That night Morgan conferred with Curtis on the latter’s arrival back in New York, and the next morning, Saturday, February 2, they had a long session with August Belmont at 219 Madison Avenue, considering a multitude of details. There seemed to be only one likely hitch in the negotiations. The press and public had acquired the idea that the four per cent bonds would be issued to the syndicate at a price to yield 3½ per cent. The Treasury insisted on 3½ per cent. Morgan was asking for 3¾ per cent, expecting privately to be able to compromise on 3⅝ per cent. But surely that gap could be closed. Curtis took the detailed proposal back to Washington, promising to telephone the answer at three o’clock Sunday afternoon.
5
On Sunday the telephone message came, but it was merely to the effect that the matter was still under consideration and that a messenger would soon start for New York bearing a letter from Secretary Carlisle. This was a little disquieting. Morgan cabled to London, “The situation here tonight Sunday is this. The public and press believe the negotiation practically completed without knowing any details whatever but only price assumed to be 3½ per cent. We feel bound use every exertion complete negotiation. Effect of abandonment upon all interests would now be worse than if never begun.”
The messenger, who was Curtis’ private secretary, Lawrence O. Murray, arrived in New York Monday morning with his letter. It was a bombshell. The negotiations were off.
The Administration had had a change of heart, induced presumably by three things: the fact that the price was high, the fact that the drain of gold from the Treasury reserve had for the moment ceased (because of this very negotiation), and the grave political hazard of the undertaking. Already Democratic newspapers were shouting with dismay at the notion of a private deal between the government and a Republican Wall Street capitalist. Joseph Pulitzer’s New York World was warning Cleveland and Carlisle that they were delivering themselves to the money interests, and was advising the President to hold out for a three per cent loan, saying in bold type, “If the banks won’t take it, the people will.” And so the decision had been made to make a public call for bids for the purchase of government bonds.
Morgan was appalled. He did not believe that a public sale of bonds could possibly succeed at this critical juncture. He consulted with Belmont. To abandon now the negotiations for a private sale would be disastrous for the government, they agreed. Belmont started for Washington on the ten o’clock train Monday morning. Morgan waited in New York to communicate with Secretary Carlisle, and finally reached Assistant Secretary Curtis by long-distance telephone and told him in the strongest terms that it would be fatal to announce a public issue of bonds. Curtis presently reported that Secretary Carlisle reluctantly agreed to delay the announcement for a day; Morgan said that Belmont was on his way to Washington, and he himself would start for Washington that afternoon, and that he thought he had a right to be listened to. And he sent two cables to London. The first said:
Monday morning. Do nothing further about negotiations until you hear further from us. We have received letter this morning by messenger from Secretary of Treasury which apparently withdraws all attempts European negotiations. We are completely loss to understand. Will cable you later. Strictly confidential and for your use only.
The second cable said:
Consider situation critical. Politicians seem to have absolute control. Shall make strongest fight possible for sound currency. If fail and European negotiations abandoned it is impossible overestimate what will be result United States.…
Then he took the Congressional Limited for Washington, taking with him his counsel, Francis Lynde Stetson (who would be an especially useful ally because he had been President Cleveland’s law partner), and handsome young Robert Bacon. Only one thing, he thought, could prevent the utter failure of his cherished plan—and a panic of incalculable severity: he himself must talk to Grover Cleveland.
6
It was cold and windy when he arrived in Washington that Monday evening, and his reception was cold. When he alighted from the train he was met on the station platform by Daniel Lamont, the Secretary of War. Lamont told him that President Cleveland would not see him. As to what happened during the rest of the evening, the accounts of various chroniclers differ; I shall follow mainly Satterlee’s version, which seems to me at this point to have the ring of truth. According to this account, Morgan said shortly to Lamont, “I have come down to Washington to see the President, and I am going to stay here until I see him.” Then he strode off to the cabstand.
Stetson left him to drive to the White House, where he made a futile attempt to see Cleveland to arrange an appointment. Morgan, with Bacon, took another cab, and started off as if for the Hotel Arlington; but then—because at the Arlington, which was known to be his usual Washington headquarters, he would be under close observation by reporters and others—told the driver to take him to the house of his friend Mrs. J. Kearney Warren on K Street, while Bacon went on to the Arlington without him.
Mrs. Warren, an old friend of his parents and of his own, was a little bewildered by his surprise visit. He told her that he could not explain it to her, but he was in hiding, awaiting a telephone call; nobody must be admitted to the house while he was there; she must tell her servant that she was not at home to callers. Then—to quote Satterlee—he “sat and smoked before the fire, apparently listening to Mrs. Warren’s talk, but did not speak.” At the end of an hour or so the telephone rang. It was Bob Bacon, who had persuaded that dour New Englander, Attorney General Richard Olney, to talk to Morgan. The banker thereupon took a cab to Olney’s house, explained to him vehemently the importance of a conference with Cleveland, and then went on to the Arlington Hotel, where, according to The New York Times, “as Mr. Morgan stood for a moment at the desk he was asked by a newspaperman if his visit had anything to do with the bond issue. He returned a diplomatic reply and hastened to the elevator.”
Belmont, arriving in Washington before Morgan, had seen Secretary Carlisle at his house toward the end of the day and had exercised his best powers of persuasion to the effect that the President must talk with the bankers. Now there was nothing more to be done. Morgan, in his suite at the Hotel Arlington, settled down to play “Miss Milliken,” his favorite game of solitaire, while he thought the situation out. The hours went by and he was still playing. It was well after three before the last lights went out in the Morgan rooms.
7
Sometime that night or early in the morning of Tuesday, February 5—the evidence is conflicting—came a welcome message from the White House: the President would see Mr. Morgan. The banker gathered with him Belmont, Stetson, and Bacon, and together they walked to the White House through the bitter cold and biting winds of that midwinter morning.
At the White House they were shown upstairs and ushered into the presence of the burly President. Secretary Carlisle was with him. Cleveland said that a public issue of bonds had been decided upon. There was a delay while the two officials went over early reports from the Subtreasury in New York which indicated the probability of further withdrawals of gold that day—possibly disastrous withdrawals. There were more interruptions—telephone calls, messages—and at one time the President left the room and was gone for the better part of an hour. Then, at last, came the moment when Cleveland turned to Morgan and asked him what he had to say.
With that tremendous certainty which gave his words impressive weight, Morgan made his argument. Withdrawals of gold had begun again. There was not time enough for a public issue. The only possible solution lay in a private and immediate arrangement such as the one the mere prospect of which had stopped withdrawals cold the week before. And he introduced a new idea: that in a certain old law dating from Civil War days—Section 3700 of the Revised Statutes, he thought it was—the government was authorized to buy coin and pay for it in bonds. Why should the government not buy gold coin from the syndicate—coin gathered partly in the United States, partly in Europe—and pay for it with this new priva
te bond issue?
According to Satterlee, this new idea was Morgan’s own; he had recalled during the night, as he played solitaire, that in his gold-trading days during the Civil War he had heard of such a provision. According to Allan Nevins’ life of Cleveland, it was Curtis’ idea. It does not matter. What matters is that the law books were sent for, that Section 3700 was found to be the perfect answer to the situation, and that the continuing arguments of Morgan and Belmont carried the day.
Cleveland had been wary of Morgan at first; as he said many years later, “I had a feeling, not of suspicion, but of watchfulness.… I had not gone far, however, before my doubts disappeared. I found I was in negotiation with a man of large business comprehension and of remarkable knowledge and prescience … of clear-sighted, far-seeing patriotism.”
“Mr. Morgan,” said the President, “what guarantee have we that if we adopt this plan, gold will not continue to be shipped abroad and while we are getting it in, it will go out, so that we will not reach our goal? Will you guarantee that this will not happen?”
“Yes, sir,” answered Mr. Morgan instantly. “I will guarantee it during the life of the syndicate, and that means until the contract has been concluded and the goal has been reached.”
That was an immense commitment. He was pledging himself to control what for years past had been uncontrollable—the course of international exchange and international gold shipments. Not to do his best, but to succeed. And he was a man who did not make pledges lightly.
No final agreement was arrived at during this White House session. It was decided to wait until Thursday, when an Administration bill to meet the crisis was to come before the House of Representatives, before acting, lest it be said that the Administration had gone ahead without exhausting every possibility of congressional help. But the essential victory had been won. Cleveland had been persuaded. As Pierpont Morgan got up to leave that upstairs room in the White House, someone noticed what looked like a lot of brown dust on his knees and on the carpet by his feet. Without realizing it, he had been crushing into fragments the cigar which, long hours before, he had brought into the room unlighted.
8
Later that day he cabled London, “Received your cable of yesterday. Impossible convey any just idea of what have been through today, but we have carried our point and are more than satisfied.”
The message went on to outline the basis of the forthcoming deal. The syndicate would deliver to the government gold equivalent in ounces to 60 million dollars, payment for them to be made in bonds at a rate “equivalent to a purchase of the bonds on a 3¾ % basis, one half gold to come from Europe.…” And the syndicate, as far as lay in their power, would “make all legitimate efforts to protect the Treasury of the United States against the withdrawal of gold pending the complete performance of this contract.”
Pierpont Morgan went home to New York, waited anxiously until Thursday, and then, as the Administration’s Springer Bill went down to its expected defeat in the House, returned to Washington, saw Cleveland and Carlisle again briefly, and on Friday morning went to the Treasury Department with Stetson, where the final details of the contract were worked out and the document was signed.
The cold wave of the early part of the week had now turned into a blizzard, accompanied by temperatures close to zero in the northeastern states and by blinding winds; traffic was crippled, ferries tied up, trains stalled; and as a result August Belmont, who had started from New York to Washington by Thursday night’s train, did not arrive until the early afternoon. But he got there in time to sign the contract. As a matter of fact, it would have mattered little if he had been further delayed, for Morgan had been informed by cable from J. S. Morgan & Co. in London that the Rothschilds authorized him to sign on Belmont’s behalf if necessary; and anyhow, Cleveland had already, even before the signatures were affixed, notified Congress of the arrangement and thus given authoritative public notice that relief for the government’s gold reserve was at hand.
9
An uproar of protest at the news arose from the silverites and those other Americans who regarded Wall Street as the enemy. What seems astonishing to us today, as we contrast the relative powers of the government and of private financial groups at the present time with their relative powers in the mid-nineties—the fact that the United States Treasury was forced by circumstances to deal with two private bankers almost as if they had been plenipotentiaries of an independent state of more ample resources—seemed to these observers not so much astonishing as outright scandalous.
The price of the private bankers’ aid looked high. In the final contract they had secured the bonds on the basis of a 3¾ per cent yield, not the 3⅝ per cent that they had been ready to compromise on, nor the 3½ per cent that the public had expected; and since the public announcement of the deal at once relieved the pressure on the Treasury, there was a sharp rise in the market value of the new bonds which were about to be issued. The 3¾ per cent yield was equivalent to a price of 104½; presently the temporary “allotment certificates” which represented these bonds while the actual instruments were being engraved were being bid for on the market at the much higher price of 120—a fact which of course suggested that the original figure had been much too low. On February 14, young William Jennings Bryan of Nebraska, not yet renowned as a Presidential candidate, said in a speech in Congress, “I only ask that the Treasury shall be administered on behalf of the American people and not on behalf of the Rothschilds and other foreign bankers.” The New York World, speaking scornfully of “bank-parlor negotiations,” called the agreement “an excellent arrangement for the bankers. It puts at least $16,000,000 into their pockets.… For the nation it means a scandalous surrender of credit and a shameful waste of substance.”
Nor was this all, for it was widely—and of course baselessly—whispered that Cleveland had profited personally by the deal. As Allan Nevins has put it in his life of Cleveland, “By hundreds of thousands, hard-headed Americans believed that Cleveland and Carlisle had sold the credit of the republic to the Morgans and Rothschilds and had pocketed a share of the price.”
But certainly the syndicate operation proved a thumping success. On February 20 the new United States Government bonds were put on sale simultaneously in New York and London, and presently the transatlantic cables were ticking off messages of triumph. From London, J. S. Morgan & Co. sent word, “Subscription enormous. Subscription books closed noon; open only two hours.” And from New York came the return message from J. P. Morgan & Co., “We have closed our books. Subscriptions something enormous. We offer you all our sincere congratulations.” And a little later: “We are quite overwhelmed by success of transaction. We send you our deepest heartfelt congratulations. You cannot appreciate the relief to everybody’s mind, for the dangers were so great scarcely anyone dared whisper them.…”
10
And after that? The success continued. Within a few weeks the New York banks associated with the syndicate had turned in to the Treasury, in payment for the new bonds, large amounts of gold collected in the United States; and, in payment for bonds issued abroad, a steady stream of gold was crossing the Atlantic westward. “You can ship any gold you choose,” a cable from Morgan in New York had explained; “bar gold, sovereigns, U. S. gold coin, Napoleons. Assay Office will receive and give coin value.” To protect the Treasury against simultaneous withdrawals of gold which would have nullified these gains was a more difficult undertaking; but so well did the members of the syndicate keep their pledged word to do this that before the end of June the Treasury’s reserve of gold had grown until it had crossed the safety line of 100 million dollars.
Years later, Grover Cleveland told George F. Parker that when the negotiations were over he asked the head of the syndicate, “Mr. Morgan, how did you know that you could command the co-operation of the great financial interests of Europe?” And Morgan replied, “I simply told them that this was necessary for the maintenance of the public credit and the promotion
of industrial peace, and they did it.”
After June 1895 the situation became more difficult, and the syndicate was put to considerable expense to prevent the outflow of gold from America by complicated and hazardous dealings in drafts on London, conducted at a loss. And after the syndicate agreement came to an end and the books were closed in the autumn of 1895, a reaction set in; for a complex of economic reasons, gold began at once to move out of the United States again. So that once more, at the beginning of 1895, the Treasury was forced for the last time to sell bonds to fortify its reserve—this time through the more orthodox method of a public sale.
The Morgan-Belmont bond issue had not brought permanent relief to the Treasury. But it had brought instant temporary relief. To say that it had prevented a panic is to indulge in guesswork. History never tells us, after we have taken Road A at the fork in the ways, what would have happened had we taken Road B. But certain it is that the financial community felt positive that the government’s exchange of bonds for gold had averted dire calamity. Morgan’s cable to London which spoke of “dangers so great scarcely anyone dared whisper them” was written not to impress the public—it was a private message—but out of well-informed conviction.
11
Naturally, in view of the public outcry and the whispers of graft, there was a congressional investigation of the Treasury’s dealings; and on June 19, 1896, Pierpont Morgan took the stand at a hearing in the Hoffman House in New York. His forthright answers to questions reflected his complete satisfaction in the course he had taken and his overwhelming assurance. Let us listen to him for a moment, as first a friendly interrogator, Senator Platt of Connecticut, and then a hostile one, Senator Vest of Missouri, throw questions at him:
The Great Pierpont Morgan Page 11
