Todd Jones writes: "if the Standard Oil barons are
the ones that backed Harriman in his takeover of UP,
why didn't the MILW simply merge the UP into it's
system and gain it's transcontinental route that
Todd, of course you already know that I have a
theory about the "Northern Securities Case" that is
considerably different than the accepted version.
However, I have some additional thoughts on the
The Northern Securities Case was perhaps the most
epic financial battle in the history of American
capitalism. It had started, ostensibly, when JP
Morgan and James J. Hill attempted to lease the
Milwaukee Road from William Rockefeller. He said no,
and so Morgan and Hill went after the Burlington,
which was easy prey at that point. Its main
financier, Forbes, had died, and his stock was
available, and its president, Perkins, wished to
retire. So, the Q was a quick and relatively
painless acquisition. So far, makes sense.
The conventional story starts to fall apart at this
however. Harriman, who had apparently been asleep,
that HE wanted a route into Chicago and didn't know
Hill and Morgan were looking for a railroad into
didn't know that the Forbes holdings were available.
Conventional Story (CS) is that Harriman
Hill and Morgan had "secretly" acquired the Q, and
wanted it to get to Chicago. The CS fails to mention
already owned the Chicago & Alton, and that he had,
months before, sold a large block of Burlington
apparently dispelling any notion of any interest in
Burlington. Anyway, he ordered his banker, Jacob
"secretly" buy up Northern Pacific shares, where
half of the
Burlington shares had been deposited. So Schiff
started buying, and the stock began a steady rise
buying pressure. Hill, ever alert, noticed the rise.
Now, this is occurring in 1901, but step back for a
Just a couple of years, William Rockefeller and
had engaged in a monster stock scheme to obtain
the Anaconda Copper Mining properties in Butte.
broker, Thomas Lawson of Boston, was well known in
right, but the scheme had been so astoundingly
that even he was appalled, and wrote a wonderful
it called "Frenzied Finance." It paints the most
contemporary portraits we have William Rockefeller
and H. H.
Rogers. In any case, the upshot was that Bill and
obtained control of the Anaconda, and earned about
million in profit, AFTER paying off the previous
Marcus Daly. Not bad for a days work. Rockefeller
immediately ordered two surveys from existing lines
pet railroad, the Milwaukee, to Butte. The NP was a
road, Bill and H.H. could not stand Morgan, and the
NP was a
horrible railroad anyway. But, he wanted a route to
above all, one that he alone controlled.
During the Anaconda takeover, Rogers had mentioned
the financing had included Morgan, and that this had
him unhappy. "But it won't be long before we can do
without Morgan, not very long at all." It was an
interesting remark, coupled with their knowledge
wanted to lease the Milwaukee. Turning Morgan down,
no doubt that Rogers and Rockefeller knew he would
bid for another system. They also wanted to build a
to Butte to hurt Morgan's Northern Pacific. Indeed,
could get their own line to Butte AND hurt JP
his Northern Pacific, perfect. If they just went out
bought the NP, that would mean some kind of profit
Morgan. No way.
At one point, I believed that Harriman's battle to
control of the NP, ostensibly to get control of the
Burlington was also Rockefeller's effort to get
the NP to get to Butte. I've changed my mind.
Several things caused me to do this. Call it, if you
after Sherlock Holmes' "The Dog That Didn't Bark."
forward, 13 years, to Morgan's death. Morgan's
had grown throughout the years. He was the most
banker in the world. He was considered the
perhaps Carnegie might have been worth more. John D.
Rockefeller was, at the time, worth only $300
million or so.
Morgan was the pinnacle of economic power. After he
though, Morgan's estate was found to be worth about
million. It was far, far less than anyone had
D. Rockefeller was so surprised he remarked, "why,
even a rich man!" No writer has ever really traced
fortune, and so the surprise remains unexplained.
happened to Morgan's money? Now, go back to the
Securities battle in 1901. Old Schiff is buying up
tons of NP stock for Harriman, with Rockefeller
price keeps going up and, oh, by the way, JP Morgan
Europe. James J. Hill, whose' got a pretty big stake
keeping the NP in friendly hands, which means
anxious, and finally speeds to New York. By this
Harriman forces, primarily financed by Rockefeller
banker, James Stillman, both big stockholders in the
Pacific, had about $76 million in common and
of the NP. Morgan and Hill's forces held less than
million, and something less than a majority of the
The Great Northern's New York headquarters just
be in the same building as Schiff's office at Kuhn,
Company. Schiff had been Hill's banker for over 15
before his affiliation with Harriman had cooled the
relationship. But Hill, passing by, asked Schiff if
what was going on. Here's were the CS lacks
Schiff, one the most respected private bankers on
Street, concerned with every punctilio of discretion
trust, TOLD HIM! "Yes, we're buying every share of
we can get our hands on!"
Hill hit the panic button and wired Morgan. Morgan
that if Harriman bought out the NP, out from under
would not only be a huge embarrassment, but make
hard won investment worthless, if Harriman was in
He ordered buying at any cost. Now, here the
Story gets even murkier. Harriman had been sick, and
ostensibly ordered Schiff to buy more stock. Schiff,
ostensibly, thought there was enough and went to the
So, Harriman quite buying entirely, but Morgan's
orders hit the stock market like a tidal wave. NP
quickly broke 100, then 200, then 500, and even hit
a share. Margin calls on smaller investors started
brokerage houses. The whole system started to
around Morgan's ears. He called a truce, Rockefeller
Harriman consented that he probably retained
control, and a
Northern Securities Company was formed to control
NP, and CB&Q. A mistake had been made in that even
Harriman, Rockefeller and Stillman controlled nearly
the total shares of Morgan, he held the majority of
common, while they had preferred, which could be
the vote of the common stock. History records that
to concede that Morgan's buying had saved the NP and
Burlington from Harriman.
Here's the problems with the story:
1) Schiff was a bond trader, he had no experience as
stock market raider.
2) Harriman's reputation had been built as a stock
operator, and, incidentally, the most fearsome stock
pirate of all was H.H. Rogers.
3) Rogers, who engaged in nearly all of his
operations with William Rockefeller, was no where to
seen. Rockefeller rarely acted without Rogers. He
before or since been part of a raid with Harriman.
4) NP Preferred stock could indeed be retired, and
substituted with NP bonds. However, no one mentions
bonds could be traded for NP COMMON STOCK!
5) Schiff, in any case, knew the difference between
and preferred stock, that one was voting and one was
Why he would have bought ANY preferred stock is
explained. It would have been a colossal mistake for
errand boy on Wall Street, let alone Jacob Schiff.
6) Had it occurred the way it was told, Harriman
most likely killed Jacov Schiff for screwing up.
the notoriously volcanic Harriman seems to have said
to Schiff about it. Schiff, in any event, continued
as the Union Pacific banker.
7) Why would Schiff, notoriously discreet, have told
what was happening?
8) Why, instead of Schiff, wouldn't Harriman have
an experienced stock trader?
9) William Rockefeller, whose money was actually
plowed into this thing, would also have been
make Schiff persona non grata for such a blunder.
in 1909, when the Milwaukee Road bond issues began
forth, who got the job? Jacob Schiff.
10) In 1906, Rockefeller had threatened to fire
Miller for proposing bond issues through brokers
their high commissions"), particuarly without a
that the company could force exchanges for stock if
fixed charges became too onerous later on.
11) After 1909, Rockefeller approved of Schiff
bonds exactly as Miller had proposed them, but even
extra commissions. This, to the man that had
NP and Burlington purchase?
12) Harriman had a Chicago railroad, why did he need
one, and particuarly one that he had just sold a
of shares in?
13) Had Harriman won, he would only have a vote for
Burlington shares, at best a stalemate in the
control of the
Burlington. Harriman had never before evidenced
The Conventional Story raises more questions than it
The key man missing in the CS is Henry Rogers. He
there. That means that he had to be. He and
a pile of cash from the Anaconda Copper takeover,
million. The Milwaukee's Butte railroad surveys
they would need about $65 million to build to Butte
possibly beyond. Rogers had mentioned to Lawson, "it
be long before we don't have to deal with Morgan."
undoubtedly recognized that the Morgan/Hill
the Burlington spelled trouble for the Milwaukee,
so many railroads into Chicago, it was a fruitless
try and oppose such an arrangement.
Here's how I think it happened. First, you get a
Harriman, who is notoriously ambitious, is the one
west that had already shaken up James J. Hill. He
very nervous. Hill was notoriously prone to panic,
the stock rise would surely get him worked up. Pick
for instance, when Morgan was in Europe and
unavailable. Then, involve the single banker on Wall
that Hill was sure to ask for advice when he finally
panic button, Jacob Schiff, and let the banker tell
Hill, in full panic at the news, would not note
the story really been true, Schiff would not have
Hill will, true to form get ahold of Morgan and, in
panic, exagerate everything out of proportion. It
trait of Hill's, and he honored his reputation.
unable to double check Hill's information from
only respond as Hill demands, to buy up everything.
had been selling NP stock to finance his steel trust
efforts. Someone had been buying it in the $60 and
range. Now, upon Hill's frantic pleas, he was forced
it, and more, back. Someone had been glad to sell it
him for $400, $600 and $1,000 a share.
After it was all over, Hill, further true to form,
anyone who would listen that he and Morgan had
"shown those guys," that they had tried to embarrass
and failed miserably. Morgan was characteristically
but, C. S. Mellen, who could not stand Hill, and
continued on as president of the NP with Morgan's
That Fall, Hill resigned from the board of directors
NP. All was not well between Morgan and Hill, for
Frankly, it had every appearance of a trademark H.
stock market raid. Depending on how I run the
looks like Rogers and Rockefeller might have made as
between $40 and $100 million from Morgan. They had
gained control of the NP. The prefered stock, was,
the bonds, convertible to common. They HAD the NP,
didn't want the NP; that was too easy. They hated
and this was a much more elegant method of not only
a consolidation with Harriman, who was his own
and an ally with his own way of doing things, but a
embarass Morgan in the most telling way possible: a
financial stock raid, in which he had been trapped,
unmercifully. They had his stock; it was more
take his money. Morgan salvaged his public financial
reputation at a stupendous cost to his own personal
Rockefeller and Rogers, gentlemen in their own way,
their point and did not gloat publicly. Hill was a
played the part perfectly. Historians portray him
Schiff, whom historians paint as the ostensible
was hugely rewarded, at both the UP and the
its bond issues began issuing. THAT is why little
Schiff's Kuhn, Loeb & Company was able to "take
at the Milwaukee Road. It was his payback for being
to look like the idiot who didn't know the
between common and preferred stock. That is why
suggest to Lawson, "it won't be long," as they were
looking for a railroad line to Butte and a way to
out of the way in the future, by a huge raid on
Hill sensed, afterward, it wasn't all quite the way
everyone thought. He knew, somehow, it wasn't a
effort at all. He wrote to one ally, that it was
Rockefeller, acting for the St. Paul Railway." He
somehow, that the Milwaukee was involved, and that
Rockfeller was involved not as a supporter of
everyone assumed, but for other reasons. He couldn't
put his finger on it, and historians have
suspicion. Morgan knew.
The ICC, and Max Lowenthal, looked through their
bureaucratic prisms at "rates of return" on
lack of traffic studies, and thought it all a bit
careless. They greatly underestimated authentic
titans like H.H. Rogers and William Rockefeller, but
the Pacific Extension makes more sense now. With
Anaconda Company profits of $35 million, and their
profits of, say, $60 million, they had more than
money to build the Pacific Extension without any
of their own funds. That was typical of them. The
Extension was, to the investors of the Milwaukee
absolutely free. It was paid for by the owner of the
Northern Pacific Railway. That is the explanation
The Milwaukee Road's Pacific Extension was the
one powerful group over another, not the "rivalry
powerful groups," that the ICC thought it saw, and
Lowenthal was certain had caused irrational
decisions to be
made. Henry H. Rogers was the missing element in the
conventional story of the battle for the control of
Northern Pacific Railroad in 1901.
He was the dog that did not bark.
Best, Michael Sol