The Great Pierpont Morgan (7 page)

IV

MORGAN THE PEACEMAKER

1

On a warm morning in July 1885, two gentlemen from Philadelphia boarded a sleek black steam yacht at a dock in Jersey City for a day's cooling excursion in the waters about New York. The two Philadelphians were George B. Roberts, president of the Pennsylvania Railroad, and Frank Thomson, vice-president of the road and nephew of the great Edgar Thomson who had established its reputation as an efficient transportation system. They had come at the invitation of Pierpont Morgan to talk comfortably with him and Chauncey Depew, the diplomatic president of the New York Central Railroad.

The yacht was Morgan's own
Corsair
, a superb 165-foot vessel which he had bought three years earlier to supersede, grandly, the little steam launch
Louisa
. And the purpose of the excursion—ostensibly to offer the two Philadelphians a few hours of pleasant respite from the baking summer heat of their city—was really to try to negotiate a treaty of peace to end the most menacing railroad war of the day. Pierpont Morgan, at the age of forty-eight, was at last moving into his appointed role as conciliator among the American railroads.

The years that had intervened since he had taken a seat on the New York Central's board of directors in 1879 had been years of furious and undisciplined industrial development in the United States, and of even more furious railroad building. All over the country new lines of rails were being projected, big railroads were buying up little ones to form connected systems, and new settlers were moving into regions opened up to commerce by these avenues of steel. Railroad corporations were the biggest and most powerful units of big business. Their expanding services were stimu
lating immeasurably the roaring industrial growth of the country. They were attracting inventive and ambitious men, whose brains were constantly thinking up new improvements in railroad equipment and operation, and whose imaginations leaped ahead to foresee how a well-run railroad could transform a wilderness into a chain of thriving communities. But they also attracted ruthless adventurers and knaves, and their financing, construction, and operation offered extraordinary spectacles of ruthlessness and buccaneering.

To begin with, freight rates were wildly anarchic. The general practice was to keep the rates low where you faced competition, and to make up your losses by charging high where you had a monopoly of the traffic. At one time it cost only half as much to ship steel all the way from Chicago to the Atlantic seaboard as to ship it the much shorter distance from Pittsburgh to the seaboard, simply because there were several lines competing for the Chicago traffic and there was only one line available for the Pittsburgh traffic. Passenger fares, too, fluctuated wildly as the roads sought to grab one another's business: at one time the New York Central charged only seven dollars for the long ride from New York to Chicago, and the “immigrant” rate between these two cities fell all the way to one dollar. Worse even than the custom of charging less for the long (competitive) haul than for the short (monopoly) haul was the practice of discriminating between individual shippers of freight—charging reduced rates to big companies whose business was especially valuable, or who had friends, or maybe even owners, in the railroad's management, while the small and friendless paid through the nose. A legislative investigation in 1879 revealed that in a single year the New York Central had made as many as six thousand special contracts offering reduced rates (or rebates, as they were called). Throughout the country, but especially among the small business men and farmers of the West, there was naturally a continual uproar of protest at these discriminations; and needless to say, the anarchy in rates made business hazardous and unpredictable not only for those who shipped their goods over the roads but for the railroad corporations themselves. For although a road could make big money by ruthless juggling of its rates, this was a game that two or more could play at, and for the
industry as a whole it was a wasteful and dangerous game.

There was also widespread buccaneering in railroad ownership—getting control of a company only to play its stock up and down in the market for one's personal profit; or getting control of two railroads and using one of them to enrich the other, again for one's personal speculative profit; or organizing a construction company to build a road at such padded “cost” that the construction company made millions and the railroad company (whose stock one could always sell) became saddled with overwhelming fixed debts.

Finally, there was an epidemic of building—or starting to build—needlessly competitive roads, which in some cases might aptly be called blackmail roads. If, for example, there was already a prosperous line running between two cities, there was nothing to prevent you from building—or starting to build—another, parallel line between them, in the hope that the management of the existing road, alarmed lest your new line ruin its business, would buy you out at a blackmail price.

This was more or less what had happened to occasion the conference on the
Corsair
in 1885. Some years previously a little group of men including the egregious Jay Gould, George M. Pullman, and General Horace Porter, had conceived the bright idea of building a railroad from New York to Buffalo right alongside William H. Vanderbilt's New York Central. It would start on the Jersey side, of the Hudson, follow the west shore of the Hudson northward—just across the river from Vanderbilt's tracks—and then cut westward, avoiding the Central's heavy grades west of Albany but otherwise following it closely all the way to Buffalo.

This West Shore Road, however dazzlingly conceived, was a losing venture from the first. Vanderbilt did
not
buy it out, preferring to let it stew in its own juice, and before 1885 it was already bankrupt.

That should have been agreeable to people interested in the fortunes of the New York Central; however, there was a disquieting factor in the West Shore's predicament. A group of men interested in the Pennsylvania Railroad had been quietly buying up the West Shore's depreciated bonds. Suppose these Pennsylvania men got control of the ailing company after it had gone through the wringer of bankruptcy, and then put the mighty resources of the Pennsylvania into
an effort to steal from the New York Central much of the valuable New-York-to-the-Great-Lakes traffic?

Meanwhile the Central, in its turn, had been making a foray into Pennsylvania territory. Knowing that men like Andrew Carnegie, who had big steel mills and other plants in the Pittsburgh region, were angry at the high freight rates exacted by the Pennsylvania for carrying their products to the Atlantic seaboard, William H. Vanderbilt had proposed to them in 1883 that a parallel line be built across the Allegheny Mountains from the Philadelphia region to Pittsburgh. “What do you think of it, Carnegie?” asked Vanderbilt. “I think so well of it,” said the little Scotsman, “that I and my friends will raise five million dollars as our subscription.” Whereupon Vanderbilt himself agreed to put in five million, and presently work began on the construction of the South Pennsylvania Railroad, which was to run westward from Reading via Harrisburg toward the Pittsburgh region.

Now in terms of ton-miles of freight carried, the Pennsylvania and the New York Central were the two mightiest railroads in the United States. The Pennsylvania stood first, the Central second. Could anything be more senseless than for these two giants of the railroad world to engage in a cutthroat war, the Pennsylvania using the West Shore to ruin the New York Central's going business, and the Central in turn using the South Pennsylvania to ruin the Pennsylvania's going business? Wasn't there plenty of room for both, without their invading each other's territory?

Morgan had watched the building of the West Shore with acute distaste—a distaste accentuated by the fact that its new tracks ran along the Hudson River shore just below his beloved Cragston; during two or three summers its construction gangs had made an infernal noise blasting at the ledges along the route and shaking the windows of his house, and there had been so many rough characters in the formerly placid precincts of Highland Falls that the Morgan children had had to be told not to go out on the highways unaccompanied. What he thought about the South Pennsylvania project is unrecorded; but certainly he felt uneasy over the fact that Vanderbilt, having declared war upon the Pennsylvania, had so lost interest in the situation as to resign the presidency of the New York Central to Chauncey Depew and
go off to Europe. Morgan felt responsible for the Central's future prosperity; were not those English investors counting on him to see that dividends were steady? And because the Drexel firm had done financing for the Pennsylvania in the past and would like to do more of the same in the future, he had every reason to want to remain in the Pennsylvania's good graces too. Surely under the circumstances this war was folly. Here, perhaps, was a chance to do something for the cause of order.

Morgan too went to Europe, took pains to return on the same liner with Vanderbilt, and talked him into permitting peace negotiations.

Whereupon, after several futile preliminary conferences with the heads of the Pennsylvania, Morgan finally succeeded in inducing Roberts and Thomson to come on from hot Philadelphia for a little run on the
Corsair
.

The agreement he proposed when his guests were settled on the yacht's deck was simple. The Pennsylvania would drop all interest in the West Shore line, permitting the Central to buy it out of bankruptcy and take a long lease on it; and in return the Central would turn over the control of the South Pennsylvania project to the Pennsylvania, to do with as it pleased.

The four men—Roberts, Thomson, Depew, and Morgan—sat under an ample awning aft of the
Corsair
's single slanting funnel while the sharp-prowed vessel steamed slowly up the cool Hudson to the region of the beetling Highlands, and then turned about at West Point and steamed down river and out of New York Harbor as far as Sandy Hook. Depew talked, argued, reasoned. Roberts argued back. Morgan sat mostly silent, smoking a big, black cigar and occasionally putting in a massive word. Thomson appeared to have been won over, but Roberts remained unmoved. This stubborn Pennsylvania executive had begun his career as a rodman, had been a railroad builder and operator throughout, and didn't like to succumb to the will of an investment banker. The afternoon drew to a close and the
Corsair
steamed back through the harbor to the Jersey City docks; yet still there seemed to be no meeting of minds. Not until Roberts was leaving the boat did he capitulate to Morgan's inexorable logic and inexorable will. But at that moment, as he shook
hands with Morgan and stepped upon the gangplank, he said, “I will agree to your plan and do my part.” The war was over.

Immediately Drexel, Morgan & Co. issued a plan for the reorganization of the West Shore road, by which it was to be taken under the wing of the New York Central. And in mid-September of 1885 all work ceased on the construction of the South Pennsylvania.

Presently grass and weeds and bushes began to grow over the unfinished South Pennsylvania embankments; moss began to grow over the tunnel walls. And in due course the abandoned project for a new railroad across the Alleghenies was almost forgotten. Not for over half a century was work resumed—resumed for the completion, not of a railroad, but of a great automobile highway, the Pennsylvania Turnpike. If you should chance one of these days to drive over that magnificent turnpike, it may entertain you to know that it uses the embankments and tunnels built during the railroad war of the early eighties, and that you would not be following that particular route through the Pennsylvania hills if Pierpont Morgan, intent upon bringing order to the railroad industry, had not in the summer of 1885 taken two Philadelphians for a little spin on the
Corsair
.

2

The
Corsair
compact was hailed by the
Commercial & Financial Chronicle
as removing not only every source of discord between the trunk lines—meaning the major lines which connected the East with the Midwest—“but also the chief source of discord to the whole railroad system of the country.”

It did not, to be sure, quite bring the West Shore-South Pennsylvania difficulties to an end. All sorts of legal obstacles had to be surmounted. It was during the legal planning for the reorganization of the West Shore company, by the way, that Morgan made a remark which has often been quoted (and misquoted, for that matter). Morgan had prepared a reorganization scheme and had asked his lawyer, Judge Ashbel Green, to tell him how it could be worked out legally. In a day or two Green came back and said it couldn't be done legally. Morgan, quite sure of the merits
of his plan, replied severely, “That is not what I asked you to do. I asked you to tell me how this could be done legally. Come back tomorrow or the next day and tell me how it can be done.” Finally it
was
done, and successfully, Morgan having himself purchased the West Shore and sold it immediately to the New York Central; and the troubles were over.

With this new, bold success to his credit, Morgan's prestige became immense, and it rose higher when, only a few days after the West Shore purchase, William H. Vanderbilt died suddenly. For it was now apparent that although Morgan was not a railroad man and hardly knew a driving rod from a coupler, there was nobody else in the councils of the New York Central who carried the weight that he did. In a day when the financial problems of the railroads underlay all their other concerns, and when most of the leading systems of the country were near the edge of bankruptcy because of the plundering and waste to which they had been subjected, a man like Morgan, who had learned all about railroad finance, whose judgment on a difficult reorganization plan had been proved sound, who stood for mutual co-operation among the railroads rather than mutual destruction, and whose word could be relied upon, stood out like a rock of safety.