The Jews in America Trilogy

by Birmingham, Stephen;

  In 1874 Jacob Schiff wrote to his mother in Frankfurt, saying: “I know you haven’t any clear conception of what an American girl is like. You may think she is rather uncultured and even a feminist—but don’t imagine that of the girl I’ve selected. She might have been brought up in the best of German families.”

  Clara Schiff replied, urging her son to be gentle with this girl, cautioning him to curb his famous temper because “A word spoken hastily in anger would leave lifelong scars.”

  A few months later, Jacob wrote:

  Beloved Mother,

  I feel impelled to write to you by this mail, so that if I have calculated well, this letter will reach you on my wedding day.

  My feelings for you and my thoughts, now that I approach this important time of my life, I cannot express in words. You have not only borne me, you have also guided me, so that, after some youthful indiscretions, I can now say to myself that I have become a good and moral man, and I may take the wife that I have chosen for life to the altar.

  You, my dear Mother, I have to thank for all this guidance, for every good advice, every moral stems from you, and you gave me these precepts in such a way that they made a lasting impression on me.

  And now on my festive day, you cannot be with me but I will be thinking of you. I know that in spirit you will be with us and bless us. More I cannot say to you today. Therese and I will always be your devoted children, and, God willing, I will be very happy with my girl.

  Millions of kisses to you and my sister and brothers.

  Your Jacob

  As usual, he had not only “calculated well”; he had calculated perfectly. Jacob Schiff and Therese Loeb were married in New York on May 6, 1875, and Jacob’s letter to his mother arrived in Frankfurt in that morning’s mail. The young couple moved into a large brownstone at Fifty-third Street and Park Avenue, their wedding present from Solomon and Betty Loeb.

  A loving Kuhn, Loeb & Company gave Jacob another present—a full partnership in the firm. He was on his way to becoming the most renowned of all the Schiffs, to eclipsing all the others except, perhaps, his ancestor King Solomon. And, already, in the Kuhn, Loeb offices, when a decision was to be made, men had begun to whisper—out of Solomon Loeb’s earshot, “Why don’t we see what Mr. Schiff says?”

  Solomon Loeb had made a business asset out of saying no. His son-in-law, to any money-making proposition, usually had the opposite reply.

  21

  THE EMERGING GIANTS

  Jacob’s Seligman-watching was teaching him several things. Joseph Seligman, by nature and by instinct, had been a moneylender who operated best out of his hip pocket. When it came to selling stocks and bonds at their best possible markets, he was brilliant. He was a manipulator. But Joseph Seligman had had a blind spot. He understood figures, but not the physical products or properties the figures represented. When it came to railroads, Joseph did not even use them much, and there is evidence that he considered them an essentially unsafe means of transportation. When he and his brothers helped finance New York’s first elevated railway, Joseph ruled that no two Seligmans could ride the “el” at the same time lest, in case of accident, the bank suffered a wholesale loss of partners. He had made short trips in his private car between New York and Saratoga but, with the exception of his one trip to California, made few rail journeys of any length. He had, at one point, invited a group of fifteen tycoons for a two weeks’ trip in private cars to promote shares in one of his lines, but the junket was a fiasco and most of the guests left the train before the trip was over. (One story has it that the men had expected Joseph to provide them with “female companionship” during the journey, and were furious to find that the entertainment planned for the whole two weeks was nothing but “cards, chess, and crokinole.”)

  The rationale of railroads, which Joseph never seemed to grasp, was that railroads opened up lands which could be sold to settlers who, in turn, would provide a traffic of goods and people which would make the railroads pay. In one of his more dismal railroad ventures, however, Joseph demonstrated that he had only a rudimentary knowledge of the kind of land which settlers liked to settle. This was his famous “Aztec Land” deal where, having failed to interest investors in a large stretch of Arizona—part of his Atlantic & Pacific Railroad holdings—Joseph suggested forming the Aztec Land and Cattle Company to use the land for cattle-raising. The only trouble was that the land, a vast stretch of unirrigated desert, was no more habitable for cattle than it was for people.

  Jacob Schiff, on the other hand, saw that it was not enough to be merely a financier when dealing with railroads. One had to be an organizer as well. Before backing a railroad, he insisted on going over every mile of track. He interviewed shippers and line officials, poked about in warehouses, peered into cabs of locomotives, and talked to engineers, brakemen, and conductors. He inspected freight cars and signal mechanisms, and whenever he found anything out of order he made a note of it. Schiff’s memoranda to the management of his lines pointed out such details as a mile of weed-grown track that left “a poor impression” on travelers; a passenger car whose windows needed washing; a tipsy conductor; a station that needed a fresh coat of paint; a “bumpy stretch” of track. No wonder he never backed a railroad—as Joseph Seligman had—that had no place to go, or no means of crossing the Colorado River.

  The Morgan group had, for good reason, been leery of dealing with the Seligmans when it came to railroads. Morgan admired Jacob Schiff’s approach. Morgan, too, was an organizer who dealt not only with the financial but also with the physical properties of industries, and who saw to it—by direct management and through the men he put on their boards—that they were run, once he had an interest in them, exactly as he wanted them to be. Soon after Joseph Seligman’s death, Jacob Schiff was the only German Jewish banker whom Morgan—at least occasionally, and always begrudgingly—treated as a peer.

  Schiff had studied the Union Pacific Railroad and its problems for four years before embarking on a project which everyone else in Wall Street considered hopeless. The Union Pacific, having joined the Central Pacific with Leland Stanford’s golden spike, had been having trouble ever since. An early engraving shows the crew of the little line shooting their way across the plain against a herd of belligerent buffaloes. Soon the Union Pacific’s human adversaries were even more ferocious, and the coup de grâce was delivered by the Seligmans’ old client, Jay Gould. By the time Schiff became interested in the line, Gould had bled it dry and abandoned it, and the company had collapsed into bankruptcy. Among the larger of the Union Pacific’s debts were $45 million owed to the United States Government, plus 6 percent interest on government bond loans which it had used as collateral to raise another million from the public. Unpaid interest had accumulated for thirty years. The line’s mileage had been reduced from 8,167 to 4,469, and its subsidiary companies were in a desperate tangle of debts. There was nothing left to show for the line but what Morgan, who had repeatedly refused to help bail it out, referred to as “two streaks of rust across the plains.”

  It was a bad moment for railroads. Two other lines, the Santa Fe and the Northern Pacific, had collapsed within a year of each other. J. P. Morgan, meanwhile, had become the one-man ruler of American finance. All other bankers, in endeavors of any size, had to defer to him. But Morgan was actually relieved when Jacob Schiff came to see him and asked, deferentially, whether Morgan would have “any objection” if Kuhn, Loeb “had a try” at reorganizing the Union Pacific. Morgan replied cheerfully, “Go ahead!” He said that he was “through with the Union Pacific,” and added, “I don’t even want a financial participation.” This, as it turned out, was the greatest tactical error of Morgan’s career.

  For several months Schiff and Kuhn, Loeb busied themselves with the task of buying up Union Pacific bonds. But Schiff began to encounter a curious and invisible wall of opposition to his plans. There were strange and unexplained delays in Congress. For no reason Schiff could fathom, a portion of the press suddenly
became hostile to him. European bondholders, on various mysterious pretexts, held off from signing definite agreements. As Schiff considered the situation, he decided that there was only one financial power in America strong enough to provide this subtle kind of antagonism. He returned to Mr. Morgan’s office and, with a little smile, asked whether Morgan had changed his mind. Morgan said, “I give you my word. I am not responsible. But I will find out who is.” A few days later, Morgan sent for Schiff and reported, “It is that little two-bit broker, Harriman, who is interfering. Watch out for him. He’s a sharper.”

  “Ned” Harriman was more than that. He was one of the most disagreeable men of his period, and one of the most disliked. He was small and skinny and stooped, with watery eyes behind thick-lensed glasses. He had a prison pallor, a frightful cough, foul breath, and a nose that dripped. He was perennially ailing of one disease or another, and he spoke in a voice so low that it was rarely audible. When it could be heard, it had nothing pleasant to say. Harriman was incapable of tact. He never smiled. James Stillman of the National City Bank had called him “not a safe man to do business with.” Yet Harriman’s relatively small railroad line, the Illinois Central, was one of the best-run and most profitable in the country.

  Up to that point, E. H. Harriman had been regarded primarily as a nuisance on Wall Street. He owned a small second mortgage on a few Erie Railroad bonds, and had once had the audacity to telephone the Erie’s executive offices demanding that the Chicago express make a special stop at Goshen, New York, so that he could attend the races there. The request was curtly refused. Harriman, however, who knew that the express would be flagged at Goshen if passengers were boarding there for Buffalo or points west, telephoned a minion and had him buy a ticket from Goshen to Chicago. Harriman boarded the crack train at Jersey City, and when the train ground to a halt at Goshen, trainmen were surprised to find no Goshen-to-Chicago passenger but, instead, a debarking Ned Harriman. For exploits like these, he was distrusted and resented.

  When Jacob Schiff first went to see Harriman, his approach was tactful. “We’re having trouble reorganizing the Union Pacific, Mr. Harriman,” Schiff said. “We seem to be meeting opposition. We wonder—is this opposition coming from you?”

  “I’m your man,” said Harriman.

  “Why?” asked Schiff.

  “Because I plan to reorganize the Union Pacific myself,” said Harriman. “I want it for my Illinois Central.”

  “How do you plan to get it?” Schiff asked.

  Harriman replied, “With my Illinois Central, I can borrow money more cheaply than you can.”

  The temerity of the strange little man impressed Schiff, who then said, “Perhaps we can work together.”

  “Perhaps,” Harriman is said to have replied. “If I can be chairman of the executive committee.”

  Schiff flatly refused and departed. The opposition to his plans grew even stronger. Soon he appeared before Harriman again. “Suppose,” Jacob Schiff said, “we put you on the executive committee of the line. Then, if it turns out you’re the strongest man, you’ll be the chairman in the end.”

  “Fine,” said Harriman. “I’m with you. And of course I will be the strongest man.”

  Schiff’s joining forces with Harriman was the beginning of a collaboration that would last for more than twenty years, during which the two men were in almost daily contact, which would lead to the amassing of the greatest single railroad fortune in the world—and which would lead the great J. P. Morgan, who referred to Harriman with such epithets as “punk” and “pad-shover,” and who often called Jacob Schiff “that foreigner,” to acknowledge both men as “my dear friends.”

  Harriman’s Illinois Central did indeed provide a quick source of credit, but for a project as big as reviving the Union Pacific, Schiff saw immediately that foreign capital would be needed. He turned to a man who had been one of his boyhood friends in Germany, and who was now a London financier very nearly on a par with the Rothschilds, Sir Ernest Cassel.

  Cassel was an unlikely sort of man for Schiff to have as a friend. He had become an elegant and an epicure, though his background was similar to Schiff’s. Cassel was also, like August Belmont, a complete apostate of his faith. Schiff could be quite tiresome on the subject of religious observances. Schiff despised Belmont, whom he once called “an oyster, without a shell.” Yet the very Belmont-like Sir Ernest became Schiff’s chief financial contact in London and, as the years went by, his personal arbiter of taste in clothes, painting, furniture, and even table linen and silverware. Apparently the two never discussed religion.

  If Joseph Seligman had virtually invented international banking in America, it was Jacob Schiff who took the invention, refined it, and made it an art, and his alliance with Sir Ernest Cassel is another example of Jacob’s more up-to-date, streamlined approach. Joseph Seligman had devised a Rothschildesque, one-for-all, all-for-one, family-business setup, with a brother stationed in each important European capital. It had worked well enough for the Seligmans, particularly in the days before the radiotelegraph and the Atlantic cable, when blood ties across the sea with men you could trust were essential. By Jacob Schiff’s time, however, this had become an old-fashioned, countrified system. In this faster, more competitive age, it was too rigid, too inflexible.

  By moving as a unit, the Seligman family complex moved slowly and awkwardly. It was forever having to stop what it was doing to assist some brother who had made an expensive error, or to buy out a brother-in-law, or to help William in Paris buy his wife a diamond necklace. After Joseph’s death, the Seligmans belatedly realized this. In 1897 the remaining brothers drafted a “Family Liquidation Agreement,” not an agreement to liquidate the family but a plan to separate the New York, Paris, London, and Frankfurt firms from one another, and to divide their assets among the managing partners. The amount involved was $7,831,175.64, and it was portioned out in varying amounts with the largest share—$1,375,444.47—going to Isaac in London. But apparently nostalgia for the old, more familiar way of doing business quickly set in. The brothers had no sooner separated their assets than they began buying back in on one another—William, Leopold, Henry, and Isaac each buying a 10.4 percent interest in the New York house (for $800,000 each), and the New York house purchasing an interest in all three European houses. The Seligmans continued in their tight-knit way, causing Jacob Schiff to smile and say that, “The Seligmans have never really left their little family-village business in Bavaria.”

  Schiff distrusted such “standing alliances.” He liked to be able to select alliances to suit the occasion. Jacob had brothers, too. (His brother Herman had gone to London and into banking, while the youngest Schiff boy, Ludwig, had remained in Frankfurt as a stockbroker.) But Jacob preferred informal contacts with correspondents and business friends, and this system enabled him to move unencumbered through the complicated reaches of international finance. “He was a man,” said one associate, “who moved fast because he always traveled light.”

  He always carried his valuables with him, however. For instance, Sir Ernest had access to the highest levels of British financial and political power. He often lunched with the Chancellor of the Exohequer, and he even had the ear of the Throne. Now that Cassel shared Schiff’s, and Harriman’s interest in the Union Pacific reorganization, bankers’ ears pricked up on both sides of the Atlantic. Within three days of the news of Cassel’s participation, Schiff and Harriman had received $40 million worth of pledges, and suddenly the project which had seemed “ridiculous” to Wall Street seemed distinctly less so.

  Though Schiff knew a great deal about railroads, he discovered that Harriman was a railroading genius. After getting him his financing, he gave Harriman his head. The Schiff-Harriman group bought the Union Pacific on November 2, 1897, and Harriman was elected to the line’s board of directors in December.

  He then began a long struggle with his other board members for permission to spend $25 million for rolling stock, track, and improvements. It was an
unheard-of sum at the time, and, once more, Wall Street soured on Harriman and called him a fool. But Schiff and Cassel backed him, and at last he prevailed. While a doubting Wall Street watched, the fortunes of the Union Pacific began to change. Schiff soon granted Harriman the chairmanship he wanted, but, as a good banker should, Schiff retained a position close behind the driver’s seat. Presently the line had risen out of debt, and was even showing a profit.

  But throughout the whole Union Pacific reorganization there was one question that puzzled certain observers. As Harriman, the ex-office boy and son of a poor Episcopal clergyman, was becoming one of the dominant figures in American railroads, his only rival of any importance in the field was the little Minnesotan, James J. Hill. While Harriman had been building up the Union Pacific, Hill, backed by Morgan, had been busily buying up the competing Northern Pacific. How long, people wondered, could both Hill and Harriman remain friends of Jacob Schiff?

  22

  MR. SCHIFF VS. MR. LOEB

  If Jacob Schiff liked loose and informal business relationships which could be severed quickly and picked up again as he saw fit, he was correspondingly rigid and unyielding in his home. As Cyrus Adler, in his biography of Schiff, wrote, “He was accessible to all people on all subjects, though not easily persuaded when his mind was fixed.”*

  As a husband and father, he often seemed heartless. Those nearest to him, including his wife, had trouble feeling close to him. Therese Loeb Schiff was accustomed to discipline (from Betty) and to daintiness (her father’s toy child, she could not even arrange a bowl of flowers without a servant’s help). But she had also been brought up to believe that her father was the final authority on any question that dealt with money. It was a little while before she fully understood the battle that was taking place in the office downtown. When her husband came home at night, he sometimes told her of developments, involving long lists of railroads whose names she never could keep straight, and plans. And sometimes she would interrupt him to ask, in her soft voice, “Well, what does my father think of it?” The question always seemed to make him angry, and so she learned to stop asking, and to listen to his evening discourse in respectful, if bewildered, silence.