by H. W. Brands
Morgan pursued Schwab’s suggestion, and during the following weeks the two men imagined what a merged steel company might look like. Their final meeting took place in Morgan’s mahogany-paneled library at 219 Madison Avenue, and it included Gates and Robert Bacon, a Harvard classmate of Theodore Roosevelt’s, besides Morgan and Schwab. The four men smoked cigars and talked all night; by morning they had reduced the merger impediments to one: Carnegie.
All understood that Carnegie would have to be bought out. The shrewd Scot had never been other than boss since entering the steel business, and his ego could hardly submit to orders, or even suggestions, from Morgan or anyone else. Schwab had reason to think a buyout was possible. Carnegie was spending ever more time on his non-business causes, and his wife, Louise, was entreating him to retire. She told him they had more than enough money and he had nothing left to prove; why not celebrate the new century by letting others break their backs in the corporate trenches?
Louise Carnegie conspired with Schwab against her husband. Shortly after Schwab informed her of the merger scheme, she telephoned to say that Carnegie would be playing golf the next morning at the St. Andrews club in Westchester. He was always more cooperative after winning at the Scottish national sport, she suggested. Schwab took the hint, whiffed a few for the cause, and broached the subject of selling. Carnegie didn’t reject the plan outright, which Schwab took to be a good sign. Carnegie said he’d think it over.
The next morning he gave Schwab his answer. In the stubby pencil he habitually carried, he outlined his terms: $480 million for the Carnegie Company and all its holdings.
Schwab took Carnegie’s offer straight to Morgan. The banker prided himself on never dickering; when he saw something he wanted—a piece of real estate, a work of art, a corporation—he asked the owner to name a price. If Morgan deemed the price fair, he paid it. If not, he walked away. Morgan glanced at the paper Schwab carried and accepted Carnegie’s price at once.
Several days later Morgan visited Carnegie to close the deal personally. The banker and the steel man had never been friendly, and they weren’t now. But as Morgan shook Carnegie’s hand, he said, “Mr. Carnegie, I want to congratulate you on being the richest man in the world.”14
JOHN ROCKEFELLER MIGHT have disputed Morgan’s characterization—his net worth was close to Carnegie’s, if less liquid—and he might have spoiled Morgan’s merger. Rockefeller still held iron mines independent of Carnegie’s, and while he had no present plans to expand downstream into refining or production, the profits that kept pouring in from Standard Oil made it possible for him to do so on short notice. Elbert Gary warned Morgan that Rockefeller had to be neutralized if the new steel combine were to be secure.
Morgan at first refused. “We have got all we can attend to,” he told Gary. But Gary reiterated that Rockefeller was too dangerous to leave out. The new firm must have Rockefeller’s iron mines.
“How are we going to get them?” Morgan inquired unenthusiastically.
“You are going to talk to Mr. Rockefeller,” Gary said.
“I would not think of it.”
“Why?”
“I don’t like him.”
Morgan’s dislike for Rockefeller was well known, as was the fact that Rockefeller reciprocated. The two men had first met at the home of William Rockefeller, John’s brother. “We had a few pleasant words,” Rockefeller remembered. “But I could see that Mr. Morgan was very much—well, like Mr. Morgan: very haughty, very much inclined to look down on other men.” Morgan thought Rockefeller a desiccated prig, too devout and too devoted to business at the cost of the finer things in life. He doubtless also begrudged Rockefeller’s success in financing the growth of Standard Oil without recourse to banks or bondsmen.
Gary appreciated Morgan’s animus toward Rockefeller, though he didn’t share it. And now he refused to allow it to intrude on the matter at hand. “Mr. Morgan,” he said, “when a business proposition of so great importance to the Steel Corporation is involved, would you let a personal prejudice interfere with your success?”
“I don’t know,” Morgan replied.
Eventually Morgan came around. He asked Rockefeller if he might drop by his office. Rockefeller, fully aware of how much Morgan needed him, told Morgan he was retired and didn’t go to the office. Morgan could come to Rockefeller’s home. When Morgan did so, they made awkward small talk till Morgan thrust to the point: How much did Rockefeller want for his mines?
Rockefeller put Morgan off. He said again that he was retired; Morgan would have to talk to his son, John Jr. Morgan, miffed, muttered that the boy could come to his Wall Street office.
He did so near the end of February 1901. Morgan made him wait while he completed some inconsequential business. Finally he looked up and growled, “What’s your price?”
He was taken aback when Junior affected surprise. “Mr. Morgan,” he said, “I think there must be some mistake. I did not come here to sell. I understood you wished to buy.” Junior’s boldness with Morgan surprised his father, when the old man heard of it. He hadn’t thought the boy had it in him. “Great Caesar,” he chortled to his wife. “John is a trump!” Yet Junior’s diffidence accurately reflected the elder Rockefeller’s honest attitude toward the incipient steel trust. After further jousting Junior and Morgan agreed to appoint Henry Frick as arbitrator, to establish a price for the Rockefeller mines. “As my son told Mr. Morgan,” Rockefeller explained to Frick, “I am not anxious to sell my own properties. But as you surmise, I never wish to stand in the way of a worthy enterprise.”
Frick was an unlikely choice for arbitrator, being famously blunt and opinionated. He and Carnegie were partners for a decade but never friends, and after Carnegie spent the latter 1890s hanging Homestead on him, they parted acrimoniously. Even years later Frick held a grudge. The aging Carnegie sent a messenger to Frick suggesting a reconciliation; Frick responded, “Tell Mr. Carnegie I’ll meet him in hell.” But Frick and the Rockefellers got along well, perhaps because they all disliked Carnegie. Frick proposed a generous price for the Rockefeller mines. Rockefeller probably would have accepted the proposal on its own merits, but he received encouragement from new, secret evidence suggesting the existence of large iron deposits outside the region he controlled.
The result was the deal Morgan had sought. Rockefeller sold the iron mines for $80 million and his fleet of ore boats for another $8.5 million. With this last piece in place, Morgan in March 1901 announced the creation of the United States Steel Corporation. Capitalized at $1.4 billion, the steel trust surpassed Rockefeller’s Standard Oil to become the largest corporation in the world. With its armies of workers, fleets of ships and barges, thousands of railcars, tens of thousands of acres of coal and iron properties, and hundreds of millions of dollars of plant and equipment, it dominated the most basic industry in modern America.
“Pierpont Morgan is apparently trying to swallow the sun,” Henry Adams remarked.15
Epilogue
THE DEMOCRATIC COUNTERREVOLUTION
And the moon too, as it turned out. Not long after closing the deal with Carnegie and Rockefeller, Morgan sailed for France on his annual vacation and art-hunting expedition. He bagged a Raphael altarpiece, the Colonna Madonna, and some smaller game in Paris before retiring to Aix-les-Bains. There, in early May, he received a cable from New York explaining that unknown raiders had mounted an assault on the Northern Pacific Railroad.
Morgan’s tie to the Northern Pacific dated from the 1880s, when he had rescued it from collapse and reorganized its finances. The revival of the road attracted the unfavorable attention of James J. Hill, whose Great Northern competed with the Northern Pacific for traffic between Chicago and the Pacific Northwest. Hill knocked heads with Morgan for a time, till the two arranged a truce. Hill purchased 10 percent of the Northern Pacific, which, with the larger portion Morgan commanded, gave the Morgan-Hill alliance effective control of the line.
Or so Morgan thought until May 1901, when the raid o
n the Northern Pacific that disrupted his vacation began. Morgan’s spies soon discovered the identity of the raider: Edward H. Harriman, who had swooped down to grab the Union Pacific after the Panic of 1893 and followed this coup by snatching the Southern Pacific from the successors of Leland Stanford. Harriman’s ambition appeared boundless; he sought nothing less than a continental empire of rails. Already he controlled the southwestern quarter of the country; with the Northern Pacific he could reach the Canadian border.
Harriman’s challenge to Morgan and Hill triggered a frenzy in rail stocks. Day after day the market set records for volume as share prices soared and plunged. “Titans Fight for Control of Big Road,” a typical headline blared. As the nature of the contest grew clear, outside speculators placed their bets on the contenders, raising the stakes still more. Northern Pacific shares doubled in price in three days, then doubled again and again, topping 1,000 before plummeting 400 points in mere seconds. “Brokers acted like insane men,” the New York Times reported. “Big men lightly threw little men aside, and the little men, fairly crying with indignation, jumped anew into the fray, using hands, arms, elbows, feet—anything to gain their point. And, all the while, there was such yelling and shouting as had not been heard even on the recent wildest days in the Street.… It was something incomprehensible, almost demonic—this struggle, this Babel of voices, these wild-eyed, excited brokers, selling and buying, buying and selling.”1
The battle left Wall Street strewn with the wreckage of speculation, and in the end only Morgan and Hill, on one side, and Harriman, on the other, remained standing. As the dust settled they discovered they owned, between them, $79 million of the $80 million of Northern Pacific common stock. They also discovered a shared interest in averting another such contest. Morgan returned from Europe to organize a holding company called Northern Securities, subsuming his and Hill’s Northern Pacific shares, Hill’s Great Northern shares, and Harriman’s stake in Northern Pacific. Its $400 million market capitalization made it second in size only to Morgan’s other recent creation, U.S. Steel.2
THE CAPITALIST REVOLUTION was in many ways the best thing ever to befall the ordinary people of America. The country’s population grew from 40 million in 1870 to 76 million in 1900, with the two-thirds of that growth derived from natural increase reflecting the healthful, hopeful conditions among those already in America, and the one-third from immigration the belief of the newcomers that they might share the natives’ health and hope. Infant mortality declined by a third; life expectancy increased by a seventh (to nearly fifty years for whites; blacks died about a decade sooner). The nation’s total output tripled in real terms; average per capita income nearly doubled. The portion of the workforce engaged in agriculture fell by almost half (till scarcely one worker out of three toiled on a farm), but that smaller group, employing machinery like the equipment showcased on the bonanza farms of North Dakota, outproduced their forebears by a substantial margin. Productivity gains among the nonfarm workforce were even more dramatic, as electricity gradually supplanted steam power, freeing tools from their tethering to central plants and allowing a closer fit between workers and their tasks.3
Electricity transformed life beyond the workplace as well. Edison’s electric bulbs, energized by Westinghouse’s dynamos, displaced Rockefeller’s kerosene from the lamp stands of America. Telephones were common, though hardly universal. Phonographs played scratchy but recognizable music. Movies were migrating from the small screen of the kinetoscope to the large screen of the movie theater. Electric fans cooled public buildings and some private homes during the summer. Willis Carrier was working on his first air conditioner; an alternative design, installed in 1902, lowered temperatures and tempers on the New York Stock Exchange.
Loss of the lighting market for kerosene might have worried Rockefeller if not for the prospect of a new, much larger market for another petroleum product. The automobiles of Henry Ford and others were just beginning to pour from shops and factories in Detroit and elsewhere; besides affording Americans unprecedented freedom of movement, the gasoline-powered cars guaranteed huge and lasting growth in the demand for oil. Another new market was merely a gleam in the eyes of Orville and Wilbur Wright, who bolted a gasoline engine onto an ungainly machine that nonetheless flew at Kitty Hawk, North Carolina, in 1903. The airplane industry would be much slower lifting off than the car business, but in time the planes too would guzzle large quantities of petroleum derivatives (in particular, oddly enough, kerosene). Railroads stuck to proven steam technology (diesel-electric engines wouldn’t catch on for another two decades), but their networks continued to ramify across the country until hardly a hamlet couldn’t be reached by rail. The trains traveled underground in Boston, where America’s first subway opened in 1897, and would do so soon in New York, where construction crews started digging for the Interborough Rapid Transit system in 1900.
Besides passengers, the trains carried freight, including much of the food that allowed Americans to eat better than almost anyone else on earth. Refrigerated cars brought fresh meat to tables far from slaughterhouses and fruits and vegetables from the winter gardens of Florida, Texas, Arizona, and California to the pantries of the snow belt. Other cars carried wheat to Minneapolis, where it was ground into flour of a fineness the mothers and grandmothers of turn-of-the-century homemakers would have given their favorite pie pans for. When Americans wearied of traditional fare, they could partake of cuisines imported by immigrants from China, Italy, Greece, Poland, Russia, and a dozen other countries.
Housing continued to improve, albeit more rapidly in some cities and neighborhoods than in others. Apartments still attracted the young and single, but families increasingly caught on to the savings and convenience of vertical integration in living quarters. In 1901 New York passed another tenement law, mandating more space, light, and air. This law was more effectively enforced than some earlier versions; the most dramatic result was a steep decline in the New York City death rate, which fell by a third during the next decade and a half.
Americans at the turn of the century traveled more than they ever had before. They traveled on business but increasingly for pleasure. Faster and more comfortable trains made domestic journeys more attractive; falling ticket prices made them more widely available. Yet the most rapid growth was in foreign travel. In 1900 nearly 125,000 American tourists ventured across the oceans, mostly to Europe. Although this was less than 1 percent of the population, it was four times the number of overseas tourists in 1870. Americans traveled to Canada and Mexico as well; although no one kept track of the number of such tourists, their expenditures nearly quintupled between 1870 and 1900, suggesting a surge comparable to that in transoceanic travel.4
Education became more widely available during the final decades of the nineteenth century. In Chicago, seats in public schools multiplied eight-fold between 1870 and 1900, to accommodate the waves of immigrants from overseas and in-migrants from the countryside and to allow students to stay in school longer. Other cities and towns expanded school facilities commensurately. By 1900 nearly eight out of ten young people of school age (five years old to seventeen) attended school, and the proportion of high school graduates was three times what it had been in 1870 (with girls greatly outnumbering boys, who frequently left school early for jobs). Illiteracy had fallen by half, to 10 percent of the juvenile and adult population (although nearly 45 percent of blacks remained illiterate).5
Post-secondary education blossomed. The number of colleges and universities increased dramatically (to nearly a thousand), with many of the largest new schools being public universities established under the terms of the Morrill Act of 1862. Private colleges funded by the great capitalists (including Vanderbilt University, Stanford University, and the University of Chicago, by John D. Rockefeller) challenged the older private colleges for preeminence. In 1900 nearly 240,000 young people attended college; although this figure was less than 5 percent of the population between eighteen and twenty-four years of
age, it was twice the percentage of thirty years earlier. Many of the new colleges admitted women as well as men; some (such as Vassar, Wellesley, Smith, Bryn Mawr) admitted only women. African Americans joined whites at many of the new and certain of the old schools; they also attended colleges (Howard, Morehouse, and Spelman, among others) dedicated specifically to teaching young blacks.6
YET FOR ALL the advances in American material and cultural life, there remained a feeling that things had gone wrong, that—as the North Carolina farm editor had said—a screw had come loose and the wheels fallen out of balance. Prosperity was precarious, as the recent depression had revealed. Inequality—the distance between the segment of society headed by the Vanderbilts in their gaudy mansion and Jacob Riis’s other half in the alleys around the corner—was more obvious than ever. The capitalists controlled the government: the legislative branch, which protected their profits with tariffs and their assets with a gold standard; the executive branch, which dispatched troops to crush the capitalists’ working-class opponents; and the judicial branch, which defined dissent as conspiracy and monopoly as accepted practice. The trusts grew more numerous and more powerful by the month. In the contest between capitalism and democracy, capitalism had never enjoyed such a formidable advantage.
But the contest wasn’t over, and as the new century began, democracy showed fresh signs of life. A first stirring—a strong kick, in fact—followed the bursting of Theodore Roosevelt upon the national consciousness. Roosevelt parlayed his celebrity from the Spanish war into the Republican nomination for governor of New York in 1898, when Tom Platt, the New York Republican boss, required a clean candidate to replace his soiled incumbent. Roosevelt campaigned with an entourage of Rough Riders, who blew the bugle and testified to the valor of their colonel. Roosevelt won, although not by much, and Platt assumed he’d follow orders the way the boss’s other placemen did. But Roosevelt revealed an independent streak that persuaded Platt to find another governor at first opportunity. He contrived to foist Roosevelt upon the national party at the convention of 1900, which nominated Roosevelt for vice president to replace the deceased Garret Hobart. Most delegates thought little about the matter, knowing that the vice presidency, by long custom, conferred nothing but terminal anonymity on nearly all those who held the office. Mark Hanna, however, assumed the worst. “Don’t any of you realize that there’s only one life between that madman and the presidency?” he thundered.7
