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.

Gratitude Revisited


Michael Lewis @
Princeton University

Michael Lewis, a member of Princeton University’s Class of 1982 and author of such successful books as Moneyball and Boomerang, gave the 2012 Baccalaureate speech at his alma mater.

He said, “Life’s outcomes, while not entirely random, have a huge amount of luck baked into them. Above all, recognize that if you have had success, you have also had luck — and with luck comes obligation. You owe a debt, and not just to your Gods. You owe a debt to the unlucky.”  The text of the speech is available, as is a YouTube video.

I made a similar point in my post, Gratitude III, where I said, “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 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.”

Every one of us owes so much to so many people who helped us along the way. Our successes are not ours alone. Be grateful. Help others as you have been helped.

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.

No to Minnesota Constitutional Amendment on Taxes

Republican state legislators are now proposing to amend the Minnesota Constitution to require a super-majority vote (60%) in the Legislature to approve most tax increases.[1]

This is a stupid idea.   Have they not read about the many fiscal problems California has due to its imprudent requirement for super-majority legislative votes to approve a budget? The U.S. Senate is hamstrung due to its outdated and unconstitutional rules that impose a de facto super-majority vote (again 60%) to do almost anything.[2]  Minnesota even has difficulties passing a budget under normal rules.

Our Legislature needs to operate on a simple democratic principle–the majority rules.

The proposed constitutional amendment stems from the understandable, but mistaken, view that whatever a person earns is due entirely to his own efforts. On the contrary, every one of us owes whatever success one has to a multitude of other people, to a “cloud of witnesses.”[3] Warren Buffett often remarks on his great fortune to have been born in the U.S. We are all in this together. We are our brothers and sisters’ keeper.[4]


[1] Kazuba, Raising the bar on raising taxes, StarTribune, May 3, 2011, at B7.

[2] See Post: The Abominable Rules of the U.S. Senate (04/06/11).

[3]  The Bible, Hebrews 12:1.

[4] A slightly different version of this post was published as a letter to the editor in the StarTribune (May 7, 2011), http://www.startribune.com/opinion/letters/121416799.html?page=all&prepage=1&c=y#continue.