“No, sir,” Harriman stated bluntly. “Not one in the country.”
This was true. During Harriman’s first three years at the helm of the UP, he spent $25.7 million on improvements and new equipment; the Atchison, Topeka & Santa Fe, which had 70 percent more mileage, spent a mere $11.3 million and the Northern Pacific, 10 percent longer, only $6.9 million.
Some contemporaries held that the unprecedented success of the Union Pacific under Harriman was the product of chance—the unforeseen nationwide boom that followed the depression of the mid-1890s. “Fortune favored the enterprise from the start,” sniped Ripley, an indefatigable critic of Harriman’s financial machinations. “An unusual rainfall in the semi-arid belt brought heavy crops and prosperity at a crucial time . . . The annexation of the Philippine Islands also largely stimulated transcontinental and Oriental business.” But even Ripley had to acknowledge that Harriman’s policy of investing earnings in permanent improvements had reduced operating costs to less than 53 percent of revenues in 1902 from 62 percent in 1896. Harriman, he conceded, placed the company “in prime financial condition, with strong credit and unsurpassed banking connections.”
Not to be overlooked was Harriman’s uncompromising ambition and vision. His goal, Ripley understood, “was really the creation of an absolute monopoly of all transcontinental business.” At the turn of the twentieth century, the West Coast was served by five mostly competing transcontinental routes. The most important was the “Sunset Route,” comprising steamship lines running from the Atlantic seaboard to New Orleans, where they connected with the Southern Pacific Railroad. Then came the Gould lines, which connected with the Central Pacific—the western end of the first transcontinental. Third came the Atchison, Topeka & Santa Fe, and fourth a partnership of steamship companies connecting with each other over the Isthmus of Panama. Finally, there was the Union Pacific, still dependent on the Central Pacific and Southern Pacific for its access to the sea.
Harriman aimed to eliminate the first four of these enterprises as competitors, either by acquisition or partnership. Before his death he would succeed. The great enterprise had begun with his acquisition of the Union Pacific, the initial step in creating “the most discussed and possibly the most efficient transportation system in the country” and the core of “a near-monopoly in transcontinentals [that] rivalled Morgan’s pretensions to dictatorship in the American railway industry,” the railroad expert E. G. Campbell observed. But the UP was just the beginning.
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A NEW ERA in the history of American railroads had been launched, endowing those who brought the industry forth from disaster with unprecedented wealth. Their profit making—or profiteering—would in time be seen in a negative light. Looking back on this era from the vantage point of two decades later, the Pujo Committee of the House of Representatives, led by Democratic representative Arsène Pujo of Louisiana, judged the process by which the railroad industry had been reorganized to be “archaic, extravagant, and utterly indefensible.” The reorganizations almost always involved connivance between the managements that had led the companies into the mire and the bankers brought in to drain the swamp. Bondholders and shareholders were almost always placed in the position of sheep led to the slaughter, Pujo concluded. If they objected to the terms they were presented, their only option was to form another reorganization committee, “if they can arrange to combine their scattered forces and find influential men who have the courage to oppose the banking house.
“It is not easy,” he observed wryly, “to find such men.”
Railroad reorganization became so lucrative for the reorganizers that some investment banking houses abandoned their other businesses in order to devote their efforts exclusively to the railroads. “They say it is the most profitable work they have been engaged in in recent years,” Railway World reported in 1896. The fees for reorganization managers were concealed within the total bills of the procedure and amortized through the new issues of stock and bonds given to existing security holders in exchange for their paper and floated to new investors on the open market. The investors, old and new, paid the price often without knowing how much, so there was little pressure to keep the fees reasonable. The typical fee was 1 percent of the value of the securities, plus whatever commissions were collected when the bankers marketed the shares. The Metropolitan Life Insurance Company, which joined Kuhn, Loeb in several reorganization syndicates, earned a $131,594 profit from underwriting the Union Pacific reorganization alone. Morgan’s typical fee was reported to be $1 million.
The process cemented Morgan’s role as the preeminent figure in American finance and industry. John Moody, founder of the financial and credit analysis firm that bears his name, described the network of Morgan trusts in steel, shipping, electrical supply, rubber, and other industries as the only industrial enterprise in the world that could rival Rockefeller’s Standard Oil Trust in economic power. But “it is in the railroad world that the Morgan influence makes its greatest claim for public attention.” The federal government had made no real effort to quell the rate wars, whether by limiting the construction of superfluous parallel lines or restricting the issuance of the watered stock and bonds that financed them (and that made them especially vulnerable to the downturn of 1893). Morgan took on the task, largely to uphold the railroads’ self-interest.
In 1890 the railroad industry had been made up of a great number of small, independent systems, almost every one facing competition from rivals in their service regions. Ten years later the independents had practically disappeared, for the industry had coalesced into six major trusts dominated by a single man or a small group working as one. Morgan’s was the largest—Moody estimated that Morgan-connected railroads embraced more than forty-seven thousand miles of track, or nearly twice that of any other group, and that its capitalization of $2.3 billion amounted to nearly one-fourth of all the railroad capital in the country. “Another feature about the Morgan group,” Moody added, “is that in most cases the lines absolutely dominate certain sections of the country; such as . . . the entire South and the great Northwest.”
* * *
* * *
The five other major railroad trusts were Vanderbilt’s, assembled around the New York Central and its tributaries; the Gould-Rockefeller group, the remnant of Jay Gould’s network, now managed mostly by William Rockefeller; the Pennsylvania Railroad group; the Rock Island; and Harriman’s, based on the Union Pacific and (after 1901) the Southern Pacific. But as Moody observed, the distinctions among these groups were not always clear-cut, for several had interconnections leading ultimately to Morgan: The Pennsylvania group had become allied with the Vanderbilts, thanks in part to Morgan’s own peacemaking, and the Vanderbilts were allied with Morgan. Then there were the ways that Morgan exerted his influence indirectly, through big banks such as the First National and Chase National and life insurance companies such as New York Life, all of which were at least partially under his control.
This was the community of interests in the flesh, and the flesh was Pierpont Morgan’s. Only Harriman, with an obstinate self-confidence that matched Morgan’s, stood apart. His goals did not differ from that of Morgan and his compatriots, but he would pursue them on his own.
The Morgan system would permanently alter the railroads’ relationship with their communities, passengers, and shippers. Under the new system, the quest for profits unfolded on a much greater scale than before. It was no longer possible for a lone buccaneer to plunder a single line in the style of Drew, Gould, and Fisk; henceforth, fortunes would be made and lost in battles waged by titans over ever-larger consolidated enterprises, with commensurately titanic consequences for the national economy and the financial markets.
The railroads’ customers would soon discover that this change substituted a new evil for the old one, and was much more costly at that. As Interstate Commerce Commissioner Charles A. Prouty told an economists’ conference in 1902, reflecting on a half decade of unprecedented upheaval: �
�Five years ago the crying evil in railway operations was . . . mainly discrimination between individual shippers. While many rates were too high, the general level was low.” That was no longer the case. As a result of the consolidation of the 1890s and the railroads’ recognition that “competition in rates is always suicidal,” competition had been eradicated. Rate discrimination had disappeared, “but in its place comes that other danger which always attends monopoly, the exaction of an unreasonable charge.” Put simply, the same shippers who earlier resented favoritism shown to their competitors, even if within an environment of lower rates for all, now discovered that the price of eliminating favoritism was the imposition of higher rates for everyone, with no opportunity for negotiation.
This stubbornness permeated the industry, not only in its relations with customers, but with its workers. As the century drew to a close, George Pullman, one of the most bullheaded men in American business, provoked a confrontation that would reverberate in US labor-management relations for decades to come. To passengers on long-distance train trips who passed the nights in his sleeping cars, Pullman’s name had been identified with comfort and luxury on the rails. To his employees, it signified the relentless seeking of profit at their expense. Pullman’s reckoning with his labor force, when it finally came, would raise anxiety among the public and on Capitol Hill about railroad tycoons’ concentration of economic power and their ruthlessness in exercising it—anxiety that would cause political trouble especially for Morgan and Harriman.
13
“A Pig-Headed Affair”
IN THE SPRING of 1894 the nineteen-year-old seamstress Jennie Curtiss wrote to a Methodist Episcopal minister named William H. Carwardine about her life as an employee of the Pullman Palace Car Company and a resident of Pullman, Illinois, the company town.
Located on the South Side of Chicago hard by Lake Calumet, Pullman was an immaculately groomed community, its spotless streets lined with handsome brick cottages and laid out around a central commons featuring a schoolhouse and an indoor arcade. All this was designed to evoke in real estate terms the luxurious comfort George Pullman strived to provide passengers on his railroad sleeping cars, the source of his fortune. The general impression in town was of an “all-pervading air of thrift and providence,” Johns Hopkins economist Richard T. Ely wrote in Harper’s Monthly. Yet there was something else about what Ely labeled “the experiment called Pullman.”
Jennie Curtiss knew what that something was: George Pullman’s greed. She also knew that Carwardine would lend her a willing ear. The thirty-four-year-old minister was almost unique among local pastors in his willingness to preach from the pulpit on behalf of the workers and against Pullman. Steeped in the populist and pro-labor Social Gospel movement rising at the time, Carwardine had damned Pullman in a sermon on May 20 for paying meager wages, calling him “a pampered millionaire, entrenched behind his gold, . . . to heed not the tears of wives and children who have been simply existing upon the crumbs which fall from the rich man’s table.”
In her letter to Carwardine, Curtiss underscored much of what the minister had already observed in Pullman’s company town. She wrote of her father, who had worked for the company for ten years:
Last summer he was sick for three months, and in September he died. At the time of his death we owed the Pullman Company about sixty dollars for rent. They told me I would have to pay that rent, give what I could every pay-day, until it was paid . . . Many a time I have drawn nine and ten dollars for two weeks’ work, paid seven dollars for my board and given the Company the remaining two or three dollars on the rent, and I still owe them fifteen dollars. Sometimes when I could not possibly give them anything, I would receive slurs and insults from the clerks in the bank, because Mr. Pullman would not give me enough in return for my hard labor to pay the rent for one of his houses and live.
Curtiss also depicted conditions on the Pullman factory floor, where “the tyrannical and abusive treatment we received from our forewoman made our daily cares so much harder to bear . . . No doubt she [the forewoman] will remain in the employ of the Pullman Company, as that is just the kind of people they want at the heads of their departments—one who will help grind down their laborers.” Thus the inescapable dissonance of life as an employee of George M. Pullman: a spotless environment outside the factory, and endless, grinding torment inside.
The conditions Curtiss described grew worse throughout the crushing depression that followed the economic crash of 1893. They would lead to a strike and boycott that began on June 26, 1894, swept across the Midwest, disrupted rail operations across the nation, and finally brought the US government into the fray—on industry’s side. The Pullman Strike was the largest job action in the United States up to that time, dwarfing by several times the Knights of Labor action against the Gould system eight years before. It still ranks as one of the most significant strikes in American history. Neither the railroads nor organized labor would ever be the same.
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GEORGE PULLMAN’S TIDY township was part of a movement during the Industrial Revolution to place working men and their families in salubrious surroundings, partially to provide spiritual uplift and partially to enhance productivity. The movement gave rise to two especially notable attempts at industrial utopias: Saltaire, which was founded in 1851 by the woolens manufacturer Titus Salt by the Aire River not far from Liverpool, England; and Familistère, or the Social Palace, which was launched in 1859 by the iron stove manufacturer Jean Baptiste André Godin at Guise, 125 miles from Paris.
The balance between the spiritual and practical elements varied from one to the other of these communities, although their builders always professed to place the contentment and moral improvement of the residents at the forefront of their worldviews. “The Social Palace is not only a better shelter than the isolated house of the workman, it is also an instrument for his well-being, his individual dignity and progress,” Monsieur Godin explained to Harper’s. “It is precisely because it affords him the right conditions for the full development of his physical life, that it opens to the world a new horizon for our moral life.” (Emphasis in the original.)
In the promotional material about his own company town, George Pullman outlined the same general rationale of spiritual improvement, but put a bit more stress on the economic element. “The Pullman car solved the problem of long, continuous railway journeys, and the town of Pullman, along new lines, gives a hope of bettering the relations of capital and labor,” he stated in a company brochure. “The Pullman enterprise . . . has illustrated the helpful combination of capital and labor, without strife or stultification, upon lines of mutual recognition.” In practice, none of the towns’ paternalistic philanthropists exploited their commercial potential as sedulously as George Pullman.
Almost without exception, visitors to Pullman, Illinois, were struck by its cleanliness and abundant amenities, at least at first. But these always looked most impressive from a distance. “As seen from the railway by a passing tourist, [the town] presents a beautiful picture,” Rev. Carwardine reported in his book The Pullman Strike, published in 1894 while the crisis was still ongoing. “In fact, it appears to be a veritable paradise. Beautiful trees and flowers, pretty fountains, glimpses here and there of artistic sweeps of landscape, gardens, rows of pretty brick houses, church in the distance, public buildings of different description.”
* * *
George Pullman’s Palace Cars brought comfort to long-distance travel on the rails; their plush benches converted into beds and the angled hideaway compartments above folded down to form the upper berths.
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Yet closer inspection revealed these vistas to be those of a corporate Potemkin village, for “strife, mutual suspicion and discord” simmered behind the facade. Pullman’s luxurious community library could fairly claim to be “one of the most complete of its kind in the United States,” Carwardine wrote, as it was furnished with plush reading chairs and a carpeted floor, stocked with 20,90
0 volumes including 5,479 reference books, 2,245 scientific treatises, and 2,073 volumes of poetry. But the annual charge for membership was three dollars per adult and one dollar per child. That was a steep rate for Pullman employees struggling to make do on as little as fifteen cents an hour, or nine dollars for a sixty-hour work week, especially at a time when the communities surrounding Pullman were starting to build public libraries open to every resident for free. As a result, out of a population that reached twelve thousand or more, the Pullman library enrolled only about 250 subscribers a year.
The Arcade, in which the library was located, was a large building on the main square that also housed the offices of the Pullman Journal, the community’s only newspaper, its sole bank (owned by the Pullman company, it was the issuer of the company paychecks), and the only retail shops permitted in town (also owned by the company). The Journal was edited by one Colonel Duane Doty, who served as the historian and statistician of the Pullman company and assured all visitors that the community was one “from which all that is ugly, discordant and demoralizing is eliminated.”
Occupying a central location was what was known as the “greenstone church” for the color of the imported serpentine stone of its exterior, a unique material in the largely redbrick community. But the church and its attached parsonage were vacant, because no congregation could afford the rent. Carwardine’s Methodist flock had tried to negotiate Pullman down from $300 a month but met with a firm refusal. “When that church was built,” George Pullman explained to the pastor, “it was not intended so much for the moral and spiritual welfare of the people as it was for the completion of the artistic effect of the scene.” In any case the building was judged useless for sectarian purposes, since it consisted of a single large auditorium but had no classrooms for Sunday school or offices for private conferences. The Catholics and Lutherans built their own churches just over the town line, while the Methodists contented themselves with a meeting room in the Arcade, which they leased for $500 a year. “No private individual owns to-day a square rod of ground or a single structure in the entire town,” observed Ely in Harper’s Monthly. “No organization, even a church, can occupy other than rented quarters.”
Iron Empires Page 24