“It proved pretty good?” asked Untermyer.
“It did,” replied Morgan; “very good indeed, sir.”
“You did not think you were taking many chances on its being good business when you took it up, then?” pursued Untermyer.
“No,” said Morgan, “but I began to have doubts when the stock went to eight dollars a share afterwards.”
“Your doubt did not interfere with your buying heavily?”
“No; I bought all I could.…”
“You were getting the advantage of other people’s doubts at that time?”
“Nobody ever sold it at my suggestion, sir.”
“No; I did not mean to assume that,” said Untermyer, realizing that he had touched Morgan’s sense of fiduciary responsibility.
“I know,” said Morgan.
“My question does not imply that,” said Untermyer in further reassurance.
“I know,” said Morgan again.
“It only implies your confidence in the company at that time.”
“I always had it, sir.”
Slowly the Steel Corporation pulled out of the doldrums; for not only had the amalgamation permitted some economies in production, but also the steel industry was still young enough to be capable of great growth. When the International Harvester Company of New Jersey was incorporated under the Morgan aegis in 1902—pulling together the McCormick Harvesting Machine Co., the Deering Co., and three other rival concerns, and thus assembling into one enterprise some eighty per cent of the harvester trade—it was a full success, acquiring as it did a partial monopoly of a young and lusty industry. But the International Mercantile Marine, that combination of shipping companies, British and American, for which Morgan had cherished such high hopes when he brought it together in that same year 1902, proved a grievous disappointment. There was such a dismally small public demand for its securities that in 1906, after the life of the stock-distributing syndicate had been twice extended, the Morgan firm had to report to the syndicate participants that “the prices at which the Company’s securities ruled in the market have been so low that we have not felt justified in attempting to dispose of those held for the account of the Syndicate”; the participants had to pay up their subscriptions in full and receive in return I.M.M. bonds and stock of limited value. And the company itself, beset by tribulations such as the Titanic tragedy, did not prosper.
10
But the most dismaying of Morgan’s ventures, in its results, was his attempt to expand the New York, New Haven & Hartford Railroad into a great integrated New England system. How sadly this plan of his was destined to miscarry he did not live to know; only after his death did the drama reach its climax.
Morgan had a sentiment for the New Haven road, as an old Hartford boy whose grandfather had invested in one of the little lines out of which it was pieced together. When in 1892 he became a member of its board of directors, he began to try to build it into a real system; and when President McLeod of the Reading invaded its territory in 1893 he fought back lethally, as we have seen. A decade later, in 1903, President Charles S. Mellen of the Northern Pacific was induced to take over the management of the New Haven, and with Morgan’s active and continuing encouragement Mellen embarked upon a still more ambitious—and costly—plan of expansion.
Some steamship lines which plied on Long Island Sound, carrying passengers and freight from New York to Fall River and other points, appeared to menace the New Haven Shore Line by offering low rates which undercut those of the railroad. Very well, those steamship lines must be bought by the New Haven or put out of business. Another menace was the rapid growth of interurban trolley lines, which were then the very latest thing in transportation; people—and goods too—could travel imposing distances by transferring from one to another of these careening, cross-country electric car lines. Very well, the New Haven must buy up all the competing trolley lines. There were other railroads in New England which, if acquired by the New Haven, might extend it into a great all-New England system. Very well, the New Haven must buy control of the Boston & Maine and bring other lines into alliance. Some New York men had acquired franchises for two little lines which it was thought might carry commuters from the New York suburbs as far as the Bronx terminal of the New York subway, thus competing with the New Haven’s suburban service. Very well, these projects must be bought up and the New Haven must build such a suburban line of its own.
For every one of these ventures a persuasive argument could be advanced. But together they cost so much money as to strain the resources of the New Haven very severely. Too many men had decided that when Morgan set his heart on a project his men would pay through the nose for something he wanted; too many men got the bright idea that in the complicated purchase deals which were put through they could grab some boodle for their own pockets. As Morgan confidently moved issue after issue of stocks and bonds to pay for the expansion, the total capitalization of the railroad climbed from 93 millions in the middle of 1903 all the way to 417 millions in the middle of 1913. Such aggressive purchasing in New England by the “foreigners” of the New Haven management provoked legal and political opposition, led by the Boston lawyer Louis D. Brandeis, and this both delayed the fruition of the plans and weakened public confidence in the New Haven. Brandeis contended that it was trying to bite off more than it could chew, and he was right. Disaster followed in due course. In 1913, shortly after Morgan’s death, affairs had come to such a pass that Mellen was forced out of the presidency of the road by Morgan’s own firm; presently the New Haven passed its dividend; it never recovered its former standing. But that was not all. In two investigations the Interstate Commerce Commission disclosed gross scandals in the management of the line.
The investigations—like many others conducted by government commissions or congressional committees to this day—were one-sided; some men who were eager to testify were not permitted to take the stand. But certain facts that were brought out seemed too damaging to be explained away. It was disclosed, for example, that one director, in whose name the New Haven had for a time carried its Boston & Maine holdings of stock, had profited by $2,700,000 without spending a dollar of his own money; that newspapermen and a Harvard professor had been paid for respectful treatment of the New Haven in their dispatches and lectures; and that over a million dollars of the money expended on the new suburban line—the New York, Westchester & Boston—had apparently been paid out in political graft and could not be accounted for, some of the books which might have thrown light on these payments having been foresightedly burned. The history of the New Haven expansion made a very shabby story indeed.
Mellen regarded Morgan as his boss. In 1911 he told Clarence W. Barron of the Boston News Bureau, “I wear the Morgan collar, but I am proud of it.” In 1912 he was quoted in a magazine article as saying, “If Mr. Morgan were to order me tomorrow to China or Siberia in his interests, I would pack up and go.”
And in the hue and cry that took place after Morgan’s death, Mellen claimed, not too creditably, that in this whole campaign of expansion he had been following Morgan’s lead and acceding to his wishes. When asked in the investigation whether he had been “Morgan’s man,” he answered, “I have been called by the newspapers his office boy.” When asked how important the rest of the directors were as compared with Morgan, he said that there were other strong men on the New Haven board, but that he “could not recall anything where Mr. Morgan was determined, emphatic, insistent … where he did not have his way.” To Barron he said in October 1913, “I took orders from J. P. Morgan, Sr. I did as I was told, and when Morgan, Sr., who always sat at my left hand in the meetings of the board, desired the approval of his directors, he got it, and don’t you think he didn’t! When he wanted their negative vote, he got that just as quick!” In another part of his examination by the I.C.C. in 1914 Mellen, who prided himself on his picturesque language, declared that the record of the New Haven, without Morgan, would have been “as tame and uneventful, as devoid of i
nterest and incident, as would the record of a herd of cows deprived of the association of a bull.”
Not only that, but Mellen testified, apparently correctly, that the New York, Westchester & Boston project—which up to 1914 had cost over 36 million dollars and had resulted in a suburban line only 18.03 miles long which was losing money at the rate of over a million dollars a year—had been pushed through the board of directors by Morgan; that he, Mellen, had been skeptical about it; that he was never given an adequate account of the way in which millions of dollars were spent for it out of a bank account at J. P. Morgan & Co. called “Special Account No. 2”; and that when, after a directors’ meeting, he had complained to Morgan about the vagueness of a report upon it, Morgan had rebuffed him by saying, “Didn’t Stetson draw that report? … Well, doesn’t Stetson know more about how it should be drawn than you do?” Mellen complained on the witness stand that if anything went wrong with the New York, Westchester & Boston scheme he could see then that he himself would be “the goat.” “I was a president,” he testified, “and I knew, if trouble came, that lots of people would go to Carlsbad or some other place where they would be inaccessible, and I would have to stay and fight it out.”
Despite these insinuations, we may dismiss any notion that Morgan had any direct part in any of the financial irregularities of the New Haven. That he even had any direct knowledge of them is highly unlikely. He was a man of many and diverse affairs, absent from his desk for months at a time and preoccupied with large decisions. His way was to pick a man, trust him, and leave everything to him. If Stetson drew a report, it was all right. If Mellen said there was nothing to Brandeis’ charges that the New Haven was overextended, that was enough. Morgan’s judgment of men was not always reliable; he once confessed to Rainsford, “I am not a good judge of men. My first shot is sometimes right. My second never is.” He had left too much to Mellen and Mellen’s henchmen.
In his later years, when he had dealt successfully with so many vast projects that almost anything bold and big appealed to him, his judgment of enterprises such as the New York, Westchester & Boston was likewise not always reliable. The idea of rounding out the New Haven system came as naturally as the idea of rounding out the Garland art collection; and if it cost a few extra millions, what did that matter? He may have gathered that some of the money would have to go in the payment of graft for the rewriting of franchises; if so, he may have dismissed this as the sort of thing you could not escape when you had to deal with such reptiles as politicians. But it was not his way to look into details—except on the books of his own firm. It was totals he dealt with. The details were up to the men he trusted.
But for the totals he was indeed responsible, in large part; and the downfall of the New Haven road emphasized the economic lesson that some big projects will not pay out. The purchase of steamship lines and trolley lines and all the rest did not increase the New Haven’s earnings adequately. A railroad operating in New England, a part of the country that had reached high noon in its development, could not, at high noon for the railroads in general, win enough new business to justify such headlong expansion. In this case the irresistible force of Morgan’s desire to do things in a big way, regardless of cost, had come face to face with immovable economic facts. An aging man could not repeat indefinitely the triumphs of his prime.
XII
ROCK OF DEFENSE
1
Pierpont Morgan was seventy years and six months old when, in the autumn of 1907, his influence was put to its most inexorable test.
He had been taking business much less strenuously that year, as befitted his age. During the winter and early spring of 1907 he had often been absent from 23 Wall Street, preferring to remain uptown in the big red-walled West Room of his recently completed Library, where he could interview business callers or art dealers at leisure, feast his eyes upon newly acquired books and paintings, or sit quietly for long intervals at his solitaire. In March he was off to Europe, to be gone no less than five months—shuttling back and forth between London and Paris, visiting Rome, Florence, and Aix, cruising briefly in the Adriatic on the Corsair, assembling a yachtload of fashionable friends for the Cowes Regatta, and, as always, collecting indefatigably. Not until August 19 was he back in New York.
He arrived to find the business situation threatening. There had been minor panics abroad; the New York stock market had been subject to sinking spells since early in the year; new issues of securities had languished in an obviously glutted market; commodity prices were sagging; and there was an ominous feeling in many minds that an economic storm was brewing. But still Morgan was intent upon leaving as much work and responsibility as possible to his younger partners, while he himself remained half withdrawn from active affairs; and since the triennial Episcopal Convention was scheduled to be held at Richmond, Virginia, during the first three weeks of October, and it had become his invariable custom to attend these assemblages of the bishops and leading clerics and laymen of the Church, he set out as usual. Two special cars took him and his guests—who included three American bishops and the gaitered Bishop of London—to Richmond, where they took up residence in the Rutherford house on Grace Street, which Morgan had engaged for the occasion, with Louis Sherry once more serving as major-domo. And for three weeks he threw himself energetically into the business of the convention, which debated such questions as whether to accept the wording of a proposed preamble to the constitution of the Church, whether to reduce the number of delegates which the various dioceses would send to future conventions, whether there should be separate bishops for the Negro race, and whether the Revised Versions of the Bible should be permitted to be used in the reading of the lessons.
During the last few days of the convention it was noticed that Morgan began to receive messages from New York with increasing frequency. One morning he was closeted with an emissary from 23 Wall Street. Telegrams kept coming to him, and they appeared to be long and urgent. As Bishop Lawrence of Massachusetts later wrote, “If one came during a meal, he tore it open, read it; then putting the palms of both hands on the table, a habit of his, he looked ahead with fixed eyes and deep thought for a few minutes. One day a member of the party said, ‘Mr. Morgan, you seem to have some bad news.’ He shot his eyes across the table at the speaker and said nothing. No question of that sort was asked again. The fact was that we were so busy in our convention work, we were not aware of the clouds gathering in New York and the country which were to break in the great financial panic of October 1907.”
2
In New York those clouds were piling up swiftly. A group of speculators headed by a swashbuckler named F. Augustus Heinze made a disastrous attempt to corner the stock of the United Copper Company, and went to the wall. Heinze was also head of a bank, the Mercantile National, and naturally rumors began at once to fly about that the bank might have been involved in his speculations. A run on the bank began. Short of money with which to pay depositors, the bank appealed to the Clearing House for aid. (There was at that time no Federal Reserve System, and therefore the Clearing House—an association of banks set up for the clearing of checks—was the logical agency to turn to if one’s bank was in trouble.) Among Heinze’s associates in his stock-market adventures had been two other speculators, Charles W. Morse and Edward R. Thomas, who likewise headed banks; and presently these banks, too, were beset by whispers of suspicion. Whereupon the conservative bankers who headed the New York Clearing House, deciding that the situation called for prompt and drastic surgery, demanded the resignation of Heinze, Morse, and Thomas from all their banking connections. The Clearing House announced simultaneously that these men’s banks had been examined and found to be in sound condition, but by now the rumors of trouble to come were redoubled.
Especially people began to question the reliability of a certain type of bank. For several years before 1907 there had been an epidemic of setting up trust companies, which were permitted by law to engage in banking operations almost as if they were n
ational banks, but without being subject to the strict regulations with which national banks were surrounded. A good many plungers and stock-market operators had got into the managements of some of these trust companies, whose funds could be invested in enterprises more adventurous—and more risky—than ordinary banks were permitted to engage in. Might some of these newfangled banking institutions be headed for the rocks?
Investors, speculators, and bank depositors began to run for cover—selling stock, calling loans, drawing their funds out of suspect banks. The whispers multiplied. “You say your company’s funds are deposited in the Knickerbocker Trust Company? Better watch out; didn’t you know that Charles Barney, the president of Knickerbocker, was mixed up in deals with Morse?”—“What, you’re holding three hundred shares of Union Pacific on margin? Sell. Get out of the market. In a few days more, the way things are going, some of the biggest brokerage houses will go under—and then wait and see what happens to prices! I tell you, there’s nothing like a safe-deposit box full of cash these days.”—“You say your bank account’s in the Lincoln Trust Company? Well, I guess it’s all right, but a lot of that Waldorf crowd have been tied up with that bank.”—“Did you realize that these trust companies don’t belong to the Clearing House, and have to rely on a national bank to clear their checks for them? Well, suppose the national bank gets cold feet and decides it won’t do this any more? That will be nice for the trust company’s depositors, won’t it?”—Thus the talk ran. It was the beginning of panic.
The Great Pierpont Morgan Page 22