“Great is Mr. Morgan’s power, greater in some respects even than that of President or kings,” wrote a seasoned British observer some years ago 1 which fact, patent to even the casual onlooker, easily passes uncontradicted.  Who, indeed, can gainsay its truth ?  Above all forms of law and functionaries of office, above the highest representative bodies and tribunals, above enactments and Constitutions, supreme above eighty-five millions of American people, this one man towers with a hold and grasp of power as tremendous as it is portentous.  And what has awarded him this mighty power ?  Has it come by vote or wish of the people or by some incongruous provision of Governmental machinery ?

Nay, none of these things are responsible for it ;  despite them all it has come about, and it persists in mockery of them all.  Then, wherein lies the explanation ?  Need it be told anew ?  The cause and substance of it all are Morgan’s wealth and his dictatorship, shared with a few others, of the resources of the nation, which ownership carries with it the real ruling power, for whoso own the means by which the people must live owns the people.

And Morgan to-day controls billions of dollars of the country’s resources.


Can this Morgan be the same who started out by successfully palming off upon the Government during the Civil War five thousand of its own condemned rifles, and at extortionate prices ?  Is it possible that the man who profited from arming the nation’s soldiers with self-slaughtering guns can be the same Morgan whose power to-day “is greater than that of President or kings ”?  Is the great, sublime patriot of these days, J. Pierpont Morgan, the same Morgan who came into collision with investigating committees during the Civil War, and who was practically denounced in the severest language ?  Verily, he is the same man, the identical same.  Behold him in the budding of his career, and observe how he began it ;  and behold him now, glutted with wealth and power, covered with honors, august dispenser of benevolence, the incarnate source of all wisdom, financial and otherwise, the mighty man of commerce and of the arts, the idol of capitalist ideals.

Between that Civil War transaction and his present sway, necessarily there lies a long category of deeds.  Undisputably he began his career with proofs of exceptional brilliance.  Had his first business achievement — that of the condemned rifles — been judged by the standards of the “ lower classes,” he would have been thrown into prison, or had the soldiers who had to use the guns come within his proximity, the life, peradventure, might have been shot out of him then and there.  But his own class, far from having a remote thought of abhorrence or ostracism, admired his business skill, mettle and audacity, and regarded him as an extraordinarily promising young man.  Great things were predicted for so astute an novitiate ;  yet novitiate was not the word :  the most experienced business man could hardly have done better than did Morgan in that famous rifle sale.

Moreover, Morgan had other advantages which assured a notable future.  He had a millionaire father, which was a relationship to be trebly prized at a time when millionaire progenitors were not so very numerous.  The paternal advice and guidance, based upon a protracted career in the serpentine channels of wealth getting, could unfailingly be drawn upon.  Additionally, J. Pierpont Morgan had the backing of the old man’s millions and prestige, and — what was more important — would some day inherit those millions.  All of these factors were infallibly the prelude to a glorious career.


The respect of the mercantile and financial classes for Morgan’s proved ability grew proportionately with each new display of his capacity.  Presently we find a contemporary biographer saying of him :  “ Mr. Morgan made himself universally respected as an able financier in 1869, when he came out victorious in a memorable struggle for the control of the Albany and Susquehanna Railroad, which had fallen into the clutches of Messrs. Fisk and Gould.  The contest was waged not only by litigation, but also by force of arms, and Governor Hoffman called out the militia.  Fisk was eventually dislodged.”

It had not taken long for Morgan to arrive at the point where he was “universally respected.” By “universally ” the writer of that eulogy meant among Morgan’s class, the opinion of which was held to be all-inclusive ;  that of the workers was considered of little or no account, and could always be ignored or ridiculed.  But what was the real nature of this railroad business which made Morgan so “ universally respected ”?  What great public service, if any, did he render ?  What was the special merit involved in his overthrowing of Gould and Fisk, and his getting control of the railroad in question ?

Eulogistic writers fail to give enlightenment on this point.  But what they omit, public records supply to some extent.

Had either Gould and Fisk, on the one hand, or Morgan, on the other, built the Albany and Susquehanna Railroad or provided the funds for its construction ?  Not a mother’s son of them.  This line, now a part of the Delaware and Hudson Railroad, had been built with public funds drawn from the treasuries of New York State and of various counties and municipalities in that State.  At least $l,000,000 of the $45,000,000 drained from the public treasury in New York State for the building of railroads, had gone into the construction of the Albany and Susquehanna Railroad.2

The usual pilfering processes marked its building ;  large sums were stolen in various forms of graft ;  and, as in the case of the Erie Railroad and other railroads, the State was cheated out of much of its loans.  Then the group of capitalists in control watered the Albany and Susquehanna’s stock and manipulated it for speculative purposes until they were ousted by other capitalists who repeated their manipulating methods on a larger scale.  This railroad’s chief value lay in the fact that it had direct connections with the coal mining regions of Pennsylvania.

Two contesting sets of capitalists now rushed forward to seize control of it.  One crowd was led by Gould and Fisk, the other by J. Pierpont Morgan.  The older capitalists were amazed at the sight of these young men audaciously struggling for the possession of a valuable railroad system, in the construction of which neither set had had any part whatever.  Old Commodore Vanderbilt looked on with a blended admiration and envy.  Gould was but thirty-three years old, and Morgan thirty-one.  Each side bought all of the stock that it could ;  Gould with the proceeds of his thefts, and Morgan possibly with the proceeds of such transactions as the rifle sale, for instance.  Stockholders’ elections were held amid scenes of the greatest disorder, and each party claimed the election of its own board of directors, and accused the other of the grossest frauds.

Quite appropriately the contest went into the courts.  Twenty-one separate suits were brought by Gould and Fisk, and a sheaf of injunctions obtained.  The Morgan party fought back vigorously.  But so long as the legal contest was confined to the New York City courts, Gould and Fisk had the surety of victory.  The reason was that such Supreme Court judges as Barnard and Cardozo, formerly Vanderbilt’s tools, were now Gould’s chattels and did whatever he ordered.

Very soon an edifying situation turned up.  So fiercely determined was each side to kick out the other that the railroad was thrown into a state of absolute disorganization and could not be operated.  After spending a million dollars of public money on its construction, the people were forced to look on while the two parties, neither of whom had invested a dollar in its building, claimed to be its owners, and estopped the other with judicial orders and injunctions.

Which of the two would come out ahead ?  The outcome was doubtful.  But it did not continue so very long.  Gould and Fisk were cleverly entrapped into making an agreement which led to their utter eventual defeat.  The agreement was to this purport :  That inasmuch as the conflicting parties could not agree, they had arrived at a mutual understanding by which they would write to Governor Hoffman setting forth that it had become impracticable to run the railroad, and therefore requesting the appointment of a State official to operate it pending a new election of directors.  This communication was sent to Governor Hoffman on August 11, 1869, and its provisions were accepted.


In less than a month after this, separate elections were held ;  each side again claimed that its directors were elected.  More suits followed.  Gould and Fisk charged that Ramsey, president of the road, had illegally issued three thousand shares of stock to the Morgan party, and demanded that this issue be declared invalid.  Morgan, Samuel Sloan and others of the opposition retaliated with charges that Gould and Fisk had used force and fraud.  The State of New York now stepped in, and through the Attorney General, brought an action against both parties.  The State charged that both stockholders’ elections were illegal, irregular and void ;  that spurious votes had been counted in, and that otherwise they were full of fraud.3  The State asked for an injunction restraining both boards from taking possession.

The case came up again in November, 1869, before Judge Darwin Smith in the Supreme Court at Rochester, N.Y. Gould and Fisk found themselves at a great disadvantage.  In New York City, with their bought judges on hand, they could arrange for decisions in advance, but in Rochester they were in a territory where the power of competitive magnates was strongly entrenched.  Judge Smith’s decision was wholly favorable to the group of capitalists led by J. Pierpont Morgan, and the Albany and Susquehanna Railroad passed into their control.4

This seems to have been J. Pierpont Morgan’s first entry into the railroad business in which later he was to become so powerful a factor.  Thenceforth, for nearly thirty years, until the period of organizing industrial trusts began, his chief undertakings were his banking business and what was called “ the reorganization of railroads.”

The two things worked well together.  By means of financial laws, corruptly passed, the bankers, both international and national, compelled the people of the United States, through their Government, to present them with the funds with which to buy up railroads and other forms of property.5  We have already described the financial system prevailing in the United States during and immediately following the Civil War ;  how the people were taxed from $18,000,000 to $20,000,000 a year to pay interest annually to the bankers and other bondholders.  We have also showed how the bankers had laws passed by which they could deposit their Government bonds in the United States Treasury and receive back the full amount in currency, less ten per cent.

Thus the banks received a double interest ;  often as much as six per cent. in gold in annual interest from the Government, and a far greater amount in interest for the public use of the currency which they were gratuitously allowed to issue on the strength of the deposited bonds.6  At the same time, they were relieved from paying taxes on Government bonds.  Their profits, obviously, were enormous, averaging twenty, fifty, and often one hundred per cent. in the course of a year.  The laws also were so devised as to insure them a virtual monopoly of the currency supply — an incalculable power in manipulating industry and the markets, and in controlling speculation in stocks.

In its resolutions passed at Military Hall, New York City, on October 19, 1829, the Workingmen’s Party had denounced the bankers as “ the greatest knaves, impostors and paupers of the age.”  A violent tirade this seemed on its face, but, in point of fact, there was hardly a banker in the country who was not constantly and criminally violating the law by committing some species of fraud or other.  Year after year the courts were full of lawsuits in which this or that banker was charged with fraudulent transactions.  There is little scientific use in describing Morgan’s career without adverting to an illuminative mention of what other conspicuous bankers were doing, both before, and during his time.  Ever and ever anew it will be seen that Morgan was doing nothing more than emulating the traditional practices of his class.


Perhaps the foremost banker in the United States in the first four decades of the nineteenth century was Nicholas Biddle, that proud aristocrat and founder of a family of aristocrats.  He was long president of the once all-powerful Bank of the United States, and was held up to the whole country as an illustrious example of the position to which any able and well-regulated youth could attain.

Yet he was accused of being a thief, an embezzler, a malefactor in law.  After his retirement from the presidency of the Bank of the United States, that institution brought a civil action against him and the cashier, John Andrews, for the restitution of $400,000 which they were charged with stealing from the bank in 1836.  This theft, it was further specifically charged, was concealed by fraudulent entries, burning of vouchers and by other methods.  By the time the suit came up in court in 1844, Biddle had died, but the action was pressed against Andrews.  His answer was a general denial, but judge Parsons decided that he was convinced that the claim for recovery was one which could be enforced, and he overruled Andrews’ demurrer.7  And to give merely one instance of many instances of the methods of powerful bankers during Morgan’s early career, let us consider the case of Bischoffsheim and Goldschmidt.  They it was who loaned Jay Gould the money to pay fraudulent interest on fraudulent bonds in his Erie Railroad thefts ;  they supplied the money to pay fictitious dividends, and when they saw more profit in betraying him, they quickly changed front and poured out the $750,000 with which Gould’s directors of the Erie Railroad were bribed to resign.8  By such methods they heaped up great fortunes ;  when Goldschmidt died a quarter of a century ago he left an estate of $30,000,000.


But the extraordinary financial laws passed during the Civil War were only the forerunners of other laws which the bankers and the creditor class in general caused to be passed in following years, and by which they instantly and vastly increased their wealth and power, and were enabled far more effectually than ever before to put the screws upon the producing class.

The most noted of these laws was that passed by Congress on February 12, 1873, practically accomplishing the demonitization of silver as a coin.  This was the same Congress which, as we have seen in one of the chapters on the Sage fortune, was bribed with a million dollars to pass an act granting an additional subsidy of $5,000,000 to the Pacific Mail Steamship Company.  The demonitization act went through by evasion ;  not a word was directly mentioned in it of the demonitization of silver ;  few knew of its purport ;  even the advocates of bimetallism voted for it.  It was one of the most adroit bills ever put through Congress, and it was only after it had become a law that its concealed provisions began to be understood.

Then a terrific cry of rage went up from the middle class from one end of the country to the other ;  the excitement was intense.  In this excitement and indignation the working class was persuaded into joining, although at basis, the workers were not affected by this law ;  their exploitation and despoilment had gone on under bimetallism, and would continue without cessation under monometallism.

It was the middle class which was struck at hard ;  the supply of money was at once contracted, the purchasing power of gold was enhanced, and the power of the large creditor capitalists and banking institutions over the small property owning class was greatly augmented.  This law was passed at about the same time that the first trust, the Standard Oil Company, was rising to give the death blow to the doctrine of free competition in trade, and to crush out the middleman in business.  The day was a sorry one for the long-dominant middle class.

The middle class representatives in Congress and elsewhere now began an agitation which lasted many years.9  They charged that the demonitization of silver had been brought about by the conspiracy of John Sherman and a few other prominent men in Congress, with the financiers of Wall street and Europe.  In fact, the successive volumes of the “ Congressional Record ” of those years are full of speeches in which this charge is brought out over and over again.  But the law stood ;  and what was more galling to the middle class, John Sherman, denounced so bitterly as a traitor, and as a mercenary of the bankers, was appointed, a few years later, to be Secretary of the United States Treasury.  From that time on, the bankers, national and international, came out more and more in the open in direct dictatorship of the financial laws and policy of the United States.  Circumlocution became less necessary.

The great Government bond issue of 1877, by which the bankers made colossal profits, followed Sherman’s appointment.  Before, however, referring to this memorable sell-out, it will be well to give a passing glimpse of Morgan’s varied activities and the nature of them.  Morgan’s first partnership was as a member of the firm of Dabney, Morgan and Company, which firm, it will be recalled, was one of the banking houses participating in that noted Kansas Pacific Railway loan of 1869.  This loan was asked for from investors largely on the strength of a three-million-acre land grant in Kansas and Colorado, which had been corruptly secured by the Kansas Pacific Railway Company from Congress, and which was the beginning of not one series, but many series, of fraud and plunder.10  Morgan could claim, and with justice so far as current standards went, that the floating of this loan was a “ legitimate banking transaction ”;  but the fact that no banker declined to profit from the financing of enterprises which he knew began and continued in corruption and swindling, gives a very clear idea of the quality of the assumed morals and ethics of the capitalist class.


Morgan’s next partnership was as a member of the firm of Drexel, Morgan and Company.  He began to be conspicuous in very large transactions.  One of these was the floating of the $260,000,000 U.S. Government bond issue of 1877.  Avoiding plunging into detail, which would be intricate at best, suffice it to say that this bond issue was generally regarded, and not without full reason, as one of the very worst cases that had ever been known of the people being betrayed over to a few bankers.  The selling of the bonds was apportioned among these banking houses :  August Belmont, the Rothschilds, J. and W. Seligman Brothers, and Drexel, Morgan and Company, the last named acting for themselves and for the firm of J.S. Morgan and Company in London.  This syndicate at once sold the bonds at an advance of from one to four per cent. above the price which they had paid to the Government.  The profits of the syndicate reached into the tens of millions of dollars.  Drexel, Morgan and Company alone were credited with “making” a clear profit of $5,000,000.  Their function consisted in nothing more or less than acting as licensed speculative middlemen for a Government which could have disposed of the bonds without intermediaries.  Moreover, the participating bankers were able to get the bonds for themselves at “ bargain prices,” and then through associated national banks, carry on the familiar practice of exacting double interest — one interest from the Government, and another for the use of  currency issued on the basis of those same bonds.11

These transactions comprised obviously but a few of Morgan’s varied activities in the decades following the Civil War ;  it can be well understood that he was, at the same time, engaged in a mass of purely private business dealings, of which no details ever became public.  Even of his public transactions the facts as set forth in the public records are more indications, than actual and complete accounts, of the underlying circumstances.  The financiers and business men had every motive for enshrouding their affairs in the greatest secrecy, particularly when those affairs in any way related to the diverting of Government functions for their ends, or had to do with the suspicious passage of partial laws or the violation of laws.  The motto of the whole commercial class was to keep the public in the dark as much as possible ;  and even when the usual legislative investigating committees, fortified by summary powers of law, mildly sought to ascertain the surface facts only, without probing too deep, they were, as a rule, obstructed at every turn.

Such facts as did become public came out adventitiously despite every effort of the magnates concerned to hush them up.  Sometimes embittered competitors would supply revelations to investigating committees ;  on other occasions the magnates would seek to cheat one another in the division of the spoils or overreach at the other’s expense, and then the quarrel would be thrown into the courts and some salient facts, at least, revealed.  The point cannot be too strongly emphasized that for every one charge of crookedness and corruption that investigating committees and public officials made against capitalists, a hundred such charges were specifically brought by capitalists themselves against their own kind ;  a fact overabundantly attested in the voluminous court records from the very beginning of the United States Government down to the present.


Had it not been for a row between various magnates in a transaction in which William H. Vanderbilt, J. Pierpont Morgan and other capitalists were engaged, and the consequent wrangling in the courts, certain facts pertaining to another of Morgan’s feats could not be now ascertained.  In one of the chapters on the Vanderbilt fortune 12 it has been brought out how, in 1879, Morgan formed a syndicate to buy two hundred and fifty thousand shares of New York Central stock from William H. Vanderbilt, and how further, this stock, bought at 120, was, after a magical process of manipulation in the New York and London stock markets, sold at 130, thereby yielding the syndicate an immense profit.  “ This,” wrote a biographer, “gained for Mr. Morgan the confidence of Mr. Vanderbilt, who intrusted him in 1885 with the task of adjusting the difficulties between the Central and West Shore roads.”

Morgan, however, did not need to solicit anybody’s “ confidence ”; he was a truculent, aggressive financier, with a dominating, even fierce, personality, and with great power in his own field, that of banking.  His mind was of that resolute, masterful order declining to be balked by any man or set of circumstances, and his methods were not distinguished by delicacy.  “ His method of treatment is drastic,” wrote this same biographer of his railroad organizations, “ and the holders of junior securities have made many a wry face, but the method has seemed to be efficacious.  From $1,000,000 to $3,000,000 is generally put down as the commission for reorganization going to the house of J.P. Morgan and Company,13 for knowing how to do it and doing it.”  Between these lines can be legibly read the nature of Morgan’s “ efficacious ” methods ;  they will be still more illuminated, by force of his own words and acts, further on in this narrative.

Contrary to the description so widely and continuously disseminated, many capitalists are not men of personal courage, in the sense of standing up, man to man, and verbally “ having it out,” as the vulgar phrase goes.  The cunning, cupidity, turpitude and treachery so impregnated in business, and, in fact, the foundation of successful business, breed both a physical and moral cowardice.  Well able, as they are, to fight their combats through lawyers, most capitalists, by reason of a certain degeneracy, lack the faculty of exercising a strong, direct, personal, virile influence over men, such as a fighting pirate captain of the old days held over his band.  Morgan has been one of the few exceptions.  United with his wealth there has been in him a powerful bellicose personality, a tremendous vitality both of mind and physique ;  a man who could impose his will by sheer brute strength as well as by reasoning ;  who could convince by argument, and if necessary, bulldoze and terrorize.

Such a combination allied with wealth and education (for he was college bred) and a complete knowledge of all the tricks of the trade, was bound to prove invincible, or almost so.  His very appearance, arising from an unfortunate facial disfigurement, added to his forceful appearance, and to the terror which he inspired.  Not inappropriately did he name his yacht The Corsair ;  he was a modern embodiment, in a present-day guise, of some antique corsair, the qualities simply being transposed for adaption to new conditions.


Pennsylvania Railroad Co. logo Instead of having to squirm himself into Vanderbilt’s confidence, he compelled that haughty magnate to come to terms.  This fact Morgan himself testified to in the suit arising from Vanderbilt’s South Pennsylvania railroad project — a transaction which has been described heretofore.  This litigation, it will be recalled, sprang from Vanderbilt’s building a parallel line to compete with the Pennsylvania Railroad.  Morgan, it was true, had acted as Vanderbilt’s financial agent, but he also had heavy interests in the Pennsylvania Railroad, and his banking house represented large foreign holding interests in that line.  Above all, he was on the sharp lookout for the interests of J. Pierpont Morgan.

Pennsylvania RR Co. share 1846

How did he force Vanderbilt to sell his South Pennsylvania line to the Pennsylvania Railroad ?  In an examination, on December 13, 1885, before Examiner John H. Weiss in the Federal Court at Philadelphia, he related that when he returned from Europe in June, 1885, he “ became satisfied that something should be done to bring more harmony among the trunk lines,” and he added that he believed that “ sufficient pressure could be brought on Mr. Vanderbilt to induce him to sell out.”  Of the specific nature of this “ pressure,” no explanation was given, but those familiar with the immense coercive power of the Pennsylvania Railroad, and the power of Morgan’s bank, and that of his correlated banks, were not in doubt as to its significance.  The treaty of peace between the warring magnates was finally made aboard Morgan’s yacht.  What was Morgan’s part ?  To use his own language, he “bought from the South Pennsylvania and sold to the Pennsylvania.”  What his rewards as arbiter were was a fact not made public ;  we can conjecture that his bill was no slight one.  This treaty, like all such agreements, was made only to be broken ;  the Reading Railroad which, under the pact, was to be indemnified for certain property, claimed that it was cheated ;  hence the suit.

Up to this time, that is to say, 1886, Morgan had figured little as a railroad magnate ;  his conspicuousness was more that of a powerful banker who made a specialty of reorganizing railroads.  Let it not be supposed that the term “ reorganizing” comprehended the undertaking of expensive improvements in the physical layout and operation of railroads ;  the introduction of safer appliances and equipment, and the minimizing of danger to passengers and to railroad workmen.

PRR serving logo Reorganization included none of these things ;  there was not a railroad corporation in the country which did not violently contest the passage of laws requiring safety apparatus, and which did not violate such laws as were finally passed ;  progressively, the yearly death rate of passengers and railroad employes increased.14  The profits, in the form of dividends, came not only from a series of extortions, but from the slaughter of a greater number of men, women and children than were killed in the worst wars that the civilized (or rather, uncivilized,) world has known.  The “ reorganizations,” so called, were not intended to change these conditions ;  their sole purpose was to put the railroads in a position where profits would be assured, no matter at what public expense or at what cost of life.  After a railroad had been grabbed and thrown into bankruptcy by successive crews of capitalists, a reorganizer, such as Morgan, would step in, compel the creditors to settle at his own terms, force the small stockholders to consent to some new arrangement of stock, and issue new securities to be sold in Europe or America.  In brief, a “ reorganization ” consisted in scaling down the debts, or summarily expunging them, and in devising new plans by which the profits would be greater.


For doing this, Morgan was hailed as a man of wonderful constructive acumen — a financier of first-rate order.  Frequently, however, as we shall see, the small stockholders did not share this opinion ;  and occasionally they forgot their expected gratitude so far as to charge him in court with fraud.15  This was Morgan’s great role for many years ;  as a reorganizer, not as a proprietary railroad magnate.  The great railroad potentates of the period up to 1889 were the Vanderbilts, Goulds, Sage, Blair and Huntington.  They were the men recognized in Congress as the lords of the railroad systems, which fact is patent from a scrutiny of the “ Congressional Record,” in which, with great abundance, recur wordy denunciations of them for gross corruption and for consecutive violation of laws.  Morgan’s name was not mentioned in these accusations.

But it was not long before Morgan came to the front as one of the foremost railroad magnates in the United States.  His aggressiveness of character and action, his truculent boldness in smashing down obstacles, his contempt for artificial restraints of law, his disregard of public opinion, and his knowledge of how to apply power where it would produce the best results — all of these qualities and capacities were the very ones needed at that precise time.


A troublous time the railroad and industrial magnates were having.  It was the period when the middle class, in its fury at being on the verge of overthrow, was most active in having all sorts of anti-trust legislation passed.  This class was obdurately determined to keep things as they were.  On the other hand, the great magnates, in line with the momentum of modern economic forces, were being forced into effacing the middleman in every direction, and in centralizing ownership.  The middle class had the number and traditions ;  the magnates had the money and the power ;  as for the working class, despite its strikes, it was merely, in the long run, a pawn in the combat.  The Standard Oil Company had built up its power largely by reason of the secret railroad rebates and discriminations.  If a drastic law could be passed against the railroads, the middle class argued, the rising trusts would receive a fatal quietus — a futile kind of reasoning, but one sincerely believed in at the time and for a long time afterward.  The great aim of the middle class, therefore, was to get through Congress a strict interstate commerce law, such as would, under heavy penalties, forbid rebate giving and railroad pooling.

The Congressional sessions of 1884, 1885 and 1886 were, to a great extent, occupied with long debates over this proposed law.  The middle class was quite sure that it was the victor.  Senator followed Senator, Representative followed Representative, in arraigning the railroad magnates.  If speeches signified anything these magnates were already on the highroad to defeat and to prison.  Senator Van Wyck, of Nebraska, thundered for days at a stretch.  “For years,” said he, “capital has been organized, bold, unscrupulous, rapacious, lawdefying, moving as did Gould, according to his sworn testimony, in New York, and Huntington, by the evidence of his own written testimony, upon State legislatures, upon the courts, upon the Congress of the United States, unblushingly purchasing judges and legislatures. ... In a republic they despise the people and control its representatives.”16  “ The time has come,” put in Senator Conger, “ when generalities, glittering and other wise, will not satisfy the demands of the people.  They demand a positive, incisive, direct and plain law.”17  Senator Call, of Florida, had his say, and it was a long one, none of which is worth quoting except his assertion that the railroads had issued $3,000,000,000 of bogus bonds, and that they were, assessing the people of the United States to pay an actual taxation of $300,000,000 yearly.18  More than one Senator and Representative dwelt indignantly upon that $300,000,000 of annual enforced taxation extorted by the railroads.  And so the debate went wearily on, tiring out everyone but the talkers themselves, whose stock-in-trade was talk.  Would the flow of words never end ?


At last an interstate commerce law was passed.  Great was the rejoicing among the middle class.  Its components exulted in their victory, and in visions foresaw their dominance soon restored and the trusts ruined and extinguished.

But after a comparatively brief interval their jubilation became blank dismay.  This law, this great, long-agitated for law, which was to intrench them so effectively, turned out to be an utter sham.  On its surface its provisions read fair and smooth ;  but when it went to the courts the perforating began, as its authors intended, and for which contingency they had expressed and equivocally drafted it.  One clause after another was, on this or that ground, declared inoperative by the courts ;  the Interstate Commerce Commission, which the law established, had not even the power, it was decided, to compel the attendance of witnesses, and the courts refused to grant writs of subpoena in aid of its proceedings.  Furthermore, railroad officials (who were the only persons whose testimony could secure a conviction) were excused from testifying on the ground that by so doing they might incriminate themselves.  In a word, the Interstate Commerce Commission, on the establishment of which as a peremptory tribunal the middle class had built such high hopes, was found to be nothing more than an inane body which was allowed to devote itself to the harmless pastime of collecting statistics, but was empowered to do nothing more serious.

Again the bewildered middle class found itself woefully routed.  While it had been holding meetings and talking and petitioning, the magnates had sent a stream of “silent arguments” coursing through the exalted wall of Congress.  And, in fact, some of the very members of Congress who were so vigorously inveighing against the “high-handed” corruption of the railroad magnates, and demanding punitive laws, were, at this very time, themselves implicated in a great scandal.


This was what was called the “ Pan-Electric Scandal”;  and if any reader desires to acquaint himself with the vast ramifications of corruption in Congress, in the courts and in the legislatures at the time let him (if he dare) read the 1,284 pages of testimony taken by a Congressional Investigating Committee.19  The Pan-Electric Company was a competitor of the Bell Telephone Company :  at least, it energetically attempted to be.  The Bell Company had already established the validity of its patents in the courts, although not without having to face and fight down charge after charge on the part of other inventors that it had appropriated the fruits of their inventions.  The testimony before this particular Congressional Committee was full of charges, sometimes mere insinuations, at other times open accusations, that in order to attain its victory, and to secure favorable decisions, laws and franchises, the Bell Telephone Company had bribed Congress, the various legislatures and judges either by money or by gifts of stock.

Against the Bell Company the Pan-Electric Company seemed powerless ;  but as a last resort, its promoters began a campaign of corruption to get the United States Government to move in the courts for the vacating of the Bell patents.  Large blocks of stock were distributed among various influential Senators and Representatives, some of whom offered no objections to being made directors of the Pan-Electric Company.  United States Attorney-General Garland upon whose say-so depended whether the suit for vacating the Bell patents should be brought or not, held, it was charged, not less than $10,000,000 of stock in the Pan-Electric Company, for which stock he had not paid a dollar.  When the Pan-Electric promoters were interrogated as to these methods they cynically pointed out that the Bell Telephone Company had begun its career by using precisely the same methods.  In this fight, the Bell Telephone Company succeeded in completely vanquishing its threatening competitor, the Pan-Electric Company, which soon passed into nothingness.20

Such was the majority composition of a Congress from whom the middle class expected such great and public-spirited reforms ;  this was the Congress which was to pass laws that would forever check “ the greedy, insatiable inroads of the monopolies !”  “ Monopoly ” was the particular bugbear of those years ;  the generic thing that politicians could always conveniently convert into personal political capital in their constituencies by flagellating it with roars of denunciation, which was an exceedingly popular pose.  The word “ trust,” be it noted, as signifying a complete monopoly, had not then come into popular usage.  Those virtuous outbursts in Congress against the monopolies, served the purpose well, but one overshadowing fact neither the middle class nor the working class seemed to note, namely, that whatever might be said in Congress, nearly every bill apparently drawn to curtail the power of monopolies and wealth was so ingeniously drafted that its so-called vital provisions failed to stand the test of the courts.  Yet the lawyers in Congress who drew these bills were ranked as the foremost “ Constitutional experts ” in the land — a situation not at all contradictory to those who understood the double-faced nature of the performances at Washington.

Many States were passing drastic anti-trust laws.  These laws did not essentially arrest the growth of trusts, but they did have the effect of spreading a certain timidity among magnates or would-be magnates.  The power of wealth, it was true, controlled the machinery of Government, and criminal proceedings were little to be feared.  Still, with the public temper in the inflamed state in which it was, there was never any telling what might break forth.

The great railroad magnates, in particular, were tired of a competition resulting in the cutting of rates, increased expenses, and diminished profits.  They were eager to form a combination effective enough to prevent competition in the respect of undermining one another’s freight and passenger rates.  With such an agreement in force, profits would be immensely increased, and upon the strength of those increased profits, more watered stock could be issued.


But who was audacious enough to undertake the initiative in forming this combination ?  In a way, it was a perilous thing to do.  If unbought or unintimidated public officials should take a notion to prosecute criminally, its promoters and beneficiaries were liable, upon conviction, to a long sojourn in prison.  Vanderbilt, Gould and Huntington and other magnates, while caring nothing for law, did not choose to take the lead ;  moreover, as they were jealous and distrustful of one another, it would not have been judicious for anyone of them to have done so.

The ideal leader in this exigency was J. Pierpont Morgan ;  and how he stepped forward and molded the nebulous plan into a definite, concrete combination, will now be related.


1 A. Maurice Low in “The Independent,” issue of October 30, 1902.

2 See Railroad investigation of the State of New York, 1879.  Poor’s Railroad Manual of the United States for 1869-70 reported :  “The construction of this road has been largely aided by money appropriated by the State, the sums ($1,000,000 in all) representing which do not appear in the capital accounts.”—p. 69.

3 Lansing’s Reports, New York Supreme Court, 1:308, etc.  The statement of the case in the decision frequently refers to “ the party headed by J. Pierpont Morgan.”

4 See, The People of the State of New York vs. The Albany and Susquehanna Railroad Company, Lansing’s Reports, N.Y. Supreme Court, I:308-345.

5 Under the surface, the Rothschilds have long had a powerful influence in dictating American financial laws.  The law records show that they were powers in the old Bank of the United States.  August Belmont and Company were their American representatives.  In 1873 it was estimated that $375,000,000 of American railroad securities were held abroad, chiefly by foreign bankers.  The Final Report of the Industrial Commission in 1902 estimated (see page 404 of that report) the amount of these securities held by foreign banking houses and others abroad at about $3,100,000,000.

6 The fact has been brought out in a previous chapter how the Government from 1863 to 1878 had paid out to national banks the great sum of $252,837,556.77 as interest on bonds.—House Executive Document, No. 34, 1879.

7 Parson’s Select Equity Cases of the First Judicial District of Pennsylvania, 1844, ii: 31-63.  Also, Pennsylvania House Journal, 1842, Vol ii, Appendix: 182.  Biddle’s theft has been incidentally referred to in a previous chapter, but it stands a more extended notice here.

8 Railroad Investigation of the State of New York, 1879, ii:1496.  See also New York State Assembly Documents, 1873, Vol. vi, Doc. No. 98.

9 The millionaire silver mine owners of the West, although not to be classed with the middle class, were the leaders in this agitation.  Self-interest actuated them.

10 See Chapter iii, Vol. iii.

11 The scandalous circumstances of this bond issue made a lively stir throughout the country and aroused warm debates in Congress.  On January 24, 1879, the United States Senate passed a resolution calling upon Sherman, Secretary of the Treasury, for information as to the alleged payments of double interest in regard to moneys received by banks and syndicates for bonds being allowed to remain on deposit with national banks pending the call for the bonds.— See Senate Executive Document, No. 9, 1879.

12 Chap. vii, Vol. ii.

13 The firm of Drexel, Morgan and Company was succeeded by that of J.P. Morgan and Company.

14 The number of railroad employes killed or injured increased from 22,000 out of a total of 704,743 in service in 1889, to 92,178 of a total of 1,672,074 employed in 1907—an increase from 3.12 per cent. in 1889 to 5.51 per cent. in 1907.  From 1888 to 1907 not less than 53,046 employés were killed while at work, and more than 800,000 employes were either maimed or crippled.  These figures have been compiled from the annual reports of the Interstate Commerce Commission.

15 For example :  In the case of the Toledo Railway and Terminal Company, the Ohio Savings Bank and Trust Company filed a petition in the Federal Court at Toledo, Ohio, on August 5, 1907, asserting that fraud had been used in connection with the sale of that road, and charging collusion between Morgan and other railroad magnates.  By this collusion, it was alleged, an agreement had been reached by which the property was sold at a low figure through the smothering of competitive bidding, and that this had been done to defraud unsecured creditors.  The petition was overruled.

16 “ Interstate Commerce Debates in Forty-second Congress,” 1886-87: 62.

17 Ibid., 127.

18 Ibid, 148.

19 See House Miscellaneous Documents, Forty-ninth Congress, 1885-86, Vol. xix.—“ Testimony taken by the Committee Relating to the Pan-Electric Telephone Company.”

20 The present Telephone trust originated in the Bell Telephone Company.  J. Pierpont Morgan is a large stockholder.