Epidemic

by David DeKok

  Treman wanted twice the face value of the capital stock, or $150,000, for Ithaca Gas Light company, about $3.8 million in current value. There was a condition, however. If Morris wanted to buy the gas company, he would also have to buy Ithaca Water Works. Eben wanted face value, or $100,000, for the water company capital stock, plus assumption by Morris of $250,000 in outstanding bonded indebtedness dating from 1891.6 That $350,000 is about $8.9 million today, so the present value of the price demanded for the two companies came to more than $12.7 million.

  Treman had tried to sell the water system to the city of Ithaca a few weeks before his father died in 1900. This was his response to a fire on January 29, 1900, that destroyed the Delta Chi fraternity house at 315 Huestis St., today called College Avenue, killing one Cornell student and injuring nine others. The house had no fire escape. Some boys jumped from third-floor windows onto a stone sidewalk thirty feet below to escape, suffering terrible injuries. While the speed of the fire and the inability of anyone to find the key to the alarm box for several minutes were important factors, so was the lack of hydrants within hose range of the fire. Ithaca Common Council, in comments to the Ithaca Daily Journal, demanded more hydrants and higher water pressure in the hill neighborhoods.

  Bad fires were old news in Ithaca. The Kappa Alpha fraternity house had burned on December 30, 1898, and before 1900 was over, fire would destroy the main building of the Cornell Veterinary College. Treman knew it was a problem, but he didn’t want to undertake a major project to fix it. He told the council he was willing either to sell Ithaca Water Works outright for $100,000 in cash plus assumption of the $250,000 bond issue or enter into a long-term contract to supply water to the city at less than he was charging now. If the city didn’t want to buy the system, his alternate idea was a halfway measure, another big tank to hold water in reserve for firefighting.7

  Some on Common Council were receptive to Treman’s proposal to unload the company, especially after nearly three hundred East Hill residents petitioned council for better fire service.8 Inevitably, old grievances arose. Ithaca residents paid 40 percent more for their water than did most Americans served by water companies, according to a report published by the council finance committee.9 The finance committee thought either option was good. “It is supremely important that every community should be able to guarantee to its citizens, at all times, an abundant, safe, wholesome and agreeable supply of water, and at a moderate cost,” the committee’s report stated.10 But the full council could not come to a decision, so the matter was tabled and Treman did little or nothing to improve the system.

  As Morris left the Ithaca Gas Light offices in the summer of 1901, Eben’s demand that he buy the water company must have given him pause. For one thing, he had never run a water company or been responsible for providing safe drinking water. For another, did he really want to be responsible for quickly making the improvements the city demanded? Even some members of the extended Treman family, notably John W. Bush, husband of Kate, thought the price Eben asked was unrealistic.11 But Morris wanted Ithaca Gas Light so badly that he kept on talking.

  Morris, it should be noted, could be a sucker for bad ideas. At the beginning of 1900, he became enamored of Niagara Falls, New York, and a promising new technology, electricity. The city by the falls was a boomtown in a boom era. The Niagara River generated an estimated six million to nine million horsepower as it plunged down a one-mile race course, dropping 336 feet as it cascaded over the falls and continued down to Lake Ontario. Properly harnessed, it was enough to power all the factories in the nation provided a way could be found to move the energy to where it was needed.12 As it turned out, long-distance transmission of electricity was far in the future, not even fully realized today. In the meantime, investors set about turning all that water power into cheap electricity for regional use, and manufacturers flocked to the region around Niagara Falls. But speculators looking to make a quick buck ran up against a wall: Rights to all that water power were locked up by the existing producers and their licensees.

  Hoping to cash in anyway, Morris, Frank A. Dudley, and four other investors acquired Niagara Falls Gas Company and the Power City Illuminating Company and combined them into the Niagara Falls Gas & Electric Light Company.13 The “electric” in the company’s name referred to a dubious plan to use the flow in the city’s main sewer line to generate electricity before the sewage dropped, untreated, into the Niagara River below the falls. That was to be the new company’s source of electricity to serve local customers. The proposal was almost a parody of the huge hydroelectric operations at the falls, which employed man-made tunnels to divert water out of the river and turn electric turbines before emptying it back into the Niagara downstream from the falls.14 The company eventually faded into obscurity.

  Back in Ithaca, Morris needed to find someone to back the deal now that Treman had agreed to sell. Mynderse Van Cleef was a logical candidate. Van Cleef, who graduated from Cornell in 1874, a year after Morris, had financed a number of his previous deals, including Niagara Falls. Born in Seneca Falls, New York, he moved with his parents to Ithaca in 1869, a year before he started at Cornell. After graduation, he studied law at Columbia University at the same time Morris was reading law at Foster & Thomson on Wall Street. It does not stretch the imagination to suppose they went drinking together a few times in the taverns of lower Manhattan. They were both admitted to the bar in 1876.

  Van Cleef was on an up-escalator to the Ithaca establishment. He became a member of the Cornell Board of Trustees in 1881 and married Elizabeth Lovejoy Treman (her mother had the same name) in 1882. In 1891, soon after Ithaca Trust Company was founded by Franklin C. Cornell, Ezra’s eldest son, he joined it as treasurer and a member of the board of directors. The bank was closely connected to the Cornell family and the university. Francis Miles Finch, Ithaca Trust’s vice president, had offered eloquent courtroom defenses of Ezra Cornell when he was under attack near the end of his life for the complex Wisconsin land deals that had provided operating funds for the young university under the Morrill “Land Grant College” Act. Now Finch was dean of the Cornell Law School. So it was that Van Cleef, married to a Treman at home and to the Cornell family and its university at the office, lived at the heart of the Ithaca establishment.

  In a letter to Van Cleef on August 3, 1901, Morris wrote that unnamed financiers, presumably on Wall Street, were willing to provide the money he needed to acquire the gas and water companies but that he “would prefer to deal with home people if they would like to take it up.”15 That may have been true, or it may have been the first indication that Morris was either having trouble persuading disinterested investors that this was a good deal or was hedging his bets. Ithaca Trust Company was anything but disinterested. Besides Van Cleef, members of the board included Eben, Rob, and Charlie Treman. They all would benefit if the companies were sold to Morris at a high price.

  Not that conflicts of interest were something new for the Treman family. A report by a federal bank examiner in April 1900 on the other Ithaca bank in which the Tremans had a major stake, Tompkins County National Bank, noted that the third largest outstanding loan on the bank’s books, $11,000 (more than $281,000 in current money), was to Ithaca Water Works and that bank president L. L. Treman (who died just before the report was issued) and bank board member Ebenezer M. Treman also ran the water company. Morris might well have believed the Treman family would do whatever it took to make the sale happen. For a time, there was no need to find out. Late that summer, Fisk & Robinson, a leading Wall Street bond house of the period, took a shine to the deal and began due diligence, looking at the numbers to see if they made sense.

  In America and especially in New York State, the main event of the summer of 1901 was a world’s fair. The Pan-American Exposition in Buffalo ushered Americans into the modernity of the twentieth century. Visitors could marvel at the Tiffany & Company fountain, ride an Otis Elevator to the top of the Electric
Tower, see their own bones via an actual X-ray machine set up in the U.S. Patent Office exhibit, and take a midway ride called “Trip to the Moon” in a rocket ship that from its appearance could have been designed by H. G. Wells or Jules Verne.

  The fair opened on May 1 and drew more than eight million visitors by the time it closed six months later.16 From Ithaca and every part of America and Canada, visitors came to this Emerald City of Oz, actually known as the “Rainbow City” for the rainbows that formed over nearby Niagara Falls. Trains from Ithaca were convenient and cheap. Ticket sale statistics seemed to show that more Ithaca residents went to the fair than actually lived in the city. In fact, the fair was so popular that some people went two or three times.17

  They were eager to see the modern world of wonders in the exhibition halls and especially the dazzling nighttime display of “incandescent brilliance.”18 Electricity from Niagara Falls was king at the Pan-American, and every sort of electrical machinery save the electric chair—which had debuted at Auburn Prison in New York in 1890—was on display. Cornell University student Isabel Dolbier Emerson pasted the official fair booklet, with the Electric Tower on the cover, into her scrapbook.19

  John W. Bush wrote to Mynderse Van Cleef on June 28, expressing happy wonder that fifty-one thousand people had passed through the turnstiles the day before. Kate Bush was a member of the women’s board of the exposition, and she and her husband were as caught up in the excitement of the fair as everyone else.20 Inspired by what he saw, Bush decided to have their Buffalo home wired for electricity.

  The glory of the fair ended on September 6, 1901, when President William McKinley was shot and mortally wounded by a lone gunman, Leon Czolgosz, who claimed to have been inspired by the writings of the anarchist Emma Goldman. McKinley, who was receiving the public in the Temple of Music, was hit by two bullets as the building’s pipe organist reached the climax of a work by Bach. It was a fitting beginning to the violent twentieth century. Yet the modern technology of the fair did not save McKinley. Despite the working X-ray machine in the Patent Office exhibit, doctors were afraid to use it to find the bullets in his body. Dr. Matthew Mann, a gynecologist who lived nearby, insisted on operating on the president in makeshift facilities on the exposition grounds rather than remove him to Buffalo General Hospital, which had just opened a new operating amphitheater for its renowned surgeon, Dr. Roswell Park. McKinley died of gangrene eight days later. Modernity held out the promise of much that was good but could not yet overcome the backwardness of American medicine at the beginning of the twentieth century.21 McKinley might as well have been back with his Army unit during the Civil War.

  President Jacob Gould Schurman of Cornell, in his speech on September 27 to two thousand students in the Armory, a large gymnasium-like building on campus, decried the growth of anarchy in America, which he defined as defiance of established law. But he said social and political inequality was one of the chief reasons anarchy was growing. Men of great wealth needed to “wisely disseminate their fortunes for humanitarian purposes,” Schurman said. “It is my honest belief that Mr. [Andrew] Carnegie is doing more to repress anarchy than any state or all states combined would be able to do by legislative enactment.”22

  Carnegie, one of the world’s wealthiest men, was his new best friend. The steel magnate had been on the Cornell Board of Trustees since 1890, but in 1896 he had rejected a request from Cornell University for a major gift. Much of his wealth was illiquid, Carnegie explained, and in any case Pittsburgh, where he made his fortune, was his top priority.23 But after he sold his steel company to the new U.S. Steel conglomerate in the spring of 1901, he had more money than he knew what to do with. Carnegie began making large philanthropic grants for libraries and university education.24

  Perhaps because of this, or perhaps because fighting between American troops and Filipino insurrectionists was raging, Schurman had taken up Carnegie’s anti-imperialist cause with a vengeance. It became the topic he talked about the most in his many public lectures outside Ithaca. The war was not going well. An American unit at Balangiga on the island of Samar was ambushed and nearly annihilated at the end of September 1901. U.S. Army General Jake Smith ordered a campaign of terror on the island, demanding it be turned into “a howling wilderness” and deeming civilian males over the age of ten fair game for the Gatling guns. Besides the killings of civilians, villages and rice fields were burned. Many in the United States were outraged and ashamed. Schurman, a leader of the anti-imperialist cause, publicly favored a policy of building up the Philippines economically and socially and quickly granting independence. American generals all but called him a traitor.25

  In September, probably around the time of the McKinley assassination, Fisk & Robinson developed cold feet and began finding fault with the Ithaca gas and water deal. Bond houses, especially as prominent as this one, did not handle paper of problematic companies. If they were unfamiliar with a company, they sent experts to do a white-glove inspection. That was when things went south. The papers were supposed to be signed on October 1, but a day before that, Bush received a telegram from Eben Treman telling him the closing had been postponed until November 1.26 No explanation was given, and Bush expressed bewilderment at the course of events.

  Fisk & Robinson had been unable to get a certified public accountant to issue an opinion that the companies were a sound investment. That, in turn, may be related to a discovery that the Tremans had increased the amount of capital stock in Ithaca Water Works to nearly three times the amount allowed by its charter. The amount of bonded indebtedness was more than ten times the limit. No reputable bond house would put its imprimatur on a corporation that engaged in that kind of funny business.

  Instead of accepting this as the kiss of death, Morris wrote to Van Cleef on October 2 that “Menken,” Wall Street lawyer S. Stanwood Menken, was insisting that Fisk & Robinson intended to go forward with the bond sale “on the opinion of two experts instead of an expert and public accountant, and they will arrange to have the expert come on at once.” Menken insisted to Morris that the deal “was in better shape than ever” and that he had every reason to believe it would go forward.27

  Menken, like Morris, was a member of the Chi Phi fraternity at Cornell.28 He had graduated from the university in 1890, one year behind Charlie Treman, and had a long and varied career. He was a partner in the Wall Street law firm of Philbin, Beekman, Menken & Griscom, which counted J. P. Morgan among its clients. Menken appears to have been a close friend of Harvey E. Fisk, one of the name principals in the bond house. A Jew who converted to Christianity—his first name was Solomon, but he now went by his middle name—Menken moved in the upper reaches of New York society. He is remembered today as a leading internationalist who publicly urged the United States to enter World War I on the side of Britain and France and as founder of the National Security League. When Fisk & Robinson went belly up in 1910, his law firm became counsel to the receiver appointed by the court.

  Morris seems to have remained confident that Fisk & Robinson would salvage the deal and began making plans. He decided that Ithaca Light & Water Company would be the name of the new holding company that would own the two utilities. He even vetted some candidates for the board of directors with Van Cleef. One should be Eben Treman, he said, and state senator Edwin C. Stewart, a dedicated but somewhat naive public servant who represented Ithaca in Albany, would be another. “I would also like to have the opinion of yourself, Rob and Charlie as to what other two [directors] might be desirable,” Morris wrote.29

  Despite what Menken told Morris or what Morris wanted to believe, Fisk & Robinson had given up on the Ithaca Light & Water Company bonds. Bush, in a letter to Van Cleef on October 12, made reference to a broken contract and how he did not “have much faith in the deal going through.” In desperation, Morris again approached Van Cleef and asked Ithaca Trust Company to provide the financing. This forced his old friend to confront all the problems in the pr
oposed deal. First and foremost was the valuation Morris wanted for the two companies, which would determine the amount of money he could borrow. Sounding all too modern, Morris argued to Van Cleef that the gas and water mains of Ithaca Gas Light and Ithaca Water Works ought not to be valued simply at the cost of the pipe, but also at the cost to put them under streets today. “If this were done in the present instances, it would easily add $100,000 to the value of the two systems,” Morris insisted.

  That $100,000 figure wasn’t picked out of thin air. It was what Morris needed to close the deal, but Van Cleef and Ithaca Trust Company weren’t prepared to loan it to him. Eben Treman was not willing to cut his price. Where would he get the remaining investment capital that he needed? Enter a surprise investor—Cornell University.

  When the smoke cleared on November 12, 1901, Morris owned Ithaca Gas Light Company and Ithaca Water Works, and the university had invested $100,000, or more than $2.9 million in present dollars, in Ithaca Light & Water bonds. That amounted to 18 percent of the total deal, although looked at another way, it was 100 percent of the price Treman had asked for Ithaca Water Works.30 Treman received his asking price for the two companies, which included retirement of the charter-busting $250,000 in bonds issued by Ithaca Water Works in 1891. Ithaca Light & Water Company issued $550,000 in new obligations, with an extra $50,000 tacked on to pay for improvements. They were backed by an equal amount of first mortgage bonds of the water company and gas company.31 The university’s investment in the bonds was the final piece of the financing deal.

  What part of Cornell’s educational mission was served by investing in the water company? The university had its own water system for campus buildings, drawing water from Fall Creek instead of Six Mile Creek and Buttermilk Creek as Ithaca Water Works did. True, the university invested its endowment funds in many corporations around the country, including other water companies. But this was a deal that had been rejected as unclean by a leading Wall Street bond house. Nor had Mynderse Van Cleef and Ithaca Trust Company been willing to finance the full amount the Tremans were demanding. There were many companies with less risk in which the university could have invested its money.