The Jews in America Trilogy (33 page)

Of Harriman, Kahn wrote candidly:

His was the genius of the conqueror, his dominion was based on rugged strength, iron will, irresistible determination, indomitable courage and, upon those qualities of character which command men's trust and confidence. He was constitutionally unable either to cajole or dissemble. He was stiff-necked to a fault. It would have saved him much opposition, many enemies, many misunderstandings, if he had possessed the gift of suavity.… I ventured to plead with him that the results he sought could just as surely be obtained by less combative, more gentle methods, while at the same time avoiding bad blood and ill feeling. Invariably his answer was: “You may be right that these things could be so accomplished, but not by me. I can work only in my own way. I cannot make myself different, nor act in a way foreign to me. They will have to take me as I am or drop me. This is not arrogance on my part. I simply cannot achieve anything if I try to compromise with my nature and to follow the notions of others.”

Gradually, Otto Kahn became the bank's chief liaison with Harriman,
while, in the meantime, Jacob Schiff cultivated the garrulous, easygoing company of James J. Hill. With this arrangement—having the two most powerful railroad men of the age as virtually daily visitors to the Kuhn, Loeb offices—it must have seemed to Schiff in 1900 as though, except for a few details such as J. P. Morgan, he had American railroads in his pocket.

To unify his Union Pacific system, Ned Harriman had, with the help of Kuhn, Loeb, purchased two smaller lines, the Oregon Short Line and the Oregon Railroad & Navigation Company. This accomplished, he decided that he also wanted a line called the Chicago-Burlington & Quincy, a rich line which fanned through some of the richest country in the West. Its fingers stretched to Mississippi River ports, to mining towns in Colorado and the Black Hills, and to farm lands in Illinois, Iowa, and Nebraska. Harriman wanted the Burlington, as he explained, partly because it was a competitor for business in Union Pacific territory, but also because he feared that at any moment the Burlington might extend its main line from Denver to the Pacific Coast. This would make the Burlington a Union Pacific competitor on a transcontinental as well as a local level.

However, when Harriman began quietly to dicker for the Burlington, he found his way blocked by “subtle but powerful forces.” Someone else was interested in the Burlington, and had already been quietly buying up its stock. Harriman mentioned his fears to Otto Kahn, and the two men approached Kuhn, Loeb's senior partner, Jacob Schiff. Schiff listened in silence, and then said, “I will ask Hill about it.” That evening, at his house, Schiff asked Hill point-blank, “Are you buying Burlington?” Hill laughed and replied, “Absolutely not.” Schiff then returned to Harriman and assured him that Hill had no interest in the line.

Hill, however, had not been telling the truth. He had, early in 1901, decided that he wanted a feeder line for his Great Northern and Northern Pacific. His banker, Morgan, had recommended that Hill buy the St. Paul Railway, but Hill was convinced that the Burlington was the better line. Morgan gave in and, long before Harriman had let his hungry gaze fall upon the line, Hill-Morgan interests had begun buying up the Burlington on behalf of the Great Northern and Northern Pacific. As the two railroading giants, one with a monopoly on the Southwest and the other controlling the Northwest, squared off to do battle, two facts were pertinent. Morgan, who represented Hill, had a personal, almost psychopathic hatred of Harriman and fumed at the mention of his name. Schiff, on the other hand, who represented
Harriman, was Hill's friend. If anyone was to mediate, or referee the fight, it would have to be Schiff.

Schiff paid another of his polite visits on Morgan and asked him the same question he had asked Hill. Morgan, who could be ruthless but was seldom devious, admitted that he and Hill were in fact buying the Burlington. Schiff then began to argue for a “community of interests.” It was to become one of Jacob Schiff's key phrases, but at the time it belonged to Morgan, who had defined it, saying, “The community of interests is the principle that a certain number of men who own property can do what they like with it” Schiff was using the community-of-interests argument deliberately, aware of the appeal of the concept to Morgan, to try to persuade Morgan to let Harriman have an interest in the Burlington purchase, and a share in the management. Morgan refused. A grim-faced Jacob Schiff now sent for James J. Hill.

On a balmy April evening in 1901, Jim Hill arrived from Washington. He was in a buoyant mood. That afternoon he had finished negotiations for the purchase of the Chicago-Burlington & Quincy, and the contract was to be signed the following morning. His railroads, the Northern Pacific and the Great Northern, would then own more than 96 percent of the Burlington stock, for which he and Morgan had paid as much as $200 a share, far above the market value. The young man who met Hill at the ferry dock was nervous. It was Morti Schiff. “Father is waiting for you at Mr. Baker's house,” said Morti. “Did you get his message?”

“Yes,” said Hill. “Is Harriman there also?”

“I believe so.”

“Good!” said Hill breezily.

The two set off. The meeting, arranged by Schiff, was a last-ditch effort to ward off a battle, and was to be held on neutral territory at the home of Hill's friend, George F. Baker, the so-called “Sphinx of Wall Street,” president of the First National Bank, the city's largest.

With Hill's arrival, the atmosphere of the gathering in Baker's library grew tense. Schiff's customary regal poise was overlaid with frost, and, after greeting Hill curtly, Schiff said a few brief words about their long friendship and then asked Hill abruptly, “Why did you lie to me a month ago and say you had no intenton of buying the Burlington?”

Hill's candor was as remarkable as his good spirits. “I
had
to,” he replied. “After all, I knew you were interested in the Union Pacific.”

Schiff gave him a contemptuous look, and then asked once more that Harriman be given at least a small share in the Burlington purchase.

“Oh, I don't think so,” said Hill cheerfully. “You see, I want it all.”

Harriman, who at that point had been pacing the floor “in suppressed excitement,” sprang at Hill and said, “Very well! This is a hostile act and you must take the consequences!”

Hill merely waved his hand and walked out of the room.

On April 20 the announcement of Hill's purchase was made. Morgan, his duties as Hill's banker over, set off for Europe to take the waters at Aix-en-Provence and to visit his beautiful French mistress. Hill, in even better spirits than he had been in at Mr. Baker's house, boarded his private train for a long holiday in the American Northwest. Nobody had reckoned with the rage of Ned Harriman, who had once boasted to Otto Kahn, “Let me be but one of fifteen men around a table, and I will have my way.”

To get his place at the Burlington's table, Harriman's scheme was simple—and outrageous. If Hill's Northern Pacific now owned the Burlington, Harriman would buy up the Northern Pacific. If, in other words, he could not buy Hill's railroad, he would buy up Hill. The boldness of the scheme boggled the imagination. And it quickened the pulses of a number of Wall Street figures, among them James Stillman of the National City Bank, and one of Stillman's most important customers, Rockefeller and Standard Oil. Wall Street might have laughed at Harriman once, but—with the help of Schiff—he was the man who had helped turn the defunct Union Pacific into one of the country's most profitable lines. Harriman had been given complete control of the Union Pacific's finances, and now, to implement his great plan, he demanded permission of the Union Pacific's board to issue $60 million worth of new bonds.

Whether or not to participate in Harriman's plan was the most agonizing decision of Jacob Schiff's career. What was at stake was merely everything, so far as he was concerned. One did not lose a battle with a man like Morgan and survive. All night long, he paced the floor of his Fifth Avenue house, weighing the possibilities, while Therese begged him to come to bed. The sun was up before he decided. He would go along with Harriman.

It would take $60 million and more to do what Harriman had in mind. After all, the goal this time was not just to buy up a defunct railroad at twenty or thirty cents on the dollar. To succeed, Harriman and Schiff would have to go into the stock market and to private investors all over the country and, as quickly and secretly as possible, to buy up, from the strongest railroad-Wall Street combination in the world, the controlling interest in a $115 million corporation.

Schiff had warned Harriman that the price of Northern Pacific stock
would begin to rise as soon as Kuhn, Loeb's brokers went into the market and started buying it. To account for the rise, Schiff suggested an explanation of childlike simplicity. He would start a rumor on the Street that Northern Pacific was rising because of Hill's purchase of the Burlington. The Northern Pacific was nicknamed the “Nipper,” and Kuhn, Loeb men began saying, “Nipper's going up, now that Hill's got a new line.” Ironically, the explanation satisfied partners at the House of Morgan as well as Hill's men on the Street, who cheerfully began selling large blocks of stock to the enemy. Playing right into Harriman's hands, the House of Morgan disposed of $14 million worth of Northern Pacific by the first of May—all of which found its way into the hands of Schiff and Harriman.

One begins to sense the size of Edward Harriman's ego here. Harriman wanted to corner the Northern Pacific not for money, nor even for power. He wanted nothing but revenge on Hill and Morgan—to get even with them for excluding him from the Burlington's board. Privately, Jacob Schiff began warning him that he might be going too far. But Harriman at this point was intractable.

Jim Hill was superstitious and a believer in omens, and he was in Seattle on the last day of April when “a dark-complected angel” appeared to him in a dream as he lay in his canopied Louis Seize bed in his private car. The vision told him that all was not well in New York, and he immediately ordered his train turned around and headed East at top speed. He arrived in New York on Friday, May 3, breaking a transcontinental record. He went immediately to Kuhn, Loeb, walked into Jacob Schiff's office, and demanded to know why Northern Pacific had risen so rapidly. With a smile, Jacob Schiff informed him that Kuhn, Loeb was buying Northern Pacific “on orders from the Union Pacific”—or Harriman.

Angrily, Hill said, “All right. Do your damnedest. But you can't get control. Morgan and my friends alone hold $40 million worth of Northern Pacific, and as far as I know none of them has sold a share.”

“That may well be,” said Schiff carefully, knowing that Hill's statement would have been true a week earlier, but was no longer. “But we've got a lot of it, Jim. After all, you secretly bought the Burlington and wouldn't give us a share. Now we're going to see if we can get a share by buying a controlling interest in the Northern Pacific.”

Hill pressed Schiff to find out how much stock he had, but Schiff would only repeat, “A lot of it, Jim. A lot.” Nervously, Hill took out his little bag of uncut stones and began to worry them between his fingers.

At that point, Schiff made a final peace offer. He and Harriman would
stop buying, he said, and would gradually return the Northern Pacific stock to the market, if Hill would give Harriman a place on the Burlington's board. It was all Harriman had wanted to begin with. Hill seemed to waver, and Schiff said quickly, “Come to dinner at my house tonight. We'll talk it over.”

The stock market closed that afternoon at a new high, led by the Northern Pacific Railroad. The stock had also leaped ahead on the London Exchange. Outside speculators were moving in, and brokers were selling short. The mood of the street was feverish.

One must admire the poise and Himalayan coolness of Jacob Schiff at this moment. It was a Friday evening at the Schiffs. Fortunes hung in the balance, to say nothing of Jacob Schiff's own future as a businessman, yet no detail was altered from the family ritual. In the upstairs sitting room the Sabbath candles were lighted, and the children gathered in a circle to be blessed. Then their father read his Friday evening service, and the family descended to the dining room to meet their dinner guest. Jacob Schiff said grace as always, and the children recalled later that when he came to the words, “For those less fortunate than we,” his blue eyes traveled briefly and humorously to rest on Mr. Hill. Dinner continued in its customary stately way.

After dinner, in the library over their cigars and brandy, the two men got down to business. Jacob Schiff explained that his group now controlled 370,000 shares of Northern Pacific common stock, and about 420,000 shares of preferred—or $79 million worth on a basis of par valuation. Hill, nodding jerkily, immediately said that Harriman could go on the Burlington board. There was no question of it. “You have won,” Hill said. “I salute you.” The two men talked on for hours, and it was well after midnight when Hill rose to go. He clasped Jacob Schiff's hand and said once more, “Harriman shall go on the Burlington board tomorrow. You have my word for it.” As the two said good night, Hill is said to have brushed aside a tear.

If so, it was a crocodile tear. Once more, Hill was showing himself to be a man who could not be trusted. Before appearing at the Schiff house for dinner, Hill had gone to the Morgan office, conferred with the partners, and had sent a cable to Morgan himself asking permission to buy 150,000 more shares of Northern Pacific to strengthen his position. Morgan had wired back approval. Hill had never intended to admit Harriman to the Burlington board. He had just begun to fight.

Harriman, meanwhile, was nervous. The shares he and Schiff had acquired, both common and preferred, did, taken together, constitute a clear majority of the two classes of stock. Taken separately, however,
Harriman lacked—by some forty thousand shares—a majority of the common stock. On Saturday morning, therefore, he telephoned a Kuhn, Loeb broker named Heinsheimer and ordered forty thousand more shares of Northern Pacific “at the market.”
*
But Schiff, having taken Hill at his word, had left instructions at the office to buy no more Northern Pacific. In a dilemma, Heinsheimer tried to find Schiff—it was a five-million-dollar order—and learned that he was at the synagogue. Heinsheimer rushed uptown to Temple Emanu-El and looked for Schiff among the worshipers. Finding him, and making his way into a seat beside him, Heinsheimer whispered, “Harriman wants forty thousand more NP.” Without lifting his eyes from his prayer book, Schiff replied, “Do not buy it. I'll take the responsibility.”