The 1901 Contest for Control of the Northern Pacific Railway

A previous post discussed the November 13, 1901, formation of the Northern Securities Company by J. P. Morgan and James J. Hill to be a holding company for the common stock of two competing railroads (the Great Northern and the Northern Pacific) and the subsequent successful lawsuit by the President Theodore Roosevelt Administration alleging that this combination violated the Sherman Act’s prohibition of combinations in restraint of interstate trade and commerce.

The prequel to all of that was first the battle for control of the Chicago, Burlington and Quincy Railroad that provided access to Chicago. The contestants were (a) the Great Northern/Northern Pacific Railways, which were controlled by Hill and Morgan, and (b) the Union Pacific Railroad, which was controlled by Edward H. Harriman and Jacob Schiff. Hill and Morgan won that round, in April 1901, and they put the Quincy stock into the Northern Pacific.[1]

Harriman with the backing of Schiff of the Wall Street banking firm of Kuehn Loeb in April-May 1901 then surreptitiously started to buy Northern Pacific common and preferred stock on the open market in an effort to gain control of the Northern Pacific and thereby the Quincy. Once Hill and Morgan realized what was happening, they started to buy Northern Pacific shares. This buying activity resulted in large and continued increases in the price of the stock.

Others in the stock market obviously noticed this activity and the upward jumps in price. Many started to sell Northern Pacific stock ‘short,” i.e., selling more shares than they owned at what many believed to be unsustainable high prices with the expectation they could buy the stock later at a lower price and thereby make a profit. That did not happen. The market was ‘cornered” with more shares committed to be sold than could be delivered. This forced speculators to sell other stocks to raise cash to buy Northern Pacific shares, resulting in the destabilization of the entire stock market.

This Wall Street Panic ended on May 9, 1901, when Harriman and Schiff capitulated to the victory of Hill and Morgan over Northern Pacific with an agreement for Hill and Morgan to bail out the shorts and thus restore market stability in return for Harriman and Schiff ‘s agreeing to end their effort to gain control of the Northern Pacific.

George F. Baker
George F. Baker

Larry Haeg’s book—Harriman vs. Hill—is the most comprehensive telling of this remarkable story. It reads like a novel, and his descriptions of the participants in this stock market contest make the reader feel like an actual observer of the events. I was especially fascinated by the book’s following description of George F. Baker, a financial backer of Hill and Morgan: [2]

  • Baker then was 61 years old “and the unquestioned dean of New York banking [as the] president of the First National Bank of New York [which] he has helped found in 1863 as a mere twenty-three year old and had become its president in 1877. Also, as a venture capitalist he had bought and rejuvenated several railroads, and now, among America’s half dozen wealthiest men, served on the finance committee of Morgan’s new U.S. Steel, on the board of the Northern Pacific, and on the boards of some thirty banks, railways and insurance companies.”
  • “At a word from Baker, it was later said, ‘the 20th century would halt on its tracks. Indeed, the railroad came to Baker’s door. When he built a mansion further north at Ninety-Third and Park he had his own underground railroad siding in the basement where a train could stop to attach his private car.”
  • Baker had a “four-story, double row-house mansion at 256-258 Madison Avenue between Thirty-Eighth and Thirty-Ninth.” The “dark-paneled mansion [contained] eighteenth-century tapestries, paintings of the Barbizon school, Persian rugs, cabinets glistening with jade and Japanese enamel [and a] library with its hefty, upholstered chairs.”

Haeg book

The Wall Street Journal carried a favorable review of the Haeg book by Roger Lowenstein, the author of “The End of Wall Street” and “Buffett: The Making of an American Capitalist.” The review said Haeg’s book covered “a corporate dust-up that takes us back to the beginning of the 20th century, when tycoons who traveled by private rail merrily raided each other’s empires while the world around them cringed.” The book “conveys a vivid picture of the Gilded Age in splendor and in turmoil. Champagne still flowed in Peacock Alley in the Waldorf-Astoria, but fistfights erupted on the floor of the exchange, and a young trader named Bernard Baruch skirted disaster with the help of an inside tip, then perfectly legal. There were scant rules governing stock trading, the author reminds us—no taxes, either. ‘If you won in the market, you kept it all.’”

Warren Buffett added his praise for Haeg’s book with these words. “I first read about the Northern Pacific Corner when I was ten years old. When I opened my office on January 1, 1962, I put on the wall a framed copy of the New York Times of May 10, 1901, describing the fateful prior day. Larry Haeg now tells the full story, and I enjoyed every word of it.”

Haeg set out to write this book as “a character study of Hill and the businessmen known as the ‘robber barons.’ As he advanced in his research, however, [Haeg] found the true test of their character came during what is known today as the Northern Pacific Corner, a four-day run on the railroad company’s stock that roiled Wall Street and set off the country’s first stock market panic.”

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[1] This post is based upon Larry Haeg, Harriman vs. Hill: Wall Street’s Great Railroad War (Univ. Minn. Press; Minneapolis, MN; 2013); Michael P. Malone, James J. Hill: Empire Builder of the Northwest, ch. 6 (Univ. Okla. Press; Norman OK; 1996); Albro Martin, James J. Hill & the Opening of the Northwest , ch. 17 ((MN. Historical Soc’y Press; St. Paul MN; 1976).

[2] Haeg at 79-80, 106. Baker is of particular interest for me because I wan awarded a George F. Baker Scholarship for my four years at Grinnell College in Iowa.

Federal Regulation of Railroads During U.S. President Theodore Roosevelt’s First Term (1901-1905): The Northern Securities Case

As mentioned in an earlier post, one of President Theodore Roosevelt’s major efforts to enhance federal regulation of railroads in his first term was his Administration’s commencement of an antitrust lawsuit under the Sherman Act against the Northern Securities Company, which combined the stocks of two competing railroads from the Great Lakes and the Mississippi River to Puget Sound on the Pacific Coast.

These two roads were the Great Northern Railway running from St. Paul, Minnesota to Seattle, Washington while the Northern Pacific Railway ran from St. Paul (and separately from Ashland, Wisconsin and Duluth, Minnesota) to Seattle and Tacoma, Washington and Portland, Oregon. In addition, the two of them jointly owned the Chicago, Burlington & Quincy Railroad, which connected St. Paul with Chicago. [1]

Great Northern Railway
Great Northern Railway
Northern Pacific Railway
Northern Pacific Railway

The Legal Background

The late 19th century was an era of “trusts” and of “combinations” of businesses and of capital organized and directed to control of the market by suppression of competition in the marketing of goods and services, the monopolistic tendency of which had become a matter of public concern.

To meet this problem, the U.S. in 1890 enacted “An act to protect trade and commerce against unlawful restraints and monopolies,” 26 Stat. 209, ch. 647 (1890). The statute is commonly referred to as the Sherman Act in recognition of its principal author or sponsor, Senator John Sherman, Republican of Ohio. The statute provided, in part, as follows:

  • “Every contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states . . . is hereby declared to be illegal. Every person who shall make any such contract, or engage in any such combination or conspiracy, shall be deemed guilty of a misdemeanor . . . .” (Section 1)
  • “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several states . . . shall be deemed guilty of a misdemeanor . . . . ” (Section 2)

The prescribed penalty for such misdemeanors was a fine up to $5,000 or imprisonment not exceeding one year or both. In addition, the circuit courts (n/k/a district courts) were “invested with jurisdiction to prevent and restrain violations” of the statute (Section 4), and persons injured in their business or property by any violations could sue the perpetrators for treble damages and attorneys’ fees (Section 7).

The goal of the Sherman Act was to prevent restraints of free competition in business and commercial transactions that tended to restrict production, raise prices, or otherwise control the market to the detriment of purchasers or consumers of goods and services.

The Formation of Northern Securities

On November 13, 1901 (only two months after Roosevelt became President), J. P. Morgan, who controlled 21 railroads, including the Northern Pacific, and James J. Hill of the Great Northern [2] announced the formation of the Northern Securities Company to be a holding company for the common stock of the two competing railroads, This new combination was the second largest company in the world with annual revenues of $100 million and covering commerce from Chicago to Seattle and extending to China over Mr. Hill’s shipping lines.

A New York newspaper saw the new company as another step toward universal monopoly.

The Commencement of the Lawsuit

On February 19, 1902 (only three months after the formation of the Northern Securities Company), the Roosevelt Administration announced plans to commence the antitrust case alleging that the formation and operation of Northern Securities constituted a restraint of interstate commerce in violation of the Sherman Antitrust Act. In addition to the two railroads, the U.S. planned to sue James J. Hill of the Great Northern and seven directors of the Northern Pacific, including J. P. Morgan and George F. Baker. [3]

James J. Hill
James J. Hill
J. P. Morgan
J. P. Morgan
George F. Baker
George F. Baker

 

 

 

 

 

 

 

The U.S. stock market immediately registered significant declines with similar reactions in London, Paris and Berlin markets. In response, J. P. Morgan starting buying stocks in great quantities and helped to stop a panic.

The next evening Morgan and 12 other wealthy men met with Roosevelt at the White House without discussing the lawsuit, i.e., the elephant in the room. The next morning, however, the subject was broached when Morgan returned alone to the White House for a meeting with Roosevelt and the Attorney General, Philander Chase Knox. Morgan asked why the Government had not just called and asked him to correct any irregularities with the charter of Northern Securities, but Knox merely said the Government wanted to stop the company, not to fix it up. Afterwards Roosevelt said, “Mr. Morgan could not help regarding me as a big rival operator who either intended to ruin all his interests or could be induced to come to an agreement to ruin none.”

Theodore Roosevelt
Theodore Roosevelt
Philander Chased Knox
Philander Chase Knox

The Case in the Circuit Court

The bill in equity (or “complaint” in today’s terminology) thereafter was filed with the U.S. Circuit Court for the District of Minnesota.[4] The complaint charged that the Northern Securities was an illegal “combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several states” (Sherman Act § 1).

The next April 9th (1903), the Circuit Court’s four Circuit Judges unanimously upheld the validity of the Government’s complaint (United States v. Northern Securities Co., 120 Fed. 721 (Cir. Ct., Dist. Minn. 1903)) . The court in an opinion by Judge Thayer first entered the following findings of fact as established by the pleadings and evidence:

  • The Great Northern and Northern Pacific owned railroad lines from Minnesota to Puget Sound that are parallel and competing lines.
  • These two railroads in 1901 jointly acquired 98% of the capital stock of the Chicago, Burlington & Quincy Railway.
  • Thereafter in 1901 James J. Hill, J. P. Morgan and six other men, all of whom were defendants in the case and collectively had practical control of the two principal railroads, arranged to place a large majority of the stock of the two railroads in a holding company, Northern Securities, and that was done.
  • As a result, the control of these two railroads was put into a single person and thereby “destroyed every motive for competition” between them.
  • Those “who conceived and executed this plan . . . intended . . . to accomplish these objects.”

The court then concluded that the Congress “deliberately employed words of such general import [in section 1 of the Sherman Act] as, in its opinion, would comprehend every scheme that might be devised to accomplish that end.” In addition, the U.S. Supreme Court had held that the Act “applies to interstate carriers of freight and passengers . . .; that [the Act does] not mean in unreasonable or partial restraint of trade or commerce, but any direct restraint thereof; that an agreement between competing railroads . . . [to fix their rates is] a contract in direct restraint of commerce . . .; and [that the Act is constitutional].”

Therefore, the court entered a decree that the defendants had violated section 1 of The Sherman Act and that Northern Securities was enjoined from acquiring additional stock of the two railroads, from voting its holdings of those shares and from exercising or attempting to exercise any control or direction over the two railroads. Northern Securities, however, was permitted to rescind its acquisitions of the stock of the two railroads.

The Case in the Supreme Court

The case then went directly to the U.S. Supreme Court, [4] which on December 14, 1903, heard arguments. Attorney General Knox appeared for the Government and made what many thought was a brilliant argument without any questions from the Justices.

In March 1904, the U.S. Supreme Court, 5 to 4, affirmed the Eighth Circuit and ordered the company dismantled. (Northern Securities Co. v. United States, 193 U.S. 197 (1904).) The Court’s plurality opinion by Mr. Justice John Marshall Harlan and supported by only three of the other Justices concluded that “the evidence . . . shows a violation of the . . . [Sherman Act, which] declares illegal every combination or conspiracy in restraint of commerce among the several states . . . and forbids attempts to monopolize such commerce or any part of it.”

In so concluding, the Harlan opinion emphasized that the Court’s prior decisions had established that “every contract, combination, or conspiracy in whatever form, of whatever nature, and whoever may be parties to it, [that] directly or necessarily operates in restraint of [interstate] . . . commerce” is illegal. Those prior decisions, said the Harlan opinion, also determined that the statute is not limited to unreasonable restraints of trade; that railroads operating in interstate trade are covered by the statute; and that every contract, combination or conspiracy that would extinguish such competition is illegal. (Emphasis added.)

Mr. Justice David Josiah Brewer concurred in the judgment affirming the lower court’s conclusion of antitrust violations, but disagreed with the rationale of the Harlan opinion because of fear that it “might tend to unsettle legitimate business enterprises, stifle or retard wholesome business activities, encourage improper disregard of reasonable contracts, and invite unnecessary litigation.” Instead, said Justice Brewer, the statute only covered “contracts which were in direct restraint of trade, unreasonable, and against public policy.” (Emphasis added.)

A dissenting opinion was filed by Mr. Justice Edward Douglas White and joined by Chief Justice Melville Fuller and Justices Rufus Wheeler Peckham and Oliver Wendell Holmes. This opinion concluded that the constitutional power of the federal government over interstate commerce did not extend to cover Northern Securities Company’s acquisition of the common stock of the two railroads.

Holmes also filed a separate dissenting opinion that was joined by the other three dissenters. Holmes asserted that the antitrust statute only outlawed combinations in restraint of trade, not of competition and that he saw no evidence of an attempt to monopolize some portion of U.S. trade or commerce. He also expressed relief that “only a minority of my brethren [the four Justices who subscribed to the opinion of Mr. Justice Harlan] adopt an interpretation of the [statute] . . . which . . . would make eternal the bellum omnium contra omnes [the war of all against all], and disintegrate society so far as it could into individual atoms . . . . [Such an interpretation] would be an attempt to reorganize society . . . . I believe Congress was not entrusted by the Constitution with the power to make . . . [such a law], and I am deeply persuaded that it has not tried.”

The high court’s action was a major victory for the administration and put the business community on notice that although this was a Republican administration, it would not give business free rein to operate without regard for the public welfare.

W. C. Brown’s Reaction to the Supreme Court’s Decision 

W. C. Brown
W. C. Brown

Soon thereafter (May 24, 1904), W.C. Brown, my maternal great-great-uncle, in a speech to the Illinois Manufacturers Association that was covered by the New York Times commented on the Supreme Court’s decision. He said, “Propositions looking to the betterment of [railroad] service, having no other object, and impossible of any other result, have been misunderstood and have been fought inch by inch with a perseverance and zeal worthy a better cause.” As a result, Brown continued, it was “not impossible that the language of the majority of the Supreme Court [in the Northern Securities case] may . . . seem to reflect the clamor of the public, rather than the calm, judicial review of a great question.” [5]

Brown added that by “amendment or by judicial interpretation the question of reasonable restraint of commerce, as against any restraint whatever, must become part of the Sherman . . . [Act], and must be considered in its enforcement, or obstacles to commercial and industrial progress are likely to be interposed the gravity of which no one can foresee.” (Emphasis added.)

This commentary was preceded by Brown’s proclaiming that “[e]xcept for the birth of Christ, no event has meant so much to humanity as the U.S. Declaration of Independence;” that the recent U.S. war with Spain was “as holy, as high and unselfish in purpose as ever inspired a people;” and that the U.S. had the “satisfaction of having borne its share of the burden of carrying Christianity, civilization and education to those who sit in the darkness of ignorance and superstition.”

Brown also issued a stern warning that apparently emerged from his growing up in thinly populated Iowa and Illinois and that ignored his presumably elegant life in New York City (and earlier in Chicago). Brown said, “The most serious menace that clouds our national horizon today, ominous now and increasing in size and anger and portent, is the rapid growth of our cities . . . . No man can regard the growth of the great centers of population, with their sinister, dangerous, preponderantly influence in the politics of the State and Nation, without alarm.” He added, “The remedy for this evil and the safety of the Nation was building up, encouraging, and increasing our agricultural population.”

It should also be noted that at the time of this speech, Brown was a Vice President of the New York Central Railway, two of whose directors were defendants in the case: J. P. Morgan, a principal architect and beneficiary of the formation of the Northern Securities Company, and George F. Baker.

Subsequent Supreme Court’s Interpretations of the Sherman Act

Seven years later, in 1911, the approach to interpreting the Sherman act advocated by Justice Brewer and W. C. Brown was in fact adopted by the U.S. Supreme Court. In Standard Oil Co. v. United States, 221 U.S. 1 (1911), the Court, 8 to 1, stated that only combinations and contracts unreasonably restraining interstate or foreign commerce were illegal under the Sherman Act. Justice John Marshall Harlan, the lone dissenter in this case and the author of the Court’s opinion in Northern Securities, said the Rule of Reason was a departure from previous Sherman Act case law, which purportedly had interpreted the language of the Sherman Act to hold that all contracts restraining trade were prohibited, regardless of whether the restraint actually produced ill effects.

Thereafter the Court unanimously reaffirmed the Rule of Reason in two cases: United States v. American Tobacco Co., 221 U.S. 106 (1911) (section 2 of the Sherman Act did not ban the mere possession of a monopoly but only the unreasonable acquisition and/or maintenance of monopoly); Chicago Board of Trade v. United States, 246 U.S. 231 (1918) (agreement between rivals limiting rivalry on price after an exchange was closed was reasonable and thus legal).

Subsequent Supreme Court cases established the concept of per se violations of Section 1 of the Sherman Act. These are “agreements, conspiracies or trusts in restraint of trade” that have been found to have a “pernicious effect on competition” or “lack any redeeming virtue” and include competitors’ agreements to fix their prices or divide markets between them and concerted refusals to deal.

For other alleged violations of section 1 of the Sherman Act, the courts engage in a “rule of reason” analysis to evaluate the intent and purpose of the conduct, the facts peculiar to the business and industry, the history of the conduct and its effect on competition. If the result of this judicial analysis is the conduct unreasonably restrains trade, it is a violation of section 1.

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[1] This post is based upon Edmund Morris, Theodore Rex at 59-65, 87-95, 219, 304-05, 313-16 (Random House; New York; 2001); MIller Center, Theodore Roosevelt: Domestic Affairs; and the other sources cited below.

[2]  The James J. Hill House is a St. Paul mansion now open to the public and operated by the Minnesota Historical Society.

[3] J.P. Morgan and George F. Baker were also directors of the New York Central Railway, and I was a beneficiary of Baker’s wealth as a George F. Baker Scholar at Grinnell College, 1957-1961. Morgan’s Manhattan Library is now the Morgan Library & Museum that is open to the public.

[4] As of 1903 nine U.S. circuit courts had jurisdiction over trials of all civil suits initiated by the U. S. Government in different parts of the country, and the circuit court that covered the State of Minnesota (the Eighth Circuit) had four Circuit Judges (Henry C. Caldwell, Walter H. Sanborn, Amos M. Thayer and Willis Van Devanter). As of January 1, 1912, these courts were abolished, and the previously established U. S. district courts assumed jurisdiction over all civil and criminal cases in the federal courts.

[5] W.C. Brown, Address before the Meeting of the Illinois Manufacturers Association, Chicago, Illinois (May 23, 1904); Supreme Court Influenced, N.Y. Times (May 24, 1904).

The New York Central Railroad at Start of the 20th Century

New_York_Central_Herald

 At the start of the 20th century the New York Central Railroad was one of the most important and powerful railroads in the U.S., and because of the importance of railroading at the time, it was one of the country’s most powerful corporations. Its lines stretched from Boston in the east to Chicago and St. Louis in the west and from New York City in the south to the Canadian border in the north.

20th Century Limited
20th Century Limited

Starting in 1902, its flagship operation was the luxurious first-class Twentieth Century Limited, operating on a fast schedule between New York’s Grand Central Terminal and Chicago’s LaSalle Street Station. Here are an image of an early Twentieth Century Limited train and a map of the Central’s lines in 1914.

 

 rail.str.0249.01        

 The Central’s Board of Directors

From its headquarters in New York City, the Central’s board of directors during the first decade of the century included men (all white and no women, sorry) who were wealthy and powerful in their own right and who are important in American history. Here are profiles of some of these figures.

William K. Vanderbilt
William K. Vanderbilt

William K. Vanderbilt, a grandson of Cornelius “Commodore Vanderbilt, [1] had been active in the day-to-day operations of the Central from 1863 until 1903. He was a yachtsman who won the America’s Cup in 1895, an owner of many race horses, an active supporter of the Metropolitan Opera and an owner of fine paintings which he eventually bequeathed to the Metropolitan Museum of Art. His mansion on Fifth Avenue  was regarded as one of Manhattan’s most magnificent residences. When he died in 1920 his estate publicly was estimated at $100 million.

Frederick K. Vanderbilt was another grandson of the Commodore who also had been active in the Central.

Hamlton McKown Twombly
Hamlton McKown Twombly

 

Hamilton McKown Twombly was married to the Commodore’s granddaughter, Florence Adele Vanderbilt, and through wise investment of her inheritance and his own money became very wealthy.

 

 

 

Chauncey Depew
Chauncey Depew

Chauncey M. Depew was the Vanderbilts’ lawyer, a “glib raconteur, master of ceremonies and after-dinner speaker” who used his legal talents in “an essentially public relations role for the [Central] and other Vanderbilt properties.”

Depew also was a prominent Republican Party politician. He was one of the organizers of the Party in 1858; a delegate to every Party convention from 1860 to 1920; a member of the New York legislature, 1861-62; New York’s Secretary of State, 1864-65; a candidate for the Party’s presidential nomination in 1888; President Harrison’s choice for U.S. Secretary of State, which Depew declined; and a U.S. Senator from New York, 1899-1911 (while he was a Director of the Central). During the Civil War he was a confidant of President Lincoln, which lead to Depew’s being New York’s official escort for President Lincoln’s funeral train on its way to Illinois.

In 1866 Depew as the principal speaker at the dedication of the Statue of Liberty said,“We dedicate this statue to the friendship of nations and the peace of the world. The spirit of liberty embraces all races in common; it voices in all languages the same needs and aspirations. The full power of its expansive and progressive influence cannot be reached until wars cease, armies are disbanded, and international disputes are settled by lawful tribunals and the principles of justice. Then the people of every nation, secure from invasion and free from the burden and menace of great armaments, can calmly and dispassionately promote their own happiness and prosperity.” This sounds like the post-World War II Universal Declaration of Human Rights.

 

J. P. Morgan
J. P. Morgan

 

John Pierpont (“J.P.”) Morgan, of course, was the famous Wall Street financier of the robber barons in the late 19th century. He reorganized major industrial companies and railroads and was one of the most powerful figures in railroading. J.P. also helped to halt financial panics in 1893 and 1907.

 

 

George S. Bowdoin was a wealthy partner of J. P. Morgan.[2]

William Rockefeller
William Rockefeller

 

William Rockefeller with his older brother, John D. Rockefeller, established and was active in the Standard Oil Company. William also was part of the “Standard Oil Gang” that engaged in various financial promotions. William was a jovial man who liked good living with little taste for philanthropy.

 

George F. Baker
George F. Baker

 

George F. Baker was another Wall Street financier, an ally of the Rockefellers and a founder of the First National Bank of New York. During the Civil War he was consulted by members of the Lincoln Cabinet on financial matters. He endowed the Harvard Business School and made large contributions to the Metropolitan Museum of Art and the Red Cross.[3]

 

 

 

James Stillman
James Stillman

James Stillman was the President of the National City Bank of New York City (now known as Citibank), and his two daughters married sons of William Rockefeller. Stillman was considered to be one of the 100 wealthiest Americans of his time.

Edward H. Harriman
Edward H. Harriman

 

Edward H. Harriman was the President of the Union Pacific Railroad and an ally of William Rockefeller and James Stillman.[4]

 

 

Marvin Hughitt
Marvin Hughitt

 

Marvin Hughitt was the President of the Chicago & Northwestern Railroad.

Lewis Cass Ledyard
Lewis Cass Ledyard

 

Lewis Cass Ledyard, a Wall Street lawyer, co-founder of the law firm of Carter, Ledyard & Milburn and counsel for the New York Stock Exchange and noted corporations. Ledyard was the executor of the J.P. Morgan estate.

 

Darius O. Mills
Darius O. Mills

 

Darius O. Mills was a Gold Rush adventurer who turned to finance and banking. For a time he was the wealthiest person in California.

William H. Newman was the Central’s President at the start of the 20th century until he was succeeded by W. C. Brown.  Newman was from Virginia and started his railroad career at age 23 in 1869 as a station agent to become in 1898 the president of two Central subsidiaries–the Lake Shore & Michigan Southern and the Lake Erie & Western Railroads.

Conclusion

This was the world that in 1902 welcomed into its senior executive ranks William Carlos Brown, a man of modest background from the State of Iowa.

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[1] “Commodore” Vanderbilt through a shipping fortune and stock manipulations gained control of the Central in the 1860’s. His grand ball in 1883 is often seen as the epitome of the gilded age. The Commodore gave $1 million to Tennessee’s Central University in exchange for its being renamed as Vanderbilt University. A contemporary descendant of the “Commodore” is CNN’s Anderson Cooper.

[2] One of George S. Bowdoin’s ancestors, James Bowdoin, was a Governor of Massachusetts, and the latter’s son, James Bowdoin III, was an early benefactor of Bowdoin College in Brunswick, Maine. The College was chartered in 1794 by Massachusetts Governor Samuel Adams when Maine was part of Massachusetts and was named for Governor Bowdoin.

[3] Baker’s son, George F. Baker, Jr., was another Wall Street financier whose trust established a college scholarship program, of which I was a beneficiary as a George F. Baker Scholar at Grinnell College.

[4] Edward Harriman’s son, W. Averell Harriman (1891 – 1986), was a special envoy to Europe for President Franklin D. Roosevelt, U.S. Secretary of Commerce under President Truman, Governor of New York and U.S. Ambassador to the Soviet Union and later to Great Britain. He was a candidate for the Democratic presidential nomination in 1952, and again in 1956, but lost to Adlai Stevenson both times.

 

Gratitude III

In “Gratitude I” I expressed gratitude for my educational and professional mentors. In “Gratitude II” the subject was gratitude for my wife, children and grandchildren, my spiritual journey and my financial ability to retire at age 62. Here are some other things to add to my list for thankfulness.

Malcolm Gladwell’s Outliers emphasizes the importance of an individual’s family and place and date of birth as determinants of success. Warren Buffett, the great investor from Omaha, frequently says how fortunate he is to have won the ovarian lottery by having been born born in the U.S. in the 1920’s. They remind me to be grateful for having been born in the U.S.A. It is indeed a great country and provided me with opportunity after opportunity.

I am also grateful that I was born at the end of the Great Depression-era and as a result am a member of a relatively small age-cohort. This has meant that I faced less competition for many of the opportunities I have had. This also meant that I entered the labor force, after all of my university-level education, in 1966 when there was strong demand in the U.S. for new law graduates with good records. Today I read the many stories in the press about the difficulties of contemporary law graduates in finding good jobs, and this is confirmed by the law students I know at the University of Minnesota Law School. I am grateful I was not in that predicament when I was starting out.

Contemporary law graduates and other young people today often finish their student days with large student debts, further exasperating their situation in this difficult job market. Because of the full-tuition scholarships I had over nine years at Grinnell College and the Universities of Oxford and Chicago, I did not have any student debt and did not face this problem. For this I am also grateful.

This last point also uncovers another reason for gratitude. The three scholarships I had were the result of businessmen (George F. Baker and Cecil Rhodes) and lawyers who were financially successful in capitalist systems and who had philanthropic motivations to give back and encourage others.

Elizabeth Warren, a Harvard Law School Professor and a candidate for the Democratic nomination for the U.S. Senate from Massachusetts, is absolutely correct when she says:

  • “There is nobody in this country who got rich on his own. Nobody. You built a factory out there? Good for you. But I want to be clear: you moved your goods to market on the roads the rest of us paid for; you hired workers the rest of us paid to educate; you were safe in your factory because of police forces and fire forces that the rest of us paid for. You didn’t have to worry that   marauding bands would come and seize everything at your factory, and hire someone to protect against this, because of the work the rest of us did.”
  • “Now look, you built a factory and it turned into something terrific, or a great idea? God bless. Keep a big hunk of it. But part of the underlying social contract is you take a hunk   of that and pay forward for the next kid who comes along.”

The same thought is expressed many times and many ways in the Bible. Here is what the letter to the Hebrews says. “[S]ince we are surrounded by so great a cloud of witnesses, let us also lay aside every weight and the sin that clings so closely, and let us run with perseverance the race that is set before us, looking to Jesus the pioneer and perfecter of our faith.” (Hebrews 12: 1-2.) “Let mutual love continue. Do not neglect to show hospitality to strangers, for by so doing that some have entertained angels without knowing it. Remember those who are in prison, as though you were in prison with them; and those who are being tortured, as though you yourselves were being tortured.” (Hebrews 13: 1-3.)

For all of these blessings, I give thanks to God and to those named and unnamed individuals who helped me along the way.

Selecting a College

In the summer of 1956 (before my final year of high school), I visited Harvard, Yale and Princeton Universities and the University of Chicago. I obviously thought that I was qualified at least to apply to these elite institutions.  However, my family was of very modest financial means, and I concluded I could not afford to go to any of these institutions. As a result, I never applied to them.

Grinnell College

At the time I also was considering Grinnell College because of its reputation for academic excellence, its small size and its being located in my home state of Iowa. It, however, was more expensive than the state universities in Iowa and thus also probably beyond my family’s financial capacity.

That Fall, however, a high school counselor told me about a competitive full-tuition scholarship at Grinnell College called the George F. Baker Scholarship. I applied for that scholarship, went to the College for an interview and was awarded the Scholarship. This made it financially possible for me to attend Grinnell, and I enrolled the next Fall at the College. Successful academic performance resulted in renewal of the Scholarship for my full four years for total financial aid of $3,700.[1]

 

George F. Baker

George F. Baker (1840-1931) had no personal connection with Grinnell. He was a U.S. financier and a co-founder of the First National Bank of New York that later became Citibank N.A. He was a director of many corporations and amassed a great fortune.[2]

Baker’s fortune was used to fund his many philanthropic endeavors. He provided much of the original funding for the Harvard Business School and its Baker Library. He also gave the money for the Baker Memorial Library at Dartmouth College, the Baker Field for athletics at Columbia University and many other charitable causes in New York City.[3]

In 1946 the George F. Baker Trust started the George F. Baker Scholarship program that as of 1964 had provided scholarships to some 700 to 800 men at 25 colleges and universities throughout the U.S. This Scholarship program ended in about 1977. The recipients were chosen by these institutions on a highly selective basis.[4]

In or about 1951, the Trust added Grinnell College as one of the institutions participating in the Scholarship program. The Trust gave the College $50,000 to be distributed to outstanding young men who were graduating from high school during the next four years (1951-54).[5] The Trust’s relationship with Grinnell must have been renewed as it was available to me, 1957-61.[6]


[1]  Letter, the Trust  to Duane Krohnke (May 1, 1976).

[2] Wikipedia, George Fisher Baker, http://en.wikipedia.org/wiki/George_Fisher_Baker.

[3] Id.

[4] Letter, the Trust to Duane Krohnke (Sept. 1964); letter, the Trust to Duane Krohnke (June 25, 1965).

[5] Charles H. Foster, A Quest for Leadership in the Small Town High Schools of America (circa 1951)(Grinnell College brochure written at request of Grinnell College President Samuel N. Stevens).

[6] I have not been able to ascertain the exact period the Baker Scholarships were available at Grinnell.