A BIT of HONEST HISTORY OF AMERICA --- Episode 2

     OUR RAILROADS WERE BUILT MOSTLY ON FRAUD

   The wild fraud on the railroads led to more control of railroad finances by bankers, who wanted more stability ---- profit by law rather than by theft. By the 1890s, most of the country's railway mileage was concentrated in six huge systems. Four of these were completely or partially controlled by the House of Morgan, and two others by the bankers Kuhn, Loeb, and Company. 
   J.P.Morgan had started before the war, as the son of a banker who began selling stocks for the railroads for good commissions. During the Civil War he bought five thousand rifles for $3.50 each from an army arsenal, and sold them to a general in the field for $22 each. The rifles were defective and would shoot off the thumbs of the soldiers using them. A congressional committee noted this in the small print of an obscure report, but a federal judge upheld the deal as the fulfillment of a valid legal contract. 
   Morgan has escaped military service in the Civil War by paying $300 to a substitute. So did John D. Rockefeller, Andrew Carnegie, Philip Armour, Jay Gould, and James Mellon. Mellon's father had written to him that "a man may be a patriot without risking his own life or sacrificing his health. There are plenty of lives less valuable." 
   It was the firm of Drexel, Morgan and Company that was given a U.S. government contract to float a bond issue of $260 million. The government could have sold the bonds directly ; it chose to pay the bankers $5 million in commission. 
   On January 2, 1889, as Gustavus Myers reports : 

     . . . a circular marked "Private and Confidential" was issued by the three banking houses of Drexel, Morgan & Company, Brown Brothers & Company, and Kidder, Peabody & Company. The most painstaking care was exercised that this document should not find its way into the press or otherwise become public . . . Why this fear ? Because the circular was an invitation . . . to the great railroad magnates to assemble at Morgan's house, No. 219 Madison Avenue, there to form, in the phrase of the day, an iron-clad combination . . . a compact which would efface competition among certain railroads, and unite those interests in an agreement by which the people of the United States would be bled even more effectively than before. 

   There was a human cost to this exciting story of financial ingenuity. That year, 1889, records of the Interstate Commerce Commission showed that 22,000 railroad workers were killed or injured. 
   In 1895 the gold reserve of the United States was depleted, while twenty-six New York City banks had $129 million in gold in their vaults. A syndicate of bankers headed by J. P. Morgan & Company,  August Belmont & Company, the National City Bank, and others offered to give the government gold in exchange for bonds. President Grover Cleveland agreed. The bankers immediately resold the bonds at higher prices, making $18 million profit. 
   A journalist wrote : "If a man wants to buy beef, he must go to the butcher . . . If Mr. Cleveland wants much gold, he must go to the big banker." 
   While making his fortune, Morgan brought rationality and organization to the national economy. He kept the system stable. He said : "We do not want financial convulsions and have one thing one day and another thing another day." He linked railroads to one another, all of them to banks, banks to insurance companies. By 1900, he controlled 100,000 miles of railroad, half the country's mileage. 
   Three insurance companies dominated by the Morgan group had a billion dollars in assets.  They had $50 million a year to invest --- money given by ordinary people for their insurance policies.  Louis Brandeis, describing in his book Other People's Money [ before he became a Supreme Court justice] , wrote : "They control the people through the people's own money." 
   John D. Rockefeller started as a bookkeeper in Cleveland, became a merchant, accumulated money, and decided that, in the new industry of oil, who controlled the oil refineries controlled the industry. He bought his first oil refinery in1862, and by 1870 set up Standard Oil Company of Ohio, made secret agreements with railroads to ship his oil with them if they gave him rebates --- discounts --- on their prices, and thus drove competitors out of business. 
  One independent refiner said : "If we did not sell out . . . we would be crushed out. . . There was only one buyer on the market and we had to sell at their terms." Memos like this one passed passed among Standard Oil officials : "Wilkerson & Co. received car of oil Monday 13th . . . Please turn another screw." A rival refinery in Buffalo was rocked by a small explosion arranged by Standard Oil officials with the refinery's chief mechanic. 
   The Standard Oil Company, by 1899, was a holding company which controlled the stock of many other companies. The capital was $110 million, the profit was $45 million a year, and John D. Rockefeller's fortune was estimated at $200 million. Before long he wouldmove into iron, copper, coal, shipping, and banking [ Chase Manhattan Bank ] . Profits would be $81 million a year, and the Rockefeller fortune would total two billion dollars. 

   THIS SAD SAGA WILL CONTINUE. STAY TUNED.