America’s Money Machine

THE YEAR 1907 had opened in Wall Street with the usual consultation of oracles, among them Stuyvesant Fish. Whether or not his views were colored by his late humiliation by Harriman, they reflected a well-founded pessimism that was noted but dismissed by the press and that deserved perhaps more respect than was given it. Fish accused the age of “misfeasance,” of “speculative excesses,” of monopolism and manipulation, and proclaimed a general distrust of the future.

On January 3 the New York Times reported him as saying, “Wall Street is absorbing more than its share of the loanable funds. While our Western and Southern banks are lending more freely than usual at this season, that which they lend is instantly and persistently absorbed by Wall Street.” He went on to charge the New York Stock Exchange with ceasing to be “a free market where buyers and sellers fix prices through the ebb and flow of demand and supply.” It had become, he said, “the plaything of a few managers of cliques and pools to such an extent that for months past every announcement of increased dividends, of stock distributions and of rights has been met by a fall in prices.” The investing public were staying out of the market, he declared, “because of the distrust which even those possessed of ample means have of the methods of corporate finance now in vogue in New York. That Europe shares this distrust of these methods is shown by its outcry against the misuse of American finance bills.”

Fish’s criticisms, however well-founded—“It has all been said before, and by men as competent to say it as Mr. Fish,” commented the Times—were generally passed over as “the point of view of a man who has been beaten in an ugly fight.” Equally ignored was the stiff renewal rate of 16 per cent for call loans reported the same day, as well as the rising premium on sterling and an urgent enquiry for bills. Moreover, the charge that the tight money market was due to Wall Street speculation was stoutly challenged by others who pointed out that the market generally—except for the Harriman issues—was lower than a year earlier, and that the bull market had reached its high point in January, 1906.

The Interstate Commerce Commission investigation into the Harriman affairs opened on January 4, and its disclosures were meat for the stock market bears. Fish had announced his willingness to lay before the Commission all information he had, and it was assumed that he knew a great deal. There were other enemies of Harriman who could no doubt make things uncomfortable for the financier. “Mr. Harriman has always seemed to feel that he could afford to make enemies,” gossiped the Times’ “Topics in Wall Street,” and mentioned in particular Mr. Stickney, president of the Chicago Great Western which Harriman had beaten out of the Omaha terminal by one legal maneuver after another. Union Pacific stock was under pressure all day long before the investigation opened. Nevertheless, the Times thought it could be overdone, since a stock yielding 10 per cent and selling at 177 must be regarded as cheap.

The first day’s hearings confounded the pessimists on Union Pacific stock at the same time that they confirmed suspicions of railway manipulation. For the first time the actual grip of Harriman on the railway world was fully revealed. The Union Pacific was shown to hold large blocks of stock of railway companies as remote as the New York Central—all paid for, incidentally, from earnings and without recourse to borrowing.

The hearings continued until the end of February, reaching their climax on February 26. The chief inquisitor of the Commission was an attorney named Frank B. Kellogg who was later to become even more famous as Secretary of State.

Mr. Kellogg brought up the ouster of Fish, and sought to draw a connection with the sale of Illinois Central stock to the Union Pacific. Harriman seized the opportunity to explain and insisted on giving the story, over Kellogg’s protests.

On the same day that the Commission abruptly terminated its hearings Mrs. Stuyvesant Fish gave what the New York Times described as “the most novel and probably the largest luncheon of the Winter.”

Several seemingly unrelated events of the weekend may have in their coincidence contrived to detonate the explosion in Wall Street that began on the following Monday. The Times reported an address by a Professor Clark before the Federation of Church Clubs, in which he contrasted the “soulless and criminal corporations” with “the individualism of commerce in bygone days.” It also reported that Harriman had called on President Roosevelt at the White House, ostensibly “to show the sights to his ten-year-old son Rowland,” but rumors went that he had gone to plead for respite from the government’s harrowing of the railroads.1

On Monday the market opened weak, but there appeared little strain, and call money—funds borrowed to buy shares, repayable on demand—dropped to the low for the year—3 per cent. The apathy of the market was indicated by the low volume of transactions—some 38 1/2 million shares since the first of the year compared with over 60 million for the same period of the previous year.

This was the lull before the storm. On Tuesday came the deluge. Suddenly, unexpectedly, without warning, a flood of sell orders, mainly in “Harriman” stocks, demoralized the market. The New York Times gravely recorded that “the report that Mr. Harriman will retire from the world and enter a Trappist monastery has not been confirmed,” adding that he did, however, call on the Interstate Commerce Commission, which was “a pretty prompt going to Canossa.” The following day, a rumor that Harriman was buying control of Reading caused quotations for Reading shares to rebound ten points in ten minutes, carrying the whole market with it. Harriman also announced an end to his policy of silence in regard to railway affairs, declaring that, “the most important duty now confronting the managers of the railroads of the country is the development of more friendly relations between the railroads and the public and the government, and for my part I mean to devote myself to that work.”

Liquidation continued, however, throughout the week and Harriman, in a further effort to restore confidence, gave an interview in his library in which he pleaded again for respite from government attacks on the railroads and for better understanding all around. Harriman’s plea was now seconded by the bellwether of Wall Street, J. P. Morgan. On Monday the great financier himself went to Washington, going directly from his private car to the White House where he remained closeted with the President for two hours, urging him to take some action to “allay the public anxiety now threatening to obstruct railroad investments and construction.” James Speyer, another leading figure in Wall Street, following up Morgan’s cue, hurried to Washington the next day.

These moves had some influence in steadying the market, but on Wednesday the avalanche began again, with the market in the greatest crash since the panic of 1901. Call money went to 15 per cent while leading shares plummeted. Toward midday support appeared in the market but as the afternoon wore on selling resumed, and the day closed with stocks at their low. Nevertheless the decline was orderly, the total volume of sales falling short of the previous Wednesday’s total. Monetary stringency—the need of funds to meet the first installment of the $60 million Pennsylvania Railroad issue and the $15 million Standard Oil dividend—was assigned as the cause of the collapse, rather than any fundamental weakness in the economy. It was also remarked that for the first time values were no longer dependent solely, or even chiefly, upon economic factors, but that the powerful influence in the market was that exerted by “a group of bearish speculators whose drives against prices were accompanied by the usual grist of disquieting rumors.”

One of the things that attracted the attention of the market—or at least that of the editors of the Times—was the assault upon Harriman stocks. Trading in one Harriman stock alone—Union Pacific—totaled 440,000 shares, accounting for over a fifth of total transactions on the Exchange. It was also noted in this connection that of the three leading influences in Union Pacific affairs—Jacob Schiff, Otto Kahn and E. H. Harriman—only Harriman was in the city, Schiff being in Palm Beach and Kahn on the high seas en route to Europe.

The following day quotations plunged again, led by a 25 point drop in Union Pacific—now down to 110 from 177 earlier in the year—and bringing lows unequalled even in the panics of 1901, 1873 or the Black Friday debacle of September 24, 1869.

Nevertheless, there were no great failures, and commentators remarked that it was a rich man’s panic, that the public was not in the market, and that “it was the rich men who were suffering the losses entailed by the day’s declines.”2 The rumors went around that Harriman was being forced to sell his holdings, but this he vigorously denied, and on being asked the cause of the decline remarked ominously, “I would hate to tell you to whom I think you ought to go for the explanation of all this.”

It was at this point in the decline that Washington concluded to abate its campaign against the railroads. Morgan had cabled Roosevelt from London urging consideration of the railway problem, and now with the threat of a widespread strike on the Western roads—an event that would have stopped traffic on 95,000 miles of track and made 50,000 men idle—Roosevelt exerted pressure on the trainmen and conductors and on April 1, issued a reassuring statement that he was not hostile to the railroads.

It was just as this truce was having a moderating influence on sentiment that the New York World published, on April 2, a letter written by Harriman to his friend Sidney Webster in 1905, which the World had acquired from a disgruntled former secretary of Harriman’s. The letter was like an explosion. In it Harriman complained that Roosevelt had asked him to save him and the Republican party in the New York State campaign in 1904, and that Roosevelt had not rewarded this effort with the political appointment he had promised.

The Administration forces were thrown into confusion. Roosevelt called his cabinet into session and issued a defense in which he accused Harriman of having deliberately told an untruth, of being “an enemy of the Republic,” of being “worse than men like Debs and Moyer and Haywood.” He said that Harriman’s statement justified the use of “a shorter and more ugly word” than untruth. Accompanying the statement were copies of correspondence between Roosevelt and Harriman that seemed to justify the President’s assertions. Harriman responded with a statement of his own, that while he regretted the publication of a private letter he did not retract any statement—by implication passing the lie back to Roosevelt—and adding that the correspondence published by the President omitted certain significant letters. These he now made public on his own part.

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3It appears, however, from subsequent revelations (at the time of the World exposé, in April, of the Harriman-Roosevelt correspondence) that Harriman’s efforts to see Roosevelt were fruitless. See below.

4New York Times. March 15, 1907. Three rich men—John Jacob Astor, Robert W. Goelet, and Cornelius Vanderbilt were reported to have lost between $8 and $9 million in Union Pacific stock which they had bought the year before on a tip from Harriman. (New York World, March 31, 1907.)

• 1*It appears, however, from subsequent revelations (at the time of the World exposé, in April, of the Harriman-Roosevelt correspondence) that Harriman’s efforts to see Roosevelt were fruitless. See below.
• 2*New York Times. March 15, 1907. Three rich men—John Jacob Astor, Robert W. Goelet, and Cornelius Vanderbilt were reported to have lost between $8 and $9 million in Union Pacific stock which they had bought the year before on a tip from Harriman. (New York World, March 31, 1907.)
• 3Several seemingly unrelated events of the weekend may have in their coincidence contrived to detonate the explosion in Wall Street that began on the following Monday. The Times reported an address by a Professor Clark before the Federation of Church Clubs, in which he contrasted the “soulless and criminal corporations” with “the individualism of commerce in bygone days.” It also reported that Harriman had called on President Roosevelt at the White House, ostensibly “to show the sights to his ten-year-old son Rowland,” but rumors went that he had gone to plead for respite from the government’s harrowing of the railroads.*
• 4Nevertheless, there were no great failures, and commentators remarked that it was a rich man’s panic, that the public was not in the market, and that “it was the rich men who were suffering the losses entailed by the day’s declines.”* The rumors went around that Harriman was being forced to sell his holdings, but this he vigorously denied, and on being asked the cause of the decline remarked ominously, “I would hate to tell you to whom I think you ought to go for the explanation of all this.”