by Jean Strouse
At the end of July, when Amalgamated leaders met with U.S. Steel officials, Morgan proposed a compromise: the corporation would pay union wages across the board, but hold the line against organizing nonunion mills. He said he was not opposed to organized labor, and expected all U.S. Steel plants to have union contracts within two years; for the moment, however, it was impossible to impose a single policy on the subsidiaries. At the urging of other labor leaders, Shaffer agreed to Morgan’s proposal, but his executive board rejected it, and on August 10 the Amalgamated called for a general strike against U.S. Steel. While other unions debated sympathy walkouts, the corporation hired strikebreakers. In late August, John Mitchell, head of the United Mine Workers of America, persuaded Shaffer to reconsider Morgan’s initial proposal plus reinstatement for all strikers. This time, Shaffer managed to get his board’s approval, partly because its members thought that Mitchell’s UMW would join the strike if the new negotiations failed.
When Mitchell, Samuel Gompers of the AFL, and other labor representatives took the recycled Morgan proposal to U.S. Steel headquarters on September 4, however, Charles Schwab rejected it. He said he would not sign union contracts for nine of the mills that had been union the preceding year, but would take no action against anyone who participated in the strike; he proposed to leave this offer on the table for twenty-four hours. Mitchell urged Shaffer to accept it and end the strike. Shaffer asked for a day’s extension to consult his board, but produced no answer twenty-four hours later. Neither the UMW nor the AFL joined the strike. On September 14, the Amalgamated was forced to accept far harsher terms than either Morgan or Schwab had proposed, and lost fourteen mills that had been unionized when the strike started. According to the labor historian Philip Taft, the outcome of the steel strike was “disastrous” to the Amalgamated “and to the labor movement generally.”‖
A year after the strike, George Perkins put into effect a plan that would allow rank-and-file U.S. Steel workers to buy its preferred stock on installment at special prices. His aim was to provide employees with a stake in the corporation’s productivity and profits—to “people-ize” the industry, he said, as well as to forestall unionization and offset public antipathy to corporate giants.
Profit sharing was not a new idea at the beginning of the twentieth century. Albert Gallatin, Treasury Secretary from 1801 to 1814, had tried it at his Pennsylvania Glass Works in 1795, and sharecroppers and fishermen had always taken portions of their yields. By 1900, U.S. companies with profit-sharing plans included the Illinois Central Railroad, Procter and Gamble, the National Biscuit Company, New York Life, Pittsburgh Coal, and Carnegie Steel.
The program Perkins devised at the largest corporation in the world went further than its antecedents, offering preferred stock at a discount to every employee, with payment on an installment plan and bonus incentives for long-term employment. Those most able to take advantage of the plan were executives and skilled workers at the highest salary levels, but 10 percent of the company’s 122,000 unskilled workers, earning an average of $550 a year, signed up as well. Gary claimed that the plan made “the wage earner an actual partner.” The journal Finance and Commerce predicted that employee stock ownership would turn the country into “a nation of conservative Bourbons.”
Not surprisingly, it didn’t, although it tended to take the pressure off wage questions and to undermine union bargaining power. The American Mining Congress Journal called employee stock ownership “a prophylactic against government ownership,” and Samuel Gompers dismissed it as a genteel surrogate for factory police and strikebreaking Pinkertons. Thousands of people dropped out of the U.S. Steel plan in its first few years, unable to afford even discounted shares, yet in 1911 over 30,000 workers owned company stock, and 42,258 by 1918.
Perkins, sounding a little like the author of Fraternity, regarded the program as “socialism of the highest, best and most ideal sort.” He stressed the moral and psychological investment that came with stock ownership, criticizing managers who used similar programs not in “a true, an honest, and a fair spirit of cooperation,” but simply to exact higher returns from labor. He also claimed that this program had reduced the “strike menace to almost nothing.” Though he was offering what the unions regarded as paternalistic tokens, Perkins genuinely thought he could replace worker-management conflict with mutually beneficial accord—just as he and Morgan thought corporate cooperation could supplant “ruinous” warfare.a
Sir Thomas Lipton sent a second Shamrock to challenge New York for the America’s Cup in 1901, and that August—just as Shaffer called for the general strike against U.S. Steel—Morgan went by yacht to Bar Harbor to watch the trials. He returned to New York when Louisa’s baby arrived a week early. Satterlee wrote to his mother on September 1: “The Commodore has come several times and held the baby [named Mabel] to his and also her great satisfaction. He says that ‘barring Louisa’ she is the prettiest baby he has ever seen.”
At the end of September the Commodore took a party of friends to Sandy Hook, New Jersey, on Corsair to watch the first race between the new Shamrock and Columbia, the defender. Columbia won by seconds. As soon as she crossed the finish line, Morgan left the course, sailed up the East River, boarded a launch for shore, and was driven to Grand Central Station, where a train was waiting to take him to San Francisco for the Triennial Episcopal Convention.
Signalmen from New York to California routed trains to side tracks so the Morgan “special” wouldn’t have to stop. Among those on board were Bishops Henry Potter and William Doane, Jim Goodwin, Adelaide’s cousin Amy Townsend, and Frank Stetson. Morgan’s Attorney General, also an active lay member of the Episcopal Church, had the plans for the northwest railroad consolidation so firmly under control that before leaving New York he had given an associate the minutes—not the agenda—of a forthcoming Northern Pacific stockholders meeting.
In San Francisco, Morgan put his friends up for three weeks at a house he had leased from the railroad builder and banker Charles Crocker, and consigned all culinary arrangements to the New York restaurateur Louis Sherry, whom he had imported for the occasion. During the ecclesiastical councils at San Francisco’s Trinity Church, messengers brought him telegrams about the yacht races taking place off Sandy Hook. Morgan read these bulletins aloud, and the night Columbia won the Cup he held a Sherry-catered dinner for the votaries of church and yacht.
After the convention he took his party up the coast to Oregon and Washington, where he bought them all furs. Northern Pacific Railway president Charles Mellen met the group in Portland—a friend teased him about “entertaining Bishops and other ecclesiastical dignitaries and escorting them in their beautiful lawn sleeves along the bottom of copper mines.” In late October, Morgan escorted the dignitaries home.
Adelaide Douglas moved from 28 West 57th Street to 4 East 46th in 1901, and as soon as Morgan returned to New York that fall he bought objects for her new house at the Duveen Brothers gallery on Fifth Avenue. The New York City street directories list Adelaide and her husband at 46th Street and Douglaston, Long Island—she may have stayed primarily in town, he in the country. A clerk at Duveen’s annotated the lists of Morgan purchases in 1901, marking some pieces as going to “House” (219), some to “Museum” (the Metropolitan), some to 55th Street (the Markoes); the items sent to “4 East 46th” in the fall of 1901 included Chelsea porcelains, Dresden candlesticks, a silver lamp bracket, a green velvet embroidered coverlet, antique Italian gilt and carved wood candlesticks, and a Louis XIII armchair. Adelaide apparently encouraged Morgan’s interest in the decorative arts of the French court, for among the objects he gave her over the next few years were a “coffret de mariage de Marie-Antoinette,” Riesener furniture, a Louis XV secrétaire, groups of Sèvres and Meissen porcelain, books on Les Femmes de Versailles and Napoléon et les Femmes, and a silver-plated “Temple of Love” by the Parisian silversmith André Aucoc. Working in the late-nineteenth century, Aucoc was well known for closely copying eighteenth-cent
ury models, and the neoclassical “Temple” Morgan gave to Adelaide—standing seventeen inches high on a ten-inch solid-silver base—is reminiscent of table centerpieces used for royal occasions in late-eighteenth-century France. She kept it in the center of her dining table.
On November 12, 1901, lawyers for Morgan and Hill chartered a New Jersey holding company called Northern Securities, authorized to issue $400 million of capital stock. The next day the new, Morgan-appointed board of the Northern Pacific Railway voted to retire its preferred stock at par, and to pay for it with a $75 million issue of convertible bonds; since Harriman sat on the board and owned a majority of these shares, his assenting vote put a final full stop to the raid. Also on November 13, J. P. Morgan & Co. bought Harriman’s NP common shares and sold them to the Northern Securities Company. The new corporation quickly acquired 76 percent of all Northern Pacific stock and 96 percent of the Great Northern’s, issuing its own shares in exchange; it gave Harriman’s Union Pacific group a $9 million premium for trading in their shares. Although the GN and NP would remain separate entities, Northern Securities created the huge regional community of interest that Morgan and Hill had been trying to establish for years.
Hill headed the Northern Securities board. Among the other directors were Morgan partners Bacon, Perkins, and Steele, First National Bank president George Baker, Northern Pacific officers Charles Mellen and Daniel Lamont, and the erstwhile raiders, Harriman, Stillman, William Rockefeller, and Schiff. In addition to the NP, GN, and CB&Q, the holding company acquired steamships, land grants, timberlands, coal properties, and iron mines. Hill thought $200 million a low estimate for the value of the nonrailroad assets.
Morgan, questioned five months later about his motives for organizing Northern Securities, talked about securing “moral control.” When news of the raid reached him at Aix, he said, he had instantly realized what was at stake: “I feel bound in all honor when I reorganise a property and am morally responsible for its management to protect it, and I generally do protect it; so I made up my mind that it would be desirable to buy 150,000 shares of stock, which we proceeded to do, and … that actually gave us the control.”
He had done an enormous amount of work on the Northern Pacific since 1880. “Protecting” it in 1901 had meant buying nearly $20 million of its stock on the open market, then combining it with the Great Northern into a holding company so large and closely held that it would not be susceptible to hostile raids: “We didn’t want convulsions going on,” he explained. Since the court he addressed in 1902 was considering whether or not Northern Securities violated the antitrust law, Morgan stressed size as the key to “protection,” even though his long experience with railroads (and the raid on Northern Pacific) had convinced him that only majority stock ownership guaranteed control. He had thought the $155 million NP safe from “being absorbed by a competing line without our knowledge or consent,” he said. When it turned out not to be, he concluded that greater size would ensure stability: “The capital of the Northern Securities Company was so large [at $400 million, that] I did not believe in a night or week anybody would ever be able to get control of it.”
What he wanted was to be able to “go to Europe and not hear next day that somebody had bought it for the Boston and Maine, or I don’t know what other company. I wanted the Northern Pacific stock put where nothing could interfere with the policy I had inaugurated and for the carrying out of which we were perfectly satisfied and morally responsible.”
To people concerned about railroad monopolies and the stifling of competition, these statements sidestepped the essential problem: that parallel and competing carriers had been brought together under one corporate roof. Morgan was looking at a different set of problems, and he regarded the outcome in this case—the ending of regional warfare, the inclusion of former enemies on one corporate board, the promise of steady transport between the country’s agricultural interior and its ports, and the positioning of U.S. commercial interests to compete with Europe—as an ideal solution.
Yet he and his associates had also taken steps to protect their consolidation which he could not have called “moral,” and would not have been willing to discuss in public. On November 18, 1901, six days after the incorporation of Northern Securities, Minnesota Governor Samuel R. Van Sant invited the governors of neighboring states to join him in an effort “to fight the great railway trust.” For various reasons the other governors declined, but they passed a resolution on December 31 declaring the consolidation “contrary to sound public policy” and approving Minnesota’s challenge. On January 7, 1902, Minnesota asked the Supreme Court for leave to file a complaint against Northern Securities as an illegal combination in restraint of trade—a request the Court denied. Minnesota’s attorney general brought suit in state court.
Hill had assured Van Sant that since neither the GN nor the NP controlled the other and each remained independent, “no law of the State of Minnesota is being avoided or violated.” Still, criticism mounted in the local press. Suspecting that rival railroads were behind it, Hill instructed his son to “try to get Minnesota Journal & Tribune, Pioneer Press and Globe” to tell his side of the story: “You should spend Forty or Fifty or Seventy-five thousand, if necessary, to good advantage.… It may be best to smoke out the opposition of the other roads.”
Charles Mellen, who hated Hill, urged Morgan to keep the Great Northern and its president “in the background.” The Northern Pacific, Mellen claimed, was far more popular in Minnesota than Hill’s GN, and could “do many things without much expense that can only be done by the other party through such a lavish use of money as borders on scandal.” Since Mellen himself was engaged in bribing public officials, it seems to have been the amount rather than the fact of corporate payoffs that justified calling the kettle black.
In late January 1902, two weeks after Minnesota moved against Northern Securities, Mellen told Morgan in a letter marked STRICTLY CONFIDENTIAL that Van Sant was about to recommend to a special session of the state legislature new laws regarding railroad rates “of a nature we should term retaliatory, and it is my belief that he can be dissuaded from such a course, and his message be made wholly silent on the subject.”
Though “not prepared to say definitely that this can be done,” Mellen thought he had an avenue “by which it can be accomplished, and my object in writing you is to ask if you will personally place at my disposal a modest sum of money, available, in my descretion [sic], in case I secure the desired result.” Practically blushing and scraping the floor with his toe, he said he had in mind “no unreasonable sum; my experience in such matters has been of a modest character; and I feel sure the amount will meet your entire approval.” It turned out to be $5,000. Mellen was appealing to Morgan in order to disguise the fact that the money would be coming from the Northern Pacific, he explained: once the “desired result” was accomplished, the banker could recover the sum from the NP “in ways that will occur to you, and that have been used before, and keeping the matter wholly a confidential one between you and myself.”
Mellen assured Morgan that none of the money would “either directly or indirectly, ever reach the Governor” himself, “for I think he is beyond anything of the kind.” Mellen’s coy rectitude—he claims “modest” experience with these matters, and appears to respect a politician who is “beyond” bribery: paying off those who were not beyond it (probably members of the governor’s staff) might be dirty work, but somebody had to do it—suggests that he was worried about someone else’s scruples. “Should this matter appeal to you,” he concluded to Morgan on January 25, 1902, “I beg you will telegraph me yes or no.”
Four days later, Morgan replied, “Yes.”
On February 1, Mellen reported the matter “well in hand,” although the governor was “weak … suspicious” and “unreliable.” On the third he wired Morgan, “We are all right, message will be satisfactory.” He elaborated by mail that it would be “silent on the question of legislation as to railroad rates
,” and would recommend “no legislation on the merger question other than an appropriation to continue the [antitrust] litigation.”
With this mission accomplished, Mellen turned immediately to another. The Minnesota legislature was now likely to “attack us through rate bills” on its own, he told Morgan, and also to impose a heavy new tax on iron ore, “in which [he hardly needed to remind his correspondent] the United States Steel Corporation is greatly interested. Sub rosa we are advised bills have been prepared, attacking in this direction.” Mellen thought he could head off this threat for a sum that would be “inconsiderable as compared with our former experience with legislatures here.” And in what amounted to a fine illustration of Saint Jerome’s lesson about “strong men in controversy … justifying the means by the end,” he went on: “I assume you want success, or rather, in this instance, immunity, and the method is not so important as the result.”
Two weeks later Morgan wired, “Quite approve your going ahead; would like to know maximum amount required.”
Mellen: “Not in any event to exceed twenty five.”
Morgan: “All right, do whatever is necessary.”
At the beginning of March, Mellen reported that he had put $25,000 “in the hands of a third party” and arranged for there to be no “adverse legislation” regarding railroads or steel. He asked Morgan to credit $25,000 to his account: the Northern Pacific, Great Northern, and US Steel would “equitably” repay the advance.
Although the sums involved in these purchases of political inaction were relatively small—“inconsiderable as compared with our former experience with legislatures,” volunteered Mellen—they would have confirmed the public’s worst fears about Wall Street and the corrupt use of corporate cash, had they or their predecessors come to light. Morgan probably did not much like these activities—several things he would not have wanted posterity to see did escape the censors, and there are few instances of outright graft—but accepted them as the cost of doing business. He had a capacious definition of “moral responsibility” that covered what seemed necessary to achieve the goals he had in mind: “the method,” as Mellen obligingly put it, was “not so important as the result”—“immunity” from rate regulation, ore taxes, and legislation hostile to the Morgan clients’ interests.