The $1 million 1906 naval appropriations bill, as had its predecessors, contained a stipulation that the navy secretary could award contracts to the best of competing boats, and this time Lake was determined to have a vessel completed and fully running so that the dishonest officials he had been dealing with would have no excuse to deny a contract to his superior design. But Lake had sold the Lake X to Russia, as he had the four similar submarines fabricated at Newport News. Even before the appropriation had become official, while still in Europe, he ordered the shipyard to build another model, the Simon Lake XV, which would become known simply as the Lake. At the end of July 1906, he returned to the United States to press for its approval.
When the Lake was completed, it sailed unescorted from Newport News to Bridgeport, four hundred miles, a journey Lake claimed was unprecedented although virtually the entire voyage was made on the surface. Still, newspapers across the nation featured a weekend supplement article lauding both the achievement and Lake himself for creating “the most successful submarine ever built.”13
Lake XV
But for all the effort, Lake could not get the government to move. Charles Bonaparte had replaced Paul Morton as navy secretary after Morton had been tainted by a scandal involving kickbacks on railroad contracts, but Bonaparte was due to leave the post at the end of 1906 and chose to defer any new purchases of submarines until his successor was in place. Just after Christmas 1906, Lake sailed for Europe with his wife, three children, Fred Whitney, and Lake’s new “confidential secretary,” German-speaking William Scholz, “well known in music circles as an excellent violinist and an active worker in the cause of music,” who was “prepared to do considerable playing for the Lake family, who are great patrons of music.” He would also serve as a translator. In the party as well was newly hired Robert G. Skerrett, son of a well-placed navy officer.14 Skerrett billed himself as an engineer although he had no formal training and had been employed by the navy only as a draftsman.†
The new navy secretary, Victor Metcalf, moved more quickly than anyone anticipated and scheduled competitive trials for Narragansett Bay in February. The trials were postponed, but not because the participants had asked for a delay. At the express recommendation of President Roosevelt, a new naval appropriation on March 2,1907, increased the amount for submarines to a staggering $3,000,000 and extended the test period to May 29. The terms were exactly what Simon Lake had repeatedly sought, in fact were almost precisely what Ebenezer Hill had drafted into his 1902 memo. “No part of this appropriation to be expended for any boat that does not in such test prove to be equal, in the judgment of the Secretary of the Navy, to the best boat now owned by the United States or under contract therefor, and no penalties under this limitation shall be imposed by reason of any delay in the delivery of said boat due to the submission or participation in the comparative trials aforesaid.”15
If there were any remaining Americans whose ardor had not yet been stoked by submarines, a $3,000,000 prize was sufficient to do so. The impending contest between Lake and Electric Boat received as feverish coverage in the press as had the recent news that flying machines had finally been invented.‡ The Washington Times, for example, on Sunday, April 28, 1907, ran a full-page story, “Submerged Navies to Decide Supremacy of the Seas Hereafter. Sunken Silent Stilettos of the Deep to Deal Deadliest Blows in Future Warfare on the Sea.” The New York Times ran a similar story on the same day, “Rival Submarines to Race for High Stakes. The Peace of the World an Issue in Test to Take Place at Newport This Week. Conditions Arranged by Navy Department Under Authority of Act of Congress.” In the body of the piece, the normally staid Times spared no hyperbole. “No sort of contest known to the civilized world, whether of yachts, horses, balloons, athletes, or even Presidential candidates, can equal the test that will be made this week at Newport of the two types of submarines for which Congress has hung up a prize of $3,000,000.” The stakes of the race received equal treatment. “The result of the test will make for the peace of the whole world . . . it is hardly necessary to say that the contest, which has been twice made the subject of legislation by Congress and which has been under consideration for two years past, will be watched by the most expert military scientists of Europe and this continent, and the victor will be the hero of secret discussions in all the Chancelleries of Europe and the Orient.”16 The actual competition standards would be exhaustive, covering speed, maneuverability, stability, firing capability, and endurance, and last for four weeks.
In these trials, Simon Lake would finally be granted the head-to-head competition he had so desperately sought since he first submitted his plans in 1893. Whatever bluster, outrage, exaggerations, and even misstatements he had issued over the years, there is not a scintilla of doubt that he was absolutely positive he had built the better boat. And in May 1907, not unlike the prizefighter finally getting a shot at the title after being ducked repeatedly by the champion, he was going to have the chance to prove it.
Then Lake lost.
In a report dated May 30, 1907, the trial board, which consisted of one constructer and three line officers, “reported unanimously in favor of the Octopus type of boat,” and on June 22 the report was accepted unanimously by the board on construction, staffed by four admirals, after which it was accepted by Admiral Dewey and Secretary Metcalf.
It was not that the Lake performed badly—the Octopus was simply better. It was distinctly faster both on the surface and submerged—where it traveled at a record eleven knots—dove more quickly and with better control, maneuvered more easily, had superior longitudinal stability, demonstrated endurance and ability to operate at significant depth, remained submerged for twenty-four hours, was efficient in operation, and, although there were a couple of false starts, could fire torpedoes quickly and accurately while submerged. The Octopus “broke all American diving records,” at one point becoming completely submerged in twenty-three seconds and in another going at full throttle from the surface to even keel at twenty feet in less than four minutes.17 With fog hanging over the bay, the Octopus dove to avoid a line of barges and passed under them, an unplanned demonstration of practicability.
Lake did set a depth record of 136 feet, remain submerged for twenty-four hours and successfully launched a torpedo, but was considered by the board members, none of whom were ever accused of being under the “influence” of Electric Boat, to be flawed and its even-keel submergence cumbersome. At one point, its tests had to be suspended because of a leak in a torpedo tube, and a few days after that Lake was dry-docked for one week to make modifications to the conning tower.
One section of the board’s report read, “1. That the type of submarine boat as represented by the ‘Lake’ is, in the opinion of the board, inferior to the type as represented by the ‘Octopus.’ 2. The closed superstructure of the ‘Lake,’ with the large flat deck which is fitted to carry water ballast, and to contain fuel tanks and air flasks, which is an essential feature of the Lake boat presented to us for trial, is inferior to the arrangement on board the ‘Octopus’ for the same purposes, and also, in the opinion of the Board, is detrimental to the proper control of the boat. 3. The hydroplanes, also an essential feature of the Lake boat presented to us for trial were incapable of submerging the boat on an even keel. They are, therefore, regarded as an objectionable encumbrance.”18
With the unequivocal decision by the board and with the endorsement of the admirals, Metcalf was prepared to grant contracts exclusively to Electric Boat to build eight Octopus class submarines for the navy. Before he could do so, however, he received a visit from John C. Lake, a vice president of the Lake Torpedo Boat Company, and Simon Lake’s father.
The elder Lake had moved on from letter writing to running the company as his son’s surrogate while Simon Lake tried to make sales in Europe. He was every bit as pugnacious and as aggrieved as his son and was at least as determined to break the monopoly on American submarines that both men had no doubt was achieved through dishonesty. The categorical defeat of h
is son’s design in the Newport trials deterred him in this aim not one bit.
To press his case, John Lake had engaged John Mellen Thurston, who had served one term as a Republican senator from Nebraska but declined to run for reelection, choosing the far more lucrative occupation of Washington lawyer in its stead. To press the Lake Company’s interests in Congress, Lake and Thurston had recruited George Lilley, a Connecticut congressman-at-large, to take the place of Ebenezer Hill, who both men considered ineffective.
Thurston got wind of the eight-vessel Electric Boat submarine award before it was publicly announced, prompting John Lake’s emergency meeting with Victor Metcalf in mid-June. According to Lake, the secretary said. “Mr. Lake, I am very sorry to be compelled to say that I have to award the whole contract to the Electric Boat Company under the wording of the act and the decision of the board, and so forth.” Lake added that Metcalf, “also said that he was very sorry, because he had hoped to get competition, to get another boat in, and hoped he could award a contract, but under the wording of the law as interpreted he could not. . . . He wanted competition in the Navy, and he wanted to get a competing boat in the Navy, and he hoped very much that he could award us a contract.”19
Metcalf was also purported to say that many in the navy wanted the Lake Company to be awarded a contract, although, according to Lake, no names were mentioned. The secretary then added, “Mr. Lake, if you think that that law is susceptible of any other interpretation, I feel disposed to give you the advantage of it, and I have no objection to referring the matter to the Attorney-General for his decision in regard to this question in the law.” Lake said that he replied, “We appreciated it very much if he would do that, and he consented to do it.” At no time, Lake insisted, did he suggest that the matter be referred to the attorney general, that it was Metcalf’s suggestion entirely.
Not surprisingly Metcalf’s recollection of the exchange differed and included a more than vague suggestion by John Lake that his company would take legal action if the award was not split between the two companies. Whatever the correct rendition, Metcalf shuffled the question over to Charles Bonaparte, now attorney general. Bonaparte might well have been none too pleased to be drawn back into submarine politics, having gratefully washed his hands of them only six months earlier when he left the Navy Department. Although both sides submitted briefs, the solution was obvious. Bonaparte issued an opinion in August that the law indeed allowed for the award to be split, thus throwing the question back to Metcalf and excusing himself from further involvement, almost certainly in the hope that submarines would not pass his desk again.
Only one day after Bonaparte’s decision was published, Congressman Lilley sent Metcalf an official letter. Although Lilley as a member of the naval affairs committee had voted for both the 1906 and 1907 appropriations, and had voiced no objection when the board of inspection pronounced the Octopus the clear winner in the sea trials, he now decided that the results should be at least partially ignored. In his letter, Lilley decried the evils of monopoly—an argument designed for appeal in the trust-busting Roosevelt administration—and added, “I sincerely hope that before awarding the contract you will examine not only the reports of sea-going tests, but also the plans and specifications submitted by the Lake Company, and that you will see your way clear to divide the business.”20
Electric Boat of course contended that as the clear winner of the competition with a design that was almost universally judged superior, they should receive the entire award. The rules should not be changed after the game had ended. When Metcalf vacillated, Lilley followed with another letter in September in which he became more strident, all but accusing Representative Roberts and perhaps others of complicity, and implying Metcalf could potentially be swept with the same brush. “Among the well-meaning Members of Congress the Lake people have more friends because they have never employed the methods of the Holland type people. It is well known that the company Mr. Roberts appears to represent is doing more to-day in the employment of questionable methods to intimidate Members of Congress and the Naval Committee than all other corporations in the United States.”
No one, including Metcalf, really wanted a Lake boat in the submarine fleet, but a protracted legal, publicity, and lobbying battle was even less appealing. But the navy secretary found the perfect solution. On September 24, 1907, one day after Lilley’s letter was delivered, the New York Times reported, “Secretary Metcalf has concluded not to shoulder the responsibility of making the awards for the submarine boats authorized by Congress at the last session and will refer the matter to the President for decision.”21
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*This was the Adder-class Plunger. The original, three-screw Plunger continued to sit unused, and would remain so until it was scrapped in 1917.
†While in Europe, Lake announced he would attempt to salvage $6 million in gold bullion from a sunken French ship, the Lutine, but the effort never came off.
‡The Wright brothers had yet to publicly demonstrate the airplane they flew at Kitty Hawk in December 1903, so the accolades had been reserved for Alberto Santos-Dumont, a Brazilian coffee heir living in Paris who had more or less bounced a large motorized box kite for a quarter mile in a Paris park. The Wrights would fly publicly in 1908 and induce awestruck gasps on both sides of the Atlantic.
CHAPTER 28
SUICIDE SQUEEZE
But three weeks later, deciding which company should receive submarine contracts would be the last thing on Theodore Roosevelt’s mind.
Although through much of 1907, rampant speculation had provided some support for stock prices, the economy had been steadily weakening. On October 15, it collapsed.
The precise underpinning of the crash has been debated for a century. The 1906 earthquake in San Francisco seems to have contributed by causing financial reserves to flow out of the New York banking centers to aid in reconstruction on the West Coast. The time of year also seemed to play a role, as each autumn, withdrawals to purchase agricultural harvests pressured banks’ liquidity. When banks were forced to raise interest rates to replace lost capital, stock prices declined due to a corresponding decrease in equity investment. In 1907, with freight rates under the jurisdiction of the Interstate Commerce Commission, railroad stocks, the dot-coms of their day, were particularly hard hit.
Into this fragile environment entered two brothers, Otto and Augustus Heinze, owners of what they thought was the controlling interest in the United Copper Company, and the “Ice King,” Charles W. Morse, among the most brazen and joyously dishonest financiers in American history. At Morse’s instigation, the Heinze brothers intended to precipitate a short squeeze on the company’s stock and then corner the copper market.*
Morse was an experienced manipulator—in 1900, he had cornered the ice market. Ice was then a vital product, acquired mostly from river water and stored underground. Once he had control, he proceeded to price-gouge families and businesses that had no other means of refrigeration. He doubled the price of ice sold to consumers and threatened further increases when the whether turned warmer. “This 100 per cent tax upon a commodity that is a necessity to all the people of this city has aroused the bitterest feeling in the community,” wrote the New York Times.1 Morse’s ice-pricing scheme ultimately aborted amid scandalous revelations of bribery and political favors stretching all the way to City Hall, none of which diminished his position in polite society. In 1901, his box-mate at the opera was William Vanderbilt.
Morse continued to make provocative headlines—his marriage to an Atlanta socialite was annulled in 1904 when it was discovered she had not bothered to properly divorce her first husband. But he also continued to thrive. By 1906, among his other holdings, Morse served on the board of more than fifty banks, and was majority owner of eighty-one steamships.
One of the banks Morse chose to finance the Heinze brothers raid on the copper market was the Knickerbocker Trust Company, the third largest trust in New York. The president of the Knickerb
ocker was Charles T. Barney, who had achieved great success in finance with the aid of his brother-in-law, former navy secretary William Collins Whitney. Morse had done business with Barney in the past and always found him a willing accomplice.
But the scheme backfired. The Heinze brothers had grossly underestimated the liquidity of United Copper stock. Instead of soaring, the price plunged, taking outstanding loans with their own bank, and eventually Knickerbocker Trust along with it. With no Federal Reserve Bank to control the ensuing panic, there were runs on banks everywhere and failures cascaded through the financial system.† The following month, on November 14, Charles Barney killed himself.
The Panic of 1907, as it was quickly dubbed, lasted only three weeks. The nation was saved when J. P. Morgan, with the support and acquiescence of President Roosevelt—although the two men loathed each other—stepped in and pumped liquidity into the system. But the aftereffects lasted for months. By mid-1908, there had been an 11 percent decline in gross national product, industrial production had dropped by 16 percent, and unemployment would eventually almost double.
Although the nation suffered greatly, the effects were not felt evenly. The impact was most acute on stockholders, at that time predominantly upper income individuals and families. And in a nation still largely agrarian, people who grew their own food, sewed their own clothes, and canned their own preserves were more equipped to weather the storm. Consequently, the market crisis was felt disproportionately by city dwellers and the wealthy.
Isaac Rice was one of them. The value of Rice’s holdings plummeted, so much so that in December 1907, he sold his beloved Villa Julia for $500,000, less than half of what it had been worth six months before, and moved his family to an apartment in the Ansonia Hotel. To the press he said that, as he was spending a great deal of time in Europe, he had no need for such a sprawling mansion, but to his fellow businessmen, many of whom despised him, it seemed at last that Rice might be easy pickings. He was rumored to have been forced to sell a good deal of his holdings at a severe loss.
Going Deep Page 34