Another View: The Northern
 Securities Saga
  Chicago, Milwaukee, St. Paul & Pacific Railroad Company  

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 way?"

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 matter.

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 point
however. Harriman, who had apparently been asleep, decided
that HE wanted a route into Chicago and didn't know that
Hill and Morgan were looking for a railroad into Chicago and
didn't know that the Forbes holdings were available. The
Conventional Story (CS) is that Harriman "discovered" that
Hill and Morgan had "secretly" acquired the Q, and he had
wanted it to get to Chicago. The CS fails to mention that he
already owned the Chicago & Alton, and that he had, just six
months before, sold a large block of Burlington shares,
apparently dispelling any notion of any interest in the
Burlington. Anyway, he ordered his banker, Jacob Schiff, to
"secretly" buy up Northern Pacific shares, where half of the
Burlington shares had been deposited. So Schiff dutifully
started buying, and the stock began a steady rise under this
buying pressure. Hill, ever alert, noticed the rise.

Now, this is occurring in 1901, but step back for a minute.
Just a couple of years, William Rockefeller and Henry Rogers
had engaged in a monster stock scheme to obtain control of
the Anaconda Copper Mining properties in Butte. Their
broker, Thomas Lawson of Boston, was well known in his own
right, but the scheme had been so astoundingly successful,
that even he was appalled, and wrote a wonderful book about
it called "Frenzied Finance." It paints the most colorful
contemporary portraits we have William Rockefeller and H. H.
Rogers. In any case, the upshot was that Bill and H.H.
obtained control of the Anaconda, and earned about $35
million in profit, AFTER paying off the previous owner,
Marcus Daly. Not bad for a days work. Rockefeller
immediately ordered two surveys from existing lines of his
pet railroad, the Milwaukee, to Butte. The NP was a Morgan
road, Bill and H.H. could not stand Morgan, and the NP was a
horrible railroad anyway. But, he wanted a route to Butte,
above all, one that he alone controlled.

During the Anaconda takeover, Rogers had mentioned to Lawson
the financing had included Morgan, and that this had made
him unhappy. "But it won't be long before we can do business
without Morgan, not very long at all." It was an
interesting remark, coupled with their knowledge that Morgan
wanted to lease the Milwaukee. Turning Morgan down, I have
no doubt that Rogers and Rockefeller knew he would make a
bid for another system. They also wanted to build a railroad
to Butte to hurt Morgan's Northern Pacific. Indeed, if they
could get their own line to Butte AND hurt JP Morgan, though
his Northern Pacific, perfect. If they just went out and
bought the NP, that would mean some kind of profit to
Morgan. No way.

At one point, I believed that Harriman's battle to get
control of the NP, ostensibly to get control of the
Burlington was also Rockefeller's effort to get control of
the NP to get to Butte. I've changed my mind.

Several things caused me to do this. Call it, if you will,
after Sherlock Holmes' "The Dog That Didn't Bark." Step
forward, 13 years, to Morgan's death. Morgan's reputation
had grown throughout the years. He was the most influential
banker in the world. He was considered the wealthiest man,
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 died,
though, Morgan's estate was found to be worth about $80
million. It was far, far less than anyone had imagined. John
D. Rockefeller was so surprised he remarked, "why, he wasn't
even a rich man!" No writer has ever really traced Morgan's
fortune, and so the surprise remains unexplained. What
happened to Morgan's money? Now, go back to the Northern
Securities battle in 1901. Old Schiff is buying up tons and
tons of NP stock for Harriman, with Rockefeller money. The
price keeps going up and, oh, by the way, JP Morgan is in
Europe. James J. Hill, whose' got a pretty big stake in
keeping the NP in friendly hands, which means Morgan's, gets
anxious, and finally speeds to New York. By this time, the
Harriman forces, primarily financed by Rockefeller and his
banker, James Stillman, both big stockholders in the Union
Pacific, had about $76 million in common and preferred stock
of the NP. Morgan and Hill's forces held less than $50
million, and something less than a majority of the common.
The Great Northern's New York headquarters just happened to
be in the same building as Schiff's office at Kuhn, Loeb &
Company. Schiff had been Hill's banker for over 15 years,
before his affiliation with Harriman had cooled the
relationship. But Hill, passing by, asked Schiff if he knew
what was going on. Here's were the CS lacks plausibility:
Schiff, one the most respected private bankers on Wall
Street, concerned with every punctilio of discretion and
trust, TOLD HIM! "Yes, we're buying every share of NP stock
we can get our hands on!"

Hill hit the panic button and wired Morgan. Morgan realized
that if Harriman bought out the NP, out from under him, it
would not only be a huge embarrassment, but make Morgan's
hard won investment worthless, if Harriman was in control.
He ordered buying at any cost. Now, here the Conventional
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 frantic BUY
orders hit the stock market like a tidal wave. NP stock
quickly broke 100, then 200, then 500, and even hit a $1,000
a share. Margin calls on smaller investors started to swamp
brokerage houses. The whole system started to collapse
around Morgan's ears. He called a truce, Rockefeller and
Harriman consented that he probably retained control, and a
Northern Securities Company was formed to control the GN,
NP, and CB&Q. A mistake had been made in that even though
Harriman, Rockefeller and Stillman controlled nearly double
the total shares of Morgan, he held the majority of the
common, while they had preferred, which could be retired on
the vote of the common stock. History records that they had
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 a
stock market raider.

2) Harriman's reputation had been built as a stock market
operator, and, incidentally, the most fearsome stock market
pirate of all was H.H. Rogers.

3) Rogers, who engaged in nearly all of his financial
operations with William Rockefeller, was no where to be
seen. Rockefeller rarely acted without Rogers. He had never
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 this: NP
bonds could be traded for NP COMMON STOCK!

5) Schiff, in any case, knew the difference between common
and preferred stock, that one was voting and one was not.
Why he would have bought ANY preferred stock is never
explained. It would have been a colossal mistake for an
errand boy on Wall Street, let alone Jacob Schiff.

6) Had it occurred the way it was told, Harriman would have
most likely killed Jacov Schiff for screwing up. Instead,
the notoriously volcanic Harriman seems to have said nothing
to Schiff about it. Schiff, in any event, continued placidly
as the Union Pacific banker.

7) Why would Schiff, notoriously discreet, have told Hill
what was happening?

8) Why, instead of Schiff, wouldn't Harriman have relied on
an experienced stock trader?

9) William Rockefeller, whose money was actually being
plowed into this thing, would also have been inclined to
make Schiff persona non grata for such a blunder. Instead,
in 1909, when the Milwaukee Road bond issues began pouring
forth, who got the job? Jacob Schiff.

10) In 1906, Rockefeller had threatened to fire Rosewell
Miller for proposing bond issues through brokers ("incurring
their high commissions"), particuarly without a provision
that the company could force exchanges for stock if the
fixed charges became too onerous later on.

11) After 1909, Rockefeller approved of Schiff offering
bonds exactly as Miller had proposed them, but even approved
extra commissions. This, to the man that had blundered the
NP and Burlington purchase?

12) Harriman had a Chicago railroad, why did he need another
one, and particuarly one that he had just sold a huge block
of shares in?

13) Had Harriman won, he would only have a vote for half the
Burlington shares, at best a stalemate in the control of the
Burlington. Harriman had never before evidenced satisfaction
with stalemates.

The Conventional Story raises more questions than it

The key man missing in the CS is Henry Rogers. He wasn't
there. That means that he had to be. He and Rockefeller had
a pile of cash from the Anaconda Copper takeover, about $35
million. The Milwaukee's Butte railroad surveys suggested
they would need about $65 million to build to Butte and
possibly beyond. Rogers had mentioned to Lawson, "it won't
be long before we don't have to deal with Morgan." They both
undoubtedly recognized that the Morgan/Hill acquisition of
the Burlington spelled trouble for the Milwaukee, but, with
so many railroads into Chicago, it was a fruitless battle to
try and oppose such an arrangement.

Here's how I think it happened. First, you get a front man.
Harriman, who is notoriously ambitious, is the one man out
west that had already shaken up James J. Hill. He made Hill
very nervous. Hill was notoriously prone to panic, and so
the stock rise would surely get him worked up. Pick a time,
for instance, when Morgan was in Europe and relatively
unavailable. Then, involve the single banker on Wall Street
that Hill was sure to ask for advice when he finally hit the
panic button, Jacob Schiff, and let the banker tell him.
Hill, in full panic at the news, would not note that, had
the story really been true, Schiff would not have told him.

Hill will, true to form get ahold of Morgan and, in his
panic, exagerate everything out of proportion. It was a
trait of Hill's, and he honored his reputation. Morgan,
unable to double check Hill's information from Europe, can
only respond as Hill demands, to buy up everything. Morgan
had been selling NP stock to finance his steel trust
efforts. Someone had been buying it in the $60 and $70
range. Now, upon Hill's frantic pleas, he was forced to buy
it, and more, back. Someone had been glad to sell it back to
him for $400, $600 and $1,000 a share.

After it was all over, Hill, further true to form, told
anyone who would listen that he and Morgan had certainly
"shown those guys," that they had tried to embarrass Morgan
and failed miserably. Morgan was characteristically silent,
but, C. S. Mellen, who could not stand Hill, and vice versa,
continued on as president of the NP with Morgan's support.
That Fall, Hill resigned from the board of directors of the
NP. All was not well between Morgan and Hill, for some

Frankly, it had every appearance of a trademark H. H. Rogers
stock market raid. Depending on how I run the numbers, it
looks like Rogers and Rockefeller might have made as much as
between $40 and $100 million from Morgan. They had actually
gained control of the NP. The prefered stock, was, through
the bonds, convertible to common. They HAD the NP, but they
didn't want the NP; that was too easy. They hated Morgan,
and this was a much more elegant method of not only avoiding
a consolidation with Harriman, who was his own strong man
and an ally with his own way of doing things, but a way to
embarass Morgan in the most telling way possible: a complex
financial stock raid, in which he had been trapped,
unmercifully. They had his stock; it was more satisfying to
take his money. Morgan salvaged his public financial
reputation at a stupendous cost to his own personal fortune.
Rockefeller and Rogers, gentlemen in their own way, had made
their point and did not gloat publicly. Hill was a dupe, and
played the part perfectly. Historians portray him favorably.
Schiff, whom historians paint as the ostensible blunderer,
was hugely rewarded, at both the UP and the Milwaukee when
its bond issues began issuing. THAT is why little Jacob
Schiff's Kuhn, Loeb & Company was able to "take advantage"
at the Milwaukee Road. It was his payback for being willing
to look like the idiot who didn't know the difference
between common and preferred stock. That is why Rogers could
suggest to Lawson, "it won't be long," as they were already
looking for a railroad line to Butte and a way to get Morgan
out of the way in the future, by a huge raid on Morgan's

Hill sensed, afterward, it wasn't all quite the way that
everyone thought. He knew, somehow, it wasn't a Harriman
effort at all. He wrote to one ally, that it was "William
Rockefeller, acting for the St. Paul Railway." He knew,
somehow, that the Milwaukee was involved, and that
Rockfeller was involved not as a supporter of Harriman, as
everyone assumed, but for other reasons. He couldn't quite
put his finger on it, and historians have disregarded the
suspicion. Morgan knew.

The ICC, and Max Lowenthal, looked through their
bureaucratic prisms at "rates of return" on investment, and
lack of traffic studies, and thought it all a bit odd and
careless. They greatly underestimated authentic financial
titans like H.H. Rogers and William Rockefeller, but perhaps
the Pacific Extension makes more sense now. With their
Anaconda Company profits of $35 million, and their NP raid
profits of, say, $60 million, they had more than enough
money to build the Pacific Extension without any expenditure
of their own funds. That was typical of them. The Pacific
Extension was, to the investors of the Milwaukee Road,
absolutely free. It was paid for by the owner of the
Northern Pacific Railway. That is the explanation why Morgan
died "poor."

The Milwaukee Road's Pacific Extension was the victory of
one powerful group over another, not the "rivalry between
powerful groups," that the ICC thought it saw, and that
Lowenthal was certain had caused irrational decisions to be
made. Henry H. Rogers was the missing element in the whole
conventional story of the battle for the control of the
Northern Pacific Railroad in 1901.

He was the dog that did not bark.

Best, Michael Sol