by Jean Strouse
Chapter 16
CONSOLIDATIONS
In early July of 1890, while Morgan toured the Lake District with Edith Randolph, Congress passed an antitrust law.
Political opposition to the railroads and giant industrial corporations had intensified throughout the eighties, and legislatures in twenty-one states and territories, mainly in the South and West, had outlawed agreements to fix prices and limit output. For both legal and practical reasons, however, the states were significantly limited in their ability to regulate business conducted across state lines, and the 1887 Interstate Commerce Act was concerned exclusively with railroads; it did not apply to industrial concerns such as Standard Oil, Carnegie Steel, or the lead-smelting, sugar-refining, and whiskey-distilling monopolies. Both political parties wrote antitrust provisions into their platforms in the 1888 election campaign, and that August, Senate Finance Committee chairman John Sherman—shortly after losing the Republican presidential nomination—introduced a bill to outlaw trusts. He proposed to prohibit all agreements between individuals or companies that prevented “full and free competition” or raised consumer prices.
The word “trust” technically referred to one of the legal mechanisms used during this period for bringing competing companies under common control—the transfer of their stock to a single board of trustees—but the term had come to stand for big-business consolidations in general, and for everything about concentrated economic power that Americans hated and feared.* The radical changes that had taken place in the U.S. political economy in just one generation gave new force to the long-standing conflict over the nature and direction of American democracy.
On one side were those who saw the market dominance and ruthless efficiency of the new corporate giants as a sinister threat to individual liberty. Railroads and industrial leviathans were charging monopoly prices, driving competitors out of business, removing control of local enterprise from resident communities, ignoring labor’s demands for fair wages and humane working conditions, and earning enormous amounts of money. Flagrant abuses of corporate power, such as the rebates Standard Oil exacted from railroads for carrying its rivals’ oil and the steady flows of commercial cash that purchased political favors, substantiated the popular conviction that big business violated the natural order of exchange in a free society.
On the other side were those who saw the natural order of things in a different light. The United States was no longer a Jeffersonian nation of farmers and small producers working in “perfect” competitive markets. Post–Civil War revolutions in transportation, communications, and industrial productivity had created the largest domestic marketplace, with the richest natural resources, in the world. Mass production and distribution facilities were radically increasing operating efficiency as well as bringing down manufacturing costs and consumer prices. With no governmental guidance or regulation, private enterprise was opening up jobs and fostering social mobility on an unprecedented scale, and private bankers were raising previously unimaginable amounts of money. The industrialists and financiers who were shaping this new economic order regarded it as natural and inevitable, and wanted freedom to continue. Some of them opposed federal regulation simply to protect their power and profits. Others resisted it out of the conviction that “the politicians” had little understanding of modern capital markets.
The conflict did not sort out along traditional party lines. It was the Republican Senator Sherman, Wall Street’s former ally, who denounced the power of the trusts as “a kingly prerogative inconsistent with our form of government,” and went on: “If anything is wrong, this is wrong. If we will not endure a king as a political power we should not endure a king over the production, transportation, and sale of any of the necessaries of life. If we would not submit to an emperor, we should not submit to an autocrat of trade, with power to prevent competition, and to fix the price of any commodity.”
In the other camp, Democratic Senator Orville Platt of Connecticut declared that the Sherman bill proceeded on “the false assumption that all competition is beneficent to the country,” and Representative John W. Stewart (Dem. Ga.) thought it “just as necessary to restrict competition as it is to restrict combination.” The chairman of the House Judiciary Committee, George F. Edmunds (Rep. Vt.), said the term “monopoly” did not apply to the ingenious Texas cattle rancher who, through “superior skill and intelligence … got the whole business,” even if it allowed him to charge monopoly prices—which seemed to say that the crucial issues were not restriction of competition or consumer price but optimal efficiency and fair play.
After two years of debate, Congress passed a heavily amended Sherman Antitrust Act on July 2, 1890—unanimously in the House, 52 to 1 in the Senate. Titled “A bill to protect trade and commerce against unlawful restraints and monopolies,” it did not mention competition or consumer prices, but outlawed “every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce,” and made it a crime to “monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of trade or commerce among the several States, or with foreign nations.”
This vague wording left almost everything to the construction of the judiciary, and initiated a century of argument about the economics, politics, implementation, and aims of government regulation. Even supporters of the bill disagreed as to whether the real nature of the problem was too much competition or not enough. Some thought all trade restraints should be ruled illegal, including the hypothetical Texas cattle monopoly; others wanted to outlaw only “unfair” ones—but who would decide what was fair, and fair to whom? Was bigness per se bad? What should the government regulate—price-fixing? mergers? cartels? vertical integration? destruction of small firms? What kinds of agreements were actually restraints of trade, and what kinds of acts related to monopoly should be ruled illegal?
Morgan left no record of his response to the Antitrust Act or to Senator Sherman’s “defection.” In a mix of what would later be regarded as conservative and liberal views, he believed in the efficacy of industrial consolidation and also in the need for administered markets, but had no faith in the government’s ability to do the administering. The country, in his view, ought to leave control of its commercial and financial resources to qualified experts. He told a friend in 1912 that the consolidation of industry was “the only thing to do”: the government was “crazy to fight it. That’s because they are politicians instead of statesmen.”
An unlikely figure agreed. The young journalist Walter Lippmann, looking back in 1912, thought wise statesmanship should have prepared the country for the trust movement of the eighties: “Here was an economic tendency of revolutionary significance,” Lippmann wrote, “the organization of business in a way that was bound to change the outlook of the whole nation.” The worldwide movement toward industrial concentration had been “made possible at first by mechanical inventions, fostered by the disastrous experiences of competition, and accepted by business men through contagion and imitation.” It had “vast potentialities for good and evil—all it wanted was harnessing and directing. But the new thing did not fit into the little outlines and verbosities which served as a philosophy for our political hacks. So they gaped at it and let it run wild, called it names, threw stones at it. And by that time the force was too big for them.”†
Morgan had regarded himself as statesman without portfolio—as taking a larger view than the men Lippmann called “political hacks”—in helping to refund the Civil War debt and put the United States back on the gold standard in the seventies, and in safeguarding the country’s railroads and international credit in the eighties. Like the men who gathered to honor his father at Delmonico’s in 1877, he assumed that his financial expertise conferred political prerogatives, and that his large concerns took precedence over the interests of people who opposed him—especially with regard to the struggle over the currency, which had resurfaced in the late eighties
as proponents of “easy” money lobbied the government to resume coining silver.
The combination of monetary stringency imposed by the gold standard after 1879 and explosive growth in national productivity had driven prices steadily down and the dollar’s value up. This long-term deflation was good for wealthy people who owned dollars and dollar-based assets, and hard on borrowers such as farmers and small-scale entrepreneurs. Debtors watched their incomes decline as they had to repay loans with money worth more than what they had borrowed. An inflationary increase in the money supply would reverse that painful trend, making dollars easier to borrow and over time worth less. It seemed to agrarians in the South and West that Wall Street plutocrats had taken silver out of circulation in the “Crime of ’73” in order to squeeze powerless have-nots for their own private gain.
Throughout the eighties, Farmers’ Alliance groups—successors to the Granger movement—demanded the remonetization of silver, and at the end of the decade they joined with the Knights of Labor to form a National Farmers’ Alliance and Industrial Union. This group set up marketing cooperatives, and formulated a broad-based political program that called for free coinage of silver, a graduated income tax, greater regulation of railroad, telegraph, and telephone lines, the abolition of national banks, and federal warehouses for storing crops until market conditions improved. In the summer of 1890 Alliance men in Kansas founded a People’s Party, which, with agrarian Democrats, scored impressive victories in the midterm elections that fall. In October, Congress passed a second law bearing John Sherman’s name—a Silver Purchase Act requiring the Treasury to buy 4.5 million ounces of silver a month.
To Morgan the idea of reintroducing silver currency was about as welcome as a biblical plague. Foreigners held over $3 billion worth of American securities in 1890—roughly ten times the federal government’s annual budget. They stood to lose heavily if the United States devalued the dollar by increasing the money supply, and they would not sit idly by to watch. Throughout the summer of 1890 nervous British investors, anticipating the impact of silver, sold off American securities and shipped gold home.
Railroad rate wars in the West were also eroding securities values. Early in November, Union Pacific Railroad president Charles Francis Adams reported “a regular financial gale blowing in the street, and, if not a panic, something very like one.” His hugely indebted UP led the declines. Wall Street suspected Jay Gould, who had been ousted from the UP board in 1885, of driving down the price of its stock. On November 11, the “gale” turned into a hurricane with the failure of three brokerage houses and a bank.
Four days later, cables from London announced that Baring Brothers had been ruined by the collapse of a speculative bubble in Argentina. Charles F. Adams had been borrowing short-term money from Barings to keep the Union Pacific afloat, and the London bank’s failure heralded his own. Railroad stock prices collapsed. Jay Gould bought up huge blocks of shares, and told Morgan on November 17 that he wanted control of the UP. On the nineteenth, a defeated Adams gave it to him.‡
In mid-December, Morgan once again summoned western railroad officials to meet at his house. The trade group organized there two years earlier, with the blessing of the ICC, had failed to stop rate and traffic wars, and rates had continued to decline: at the end of 1890 railroad officials reported net earnings down 30 percent. This second meeting at 219 produced a “simple but comprehensive” plan for a new Advisory Board made up of the president and a director of each road, to maintain rates and arbitrate disputes.
Morgan proudly told the press: “I am thoroughly satisfied with the results accomplished. The public has not yet appreciated the magnitude of the work. Think of it—all the competitive traffic of the roads west of Chicago and St. Louis placed in the control of about thirty men! It is the most important agreement made by the railroads in a long time, and it is as strong as could be desired.”
RAILROAD KINGS FORM A GIGANTIC TRUST, announced the Herald the next day. The public’s failure to appreciate “the magnitude of the work” did not detract from Morgan’s sense of purpose. Writing to railroad officers who had not attended these meetings, he explained that he had been prompted to act by the recent “demoralization” in rates and the “shrinkage” in stock values—and also by political opposition in the West: “The granger legislatures doubtless have power for injury,” he told T. B. Blackstone of the Chicago & Alton road, “and it may be that they will use it, but it should not necessarily follow that well-considered, business-like harmony among the railroads should add materially to the spirit of hostility which may be exhibited.”
Morgan genuinely did not think reasonable people would object to what seemed to him so constructive—the imposition of “well-considered, business-like harmony” on the national arteries of transport. His conviction that he not only was right but was acting in the national interest extended even to using the new agreement for political ends: he told Mr. Blackstone that the Advisory Board, “representing to a degree never before secured in one body ownership of the properties, should I think be able to accomplish much good for the railways by co-operating from time to time in all matters of joint interest, including possibly that of threatened legislation.”
His optimism was misplaced. When the Western Advisory Board, like all its predecessors, proved unable to enforce its sanctions, Morgan finally gave up on the tactics of “gentlemen’s agreements” and cartel control.
The political struggles of the early nineties generated a range of efforts to regulate industry and finance. In the spring of 1891, when a bill to impose state supervision on private banking came before the New York legislature, Morgan sent a note to his old friend Vice President Levi P. Morton in Washington. “My dear Mr. Morton,” he began: “I suppose the objectionable features of the Stein Bill, which has been introduced at Albany, and on which there is to be a hearing in Committee about the middle of next week, are known to you.” The bill would, Morgan explained, require private bankers to make deposits with a state banking department, take out certificates in exchange, and be subject to state supervision, and he was writing “to suggest that—through Mr. Platt or otherwise—you doubtless could prevent the passage of such a measure. It is needless for me to say that it would be very harmful to all private banking interests here.”
The New York State Assembly’s committee on banking reported twice in favor of the bill that spring, but three weeks after Morgan wrote to Morton the measure was “laid aside” and not proposed again. Whether or not the Vice President, through Boss Platt, helped quash the bill, there would, for the moment, be no state regulation of private banks in New York.
Jack came down from Boston to join Drexel, Morgan in January 1891, shortly after his wedding. He and Jessie rented quarters in Murray Hill while they built a house near his parents, at 8 East 36th Street.
Drexel, Morgan in 1891 had four active partners (Pierpont, J. Hood Wright, George Bowdoin, and Charles Coster), a clerical staff of eighty, and no typewriters; only Pierpont had a secretary; the office had a private telegraph line to Drexel & Co., and got its first telephone in 1886. A long-standing rule that all papers, checks, letters, and bills had to be signed by a partner meant that the four senior men were constantly interrupted. Jack eased their load by signing papers as he learned the business.
He reported to the traveling Fanny in the summer of 1891 that his father had been “ ‘saving the community again’ as the Finance News puts it.” The country was recovering from the depression that followed the 1890 panic, but the Union Pacific Railroad, once again in Jay Gould’s hands, was on the verge of bankruptcy, and the prospect of its failure threatened to reverse the upturn. Though Gould had lent the road $1.3 million, it wasn’t enough, and he was dying. He went west in July to try cold mountain air for his consumptive lungs.
At the beginning of August the UP’s worried creditors called in their loans, and the stock price plummeted on rumors of failure. Gould sent his son, George, to see Morgan. Together, the senior Morgan an
d the junior Gould worked out a plan for the road to offer creditors three-year 6 percent notes secured by collateral deposited with Drexel, Morgan. “Again Mr. J. P. Morgan steps in to avert a disaster,” announced the Commercial and Financial Chronicle. “Everyone breathes easy again,” Jack told Fanny on August 21, “and the railroads in the West will be able to get good business instead of fighting a bankrupt which would steal all the business there was.”
Morgan had stepped in not for his own immediate profit but as custodian of the railroad industry and the recovering economy as a whole, and it was in this context that he saw his interests as larger and higher than those of his antagonists. Jack underscored the point: “The best of it is, it is all done for nothing, except what we make in common with the other creditors, as an inducement to them to put the plan into operation.” He was thrilled to have witnessed the rescue at first hand: “I am so glad it didn’t come up during my vacation.”
Pierpont upgraded his son’s status in the firm at the end of the year. Juliet wrote to Fanny on New Year’s Day, 1892: “The new partner of Drexel, Morgan & Co. came home to dinner. Isn’t it too beautiful and delightful to think of?” Jack was “so pleased and proud he doesn’t know whether he is on his head or his heels.” Her father seemed pleased as well: “he was going to cable you about it but finally decided not to steal Jack’s thunder.”
Jessie gave birth to a son, Junius Spencer Morgan, in March 1892, and the junior J. P. Morgans moved into their new house on 36th Street that summer.
At 23 Wall Street, the senior J. P. Morgan worked in a large back office with glass walls and an open door, in plain sight of his partners and clerical staff. Close associates found him exacting but congenial; outsiders often found him terrifying.
