observer of the
concentration and control of money and credit in New
York in the last few years? .

A. I have.

Q. You have seen it grow very rapidly, have you
not?

A. Yes.

Q. And you have seen it drift into fewer and fewer
hands, have you not?

A. It has drifted into fewer and fewer corporations.

Q. And the concentration and control of those
corporations has drifted into fewer hands, has it not?

A. I am not sure that it has done that.

Q. Do you know anything about it?

A. Well, I think the stockholding in different

Q. I say, do you know anything about it?

A. Not very closely.

Q. You have not watched it very closely?

A. I think stockholdings in most New York cor-
porations are very well divided.

Q. We are not talking about stockholdings, but
about practical control of management as distinguished
from stockholding. You see the difference?

A. I see the difference.

Q, It is a very substantial difference, is it not?

A. Yes, sir. •

Q. Now, confining yourself to the question of actual

APPENDIX 217

practical control of the management of these great
moneyed corporations, you have observed, have you
not, a growing concentration of control?

A. I have.

Q. And has it been a subject of concern to you?

A. No; it has not.

Q. You have been an interested onlooker in this
concentration?

A. An observer; yes.

Q. And you have understood the possibility of its af-
fecting you and your own sources of credit, have you not?

A. I have not been concerned in that.

Q. You do not require credit, then?

A. No.

Q. But you have considered its effect upon the small
banking houses, not so fortunately situated as you,
that do require credit?

A. Yes.

Q. Have you considered it?

A. Yes.

Q. And have you considered its effect on the ability
of the smaller houses to grow and become great issuing
houses?

A. Yes.

Finally, Mr. Baker, who is outranked only by Mr.
Morgan, if at all, as a factor in the concentration of
control of banking resources and credit into fewer and
fewer hands in New York, frankly admitted that in his
judgment the movement had gone far enough; that
even if it stopped where it is the peril would be great
if ambitious and not overscrupulous men should get into

218 APPENDIX

the places of power which have been created; and that
therefore the safety of the existing system Hes in the
personnel of the men now in control. We quote from
his illuminating testimony (R., 1567, 1568):

Q. I suppose you would see no harm, would you,
in having the control of credit, as represented by the
control of banks and trust companies, still further con-
centrated? Do you think that would be dangerous?

A. I think it has gone about far enough.

Q. You think it would be dangerous to go further?

A. It might not be dangerous, but still it has gone
about far enough. In good hands, I do not see that it
would do any harm. If it got into bad hands, it would
be very bad.

Q. If it got into bad hands, it would wreck the
country?

A. Yes; but I do not believe it could get into bad
hands.

Q. You admit that if this concentration, to the
point to which it has gone, were by any action to get
into bad hands, it would wreck the country?

A. I can not imagine such a condition.

Q. I thought you said so?

A. I said it could be bad, but I do not think it would
wreck the country. I do not think bad hands could
manage it. They could not retain the deposits nor the
securities.

Q. I am not speaking of incompetent hands. We
are speaking of this concentration which has come
about and the power that it brings with it getting into
the hands of very ambitious men, perhaps not over-
scrupulous. You see a peril in that, do you not?

A. Yes.

APPENDIX 219

Q. So that the safety, if you think there is safety
in the situation, really lies in the personnel of the men?

A. Very much.

Q. Do you think that is a comfortable situation for
a great country to be in?

A. Not entirely.

BIBLIOGRAPHICAL NOTE

The literature covering special phases of the develop-
ment and growth of capitalized industry and "high
finance" in the United States during the past half cen-
tury is plentiful enough. Scores of volumes have been
written on the Trusts, on particular industries, and
special combinations of capital. But no exhaustive
study appears to have been made of the broad trend
toward the concentration and control of industry and
finance by Wall Street financiers, during the remark-
able period culminating in the aggressive antitrust
legislation after the financial crash of 1907.

Among the best popular books on the Standard Oil
Trust may be mentioned: Wealth Against Common-
Wealth, by Henry Demarest Lloyd (1894); History of
the Standard Oil Trust, by S. C. T. Dodd (1894) ; Rise and
Progress of the Standard Oil Company, by Gilbert Hol-
land Montague (1903) ; History of the Standard Oil Com-
pany, by Ida M. Tarbell (1904). To supplement these
books, bringing the facts relating to this great business
aggregation down to later dates, reference should be
made to government exhibits, such as the report of the
United States Industrial Commission (1900 and 1902);
the testimony in the Supreme Court suit for dissolution
(1910 and 1911) and the report of the "Money Trust
Investigation" made by the Committee on Banking

221

222 BIBLIOGRAPHICAL NOTE

and Currency of the House of Representatives in 1913.
These latter are a real mine of information regarding
the activities not only of Standard Oil magnates in busi-
ness and banking fields, but of others as well during the
preceding decade.

The story of the Morgan banking house has never
been fully told, though the Life Story of J. P. Morgan,
by Carl Hovey (1911), presents a fair outline. Consult
also, Forty Years of American Finance, by Alexander D.
Noyes (1909) which contains interesting chapters on the
government financing undertaken by the firm.

The facts of Edward H. Harriman's remarkable career
can be culled only from the current financial publica-
tions of the period. Government reports, such as the
testimony in the Supreme Court suit for the dissolu-
tion of the Northern Securities Company (1904) and
the report of the Committee on Banking and Currency,
show the general activities of the Harriman financiers
and their connections with Wall Street.

The rise to power of the steel and iron magnates and
the growth of allied industries have been presented to
the public in various forms. A valuable but biased work
is the Inside History of the Carnegie Steel Company, by
James H. Bridge (1903). The Romance of Steel, by
Herbert N. Casson (1907) is a very readable story.

On the specific subject of Wall Street mechanism and
finance, The Work of Wall Street, by Sereno S. Pratt
(1912), and Wall Street and the Country, by Charles A.
Conant (1904), will be found interesting. The Truth
About the Trusts, by John Moody (1904), is a statistical
exhibit of capitalized industry and finance as it existed
at the apex of the merger movement.

On the general subject of industrial trusts and

BIBLIOGRAPHICAL NOTE 223

combinations scores of volumes have been written, some
of value and many worthless. Among the informing,
popular books of the past two decades may be men-
tioned: The Story of Life Insurance, by Burton J.
Hendrick (1907) ; Trusts, or Industrial Combinations and
Coalitions in the United States, by Ernst von Halle
(1895); Corporation Finance, by Thomas L. Greene
(1908); The Control of Trusts,hy John B. Clark (1901);
Trust Finance, by Edward Sherwood Meade (1903);
The Trust Problem, by Jeremiah W. Jenks (1900);
and Industrial Combinations and Trusts, by William H.
Stevens (1913).

But to learn the full story of the great masters of
capital of the last generation, one must depend chiefly
on financial and investment periodicals. Chief among
these are the Commercial and Financial Chronicle, the
Wall Street Journal, and the New York Journal of Com-
merce. For purely banking subjects, the Bankers Maga-
zine is the best source of information. For full light on
the subject of the control of life insurance funds by
the powers of Wall Street, nothing better can be found
than the report of the joint committee of the New
York Legislature appointed to investigate life insur-
ance companies (1906). The facts regarding the dis-
solution of the Standard Oil Trust and the American
Tobacco Company are to be found in the testimony
in the Supreme Court suits against those companies.
The best popular description of the panic of 1907 is
contained in Alexander D. Noyes's Forty Years of
American Finance.

INDEX

Adams Express Company, 186.
196

Albany and Susquehanna Rail-
road, 21

Allegheny (Penn.), Carnegie
at, 35

Allen and Ginter of Richmond,
in American Tobacco Com-
pany, 72

Amalgamated Copper Com-
pany, 68, 73, 199

American Bridge Company,
75, 80

American Can Company, 199

American Car and Foundry
Company, 73

American Hide and Leather
Company, 73

American Ice Company, 138

American Line, 110

American Smelting and Refin-
ing Company, 73

American Steel and Wire Com-
pany, 74, 81, 82, 83-84,
106

American Steel Hoop Com-
pany, 75, 76, 86

American Sugar Refining Com-
pany, 71

American Telephone and Tele-
graph Company, 186, 200,
204-05, 211-12

American Tin Plate Company,
75. 76

American Tobacco Company,
71, 72-73

American Woolen Company,
73

IS 225

Anaconda Copper Company,
68, 178

Anglo-French mission to float
American loan, 164

Armour, P. D., 63

Asia, Harriman plans railroad
in, 149

Astor, J. J., 60

Astor Trust Company, 184,
196

Astors hold Illinois Central
stock, 91

Atchison, Topeka and Santa
Fe Railroad, 23; Morgan
and, 31, 32; Harriman and,
105; price of stock (1906),
135; under investigation by
House committee (1913),
197

Atlantic Coast Line. 107, 116

Bacon, Robert. 102, 104
Baker, G. F., President of First
National Bank, 99; under
investigation by House com-
mittee (1913), 183-88, 192,
194, 196, 200, 202, 207-08.
217-18
Baker, G. F., Jr., 185, 202
Baldwin Locomotive Works,

186
Ballin, Albert, quoted, 171
Baltimore, Peabody in, 6
Baltimore and Ohio Railroad,
reconstructed by Morgan,
26-27, 29-30, 31; Morgan
and control of, 32, 106; and
Union Pacific, 115; Harri-

226

INDEX

Baltimore and Ohio R.R.. Cont'd
man and, 149; and Penn-
sylvania Railroad, 153

Bank of North America, see
National Bank of North
America

Bankers Trust Company, 150,
184, 185, 196, 201

Banks, merchants', 60

Baring Brothers of London,
205, 212

Barings, known as "mer-
chants," 5; and United
States, 9

Barney, C. T., 141

Baruch, Bernard, 177

Beebe, J. M., and Company of
Boston, 10, 20

Belmont, August, 9, 20

Bessemer, Henry, steel process,
38, 41, 42; Carnegie and
Bessemer process, 44-45

Bethlehem Steel Company,
137-38, 167-68

Boissevain Brothers, 93

Bonds, American, sold in Eng-
land. 11; English buy Con-
federate, 15-16; sale of
Union bonds in Germany, 16;
British and French credits
in Great War, 163-64; Lib-
erty, 172, 173-75

Bowdoin, G. S., 32

Brice, Calvin, 25

Brown Brothers, 4

Brownsville (Tex.). Stillman
born in, 62

Burns, Walter, 33

Canada, loans to, 162
Capital, meaning of term, 1-2
Carnegie, Andrew, early life,
85-36; and Scott, 36-38;
first investments, 37, 89;
and iron industry, 42-45; and
Bessemer steel, 44-45: per-
sonal characteristics, 47, 90;
and Frick, 49, 76; Mesaba
ore fields, 49-51 ; sale of busi-

ness, 75-78, 83; and Schwab,
78-80; competition, 80-82;
and Morgan, 83, 109

Carnegie, McCandless and Com-
pany, 45

Carnegie Steel Company,
Moore offers to buy, 77;
see also Carnegie, sale of
business; Schwab becomes
president. 79; bibliography,
222

Case, J. I., Threshing Machine
Company, 199

Cassatt. A. J.. 87, 106. 116. 150

Central of Georgia Railroad,
31, 139, 149

Central Railroad of New Jer-
sey, 115. 185, 186, 196, 197

Chase National Bank, 99-100,
194, 196

Chemical Bank, 60 (note)

Chesapeake and Ohio Rail-
road, 27, 32, 197

Chicago, railroads between At-
lantic and, 25

Chicago and Northwestern
Railroad, 105, 198

Chicago and Western Indiana
Railway, 209, 211

Chicago, Burlington and Quin-
cy Railroad, 100, 101

Chicago Elevated Railways,
200

Chicago Great Western Rail-
way, 185, 197

Chicago, Milwaukee and St.
Paul Railroad, Stillman di-
rector of, 63; William Rocke-
feller and, 63, 65, 67; and
Kuhn, Loeb and Company,
96; Union Pacific and, 105;
western extension, 115; price
of stock (1906), 135: Mor-
gan interests and, 198

Chicago, Rock Island and
Pacific Railroad, 107-08.
198

Chicago, St. Louis and New
Orleans Railroad, 92

INDEX

227

Chile, loan to. 1 1

Citizens' Passenger Railroad,
Carnegie owns stock in, 37

City Banii, New York, Taylor
becomes president of, 60;
nature of, 60; location, 60
(note); reputation, 61 ; Pyne
as president. 61-62; Stillraan
and, 62; Standard Oil Com-
pany and, 63-64; Union
Pacific and, 65-66, 102;
becomes National City Bank,
67; see also National City
Bank

Cleveland, Rockefeller in, 52

Coke, Frick's enterprise, 46-49

Coleman, William, 44

Columbia Oil Company, Car-
negie owns shares in, 37

"Community of interest"
movement, 80, 87, 105, 106,
118, 134; see also Industrial
combinations

Concentration of control of
money and credit, report of
House investigating com-
mittee (1913), 181 et seq.

Congress, House committee j
investigates concentration, [
181 et sen.

Conneau (C/.), Carnegie plans
tube pis it at, 81, 83

Connellsville, Frick coke king
of, 48

Consolidated Gas Company of
New York, 69, 200

Cooke, Jay, and American
Civil War debt, 15, 16-17,
173; allies himself to German
Jewish interests, 16; failure,
17; government and railroad
financing, 57

Cordage Trust, 71

Coster, C. H., 32, 33, 102

Cramp, William, Ship and
Engine Building Company,
185, 199

Cresson Springs ( P e n n . j r
Schwab from, 78

Cunard Line, 110, 112
Cuttings hold Illinois Central
stock, 91

Dabney, C. H., 12

Dabney, Morgan and Com-
pany, 12-13, 21

Davison, II. P., in Morgan
firm, 151; in investigation of
House committee (1913),
183, 184, 194. 205-06

Delaware and Hudson Canal
Company, 21

Delaware and Hudson Rail-
road, 190

Delaware, Lackawanna and
Western Railroad, 197

Detroit Edison Company, 113

Deutschland (submarine), 168

Diamond Match Company, 76,
166

Dresser, D. L., 136

Drew, Fisk and Gould. 30

Drexel, A. J., 13, 14

Drexel, Morgan and Com-
pany, firm formed, 13, 14;
rivalry with Cooke, 16-17;
refunding government debt,
19; and railroads, 19 et seq.,
57; banking, 55; see also
Morgan, J. P.

Dubuque and Sioux City Rail-
road, 93, 95

Duke, W., Sons and Company
of Durham. N. C. 72

Duluth, terminus of Great
Northern, 100

Duncan, Sherman and Com-
pany, Morgan with, 12;
failure, 13

East India Company, business
descendants of, 6

Eddyville (Ky.), Kelly at, 39

Edison Illuminating Company
of New York, 69

Elgin, Joliet and Eastern Rail-
way, 74

England, see Great Britain

228

INDEX

Equitable Life Assurance So-
ciety, investments before
1890, 119; and trust com-
panies. 122, 126-27; Harri-
man and, 148; Morgan and,
150; control by combination,
188-94, 196

Equitable Trust Company.
126-27

Erie Railroad, Morgan reor-
ganizes, SO-31, 95; controlled
by Morgan, 32, 105. 116.
186, 197

Exchange, effect of payment
for war purchases, 163

Fabbri, E. P., 32, 33

Fahnestock, H. C, 185

Farmers Loan and Trust Com-
pany, 196

Federal Reserve Act, 160

Federal Steel Company, 74, 77,
80, 82, 83, 87

Field, Marshall, 85, 88

Fifth Avenue Trust Company,
150

First National Bank of New
York, 68, 99-100, 1J82 et
seq.

First Security Company, 185,
192 195

Fish, 'Stuyvesant. 91-92, 93,
95-96

Flagler, H. M., 59

Flower, R. P., 77

Fox- Bourne, biographer of
George Peabody, quoted, 7

France, J. S. Morgan and
Company take French loan,
17-18

Frick, H. C, 89; and coke
making, 46-49; and Carne-
gie, 49, 76; and Mesaba
Range, 50; and Rockefeller,
51; director of Union Pa-
cific, 66; and industrial com-
bination, 75-76, 79, 86-87,
88; Morgan and, 85, 145;
and insurance companies, 128

Garrison (N. Y.), Osborne's
home at, 91

Gary, Judge E. H., president
of Federal Steel Company.
74, 83; and steel trust merg-
er, 85, 86, 88

Gates, J. W., American Steel
and Wire Company, 74-75,
81, 106; and eteel trust
merger, 82, 86, 88; Louis-
ville and Nashville Railroad,
106-07

General Electric Company,
112-13, 200

Georgetown (D. C), Peabody
goes to, 6

Germans invest in Tnion
bonds, 16

Godfrey, C. H., 32

Goelets hold Illinois Central
stock, 91

Gold, discovered in Nevada,
140 (note); in United States
during Great War, 155, 161,
170

Gould, Jay, 20, 25; and Van-
derbilt, 22; estate and Rocke-
feller, 67, 115-16

Great Britain, capital seeks
American investment, 8-9;
New York Central stock
sold in, 22; steel production
(1916), 156; as international
banker, 161-62; loans to,
162, 172; financing the
Allies, 171-72; see also Mor-
gan, J. S., Peabody, George

Great Northern Railroad, 96,
99, 100, 113, 135, 186, 198

Great War, 155 et seq.

Guaranty Trust Company,
New York Guarantee and
Indemnity Company be-
comes, 127; Harriman and,
148; Morgan and, 149, 150,
184, 201; resources, 196

Hanover National Bank, 63
Harriman, E. H., and Union

INDEX

229

Hkrriman. E. H.. Cont'd

Paci6c, 65-67, 96-08. 114-
115, 141; "community of
interest" idea, 87, 105; early
life, 89-90; and Illinois Cen-
tral, 90-95; personal char-
acteristics, 93; and Morgan,
95. 102-04. 109, 145, 148;
and Hill. 99 et seq., 116;
Northern Securities Com-
pany, 104; and insurance
companies, 128; death (1909),
149; bibliography, 222

Harriman, William, brother of
E. H., 90

Hawley, Edwin, 106-07

Hays, D. C, Harriman in
office of, 89

Heintze, F. A., 141. 144

Hepburn, A.B., 184

Hill, J. J., and "community of
interest" idea, 87; and Harri-
man, 99 et seq., 116; and
Morgan, 99, 141

Hine, F. L., 184, 185, 194, 202,
209-12

Hocking Valley Railroad Sys-
tem, 31, 32

Homestead Steel Works, 79

Howland, G. G. and S., West
India trading house of, 59

Hudson and Manhattan Rail-
road, 201

Hughes, C. E., and New York
insurance investigation. 132,
152

Huntington. C. P.. 25.93, 98, 106

Hyde, H. B.. 126

Illinois Central Railroad, 90-

95. 96, 97. 100. 116. 149
Illinois Steel Company, 74
Industrial combinations. Stand-
ard Oil Company, 52 et seq. ;
Sherman Act against, 71;
reorganization after 1897,
71-73; steel and iron inter-
ests, 73 et seq.; railroads,
89 et seq., 113-14; shipping.

110-12; public utilities, 112-
113; report of House inves-
tigating committee, 181 et seq. ;
bibliography. S2i-iS; see also
names of corporations

Insurance investigation. 132-
183. 152; bibliography. 223

Interborough Rapid Transit
Company of New York, 194,
201

International Harvester Com-
pany, 112, 185, 200

International Mercantile Ma-
rine Company, 110, 136,
198

International Paper Company,
73

Interstate Commerce Com-
mission and freight rates,
152

Iron City Forge Company, 43,
46

Japan, United States loan to,

162
Jews in American finance, 16,

27
Jumbo mine in Nevada, 140

(note)

Kansas City Terminal Com-
pany, 211

Keene, J. R., 103

Kelly, William, 39-42

Keystone Bridge Company, 43

Kidder, Peabody and Com-
pany of Boston and New
York, 182, 202 et seq.

Kitchener, Lord, and Schwab,
167

Kloman, Andrew, 43

Knickerbocker Trust Com-
pany, 141, 144

Kuhn, Loeb and Company,
begin as merchants, 4; and
Union Pacific, 65-66, 96
Harriman and, 96-97, 102
and Great Northern, 99
investigation by House com-

230

INDEX

Kuhn. Loeb and Co., Cont'd
mittee, 182, 192, 201. 203
et seq.

Labor, Frick settles problems,
48-49

Lackawanna Steel Company,
200

Lamont, of Morgan and Com-
pany, 183, 184

Lee, Higginson and Company,
of Boston and New York,
182, 202 et seq.

Lehigh Valley Railroad, 31,
106, 186, 197

Leyland Line, 110

Liberty National Bank, 184-
185, 196

Lincoln Trust Company, 145

Livingston, James, 90

Livingston, Lewis, 90

London, Peabody in, 7-11;
effect of buying war material
in United States on, 165

Long Island Railroad, 21

Lorain Steel Company, 74

Louisville and Nashville Rail-
road, 106-07, 116

Lusitania (S. S.), 112

McCall, J. A., 126
McCurdy, R. A., 127
McRoberts, Samuel, 202
Manufactures, cotton goods in

New England, 6; steel, 39

et seq. ; coke, 46-49
Mather, Samuel, 88
Maureiania (S. S.), 112
Mellon and Frick, 47
Mercantile National Bank, 141,

144
Merchants, financiers begin as,

4-5
Merritt, Louis, 50
Mesaba ore fields, 50
Metropolitan Life Insurance

Company, 128
Miller, T. N., 42, 43 •
Mills. D. O., 88

Milwaukee, public utilities ac-
quired by North American
Company, 113

Minnesota Iron Company, 74

"Money Power," 68, 88

Moore, J. H., 88

Moore, W. H., and Carnegie,
76-77; and United States
Steel Corporation, 88

Moore and Schley, 146

Moore Brothers, 86, 107-08;
see also Moore, J. H., Moore,
W. H.

Moratorium, European coun-
tries declare, 159; in South
America, 159-60

Morgan, J. P., son of J. S., 11;
education, 11; personal char-
acteristics, 11, 47; early
business career, 11-12; in
New York, 12; Dabney,
Morgan and Company, 12-
13; Drexel, Morgan and
Company, 13 et seq.; and
the railroads, 19 et seq., 105-
106, 107; called "Jupiter"
Morgan, 28; and industrial
movement, 55, 77; Federal
Steel Company, 74; great
banker, 75; Carnegie and,
80-83; steel trust merger,
83-88; United States Steel
Corporation, 87-88, 109; and
Harriman, 95, 102-04, 109,
145, 148; and Hill, 99, 100.
102-03; shipping combina-
tion, 110-11; International
Harvester Company, 112;
and public utilities, 112-13;
"community of interest,"
117-18; and life insurance
companies, 128, 150; Morse
buys Central of Georgia
Railroad from, 139; and
panic of 1907, 145-47; and
trust companies, 150; re-
lations with Great Britain,
165; activities of firm during
Great War. 166-67; firm

INDEX

231

Morgan, J. P., Cont'd
investigated by House com-
mittee, 182 et seq.\ bibli-
ographv, 222

Morgan, J. P., Jr., 191, 192.
194

Morgan, J. S., firm of J. S.
Morgan and Company, 7,
10, 11-14, 17-18, 30; suc-
ceeds Peabody, 10-11, 12;
dinner given for, 19; retires,
20

Morgan-Grenfell (Ltd.) of Lon-
don. 212

Morgans as merchants, 4, 5-6

Morse, C. W., 138-39, 141,
144, 149

Morton, L. P., 17, 20

Morton Trust Company, 150

Mount Pleasant, coke making
at, 46

Munitions, war orders, 160-
161; American manufacture
of, 166, 167-68

Mutual Life Insurance Com-
pany, 119, 122, 126, 127,
148. 149, 186, 192

National Bank of Commerce,
150, 194, 196

National Bank of North Amer-
ica, 138, 145

National Biscuit Company,
76

National City Bank, 67, 68,
118, 182 et seq.\ see also City
Bank

National City Company, 195

National Steel Company, 75,
76

National Tube Company, 75,80

Navy in April, 1917, 169

New York Central Railroad,
Morgan and, 21-23, 25, 26,
185, 198, 211; Harriman
and, 105; price of stock
(1906), 135

New York City, Peabody in.
6; J. P. Morgan comes to,

13; Standard Oil office in,
58, 59; lighting companies
brought under one control,
69; failure to sell bonds of,
144

New York Guarantee and In-
demnity Company, 127

New York Life Insurance
Company, 119, 126

New York, New Haven and
Hartford Railroad, 67, 117,
185, 198-99

New York, Ontario and West-
ern Railroad, 186, 197

New York, Susquehanna and
Western, 186, 197

Newburyport (Mass.), Pea-
body from, 6

Nixon, Lewis, 137

North American Company,
113

Northern Pacific Railroad, ex-
tension, 23; Morgan and,
31, 32, 99, 102-03, 186, 199;
Hill and, 100, 102-03; Harri-
man and, 101, 103; and
Union Pacific, 113; price of
stock (1906), 135

Northern Securities Company,
104, 109, 113, 131, 152, 186

Norton, C. D., 184, 202

Norway, loans to, 162

Ocean Steamship Company,
139

O'Day, Daniel. 88

Ogdensburg and Lake Cham-
plain Railroad, 92

Oliver, Harry, 50, 51

Oregon and Transcontinental
Company, 113

Osborne, W. H., 91-92

Panics (1893), 70; (1907), 134
et seq.; bibliography, 223

Park Bank, 60 (note)

Payne, O. H., 59, 69

Peabody, George, early life,
6-7; in London, 7-10; estab-

232

INDEX

Peabody, George, Cont'd

lishes firm of George Pea-
body and Company, 7;
firm becomes J. S. Morgan
and Company, 7, 11; death
(1869). 10; statue, 10

Peabody, G. F., 93

Pennsylvania Railroad, Mor-
gan and, 26; Scott in charge
of, 36; Carnegie and, 43, 81;
Frick and, 76; "community
of interest," 106, 116, 153

Perkins, G. W., partner of
Morgan, 85, 104, 151; and
International Harvester
Company, 112; on deputa-
tion to Washington, 147;
and Bankers Trust Com-
pany, 184

Petroleum discovered, 52

Phelps, Dodge and Company,
60

Philadelphia, Peabody in, 6;
Drexel in, 14

Philadelphia and Reading Rail-
road, 26, 31; see also Reading
Railroad

Philadelphia Rapid Transit
Company, 201

Phipps, Henry, 35, 43,75,76,77

Pittsburgh, Third National
Bank, 37; Carnegie plans rod-
mill at, 81, 83

Pittsburgh Elevator Company,
37

Poor's Manual, cited, 24

Poppenhusen, Adolph, 21

Porter, H. H., 88

Porter, W. H., 184

Prudential Life Insurance Com-
pany of Newark, 128

Public utilities, growth of capi-
talization, 3; combination,
112-13

Pullman Company, 185, 200

Pyne, P. R., 61-62

Railroads, first beneficiaries of
capitalization, 3; Morgan

and, 19 et seq., 57; rebates
for Standard Oil, 56; Harri-
man and Hill, 89 et seq.;
price of stocks (1905-06),
135; investigation by House
committee, 196-99; see also
names of roads

Reading Railroad, 32, 108,
115, 185, 186, 197; see also
Philadelphia and Reading
Railroad

Ream, N. B., 85, 88

Red Star Line, 110

Reid, D. G., 86, 88, 108, 184

Republican party and pros-
perity, 71

Reynolds, President of Con-
tinental and Commercial
National Bank of Chicago,
214-15

Richmond and West Point
Terminal, 28

Rockefeller, J. D., 44, 89;
personal characteristics, 47,
53; Lake Superior ore fields,
50, 51, 84, 86; and Standard
Oil, 52-59; and railroads,
67, 115, 116; Federal Steel
Company, 77; tries to buy
out Carnegie, 77-78, 81, 83;
and Frick, 87; and life insur-
ance companies, 128; and
panic of 1907, 146

Rockefeller, William. 75, 76,
151; and Standard Oil, 59;
and Stillman, 63; and rail-
roads, 65, 66, 67

Rogers, H. H., and Amalga-
mated Copper Company,
67-68, 73; and Frick, 76,
87; Morgan and, 85; and
United States Steel Corpora-
tion, 88; panic of 1907, 142;
death, 150

Roosevelt, Theodore, attacks
Northern Securities Com-
pany, 131; deputation to,
147

Rothschild, Nathan, 5

INDEX

233

Rothschilds, known as mer-
chants, 5; send Belmont to
New York, 9; and Cooke, 17;
allies of Morgan, il

Russian War, United States
loan to Japan for, 162

Ryan. J. D., 177

Ryan, T. F.. 150, 187-88

"S.O.S.," or "Slaves of Stet-
tinius," 166

Sage, Russell, 25

St. Louis, public utilities largely
controlled by North Ameri-
can Company, 113

St. Louis, Alton and Terre
Haute Railroad, 93

St. Paul, terminus of Northern
Pacific, 100

St. Paul Railroad, see Chicago,
Milwaukee and St. Paul
Railroad

SchifiF, J. H., and Union Pa-
cific, 66; and Harriman, 96-
97; and life insurance com-
panies, 128; in investigation
by House committee, 187,
204-05, 206, 215-17

Schwab, C. M., and Carnegie,
78-79; "community of in-
terest," 80; persuades Mor-
gan to buy out Carnegie, 82;
and United States Steel
Corporation, 88; deal with
United States Shipbuilding
Company, 137; and mining,
141; part in Great War, 167-
1G8, 178-79

Scott, Colonel T. A., 36-38,
43

Seligmans, banking house, 4,
27

Sherman Act (1890), 71, 147,
152

Ship subsidies, England and
Germany grant, 111-12

"Shipbuilding Trust," 136

Shipping Board, Schwab made
head of. 178-79

Silver discovered in Nevada,
140 (note)

Siraon.son, W. A., 194, 202

"Slaves of Stettinius, " 166

Smith, Woodward and Still-
man, cotton commission mer-
chants, 62

South African War, United
States loan to Great Brit-
ain for, 162

South America, loans to, 162

South Manchurian Railway
(China). 149

Southern Pacific Railroad, 93,
99, 135, 141, 153, 199

Southern Railwav, 28, 105,
116, 185, 199, 212

Spanish-American War, 84,
98

Speyers, banking house, 27

Standard Oil Bank, City Bank
known as, 64

Standard Oil Company, formed
(1870), 54-55; combination,
56-57, 117-18; New York
office, 58-59; Standard Oil
Trust, 59, 71 ; and City Bank.
63-64; investments, 64-65;
rival of steel interests, 86;
and trust companies, 121;
suits against, 152; bibliogra-
phy, 221-22, 223

Steel, demand for, 38-39;
Bessemer process, 38, 41-
42, 44-45; Kelly's process,
39-42; Carnegie and, 44-
45, 81; production in 1916,
156

Steele, of Morgan and Com-
pany, 185, 188

Stettinius, E. R., 166

Stillman, James, 75; early life,
62; and Rockefeller, 63;
President of City Bank, 63;
and Union Pacific, 66; and
Frick, 87; panic of 1907,
146; retired, 150-51; in
investigation by House com-
mittee, 187

^34

INDEX

Stocks, of public service corpor-
ations, 3; railroad, 117, 134-
13.5, 141; mining stock boom,
139-40

Stotesbury, E. T., 185

Submarines built in United
States, 168

Sugar Trust, 71

Superior, Lake, ore mines, 49-
51, 87

Supreme Court orders dissolu-
tion of Northern Securities
Company, 109

Suwanee Iron Works, 39

Sweden, Joans to, 162

Switzerland, loans to, 162

Taft, W. H.. 152

Talbert, J. T., 202

Tariff demand of capitalists
for, 3; of 1894. 70-71

Taylor, Moses, 59, 60, 61

Tennessee Coal, Iron and Rail-
road Company, 146, 147

Thayer, Nathaniel, 88

Thomson, Edgar, Steel Works,
45, 78, 79

Thomson, J. E., 43

Tilden, S. J., 19

Trust companies, 120 et seq.

Trust Company of America,
145

Trust Company of the Repub-
lic, 136, 137

Union Pacific Railroad, 87,
199; policy of acquiring
branch lines, 23, 100, 101-
102, 113, 114-15, 141; reor-
ganization, 65-67, 96-98;
wealth, 67, 114; Harriman
and, 105, 148-49; price of
stock (1906), 135, 139; forced
to give up holdings, 153

United Copper Company, 141

United States assumes financ-
ing of Allies, 171-72

United States Mortgage and
Trust Company, 127

United States Shipbuilding
Company, 136-37

United States Steel Corpora-
tion, 87-88, 109, 144, 147,
185, 200

Vanderbilt. W. H., 20, 21-23.
26

Vanderlip, F. A.. 118, 151, 194,
202

Venango County (Penn.), pe-
troleum discovered in, 52

Villard, Henry, 113

Wabash, St. Louis and Pacific
Railroad, 93

Wall Street, Standard Oil
influence, 58-59; becomes
center of finance, 61; and
industrial combination, 72;
as international money mar-
ket, 155; as maker of his-
tory, 156 et seq. ; stock mar-
ket closed (1914), 157-58, re-
opening of Stock Exchange,
158-59; becomes industrial
mart, 165; bibliography, 222

Walters, Henry, 107, 116

War Industries Board, 177

Wealth, in 1890, 4, growth, 4;
see also Gold

West Shore Railroad, 26

Western Maryland Railroad,
116

Western Union Telegraph Com-
pany, 201

Wheat crop of 1914, 160

Whiskey Trust, 71

White Star Line, 110

Whitney, W. C, 68-69

Wiggin, A. H., 194

Wilson, Woodrow, on credits
to Allies, 170-71; and Ba-
ruch, 177

Woodruff Sleeping Car Com-
pany, Carnegie owns shares
in, 37

Woodward, J. T., 63

Wright, J. H., 32. 33

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