Morgan

by Jean Strouse

  The Republicans regained the White House in 1888, in an election dominated by questions of finance. The U.S. Treasury in the late eighties had a rare surplus of funds. Tariffs imposed to protect American industries during the Civil War were bringing in more money than the government spent—$63.5 million more in 1885—and the parties disagreed about what to do with it. Late-nineteenth-century neo-Federalist Republicans, sounding like late-twentieth-century Democrats, favored active government spending to promote economic expansion and pay for expensive public projects. The Democrats in 1888, like free-market Republicans a hundred years later, wanted to reduce the government’s role in the nation’s life, although they divided sharply over protectionism. Cleveland sided with moderate Republicans on many economic questions, but was unequivocally for free trade: he regarded import duties as an unfair tax that would hurt American exports, and he wanted the nation’s wealth distributed through unregulated commerce, not drawn out of the markets and dispensed by the Treasury.

  Under pressure from powerful industrial lobbies, Congress had defeated several tariff-reform bills in the seventies and eighties, and Democratic leaders warned Cleveland that pressing the issue would split the party and lose him the 1888 election. He pressed it anyway, attacking existing trade barriers and denouncing the notion that America’s “infant industries” still needed protection. Andrew Carnegie in the seventies had proudly described his production costs to Junius as so low that “even if the tariff were off entirely, you couldn’t send steel rails west of us.”

  Cleveland’s Republican opponents in 1888 were Indiana Senator Benjamin Harrison, the grandson of “Old Tippecanoe,” and Levi P. Morton, the Morgans’ banking colleague. Morton had repeatedly failed to win a Senate seat, largely because of his association with what Pulitzer’s World called the “money kings” and the “Republican Corruption Fund.” He secured the vice presidential nomination in 1888 with the help of New York’s Republican boss, Thomas Collier Platt, called the Easy Boss because of his dandified clothes and urbane style.

  The Republicans in 1888 ran a stronger and much better-funded campaign than their opponents. Led by the adroit Pennsylvania boss, Matthew Quay, they raised over $3 million—far more than had ever been spent in a U.S. election—mainly from industrial beneficiaries of the tariff. Quay’s minions used some of the money to buy votes and rig elections in Indiana and New York, and distributed leaflets attacking Democrats all over the country. Cleveland refused to campaign, claiming that it was beneath the dignity of his office. Harrison invited thousands of people to Indianapolis to hear his “front porch” speeches about the dangerous Democrats and the lower wages and unemployment that would result from reducing the tariff.

  Voters did not express a clear preference in this single-issue election. Cleveland won the popular ballot by 60,000 votes, but lost in the electoral college, 168 to 233. Accepting Boss Quay’s congratulations shortly after the results came in, Harrison said with no trace of irony: “Providence has given us the victory.” A dumbfounded Quay later exclaimed to a reporter, “Think of the man! He ought to know that Providence hadn’t a damn thing to do with it”: Harrison had no idea how many Republicans had been “compelled to approach the gates of the penitentiary to make him President.”

  He quickly learned how many Republicans he had to reward. Having promised not to hand out patronage, he found almost every position in his cabinet pre-sold. He was forced to appoint the unsavory James G. Blaine Secretary of State, and to make one of Quay’s chief contributors, Philadelphia merchant John Wanamaker, Postmaster General.

  Vice President–elect Morton was more familiar with the game. To repay Mr. Platt for delivering the Empire State, Morton proposed to make him Secretary of the Navy: “The feeling is I think universal that New York saved the day at [the Republican Convention in] Chicago and in November,” he urged Harrison, “and that she is entitled to proper recognition.” Harrison declined to award Platt the Navy, and warned Morton in future not to “make the mistake of furnishing a name for a place.”

  Harrison’s administrative team came to be known as the Businessman’s Cabinet. The new Senate included so many wealthy representatives of industry and banking that it was called the Millionaire’s Club. Republicans had won the presidency and congressional majorities in both houses for the first time since 1875. They proceeded to give away the tariff-generated Treasury surplus in the form of premiums to government bondholders, subsidies to steamship lines, extravagant pork-barrel bills, repayment of taxes paid by the North during the Civil War, and lavish pensions to anyone who claimed to have served the Union cause. In 1890 they raised import duties on a range of products by nearly 50 percent with the McKinley Tariff Act.

  Morgan probably voted a straight Republican ticket in 1888—he contributed $1,000 to a Harrison/Morton inaugural fund—but he had no personal or ideological quarrel with the Democratic incumbent. When Cleveland left the White House early in 1889, he joined his friend and adviser Francis Lynde Stetson at Bangs, Stetson, Tracy, & MacVeagh—the “Morgan law firm”—in New York.

  The vaguely worded Interstate Commerce Act, passed in 1887, was a political compromise that proved difficult to interpret, even more difficult to enforce, and failed to address a number of critical questions. Were the roads in fact suffering from too much competition, as their managers and bankers saw it, or not enough, which was what farmers and shippers thought? Could a government agency fairly arbitrate between opposing economic interests, or would it favor one side over the other? What were “just and reasonable” rates—just to carriers or to shippers? If there was a conflict between maximizing railroad efficiency and promoting competition, where did the public interest lie, and who would decide? How should the country weigh political concerns for fairness against economic incentives to rationalize its leading industry? How could this law be enforced?

  The act had little impact on competition west of the Mississippi, and at the end of 1888, after a new round of rate wars, the railroad bankers Drexel, Morgan, Brown Brothers, and Kidder, Peabody summoned a dozen officers of major lines to meet at Morgan’s Madison Avenue house. Those attending included Union Pacific president Charles Francis Adams, Jay Gould (who had been ousted from the Union Pacific board in 1885, and now controlled the Missouri Pacific), Chauncey Depew of the New York Central, and George Roberts of the Pennsylvania.

  After seating these men around a table in his dining room, Morgan announced that the purpose of the meeting was to stop railroad managers from taking the law into their own hands whenever they felt wronged. “This is not elsewhere customary in civilised communities,” he said, like a stern teacher scolding a pack of unruly boys, “and no good reason exists why such a practice should continue among railroads.” The Pennsylvania’s George Roberts argued that there would be no trouble at all if the bankers would stop putting up money to build competing roads—to which Morgan replied that if the railroad men would stop the rate wars, the financiers would do everything they could to prevent construction of parallel lines.

  Charles Francis Adams, who had been contending with these problems for years—first as a political journalist, then on a Massachusetts regulatory commission, now as president of a major trunk line—wrote a private account of the meeting shortly after it took place. Most of the discussion the first day centered on a new rate-setting pool: the same old story, lamented Adams in his journal, with no executive power, no remedial measures, no more ability to bind the participants than a “rope of sand.” The next day, Adams proposed that only an “outside compulsory force” could bring warring railroads into line, and the force he had in mind was the Interstate Commerce Commission. Any plan the railroads came up with on their own would surely “excite an insuperable popular objection,” whereas exactly the same plan advanced by the ICC might meet with general favor. Adams had expected the bankers to agree. To his surprise, the railroad men assented as well. Roberts said the ICA, properly enforced, could “remove a great many of the difficulties that are now surro
unding the management of the railways.” Depew hoped the commission might “secure some machinery by which peace can be maintained.”

  In early January, Adams met with three of the five commissioners, and drew up a plan for an organization of railroad presidents: the twenty-two roads in the new “Interstate Commerce Railway Association” promised to maintain stable rates, allocate traffic, and refer all violations to the ICC. In effect, this new trade association would try to use the “machinery” of the law against cartels to enforce the terms of a new cartel. One of the commissioners with whom Adams had conferred, Aldace Walker, resigned from the ICC to head the ICRA.

  Several voices outside the industry praised the agreement. The New York Sun, which had lambasted Morgan’s Reading consolidation, called the new plan a “revolution in railroad methods,” and looked forward to the substitution of “straightforward business principles for chicanery and corruption.” John Moody thought every stockholder in America and Europe ought to give his proxies to the group that had met at 219, since only by concentration in a “few strong hands” could investment capital be protected against the “gigantic waste and fraud and duplication” endemic to the American railroad system.

  Nonetheless, within weeks another rate war in the West made it clear that the new association did not amount—according to an officer of the first defecting road—“to a hill of beans.” It had no real power to enforce rules, arbitrate disputes, or even hold on to its members. Jay Gould unofficially certified its demise early in February 1890, when he asked a colleague, “Is it worth while for us to be represented at the meeting of the President’s Association in Chicago, or shall we simply send flowers for the corpse?”

  Charles Francis Adams believed, like Moody, that the railroad world would be better off with fewer players—with competitors consolidated into big, stable systems under strong supervisory control. Ending the current anarchy would require “a railroad Bismarck,” Adams wrote, but so far no one, himself included, had been able to impose order on this battlefield. Morgan had brought the latest adversaries to the bargaining table, as he had the Pennsylvania and the New York Central in the West Shore fight, but he could not force them to cooperate. In the privacy of his journal, Adams asked: “Will Pierrepont Morgan develope [sic] the needed force?” He answered, “Possibly. He has many of the elements of power needed. It remains to be seen if he is an organizer.”

  * The word meant “great chief” in the Algonquin Indian dialect, and appeared in John Eliot’s Indian Bible. In politics, it characterized those who held themselves above dogmatic party loyalty, “professing disinterested or superior views.”

  † The event that started it was the collapse of the brokerage house Grant & Ward. Ulysses S. Grant had traveled around the world after leaving the White House in 1877, and returned to New York without money or plans. Although Morgan had sided with Treasury Secretary Bristow against Grant in the seventies, he now helped raise money for the former President. In November 1880, Morgan, Tony Drexel, and the Philadelphia publisher George Childs asked twenty men to contribute $5,000 each to a private fund for Grant, in view of the fact that the general’s income was “not sufficient to secure him in that position of comfortable independence that he should be enabled to occupy.” Such a step would not be necessary “in any other great nation,” the trio explained, as “all but ours provide munificently for their citizens or subjects who have done the state illustrious service.” Potential donors would “be good enough to consider this note as strictly confidential.” With the money raised by their wealthy friends, the Grants bought a house at 3 East 66th Street in New York. Two years later Morgan agreed to lend Grant more money—“although as I told you we are not making any time loans”—but warned: “it will be necessary that we have collaterals, that being our rule, the wisdom of which I think you will appreciate.”

  The unworldly Grant had gone into business in the early eighties with a rogue trader named Ferdinand Ward, who used his new partner’s reputation to secure funds and attract clients. When Ward’s scheme of secret speculations and phony profits collapsed in May of 1884, it brought down a prominent New York bank, set off a panic, and ruined Grant. Ward eventually went to jail. Grant, humiliated, depressed, and dying of throat cancer, began writing articles about the Civil War to earn money. With Mark Twain’s help he expanded the articles into a full-length memoir, which he finished just before he died in 1885. His posthumously published Personal Memoirs turned out to be a great work of military history; it sold over three hundred thousand copies, and earned his heirs nearly half a million dollars.

  ‡ To Carnegie’s dismay, the Corsair agreement restored monopoly power to the Pennsylvania. He fought on for years against the “monstrous” behavior of his former employer, sometimes in alliance with the farmers, manufacturers, and merchants who were urging the states to regulate railroads, sometimes with Rockefeller, who used his market dominance to secure cheap shipping rates. Finally in 1896 Carnegie gained control of another road—the Pittsburgh, Shenango & Lake Erie—to carry his freight at lower cost and steal traffic from the Pennsylvania. This move brought Roberts and Thomson to the bargaining table at last: they cut their rates, which saved Carnegie $1.5 million a year, and he agreed not to build any more railroads.

  § Gowen had been counsel to the Philadelphia & Reading in 1864, and its president since 1869. He had also organized the Philadelphia & Reading Coal & Iron Company, the country’s largest producer of anthracite coal. It was he who led the coal operators’ refusal to recognize a miners’ union in 1875 and hired a Pinkerton agent to infiltrate the Molly Maguires.

  ‖ Corbin had gone into banking after graduating from Harvard College and Law School, and eventually took over and revived the ailing Long Island Railroad. He tried to develop a transatlantic steamship port at the eastern end of Long Island, hoping to cut transit time between New York and Europe, and make the LIRR a crucial land-sea link—without success.

  Chapter 14

  FATHERS AND SONS

  The transfer of power that had gradually taken place over three decades—from the London to the New York Morgan banks, and from the senior to the junior Morgan—was nearly complete. Junius told Drexel, Morgan at the beginning of 1887 that J. S. Morgan & Co. would accept participation in a railroad syndicate without knowing the price of the bonds or the probable duration of the business: “We are quite satisfied that you have arranged all these points to your own satisfaction, & we are quite ready to join with you in anything that you think good enough for yourselves.”

  For thirty years he had been channeling investment capital westward across the Atlantic and watching over his country’s credit in international markets. By the late eighties, though still a net debtor, the United States was the leading industrial power in the world. Junius took magnanimous pride in this state of affairs, announcing to his New York partners at the beginning of 1887 that America had the best market for its own “high-priced securities,” which meant that his services were no longer as necessary as they had been: “The Americans are so rich now that they can afford & wish to pay more for their own securities than any foreigner would feel able to do,” he reflected, “and this is a healthy state of things for the country, however little profitable it may be for our pockets.”*

  Junius was no longer spending much time at 22 Old Broad Street. In the spring and summer he stayed at Dover House, where he supervised the gardening and haying, and entertained legions of guests—among them Alice Mason, Henry James, John Singer Sargent, the William Wetmore Storys, the Chauncey Depews, and Levi Morton’s partner, Sir John Rose. In the winters he rented a furnished villa at Monte Carlo for $5,000 a year—a house and stables set on the side of a steep hill, with olive groves, terraced gardens, and views of the Mediterranean. Monaco had “the best winter climate that I have found anywhere,” he told a friend, “and one that just suits old age.”

  He stayed at the Villa Henrietta from November until May, attended by his London butler, Thomas Hand. Alice Ma
son had accommodations of her own in town. Every morning he waited for the mail to arrive at 11:00, then walked down the hill to see Alice. He lunched at 1:00, took a drive at 2:30, had tea at 5:00, dinner at 7:30, and played cards with guests until bedtime.

  In April 1889 Pierpont took Louisa to Monte Carlo to celebrate Junius’s seventy-sixth birthday and his own fifty-second. He drove his daughter into Nice one day to go sightseeing and shopping with friends. After lunch he went off by himself to the Villa St. Georges, where Memie had died twenty-seven years before. In her diary Louisa wrote: “I wish I could have gone with him. Still I suppose he would rather have been alone.”

  Only once during his thirty-five years abroad did Junius betray a sense of insecurity about his status in class-conscious England. When Louisa was invited to the opera one spring in the eighties by British friends who had the Queen’s box, her grandfather refused to let her go: “According to him,” she told her mother, “you must treat English people with reserve to give them a high idea of your importance.” She privately disagreed: “I think you should accept a kindness as it is meant—but perhaps he is right.”

  Like the aristocratic owners of Britain’s great country houses, Junius had been surrounding himself with beautiful things, including portraits of other people’s ancestors. After losing the Duchess of Devonshire to a thief, he had acquired another Gainsborough, Miss Wilbraham, as well as two paintings of Emma Hamilton by George Romney and three portraits by Joshua Reynolds: Mrs. Yates, Lady Dawson, and The Honorable Henry Fane with His Guardians. Also on his walls at Dover House and Princes Gate were pictures attributed to Turner (Landscape with Walton Bridges and a watercolor, Lake of Albano), Greuze (A Lady’s Head), Millais, Gérôme, and the popular English artists John Opie, Sir Edwin Landseer, William Powell Frith, and George Elgar Hicks.