The Jews in America Trilogy

by Birmingham, Stephen;

  He had always believed in the principle of Zedakah, the charity which literally means “justice.” During his youth in Germany, he recalled, “Kindliness was the keynote of the household and from the first ten-pfennig piece that was received as an allowance it was made our duty to put one-tenth aside for charity, according to the old Jewish tradition.” He had continued this 10 percent tithing system throughout his life and, though he was called one of New York’s foremost philanthropists, he insisted that only what he had given above and beyond this figure could be considered “philanthropy.” He once startled a well-meaning woman who congratulated him on a particularly large gift by saying, somewhat abruptly, “That wasn’t my money.” He meant, of course, that the gift came from the one-tenth of his income that he felt had to be given away.

  He had an individualistic approach to giving that would have dismayed a modern foundation executive. In addition to having invented the “matching gift” system, he also believed that a man’s giving should be done in his lifetime and, most important, under his personal supervision. In his spare time, he visited the Lower East Side looking for worthy “cases” among immigrants. He personally headed his pet project, Montefiore Hospital—originally founded for Jewish “incurables,” and later broadened at his insistence—and hired the staff as well as paid regular visits to all the patients. To raise money, he once organized and headed a benefit bazaar in Central Park which netted $160,000 for the hospital—much more than the most glittering charity ball can earn today. He also believed that self-help was an essential part of any charity, and frequently wrote personal letters to get immigrants jobs. For one young man who wanted to be a merchant he purchased a candy store; for a man who had cut hair in Europe he bought a barbershop. He rented any number of newsstands, and installed his cases behind them. He occasionally hired men directly into Kuhn, Loeb & Company, and his son-in-law, Felix Warburg, adopted his habit of hiring promising youngsters. (He once hired the hat boy at Savarin’s restaurant and made him an office boy; he was George W. Bovenizer, later to become one of the firm’s most important partners. Felix also hired his wife’s milliner’s son.) With J. P. Morgan, Seth Low, and James Speyer, Schiff developed a plan to found “a pawn shop on humanitarian principles,” which became the Provident Loan Society. Each founder contributed $5,000—and Schiff assessed each Kuhn, Loeb partner in that amount also—and the Society started with capital of $100,000. Soon, it was loaning out money at the rate of $34 million a year.

  In 1912 the newspapers were full of gloomy talk about trusts and everyone was muttering about the abuses of great wealth. The New York Times, however, published an article about what it called “the New York public service trust,” and the men whose charities most benefited the city. “It is impossible to consider,” said the Times, “what New York’s so-called public activities would do without these men. As we name things ‘trusts,’ here we have one—it is a trust of public spirit.” Heading this list of leaders were Joseph Seligman’s son, Isaac Newton Seligman, Felix Warburg, and Jacob Schiff. Conspicuously absent from the list was the name of Rockefeller.

  The Times article distressed Schiff, who believed in the Talmudic principle that twice blessed is he who gives in secret. Though he gave a building to the Jewish Theological Seminary; two buildings to the Young Men’s Hebrew Association; a social hall to Barnard College; the Semitic Museum building, and much of its contents, to Harvard; a large endowment to Frankfurt University in Germany; and the building which houses the Israel Institute of Technology in Haifa, he would never permit his name to be attached to any of these structures. His single exception to this rule was the Schiff Pavilion at his Montefiore Hospital. He would never discuss the size of his gifts and rebuffed reporters who asked him about his philanthropies. Because of Schiff’s secrecy, the exact total amount of his giving is now impossible to calculate. It has been estimated at between $50 and $100 million.

  In 1906 a small group of the most important men in the German Jewish banking crowd had met at Jacob Schiff’s house to discuss a matter of some urgency. Their worry was anti-Semitism. The Dreyfus case had not yet been settled, and the coals from the Kishinev pogroms had not cooled. To Schiff, it had begun to seem as though all the gains which Jews had made over the past hundred years were being threatened and might soon be lost. Out of the meeting came the American Jewish Committee, an organization designed to protect the rights and better the condition of Jews throughout the world. In its way, it was something of an innovation, for the AJC proposed to combine traditional Jewish communal giving with the techniques of such American overseas philanthropies as the Red Cross.

  The AJC was an organization sponsored, at the outset, by a mere handful of extremely rich men. It was really all in the family and “in the crowd,” and it soon became clear that a less loosely structured, larger, and more formal and all-encompassing sort of organization would be required to do the task the AJC had set for itself. As 1914—“the comma in the twentieth century”—approached, the relief of Jews in Eastern Europe became a far more overpowering problem than that of Jews on the Lower East Side. In Russia and Rumania it had become clear government policy to force Jews to emigrate, but where would they go? The slums of New York and London were overcrowded and seemed incapable of holding any more, while millions clamored to be received. In the salons of Paris, Berlin, and Vienna, anti-Semitic chatter was becoming fashionable, and even certain politicians in Washington and London were making racist allusions with the caricature of the poor Eastern European Jew who had found his way to the Lower East Side or to Whitechapel as their target. Implications of what the Jews would have to face throughout the next half-century were beginning to dawn as, across the Continent of Europe, the lights began to go out.

  During the war between 600,000 and 700,000 Jews fled eastward out of Poland and the Baltic countries, and another 100,000 from Galicia and Bukovina. Others escaped westward—half a million to Austria, perhaps 100,000 into Germany. The migrations were terrified and erratic, for no one knew where he was going or whether, or for how long, he would be allowed to stay. Some thirty thousand Jewish refugees camped, without shelter, in a Russian forest. When Turkey entered the war on the side of Germany, there was suddenly a desperate situation for Jewish communities in Palestine. Many Jews in the Holy Land had escaped from Czarist Russia, and they were now suspected as enemy aliens. At the end of August, 1914, Henry Morgenthau, who was United States Ambassador to Turkey, cabled Jacob Schiff asking for $50,000 in immediate aid. The American Jewish Committee contributed $25,000 of this figure, Schiff personally gave $12,500, and the Provisional Zionist Committee another $12,500. But as the war spread and hopes for an early peace vanished, it was obvious to Schiff that the relief work to be done in Europe was beyond the scope of the AJC.

  American Jews were, of course, divided. The AJC was merely another symbol of that division. In a crisis that faced all the Jews, one could not have a factionalized solution. All Jews in America would have somehow to join in a consolidated effort.

  There were, at the time, hundreds of Jewish charitable organizations in the United States. In October, 1914, Schiff asked representatives of forty of the largest to meet with his AJC. At that meeting, a committee consisting of Oscar S. Straus, Julian W. Mack, Louis D. Brandeis, Harry Fischel, and Meyer London, who “commanded the respect of every element,” was asked to select one hundred leading American Jews to be the American Jewish Relief Committee. “All Jews,” Schiff announced solemnly, “of every shade of thought, irrespective of the land of their birth, are admonished to contribute with the utmost generosity.” Louis Marshall was to be president of this new organization, and Jacob Schiff the treasurer. Schiff, however, asked that this honor be given to his son-in-law, Felix Warburg.

  Working closely with Schiff, Felix decided that the treasurer’s chief job would be to set up a disbursing agency through which American funds could be sent on to Europe. For this purpose—which, at first, seemed simple but which later on became so staggeringly imp
ortant that it completely eclipsed its parent organization—Felix held his first meeting of the Joint Distribution Committee of American Funds for the Relief of Jewish War Sufferers on November 27, 1914. This was the famous Joint Distribution Committee which, by the end of the war, was distributing an income of as much as $16.4 million a year.

  The work of the Joint was based on a simple assumption: that Jews had a right either to live where they were or to emigrate; the Joint was devised to facilitate either of these alternatives. As Oscar Handlin has said, “The historic program of the Joint offered all Jews a basis for unity of action. Its American insistence on ‘giving to all an equal opportunity for survival and creative life’ was enriched by ‘the Biblical concept of social obligation and mercy.’ It could therefore rise above all factional divisions.” Stefan Zweig said of the Joint, “Later, at some future date, we shall again gladly and passionately discuss whether Jews should be Zionists, revisionists, territorialists or assimilationists; we shall discuss the hair-splitting point of whether we are a nation, a religion, a people or a race. All of these time-consuming, theoretical discussions can wait. Now there is but one thing for us to do—to give help.”

  For the next fifty years, the Joint would continue to exert its unifying force upon the disputatious, splintered Jewry of America. While young Otto Kahn was stylishly aiding the war effort, Jacob Schiff in his twilight years was, in his quiet way, adding even more glory to his name.

  The scope of what had been called Schiff’s “complex Oriental nature” was becoming clear. Long before it was fashionable for American millionaires to have humanitarian instincts, he had spoken out for the Negro, for free public education, for the Child Labor Amendment, and for the rights of trade unions. He had an abiding, idealistic faith in the Fatherhood of God and the brotherhood of man. No wonder he always thought, right up to the time of his death, that the Joint was strictly a temporary organization. He always expected—and, in fact, anticipated—the day when the injustices the Joint was designed to solve would disappear, when the need for the Joint would vanish, and it could be disbanded.

  42

  THE RISE OF A HOUSE OF ISSUE

  In 1900 Lehman Brothers, though it had been successful, was still considered essentially a commodity brokerage house. In prestige and importance it was ranked so far below Kuhn, Loeb that it was not even considered in the same business. The Lehmans had nothing of the social power of the Seligmans, and nothing approaching the wealth of the Schiffs, Warburgs, or Otto Kahn.

  The Lehmans, however, were far from being needy. From cotton brokerage they had branched into commodities underground—particularly petroleum—and Mayer and Emanuel were mentioned in every list of the city’s richest men. One of the most spectacular young men in the class of 1899 at Williams College was Herbert H. Lehman. Among the companies his father and uncle had bought into, along with P. A. B. Widener and John Jacob Astor, was the Electric Vehicle Company, an early automobile manufacturer, and the Rubber Tire Wheel Company of Springfield, Ohio, the first American maker of pneumatic tires. Young Herbert arrived on the Williams campus with not only his own car—in itself a rarity—but his own chauffeur. Periodically, Herbert’s driver painted the car’s license plate with oil, causing dust from the road to obscure the numbers on the plate, thereby making the young dandy difficult to identify by police as he sped about the landscape. It was hard to believe that this high-living fellow would later become one of New York’s most meticulous governors, so concerned with maintaining his personal dignity that, for years during his stay in Albany, he refused to dine at his favorite restaurant, Keeler’s, for fear it would not “look right to have the Governor seen eating in a public restaurant,” and who, at a Democratic function in New York, walked out when he felt he had not been seated properly at the banquet table.

  On Wall Street the Age of the Trusts seemed about to pass the Lehmans by. Between 1898 and 1904 alone, over four billion dollars’ worth of new securities in industrial combinations had been sold—through bankers—to investors. In 1893 there had been twelve large trusts with an aggregate capital of less than 2 billion dollars. By 1904 there were 318 such trusts, one of which was capitalized at almost a billion and a half. The trust system, which had been a brain child of John D. Rockefeller’s lawyers, was to put the voting power of a group of companies into the hands of a group of trustees. Technically, the individual companies would remain independent, as far as their operations were concerned, and therefore they would not be liable to antitrust action. But central control of voting meant that no company could step very far out of line. (Jacob Schiff never approved of voting trusts and the kind of control they gave over company operations, but he sold their securities cheerfully enough.) The theory of the trust was that eliminating competition among the consolidated units would bring about immediate economies and therefore increased profits. It worked—sometimes.

  The Age of Trusts was the age of the investment banker. Money needed to launch new enterprises and to put their securities on the market made bankers’ contributions essential. Banking houses had had experience selling government and railroad bonds in Europe, and this stood them in good stead. Now they could sell the new corporate stocks—whose values might or might not be watered. As the twentieth century advanced, the European market for American securities became less important; there was a well-heeled investing public in America to consider.

  There were companies who figured they could do without investment bankers. In 1902 the Pennsylvania Railroad came up with a plan to bring their line directly into New York City, through tunnels under the Hudson River, which would make the Pennsylvania competitive with the New York Central. There were powerful interests in both New York and New Jersey opposing the plan, but Jacob Schiff, who had been the Pennsylvania’s banker for over twenty years, went actively to work rallying support for it, writing a letter to his friend Isidor Straus of Macy’s, pointing out the advantages to the city and its businesses and asking for his help.

  The bond issue put out to finance the construction of the tunnels was reasonably priced and was considered a bargain, and so the railroad decided, to save the underwriter’s fees, to bring the issue out itself. Schiff advised against this, and the Pennsylvania seems to have been in a rather ungrateful frame of mind, considering all Schiff’s hard work. But Schiff accepted the decision in good grace. Soon, however, without the market support and stamp of approval provided by an investment banking house, the tunnel bonds were in trouble, and the price fell so disastrously that Kuhn, Loeb had to step in and perform a last-minute rescue operation. It was a dramatic example to industry of the importance of a banking house and its abilities to find and “sell” a market. It was also the last time a company would ever attempt to offer securities to the public without the backing of a “house of issue.”

  The investment banks sold securities to the public in any one of, or in any combination of, three basic ways. They might underwrite—or, simply speaking, guarantee the success of an issue which they would actually sell. In return for the greater risk the underwriter took, he was given the say on the price the issue could be sold at, to whom it should be sold, where, and by what means. Or a banker might sell securities on the market under a negotiated system—selling a company’s stocks on a commission basis while, at the same time, lending the company money for its operating, development, or expansion expenses. Ideally, the banker makes money in two ways in such an operation. (This was Joseph Seligman’s favorite banking technique with railroads; he, of course, often lost.) The third method was contracting, where an investment house bought up an entire issue outright, and then either parceled it out to other houses or sold it exclusively. This was Kuhn, Loeb’s favorite way of operating, and to the outsider it might seem to involve the greatest risk. Actually, contracting was seldom done unless an issue was considered a sure bet.

  Little of this lucrative business had been done by the house of Lehman Brothers by the turn of the century. In fact, in the first fifty years of its
existence, the Lehmans underwrote only one issue—in 1899, for something called the International Steam Pump Company, a pump trust consisting of five pump manufacturers. The combine did not work out well and, to conform with antitrust laws, it was reorganized as the Worthington Pump & Machinery Corporation. Once bitten, the Lehmans dropped out of underwriting for several years. They continued with commodities—cotton, coffee, and petroleum futures—and, for their own portfolios, bought issues of the day.*

  But when Emanuel Lehman died, control of the firm was fully in the hands of the second generation—a group of restless, eager, ambitious boys: Philip, Sigmund, Arthur, Meyer H., and Herbert. Particularly ingenious when it came to banking was Philip, Emanuel’s son, and it is Philip Lehman’s wizardry—along with the strength of his will and the assertiveness of his personality (“At anything he did, Philip had to win,” says a member of the family)—that has established the Emanuel Lehman branch of the family as the dominant one in the firm’s affairs.† In an era when no self-respecting private banker would deign to back retail stores, textile manufacturers, clothing or cigarette makers—to say nothing of the indignity of mail-order houses and five-and-ten operations—Philip Lehman led his cousins directly into such businesses with quickly profitable results. Very early, Lehman Brothers helped finance and develop the American Potash and Chemical Corporation—and continued to back it until it was sold, for a nice figure indeed, to the Standard Oil Company of New Jersey.