For Harriman, the distinction was not trivial. If he got back his original shares, he would emerge with a controlling interest in the Northern Pacific. Under the terms of a pro rata distribution, however, he would have no more than minority interests in both the Northern Pacific and the Great Northern and no effective influence over either. Hill would be in charge.
Within days of the board’s decision, Harriman filed suit to block the breakup. The lawsuit utterly wrecked Schiff’s already quixotic effort to bring Harriman and Hill together. Hill maintained that Harriman had assented to the pro rata plan at least tacitly, during a meeting shortly after the Supreme Court ruling. Harriman’s position to the contrary now, Hill fumed, was “a piece of conscienceless lying” that left him unwilling to be “associated with [the Harriman camp] in any business. All they want to make them crooked is the opportunity to cheat some one.” (According to Harriman’s biographer George Kennan, Harriman had sent an intermediary to the meeting, and when the proposed terms were described to him afterwards he objected at once.)
Resolving the dispute took nearly another year, until the Supreme Court upheld the pro rata distribution on March 6, 1905. In legal terms this was a clear victory for Hill and Morgan. In financial terms, however, being force-fed Northern Pacific and Great Northern shares eventually produced for Harriman “a veritable bonanza,” Kennan observed. Over the following year, the stock market and particularly railroad shares boomed, allowing Harriman to sell off his holdings in both roads at a profit conservatively estimated at $58 million and possibly as much as $80 million. Asked by a magazine writer in 1906 to identify Harriman’s most notable achievement, the railroad economist Thomas F. Woodlock replied: “I think it was this, to get licked in a fight and pull out of it with a colossal fortune as a result.”
But the money was not to look at; it was to use. Harriman would do so with his typical energy, albeit in a way that would cast a shadow over the final chapter of his life.
21
“Malefactors of Great Wealth”
HARRIMAN’S CLOSEST ADVISERS were uneasy about how he set about spending the immense cash hoard the Union Pacific had accumulated. Among other bounties, he was sitting on the profits from the Northern Securities stock sales and $60 million remaining from the $100 million bond issue floated to buy the Southern Pacific in 1901. Now he began using the money to buy up shares of other railroads, many of them direct competitors of the Union Pacific.
Otto Kahn later called the spending of this money a “difficult and complex problem,” even though the investments in railroad stocks were likely to yield a large profit for UP shareholders. Kahn acknowledged that the timing of the purchases, given that Harriman was already saddled with the public image of a railroad robber baron, was unwise. Kahn, generally one of Harriman’s most consistent defenders, called the stock purchases “the one serious mistake of his management of Union Pacific affairs.” He pointed to a particular problem: The purchases helped exacerbate the cooling of the relationship between Harriman and Theodore Roosevelt into a clean break—what Kahn called “the crisis in Mr. Harriman’s career.”
The deterioration in this relationship unfolded while Roosevelt expanded and intensified his attacks on the banking and investment communities, especially after he won election as president in his own right in 1904. His victory brought about more talk of bringing the railroads under federal regulation, and more antitrust lawsuits. Wall Street felt the pressure increasing even as Roosevelt offered superficial reassurances that he was targeting not corporate behemoths or individual tycoons, but only wrongdoing—as he did in a speech at Philadelphia’s upper-crust Union League on January 31, 1905.
“We are not trying to strike down the rich man,” he said. “On the contrary, we will not tolerate any attack upon his rights. We are not trying to give an improper advantage to the poor man because he is poor . . . but we are striving to see that the man of small means has exactly as good a chance, so far as we can obtain it for him, as the man of larger means.” But he warned that “the great development of industrialism means that there must be an increase in the supervision exercised by the government over business enterprises.”
Wall Street’s relations with the White House were destined to darken as the bankers continued to resist Roosevelt’s calls for “supervision” and given the clash of personalities between the president on one side and figures like Morgan and Harriman on the other. “His war on Pierpont Morgan has been wholly personal,” Henry Adams wrote Elizabeth Cameron. “And you know, as well as I do, what Wall Street does when men try to kick.”
There seemed to be no common ground among the principal figures. Roosevelt expected blind obedience and thrived on flattery. Morgan considered himself the master of any economic or financial situation, as long as the government and small investors kept out of his way. Harriman was confident in his own rectitude and judgment, and obstinate in dealing with challenges whether they came from individuals or conditions in the natural world.
“The big New York capitalists seem to me to have gone partially insane in their opposition to me,” Roosevelt wrote the liberal Republican Carl Schurz in December 1903; “but I have long been convinced that the men of very great wealth in too many instances totally failed to understand the temper of the country and . . . attack the very men who, by doing justice, are showing themselves the wisest friends of property.”
But Roosevelt was not above appealing to the bankers by hinting at quid pro quos for political contributions. For his 1904 campaign he extracted more than $2 million from George Gould, Morgan, the Rockefellers, and other leaders of the money center, though he left them feeling conned after the fact. “Roosevelt fairly went down on his knees to us in his fear of defeat,” steel tycoon Henry Clay Frick recounted later, “and said that he would be good and would leave the railroads and the corporations alone if we would only give him this financial help. We did, but he didn’t stay put in his second term. We got nothing for our money.”
Harriman, at least, did not have this problem—for he was not among Roosevelt’s reelection donors. It was another sign of how far apart the men had drifted, and a harbinger of the showdown to come.
* * *
WHAT MADE THE break between Roosevelt and Harriman especially notable was that the two had been political allies and personally close for a decade. They originally came to know each other as twin pillars of the New York State Republican Party in the 1890s—Roosevelt as its rising young flag-bearer, Harriman as an important financial backer. After Roosevelt’s accession to the presidency, Harriman was a frequent visitor to the White House and enjoyed what his biographer George Kennan described as “cordial and harmonious, if not intimate,” relations with the president. As late as 1906 they were still friendly enough for the Harrimans to be among the invited guests at the wedding of the president’s daughter, Alice, to Nicholas Longworth, the outstanding social event in Washington that year.
A distinct chill could be felt in the air, however. The first signs of a change in the relationship between Roosevelt and Harriman had emerged prior to the 1904 election, linked to two factors. One was the convoluted internal politics of the New York Republican Party, which was in dire financial straits. The party’s appeals to Harriman for relief went unanswered, in part because Harriman felt that Roosevelt had reneged on a commitment to provide a political appointment for a Harriman friend. The second issue was Harriman’s wish that Roosevelt tone down his antitrust campaign against the railroads.
In Roosevelt’s mind, the two issues were inextricable—he assumed that Harriman’s rebuff to the party in its hour of financial need was aimed at applying pressure on him politically. That led to a series of misunderstandings related to the scheduling of a meeting between Roosevelt and Harriman—which of the two had proffered the first invitation, what was to be on the agenda, and so on. Letters pertaining to their plans crossed in the mail, and at least on Roosevelt’s part were suspiciously vague, as though the president was creating a writt
en record for public consumption casting himself in the best light. A few courtiers did their part to curry favor with Roosevelt by undermining Harriman; one told Roosevelt of a conversation in which Harriman purportedly claimed to care little about who presided in Albany or Washington, since he had the ability to “buy Congress” or “buy the judiciary” to get his way. The words later were flatly denied by a witness to the conversation, but by then Roosevelt was in a fury, grousing to Senator Henry Cabot Lodge that Harriman had displayed “a perfectly cynical spirit of defiance throughout, his tone being that he greatly preferred to have in office demagogues rather than honest men.”
In Otto Kahn’s view, the anti-Harriman whispering campaign originated with malcontents whom Harriman had bested in financial combat, or “unknowingly offended, or who were merely envious of his success.” As Kahn would write after Harriman’s death: “The Harriman Extermination League—if I may so call it—played its trump-card by poisoning President Roosevelt’s mind against Mr. Harriman . . . by gross misrepresentations, which caused him to see in Mr. Harriman the embodiment of everything that his own moral sense most abhorred and the archetype of a class whose exposure and destruction he looked upon as a solemn patriotic duty.”
Roosevelt launched his most direct attack on Harriman’s business empire via the Interstate Commerce Commission, which voted on November 15, 1906, to open an investigation of transactions the Union Pacific had made under Harriman’s leadership, some dating as far back as 1899. Although the ICC was nominally an independent body, Harriman’s partisans considered the timing of the probe suspect to the point of being conclusive. “It may be only a chronological coincidence,” Kennan wrote in 1916, but it was “immediately after the rupture of friendly relations between the President and Mr. Harriman” that the ICC began its investigation, “acting either on its own initiative or upon suggestion.”
Harriman’s ability to fight back was at a low ebb, for he had been suffering from a complex of illnesses, including his recurrent bronchial condition (friends attributed his poor health to relentless overwork). “He told me later,” Kahn reported, “that during the year 1906 there was not a day in which he was not tormented by severe pain.” Yet Kahn also acknowledged that, whether it was illness, hubris, or ambition that impaired Harriman’s judgment, his own spending of the Union Pacific’s cash gave the regulators the pretext they needed to open their investigation.
Harriman’s testimony before the ICC did not help his cause. Kahn was braced for the worst when Harriman took the stand. “He always made an indifferent witness,” Kahn recalled, “being impatient and rather resentful and defiant under examination, reluctant to explain so as to make things plain, . . . and disdaining to defend himself against accusations or innuendo.”
As it happened, Harriman made it clear in the commission’s hearing room that he would buy even more railroads if he could, and all but taunted the ICC to stand in his way.
“If you let us, I will go and take the Santa Fe tomorrow,” Harriman said.
“You would take it tomorrow?” he was asked.
“Why, certainly I would. . . . It is a pretty good property.”
“. . . Then after you had gotten through with the Santa Fe and had taken it, you would also take the Northern Pacific and Great Northern, if you could get them?”
“If you would let me.”
“And your power, which you have, would gradually increase as you took one road after another, so that you might spread not only over the Pacific coast, but spread out over the Atlantic coast?”
“Yes.”
Placed in the public record verbatim by the ICC, these remarks “lent color to the impression that Mr. Harriman was aiming at a gigantic illegal monopoly of the railroad industry” in flagrant violation of the Sherman Act, Kahn recalled. The result was “a veritable cyclone of criticism, condemnation and defamation.”
Roosevelt heatedly denied that he had anything to do with the timing, much less the existence, of the ICC investigation. Speaking of the five commissioners, he stated that “the suggestion that these men would listen to, or that I would make, a request that they proceed against a railroad president because of my personal disagreement with him, is monstrous in its iniquity, and equally monstrous in its absurdity.” Yet he took a personal interest in the investigation and was not at all shy about trying to exploit its result. Upon receiving an advance copy of the ICC’s investigative report in July, he demanded that its public release be timed to coincide with the announcement of a federal lawsuit against Harriman based on its findings—and then complained bitterly to Attorney General Charles J. Bonaparte, who had succeeded Knox, when the commission barged ahead and released the report on its own. By doing so, he wrote Bonaparte, “they have given the impression that they have made rather a milk-and-water report.”
Roosevelt instructed Bonaparte to meet him at his home at Sagamore Hill, Long Island, to draft a joint statement announcing a lawsuit. But the litigation was not filed until the following January, possibly because the ICC’s criticism of Harriman was, as Roosevelt observed, less than full-throated. To be sure, its report was not exactly kind to Harriman, for it harshly denounced some of Harriman’s financial maneuvers: “Purchasing and controlling stocks in competing lines,” it reported, “must mean suppression of competition.” Harriman’s control and restructuring of the Chicago & Alton in particular was rife with “indefensible financing” that benefited Harriman and his business partners.
The commission acknowledged, however, another aspect of Harriman’s management—its effectiveness.
It has been . . . no part of the Harriman policy to permit the properties which were brought under the Union Pacific control to degenerate and decline; as railroads they are better properties to-day, with lower grades, straighter tracks, and more ample equipment than they were when they came under that control. Large sums have been generously expended in the carrying on of engineering works and betterments which make for the improvement of the service and the permanent value of the property.
Nor did the ICC call explicitly for a breakup of the Union Pacific. Its recommendations were largely prospective and conditional—“The function of a railroad corporation should be confined to the furnishing of transportation” rather than playing the stock market, for example.
Roosevelt’s hand may have been stayed even more by his fear that suing Harriman would fuel Wall Street’s inclination to blame his policies for an economic slowdown and stock market slump in 1906–7.
Wall Street bankers had been ascribing emergent economic shudders to the president’s antibusiness campaign virtually since the election of 1904. As Roosevelt repeatedly groused to his friends, this was unfair. The causes of what blossomed into a major economic crisis in 1907 were global. They included worldwide competition for capital generated by prosperity across Europe, in the Far East and South America, and further with demand for funds by Britain, which was still paying bills from the Boer War of 1899–1902, and by Russia and Japan, which had run up expenses of nearly $1 billion each during the Russo-Japanese War of 1904–5.
The well of capital was running dry. The production of gold for a global economy based on the gold standard could no longer keep up with demand. Structural weaknesses had manifested themselves in the banking, credit, and currency systems of the developed countries, including the United States. Among those who feared that America’s system of monetary oversight had become badly outdated was Jacob Schiff, who warned in a speech to the New York Chamber of Commerce in January 1906 that unless America’s decentralized, unregulated monetary system were reformed, “we will get a panic in this country compared with which the three which have preceded it would only be child’s play.”
Although the stock market was unnerved by all these factors, Wall Street tended to point its finger at Roosevelt and his associates such as Bonaparte, the attorney general. After the market broke severely on March 14, 1907, with Union Pacific shedding more than twenty points to $120—a drop almost
as steep as on the calamitous panic day of March 9, 1901—Harriman was besieged by reporters outside his Lower Manhattan office. “I would hate to tell you to whom I think you ought to go for the explanation of all this,” he said, his implication crystal clear.
The drumbeat of blame only increased in early August, after federal judge Kenesaw Mountain Landis imposed a fine of more than $29 million on John D. Rockefeller’s Standard Oil of Indiana for illegal rebating, in a case brought by the government. “Everyone is frightened to death by the action of people like our fool Attorney General,” J. Pierpont “Jack” Morgan Jr., the House of Morgan’s heir apparent, told his London partners. Charles S. Mellen, president of the New York, New Haven & Hartford Railroad—who was so close to the Morgan bank that critics derided him as its “hired megaphone”—likened Roosevelt’s attack on corporations to “a drunken man’s debauch.”
Roosevelt put it about that he was unmoved by these brickbats, even proud to be their target, but that is not to say that he ignored them. In a missive to the Boston banker Henry Lee Higginson in early August, he referred to a letter from a voter who warned that “if hard times come they will be due to Rough Rider methods,” a reference to the volunteer cavalry regiment that Roosevelt had led with such élan in Cuba during the Spanish-American war. Of such complaints Roosevelt commented, “All strike the same note; a note of lunacy.”
Roosevelt then turned the tables on the bankers, speaking loudly while also brandishing a figurative big stick. The occasion was the August 20 cornerstone ceremony for the Pilgrim Monument in Provincetown, Massachusetts, where the Mayflower Compact had been signed after the Pilgrims’ first landfall in 1620.
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