THE TENDENCY OF MODERN COMBINATION. II

By end of 1897, as a result of the panic conditions of the preceding four years, Mr. Morgan together with his associates had succeeded in gaining a position of pre-eminence among the important railroad groups of the country. He either had control, or was in a fair way to gain control, of four important coal roads -the Reading, the Erie, the Lehigh, the Hocking Valley. He held chief place in the Southern Railway and in the Northern Pacific system; and he had come into amicable contact with James J. Hill, of the Great Northern.45 A record such as this affords an excellent illustration of the ease with which powerful groups of financiers (or individuals with powerful financial backing) can enlarge their spheres of influence in times of crisis. Then it is that opportunities for investment abound, and large capitalists coming to the aid of the financially embarrassed may freely dictate their own terms, in many cases demanding a controlling interest in the companies requiring assistance.

While the Morgan group was striding so rapidly into prominence, Standard Oil had been strengthening its hold on properties already acquired. It had also entered into important contracts with the Oliver Iron Mining Co.,46 which was engaged in extensive operations on the Mesaba; and it had materially extended its gas interests, notably in the Brooklyn Union Gas Co.47 incorporated in 1895 for the purpose of taking over control of the various gas companies of that city. The same period (1893-97) saw the rise of another important group of financiers

His railroad holdings have continued to enlarge since that time. The Southern Railway has made large additions to its mileage by the annexation of other roads. In 1902 Morgan came into control of the Louisville & Nashville, acquiring his interests from John W. Gates. This road he afterward turned over to the Atlantic Coast Line, a system in which he is also dominant. Cf. Bradstreet's, October 4, 1902, Vol. XXX, p. 627.

46 At that time five-sixths of the stock of the Oliver Iron Mining Co. was owned by the Carnegie Steel Co. Cf. James H. Bridge, History of the Carnegie Steel Co., chap. xvii, pp. 258-60.

47 Commercial and Financial Chronicle, June 15, 1895, Vol. LX, p. 1057; ibid., September 14, 1895, Vol. LXI, p. 473.

-the Harriman-Kuhn-Loeb syndicate, which was soon to become generally recognized as a part of the larger Standard Oil group.48 The syndicate first attracted public attention as a result of its successful reorganization of the Union Pacific. As early as 1895 it had been formed to carry out some plan looking toward a rehabilitation of the financial standing of the road, but nothing was accomplished until the property was sold under foreclosure in 1897. It was then bought in by a reorganization committee which was in agreement with the syndicate headed by Kuhn, Loeb and Co.49

After the reorganization had been carried through by the latter, E. H. Harriman appeared as chairman of the executive committee, of which James Stillman was also a member. Representatives of the Gould interests, which had gained control of the Union Pacific in 1890,50 still held place, on the board of directors, but they were evidently no longer of first importance. It was significant, however, that there should be found identified with a single property adherents of three different groups. Clearly indications were not lacking of the manner in which there was gradually to be brought about an advance toward an increasingly comprehensive form of combination for purposes of investment.

Along with the growth of the railroad interests a new movement began to develop about the beginning of 1898; for with the return of prosperity after a period of prolonged financial dis

48 of the early history of this group I am ignorant. I have seen a statement to the effect that its nucleus was the Illinois Central Railroad, of which Harriman had been a director since 1883. Cf. Commercial and Financial Chronicle, November 30, 1901, Vol. LXXIII, p. 1138; cf. also Poor's Manual of Railroads, 1883. As to whether Harriman and the banking house of Kuhn-Loeb & Co. had any connection with Standard Oil prior to the reorganization of the Union Pacific, I cannot say. Subsequent to the completion of that reorganization in 1897 there is no doubt that Harriman became the recognized representative of Standard Oil railroad interests.

49 On agreement with the reorganization committee this syndicate provided $44,000,000 in cash, receiving in return for each $1,000 advanced, $1,000 par value 4 per cent. first-mortgage bonds and $500 par value preferred shares of the company.

50 Commercial and Financial Chronicle, November 29, 1890, Vol. LI, p. 748; directors' lists in Poor's Manuals of Railroads.

51

tress there was a marked launching-out of the various groups of investors into the field of the "industrials." Some years before, adverse court decisions had led to the abrogation of all trust agreements which had for the most part been succeeded by holding companies made possible by the New Jersey law of 1889.5 A few new companies had also been formed, such as the Diamond Match Co. and the New York Biscuit Co. (both Moore organizations); but as yet the holding company was not an important factor in the industrial field.

But with the inauguration of the era of the so-called “industrials" came notable combinations in the iron and steel trades. J. P. Morgan & Co. and their allies, having acquired an assured position in the railroad world, now made their entry into the field of the industrials as organizers of Federal Steel (September, 1898).52 It was said that the profits of the firm derived from its services in organizing was about $200,000;53 but, apart from that consideration, the Morgan representation on the directorate of Federal Steel would indicate that a very substantial interest in the company had been acquired, although Standard Oil men were no doubt the dominant factor.54 Here, then, was another 51 The Standard Oil organization existed without taking advantage of the New Jersey law until 1899, a community of interests being maintained through the manner of distribution of the stocks of the various companies composing the "trust."

52 The stocks of the companies it was proposed to combine having been secured (or, at any rate, a sufficient proportion of them) were then turned over to the new corporation together with $14,075,000 in cash (such part as was not furnished by stock assessments being guaranteed by Morgan). In return $53,000,000 preferred and $46,000,000 common stock of the Federal Steel Co. was received by the organizers to be used in paying for the underlying properties.

53 Report of the Industrial Commission, Vol. I, pp. 986 ff. (testimony of Judge Gary).

54 In substantiation of this statement it may be mentioned that Standard Oil men had been connected with the Minnesota Iron Co. (an important underlying property of Federal Steel) since 1887. Moreover, H. H. Rogers was a member of the executive committee of Federal Steel, and Roswell P. Flower (who had come to be closely identified with Standard Oil financiers through his copper interests) was a large holder of the company's stock. After his death, in May, 1899, it is probable that the Standard's hold on the property was materially strengthened. Cf. Bradstreet's, May 20, 1899, Vol. XXVII, p. 306; September 30, 1899, Vol. XXVII, p. 612.

case in which the adherents of different financial groups had come into contact through widening spheres of interest.

55

The year following the formation of the Federal Steel Co. Morgan succeeded in uniting the leading tube-works of the country into a single organization-the National Tube Co.; and in April, 1900, he assumed charge of the underwriting for another large steel "trust"—the American Bridge Co.56 During this same prolific period W. H. and J. H. Moore sprang into prominence as organizers of the American Tin Plate, National Steel (February, 1899), American Steel Hoop (April, 1899), and American Sheet Steel (March, 1900) companies 57-all four of which came to be controlled by the small coterie of men for whom the Moores had been acting.58 The only other important steel combination prior to the formation of the United States Steel Corporation was the American Steel and Wire Co. (1899), at whose head stood John W. Gates.

As the panic of 1893 made for the growth and furthered the 55 Standard Oil men were certainly associated with this enterprise, if the presence of Daniel O'Day (connected with the Standard Oil pipe-line system) and Jacob Vandergrift (one-time president of the United Pipe Lines Co.) on the directorate of the company can be considered in the least significant.

56 Both in the case of the National Tube Co. and in that of the American Bridge Co., Morgan was given power to direct their policy absolutely for a stated number of months: nine months in the case of the former, and eighteen months in the case of the latter.

57 Judge Moore explained the manner in which these organizations were effected, as follows: "I will not charge you anything," he reported himself as having said to the owners of the companies it was proposed to unite. "I will buy your properties and formulate a plan, and if you do not want to go into the new plan, you can take cash." (Cf. Testimony of W. H. Moore, Report of the Industrial Commission, Vol. I, p. 963.)

59 The nucleus of the Moore group consisted of certain iron and steel manufacturers interested at one time in the various companies that went to make up the four new combinations. The group later extended its investments, branching out into the domain of railroads. It bought control of the Chicago, Rock Island & Pacific (1901), reorganized it as the Rock Island Co., and took over other properties, purchasing the St. Louis & San Francisco (May, 1903), and entering into an alliance with the Seaboard Airline the next October. The financiers composing the group are, however, relatively weak, and the chances are that they are scarcely in a position to be considered an independent power at the present time. In all probability their railroad management has come under the tutelage of Standard Oil.

amalgamation of certain large investment interests, so the industrial depression which set in toward the close of 1899 and continued through 1900 was to produce readjustments and to carry the process of absorption and combination still further. Conditions within the iron and steel trades were peculiarly severe, and, with so many important groups of investors represented therein, a competitive struggle on a more comprehensive scale than ever before experienced, might be fairly deduced. As a matter of fact, the formation of the United States Steel Co. in 1901 seems to have been the outgrowth of some such struggle.

The evidence points strongly in the direction of a shrewdly planned attack by the joint Carnegie-Rockefeller forces against the other groups interested. In order to understand the situation, it is necessary to enter somewhat minutely into the relations formerly existing between the Carnegie and the Rockefeller interests in the Minnesota iron regions. The Oliver Iron Mining Co. (a Carnegie property), which was one of the largest shippers of ore on the Mesaba range, had in 1896 made a fifty-year contract with the Lake Superior Consolidated Iron Mines Co., whereby, upon payment of a certain royalty, it obtained possession of two rich mines on the Mesaba, guaranteeing in return a minimum annual output of 600,000 tons of ore, to be shipped over the Rockefeller road (the Duluth, Mesaba & Northern) and carried in vessels belonging to the Rockefeller fleet.59 These shipments, together with the output from the Oliver mines, insured an annual tonnage of from 1,200,000 to 1,500,000 tons.60

Although the Lake Superior Consolidated Iron Mines Co. continued to increase the carrying capacity of its lake fleets for some years subsequent to this contract, it was by no means secure in its hold upon the transportation of the Carnegie ore. By 1899 the Oliver Iron Mining Co. had by the acquirement of new holdings attained to an average annual output of perhaps 4,000,000 or 4,500,000 tons of ore,61 and obviously it would be

5 Iron Age, December 31, 1896, Vol. LVIII, pp. 1309, 1310; James H. Bridges, The Inside History of the Carnegie Steel Co., chap. xvii, p. 259.

60 Iron Trade Review, March 11, 1897, Vol. XXX.

1 Ibid., April 27, 1899, Vol. XXXII.