Harriman and Lovett on Wall Street
With the end of the War to End All Wars, America quenched its yearning for a return to normalcy by retreating into isolationism. Woodrow Wilson’s dream of U.S. participation in a stable world order was shattered by the Senate’s rejection of the League of Nations in 1919 and the election of Warren Harding in 1920. Main Street turned inward, became more insular.
Wall Street, on the other hand, did nothing of the sort. Europe was industrially devastated and mired in debt; America was throbbing with revitalized factories and in need of new markets. The situation was ripe for financiers interested in foreign investment and trade, internationalists such as Harriman and Lovett who understood America’s historic ties to Europe and felt comfortable with her growing involvement in global affairs.
Through his wartime contracts with the government’s Emergency Fleet Corporation, Harriman was already a shipbuilder. Imbued with his father’s infectious vision of a worldwide transportation empire, he began in 1919 to put together a network to operate and underwrite ships of his own. He formed the Independent Steamship Company and bought into the American-Hawaiian Steamship Company, Coastwise Transportation Company, and the American Ship and Commerce Corporation. In 1920, he consolidated these holdings (which included ownership of sixty-three ships) into one company, United American Lines, forming the largest commercial fleet yet assembled under the American flag.
To finance marine securities, Harriman founded the investment banking house of W. A. Harriman & Company in November of 1919. “I am profoundly convinced that the necessity for developing American shipping is upon us,” he told the magazine publisher B. C. Forbes in 1920, “and I regard as embodying a fundamental truth the axiom that ‘what becomes a necessity always becomes an eventuality.’” That had been one of his father’s axioms.
Although he collaborated with his brother, Roland, and other partners in the shipping and finance business, Harriman remained very much a loner. He delegated authority and shared responsibility well, but he was never one for collegial operations. He viewed himself as a man of action, a doer. Focusing on each task at hand, he seemed to wear blinders against peripheral distractions.
Harriman’s approach was, above all, pragmatic; the goal of businessmen, unlike stiped-pants statesmen, was to cut through abstract posturing in order to reach a deal. Even after he became a diplomat himself, Harriman would harbor the belief that foes could be bargained with as easily as friends. Thus he had no qualms about entering into a shipping agreement with Germany, even though the final armistice had not been signed, and a mining concession in the Soviet Union, even though the United States had spurned diplomatic relations with that country.
During a visit to Germany in 1920, Harriman began secret talks with officials of the once-powerful Hamburg-American Steamship Company, whose vessels had been confiscated at the end of the war. They quickly arranged a deal: The Harriman interests would supply the company with ships if it would act as the German agent for Harriman’s own lines. “The arrangement gives us the benefit of some of the best brains in the shipping world,” Harriman said, “men who before the war demonstrated their ability to develop a shipping business second to none.”
The nativist sentiment that caused some American towns to ban sauerkraut and forbid the teaching of German in high schools had not yet subsided. Harriman was pilloried. “Do you find yourself at all tempted to slacken your efforts because of the criticism and condemnation now being heaped upon you from various quarters?” a journalist asked. “No,” Harriman replied. “Fortunately I am blessed with a sense of humor and also a big bump of patience.” (Neither of which was exactly the case.) As the criticism mounted, Harriman reluctantly took his case public, releasing the details of his project to New York newspapers and telling reporters: “We regard the whole undertaking as a brilliant American opportunity.”
It was, however, less than a brilliant financial opportunity. Interest rates were rising, prices falling, and exports declining. New restrictions on immigration cut the flow of steerage-class passengers, and Prohibition precluded the sale of alcohol on ships of American registry. Harriman embarked on a campaign for lower tariffs and increased subsidies for the shipping industry, casting his crusade in terms of the country’s need for a strong merchant marine. The Democrats, he found, were far more receptive than the isolationist-dominated Republican Party then in power.
Even though Western nations had imposed a strict blockade on trade with the Soviets, and even though the U.S. was in the throes of a virulent Red scare, Harriman and officials of the Hamburg-American Company began talks with Moscow in 1922 about establishing a jointly owned shipping firm, the Deutsch-Russiche Transport Company. It began its meager operations in November of that year. “I know what prejudice there is against us in the U.S.,” the director of the Soviet Trade Ministry told a New York Times reporter in 1922, “but one must believe that Mr. Harriman does not share it, since he is associated with the Hamburg-American line in placing half the capital in a steamship company in which the Soviets will hold the other half.”
Indeed, Harriman shared few of his countrymen’s ideological suspicions about the Soviets. Through the Berlin office of W. A. Harriman & Company, he joined with a German bank to buy at a discount Russian notes from firms that had taken them as payment for exports. He was impressed when the Soviets made good on the notes; they appeared to Harriman serious about keeping their financial commitments.
Harriman also reached a tentative agreement with a German export group in 1926 to offer $42 million of bonds in the U.S. to finance long-term credits for the Soviet Union. When officials at the State Department heard of the arrangement through press reports, they were furious. Harriman, in Berlin working on the deal, was summoned to see American Ambassador Jacob Gould Schurman, who protested that providing credit to Moscow was contrary to U.S. policy. Harriman argued that the deal would benefit American business by allowing the Russian market to absorb German exports that might otherwise be dumped in the U.S. He also contended (as he would in later years) that economic isolation of the Soviet Union was impractical and would make it harder to bring the country into the world community. Trade and credit, he told the skeptical ambassador, could be used as levers in gaining concessions from Soviet leaders.
Harriman sailed back to Washington to present the same arguments there, but the State Department had already secured opposition to the plan from the full Cabinet. He was accorded only an unproductive meeting with an Assistant Secretary and subsequently decided to drop the credit plan.
The most ambitious deal that Harriman made with the Soviets went forward despite Washington’s qualms. The Kremlin had come to view Western technology as critical to its industrial plans, but it had no foreign currency to purchase it. So Lenin announced that concessions to develop certain industries, similar to those granted by the czars, would be available to foreign investors. In 1924, Harriman began secret discussions with Soviet commercial agents in New York about obtaining a twenty-year concession to operate the manganese mines in the Caucasus Mountains of Georgia.
Before the revolution, these mines had been the world’s largest supplier of the element, an essential alloy for steel. But the facilities were archaic. The Soviets drove a hard bargain: Harriman agreed to supply new machinery, return production to postwar levels, and upgrade the port—an investment that could ultimately reach $2 5 million. The Soviets would get up to four dollars per ton of manganese extracted, and Harriman decided on his own to pay a royalty of one dollar per ton to the former Russian owners from whom the mines had been expropriated.
The concession could turn a profit only if manganese prices rose substantially. Instead, they fell. New deposits were found in Africa, and the Soviets expanded production in the Ukraine. In addition, railway and port improvements cost several times what Harriman had estimated, especially after new laws were passed requiring additional benefits for workers. Consequently, Harriman went to Moscow in December of 1926 to renegotiate his concession.
Stalin, the Secretary of the Communist Party, was at the time maneuvering for total power. He had succeeded in having Trotsky demoted from Defense Commissar to chairman of the Concessions Committee. Grasping the internal struggle, Harriman pressed to see Stalin, but was told he was out of town. Instead, he met with Trotsky for four hours, going over the contract paragraph by paragraph.
Trotsky’s mind impressed the American businessman; he understood points rapidly but betrayed no emotion. His silence, as Harriman realized, was out of fear for his own tenuous position. Trotsky later explained to Maxim Litvinov (the future Foreign Minister) that he suspected Stalin of appointing him to the concessions post in order to compromise him in the eyes of young Communists. “It’s already being said that I’m on Averell Harriman’s payroll,” he complained. Six months would elapse before the Soviets approved a modest change in the concession, decreasing Soviet royalties and releasing Harriman from responsibility for upgrading the railway.
On this, his second visit to Russia (the first being to Siberia with his father in 1899), Harriman found the artistic life in Moscow and Leningrad to be flourishing. He met with many painters, writers, musicians, and actors, and took a special trip to see the collection of works by Matisse and Gauguin in Leningrad. For ordinary citizens, however, conditions were grim. Although normally somewhat oblivious to the people around him, Harriman was deeply shocked by the bezprizornye, the starving Civil War orphans who roamed the streets during winter like wild animals.
Harriman was not inclined to tailor his life-style for the Bolsheviks, nor did he think they would respect him more if he did. So for his 1,500-mile trip from Moscow to his mines in Georgia, he recalled, “I decided to behave like a capitalist and asked for a private car on the train.” The czarist-vintage car was the most ornate he had ever seen, lavishly decorated with gilt scrollwork and wood inlay. At every station there were the ubiquitous hordes of wandering Russian peasants, weighted down with household goods and straw suitcases.
After four days, Harriman reached Tiflis, where local officials feted him at a party in the bulging cellars of Grand Duke Nicholas, renamed the “state wine library.” The caviar-laden feast (featuring a Rhine wine of the 1860s, a 1906 Bordeaux, a Napoleon brandy, and a number of local vintages) introduced Harriman to the prolonged drinking sessions that would later be a working hazard for himself and other diplomats. He recalled: “By the time we emerged from the cellar we knew no pain.”
The engineers at the manganese mines stressed their difficulties in dealing with the Soviet bureaucracy. Harriman, who had traveled to Russia with high hopes, would later claim that the trip produced a lasting skepticism about the Soviet Union. “I became convinced that the Bolshevik Revolution was in fact a reactionary revolution and that it was not ‘the wave of the future.’” he said in a 1970 lecture at Lehigh University. “It denied the basic beliefs that we value so deeply—the rights and dignity of the individual, the idea that government should express the will of the people.”
Those recollections, however, were embellished by hindsight. At the time, his disapproval was mixed with respect for the stability of the revolution. In a letter he wrote to his Yale class yearbook upon his return, Harriman reported that there was no chance of a counterrevolution. Even though the new economic order required sacrifice, he noted, the peasants were as well off financially as they had been under the czars, and they had more freedom. Any change “will come as a development of ideas from within the Communist Party,” he said. As for Stalin, “He is not a dictator in any sense of the word, as has been expressed, but he is a political boss in the sense of Charles Murphy of Tammany Hall.”
Throughout his life, no matter how important he became himself, Harriman relished meeting famous and powerful leaders. This was partly because he valued discourse with them as an antidote to the triviality he found in other conversations. Yet it was also largely due to Harriman’s lifelong boyish fascination with collecting important acquaintanceships almost in the way that others collect stamps. (His friends would joke in later years that whenever Hitler’s name came up, Harriman would remark almost wistfully that he had never met the man, conveying the air of a big-game hunter who had been eluded by one valuable trophy.)
On his way home from Russia, Harriman netted a pair of big names. At the urging of a group of Milan bankers who wanted him to sell bonds in the U.S., he visited Rome to meet Mussolini. In the enormous room used as an office by the dictator, the American financier argued that he would be unable to sell Italian bonds unless the plan to revalue the lira was dropped. “Mr. Harriman, you don’t understand,” Mussolini fervently responded. “I must restore the pride of the Italian nation.”
His advice shunned, Harriman asked for some guidance of his own. Should he invest in the Soviet Union? Mussolini counseled that, even though he strongly opposed Communism, he found a moderate amount of trade with the Russians to be profitable. In Cannes, Harriman put the same question to the British Chancellor of the Exchequer, Winston Churchill. Get out of any business deals with the Soviets, said the future Prime Minister. In later years Churchill would boast that he saved Harriman millions of dollars with that advice.
Harriman in fact had already resolved to back out of the manganese concession, despite the renegotiated terms. In a 1928 settlement, the Soviets agreed to buy out Harriman’s investment for $3.5 million, to be paid in fifteen-year bonds bearing 7 percent interest. In return, Harriman had to agree to lend the Soviets an additional $1 million. The New York Times, like most of the press, had long been dubious about the entire enterprise. The stately paper indulged in uncharacteristic flippancy on its business pages: “It would seem certain that Harriman Manganese has passed away after several months’ illness, aged 3-1/2 years. Though its birth was accompanied by prodigious hopes, it never was a healthy child. . .”
The Soviets proclaimed that the settlement constituted the first U.S. loan to Moscow and proved their good credit. They eventually made good on the bonds, causing Harriman to conclude that they were tough bargainers but lived up to their commitments. He later claimed to have made a small profit on the deal, although a State Department attaché at the time estimated that he lost about thirteen cents on each dollar invested. Certainly, he fared better than those who tried to hang on to their concessions longer. Not only did this keep him from becoming embittered toward Russia, it also allowed him to boast in the future that he knew better than others how to bargain with Moscow.
Although E. H. Harriman’s contributions to party coffers had tapered off after Teddy Roosevelt’s personal attacks, his family remained nominally Republican. Averell, however, soon began to waver. As a businessman he had shown little interest in politics, but his international dealings and his support for Woodrow Wilson’s vision of a League of Nations convinced him of one thing: “Republican isolationism,” he told a journalist, “was disastrous.” The problems faced by the shipping industry, he felt, stemmed partly from the Republicans’ failure to reduce tariffs. In addition, he increasingly worried that stock market speculation was going “haywire,” and he blamed the Republicans for refusing to restrain it.
There were also personal ties tugging him toward the Democrats. His activist sister Mary had become a close friend of Eleanor Roosevelt, who taught calisthenics at one of the Junior League settlement houses Mary had founded. At Groton, Averell was a classmate of Eleanor’s brother, Hall; orphaned as a schoolboy, Hall had moved into Eleanor and Franklin’s New York City town house, where Averell became a frequent guest. Through his service on the Palisades Interstate Park Commission, Harriman also became friendly with Governor Al Smith.
When Smith ran for President in 1928, Mary Harriman announced, through Eleanor Roosevelt, that she would vote for him. It was not hard for her brother to follow suit: the Democratic Party chairman was General Motors Vice-President John Raskob, a successful financier who had bolted from the GOP and declared his intention to make the Democrats the party of business. Harriman’s switch in party loyalty was reinforced when the stock market crashed the following year, confirming his doubts about the Republicans’ ability to manage the economy. From then on, he was a loyal Democrat.
At the time, however, polo rather than politics provided his primary diversion from the business world. Harriman would often leave Wall Street at 4 P.M. for a quick game at the Meadowbrook Club, on Long Island, before dinner. He bought a house at Sands Point, near the club, and acquired a string of ponies, frequently paying up to ten thousand dollars for a mount.
It was the perfect sport for an intense and driven (and rich) young man, made even more so because Harriman approached it the way he did business. “I like recreation that calls for just as much energy as work calls for,” he said upon taking up the sport in 1920. “When you’re playing polo you have to keep your eye on the ball every minute and you haven’t time or inclination to think of anything else.” Hardly a graceful player, he practiced with typical discipline to achieve an eight-goal handicap (ten being the best) and in 1928 scored four of the seven goals for the U.S. in the international championships against Argentina. That victory, wrote one newspaper, “amounted to a personal triumph for W. Averell Harriman, the American No. 1, who played startlingly beautiful polo.”
Harriman also took up croquet at Sands Point, and became, along with his neighbor Herbert Bayard Swope, editor of the New York World, one of the country’s masters of the game. A meticulous strategist, Harriman would take up to twenty minutes scrutinizing the lay of the court and individual blades of grass before making a shot. His deliberateness so infuriated friends that whenever any other dawdler took too much time he was addressed as “Averell.” Harriman’s playing style gave a clue to the oblivious manner he often affected in business and social life: he would sometimes seem to forget which ball was his, act as if he had lost track of the order of the game, and then proceed to execute a carefully plotted strategy. Asked by a novice for the secret to his prowess, he replied: “I just kept at it. Persistence is the key.” (At age ninety, he would lament to an interviewer that he had difficulty finding suitable opponents. “There aren’t a whole lot of good croquet players still around,” he said. “Very subtle game.”)
Kitty Harriman had accompanied her husband on his trip to the Soviet manganese mines, and for a while they seemed to enjoy an active social life together. But both were quiet and inward in different ways, and they soon drifted apart. Although he was not the sort to expend much energy chasing other women, Harriman gained the reputation as a man with a wandering eye. He and Kitty were divorced in 1929, and the following year he married Marie Norton Whitney, herself recently divorced from Cornelius Vanderbilt (“Sonny”) Whitney.
Whereas Kitty had been shy and retiring, Marie was witty and outspoken, brash to the point of abrasiveness. “Oh, come off it, Ave!” she would snort in her husky voice whenever he became too ponderous. They shared an interest in Impressionist and Post-impressionist art, and on their honeymoon in Europe collected dozens of masterpieces by Van Gogh, Degas, Cézanne, Picasso, and Renoir. Gertrude Stein, whose salon they visited in Paris, was in need of money to publish the Plain Edition of her works, and she sold the Harrimans her treasured Picasso, Girl with a Fan. The paintings the Harrimans collected became the nucleus of a gallery Marie opened on East 57th Street.
Marie also introduced Averell to café society. Although he remained a wallflower even at his own parties, Harriman found his new artistic acquaintances an amusing diversion from the bankers he dealt with by day. The group orbited around Alexander Woollcott, The New Yorker magazine and Algonquin Round Table humorist (who later was to remark upon arriving in London during World War II, “There’ll always be an England, now that Averell’s here”). Woollcott and Marie came up with the idea of filling all the rooms at Arden with guests at Thanksgiving, which soon became an annual tradition. The Harrimans delegated to Woollcott the task of making the guest list for these five-day extravaganzas. Among the celebrants: Harpo Marx, Helen Hayes and Charles MacArthur, Ernest Hemingway, Heywood Broun, Herbert Bayard Swope, George S. Kaufman, Robert Sherwood, William Paley, Moss Hart, Ben Hecht, and Harold Ross.
The frivolity was manic. The cavernous entrance hall with its great organ would be turned into a badminton court. Woollcott and Swope presided over the intensely serious croquet matches on the lawn, while Broun was the master of the indoor bowling alley. The favorite party game was “Murder,” in which each guest had to devise a plausible alibi for an imaginary homicide; Broun, who was involved in forming the American Newspaper Guild and other union activities, once won by claiming that he was in the kitchen organizing the Harriman help. Marie seemed to have only the vaguest idea where the kitchen was. After one early-morning bowling tournament, she led an expedition to raid the icebox. After boldly venturing through a maze of subterranean passages, she happened upon one of the large service pantries. One woman opened a walk-in closet and found it filled with priceless silver trays, goblets, flatware, vases, and other loot. “Well, what do you know!” Marie exclaimed. “I never realized all this stuff was here.”
Harriman’s new social circle often had trouble knowing what to make of the somewhat aloof financier. Despite his general popularity, there was always a shell around him, a wall that separated him from fraternal comradery. They sometimes wondered whether he had any truly close friends. He was affable enough, even quite interesting when engaged in a discussion of foreign affairs or finance; but in a sharp and witty crowd, Harriman was resolutely neither. His mind would often seem to wander into some distant world. When there was speculation, even back in the 1930s, that Averell might be having trouble with his hearing, friends would use Dorothy Parker’s comment when told of Coolidge’s death: “How can you tell?”
Harriman’s parsimony also became the butt of many barbs. Even though his family foundation was noted for its philanthropy, prying a contribution out of him was next to impossible. Harriman picking up a lunch tab or taxi fare was unheard of. In fact, legend had it that Harriman rarely carried cash. Even in money matters, he operated in a realm of his own.
His was a cheapness, of course, peculiar to the very rich. Even though his most daring international ventures were somewhat less than resounding successes, Harriman prospered in business with shrewd investments in such booming fields as radio stations and commercial airlines. He even weathered the collapse of the stock market in 1929 better than most of his colleagues. Yet by then, with the domestic economy and the prospects for world trade collapsing, Harriman was ready to pull back from his more venturesome financial dealings. His childhood and college ties provided a ready-made opportunity to consolidate his activities.
When he returned to New York after the war, there was no doubt that Robert Lovett was destined for a Wall Street career. Law school was unable to hold his interest. At his parents’ homes in Manhattan and Locust Valley, he encountered a much headier atmosphere. His father, then chairman of the Union Pacific, had served on the War Industries Board and become a leader of the economic establishment. Among those who came to his dinner parties were others who had been on the War Industries Board, such as Bernard Baruch, the financier and self-styled sage of Wall Street. Bob listened to discussions about industrial mobilization and offered his own ideas on the importance of airplanes to the nation’s transportation and defense.
He even embarked on a dogged crusade to convince his father that the Union Pacific should establish an airline. While driving his father to work in his snappy new roadster one day, young Lovett wore his father down and convinced him to order a study of the idea. A few hours later the phone rang. “Have you seen the morning paper?” Judge Lovett asked. “Look at page one.” There was a picture of an airplane that had crashed into the house of an ex-governor of New Jersey, its tail sticking from the roof.
“Well, that might happen once in a thousand times,” said Bob.
“Once is enough,” his father replied.
The idea was killed, and by the time Bob became a Union Pacific board member, federal legislation had been passed barring railroads from the air transport business.
Along with the Harriman brothers and other Yale chums, Lovett was a regular at the weekend parties given at the home of James Brown in Oyster Bay, not far from Locust Valley. Lovett had met Adèle, the youngest of Brown’s three daughters, before he went off to war. “When he first came over, I thought he wanted to see one of my sisters,” she recalls. “But when he kept coming over, I found out he had wanted to see me.” Adèle was impressed by Lovett’s lanky and angular good looks, his wry smile and humor. Bob was taken by the striking beauty of the girl whose debut had provoked more than the usual fawning in the glossies of the time. They were married in 1919, taking their honeymoon across country by train, stopping at the Harriman hunting lodge on the way.
Judge Lovett, ever eager to hone his son’s mind, gave him four volumes of Immanuel Kant to read on his honeymoon. Young Lovett, who prided himself on an agile mind unclouded by dogma, was particularly struck by the section of the Critique of Pure Reason called the Antinomies, in which the German philosopher places pairs of contradictory propositions side by side and proceeds to offer airtight “proofs” of each.
James Brown, pleased by both the marriage and the prospect of treating Lovett as the son he never had, secured for Lovett an apprenticeship at the National Bank of Commerce, where he worked the overnight shift checking out the balances of each day’s transactions. He joined Brown Brothers in the autumn of 1921, starting as a “runner” carrying messages and transactions. He quickly became interested in European transactions; during his training he worked both in London and New York for Brown Shipley & Company, a Liverpool-based merchant bank founded by the Browns in 1839. He was made a full partner of Brown Brothers in 1926, the same year that he joined the board and executive committee of the Union Pacific.
The Great War finally had dissolved many of the social barriers between the new money of industry (such as the elder Lovett and Harriman), the patricians of old society, and the gay café life of artists and writers. Robert and Adèle Lovett settled easily at the confluence of a new cosmopolitan life-style marked by wealth, cleverness, and social grace. They built a town house on East 83rd Street, with a living room adorned by a cathedral ceiling and a panoramic view of the East River. Their home in Locust Valley, next to the elder Lovetts’, was decorated in what Dorothy Parker, the Algonquin Round Table wit, called “lovely soap-bubble tints” and murals painted by friends.
Lovett’s closest companions were those he had met at Yale, such as Davison and Gates. But he and his wife soon became part of a social set dominated by writers and artists. Archibald MacLeish, the poet, was the older brother of Kenneth, the fallen hero of the Yale Unit. The playwright Philip Barry, author of such social comedies as The Animal Kingdom and Here Come the Clowns, was also a friend from Yale, and his wife, Ellen, was a schoolgirl chum of Adèle’s. Others in the circle included Robert Benchley, Robert Sherwood, Lillian Hellman, and Dorothy Parker, many of whom had also become friends of Averell and Marie Harriman.
Lovett’s favorite relaxations were jazz music, mystery novels, and movies. After a few early forays on the golf course at the Links Club, he developed a lasting disdain for both exercise and the outdoors, pleading a series of ailments that were partly real and partly well-honed hypochondria. On some afternoons he would sneak away from work to take flying lessons on Long Island or, on occasion, spend a flirtatious afternoon on the beach of the Piping Rock Club with a woman he knew. Adèle likewise enjoyed her own social dalliances, including a noted friendship with Benchley. For a while, the Lovetts drifted apart; their marriage survived, however, and lasted happily until Adèle’s death in 1986.
At one dinner party in Locust Valley, Lovett was called from the table to the telephone. “Yes, yes, why yes!” his guests heard him shout. “Let Austria have eight million dollars.” When he returned to dinner, Benchley and others dubbed him “Give Austria Eight Million Dollars Lovett” and spent the evening asking if he had a few more dollars to spare. The next day he received a telegram sent anonymously by one of his guests: “You have made me the happiest little country in the world—Austria.”
Lovett retained some of the traditions of the old style, wearing stiff collars with his dinner jackets rather than following the fashion for soft shirts. In a crowd of heavy drinkers, he was considered quite moderate, limiting himself to a couple of martinis or Bourbon mists before dinner and a brandy afterward. But in general he enjoyed the loose and relaxed attitudes of his New York circle. With his rubber face and wry humor, he was a great mimic, entertaining dinner parties with his imitations of great statesmen and parodies of the Chinese and the Russians. He could also do a wicked version of Averell Harriman, with a thick, plodding voice and glazed, deadpan eyes.
According to company lore, the talks began in a parlor car of the New Haven Railway in the spring of 1930 as the classmates returned from a Yale reunion. Actually, the idea of merging the century-old private banking house of Brown Brothers & Company with the aggressive new Harriman brothers’ firms had been discussed years before. Roland Harriman had mentioned the possibility in the mid-1920s to Ellery James, his close friend from Groton and Yale who had joined Brown Brothers in 1919. Averell and Roland also brought it up with Lovett, who became a firm advocate of the proposal.
From a personal standpoint the merger made great sense. The Harrimans and their two top partners, Prescott Bush* (vice-president of their investment firm, W. A. Harriman & Company) and Knight Wooley (managing partner of their private banking house, Harriman Brothers & Company), had been Bonesmen at Yale with four of the younger partners at Brown Brothers: Lovett, Ellery James, Laurence Tighe, and Charles Dickey. Their friendships had flourished in New York, where they shared each other’s apartments and attended many of the same social events, in particular the weekend tennis parties given by James Brown.
The merger was also logical from a financial standpoint. Brown Brothers, with a venerable reputation built on four generations of wise stewardship of other people’s fortunes, was faced with the imminent retirement of five of its senior partners, who wished to withdraw their accrued profits. Both of the Harriman brothers had large personal fortunes—about $80 million between them at the time—and an aggressive style of raising and investing cash. “Old-timers in Wall Street have seldom seen a more potent blend of conservative experience and aggressive practice,” one financial expert said of the merger.
Thus on the evening of December 11, 1930, a select group of partners was summoned to the home of Thatcher Brown, a tall, scholarly-looking senior partner of Brown Brothers. He was not well known even to the financial press, but reporters were familiar with the man standing next to him in the library of his Park Avenue residence: Averell Harriman, now a bit slouched at age thirty-nine, a chain smoker with a somewhat haggard air, yet still trim, athletic, and imposing. When Brown finished reading his statement, reporters peppered him and Harriman with tough questions about whether the merger indicated any financial difficulties. But the stories that appeared the next day were universally adulatory, even celebratory. It was a welcome piece of good news amid the 1930 gloom. Indeed, the front-page New York Times story on the merger ran next to a report of the closing of the Bank of the United States, a commercial bank with sixty offices in New York City. (The New York World front page that day also contained stories on the suicides of two bankers.)
The new Brown Brothers Harriman firm established its headquarters in offices at 59 Wall Street where the Brown family’s businesses had been located since 1843. Shortly before the stock market crash and the merger with the Harriman interests, Brown Brothers had built a thirty-six-story addition to its imposing marble building on the corner of Hanover Street. The dominant feature of the new building was the Partners’ Room, an ornate sanctum with deep maroon carpeting and dark wood paneling, which had been transferred from the old building along with an imposing painting of four of the original Brown brothers. There the partners worked alongside one another at rows of bulky rolltop desks while British floor attendants, silent and correct, served as clerks.
While the rest of the country slept in deep isolationism, a close-knit clique of Wall Street bankers and lawyers, most of whom had traveled through Europe as children, met in the clubs of London and Paris and Berlin as friendly competitors putting together suitable investments for their firms. In a private and profit-seeking capacity, they were rebuilding a war-ravaged Europe in a manner as grandiose as many of these same men would employ a world war later with the Marshall Plan. In 1927, for example, three years before their merger, Brown Brothers and Harriman Brothers shared in a $250,000 line of credit to finance the export activities of a Berlin metals firm. An advertisement for Brown Brothers Harriman in 1934 boasted of investments in forty-five different countries.
The firm financed much of America’s imports of metals, raw materials, and foodstuffs, and it pioneered a system of letters of credit and bankers’ acceptances that eventually involved more than five thousand correspondents around the world. Responsibility for these transactions naturally fell to Lovett, who was nimble with complex calculations and enjoyed going on long inspection tours to observe how other companies operated. After the Brown Brothers Harriman merger, Lovett took over the international currency and lending operations of the new firm. On his twice-a-year trips, he would drive through Belgium, France, and Germany for six weeks at a time, inspecting industries and analyzing their finances. He particularly loved their organization charts, management systems, and details about the flow of products and profits.
Lovett’s work was mainly that of an operating officer; Harriman was still the entrepreneurial force behind many of the firm’s more venturesome international deals. They each seemed to represent a different stereotype of the Wall Street banker. By nature and breeding, Lovett was tactful, suave, and smooth; he excelled at bringing people together, calming controversies with his congenial wit, resolving problems in a collegial way. Harriman was imperious, or at least gave that appearance. People were able to work under him more easily than they could work with him. He believed in maxims and standards, many of them inherited from his rigid father, and was prone to impose them on situations. Lovett had doubts about Harriman’s intelligence, though not his tenacity. Harriman, for his part, thought Lovett too cautious and unimaginative and tended to treat him as a subordinate.
Nonetheless the two men worked together well, Lovett remaining the more deferential, Harriman always a bit more magisterial. Whenever they were apart, they would write each other once or twice a day, special delivery letters speeding back and forth from Lovett on Wall Street to Harriman in his suite at the Mayflower Hotel in Washington or ski lodge in the Rockies.
“I very much hope that your discussion with Vincent Astor will not necessarily develop into an argument,” Lovett wrote, with typical conciliatory style, in a “Dear Averell . . . Yours as Ever, Bob L” letter in 1934. The issue at hand was the weekly magazine Today, a pallid publication that Harriman, Astor, and others had founded to support both the New Deal and the interests of business. (In 1937, it was merged into another Astor venture to become Newsweek.) Lovett convinced Harriman that Today’s editor, the once and future FDR brain truster Raymond Moley, was turning the publication into “a personal journal dealing very largely with whom the editor hates or loves as the case may be.” Lovett bitingly told Harriman that “the present magazine’s slogan, ‘A Personal Journal of Public Affairs,’ should be changed to ‘A Public Journal of Personal Affairs.’”
But when it came time to confront Astor, Lovett, as usual, fretted about Harriman’s lack of tact.
I do want to emphasize what appears to me to be the strategic advantage of making your criticisms broad while at same time being prepared to produce specific examples only if challenged [Lovett wrote]. Unless challenged, I don’t think that specific examples do a great deal of good since they most frequently start bickerings about interpretations of language rather than getting the sense of the entire criticisms over . . . There is no point in unnecessarily making an enemy.
Ever since Harriman and Lovett had graduated from college, Judge Lovett had been grooming his son and that of his former boss to help run the Union Pacific railway empire. Averell had been elected to the railroad’s board in 1913, while still a senior at Yale, and upon graduation began work in the railroad’s operational headquarters in Omaha. “Judge Lovett was anxious for me to get training,” recalls Harriman. Although he arrived in Omaha in his own private railway car, Averell had begun work as a lowly “trackwalker,” and his fellow inspectors referred to him as “Bill.” Within two years, Judge Lovett had made him vice-president in charge of all purchasing for the Union Pacific.
Harriman had quickly displayed his no-nonsense approach. The Union Pacific had been buying locomotives from the nation’s two major suppliers, Baldwin and American. Baldwin invariably bid lower on contracts for freight engines, and American always submitted the best bid for passenger engines. The twenty-three-year-old Harriman figured that they were privately dividing the market. “A locomotive costs so much a pound, no matter what its details,” he noted. So he calculated a reasonable price per pound for each locomotive and summoned to his Omaha office the sales executive of Baldwin. The company could have all or nothing at that price, he said. “Well, wait a minute. I can’t give you an answer until I talk with my president,” said the worried man. Harriman handed him the phone. “He says we’ll take the business,” the salesman reported after a quick conversation. American was upset, but Harriman saved the Union Pacific hundreds of thousands of dollars.
While he was engaged in his own shipping and investment ventures during the 1920s, Harriman had let his involvement with the Union Pacific lapse. But after he settled into Brown Brothers Harriman, he once again became active in railroading. The Illinois Central, which was still controlled by the Union Pacific, was in danger of collapse in 1931, and Judge Lovett gave Harriman the task of rescuing it. His remedy was drastic: He cut maintenance, stopped buying rails, reduced service, and laid off employees. “It was rather ruthless or else the company could not have survived,” he later recalled. But the cuts pained him. He decided to be more creative and constructive in his approach to the Union Pacific when Judge Lovett died in 1932 and was succeeded as chairman by the son of the man he himself had succeeded twenty-three years earlier.
Bob Lovett was also actively involved with the Union Pacific by then, having been elected to its executive committee in 1926. It was an inauspicious time to be running the railroad: gross revenues had reached a record high in 1929 only to plunge 50 percent by 1932, a year that produced the company’s first net deficit in more than thirty years. Harriman and Lovett, along with Roland Harriman, decided that the answer was to upgrade rather than cut back on passenger service.
When Lovett met him at an airplane one day, Harriman pointed to a stewardess and said: “We need those.” So female passenger attendants were added to Union Pacific trains. Harriman also came up with the idea of having good, inexpensive meals for all passengers. Lovett, as might be expected, objected; according to his calculations it would be cheaper to pay every passenger the then-grand sum of two dollars to refrain from using the service. But he was overruled. To expand the tourist trade, Harriman decided to build a ski resort in Sun Valley, Idaho. Even Marie Harriman got involved, insisting that the unattractive green plush seats and curtains be redecorated in red and other bright colors. “But we’ve always used dark green,” one of the officers told her. “Precisely,” she replied. Passenger revenues rose 21 percent in 1935 and 35 percent the following year.
Their most important innovation was developing a radical new “streamlined” train with diesel power and sleek aluminum coaches. When a three-car demonstration model was ready for display, Harriman envisioned a major unveiling: a well-publicized Chicago-to-Washington run ending with an inspection by President Franklin Roosevelt. As usual, Lovett was more cautious. He phoned Harriman in Washington to dissuade him and followed up with a letter later the same day. “Assume that, after all this hullabaloo, it jumps a switch point and gets cracked up, or some bad engineering bug develops in it and makes the affair a fiasco,” he wrote. “The safer and more reasonable procedure would be to get it safely into Washington, shine it up and polish it within an inch of its life, and then make the announcement.”
Even the following week, after the train had reached an astonishing 75 mph during a test in Michigan, Lovett was dubious. “I am still scared to death of an exhibition run,” he wrote. “While it would undoubtedly be grand publicity, I still wonder whether the game is worth the candle. If any slight thing should go wrong, it would be magnified and receive a degree of publicity which might retard the advance of speed trains for years. I feel better having got that off my chest and I won’t bother you about it any more.”
Harriman had no such qualms. On February 15, 1934, the City of Salina streamliner arrived in Washington, where Harriman proudly posed with FDR on the steps of one of its gleaming cars. Three more trains were ordered for transcontinental service. The first made its inaugural cross-country run in October in less than fifty-seven hours, shattering the previous record.*
Harriman had supported Franklin Roosevelt’s candidacy in 1932, paying a well-publicized social call at Hyde Park shortly after Roosevelt was nominated. The following year, his sister Mary had become the chairman of the NRA’s Consumers Advisory Committee. At the urging of Herbert Bayard Swope, Harriman also accepted a volunteer position with the NRA, as New York State chairman of the Emergency Reemployment Campaign. The group’s work climaxed with a Blue Eagle procession down Fifth Avenue in September of 1933 in which 250,000 marchers and more than a million spectators made up the largest crowd that had ever gathered for a parade in the city. The heady emotionalism of it all helped make politics, a realm of power Harriman had hitherto left unexplored, a new source of fascination for him. Although he was not yet ready to join the government, Harriman decided he was willing to serve part time as one of the tame businessmen Roosevelt was recruiting to Washington.
In November of 1934, Harriman became the Chief Administrative Officer of the NRA, moving from Wall Street down to his suite at the Mayflower until the Supreme Court abolished the agency six months later. In an article he wrote for Today, he defended the New Deal against businessmen who were attacking Washington’s right to regulate labor conditions. “The man who can hold his place in the competitive system only by working women and children for long hours at low wages has no right to survive.” Partly as a reward for his NRA work, Harriman was chosen as vice-president and later chairman of the Business Advisory Council, a group of corporate leaders, such as Thomas Watson of IBM and Robert Wood of Sears, who advised the Commerce Department and sought both to defend and moderate New Deal programs. The positions allowed him to continue his work on Wall Street while remaining involved in the world of Washington.
Lovett’s economic outlook, on the other hand, was traditionally conservative, and he heartily disapproved of what he regarded as Harriman’s unholy alliance with the Democrats. In 1933, Lovett joined with the banker J. P. Warburg to issue a public warning that New Deal policies threatened to cast the country into an inflationary spiral. Four years later, he wrote an article for The Saturday Evening Post called “Gilt Edged Insecurity” cautioning that what seemed to be blue-chip investments could prove to be less than secure. Keynesian economics he haughtily dismissed.
Scattered blasts at the New Deal’s “reign of terror” against business began to crop up in Lovett’s regular notes and letters to his partner. “The young hot dogs have taken the first step toward breaking down the channels of private capital,” Lovett wrote Harriman in one missive, referring to Felix Frankfurter’s protégés. “The Administration should not permit this situation to continue and should no more be intimidated by the Brain Trust than by business interests or the Stock Exchange.” But their friendship far transcended politics. As Lovett remarked at the end of a particularly scathing three-page note about Roosevelt’s policies: “Don’t judge from the heat of this missive that I hold you personally responsible for it.”
Indeed, most of their correspondence involving Harriman’s government work was of a very practical nature. Like many other financiers of the time, Harriman and Lovett tended to blur the boundaries between their public and private affairs.* Whenever Harriman was down in Washington, Lovett tended to write about economic matters that he thought should be “of vital interest to the Administration.”
Some letters were quite specific, involving what today would be seen as clear conflicts of interest. “We have been swamped with cable inquiries from abroad as to whether or not we would buy gold,” Lovett wrote in 1934, noting that Brown Brothers Harriman could purchase one million French francs ($63,000) and reap a $2,800 profit if they could be exchanged for gold that the U.S. Treasury would buy. The problem, which Lovett asked Harriman to explain to his colleagues in government, was that the Gold Revaluation Act released the Treasury of the legal obligation to buy private gold offered to it. “This, of course, has thrown the exchanges into a state of great uncertainty,” wrote Lovett, “and it is really a darn shame that someone familiar with the market did not forewarn the Treasury as to what would happen.” Unable to resolve all the uncertainties, Lovett wrote the following day that the firm had decided on “marking time” before making a move.
Despite Harriman’s dalliances on the periphery of the New Deal, he and Lovett had been mainly concerned with private business affairs during their two decades on Wall Street. Foreign developments tended to be viewed from a financial perspective, with Lovett cautiously guiding the international business of Brown Brothers Harriman while Harriman slowly withdrew from his most venturesome endeavors to become a pillar of the financial establishment.
But by 1939, events were unfolding that would inexorably thrust to the fore those whose visions extended beyond the nation’s borders. The portents were confusing. Germany and Russia, briefly joined in a cynical alliance, carved up Poland between them, plunging Europe into a war that seemed at once both menacing and phony. Congress resisted Roosevelt’s appeals for revisions in the neutrality legislation; the American people seemed surprisingly sympathetic to Charles Lindbergh’s pronouncements that “we must not be misguided by this foreign propaganda that our frontiers lie in Europe.” Perhaps most baffling was a discovery that few in America knew anything about: Niels Bohr, at a meeting of the American Physical Society in Washington that year, reported that his colleagues in Copenhagen had produced 200 million volts of electricity by splitting an atom of uranium.
“How do you feel about Europe and everything else?” inquired Harriman in a one-sentence telegram he sent to Lovett from Sun Valley in March of 1939. The tone seemed jovial, even flip. But Lovett knew Harriman well enough to realize that he was not simply making idle telegraphic chatter. The question demanded a serious answer. “Consider Czechoslovakian moves logical result of Munich Pact,” Lovett replied that same day. “In north danger seems to be quick thrust on Holland in which event believe British would fight . . . Foreign news overshadows all factors affecting market here . . . Good faith of domestic appeasement program again being questioned . . . Best regards, Bob.”