The Age of Big Business - Burton Jesse Hendrick (read me like a book .TXT) 📗

benefited New York. He became a member of that group which, under the leadership of Joseph H. Choate and Samuel J. Tilden, accomplished the downfall of William M. Tweed. Whitney remained Tilden’s political protege for several years. Though highbred and luxury-loving, as a young man he was not averse to hard political work, and many old-timers still remember the days when “Bill”

Whitney delivered cart-tail harangues on the lower east side. By 1884 he had become the most prominent Democrat in New York—always a foe to Tammany—and as such he contributed largely to Cleveland’s first election, became Secretary of the Navy in Cleveland’s cabinet and that great President’s close friend and adviser. As Secretary of the Navy, Whitney, who found the fleet composed of a few useless hulks left over from the days of Farragut, created the fighting force that did such efficient service in the Spanish War. The fact that the United States is now the third naval power is largely owing to these early activities of Whitney.

 

Certainly all this national service forms a strange prelude to Whitney’s activities in the public utilities of New York and other cities. Had he died, indeed, in his fiftieth year, his name would be renowned today as a worker for the highest ideals of American citizenship. What suddenly made him turn his back upon his past, join his former enemies in Tammany Hall, and engage in these great speculative enterprises? The simplest explanation is that, with his ability and ambition, Whitney had the luxurious tastes of a Medici. At the height of his career his financial success found expression in a magnificent house which he established on Fifth Avenue. Its furnishings were one of the wonders of New York. Whitney ransacked the art treasures of Europe, stripped medieval castles of their carvings and tapestries, ripped whole staircases and ceilings from the repose of centuries, and relaid them in this abode of splendor, and here he entertained with a lavishness that astounded New York. This single exploit pictures the man. Everything that Whitney did and was his house, his financial transactions, his Wall Street speculations, the rewards which he gave his friends assumed heroic proportions. But these things all demanded money. The dilapidated horse railways of New York offered him his most convenient opportunity for amassing it.

 

But Whitney had not proceeded far when he came face to face with a quiet and energetic young man who had already made considerable progress in the New York transit field. This was a Virginian of South Irish descent who had started life as a humble broker’s clerk twelve or fourteen years before. His name was Thomas Fortune Ryan. Few men have wielded greater power in American finance, but in 1884 Ryan was merely a ruddy-faced, cleancut, and clean-living Irishman of thirty-three, who could be depended on to execute quickly and faithfully orders on the New York Stock Exchange—even though they were small ones—and who, in unostentatious fashion, had already acquired much influence in Tammany Hall. With his six feet of stature, his extremely slender figure, his long legs, his long arms, his raiment—which always represented the height of fashion and tended slightly toward the flashy —Ryan made a conspicuous figure wherever he went. He was born in 1851, on a small farm in Nelson County, Virginia. The Civil War, which broke out when Ryan was a boy of ten, destroyed the family fortune and in 1868, when seventeen, he began life as a drygoods clerk in Baltimore, fulfilling the tradition of the successful country boy in the large city by marrying his employer’s daughter. When his father-in-law failed, in 1870, Ryan came to New York, went to work in a broker’s office, and succeeded so well that, in a few years, he was able to purchase a seat on the Stock Exchange. He was sufficiently skillful as a broker to number Jay Gould among his customers and to inspire a prophecy by William C. Whitney that, if he retained his health, he would become one of the richest men in the country.

Afterwards, when he knew him more intimately, Whitney elaborated this estimate by saying that Ryan was “the most adroit, suave, and noiseless man he had ever known.” Ryan had two compelling traits that soon won for him these influential admirers. First of all was his marvelous industry. His genius was not spasmodic. He worked steadily, regularly, never losing a moment, never getting excited, going, day after day, the same monotonous dog-trot, easily outdistancing scores of apparently stronger men. He also had the indispensable faculty of silence. He has always been the least talkative man in Wall Street, but, with all his reserve, he has remained the soul of courtesy and outward good nature.

 

Here, then, we have the characters of this great impending drama—Yerkes in Chicago, Widener and Elkins in Philadelphia, Whitney and Ryan in New York. These five men did not invariably work as a unit. Yerkes, though he had considerable interest in Philadelphia, which had been the scene of his earliest exploits, limited his activities largely to Chicago. Widener and Elkins, however, not only dominated Philadelphia traction but participated in all of Yerkes’s enterprises in Chicago and held an equal interest with Whitney and Ryan in New York. The latter Metropolitan pair, though they confined their interest chiefly to their own city, at times transferred their attention to Chicago.

Thus, for nearly thirty years, these five men found their oyster in the transit systems of America’s three greatest cities—and, for that matter, in many others also.

 

An attempt to trace the convolutions of America’s street railway and public lighting finance would involve a puzzling array of statistics and an inextricable complexity of stocks, bonds, leases, holding companies, operating companies, construction companies, reorganizations, and the like. Difficult and apparently impenetrable as is this financial morass, the essential facts still stand out plainly enough. As already indicated, the fundamental basis upon which the whole system rested was the control of municipal politics. The story of the Metropolitan’s manipulation of the New York street railways starts with one of the most sordid episodes in the municipal annals of America’s largest city. Somewhat more than thirty years ago, a group of New York city fathers acquired an international fame as the “boodle aldermen.” These men had finally given way to the importunities of a certain Jacob Sharp, an eccentric New York character, who had for many years operated New York City railways, and granted a franchise for the construction of a horse-car line on lower Broadway. Soon after voting this franchise, regarded as perhaps the most valuable in the world, these same aldermen had begun to wear diamonds, to purchase real estate, and give other outward evidences of unexpected prosperity. Presently, however, these city fathers started a migration to Canada, Mexico, Spain, and other countries where the processes of extradition did not work smoothly. Sharp’s enemies had succeeded in precipitating a legislative investigation under the very capable leadership of Roscoe Conkling, who had little difficulty in showing that Sharp had purchased his aldermen for $500,000 cash. In a short time, such of the aldermen as were accessible to the police were languishing in prison, and Sharp had been arrested on twenty-one indictments for bribery and sentenced to four years’ hard labor—a sentence which he was saved from serving by his lonely and miserable death in Ludlow Street Jail. In the delirium preceding his dissolution Sharp raved constantly about his Broadway railroad and his enemies; it was apparently his belief that the investigation which had uncovered his rascality and the subsequent “persecutions” had been engineered by certain of his rivals, either to compel Sharp to disgorge his franchise or to produce the facts that would justify the legislature in annulling it on the ground of fraud.

 

Though the complete history of this transaction can never be written, we do possess certain facts that lend some color to this diagnosis. Up to the time that Sharp had captured this franchise, Ryan, Whitney, and the Philadelphians—not as partners, but as rivals—had competed with him for this prize. At the trial of Arthur J. McQuade in 1886, a fellow conspirator, who bore the somewhat suggestive name of Fullgraff, related certain details which, if true, would indicate that Sharp’s methods differed from those of his rivals only in that they had proved more successful.

Thirteen members of the Board of Aldermen, said Fullgraff, had formed a close corporation, elected a chairman, and adopted a policy of “business unity in all important matters,” which meant that they proposed to keep together in order to secure the highest price for the Broadway franchise. The cable railroad, which was the one with which Mr. Ryan was identified, offered $750,000, half in bonds and half in cash. Mr. Sharp, however, offered $500,000 all in cash. The aldermen voted in favor of Sharp because cash was not only a more valuable commodity than the bonds but, to use Alderman Fullgraff’s own words—“less easily traced.” That Whitney financed lawsuits against the validity of Sharp’s franchise appears upon the record, and that Ryan was actively promoting the Conkling investigation, is likewise a matter of evidence. Sharp’s victory had the great result of bringing together the three forces—Ryan, Whitney, and the Philadelphians—who had hitherto combated one another as rivals; that is, it caused the organization of the famous Whitney-Ryan-Widener-Elkins syndicate. If these men had inspired all those attacks on Sharp, their maneuver proved successful; for when the investigation had attained its climax and public indignation against Sharp had reached its most furious stage, that venerable corruptionist, worn down by ill health, and almost crazed by the popular outcry, sold his Broadway railroad to Peter A. B. Widener, William L. Elkins, and William H. Kemble. Thomas F. Ryan became secretary of the new corporation, and William C.

Whitney an active participant in its affairs.

 

This Broadway franchise formed the vertebral column of the New York transit system; with it as a basis, the operators formed the Metropolitan Street Railway Company in 1893, commonly known as the “Metropolitan.” They organized also the Metropolitan Traction Company, an organization which enjoys an historic position as the first “holding company” ever created in this country. Its peculiar attribute was that it did not construct and operate street railways itself, but merely owned other corporations that did so. Its only assets, that is, were paper securities representing the ownership and control of other companies. This “holding company,” which has since become almost a standardized form of corporation control in this country, was the invention of Mr. Francis Lynde Stetson, one of America’s greatest corporation lawyers. “Mr. Stetson,” Ryan is said to have remarked, “do you know what you did when you drew up the papers of the Metropolitan Traction Company? You made us a great big tin box.”

 

The plan which Whitney and his associates now followed was to obtain control, in various ways, of all the surface railways in New York and place them under the leadership of the Metropolitan.

Through their political influences they obtained franchises of priceless value, organized subsidiary street railway companies, and exchanged the stock of these subsidiary companies for that of the Metropolitan. A few illustrations will show the character of these transactions. They thus acquired, practically as a free gift, a franchise to build a cable railroad on Lexington Avenue.

At an extremely liberal estimate, this line cost perhaps $2,500,000 to construct, yet the syndicate turned this over to the Metropolitan for $10,000,000 of Metropolitan securities. They similarly acquired a franchise for a line on Columbus Avenue, spending perhaps $500,000 in construction, and handing the completed property over to the Metropolitan for $6,000,000. In exchange for these two properties, representing a real investment, it has been maintained, of $3,000,000, the inside syndicates received securities which had a face value of $16,000,000 and which, as will appear subsequently, had a market cash value of not far from $25,000,000. They purchased