America’s Money Machine

THE SIGNIFICANCE of the Harriman-Fish rupture lies first in the shock it gave to the financial markets, and to public confidence in the integrity of the national financial leadership. More importantly however, it served as the fuel that heated to the boiling point the Rooseveltian antagonism to Big Business.

Roosevelt, like so many Americans born to wealth and position who, since the appearance of Das Kapital, have been guilt-ridden over their blessings, early became a reformer and pursuer of causes. His antecedents went back to the Dutch patroons of colonial New Amsterdam, and his family had been prominently identified with banking and finance in New York. In his youth Roosevelt entered politics, became a State assemblyman but, his health failing, he went West for recuperation and took up ranching for a while. His speech and manners ever afterward showed more the gravel of the frontier than the polish of civilization. Returning to politics, he became famous for his fighting speech and his advocacy of the “strenuous life” and political reform. The episode in American history that is called the Spanish-American War became a further opportunity for flamboyant leadership, when he organized a regiment known as the Rough Riders and led them in his dashing charge up San Juan Hill. He was now a national figure and won election as Governor of New York in 1898. His reform administration alarmed his opponents who maneuvered quietly to inter him politically in the vice-presidency; but McKinley’s death by an assassin’s bullet in 1901 put Theodore Roosevelt in the seat of power. He promptly began his efforts to reshape the Republican Party in his own image.

McKinley had been elected President to his first term on a platform upholding the gold standard, high protective tariff, and a vigorous foreign policy; his Party manager was the Cleveland industrialist Marcus Hanna. McKinley’s second election, in which Roosevelt was substituted for Garret A. Hobart on the ticket, was on a substantially similar program: the Republicans were regarded particularly as the party of the “moneyed East” in opposition to the agrarian South and West, and the campaign was between creditors on the one side and debtors on the other.

Roosevelt’s attack on the corporations (“We do not wish to destroy the corporations, but we do wish to make them subserve the public good”) was assisted by a public opinion aroused by a number of writings exposing corruption in politics and business practices. One of the first of these is Ida M. Tarbell’s classic History of the Standard Oil Company, which began as a serial in McClure’s in 1903. This work startled and aroused the public not only by its disclosures of business malpractices but by the obstacles, approaching violence, by which the author’s efforts to collect her data were met. Lincoln Steffens’ The Shame of Cities (1904), Thomas W. Lawson’s Frenzied Finance (1902), Gustavus Myers’ History of the Great American Fortunes (1910), Burton J. Hendricks’ Story of Life Insurance (1907), and Charles Edward Russell’s attack on the meat industry, The Greatest Trust in the World (1905), all contributed to an unsettlement of public faith in business and finance and in the leaders of industry, and encouraged Roosevelt in his anti-business policies.

In June, 1906, Roosevelt obtained passage of legislation (the Hepburn Act) greatly strengthening the powers of the Interstate Commerce Commission in regulating the railroad industry and it was under this authority, after the Fish-Harriman feud broke into the open, that Roosevelt early in 1907 directed an attack upon Harriman for his railway manipulations.

While Roosevelt was attacking big business in the press and in Congress it appears that he was not unwilling to have side deals with big business men. Unfortunately also, he allowed himself to play with fire in dealing with Harriman. Harriman, not unexpectedly for a man of his ambitions and in possession of his substantial resources, had found himself something of a political power, at least in New York State. This does not seem to have been of his conscious choosing, for as we have noted he was not an extrovert, but shy, retiring, and indifferent to appearances; if he interested himself in politics, it was because of his conviction that it was good for the railroad industry to have a powerful advocate in high councils.

Whatever the exact relations between Roosevelt and Harriman, there exists a considerable record of intimate correspondence between them in which Harriman’s opinion on affairs of state was solicited, or at least welcomed, by the President. Whether this was from Harriman’s desire, or through the influence of Roosevelt’s closer friend Stuyvesant Fish or from other causes, by 1904 Harriman, now a key factor in New York State politics, was also a Roosevelt confidant.

During the final weeks of the 1904 campaign it appeared that New York State might be lost to the Party and that additional campaign funds were needed. Roosevelt’s anxiety over the possibility of losing his own State prompted an exchange of letters in which Roosevelt wrote (on October 10, 1904) to Harriman:

In view of the trouble over the State ticket in New York, I would like to have a few words with you. Do you think you can get down here within a few days and take either luncheon or dinner with me?

Roosevelt seems to have had second thoughts about the political wisdom of the invitation to a man so identified with his pet bogies and to cover his tracks he followed this up with a second letter in which he indirectly withdrew the invitation and threw on Harriman the initiative for the call. He wrote:

White House

October 14, 1904

Personal

My dear Mr. Harriman:

A suggestion has come to me in a roundabout way that you do not think it wise to come on to see me in the closing weeks of the campaign, but that you are reluctant to refuse, inasmuch as I have asked you. Now, my dear sir, you and I are practical men, and you are on the ground and know the conditions better than I do. If you think there is any danger of your visit to me causing trouble, or if you think there is nothing special I should be informed about, or no matter in which I could give aid, of course give up the visit for the time being, and then, a few weeks hence, before I write my message, I shall get you to come down to discuss certain government matters not connected with the campaign.

With great regard,

Sincerely yours,

Theodore Roosevelt

Harriman, no stickler for form, went to Washington and on his return to New York set about raising the $250,000 needed to meet the campaign deficit—contributing $50,000 of this sum himself.

Between 1904 and 1906 the relations between Harriman and Roosevelt cooled to the point of distrust, and Harriman practically withdrew from party politics by refusing to contribute to the mid-term Congressional campaign. The reason offered by Harriman’s biographers is that Roosevelt reneged on his promise to Harriman, for his 1904 rescue, to appoint Chauncey Depew as ambassador to France, but it may have been Roosevelt’s increasing hostility to big business.1

Roosevelt’s reaction to Harriman’s political defection was prompt and ferocious. When it was reported to him he sat down and wrote a letter to James S. Sherman, chairman of the Republican Congressional Committee, in which he charged Harriman with having attempted improper influence on the White House, called him “an undesirable citizen,” “an enemy of the Republic,” and excoriated the financier for “cynicism and deep-seated corruption” and as a “wealthy corruptionist.”

We must now say a word about the causes of the Fish-Harriman fight, for it had its part in hastening along the debacle that became the Panic of 1907. For several years, beginning at least in 1903, Fish had been using corporation funds to his personal ends. It was learned that he had deposited half a million dollars of Illinois Central funds in a trust company of which he was a director, to shore up the trust company’s credit at the expense of the railway; a little later he lent himself a million and a half dollars from railway funds, we may guess to meet Mrs. Fish’s extravagances. The loan was theoretically secured, but Harriman, when he learned of it, in order to avoid a scandal, personally lent Fish the money to pay it off. (Some time later Fish complained about the interest rate charged—5 per cent it appears to have been—protesting that he was obtaining other credit for as low as 3 1/2 per cent.)

Meantime Fish continued to use railway funds to assist other enterprises in which he was interested. In those days such easy freedom with corporate funds flavored more of the unethical than the immoral; in any case these practices went on for some time before the directors felt compelled to make an issue of them. It appears that the directors may have been more resentful of the chief officer’s autocratic ways than of his misappropriations; it was not until 1906 that they concluded to remove Fish from office. A persuasive factor may, of course, have been that everyone lived in glass houses. Fish resented Harriman’s use of Illinois Central credit to expand the Harriman railway empire. Harriman was then chairman of the board of the Union Pacific in addition to being director and chairman of the finance committee of the Illinois Central. He was a heavy stockholder in both roads. In a contest over a vacancy in the Illinois Central directorate, Fish opposed Harriman’s nominee, and it appears also that he subsequently reneged on a compromise solution.

The annual meeting was now approaching and Fish began to solicit proxies to strengthen his hand against Harriman. However, he did not disclose the purpose of solicitation and the contest was kept within the directorate. The meeting passed without incident, but at the board of directors’ meeting on November 7, 1906, Fish was summarily deposed as president of the road he had ruled nearly a quarter century.

The reaction to this event came within sixty days—from the White House. On January 4, 1907, the Interstate Commerce Commission, at Roosevelt’s direction, announced an investigation of the railway industry, and particularly E. H. Harriman’s portion of it.

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2Depew was chairman of the board of the New York Central System and also Senator from New York. It is said that Harriman’s interest in obtaining the ambassadorship for Depew was to get him out of New York State politics, because of his growing unpopularity (he lost the election in 1910); but it may have also been for reasons of railway politics.

• 1*Depew was chairman of the board of the New York Central System and also Senator from New York. It is said that Harriman’s interest in obtaining the ambassadorship for Depew was to get him out of New York State politics, because of his growing unpopularity (he lost the election in 1910); but it may have also been for reasons of railway politics.
• 2Between 1904 and 1906 the relations between Harriman and Roosevelt cooled to the point of distrust, and Harriman practically withdrew from party politics by refusing to contribute to the mid-term Congressional campaign. The reason offered by Harriman’s biographers is that Roosevelt reneged on his promise to Harriman, for his 1904 rescue, to appoint Chauncey Depew as ambassador to France, but it may have been Roosevelt’s increasing hostility to big business.*