E. H. Harriman … was a small brown, taciturn man who never seemed to play. He gave the impression that what he did and made others do was never just “for fun,” was always practical…. There was little of the pomp and none of the splurge of great wealth about him. What he wanted was power; quietly; deliberately, thoroughly, he worked to get it.
—Alice Roosevelt Longworth, Crowded Hours
Harriman’sat atop the largest transportation empire in the world and presided over so many systems and companies that his associates had trouble remembering which one he served at any given time. Fish once asked him to read a letter and treat it “as written to you as Director of the Illinois Central R.R. Co., rather than any other capacity, as it would not do for me to go about telling tales concerning the alleged shortcomings of Officers of other Railroad Companies.” This conceit of partitioning the self among corporate roles was typical of the era, but few titans had as many different personas as Harriman.1
A list published in 1905 revealed that Chauncey M. Depew, the longtime servant of the Vanderbilt roads, senator, and popular after-dinner speaker, served as director for seventy-four companies. Behind him came William K. Vanderbilt with fifty-six seats, Stillman with fifty-five, George Gould with fifty-two, and Harriman with forty-nine. Most of the boards on which Vanderbilt and Depew sat belonged to their own system; Stillman, Gould, and Harriman were far more diverse. Harrimans seats broke down into about thirty railroads, four or five traction companies, half a dozen steamship lines, some banks, trust companies, insurance, and telegraph companies along with the smaller concerns in which he had some personal interest.2
Critics brooded over the power wielded by fifty-seven men who together held a total of 1,460 seats on the boards of major corporations. The sheer size and scale of Harriman’s empire, which to the public seemed to have mushroomed overnight, singled him out as a prime target for those alarmed by the growing influence of giant enterprises on society. A prudent man could see that controversy loomed on the horizon, but Harriman had never been prudent in the political sense. He could not easily change his style to suit a shift in the public mood. Like so many warriors risen swiftly to power, Harriman found himself thrown on the defensive by the enemies he had accumulated and the fears he had aroused. As always, the creation of an empire paled before the task of maintaining it against attacks from all sides.
Peace in the Northwest depended on implementing the Metropolitan Club agreement. In November 1901 Harriman again sat down with Hill and thrashed out a new memorandum elaborating on the issues covered in the May agreement. But Hill put off final approval of the draft, and Harriman bristled at the delays. Part of the problem lay in a clash of styles. Harriman was an engine of perpetual motion, eager to nail agreements down and get projects launched; Hill moved more deliberately, testing the legal ground gingerly before proceeding. Hill grew suspicious of Harriman for moving so fast, while Harriman grumbled over Hill’s delaying tactics.3
The southeast corner of Washington State remained the most disputed ground. Both sides had agreed to construct jointly a series of lines radiating from the Snake River. Harriman wanted one key branch started at once but could not get Hill or Mellen of the Northern Pacific to budge. Finally his impatience exploded, and he started to let contracts for the work on his own despite Mellen’s protests that the line’s location had not yet been decided. Harriman assured a Hill associate that he wanted harmony but snapped that “the only way to get work started is to start it.”4
The November memorandum wilted before this and other disputes that it was intended to resolve. Negotiations entered their second year under a cloud of distrust. The harder Harriman pushed, the more Hill dug in his heels, growling that if differences could not be “settled on a fair basis, the whole thing can go by the board.” By the winter of 1903 an uneasy truce prevailed in the Northwest, and the efforts of Harriman and Hill to resolve their deadlock over the Metropolitan Club memorandum had been upstaged by the legal battle over Northern Securities.5
The state of Minnesota’s suit against Northern Securities had been removed to a federal court and was regarded as little more than a nuisance (see Chapter 15). But late in February 1902, less than a month after the ICC concluded its inquiry into the community of interest, Theodore Roosevelt stunned business circles by bringing suit against Northern Securities for violating the Sherman Act. His motives in taking this action have puzzled historians as much as they did contemporaries. Roosevelt offered them little help; the editor of his voluminous correspondence turned up only one letter written in all of 1902 bearing directly on the Northern Securities case. In May of that year Roosevelt also told the writer Hamlin Garland in passing that he had “taken down the fences of a very great and very arrogant corporation.”6
Both Roosevelt and Attorney General Philander C. Knox believed the time had come for the federal government to establish its right to harness the giant combinations that were emerging. But Roosevelt also had an eye cocked toward reelection to the office that fate had so unexpectedly delivered to him. Like all great politicians, he was a master at hitching self-interest in tandem with public policy. Northern Securities was the newest, most conspicuous target on the landscape and the one most likely to please the western interests Roosevelt needed to woo for the nomination in 1904. He understood that in politics timing and gesture count for more than deeds; from this one act he gained a reputation as “trust buster” that fooled even some historians.7
Harriman wasted little time on speculation over his friend Roosevelt’s motives. Hearing the news just as he was about to go west on an inspection trip, he summoned Hill, Gould, Fish, Marvin Hughitt, and Samuel Spencer to an urgent meeting. Their discussion did little more than accentuate the friction between Harriman and Hill over the issues left dangling by the unresolved status of the Metropolitan Club memorandum. At a time when cooperation among rail leaders was urgently needed, the ranks were deeply divided.8
The memorandum itself had become a bone of contention. In testifying before the ICC that winter, Hill flatly denied that any such agreement existed on paper. Harriman let it be known privately that he had no qualms about furnishing the commission a copy if asked. Where Hill’s political instincts told him that the memorandum would be misconstrued as a giant conspiracy, Harriman bristled indignantly at the idea of hiding anything he had done. So great was his contempt for the investigation that his first impulse was to duck out of testifying altogether. This naïveté gave Hill fits. “You should see Harriman at once,” he wired Morgan partner Charles Steele, “making sure that no memorandum or paper of any kind is furnished to the Interstate Commerce Commission.”9
Harriman finally yielded to Hill’s pleas that he testify, but on the stand he was sullen and truculent, firing as many questions at the commissioners as they did at him. He was slow to grasp how dangerous the issues of collusion and conspiracy had become. For decades railroads had been the lightning rod for controversy over the abuse of power by giant corporations along with the favorite bogey of the era, Standard Oil. By the early 1900s, however, the merger movement had added an impressive array of financial and industrial firms to the roster of villains. Banks were an obvious target, especially Stillman’s National City Bank with its close ties to the “Standard Oil crowd.”10
It did not help that the public attitude, as in the 1980s, was soured by the stench of scandals emanating from Wall Street. The insurance industry found itself subjected to a major investigation that dragged Harriman’s name through the mud as well. Charges of fraud and mismanagement were also leveled at the shipbuilders, the Beef Trust, the Gas Trust, and combinations such as Amalgamated Copper. Stories of financial irregularities paraded out of Wall Street with numbing regularity until even the Wall Street Journal blamed the trust controversy on “this passion for bigness, this misconception of the importance of size.”11
A reform tide had been gathering since the turn of the century, drawing its strength from such disparate sources as the outrage over these scandals, the public fear of growing corporate power, the ability of Theodore Roosevelt to transform issues into a blend of conviction and political opportunism, and the desire of some special interests to use the issue for their own advancement. As the tide gained force, it swept with indiscriminate fury toward a debate over the extent of federal regulation, which emerged as both a major question of social policy and a potent political issue.
At the center of this controversy stood the Sherman Antitrust Act, which all sides agreed was defective and obsolete though barely a decade old. But when Congress showed no inclination to improve the law, the Northern Securities case emerged as a crucial test for how far the law could be applied. So far the Sherman Act had been applied to railroads only twice, and both times the Supreme Court had struck down rate agreements as collusive. The Northern Securities case marked the first challenge of a rail merger as being in restraint of trade.
The lawyers assured Harriman and Hill that “what Northern Securities has done is no more than has been done by every railway consolidation for nearly seventy years.” But this was precisely what made the decision so crucial: it posed the threat of upsetting other rail mergers and might become a precedent for attacking combinations in other sectors as well. “Thoughtful men can see that the whole question of control of the transportation industry is up for decision,” observed the Wall Street Journal, “not merely in the United States law courts, but in the great forum of public opinion.”12
Slow as he was to fathom the danger, Harriman decided to lash back at the industry’s critics. Breaking his usual silence, he paused at several stops on an inspection tour in May 1902 to tell reporters that “pools are obsolete in my opinion, and commissions are generally composed of men who know nothing about the operation of railroads.” He denied vehemently that modern railroads were overcapitalized and accused politicians of attacking the carriers because it was the popular thing to do. “The people and the railroads should get closer together,” he urged. “I believe the people are understanding this more every day.”13
These remarks by a man who normally avoided reporters drew caustic responses from antirailroad circles, but less partisan observers praised his frankness. “The recent breach in Mr. Harriman’s taciturnity was welcome in many ways,” noted the Wall Street Journal. “We wish that he could be induced to do this kind of thing more often, for there is evidence that he knows what he is talking about—which is more than can be said for some who are much more often heard.”14
Grudgingly Harriman found himself being pushed more into the national limelight on railroad policy issues. He was at a severe disadvantage there, possessing neither the tact nor the stump-speaking skills of Hill. Reporters found it easy to pounce on a phrase or sentence and twist it out of context. The fact that Harriman was quick and combative only whetted their sense of engagement. It also made diplomatic souls like Stillman and Schiff cringe every time Harriman opened his mouth to an eager band of reporters, especially in the wake of the Northern Securities decision.
For two years the case loomed like a ticking bomb above Harriman and Hill as the taking of testimony droned on until January 1903. Then, to expedite the decision, Congress took the unprecedented step of empowering a special panel of four federal circuit court judges to hear the case and certify their decision directly to the Supreme Court without the usual long delays in the appeal process. For three days in March the judges heard the arguments; on April 9, they ruled unanimously that Northern Securities had been created to eliminate competition, possessed the power to restrain trade, and was therefore illegal whether or not it actually used this power. The case was promptly appealed to the Supreme Court.15
The decision could not have come at a worse time for Harriman. He was distracted that winter by an injury, by the clash with Keene over Southern Pacific, and by the illness of his brother Willie, who died a few days before the decision was handed down. Then Harriman was stricken with appendicitis and laid up by the operation. It was the kind of situation he detested most: the stakes were huge and he could do nothing to affect the outcome.16
The question tormenting him was what would happen if the court ordered Northern Securities dissolved. Harriman had an enormous investment in the company, but Hill controlled its management. Schiff, too, was aware of the disaster that would unfold if the present arrangement came unraveled. He devised a fallback plan for the company and urged Hill to discuss it with Harriman. “Remember, the soup is never eaten as hot as it is cooked,” he cooed in one of his interminable homilies, “and I am sure things will come out all right anyhow.”17
In August another federal circuit judge, after hearing the suit brought by the state of Minnesota, contradicted his brethren by ruling that the formation of Northern Securities involved no restraint of trade. This case too was appealed, giving the Supreme Court a thorny package to ponder. All the judges construed the Sherman Act the same way and agreed on the facts of the case; they differed only in their views of whether the purchase of shares in a competing line by a single interest was criminal in intent or power.18
Nothing could be settled until the Supreme Court ruled. Once recovered from his operation, Harriman took his family to Europe. Before boarding ship he saw Hill, who had shown genuine concern during his illness. For a moment their relationship seemed to warm; the thaw vanished abruptly, however, once Harriman reached the other side. Determined to beard the lion in his own den, he breezed into London and called on two of Hill’s closest associates, Gaspard Farrer and Lord Mount Stephen. It was his first meeting with both men. Farrer was a young, hard-nosed banker at Baring Brothers and nobody’s fool. Harriman impressed him with his frankness, his breadth of vision, and his kind words about Hill despite their differences. Farrer came away quite taken with Harriman despite all he had heard about him.19
Mount Stephen was an older banker who had been close to Hill for a quarter-century, but he too fell under Harriman’s spell. They met at a luncheon attended by the Harrimans and two of the girls and chatted for an hour. Afterward Mount Stephen invited them all to his estate for lunch. Harriman talked a little business with him and again lavished praise on Hill and his work. Mount Stephen found them “a very nice American family” and liked what he saw in Harriman. “He appeared to me to be an exceptionally able & clearheaded man and a man to be trusted,” he wrote Hill.20
This was precisely the impression Harriman hoped to make. He would have relished its effect on Hill, who was quick to set Mount Stephen straight. “I am glad you met [Harriman] in London,” he replied cautiously. “Privately speaking, he has a reputation of being able to turn a very sharp corner where he thinks it to his interest to do so. However, I have always treated him with open and fair consideration and I believe fully that this is the best course.”21
Harriman came home refreshed and full of enthusiasm but still thin and lacking his old vigor. Although the signs were not yet obvious, the appendectomy marked the beginning of a physical decline. It was not that his health failed but rather that his body could no longer keep pace with his mind and will. Sheer determination came more and more to replace stamina as his driving force. Harriman never acknowledged his slipping vitality or the need to slow down. Every illness or setback merely summoned from him a greater capacity for denial and louder vows to press on.
After his return Harriman’sparred fitfully with Hill without breaking the stalemate between them. In March 1904 the ax finally fell. The Supreme Court, by a five-to-four vote, ordered Northern Securities dissolved on the grounds that any combination with the power to restrain trade was illegal whether or not that power had actually been used. The swing vote belonged to Justice David J. Brewer, who argued in a separate opinion for a distinction between reasonable and unreasonable combinations. A few years later the Court would embrace Brewer’s “rule of reason” dictum, but in this case he became the deciding vote for dissolution.22
Nothing better illustrated the confusion Americans felt over the corporate behemoths that had become so significant a part of their economic life. The issue revolved around the specter of “monopoly” threatening “competition” in an industry where the two worked in a unique way, and it invoked a flawed statute that was probably never intended to apply to railroads. Nevertheless, Americans clung to the axiom that competition was good, monopoly evil, and the concentration of power dangerous regardless of its purpose.23
The prolonged debate that erupted over the broader implications of the decision struck Harriman as academic compared to his immediate problem. Failure to reach an understanding on the Metropolitan Club agreement already had Harriman and Hill edging toward war in the Northwest. Now the court had dumped in their laps the problem of how to dismember the corpse of Northern Securities.24
There were two ways to dissolve the company. Each shareholder could receive the same amount of stock in Northern Pacific and Great Northern he had originally exchanged, or the holding company’s assets could be distributed on a pro rata basis without regard to what stocks each holder had turned in when the company was formed. Under the first plan Harriman would retain control of Northern Pacific; the other option would give him large holdings in both companies but control over neither of them. One plan served Harriman’s interests, the other Hill’s, and no middle ground existed between them.25
Harriman demanded the first approach, but Hill dominated the Northern Securities board. On March 22 it approved the pro rata plan with Harriman the lone dissenter. Harriman then filed suit to enjoin the distribution. His suit tied everyone in knots. While the injunction stood, Northern Securities could not perform such corporate functions as paying dividends. Its earnings piled up in the treasury until the legal battle was resolved. This deadlock outraged Hill and his friends, who had grown accustomed to regular dividends. For three years they had waited anxiously for the court to decide the legality of Northern Securities; now they found themselves waiting yet again.26
As usual, Hill did most of the talking. For him the business rivalry had turned into a blood feud. He roared indignation at the suit, claiming that Harriman had agreed to the plan and then gone back on his word. “As a piece of conscienceless lying it is a rare effort,” he said privately. “I would not, under any circumstances, be associated with them in any business. All they want to make them crooked is an opportunity to cheat some one.” Harriman put off the reporters flocking to his office with the curt remark, “The court papers tell the whole story.” Privately he told a friend that if he won the suit, he was willing to distribute the stock in a manner that left the management of the roads unchanged. This comment got back to Hill but did not budge his distrust of Harriman or his belief that Stillman and William Rockefeller were behind the suit.27
This suspicion that Harriman was an agent if not a puppet for Stillman and the shadowy William Rockefeller would not die. The Harriman persona had fragmented into conflicting images that confused business figures no less than the public. Hill believed firmly that the malign, treacherous version in his grasp was the real one, but his friends were not so sure. In July Harriman and Stillman went abroad to do some more lobbying in the enemy’s camp. During their week in London, they allowed Gaspard Farrer and Lord Mount Stephen to take them in tow for extended visits. Again Harriman’showed them a strikingly different figure from the one portrayed by Hill.
The face he presented was pleasant and temperate, the affable Dr. Jekyll off duty. He steadfastly refused to deal in personalities, and his anger flashed only once, when Mount Stephen suggested that William Rockefeller had prodded him into bringing the suit. The whole difficulty, as it had been from the start, lay in the threat posed to the Union Pacific by Hill’s absolute control of the Burlington. He pressed on Farrer copies of the Metropolitan Club memorandum and the 1901 agreement in which Hill had agreed to share control of the Burlington with him. While Farrer realized that he had only one side of the case, the point had been rammed home. “It is not the Burlington per se but the Burlington in your hands, in your undivided control, that is the trouble,” he informed Hill. “It is not the present but the future that Harriman fears; it is not Gould or the Moores but you.”28
While insisting that he would welcome any settlement that protected his interests, Harriman coated his olive branch with a glaze of menace. If the suit failed, he reminded the banker, he would have $250 million in cash and securities for whatever measures might be required. Farrer did not have to guess what he meant and was quick to urge peace on Hill. “We do not believe that he is raising this trouble from vanity or greed,” he emphasized, “but he is determined to safeguard what he has, and he will miss no opportunity to fight you on the present issue, and oppose you in all your future moves until that object is attained.” Harriman echoed these same sentiments to Mount Stephen, speaking of Hill with great respect but insisting that only an equal voice in the Burlington management could safeguard Union Pacific interests. He uttered not even the hint of a threat, yet the same conclusion impressed itself on a fearful Mount Stephen as it had on Farrer: there would be no peace until Harriman and Hill came to terms. The prospect of renewed war was too terrible to behold.29
Harriman also revealed something else to Mount Stephen, something quite unintended. To the elderly banker’s shrewd, appraising eyes, Harriman looked stronger than he had the year before but still far from well, “having a tired worn look for so young a man.” After leaving London, Harriman went on to Aix-les-bains to take the cure for three weeks, but only after a stop in Paris. There too he made a good impression, convincing bankers of his reasonableness and his refusal to deal in personalities.30
Before going abroad, Harriman had boasted that he would return with Hills friends in his pocket. This remark left Hill steaming when he heard it; now the reports that Harriman was turning his visit into a triumphal march drove Hill to stoop as low as an honorable man could go. To Farrer he poured out a fifteen- page torrent blasting Harriman’s arguments and then Harriman himself in an ugly diatribe:
It would take too much of your time and mine for me to go on and enumerate all these unreasonable things attempted by Mr. Harriman…. I am sorry to have to be compelled to say it, but it is no news to those who have known Mr. Harriman most intimately here, —his word is not accepted. Even Mr. George Clark, whom I think you know, and than whom no one stands higher as a business man, and from whose house Mr. Harriman married his wife, has told me repeatedly that while for family reasons he will always treat Mr. Harriman well, to look out for him, that he is not always to be trusted and that even in the matter of family estates he is not to be trusted.31
Late in August, before sailing home, Harriman paused briefly in London for another visit with the bankers. He came home satisfied with the impression he had made. Although he did not woo the bankers away from Hill, he had compelled them to revise their view of him. They saw gloomily that Hill’s dislike of Harriman had grown blind, almost irrational, and that there could be no community of interest in the Northwest. “The more I see of Mr. Harriman the more I like him,” noted Farrer wistfully to Hill, “and the more I deplore that you and he cannot come together.” Mount Stephen knew his old friend better. “It is quite clear,” he sighed to Hill, “that the time has not yet come for you & Harriman to run in the same team & I doubt it ever will come.”32
The suit dragged on until January 1905, when the circuit court ruled against Harriman and dissolved the injunction. Harriman then appealed to the Supreme Court, where he lost again. By March 1905 Hill had finally won a complete victory, yet it did not slake his bitterness. When Schiff tendered him congratulations, Hill snarled, “I do not agree with you that the fight has been a fair one. I think it was the foulest and most unnecessary fight that I have ever known.”33
This from the man who had remarked after the Northern Pacific panic that Schiff took such things too seriously.
Seven years of struggle and negotiation had brought all sides back to square one in the Northwest, the only difference being a heightened level of bitterness and distrust. While Farrer and Mount Stephen renewed their pleas for compromise, Schiff tried desperately to smooth a fresh path to the bargaining table. “There is no reason in the world,” declared an editor, “why Mr. Hill and Mr. Harriman’should not cement an honorable, business-like peace of a permanent character.”34
But there was every reason, beginning with the enmity between the two men. After his return from Japan that fall, smarting from yet another setback, Harriman’surveyed the landscape of struggle around him and remarked to a reporter, “We are going to run into an era of competitive railroad building just as we have passed through an era of competitive buying.” His prediction made the rounds of the papers with lightning speed, tantalizing editors and alarming bankers and businessmen who were trying to divine what Harrimans next step was likely to be. They did not yet know the extent to which the initiative had passed from his hands.35