Morgan

by Jean Strouse

  Not all the experts agreed. The Louvre and the National Gallery had declined the painting—known as the “Madonna of a million” in the seventies because of its million-franc price tag—and it had been on display at the South Kensington Museum, where Morgan had probably seen it, from 1886 to 1896 without finding a buyer. The dealer Martin Colnaghi finally bought it in 1896 for $200,000, less than half the price then asked, and sold it to Sedelmeyer, who had it restored and cleaned. Morgan probably did not know that Sedelmeyer had offered it to Mrs. Gardner in 1897, or that Berenson had denounced it to her as only partly painted by Raphael, its composition devoid of “that spacious eurhythmy, that airy buoyancy which Raphael gives you in the Sposalizio, in the Belle Jardinière, in his Stanze.…” After Morgan bought the painting, Berenson went even further, lumping it with “pictures Raphael barely looked at.”

  Berenson exaggerated the picture’s faults—he tended to disparage anything he had not authenticated—but art historians at the time and since have found the Colonna Madonna puzzling, lacking the elegance, lucidity, and coherence of Raphael’s great work. Now at the Metropolitan Museum of Art, the panel is given to Raphael but described as “more primitive” than his other work of the period—the Ansidei Madonna and a fresco in San Severo, Perugia—and valued more highly for its place in the artist’s development than for its aesthetic caliber.

  Morgan acquired the altarpiece the day he saw it in Paris, for 2 million francs ($400,000), along with paintings by Rubens, Titian, Nattier, and Morland, paying $600,000 in all. (He later returned the Titian, probably as not genuine.) He did not hesitate to spend nearly half a million dollars for a single work by the “Prince of Painters,” any more than he flinched at committing half a billion for Carnegie Steel. When he wanted something, he paid little attention to critics or price, and he wanted a Raphael Madonna.

  He responded less to abstract qualities in works of art than to subject, history, rarity, provenance. The subject of the Raphael panel was what Henry Adams called “the highest energy ever known to man,” and Morgan later complemented this acquisition with other Renaissance depictions of the Virgin and Child, filling his private study with Italian Madonnas. The history and rarity of the altarpiece were not in doubt. David Alan Brown has described the Colonna Madonna as “the most ornate of Raphael’s pictures,” and guessed that it appealed to Morgan’s taste for “decorative richness”: when the painting was cleaned at the Metropolitan in the 1970s, restorers found that marble veining and gilding had been added. Critical reservations notwithstanding, the Colonna Madonna was “BIG game”—a grand, costly prize by an incontrovertibly great artist, which would confer distinction on the collection and country to which it belonged. Since Morgan had set out to furnish America with exceptional cultural treasures, this one was irresistible.

  He did not pay for it until the end of the year, as was his practice with large acquisitions. If it turned out to be “wrong,” he would return it, as he did the “Titian” he had bought the same day. It did not turn out to be wrong. When Morgan paid Sedelmeyer’s bill through his London office in December 1901, Clinton Dawkins cabled Jack from London (using the code name “Flitch” for the senior Morgan), “I hope, though we cannot hint it, that Flitch will not buy the National Gallery at the end of the year.” In early January 1902 the New York Herald announced: MR. J. PIERPONT MORGAN GIVES RECORD SUM FOR RAPHAEL! Mr. J. Pierpont Morgan lent his Raphael to London’s National Gallery, had it featured in a sumptuous hand-printed catalogue, and grew steadily prouder of it as the years went by. When he died in 1913, it was considered the most important painting in his collection.

  At the end of April 1901, after acquiring the Colonna Madonna in Paris, he went off to Aix-les-Bains for a rest.

  * Early in 1901 Morgan advanced $150,000 to Nikola Tesla, an eccentric Croatian-born electrical engineer who had developed an alternating-current motor, worked briefly for Edison in the mid-1880s, and sold his AC patents to Westinghouse, Edison’s chief rival, in 1888. Tesla’s system provided the basis for the first major harnessing of power at Niagara Falls. Like Edison, Tesla worked on a wide range of projects, including high-frequency currents, an air-core transformer called the Tesla coil, wireless communication, and artificial lightning. He attended Louisa Morgan’s wedding, and there were rumors (entirely false) of his engagement to Anne. With Morgan’s funding in 1901—for which he assigned the banker a 51 percent interest in his patents—Tesla set out to develop a worldwide communications system, and built a 200-foot transmission tower at Shoreham on Long Island. At the end of 1904, he asked his patron for another $75,000—“Since a year, Mr. Morgan, there has been hardly a night when my pillow was not bathed in tears,” he wrote. The banker replied through his secretary that he could not “do anything more in the matter”—nothing came of the Shoreham project—and declined to fund other Tesla proposals, but Jack lent the inventor $25,000 after Pierpont died.

  † In leasing this land, Carnegie did not have to put up a cent. Instead, he agreed to pay 25¢ per ton of ore extracted, and to ship at least 1.2 million tons a year for fifty years on Rockefeller’s railroad and shipping lines. The magnitude of his operations enabled him to promise huge annual volumes, which brought him essential raw materials and transport at minimal cost. No small competitor could have made such a promise.

  ‡ Carnegie specified:

  $160,000,000 of Carnegie Company bonds to be exchanged at par for bonds in the new company $160,000,000

  $160,000,000 stock, each $1000 Carnegie Company share to be exchanged for a $1500 share in the new concern $240,000,000

  Profits for the past and coming year (estimated): $80,000,000

  Total: $480,000,000

  * In prosaic fact, Carnegie told a congressional committee in 1912 that he had named his price and Morgan considered it fair: “I have been told many times since by insiders that I should have asked $100,000,000 more and could have got it easily. Once for all, I want to put a stop to all this talk about Mr. Carnegie ‘forcing high prices for anything.’ ” Adding $100 million to the deal would have implied a price/earnings ratio of 14.5.

  † The $117 million difference between these figures suggests the difficulty of measuring an industrial property’s net worth. One way would have been to add up the securities of the constituent companies, but since the stock of Carnegie Steel had never traded on the market there was no reliable estimate for its preconsolidation value. Another method, calculating the value of U.S. Steel’s tangible property, raised questions about what exactly to measure—the price historically paid? replacement value? probable price if offered for sale? According to William T. Hogan, who wrote an economic history of the American steel industry in 1971, the difference between the bureau’s $700 million to $800 million figures and U.S. Steel’s $1.4 billion lay in the value assigned to the ore lands—$100 million by the bureau, $700 million by the corporation. Hogan concluded that “the years since have tended more to justify the $700 million figure than the smaller estimate.”

  ‡ Unlike Morgan’s railroad and government bond syndicates, which were made up largely of banks, the three hundred members of the Steel syndicate included wealthy individuals. J. P. Morgan & Co. took a $6,457,000 participation, John W. Gates $6 million, E. H. Gary $4.5 million, James Stillman, William Rockefeller, H. H. Rogers, and George Baker’s First National $3,125,000 each. P. A. B. Widener subscribed for $2,875,000, Kidder, Peabody for $2.5 million, and Thomas Fortune Ryan for $1,875,000. In at $1 million each were William C. Whitney, Levi P. Morton, Henry Clay Frick, D. O. Mills, Morgan, Harjes & Co., and Kuhn, Loeb. Among those who took under a $1 million share were E. H. Harriman, Charles Schwab, Mark Hanna, August Belmont & Co., Lazard Frères, Francis Lynde Stetson, H. M. Flagler, Daniel Lamont, Robert Lincoln, George Bowdoin, S. Endicott Peabody, Bob Bacon, and Chauncey Depew. The largest subscribers by far were the Moore brothers and two of their associates, who as a group subscribed for almost $75 million—about 38 percent of the total.

  § The painting
remained in the Morgan family until July 1994, when it was sold through Sotheby’s to the Chatsworth House Trust for £265,500. It is now at Chatsworth, seat of the Dukes of Devonshire. With regard to long-standing doubts about the painting’s authenticity, the present Duke told the London Times, “I personally think that it is a Gainsborough,” then shrugged, smiled, and added, “To me it’s a very jolly picture.”

  ‖ Mrs. Gardner’s painting came from the Inghirami Palace in Volterra, but there was another version at the Pitti Palace. For most of the twentieth century, scholars considered the Gardner picture the earlier of the two, but a careful restoration and scientific examination of the Pitti Palace portrait in the 1980s led most experts to accept it as the prime version, and attribute Mrs. Gardner’s to “Raphael and School.”

  Chapter 21

  RAID

  Morgan had reserved the suite of rooms he always took at the Grand Hôtel in Aix. Mary Burns accompanied him to the spa in 1901, and his daughter Anne left Fanny in Paris to join them—Fanny went on with her maid to visit Jack and Jessie in London.

  The hot springs in the hills of southeastern France, famous for its mountain views and Roman ruins, had been attracting European royalty for centuries. In recent decades Aix’s eminent visitors had included Queen Victoria (who traveled, hardly incognito, as the “Countess of Balmoral”), her cousin Belgium’s King Leopold II, the Emperor of Brazil, George I of Greece, and the Empress Elizabeth of Austria. Illicit love affairs carried out under the pretext of medical necessity had made the spa’s chronique scandaleuse as renowned as its cure. Morgan’s daily regimen there consisted of thermal baths and long massages in the morning, followed by lunch with his companions; in the afternoon he answered letters and cables, and took a drive through the countryside—over the years he had visited every beautiful spot within twenty miles. After dinner he played cards until bedtime. Although he enjoyed the attentions of the spa physicians, he adamantly refused the exercise and foul-tasting mineral waters they prescribed. He once told a reporter that the secret of health was “contentment, cheerfulness, and not to expect too much from others”—implicitly attributing his ailments to depression. On arriving at Aix in the spring of 1901 he made a large contribution to the local hospital. The mayor presented him with a bouquet as official thanks, and the town eventually named a street the Boulevard Pierpont Morgan.

  On Saturday, May 4, Morgan was settling into his spa routine when a messenger brought him a cable from New York. Slicing it open, he learned that hostile raiders had launched a secret attack on one of “his” railroads, the Northern Pacific.

  Events, it seemed, were not going to concede him a vacation. He had been connected with the Northern Pacific for twenty years, having raised $40 million for the last phase of its construction in 1880, and three years later rescued the road from bankruptcy. Like the Reading, the NP had gone on an expansion spree after its five-year, banker-controlled voting trust expired, and had loaded itself up with so much debt that it had defaulted again in the summer of 1893, requiring Morgan to step in once more.

  James J. Hill, head of the Great Northern Railway, had been watching the NP closely. Born in Canada, he had moved to Minnesota in the 1850s, and by 1893 his Great Northern ran from Duluth to Puget Sound. His entrepreneurial gifts and short, stocky build had earned him the moniker Little Giant. Like many Gilded Age tycoons, he saw himself as an American Napoleon, and had commensurate dreams. None of the big east–west roads yet reached all the way across country, but Hill hoped to build a truly transcontinental system from coast to coast that would link up with shipping lines for trade with Asia and Europe. If his well-managed Great Northern cooperated with the Northern Pacific, two hundred miles to the south, they could construct an efficient, low-cost system of trade between America’s breadbasket and the markets of the Pacific; their competition would be not with each other but with foreign transport systems as the United States laid claim to international commerce.

  Hill and his financial backers, the Deutsche Bank and New York’s Kuhn, Loeb, proposed to Morgan that they end competition between the two big northwest roads by merging them into a single system to be managed by Hill. The Little Giant from St. Paul with his bushy beard and shoulder-length gray hair was another unlikely Morgan ally: he looked as though he would be happier in buckskins than dinner jackets, yet his expertise spoke for itself and his aims coincided with those of 23 Wall Street. Morgan and Coster cabled their London associates in July of 1895: “proposed plan in every way desirable all interests.”* The proposed plan was not in fact desirable to Morgan’s lawyers. Stetson thought it would constitute an illegal restraint of trade. He was right: Minnesota’s Supreme Court invalidated the plan, and in March of 1896 the U.S. Supreme Court rejected a constitutional challenge to the state statute that prohibited mergers between parallel or competing railroad lines.

  A month later, representatives of the Great Northern and Northern Pacific met in London and agreed privately to “form a permanent alliance defensive, and in case of need offensive” to avoid competition and protect their common interests: neither road would encroach on the other’s territory by building or buying control of competing lines. Hill and his associates purchased about $16 million of Northern Pacific stock—roughly 10 percent of the total; these shares, combined with those held by Morgan’s people, brought the two groups effective joint control of the NP.

  A voting trust reorganized the Northern Pacific in 1896, changing its name from Railroad to Railway.† J. P. Morgan & Co. formed a syndicate with the Deutsche Bank to take $45 million of new NP securities, and the road prospered after its second Morganization, paying a 4 percent dividend on its preferred shares by 1898, and 2 percent on the common a year later.

  Hill turned out to be a political power broker as well as an expert railroad manager. As the NP reorganization got under way in May of 1896, Coster forwarded him a telegram from a Washington informant reporting that one of the fifteen members of Congress who lived along the NP route had “declined to sign the request that the federal reorganization bill be taken up immediately”: the holdout was Representative Joel P. Heatwole of Minnesota, “whose district lies largely on the line of the Great Northern, and he is in doubt as to whether you would approve his signing. Please wire him to do so.”

  Hill apparently authorized the congressman to sign. He earned a large profit from the NP reorganization, since he had bought nearly 260,000 shares of stock (par value $26 million) in the bankrupt road for $4 million. He had, however, hoped to control this resuscitated rival. Instead, Morgan ran the new voting trust, put Bacon, Coster, and Stetson on the board, and appointed two presidents of the NP whom Hill did not like—first Edwin Winter, then Charles S. Mellen. From 1896 until 1901, the Great Northern and the Northern Pacific abided by their peace treaty, but Hill wasn’t satisfied.

  The cable that reached Morgan at Aix on May 4, 1901, informed him that a combination of bankers and railroad men had secretly managed to buy up more than half of Northern Pacific’s stock on the open market. Leading the raiders in this “battle of financial giants” was Edward H. Harriman, a diminutive former stockbroker with a droopy mustache, wire-rimmed glasses, a penchant for stock manipulation, and a history of conflict with Morgan. He now controlled the Union Pacific, which ran from Kansas City and Omaha to Promontory Point, Utah (where it had met the Central Pacific in 1869). Like Hill, Harriman considered himself an American Napoleon and was known in railroad circles as a Little Giant. Also like Hill, he wanted to build a worldwide network of railroads and shipping lines based on his own companies. Unlike Hill, Harriman did not play by the Morgan rules: he favored guerrilla warfare over cooperative covenants.

  He had taken charge of the Union Pacific by stealth. In 1895, when the bankrupt UP appealed to Jacob Schiff at Kuhn, Loeb for reorganization, Schiff deferred to Morgan, who had been one of the road’s bankers and part of an earlier reorganization plan: “That is J. P. Morgan’s affair,” said Schiff. “I don’t want to interfere with anythi
ng he is trying to do.” Only after learning that Morgan wanted nothing further to do with the UP but was willing to help did Schiff take on the job.

  While the Morgans had been channeling British capital to U.S. railroads, the German-Jewish firm of Kuhn, Loeb had been doing the same thing with money from Germany and France, and though the top Yankee and Jewish investment houses did not work together, they maintained gentlemanly agreements not to invade each other’s territory. Schiff’s plan for the Union Pacific was about to go into effect late in 1896 when things mysteriously began to go wrong among shareholders, journalists, and politicians. A baffled Schiff checked with Morgan, who knew nothing about the disturbance but promised to find out, and reported a few weeks later, “It’s that little fellow Harriman.… you want to watch him carefully.”

  When Schiff confronted “that little fellow,” Harriman said he was fighting Schiff’s plan because he wanted to reorganize the UP himself, and he soon maneuvered his way onto the railroad’s board and executive committee. Over the next few years he managed to turn the bankrupt UP into a strong, profitable line. Once he secured connections to the Pacific coast, his system posed a threat to the NP and GN. And in 1901 he acquired control of the huge Southern Pacific, running from Los Angeles to New Orleans.

  Meanwhile, he was fighting with the other Little Giant, Hill, over a 7,911-mile rail network called the Chicago, Burlington, & Quincy. Both men wanted this dense web of midwestern roads for its access to Chicago, which offered connections to the Atlantic seaboard. Harriman had tried and failed to buy the CB&Q in 1900. Hill and Morgan acquired it for the joint account of the Great Northern and Northern Pacific in late March 1901. The road’s Boston Brahmin owners explicitly chose Morgan over Harriman: “if Hill means also Morgan and the Northern Pacific, as he says it does,” they explained, “that would be the stronger and safer place for us to land.” Harriman demanded a third of the deal, but Hill and Morgan turned him down. They did not want this belligerent spoiler “butting in.”