Going Deep

by Lawrence Goldstone

  Whether Frost had approved the interview is doubtful. Public rebuke of reluctant customers was hardly likely to soften their opposition. Nor was Holland’s unstinting praise of some younger officers, such as William Kimball, going to have much impact. Hopeless minority or not, opposition to submarine technology was centered at the top of the officer pyramid, not the middle. And so, while over the next weeks, Holland ran many successful test voyages and newspapers continued to publish laudatory feature articles, the navy continued to refuse to conclude a purchase.

  Even worse for Holland—and for Lake as well—it soon became apparent that the United States would not need to rely on a new secret weapon to defeat its opponent. Spain would prove to be an adversary a good deal less intimidating than Hearst’s and Pulitzer’s newspapers had made it out to be. With war no longer a goad, both companies attempted to use the prospect of overseas sales—both Lake and Holland had been contacted by representatives of a number of foreign navies—to prod the admirals into action.

  Once again, the battle was joined in the press. In October 1898, news services reported,

  The agents of the Holland submarine boat have abandoned their efforts to get the United States to purchase their craft, and have turned to foreign governments. It is more than probable that an announcement will be made shortly to the effect that France has secured the exclusive right to build the Holland vessel, for that country has been after this privilege for some time. At any rate, the United States has lost the opportunity to control the Holland submarine boat. ‘We are handicapped,’ said one of the agents, ‘by the narrow minded prejudice of naval officers who are unable to see any good in a ship that is not constructed entirely by men in the service. They condemned our boat before even seeing it, and we were unable to get a fair test of it. It is lost to this government, and France or some European power will get it. I firmly believe that the craft will turn out to be a most potent factor in future marine fights.17

  There was in fact no serious interest from France, but the bluff worked. The following month, the navy granted the Holland an additional test, and in this one a dummy Whitehead torpedo would be fired at a target. Moreover, the boat would be piloted not by its inventor, but by a naval officer. Another naval officer would serve as engineer. Although both had been aboard the Holland during earlier test runs, neither man had any experience at the controls. It took them a full twenty minutes just to load the ballast correctly, something Holland would have achieved in less than half that time. In addition, the cold had caused the grease inside the torpedo tube to congeal, and so loading the weapon also took a good deal longer than it should have.

  Nonetheless, the test seemed to go well. The torpedo was fired while the Holland ran on the surface and struck its target four hundred yards away. The boat also performed nineteen dives, cruised underwater, and completed a series of navigational maneuvers both on the surface and submerged. The naval officers on board reported favorably on the Holland’s performance, despite having some difficulty with the steering and diving gear, which the officers attributed to their own inexperience with the controls.

  But the navy was still not ready to recommend purchase. The board members decided that an additional test be made under war conditions. A hulk was to be anchored in a test course, “and to make the test a success the Holland must rise to the surface, discharge a torpedo effectively at the hulk and then disappear beneath the surface. Whether the boat will be accepted by the government will depend on the successful accomplishment of this program.”18

  But with winter closing in, the requirement for an additional test meant a delay of at least three months, quite possibly more. Rather than sit idly, Holland decided to dry-dock his boat and make some major modifications. Most significantly, he would remove the rear dynamite gun and use the space for a better exhaust system, and correct what seemed to be a design flaw. In the Holland, as in all of the Holland’s previous designs, the rudders had been placed forward of the propeller. Although Holland, who had to this point always “navigated the boats himself and claimed their steering qualities were good,” Frank Cable discovered that was not the case. “My first attempt at navigating the Holland was during a run several weeks before the official trials, and I found steering her was the most unsatisfactory task I had ever undertaken. The criticism annoyed Holland, but he encountered worse from a group of spectators who had been watching our maneuvers from the deck of a small tug. One of them compared the course of the Holland to that of a drunken washerwoman.”19

  While the comparison was likely an overstatement—other reports have the Holland steering satisfactorily—Holland was ultimately forced to agree that reorienting the propeller and the rudder would improve performance. But dry-docking and rebuilding had its costs, in this case an estimated $30,000. After building two submarines, neither of which had yet been purchased, the Holland Torpedo Boat Company was out of money.

  With the war with Spain over and the navy bloated with triumph over what had proved to be an inept and under-armed foe, Simon Lake had also decided to suspend his short-term sales effort and instead greatly modify and improve his boat. Lake’s refitted vessel, which he would christen Argonaut II, would be “20 feet longer and carried above a buoyant superstructure with a swan bow and overhanging stern, so that at the surface her hull looked very like that of an ordinary yacht. Her engines were by the same makers but were twice as powerful, and she carried a 4-h.p. auxiliary engine in addition. Her internal arrangements were very similar to those she had before alteration, and she proved as great a success as before, with the advantage of greater stability, seaworthiness and accommodation, for she could now carry a crew of eight men and had a cruising radius of 3,000 miles.”20 Unlike Holland, Lake’s boat would give him the means to self-finance its improvements—he intended to use it to scoop up the riches he had located on the sea bottom and become a wealthy and influential man. Although once again, Lake would install neither torpedoes nor guns, he still intended to pursue his crusade against the navy.

  Facing a competitor with superior resources and having few of their own, Holland and Frost found themselves in increasing desperate straits. Late in 1898, however, a savior appeared. He was smart, savvy, and was just about to garner windfall profits from the sale of another company he had built from nothing. He offered not only to fund the refitting but also all future construction, and he promised to use his considerable expertise to ensure that John Holland and not Simon Lake, nor anyone else, would supply the navy’s submarine fleet.

  He was the chairman of the Electric Storage Battery Company, Isaac Rice.

  _____________

  *The Spanish battleship Vizcaya had steamed to New York Harbor under the command of a Spanish admiral as a show of strength after the Maine exploded.

  CHAPTER 16

  KING’S GAMBIT ACCEPTED

  Isaac Leopold Rice was a combination visionary, scholar, and bare-knuckles prizefighter, an amalgam that made him one of the most unusual and fascinating figures of the Gilded Age. He made fortunes, occasionally lost them, founded both one of the United States’ most important defense contractors and one of its most prestigious intellectual journals, endowed a variety of progressive causes, and designed and built one of the most unique and enduring mansions in New York City.

  Rice—probably originally “Reiss” or “Reich”—was born in Bavaria in 1850, but his family immigrated to Milwaukee when he was six, then moved to Philadelphia four years later. Even at ten, it was clear Isaac was a chess prodigy, and he also showed preternatural talent in music. After six years in the Philadelphia public schools, Rice, by then fluent in English, German, and French, was sent to Paris for advanced studies in music, literature, and philosophy. He supported himself there and later in London by teaching piano and languages, vocations he continued when he returned to America in 1869. Rice settled in New York and, in addition to teaching, wrote for local newspapers. At twenty-five, he published a technical book on musical theory, What Is Music? (republished
for lay readers as part of the Humboldt Library of Science) and a few years later, How the Geometrical Lines Have Their Counterparts in Music. Each was critically praised but hardly a boon financially.

  Isaac Rice

  Deciding that he’d rather be rich than poor, at age twenty-eight Rice enrolled in Columbia College of Law, from which he graduated cum laude two years later, earning prizes in Constitutional and international law. While he cast about for the appropriate venue in which to ply his new trade, Rice became a fixture at chess clubs, was appointed as a lecturer and librarian at Columbia’s new School of Political Science, and wrote scholarly pieces for respected intellectual journals, especially Harper’s and North American Review. In one, “Has Land a Value?”, Rice offered a critique of the theories of the economist David Ricardo, who had coined the term “comparative advantage,” and in another he launched a scathing attack on Herbert Spencer’s theories of Social Darwinism.* In a third, “A Definition of Liberty,” he wrote, “Civil liberty is the result of the restraint exercised by the sovereign people on the more powerful individuals and classes of the community, preventing them from availing themselves of the excess of their power to the detriment of the other classes.”1 With increased wealth, he would come to alter that perspective.

  A story made the rounds in chess circles, quite possibly apocryphal, that Rice’s first job as a lawyer came in 1882 as a result of the client’s friend watching Rice play chess. Although Rice had never tried a case, the man insisted that such a mind as Rice’s could not lose in court. And, as the tale goes, Rice did not.2

  However he began, in 1883, Rice turned his attention to railroads, a booming industry where millions were being made and, less frequently, lost. His first clients were bondholders of Brooklyn Elevated Railroad Company, dissatisfied that the company seemed to be languishing while others thrived, and fearing it might soon fail altogether. Rice saw opportunity, not in fee generation, but on the balance sheet. He persuaded the company to engage him as its attorney, grant him a large block of stock, and eventually to appoint him a director. Then, although he had no training in finance, he supervised a creative restructuring that allowed the company to appear healthy enough to solicit public funds, providing the capital the railroad needed to improve its performance—and also providing the existing stockholders a windfall. All the while, he was teaching at Columbia Law School, where he had accepted an instructor’s appointment in 1884.

  The following year, Rice married Julia Hyneman Barnett, daughter of a prosperous and socially prominent New Orleans merchant. She had been classically educated in music, art, and philosophy, but chose to enroll in the Woman’s Medical College of the New York Infirmary, from which she had graduated with a medical degree 1885. Rather than enter private practice, she devoted herself to her husband, whom she called her “intellectual partner.” That same year, in addition to beginning a marriage, Rice, with Julia’s assistance, founded Forum, a magazine that published scholarly articles on politics and finance, theater reviews, and political and literary commentary. Thomas Hardy, Jules Verne, and Henry Cabot Lodge would be among the magazine’s contributors. Rice continued to publish Forum until 1910. Adding magazine publishing to his other activities was too much even for a man of Rice’s formidable talents. The following year, he resigned his teaching position at Columbia.

  The creative machinations he had brought to Brooklyn Elevated had made Rice something of a celebrity in financial circles, and he found himself solicited to provide similar services elsewhere. For sizable remuneration, he oversaw reorganizations of the St. Louis & Southwestern Railway and the Texas and Pacific Railroad. In 1886, he was appointed counsel and director for the Richmond Terminal Railroad and also as a director for the Richmond, Danville and East Tennessee System, and the Central Railroad and Banking Company of Georgia. He consolidated these companies as the Southern Railway System.

  While financial legerdemain certainly played a part in each of these transactions, Rice was no mere speculator. “Rice’s corporate approach was honest. He invited investors to join him in his ventures but insisted that they risk their own capital. He admitted to a ‘holy horror of debts, loans, bonds.’ He did not want the money of widows or orphans, nor would he manipulate shares of stock. Rice encouraged investors to consider him an inventor, and he was.”3 He also had a keen eye for mismanagement and inefficiency, and not much patience for either, so any company in which he took an interest was soon operating more effectively.

  By 1889, Rice had made millions, and he announced that he was retiring from the law to play chess full-time and become a patron of the game. He was elected the president of the Manhattan Chess Club—the most important in the United States—after he helped pay to move the club to new quarters. There he played a long series of practice games with world champion Wilhelm Steinitz, who had won the title in a tournament at the club three years earlier.

  But the genteel world of rank and file was not sufficient to sate Rice’s outsized intellectual energy. He was inexorably drawn to the rough and tumble of the business world.† Within months, he became the head of a syndicate that intended to buy up controlling interest in the Philadelphia and Reading Railroad Company.

  The Philadelphia and Reading owned only four hundred miles of track but had become a sprawling concern after a period of aggressive, perhaps even reckless expansion under its president, Archibald McLeod. Pierpont Morgan was a major stockholder. That the banking titan was his adversary did not dissuade Rice one bit; it might, in fact, have encouraged him.

  While Rice’s syndicate succeeded in amassing the largest single bloc of stock, they lacked a majority and were unable to wrest control of the board of directors. Rice developed a blueprint to reorganize the company, dividing it into stand-alone divisions under a holding-company umbrella, which would vastly decrease its exposure in an economic downturn. The plan was brilliant and innovative—and went nowhere. Faced with no alternative but to bide his time, Rice announced that he did not favor a major management shake-up and issued a lukewarm endorsement of McLeod. In 1892, Rice and Julia decided to sail across the Atlantic, where the railroad agreed to allow him to act as its European agent.

  Soon after the Rices returned, stocks crashed as the Panic of 1893 set in. During the next three years, fifteen thousand businesses would close and the unemployment rate would approach 25 percent. The first indication of the severity of the crisis came in February, when the Philadelphia and Reading Railroad, by then hopelessly overextended, confirmed Rice’s every fear and declared bankruptcy. Pierpont Morgan had McLeod fired, and persuaded a sober, highly regarded, civil engineer turned railroad executive named Joseph Smith Harris to take his place. Harris was also appointed to head the board of receivers assigned to supervise the bankruptcy. Harris was at the time running a competing company, Lehigh Coal and Navigation, but Morgan would not be denied.

  Neither would Isaac Rice. He accused Harris of being a stooge for the old guard, in place to facilitate the continued looting of corporate assets at the expense of the stockholders. When Harris proposed a restructuring that would leave Rice’s group largely without power to influence policy, Rice opposed it, and then filed suit to stop it. The problem was mismanagement, he insisted, not a lack of financial wherewithal. For two years, Rice and Harris would fight it out in the courts and the newspapers.

  Late in 1893, Rice mounted a proxy fight and announced his intention to replace Harris as president. The receivers fought back. They refused to give Rice access to its complete shareholder list until ordered to by the courts. They attempted to portray Rice as an unscrupulous financial manipulator, trying to loot the company as he had done with many others. Rice countered by petitioning that the receivers be removed, that they had refused to terminate leases that were shams to funnel money into the former officers’ pockets, especially McLeod’s, and that they had entered into leveraged transactions that would further enrich some but would break the company down the road. (Morgan’s name was always conspicuously left out
of the discussion.)

  Sentiment was most definitely with Rice. The Economist wrote, “Disinterested and careful critics of Reading [meaning the editors] have expressed the opinion that the first of Mr. Rice’s charges—that of speculating in securities of other roads with Reading’s funds—is sustained by the facts.” But the magazine was unwilling to condemn Harris and his colleagues. “But [the editors again] deprecate the attack on the receivers of the company, inasmuch, so they say, they cannot be held responsible for what has happened in the past, and cannot be criticised as lacking either honesty, ability or experience, so far as dealing with the present is concerned.”4

  The New York Times was far less forgiving. In a scathing editorial, they stated, “That the Reading receivership was a scheme, either to perpetuate Mr. McLeod and his friends in the control of the property or to further a prodigious speculation on the short side in Reading’s securities, or both, no one doubts to-day. Investors stood aghast at the possibilities of profit in railroad wrecking offered by this outrageous proceeding, and America saw added the worst item to its list of railroad swindles, which it had hoped was closed forever years ago.” The receivers this time were not spared, “Mr. Harris and his new companions have done less than nothing. They have carefully covered up every detail of Mr. McLeod’s course, and have resented every attempt to uncover his acts.” As to reorganization, the Times accused Harris of “the effrontery to present to the security holders a so-called plan for the rehabilitation of their property, whose price was the surrender of Reading to their absolute control.” Terms such as “iniquity,” “corruption,” “ruin,” and “disaster,” were sprinkled throughout the piece. Isaac Rice and his consortium received better treatment. The Times described them as the criminals’ “nemesis,” and that he was “undeterred by the difficulty of the task.”5 It must have amused the cold and clinical Rice to be described in such heroic terms.