With the advent of the year 1898 an epochal movement for the consolidation and centralized ownership of transportation systems, industries, public utility plants and mines set in.  The trust era was now in irresistible swing.  After a warfare of nearly thirty years in the courts and in the active political and industrial arena, the middle class found itself completely frustrated.

Eight years previously, in 1890, what was exuberantly heralded as a notable triumph had been secured in New York State.  The courts there had declared the Sugar Trust illegal under the common law provision that no corporation, through its stockholders or otherwise, had power to give over its rights, powers and duties to a board of directors.1

The middle class jubilantly declared that no trust could survive so fundamental and sweeping a decision.  But a new surprise was in store for that class.  Instead of showing any trepidation or preparing for their dissolution, such trusts as were then in existence received the decision with most irritating equanimity, and serenely proceeded to perpetuate their corporate selves by donning a new legal garb.  They not only continued to wax great and powerful, but the Sugar Trust, in particular, with the Havemeyers at its head, carried on continuously a colossal system of frauds upon the Government in the fraudulent weighing of imported sugar.  These frauds extended over a long series of years, and it was estimated, when the facts became public in 1909, that the amount of which the Government had been thus defrauded reached fully tens of millions of dollars.2  In addition to these monumental swindles, the Sugar Trust continued so absolutely secure in its monopoly that it was easily able to crush all competitors, dictate tariff schedules, and extort, in the course of trade, an annual profit placed by some authorities at $55,000,000 a year, or a total of $660,000,000 in profits in the period from its organization to 1909.

Speaking in a large political sense, a last stand was made by the middle class in the Presidential campaign of 1896.  That was its great, although not really final, attempt to defeat the plutocracy, and conquer the powers of government for its own policies.  Under the leadership of Bryan the Democratic Party declared itself radical and tremendously and sincerely earnest, but its so-called radicalism was in essence a reactionary futile effort to extinguish the trusts and reestablish the old confusing competitive conditions in the production and distribution of goods.  It was a bitterly-contested campaign in which immense sums of money were corruptly distributed by the money interests of the Republican Party to defeat Bryan and the middle class.


McKinley’s election as President of the United States, with a Congress the majority of which was of his views, was a distinct notification that the plutocracy was in full power — a power won in a pitched combat, and therefore interpreted as a popular approval of the rule by great magnates and trusts.

Henceforth, it was well understood, the trusts need fear no governmental antagonism, even of a sham order ;  for while mock legal actions at no time impaired the basic sway of the trusts, yet they caused constant annoyances and expense.

When McKinley took office magnates of every description knew that the trust movement had full license, confirmed by private bargain, to go on unhindered and unmolested, except, perhaps, with an occasional inroad for spectacular popular effect.  Consequently the business of organizing trusts flourished in the open ;  one trust after another was formed embracing about every known product.  The work was carried on with phenomenal celerity and success.  The middle class looked on impotently while factories, railroads, gas and electric plants, street railway lines, telephone systems and mines were converted from a state of individual or mere corporate ownership into the trust form, owned by great single corporations with stupendous amounts of capital, and with dictatorship over vast masses of workingmen.

In this revolutionary work, that of organizing trusts, J. Pierpont Morgan was one of the foremost generalissimos.  Indispensable as it is in this work to describe the methods by which he requisitioned his wealth, it is no less necessary to point out the services that he and his kind were doing for progress.  In the exclusive consideration of progressive movements, it is immaterial what the motive was ;  the thing done is all that counts historically.  None can deny that these revolutionary capitalists were actuated wholly by ambitiously personal ends :  greed, pelf and the lust of power.  But after all they were revolutionists without knowing it, and precisely the sort of capitalist revolutionists needed at that particular time.

Strong, ruthless men, bold in cunning and cunning in their boldness, were required for the work of crushing out the old cut-throat, haphazard, individualistic competitive system.  That sluggish, money-grabbing, petty-minded body, the middle class, preoccupied with the comfort of its belly and with its narrow conventions, had set its self-interest against the demands of progress.  It declined to budge ;  it hedged itself behind walls of special laws ;  it sought to make matters travel backward.  Under these conditions Morgan and his colleagues were the men for the task ;  forceful, dominating, arbitrary men, not scrupling at any means to attain their ends, contemptuous enough of law when it stood in their way, and powerful enough to defy it.  Very expert destructionists were they.  But they were also constructionists.  They tore down to build up.  A decayed, archaic industrial system they replaced with one of a far more systematic order, the forerunner of finer systems to come.  Progress often works through queer instruments.

In the years closely following 1898 Morgan was especially prominent in many of these trust creations.  An ubiquitous magnate he was, pushing his industrial conquests and overlordship in many variegated directions.  Each accumulating success added millions of dollars to his fortune.  With a choice list to select from, what brilliant display of his financial acumen shall we take up first ?  Consecutively, the most pertinent is that noted Pennsylvania Coal Company transaction of his.


The plan which he had begun some years before of gathering in coal mining properties and coal carrying railroads, and of merging them into a combination, he persistently continued.  The most important of all of the remaining independent companies in the Pennsylvania anthracite region was the Pennsylvania Coal Company.  It controlled some of the most valuable mines in the center of the richest deposits.  While paying wretched wages to its workers, it had for years been reaping sixteen per cent. dividends on a capital of $5,000,000.  Stowed away in its treasury it had, in the form of a surplus, a fund of $10,000,000.

Here was a noble opportunity.  Could any alert financier withstand the temptation ?  As soon as Morgan acquainted himself with the attractive facts, a plan of campaign speedily developed.  He sent agents to scour the northeastern region of Pennsylvania, with orders to pay any price demanded for shares of the Pennsylvania Coal Company.  Unobtrusively these discreet emissaries went about their mission.  For months they traversed Pennsylvania, finally getting enough stock to insure Morgan’s control, for which stock an average price of $532 a share was paid.

What did Morgan next do ?  He sold the property to the Erie Railroad Company for $32,000,000.  This payment was in the form of four per cent. collateral trust bonds secured by mortgages on the Pennsylvania Coal Company’s property and by the New York, Susquehanna and Western Railroad, a line acquired a short time previously by the Erie.  Nor was this all ;  an issue of $5,000,000 of preferred stock was thrown in.  But who controlled the Erie Railroad ?  The eminent J. Pierpont Morgan.  As an individual he bought the coal property, and then, as dictator of the Erie Railroad, decided what he should be paid for it.

“ Criticism,” observed the Industrial Commission, with the dainty restraint characteristic of all such euphemistic official reports, “ has been directed against this operation on the ground that the price paid by the Erie Railroad to J.P. Morgan and Company was excessive.  Testimony before the Industrial Commission indicates this was in fact the highest price paid for such properties in the history of the business.”3  What this Commission feebly and so gently dismissed as “ criticism ” was, in reality, a general growl of indignation at Morgan’s ease and audacity in calmly transferring to himself millions of dollars in so-called “ profits.”  It was of this kind of transaction and similar varieties that the Industrial Commission elsewhere relieved itself of this declaration :  “ The possibilities of fraudulent profit are something enormous under such conditions.”4  For once, in making this clear statement, the Industrial Commission almost overcame its habitual timidity of phraseology, and called things by their true names.  Yet what availed it to say that fraud was fraud when the beneficiaries were not even questioned by law ?  The amount pocketed by Morgan in this performance cannot be learned.  “ To what extent the bankers’ profit rose,” the Industrial Commission satisfied itself with reporting, “ was not developed in the testimony before the Commission.”5  We may well judge that the profit could be estimated in millions.


While in control of the Erie Railroad, so rich with memories of Jay Gould’s frauds and thefts, Morgan unexpectedly, and to his deep mortification, ran plump into his first great defeat.  It came about in his attempt to put through a railroad juggling operation.  Had it been successful he would have been able to appropriate the bulk of at least $10,000,000 in “profits.”  The plan was the typically fraudulent one common among the magnates of buying in a railroad and then unloading it (to use the financial slang of the day) upon a trunk railroad system controlled by both buyer and seller.

Morgan had secured a controlling interest in the Cincinnati, Hamilton and Dayton Railroad.  This line was composed of a number of former separate railroads and of various leased railroads.  On September 20, 1905, the Erie Railroad bought this interest from a syndicate headed by J.P. Morgan and Company.  The Erie directors, all registers of Morgan’s orders, authorized the issuing of $12,000,000 of four per cent. bonds, convertible into Erie common stock at 60, to pay Morgan for the Cincinnati, Hamilton and Dayton Railroad.  Thus far the program had slipped on smoothly.

Suddenly came evidences of the most powerful opposition from quarters commanding obedience.  Notice was served that the Erie directors must revoke their action.  If they refused, costly reprisals would follow not only in litigation but by the application of a pressure that they could not resist.  From whom did this mighty edict come ? Who was the awe-inspiring magnate that could frighten Morgan into retreat ?

His identity never came out publicly, but the surmise was rooted in Wall street that he was none other than E.H. Harriman.  The belief prevailed that Harriman, representing the Standard Oil oligarchy, was seeking to get control of the Erie Railroad himself, and that it was to his interest at that particular juncture to thwart Morgan.  The sequel has borne out that conviction :  the Erie Railroad later passed under Harriman’s control.6  Whatever was the nature of the secret means used to compel Morgan to face about, and whoever it was that used them, they were entirely effective.  The Erie directors meekly rescinded their action, and the prospective $10,000,000 in “ profits ” vanished like a dream.


What became of Morgan’s Cincinnati, Hamilton and Dayton Railroad after he was forced to take it back ?7  This system, which he had been on the very point of selling to his Erie Railroad at a price so extravagant as to cause astonishment even among the veteran manipulators, was thrown into bankruptcy in about a month after the attempt had fallen through.

On December 4, 1905, Judson Harmon, one of ex-President Cleveland’s intimates, was appointed receiver of the railroad, including its auxiliary lines, the Pere Marquette Railroad and the Toledo Railway and Terminal Company.  Years of litigation followed.  One aspect of these legal fights was the charge in court that Morgan had used fraud in getting back, into an ownership more absolute than before, this Toledo Railway and Terminal when it was sold in bankruptcy.  The lesser stock and bondholders furiously protested against the species of reorganization that virtually deprived them of their holdings and struck their bits of wealth from them.  But although they harried Morgan by a series of lawsuits, he swept them inexorably out of his way.  And with what net result ?  Under his distinguished plan of reorganization, so styled, the new stock issued will be tight-handedly bound up for seven years in a voting trust of which Morgan will have dictatorial control to do as he minds with the Cincinnati, Hamilton and Dayton Railroad.  Moreover, absurd as it may seem, his commission for “ reorganizing ” the railroad in such a manner as to force out the small stockholders and concentrate ownership largely in himself, will probably be several million dollars.  He stands, therefore, partially, if not virtually, recouped for the evaporation of that $10,000,000 in 1905.

In colloquial parlance, this “ freezing out ” of small capitalist stockholders has been one of the most conspicuous and inevitable accomplishments of the triumphant progress of our magnates.  We have remarked how the Vanderbilts, Jay Gould, Sage, Huntington and other money kings did it.  At every turn of the screw these small parasites — nonentities when compared with the great grandees — would emit a dolorous wail, burst out into lamentations and accusations of fraud, and appeal for sympathy and succor.  So long as they could defraud others, and reap wealth out of the sufferings and degradations of the working class, all was properly blissful.  When they profited from fraud it was “ good business,” but when fraud was used against them it was denounced as criminally pernicious.

In disposing of them no magnate was more proficient than Morgan.  In 1903 the stock of the Chicago Northwestern Railroad was selling at the market price of 295/8, and a large number of persons of means — merchants, professional people, legatees and others — held shares of that stock as an investment.

The railroad was then put through the usual astringent process of “ reorganization.”  In all of these reorganization devices, reasons are found for levying a heavy assessment upon the stockholders.  These levies are for the ascribed purposes of paying the expenses of the “reorganization,” legal expenses, advertising, and millions in commission to the reorganizers.  The assessments are frequently so onerous that the minor stockholders cannot afford to pay them ;  consequently, by explicit provision, their stock becomes forfeited.  From 295/8 the stock went down to $1 (July, 1909);  and what with declines of price and assessments thousands of individuals have been forced to part with their stock.  Who got hold of that stock ?  The question is really superfluous.  The stock was put into a “ voting trust,” with autocratic power for five years, and in command over all stands Morgan.

This stamping out of crowds of relatively small stockholders went on so constantly that it finally became somewhat of a routine matter, so far as public interest was concerned.  Only on some exceptional occasion, when it was blended with what were considered dramatic circumstances, did it call forth uncommon notice.  But while each of the magnates was busily flinging out these hindrances and expropriating their property, he had to he on ceaseless guard against the incursion of some other magnate or of a combination of magnates.  Incessant vigilance was imperative.

The warfare was necessarily a complex one, with its paradoxical aspects.  The magnates fought the working class, and the working class fought back, sometimes aggressively, at other times on the defensive.  Toward the middle class, however, the magnates were forced to use a double objective set of tactics.  They had to crush the middle class and take its property away, either by direct spoliation on the one hand, or on the other, by inveigling its elements into investing their funds in great stockjobbing enterprises which subsequently turned out to be adroit swindles.  In surveying this war of the classes the most remarkable phase has been the ease with which the great moneyed interests have traded on the shortsighted cupidity of the middle class.  With the naive expectation that the magnates would fraternally and benevolently create riches for it, the middle class has poured its collective wealth into their schemes, only again and again to find that very wealth wrenched from it, and used to bring about its extinction as a class.

Surmounting these forms of the conflict in society was the titanic warfare among the magnates to hold back one another or to seize from the other spoils each had seized from the multitude below.  When the interests of these lords of finance and industry clashed, then the thunderbolts flew.

Such a battle notably occurred in 1901.  From whatever point of view it is considered, sociologically, philosophically or historically, it was an event full of curious instruction.  It symbolized a new order of things ;  between it and the times when feudal dukes and barons and kings rushed to arms to settle their quarrels of selfinterest, lay a long and broadening gap.  These modern battles also carry their wake of ruination and death, but it is so indirect as not to be outwardly observable.  The weapons are money, reinforced by cunning and fraud ;  very powerful weapons which none in these days have been able to withstand.  Under the old system the feudal lord lost caste if he did not fight in person ;  success might often mean his own death.  But no bodily risk is entailed to confronting money monarchs of these present happy days ;  they can make wealth fight for them in the stock markets ;  and if, perchance, it becomes necessary for them to determine their quarrels with capitalists of other countries by force, they can impress, through their governments, the working class, led by men trained by those governments in the art of slaughter, to do their fighting.  Happen what will, their hides are safe.


The daily routine budget of news in May, 1901, was suddenly enlivened by the reports that an array of great magnates had rushed headlong into a fractious contention.  There was unwonted commotion in high places.  Morgan, James J. Hill, the Rockefellers and Harriman, the Vanderbilts and other superlative eminences were entangled in warfare.  Here was rousing news, indeed.  What was the meaning of this furor among the exalted ?  How did it begin and where would it end ?

The cause was Hill’s attempt to undermine the interests of the other magnates concerned.  Obviously this was an act properly calling for retaliatory measures.  To his autocracy over the Great Northern Railroad, a line extending through the Northwest and Canada, Hill had recently added a leading interest in the Northern Pacific Railroad, which traversed parallel territory.  The inception and construction of the Northern Pacific Railroad were replete with the usual corruption and jobbing, and with thefts of vast areas of agricultural, timber and mineral lands.  This corruption will be hereafter dealt with.  Plundered by various financiers, the Northern Pacific had been forced into bankruptcy.  Hill had then obtained control.

His vista now widened.  Why should he not have a direct share of the immense traffic converging at Chicago ?  To get this, he set out to manipulate himself into control of the Chicago, Burlington and Quincy Railroad.  This move alarmed competitive magnates ;  they at once saw how the interests of their railroads in the Northwest and West would certainly be jeopardized.  How could they ward it off, or at least neutralize its results ?  The most feasible plan presenting itself was to attack him on his own ground.  With good strategy they began buying Northern Pacific stock.  This would give them a voice in one of his own railroads.  While Harriman, supported by the Standard Oil oligarchy, was doing this, Hill was straining himself to buy in more and more Northern Pacific stock, and Morgan was deep in the stockjobbing fray to safeguard his own extensive interests.


With the very richest and most powerful men in America scrambling for Northern Pacific stock, its market price shot up to an astonishig figure.  Five months previously it had been in a rut at 58 ;  it now rose sometimes as much as twenty-three points a day, reaching $300 a share, and for a part of one day, $1,000 a share.  A “ corner ” surpassing in magnitude any previously known in railroad stock resulted.  “ The sacrifices necessary to secure funds for covering contracts,” says the Industrial Commission, “ precipitated a panic of widespread proportions.”8  Thousands upon thousands of lesser stockholders of other railroad securities were caught in the whirligig and ruined ;  as fast as the quotations of Northern Pacific stock went on increasing, those of other railroad stocks precipitately declined.

The upshot of this warfare might have been expected.  The Standard Oil clique came out of it with augmented dominancy, and with added power in a region where previously it had not been so strong.  While the country resounded with the mournful outcries of a scattered host of petty stock speculators, clawed out of their insignificant fortunes, the contending magnates amicably decided to arrange a new understanding.  The disputed territory should be nicely partitioned among them, and affairs would be made tranquilly satisfactory.  A “ gentlemen’s agreement,” otherwise phrased “ a community of interest,” would cement their brotherly relations.  Such a covenant would choke out competition, and simplify and enlarge the pleasant work of squeezing more tribute from the people.

Who was to be chosen as arbiter ?  Whose was the just mind to be entrusted with the selection of the new directors of the Northern Pacific Railroad ?  Morgan was the man chosen for the adjustment.  No vague “ gentlemen’s agreement ” for him however, when something better could be substituted.  He conceived the idea of a huge holding company, an incorporated body to hold title to both the Great Northern and the Northern Pacific railroads.  The Northern Securities Company was thereupon organized with a capital of $400,000,000.

Upon the announcement of this, the people of the Northwest bestirred themselves in vehement protest.  Were they not oppressed enough already ?  So crushing a monopoly must not be permitted, they declared ;  it would hold them in absolute thralldom ;  suit must be brought to void it.  The United States Government did bring such a suit and pressed it.  The motive for the great energy and ability shown in its prosecution has never been made clear.  Was it to the secret interests of certain powerful magnates to break up the Northern Securities Company ?  The Supreme Court of the United States decided that it was an illegal corporation.  But — and these buts always supervene — although the company formally and decorously disolved, the principle upon which it was formed practically remained in force by virtue of another “ gentlemen’s agreement.”  The court mandate was one thing ;  its enforcement against the fundamentals, quite another.  But the form of dissolution had been gone through and the law thereby was considered satisfied.

Thus, this decision, hailed by the middle class as a critical defeat for the trusts, was after all nothing but empty phraseology.  Even while these opponents of the trusts were gleefully praising the Supreme Court of the United States as “ the bulwark of freedom of trade,” the trusts caused Congress to enact a law which knocked over the main prop upon which the middle class had been depending in its war upon the great centralized corporations.

For more than a decade trust organizers had been confronted with a national law decreeing fine or imprisonment or both upon conviction for engaging in any act in restraint of trade.  None had gone to prison, nor, controlling the entire functions of government, as they did, was there any prospect of the visitation of such a punishment.  But the imprisonment clause was a constant irritant ;  why have it on the statute books when it could easily be obliterated ?  And why not also have a specific declaration of immunity ?  A solitary provision calling for fine in case of conviction, the magnates did not mind at all.  It would give an appearance of deferring to public sentiment and, at the same time, could be well regarded jocularly by those at whom it was directed.  When trust magnates were gathering in immense sums from illicit acts, what did a fine of a few thousand dollars matter ?  It was too trivial to bother over.  Besides, even if the fine, by some extraordinary possibility were made heavy, it could be assessed, in turn, upon the consumer.


That annoying imprisonment clause, however, had to be thrown out of the laws, and it deviously was by an act passed by Congress in 1903. Concurrently, the same act reasserted and amplified the principle of granting immunity to trust officers.  No matter how much or how often they violated the anti-trust laws, they were now absolutely secure from any possibility of prison sentence.

The Government might examine them with the greatest pretended inquisitiveness, and in the process draw out the most self-incriminating admissions, but this evidence as testimony could not, by the act of 1903, be used against them in the trial of any criminal proceeding.  Not only was the individual exempted ;  the corporation itself was distinctly relieved from prosecution for any penalty or forfeiture.

The triumph of the trusts was now intrinsically complete.


1 The People of the State of New York vs. The North River Sugar Refining Company, 121 N.Y., 582.

2 After the Government had proved beyond dispute the commission of these great frauds, the American Sugar Refining Company, as heretofore noted, paid more than $2,000,000 to the Government in April, 1909, as restitution for its swindles.  But this $2,000,000 covered only a mere part of the long-continuing frauds.  None of the beneficiaries of these thefts were punished ;  the punishment of a few obscure customs weighers and some of the trust’s employés was the only action taken.  The directors of the Sugar Trust were also indicted in 1909, it is true.  The indictment, however, was not for the customs frauds, but for violating the Federal anti-trust act—a meaningless indictment, conviction upon which carries, in practice, a nominal fine only.

3 Final Report of the Industrial Commission, xix : 459-460.

4 Ibid., 326.

5 Final Report of the Industrial Commission: 460.

6 In a list made public by the Interstate Commerce Commission in January, 1909, of the large railroad stockholders, J.P. Morgan’s name did not openly appear as a stockholder of the Erie Railroad.  But Walter B. Horn, a clerk in his office, was credited with holding $14,502,600 of its stock, and the firm of J.S. Morgan and Co., of London, about $2,000,000 worth.  Harriman secured control of the Erie Railroad in 1909.

7 “ Moody’s Manual ” for 1908 (page 230) thus skims over this affair :  “ In September, 1905, the Erie Railroad Company acquired a controlling interest in the stock of this company [the C.,H. & D.R.R. Co] and the jurisdiction of the Erie officials was extended to the lines of this company ;  but in November of the same year Mr. J.P. Morgan relieved the Erie Railroad Company of all its obligations in the matter and the C., H. & D. officials resumed the operation of their lines.”

8 Final Report of Industrial Commission, xix: 317.