When they were at Cragston, Pierpont liked to entertain guests a dozen at a time, sending them up the river to Highland Falls on the punctual steamer, Mary Powell, while he, who was usually too rushed for such a leisurely jaunt, would go up the Hudson by train and be met on the eastern shore by his tidy steam launch, the Louisa, which would ferry him across the river. At Cragston he would go for long walks with his mastiff Hero, when his recurring headaches were not too troublesome; sometimes he would go riding, or driving in the surrey; or he would take his guests to inspect the cattle that he was beginning to breed. On Sunday mornings he piled everybody into a big wagon like an omnibus, climbed up on the high front seat in his frock coat and straw hat, and drove them all to church, where he handed over the reins to the coachman; and of course hymn singing was obligatory every Sunday evening that he was there. He loved parties and expeditions, and ran them to the last detail; when you were with Pierpont Morgan, you found yourself doing just about what he had planned for you to do. On the evening of the Fourth of July, when he put on a majestic show of fireworks, the guests and neighbors would sit quietly on the porch and gasp with satisfaction at the flares of brilliance against the night sky which arched above the black shapes of the hills across the river—but it was Pierpont who managed the whole exhibit.
He was beginning to think of breeding collies in addition to cattle, and wondering whether he might not acquire, in addition to the pair of smart horses which drew Fanny’s carriage, a pair of really fast trotters. And might not the launch Louisa soon be superseded by a real steam yacht? The depression which followed the financial and industrial follies of the post-Civil War years was slow to depart, and it was a hungry time for a great number of Americans; but he was a coming man with an ample income, and it would be fun to use it amply.
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Still, however, he was essentially his father’s son. Still his success was due primarily to his foreign connections. In a day when American railroads and American industry depended largely upon Europeans to provide them with capital, he was—in financial terms—a sort of colonial administrator: a representative in America of the financial might of Britain. But now this very fact was about to bring a new turn in his career.
In 1879 William H. Vanderbilt—son and heir of the terrific old Commodore—came to Pierpont for aid. The Vanderbilts, father and son, had brought together a number of small railroads to form the impressive New York Central system, which reached from New York all the way to Chicago, and of its shares the younger Vanderbilt now owned no less than eighty-seven per cent. He had begun to realize that this virtual one-man ownership, lucrative though it might be, had its embarrassing aspect. Vanderbilt was unpopular with the general public, and knew it. As he told a reporter later, “A public sentiment has been growing up opposed to the control of such a great property by a single man or a single family. It says we rule by might. We certainly have control of this property by right. But no matter, this public feeling exists.” Vanderbilt’s unpopularity was very convenient for rival financiers who wanted to put over deals at his expense; to the public these men could represent themselves as St. Georges battling a dragon. And it was handy too for legislators looking for things which could be taxed without arousing public outcry; they could slap a tax on the New York Central properties and argue that the money would come right out of the bottomless pockets of multimillionaire Vanderbilt, the almost sole owner.
A stolid man devoid of sensibility, William H. Vanderbilt had no gift for wooing the public. Indeed it was he who, three years later, when a reporter asked him whether a certain unprofitable train should not be run for the sake of the public whether it earned its way or not, replied irritably, with perfect logic but disastrous choice of language, “The public be damned! I am working for my stockholders. If the public want the train, why don’t they support it?” Now, in 1879, he wanted to unload the onus of sole ownership.
The uneasy Vanderbilt went to consult Morgan because of Morgan’s English connections. He told Morgan that he wanted to sell a considerable part of his interest in the road. But he wanted the sale to be conducted very privately, lest the word go round that Vanderbilt was unloading and that therefore either he or the Central must be in trouble. Could Morgan manage a private and unpublicized sale to English investors?
Morgan leaped at the chance; and working quietly, disposed of 150,000 shares of New York Central stock directly to overseas purchasers, at $120 per share, with an option to dispose of another 100,000 shares within the following year at the same price. (The total number of shares disposed of represented less than half of Vanderbilt’s interest in the road, but reduced that interest so sharply that after the sale he was able to remark to a reporter, “It can no longer be said that I am the owner of New York Central.”)
Not until the operation was completed, in November 1879, did any announcement have to be made, so secretly had the negotiations been conducted. When the news broke, the financial-community was amazed. In the words of the Commercial & Financial Chronicle for November 29, 1879, “There has been one topic in Wall Street this week—the great New York Central & Hudson stock sale.”
It brought about a striking change in the status of Pierpont Morgan. Now, as holder of proxies for the English purchasers, he sat on the New York Central’s board as a wielder of great potential influence. For years past, on his visits to London, he had had to confront perplexed or angry Englishmen who had wanted to know why so many things went wrong with their investments in American securities. Why was America having such hard times? Why was the United States currency so unsound? Why were so many American railroads scandalously mismanaged? Why were men like Gould permitted to plunder right and left the properties in which honest Englishmen had invested? These had not been easy questions to answer, especially when put with that wounded superciliousness with which some gentlemen of London were wont to reprove a spokesman for the barbaric land across the seas. Morgan had tried to assure them that there was a prosperous future for American business, that the hard times in the United States were merely temporary, that the national currency would soon be put on a solid basis by the resumption of specie payments, and that the vendettas between railroad chieftains, and particularly their senseless habit of building parallel railroad lines in order to bring one another to terms, were passing phenomena of the youth of a great country. Now he had become the representative of these skeptical Englishmen on the New York Central board. They had been persuaded by his assurances. To himself he must admit that lawless feuds like the one in which he had found himself embroiled at Albany, ten years earlier, continued to sully the record of American railroading. Now, however, he was in a position to do something about this economic anarchy. Now he could be something more than a banker and international dealer in securities; he could help to produce some sort of order in the railroad business.
At the age of forty-two Pierpont Morgan moved out from his father’s shadow and took his place, solidly on his own feet, as a regularizing and disciplining force in American industry.
IV
MORGAN THE PEACEMAKER
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On a warm morning in July 1885, two gentlemen from Philadelphia boarded a sleek black steam yacht at a dock in Jersey City for a day’s cooling excursion in the waters about New York. The two Philadelphians were George B. Roberts, president of the Pennsylvania Railroad, and Frank Thomson, vice-president of the road and nephew of the great Edgar Thomson who had established its reputation as an efficient transportation system. They had come at the invitation of Pierpont Morgan to talk comfortably with him and Chauncey Depew, the diplomatic president of the New York Central Railroad.
The yacht was Morgan’s own Corsair, a superb 165-foot vessel which he had bought three years earlier to supersede, grandly, the little steam launch Louisa. And the purpose of the excursion—ostensibly to offer the two Philadelphians a few hours of pleasant respite from the baking summer heat of their city—was really to try to negotiate a treaty of peace to end the most menacin
g railroad war of the day. Pierpont Morgan, at the age of forty-eight, was at last moving into his appointed role as conciliator among the American railroads.
The years that had intervened since he had taken a seat on the New York Central’s board of directors in 1879 had been years of furious and undisciplined industrial development in the United States, and of even more furious railroad building. All over the country new lines of rails were being projected, big railroads were buying up little ones to form connected systems, and new settlers were moving into regions opened up to commerce by these avenues of steel. Railroad corporations were the biggest and most powerful units of big business. Their expanding services were stimulating immeasurably the roaring industrial growth of the country. They were attracting inventive and ambitious men, whose brains were constantly thinking up new improvements in railroad equipment and operation, and whose imaginations leaped ahead to foresee how a well-run railroad could transform a wilderness into a chain of thriving communities. But they also attracted ruthless adventurers and knaves, and their financing, construction, and operation offered extraordinary spectacles of ruthlessness and buccaneering.
To begin with, freight rates were wildly anarchic. The general practice was to keep the rates low where you faced competition, and to make up your losses by charging high where you had a monopoly of the traffic. At one time it cost only half as much to ship steel all the way from Chicago to the Atlantic seaboard as to ship it the much shorter distance from Pittsburgh to the seaboard, simply because there were several lines competing for the Chicago traffic and there was only one line available for the Pittsburgh traffic. Passenger fares, too, fluctuated wildly as the roads sought to grab one another’s business: at one time the New York Central charged only seven dollars for the long ride from New York to Chicago, and the “immigrant” rate between these two cities fell all the way to one dollar. Worse even than the custom of charging less for the long (competitive) haul than for the short (monopoly) haul was the practice of discriminating between individual shippers of freight—charging reduced rates to big companies whose business was especially valuable, or who had friends, or maybe even owners, in the railroad’s management, while the small and friendless paid through the nose. A legislative investigation in 1879 revealed that in a single year the New York Central had made as many as six thousand special contracts offering reduced rates (or rebates, as they were called). Throughout the country, but especially among the small business men and farmers of the West, there was naturally a continual uproar of protest at these discriminations; and needless to say, the anarchy in rates made business hazardous and unpredictable not only for those who shipped their goods over the roads but for the railroad corporations themselves. For although a road could make big money by ruthless juggling of its rates, this was a game that two or more could play at, and for the industry as a whole it was a wasteful and dangerous game.
There was also widespread buccaneering in railroad ownership—getting control of a company only to play its stock up and down in the market for one’s personal profit; or getting control of two railroads and using one of them to enrich the other, again for one’s personal speculative profit; or organizing a construction company to build a road at such padded “cost” that the construction company made millions and the railroad company (whose stock one could always sell) became saddled with overwhelming fixed debts.
Finally, there was an epidemic of building—or starting to build—needlessly competitive roads, which in some cases might aptly be called blackmail roads. If, for example, there was already a prosperous line running between two cities, there was nothing to prevent you from building—or starting to build—another, parallel line between them, in the hope that the management of the existing road, alarmed lest your new line ruin its business, would buy you out at a blackmail price.
This was more or less what had happened to occasion the conference on the Corsair in 1885. Some years previously a little group of men including the egregious Jay Gould, George M. Pullman, and General Horace Porter, had conceived the bright idea of building a railroad from New York to Buffalo right alongside William H. Vanderbilt’s New York Central. It would start on the Jersey side, of the Hudson, follow the west shore of the Hudson northward—just across the river from Vanderbilt’s tracks—and then cut westward, avoiding the Central’s heavy grades west of Albany but otherwise following it closely all the way to Buffalo.
This West Shore Road, however dazzlingly conceived, was a losing venture from the first. Vanderbilt did not buy it out, preferring to let it stew in its own juice, and before 1885 it was already bankrupt.
That should have been agreeable to people interested in the fortunes of the New York Central; however, there was a disquieting factor in the West Shore’s predicament. A group of men interested in the Pennsylvania Railroad had been quietly buying up the West Shore’s depreciated bonds. Suppose these Pennsylvania men got control of the ailing company after it had gone through the wringer of bankruptcy, and then put the mighty resources of the Pennsylvania into an effort to steal from the New York Central much of the valuable New-York-to-the-Great-Lakes traffic?
Meanwhile the Central, in its turn, had been making a foray into Pennsylvania territory. Knowing that men like Andrew Carnegie, who had big steel mills and other plants in the Pittsburgh region, were angry at the high freight rates exacted by the Pennsylvania for carrying their products to the Atlantic seaboard, William H. Vanderbilt had proposed to them in 1883 that a parallel line be built across the Allegheny Mountains from the Philadelphia region to Pittsburgh. “What do you think of it, Carnegie?” asked Vanderbilt. “I think so well of it,” said the little Scotsman, “that I and my friends will raise five million dollars as our subscription.” Whereupon Vanderbilt himself agreed to put in five million, and presently work began on the construction of the South Pennsylvania Railroad, which was to run westward from Reading via Harrisburg toward the Pittsburgh region.
Now in terms of ton-miles of freight carried, the Pennsylvania and the New York Central were the two mightiest railroads in the United States. The Pennsylvania stood first, the Central second. Could anything be more senseless than for these two giants of the railroad world to engage in a cutthroat war, the Pennsylvania using the West Shore to ruin the New York Central’s going business, and the Central in turn using the South Pennsylvania to ruin the Pennsylvania’s going business? Wasn’t there plenty of room for both, without their invading each other’s territory?
Morgan had watched the building of the West Shore with acute distaste—a distaste accentuated by the fact that its new tracks ran along the Hudson River shore just below his beloved Cragston; during two or three summers its construction gangs had made an infernal noise blasting at the ledges along the route and shaking the windows of his house, and there had been so many rough characters in the formerly placid precincts of Highland Falls that the Morgan children had had to be told not to go out on the highways unaccompanied. What he thought about the South Pennsylvania project is unrecorded; but certainly he felt uneasy over the fact that Vanderbilt, having declared war upon the Pennsylvania, had so lost interest in the situation as to resign the presidency of the New York Central to Chauncey Depew and go off to Europe. Morgan felt responsible for the Central’s future prosperity; were not those English investors counting on him to see that dividends were steady? And because the Drexel firm had done financing for the Pennsylvania in the past and would like to do more of the same in the future, he had every reason to want to remain in the Pennsylvania’s good graces too. Surely under the circumstances this war was folly. Here, perhaps, was a chance to do something for the cause of order.
Morgan too went to Europe, took pains to return on the same liner with Vanderbilt, and talked him into permitting peace negotiations.
Whereupon, after several futile preliminary conferences with the heads of the Pennsylvania, Morgan finally succeeded in inducing Roberts and Thomson to come on from hot Philadelphia for a little run on the Corsair.
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The agreement he proposed when his guests were settled on the yacht’s deck was simple. The Pennsylvania would drop all interest in the West Shore line, permitting the Central to buy it out of bankruptcy and take a long lease on it; and in return the Central would turn over the control of the South Pennsylvania project to the Pennsylvania, to do with as it pleased.
The four men—Roberts, Thomson, Depew, and Morgan—sat under an ample awning aft of the Corsair’s single slanting funnel while the sharp-prowed vessel steamed slowly up the cool Hudson to the region of the beetling Highlands, and then turned about at West Point and steamed down river and out of New York Harbor as far as Sandy Hook. Depew talked, argued, reasoned. Roberts argued back. Morgan sat mostly silent, smoking a big, black cigar and occasionally putting in a massive word. Thomson appeared to have been won over, but Roberts remained unmoved. This stubborn Pennsylvania executive had begun his career as a rodman, had been a railroad builder and operator throughout, and didn’t like to succumb to the will of an investment banker. The afternoon drew to a close and the Corsair steamed back through the harbor to the Jersey City docks; yet still there seemed to be no meeting of minds. Not until Roberts was leaving the boat did he capitulate to Morgan’s inexorable logic and inexorable will. But at that moment, as he shook hands with Morgan and stepped upon the gangplank, he said, “I will agree to your plan and do my part.” The war was over.
Immediately Drexel, Morgan & Co. issued a plan for the reorganization of the West Shore road, by which it was to be taken under the wing of the New York Central. And in mid-September of 1885 all work ceased on the construction of the South Pennsylvania.
The Great Pierpont Morgan Page 5