Titan

by Ron Chernow

  While Rockefeller and Gates were irked by the Merritts’ ingratitude, they were not entirely blameless. The Merritts alleged that Rockefeller had inflated the value of the mining properties he contributed to Consolidated, a charge that seems substantiated by Gates’s own papers. In early 1893, he had written two letters to Frank Rockefeller, expressing shock at the high prices Colby and Hoyt had paid for the mines. He summed up their value as follows: “Whatever induced Colby Hoyt & Co. to form syndicates to pay such enormous figures for these worthless properties, I cannot understand. I mean to keep pegging along at it from time to time until the whole thing comes out.”86

  Having acquired several million tons of iron ore and a railroad to cart it off, Rockefeller was now stymied by a group of Lake Superior shippers who would lease him vessels only at extortionate rates. To end the deadlock, Rockefeller again recruited a talented man from the enemy ranks, Samuel Mather of Cleveland, a son-in-law of Amasa Stone. On one of those historic occasions when the curtain parted fleetingly to reveal the wizard working the levers, Rockefeller held a cordial, ten-minute, predinner chat with Mather at West Fifty-fourth Street. The visitor left with a three-million-dollar order to build twelve ore-carrying ships, steel monsters that would surpass in size anything ever floated on the Great Lakes. After shaking hands with Rockefeller, Mather never saw him again.

  Given the large number of ships that he had to build, Mather figured that the shipyards would gang up and gouge him, so he pretended that he needed only one or two. After the contractors submitted their bids, they were stunned to discover that they all had contracts. The operation of this fleet required another engineering feat: the creation of specially constructed docks on Lake Superior with long railroad trestles extending hundreds of feet into the water. As the lake’s shipping cartel watched in consternation, the Rockefeller operation began to load ore at the stupefying rate of ten thousand tons every six hours. Where the schooners had charged $4.20 a ton, Rockefeller’s operators carried their mineral cargo at a cost of 80 cents a ton.

  When Mather declined to manage the fleet, Rockefeller asked Gates to suggest an experienced firm to pilot the ships. “No,” said Gates, increasingly showing flashes of a quirky independence, “I do not know of any firm to suggest at the moment, but why not run them ourselves?” Taken aback, Rockefeller replied, “You don’t know anything about ships, do you?” Gates confessed not but nominated his uncle LaMont Montgomery Bowers as a candidate. “He lives up the state, and never was on a ship in his life. He probably wouldn’t know the bow from the stern, or a sea-anchor from an umbrella, but he has good sense, he is honest, enterprising, keen, and thrifty.”87 Having often hired people based on general ability, not specific skills—Gates himself being a prime example— Rockefeller acceded to the choice.

  Bald and well-tailored, Bowers had an extensive business résumé, ranging from selling soap to running a real-estate agency in Omaha to selling groceries in upstate New York. Much to Rockefeller’s delight, he not only ably commanded but considerably expanded the fleet. Mostly under the aegis of the Cleveland-based Bessemer Steamship Company, Rockefeller acquired fifty-six steel vessels, the largest fleet on the Great Lakes and the world’s biggest assemblage of ore carriers. His position in lake shipping was so unassailable that he could dictate rates on Lake Superior, much as they had been dictated to him a few years earlier—a situation that galvanized Andrew Carnegie into organizing the competing Pittsburgh Steamship Company.

  Tutored by Gates in the eccentric ways of Mr. Rockefeller, Bowers was told that he must not, under any circumstances, communicate with the boss. Rockefeller never saw the vast majority of ships in his armada. One day, however, Rockefeller dropped by unexpectedly to consult him on a shipping matter, prompting a humorous exchange. “You are making me break the orders I have from your own office, Mr. Rockefeller,” Bowers reminded him. “Oh, Mr. Bowers, I am getting along in years,” Rockefeller replied in his droll, midwestern manner. “I think I may really be allowed a little liberty by my office!”88 Bowers’s success in managing the fleet was perhaps unfortunate, for it led directly to his later assignment to a Rockefeller-controlled mining venture in the Rocky Mountains called Colorado Fuel and Iron, where he would bring lasting disgrace to the Rockefeller name.

  Rockefeller’s success on the Mesabi Range precipitated a clash between America’s two wealthiest individuals, John D. Rockefeller and Andrew Carnegie. In their approach to business, the two men had often mirrored each other, stressing attention to detail, ruthlessly slashing costs, and keeping dividends low. Both had struggled with their own unacknowledged avarice, pioneered in philanthropy, and prided themselves on being friends of the working man. Yet they never seemed to get along. Each Christmas, they perfunctorily exchanged gifts, Rockefeller giving Carnegie a paper vest, while Carnegie sent the teetotaler excellent whiskey. In letters to his colleagues, Carnegie often struck a jeering tone toward Rockefeller, refusing to concede his business acumen, and he suffered under the misapprehension that Rockefeller had conspired with Standard Oil colleagues in the Mesabi venture. Upon first hearing of his pact with the Merritts, Carnegie lectured his steel-company board, “Remember Rockafellows [sic] & Porter will own the [railroad] and that’s like owning the pipe lines—Producers will not have much of a show. . . . I don’t think Standard people will succeed in making ore a monopoly like oil, they have failed in every new venture and Rockefeller’s reputation now is one of the poorest investors in the world.” 89

  Much too patronizing toward Rockefeller, Carnegie had seriously misjudged developments in the ore business. Having moved decisively to control coke and coal supplies, he assumed that ore would always remain cheap and plentiful and flatly told colleagues that their “brilliant and talented young partners” should stay clear of that business.90 When a colorful Pittsburgh promoter, Henry Oliver, tried to interest Carnegie in a joint venture with the Merritts, he responded with a tongue-lashing: “If there is any department of business which offers no inducement, it is ore.” 91 Luckily, Carnegie’s subordinates overruled him and took a stake in the Mesabi ore. As a result, Carnegie Steel was not entirely excluded from the rush to secure properties in northern Minnesota.

  Having failed to move aggressively, Carnegie looked on impotently as Rockefeller applied to iron ore lessons he had learned in oil, such as controlling an industry through transportation and demoralizing competitors with prices too low for them to match. Two industry trends finally compelled Carnegie to broker a deal with Rockefeller. As mergers consolidated the steel industry, it became essential to pin down sure sources of supply. And as new furnaces were equipped to use the dirt-cheap Mesabi ore, it developed into the industry standard. By 1896, the press buzzed with speculation that Rockefeller would build a huge steel mill in Cleveland or south Chicago, forge a steel trust on the Standard Oil model, and go head-to-head with Andrew Carnegie. Meanwhile, Rockefeller poured another nineteen million dollars into the Mesabi Range to buttress his railroad and shipping operations.

  It vexed Carnegie that Rockefeller, an oilman, had possessed such superior foresight in the iron-ore business. In his private correspondence, he vented his frustration in petty digs, referring to him derisively as Rockafellow and later on as Wreckafellow. In December 1896, a humbled Carnegie at last consented to a sweeping deal. He promised to consume the entire output of Rockefeller’s chief mines (a minimum of 600,000 tons of ore) at the rock-bottom royalty rate of twenty-five cents a ton. In exchange for this steep discount, however, Carnegie agreed to ship the entire amount plus another 600,000 tons from his own mines over Rockefeller’s railroads and on his vessels. It was the same kind of back-scratching arrangement that Rockefeller had negotiated with the railroads to monopolize the oil industry. To complete their truce, Carnegie pledged to refrain from buying new Mesabi fields or transporting iron ore, while Rockefeller renounced any ambition to construct a steel mill. A generation later, Carnegie still boasted of this deal before a Senate committee. “Don’t you know, it does
my heart good to think I got ahead of John D. Rockefeller on a bargain.”92 In fact, the bargain had been Carnegie’s belated attempt to redress his own error.

  Small competitors found it impossible to survive the union of the largest producer and largest consumer of iron ore, and Carnegie and Rockefeller profited smartly. As with oil, ore prices skidded lower, bankrupting marginal producers and bolstering the Rockefeller-Carnegie alliance. As the decade closed, ferocious competition broke out for the remaining Mesabi properties. The price of Lake Superior Consolidated stock that Rockefeller had bought for $10 in 1894 levitated to $60 in 1899, $70 in 1900, then a staggering $100 in 1901.

  America now stood on the threshold of an era of economic consolidation that saw trusts spread to many industries. What Rockefeller had accomplished in oil a generation earlier was now being imitated in steel, copper, rubber, tobacco, leather, and other products—much to the alarm of many voters. The ideological lines were drawn sharply in the 1896 presidential election. The Democratic candidate, William Jennings Bryan, an eloquent orator adored by socialists, populists, and silverites, vied with former Ohio governor William McKinley, a staunch advocate of tariffs, trusts, and hard currency. Apprehensive about a Bryan presidency, businessmen transformed the McKinley campaign into a crusade against trustbusting infidels. Standard Oil supplied $250,000 to McKinley’s coffers—equal to half of the total Democratic contributions—and Rockefeller sent another $2,500 to campaign manager Mark Hanna. For a man normally scornful of politicians, Rockefeller displayed unusual passion for McKinley, asserting, “I can see nothing else for us to do, to serve the Country and our honor.”93

  The business community reacted to the McKinley victory as if America had been blessedly spared a revolution, a mood summed up in Hanna’s congratulatory telegram to McKinley: “God’s in his heaven—all’s right with the world.”94 During the next few years, a new faith arose in business circles about the inevitability and unrivaled efficiency of monopolies. Mark Hanna, now tagged “Dollar Mark” by the press, proclaimed loudly that the Sherman Antitrust Act would never be allowed to thwart this trend in a Republican administration.

  Stimulated by the Spanish-American War, the Klondike gold strike, and McKinley’s reassuring presence, the American economy surged ahead in the late 1890s, propelling the United States past all other nations in industrial capacity. In a country that still liked to picture itself as composed of small businesses, huge companies now blanketed markets from coast to coast. As satirist Finley Peter Dunne observed in 1897, “I have seen America spread out from th’ Atlantic to th’ Pacific, with a branch office iv th’ Standard Ile Comp’ny in ivry hamlet.”95 Between 1898 and 1902, 198 trusts or giant new corporations were created in coal, sugar, and other industries, prompting a growing backlash. At a Chicago antitrust conference in 1898, William Jennings Bryan drew roars from the faithful when he shouted, “One of the great purposes of government is to put rings in the noses of hogs!”96 The McKinley administration, true to its promises, stood guard over the new corporate giants.

  The merger wave conferred a new centrality on Wall Street investment houses, for the capital needs of the new trusts dwarfed the resources of small-town banks and private individuals. Only the prestigious Wall Street firms such as J. P. Morgan and Company or Kuhn, Loeb could tap the foreign and domestic capital needed to execute these transactions. Switching their focus from railroad bonds to industrial securities, they forged the new trusts, issued their stock, tucked away shares for themselves, and handpicked their executives. However much reformers deplored the trusts, they excited many investors, who absorbed wave after wave of new issues sponsored by Wall Street. While many Americans quaked before these giant new concerns, many others were trying to figure out how to profit from them.

  When J. P. Morgan decided to create a steel trust in late 1900, he knew he would have to tangle with two men who were confirmed cynics about Wall Street: Carnegie, master of the steel mills, and Rockefeller, king of the iron ore. Morgan was worried that Carnegie would diversify into finished steel products and threaten his recently launched Federal Steel Company, while Carnegie feared a reverse maneuver by Morgan. Meanwhile, Carnegie and Morgan were both alarmed by reports that Rockefeller might diversify into steel mills. To avert overbuilding and internecine price wars, Morgan decided to spearhead a new steel consolidation.

  Morgan was not thrilled about catering to Rockefeller, who had flouted Wall Street by financing his trust from retained earnings and holding cash reserves equal to those of many banks. He was also well aware of William Rockefeller’s intimacy with James Stillman of National City Bank. When Morgan contemplated a merger with the London house of Barings in 1904, his counterpart, Lord Revelstoke, reported afterward to a partner that Morgan “inveighed bitterly against the growing power of the Jews and of the Rockefeller crowd, and said more than once that our firm and his were the only two composed of white men in New York.”97

  In many respects, Rockefeller and Morgan were antithetical types, offering a vivid contrast between the ascetic and the sybarite, the Roundhead and the Cavalier. As the chieftain of the Anglo-American financial establishment, the wellborn Morgan, expensively educated in America and Europe, was a consummate insider in the business world. For more than forty years, he had been the chief conduit for British capital that had financed American railroads and industry. Blustery and theatrical, Morgan was impetuous and hot-blooded, cursed with a short attention span. At his headquarters at 23 Wall Street, he often seemed harried, ruling by brilliant snap judgments. Fond of luxury, Morgan inhabited the world of the ultrarich, with their gargantuan cigars, fine port, and oversized steam yachts.

  For Rockefeller, Morgan embodied all the sins of pride, luxury, and arrogance. When they first met at William Rockefeller’s Hudson River mansion, they took an instant dislike to each other. “We had a few pleasant words,” noted Rockefeller. “But I could see that Mr. Morgan was very much—well, like Mr. Morgan; very haughty, very inclined to look down on other men. I looked at him. For my part, I have never been able to see why any man should have such a high and mighty feeling about himself.” 98 For Morgan, Rockefeller was too dry and prudish, devoid of manly charms and vices. And how could he not grumble at the effrontery of someone who had created a cartel without him?

  Nevertheless, both men detested competition as a destructive force, a dangerously antiquated notion. For years, Morgan had arbitrated disputes among railroad presidents, helping them to carve up territories, and his formation of industrial trusts constituted a logical progression in his career. When Judge Elbert H. Gary informed Morgan in early 1901 that Rockefeller’s Mesabi interests had to form part of any steel cartel, Morgan balked. “We have got all we can attend to,” he told Gary. When Gary persisted, Morgan glumly agreed that they had to incorporate Lake Superior Consolidated Iron Mines and Bessemer Steamship into U.S. Steel.

  “How are we going to get them?” he asked.

  “You are going to talk to Mr. Rockefeller,” said Gary.

  “I would not think of it,” said Morgan.

  “Why?”

  “I don’t like him.”

  “Mr. Morgan,” Gary retorted, “when a business proposition of so great importance to the Steel Corporation is involved, would you let a personal prejudice interfere with your success?”

  “I don’t know,” said Morgan.99

  In all likelihood, Morgan’s attitude was a mixture of haughtiness and cowardice, for Rockefeller was one of the few people he could not intimidate. In an act of considerable self-mortification, Morgan asked Rockefeller if he could see him at 26 Broadway. Explaining that he was retired and never went to the office, Rockefeller said he would be happy to receive him at West Fifty-fourth Street. Rockefeller knew the bargaining edge of the last-minute holdout and enjoyed tweaking Wall Street’s foremost banker. Soon after he arrived at Rockefeller’s house, Morgan gruffly asked the price of the ore properties. Rockefeller threw up his hands in mock despair, reminded Morgan that he was retire
d, and told him to discuss the deal with his twenty-seven-year-old son, “who would undoubtedly be glad” to talk with him.100 This was a blatant affront, but the banker grudgingly said that Junior should call at his office at Broad and Wall Streets.

  Relishing their little game, Senior and Junior stalled in arranging the meeting and very nearly overplayed their hand. Then, on the morning of February 25, 1901, Henry Rogers stopped by Junior’s desk and inquired, “Would you like to go with me to meet Mr. Morgan?”101 Sensing that the time had come to put Morgan out of his misery, Junior accompanied Rogers that afternoon. Now it was Morgan’s turn to behave in a condescending manner. When Rogers and Junior entered his office, he was consulting with his partner Charles Steele and did not look up from his desk. When Steele left, Morgan finally lifted his eyes, and Rogers introduced Junior. Morgan complained about the delay and said matters had to be wrapped up within twenty-four hours. Junior explained that it had taken time to appraise the properties. “Well,” Morgan barked, glowering at Junior, “what’s your price?”

  If Morgan thought he was dealing with a choirboy, he was soon undeceived. Showing an unexpected pluck that nobody, not even Junior, knew was there, he shot back, “Mr. Morgan, I think there must be some mistake. I did not come here to sell. I understood you wished to buy.”102 He asked Morgan to name a price that his father might accept or decline. For Junior, it must have been a revelatory moment: He was sparring with Wall Street’s potentate. When Morgan stepped out briefly, Henry Rogers, flabbergasted, advised Junior to soften his tone, but Junior said he meant every word and that he and father were “absolutely indifferent about coming into the consolidation.”103 The tense standoff ended in a compromise: Morgan and Junior agreed that Henry Clay Frick would serve as an honest broker to establish a mutually agreeable price. As Junior was leaving, he asked Morgan whether his father might take a share in the steel syndication. Taking another jab, Morgan replied that the offering was oversubscribed and that he had delayed too long in submitting his request. Since Morgan had already set aside five-million-dollar allotments for William Rockefeller and James Stillman, he must have known that John D. would be stung by this exclusion.