The Tycoons: How Andrew Carnegie, John D. Rockefeller, Jay Gould, and J. P. Morgan Invented the American Supercompany

by Charles R. Morris

  The muckraker Ida Tarbell once dismissed Rockefeller as a man with the “soul of a bookkeeper,” an image that has stuck to him ever since. It was true that he loved the completeness and concreteness of good ledgers, and insisted that every entry, every tally, every invoice had to be right; but the “bookkeeper” label does not begin to capture the reality of John D. Rockefeller. If he lacked Morgan’s rhinocerous presence or Carnegie’s noisy panache, he made up for it with an extraordinary, quiet charisma. As a young man, we see him joining new settings, a church, perhaps, or an association of oilmen, and somehow, without apparent effort or almost without saying anything, he always emerges as the leader. Rockefeller was well built, though not as tall as his father, and a good athlete who enjoyed vigorous work—he loved to pitch in with the men at the Excelsior works. Acquaintances frequently commented on his sense of humor, and family pictures often catch him looking distinctly jolly. His direct, understated, factual style made him an exceptional salesman, and he must have exuded immense self-assurance. From the very start of his business career, he took enormous risks, but so calmly and matter-of-factly as to make them seem perfectly ordinary.

  Even during his first years in refining, the characteristic Rockefeller methods were on full display: Move with shocking speed and minimum fanfare. Act with total confidence, but turn on a dime if new facts warrant. March in service of a sweeping vision, but pay obsessive attention to the details. Rockefeller’s grand plan may have been in place as early as his buyout of the Clarks, for he moved in a seemingly straight line to world oil dominance under the Standard Oil banner in hardly fifteen years. Although he often played very rough, he was surprisingly free of vindictiveness. When he took over another man’s business, he generally paid a fair price, indeed, often overpaid. A typical ploy was to open his books to the target: any sensible man would understand that competition was hopeless and make a deal. If a target was especially obdurate, rejecting all reasonable offers, a switch would finally turn and Rockefeller would suddenly unleash total, blazing warfare on every front—price, supplies, access to transportation, land-use permits, whatever created pain. When the target capitulated—they always did—the fair-price offer would still be available, often with an offer to join the Rockefeller team. It was industrial conquest on the efficiency principle. As Rockefeller kept determinedly in the background, even as the Standard spread across the globe, he began to acquire in the public mind an aura of an almost mystical power.

  Rockefeller was by no means free of hypocrisy. Although he was a deeply devout Baptist, his biographer Ron Chernow has documented at least one instance where he clearly committed perjury. But the image of Standard Oil as a kind of criminal enterprise, due mostly to Tarbell, was never accurate. Rockefeller companies unquestionably paid bribes to local officials, but the business environment in nineteenth-century America was a bit like that in today’s Middle East: as the English observer Lord Bryce wrote, “It is only by the use of money that [corporations] can ward off the attacks constantly made on them by demagogues or blackmailers.” Rockefeller didn’t need to cheat to win world oil dominance; he was simply better at the business than anyone else.

  • GOULD •

  For all the vituperation that descended on the heads of the Robber Barons, especially on Rockefeller, none had so dark a reputation as Jay Gould. To Henry Adams, Gould was “a spider . . . [who] spun huge webs, in corners and in the dark.” The Wall Street denizen Daniel Drew said of Gould, “his touch is of death.” Drew himself was one of the most unattractive figures in the history of Wall Street—a semiliterate former cattle drover, a coward and a sniveler, constant only in his disloyalties. He was the first master of the “bear raid,” attacking the stock of his own companies and reaping profit from the destruction of fellow shareholders, along the way making a mockery of even the flimsy fiduciary standards of the day. Drew’s hatred of Gould drew extra venom from the crushing losses he had once suffered when Gould out-traded him. Morgan, who in his early career was also outmaneuvered by Gould, was always torn between keeping him at a wary distance and chasing after his business.

  If the Mephistophelian caricature of Gould was overdrawn, there was enough basis in fact to make it stick. Gould had one of the supplest business minds of his, or of any, age. His career coincided with the great epoch of American railroads, the first large, investor-financed, publicly traded corporations. The roads’ thirst for capital was insatiable, and in the absence of standards for creating securities or keeping accounts, their books were typically cobwebbed with a murky chaos of conflicting claims. This was the playing field Gould was born for. His subtle intelligence could flicker through every crevice and corner of the most convoluted financial constructions and divine exactly the points of leverage, the strategic positions that could make him, by a few adroit purchases, master of the entire enterprise. Time and again, unsuspecting investors struggling to rescue their business or recover their funds would suddenly be confronted by the specter of Gould, as if risen from the gloom, snatching away both their company and their money. Railroads became the center of Gould’s interests early in his career, and more than anyone else, he created the national railroad map that prevails to this day.

  Gould’s mastery of financial arcana was paired with a strange streak of self-destructiveness. More than once, after a string of victories had left him in possession of the field, he would launch some new, seemingly pointless depredation that laid waste to everything he had worked for—as if launching stock wars was simply what he did. His reputation as a looter of his lines, however, is less fair. While he typically underinvested in his roads, he was always financially stretched, and over the years he probably put far more money into his roads than he took out. During his one extended term as president of the Union Pacific, he proved to be a better than average railroad manager—he was a superb financial engineer, took a close interest in operational details, and usually outstrategized his competitors.

  He cut the most unprepossessing of figures. Gould’s father was so disappointed in the scrawny, undersized son his wife presented after five straight daughters that he eventually gave up farming for a store in town, for Jay clearly wasn’t the son to scratch a living from the hardscrabble soil of rural New York State. As an adult, Gould was barely five feet tall, even smaller than Carnegie, but with none of Carnegie’s voluble energy. Instead, he made a wan, silent, somewhat hunched figure. During times of crisis, he would usually sit calmly and quietly, betraying tension by tearing small bits of paper. His dark, usually haggard, eyes, the wiry black beard, the subtlety of his methods, his name, all fed rumors that he was a Jew, although there is no evident Jewish ancestry in the family tree.

  Burning ambition more than made up for Jay’s lack of physical strength. He was essentially on his own from age thirteen, when his father registered him in a high school in a neighboring town and left him with a pile of clothes and fifty cents. Jay quickly found a job as a part-time, self-taught bookkeeper, and also proved an excellent student, with a genuine taste for literature, and a surprisingly mature writing style. He taught himself surveying, and at seventeen he seems to have been the leading surveyor in the county, lobbying for the profession in the state legislature. He raised the financing for a comprehensive county map, which was a major undertaking, and along the way published a competent county history. He stayed in close touch with his sisters, returning home from time to time when prolonged periods of overwork led to bouts of debilitating illness, sometimes severe enough to be life-threatening.

  Gould’s breakthrough opportunity came in 1856 when he was twenty, in the person of Zadock Pratt. Pratt, in his sixties when Gould met him, was a tanner and backwoods entrepreneur, the leading citizen of his county, an overbearing, hard-handed, booted and Stetsoned pioneer figure, whose taste for young wives lasted well into old age. Nineteenth-century tanners cured animal skins by soaking them in tannic acid derived from a mash of tree bark. It was dirty, dangerous work, requiring vast amounts of timber and water, a
nd was usually conducted deep in the woods. Pratt hired Gould to survey a tanning site, but was sufficiently impressed that he made him a partner and manager of the projected new tannery. So the pint-sized Gould, barely out of his teens, led fifty workmen into the woods and built virtually a full-scale town, including living and food service quarters, a mule-powered bark crushing plant and curing vat facilities, plus a post office, a wagon house, a water race, and eventually a general store. Work proceeded so fast that the settlement was named “Gouldsborough” by acclamation.

  Gould was never known as a charismatic figure—adjectives like “furtive” and “elusive” are the kind most often applied. But he clearly won the loyalty of the men of Gouldsborough, for when his control of the tannery was challenged a few years later, the town men fought for him, carrying the day in what amounted to a mini-frontier war. The details of the story are lost, but the broad facts are that after Gould bought out Pratt with the help of a leading leather house, he came to loggerheads with his new backers. (They had assumed the youthful Gould would do as he was told; but the partnership agreement gave Gould total control over the tannery, and he was expanding on every front—more woodland, another tannery, a leather brokerage.) When financial discussions broke down, one of his backers, Charles Lee, hired a crew of toughs and took over the tannery by force. Gould hastened to the town and addressed a spontaneous gathering of about two hundred townspeople and employees, who rallied to his banner. That night he led a group of fifty men, divided into two assault teams, and stormed the tannery from the front and rear. There was a brief, but wild, shooting melee before Lee’s ruffians fled. Three men were wounded, including Lee, who took some buckshot in his hand. The local newspaper, doubtless tongue in cheek, blazoned:

  Civil War And The Leather Trade

  Italian War Eclipsed

  Great Fight At Gouldsborough

  Gen. Gould Victorious

  And Marshall Lee A Prisoner Of War

  For Gould it was a hollow victory. The battling had made a shambles of the tannery business and destroyed his reputation in the leather trade. When Gould decided to try his luck in New York in late 1860 or early 1861, his prospects were unpromising in the extreme. At the time he bought out Pratt, he was already a wealthy young man, with a net worth of about $80,000, or close to $1 million in today’s money. But the tannery fiasco had almost wiped him out, leaving him little but illiquid woodland holdings. An 1861 credit report states that he “has not settled his affairs & and has no particular location. Is not known to do any business, nor is it ascertained whether or not he is worth anything.”

  Failure though it was, the tannery episode highlighted the characteristics Gould would display his entire career: the ability to tackle any endeavor, master any field, and, despite his frail constitution, to work prodigiously; the constant pushing against boundaries and restraints; the impulse to expand in every direction at once, sometimes beyond all reason; the unfortunate habit of leaving a trail of dazed and battered partners in his wake; and the sharp reading of legal documents—one scholar has called him “probably the most successful litigant in American history.” (While Gould could generally be trusted to keep his word, one had to parse very carefully what that word actually was, for agreements would be interpreted in the closest possible way, and always to Gould’s advantage.) Most extraordinary, perhaps, was Gould’s ability to sustain reverses that would crush another man, then to pull himself off the floor and to carry on, learning more, working harder, never complaining, just looking for the next chance.

  The move to New York quickly turned to his advantage, for in 1863 he married Helen Miller, the daughter of a prominent New York merchant. Helen’s family was part of the tightly knit New York upper-class commercial society, one that usually married within its own ranks. Helen’s father liked Jay, however, and the couple moved in with her parents after the marriage. Six children followed in rapid succession, and Helen and the children were the rock of stability in Jay’s life for the rest of his days.

  And just as fortuitously, the windup of his leather business in 1861 introduced Gould to railroading. One of his other leather partners held $50,000 in first mortgage bonds on a small railroad in New York’s Lake Champlain region. The line was in trouble, and with the market crash following the onset of the war, the bonds had fallen to ten cents on the dollar. It must have taken Gould’s entire remaining cash trove, but he bought them and gained effective control of the line. We have only his own brief account to confirm that he spent most of his first years in New York nursing the line back to health. When it merged with a larger line a few years later, his bonds were trading at par, and the stock he had acquired along the way had become quite valuable. He was a player once more, although at the time of Lincoln’s death, his name was almost unknown on Wall Street.

  The tycoons as young men. Upper left: Andrew Carnegie; upper right: John D. Rockefeller; lower left: Jay Gould; lower right: J. P. Morgan.

  • MORGAN •

  Pierpont Morgan was already an experienced banker at the time of Lincoln’s death, having started and built his own firm during the war. Certainly, few young men had been as carefully brought up for their trade. Both branches of his family had settled in America by 1640, and he could count Aaron Burr and the evangelist Jonathan Edwards among his relatives. The males of the Pierpont line, his mother’s side, were mostly a genteel, otherworldly lot, who made their living as ministers or school administrators. The Morgans were sterner stuff. Pierpont’s grandfather, Joseph Morgan, was one of Hartford’s leading citizens and a founder of the Aetna Insurance Co. Joseph’s first son, Junius, Pierpont’s father, was a dry goods importer when he was recruited as a partner by an aging George Peabody, then the leading American merchant banker in London. Peabody brought Junius and his family to London in 1854, and Junius succeeded to sole control of the business a decade later, when Peabody & Co. was formally wound up and succeeded by J. S. Morgan & Co. Pierpont, like his father, was tall, strong, and outgoing. He had Junius’s flair for numbers and loved to spend his school vacations working in the countinghouse, as bank back-offices were called. But he also had a raffish streak—with an eye for the ladies and an appetite for risk that occasionally alarmed the very buttoned-down Junius.

  J. S. Morgan’s core business was short-term trade finance, “discounting bills,” as it was called. Its primary customers were American cotton or iron merchants. They typically sold their goods on credit, taking back a piece of paper, or “bill of exchange,” which could be cashed at a specific bank such as Barings at some set future date. If a merchant needed cash before the maturity date, he sold his bills at a discount to a firm like Junius’s. It was a game of gritty details; Junius needed a close understanding of his principals’ businesses and their credit to avoid getting stuck with bad paper. Junius rounded out his banking practice by providing local credit to his clients when they were abroad and by helping to sell American government and railroad bonds, although at this time usually as a secondary underwriter behind one of the bigger European banks.

  It was taken for granted that Pierpont would succeed to the firm. After the move to London, Pierpont attended a Swiss boarding school and then the University of Göttingen to work on his French and German. Then in early 1857, Junius placed him in with one of his New York correspondents, Duncan, Sherman & Co., where Pierpont’s assignment was to learn the banking business, keep an eye on Junius’s New York affairs, and maintain the correspondence with the London office, which included great floods of long, somewhat preachy letters from his father. One incident, which Pierpont relished telling in later years, demonstrated his independent streak. Sent to visit merchant customers in New Orleans, Pierpont saw a chance to make a killing in coffee beans and used Duncan, Sherman credit to take a large position. When the anticipated outraged telegram from New York arrived, Pierpont laconically replied that the position had been sold out and he was remitting a substantial profit. He later asserted that there was no risk in the deal because he thoroug
hly understood what he was doing.

  After two years, Pierpont, just twenty-four, opened his own firm, and with the help of referrals from Junius rapidly built his business. A quasi-scandal from this period, the celebrated case of the “Hall carbines,” shadowed his name many years later. Pierpont collected a large fee for financing a sale of rifles to the hard-pressed general John C. Frémont, the Union commander in the West. What made the deal sleazy was that the government already owned the rifles. A government armory had agreed to sell the rifles before the war at a very attractive price, but the armory wanted cash, which the buyer could not raise. But once war broke out, field commanders were desperate for rifles, and a friend of the Morgans from London, a wheeler-dealer named Simon Stevens, took over the contract and made a deal with Frémont at a very high price. Morgan put up the cash to close the purchase with the armory and ship the rifles west. Morgan’s war-profiteering is especially unattractive, since like all the fledgling tycoons he had paid for a replacement soldier instead of submitting to the draft.

  With the founding of J. S. Morgan & Co. in 1864, Junius summoned Pierpont back to the family business. Pierpont’s firm was dissolved, and Junius paired him with Charles Dabney, an experienced senior partner from Duncan, Sherman, in Dabney, Morgan & Co., widely understood as the New York branch of J. S. Morgan & Co. Later, when Dabney retired, Junius once again paired Pierpont with an older hand, Anthony Drexel, of the long-established Philadelphia banking family, changing the firm to Drexel, Morgan & Co., with the older man again named first.