November 13, 1878.Dear Madam:I have held your note of the 11th inst., received yesterday, until to-day, as I wished to thoroughly review every point connected with the negotiations for the purchase of the stock of the Backus Oil Company, to satisfy myself as to whether I had unwittingly done anything whereby you could have any right to feel injured. It is true that in the interview I had with you I suggested that if you desired to do so, you could retain an interest in the business of the Backus Oil Company, by keeping some number of its shares, and then I understood you to say that if you sold out you wished to go entirely out of the business. That being my understanding, our arrangements were made in case you concluded to make the sale that precluded any other interests being represented, and therefore, when you did make the inquiry as to your taking some of the stock, our answer was given in accordance with the facts noted above, but not at all in the spirit in which you refer tothe refusal in your note. In regard to the reference that you make as to my permitting the business of the Backus Oil Company tobe takenfrom you, I say that in this as in all else you have written in your letter of the 11th inst., you do me most grievous wrong. It was but of little moment to the interests represented by me whether the business of the Backus Oil Company was purchased or not. I believe that it was for your interest to make the sale, and am entirely candid in this statement, and beg to call your attention to the time, some two years ago, when you consulted Mr. Flagler and myself as to selling out your interests to Mr. Rose, at which time you were desirous of selling atconsiderably less price, and upon time, than you have now received in cash, and which sale you would have been glad to have closed if you could have obtained satisfactory security for the deferred payments. As to the price paid for the property, it is certainly three times greater than the cost at which we could now construct equal or better facilities; but wishing to take a liberal view of it, I urged the proposal of paying $60,000, which was thought much too high by some of our parties. I believe that if you would reconsider what you have written in your letter, to which this is a reply, you must admit having done me great injustice, and I am satisfied to await upon your innate sense of right for such admission. However, in view of what seems to be your present feeling, I now offer to restore to you the purchase made by us, you simply returning the amount of money which we have invested, and leaving us as though no purchase has been made.Should you not desire to accept this proposal, I offer to you 100, 200 or 300 shares of the stock at the same price that we paid for the same, with this addition, that if we keep the property we are under engagement to pay into the treasury of the Backus Oil Company any amount which added to the amountalready paid would make a total of $100,000 and thereby make the shares $100 each.That you may not be compelled to hastily come to a conclusion, I will leave open for three days these propositions for your acceptance or declination, and in the meantime believe me,Yours very truly,John D. Rockefeller.
November 13, 1878.
Dear Madam:
I have held your note of the 11th inst., received yesterday, until to-day, as I wished to thoroughly review every point connected with the negotiations for the purchase of the stock of the Backus Oil Company, to satisfy myself as to whether I had unwittingly done anything whereby you could have any right to feel injured. It is true that in the interview I had with you I suggested that if you desired to do so, you could retain an interest in the business of the Backus Oil Company, by keeping some number of its shares, and then I understood you to say that if you sold out you wished to go entirely out of the business. That being my understanding, our arrangements were made in case you concluded to make the sale that precluded any other interests being represented, and therefore, when you did make the inquiry as to your taking some of the stock, our answer was given in accordance with the facts noted above, but not at all in the spirit in which you refer tothe refusal in your note. In regard to the reference that you make as to my permitting the business of the Backus Oil Company tobe takenfrom you, I say that in this as in all else you have written in your letter of the 11th inst., you do me most grievous wrong. It was but of little moment to the interests represented by me whether the business of the Backus Oil Company was purchased or not. I believe that it was for your interest to make the sale, and am entirely candid in this statement, and beg to call your attention to the time, some two years ago, when you consulted Mr. Flagler and myself as to selling out your interests to Mr. Rose, at which time you were desirous of selling atconsiderably less price, and upon time, than you have now received in cash, and which sale you would have been glad to have closed if you could have obtained satisfactory security for the deferred payments. As to the price paid for the property, it is certainly three times greater than the cost at which we could now construct equal or better facilities; but wishing to take a liberal view of it, I urged the proposal of paying $60,000, which was thought much too high by some of our parties. I believe that if you would reconsider what you have written in your letter, to which this is a reply, you must admit having done me great injustice, and I am satisfied to await upon your innate sense of right for such admission. However, in view of what seems to be your present feeling, I now offer to restore to you the purchase made by us, you simply returning the amount of money which we have invested, and leaving us as though no purchase has been made.
Should you not desire to accept this proposal, I offer to you 100, 200 or 300 shares of the stock at the same price that we paid for the same, with this addition, that if we keep the property we are under engagement to pay into the treasury of the Backus Oil Company any amount which added to the amountalready paid would make a total of $100,000 and thereby make the shares $100 each.
That you may not be compelled to hastily come to a conclusion, I will leave open for three days these propositions for your acceptance or declination, and in the meantime believe me,
Yours very truly,
John D. Rockefeller.
Neither of these offers was accepted. In order that this may not rest on my unsupported assertion, I submit the following documents: The first is a letter from Mr. H.M. Backus, a brother of Mrs. Backus's deceased husband, who had been associated with the business and had remained with the company after his death. The letter was written without any solicitation whatever on my part, but I have since received permission from Mr. Backus to print it. It is followed by extracts from affidavits made by the gentleman who conducted the negotiations on behalf of Mrs. Backus. I have no wish to reprint the complimentary allusion to myself in Mr. Backus's letter, but have feared to omit a word of it lest some misunderstanding ensue:
Bowling Green, Ohio,September 18, '03.Mr. John D. Rockefeller,Cleveland, Ohio.I do not know whether you will ever receive this letter or not, whether your secretary will throw it into the waste-basket ornot, but I will do my part and get it off my mind, and it will not be my fault if you do not receive or read it. Ever since the day that my deceased brother's wife, Mrs. F.N. Backus, wrote you the unjust and unreasonable letter in reference to the sale of the property of the old Backus Oil Company, in which I had a small interest, I have wanted to write you and record my disapproval of that letter. I lived with my brother's family, was at the house the day you called to talk the matter of the then proposed purchase of the property with Mrs. Backus by her request, as she told Mr. Jennings that she wanted to deal through you. I was in favour of the sale from the first.I was with Mrs. Backus all through the trouble with Mr. Rose and with Mr. Maloney, did what I could to encourage her, and to prevent Mr. Rose from getting the best of her. Mrs. Backus, in my opinion, is an exceptionally good financier, but she does not know and no one can convince her that the best thing that ever happened to her financially was the sale of her interest in the Backus Oil Company to your people. She does not know that five more years of the then increasing desperate competition would have bankrupted the company, and that with the big debt that she was carrying on the lot on Euclid Avenue, near Sheriff Street, she would have been swamped, and that the only thing that ever saved her and the oil business generally was the plan of John D. Rockefeller. She thinks that you literally robbed her of millions, and feeds her children on that diet three times a day more or less, principally more, until it has become a mania with her, and no argument that any one else can suggest will have any effect upon her. She is wise and good in many ways, but on that one subject she is one-sided, I think. Of course, if we could have been assured of continued dividends, I would have been opposedto selling the business, but that was out of the question. I know of the ten thousand dollars that was added to the purchase price of the property at your request, and I know that you paid three times the value of the property, and I know that all that ever saved our company from ruin was the sale of its property to you, and I simply want to ease my mind by doing justice to you by saying so. After the sale to your company I was simple enough to go to Buffalo and try it again, but soon met with defeat and retired with my flag in the dust. I then went to Duluth, and was on the top wave, till the real-estate bubble broke, and I broke with it. I have had my ups and downs, but I have tried to take my medicine and look pleasant instead of sitting down under a juniper tree and blaming my losses to John D. Rockefeller.I suppose I would have put off writing this letter for another year or more as I have done so long, had it not been for a little chat that I had with Mr. Hanafin, Superintendent of the Buckeye Pipe Line Company, a day or two since when I was relating the sale, etc., of the old B.O. Co.'s business, and in that way revived the intention that had lain dormant since the last good resolution in regard to writing it was made. But it's done now, and off my mind.With much respect and admiration to John D. Rockefeller I remain,Yours truly,H.M. Backus.
Bowling Green, Ohio,September 18, '03.
Mr. John D. Rockefeller,Cleveland, Ohio.
I do not know whether you will ever receive this letter or not, whether your secretary will throw it into the waste-basket ornot, but I will do my part and get it off my mind, and it will not be my fault if you do not receive or read it. Ever since the day that my deceased brother's wife, Mrs. F.N. Backus, wrote you the unjust and unreasonable letter in reference to the sale of the property of the old Backus Oil Company, in which I had a small interest, I have wanted to write you and record my disapproval of that letter. I lived with my brother's family, was at the house the day you called to talk the matter of the then proposed purchase of the property with Mrs. Backus by her request, as she told Mr. Jennings that she wanted to deal through you. I was in favour of the sale from the first.
I was with Mrs. Backus all through the trouble with Mr. Rose and with Mr. Maloney, did what I could to encourage her, and to prevent Mr. Rose from getting the best of her. Mrs. Backus, in my opinion, is an exceptionally good financier, but she does not know and no one can convince her that the best thing that ever happened to her financially was the sale of her interest in the Backus Oil Company to your people. She does not know that five more years of the then increasing desperate competition would have bankrupted the company, and that with the big debt that she was carrying on the lot on Euclid Avenue, near Sheriff Street, she would have been swamped, and that the only thing that ever saved her and the oil business generally was the plan of John D. Rockefeller. She thinks that you literally robbed her of millions, and feeds her children on that diet three times a day more or less, principally more, until it has become a mania with her, and no argument that any one else can suggest will have any effect upon her. She is wise and good in many ways, but on that one subject she is one-sided, I think. Of course, if we could have been assured of continued dividends, I would have been opposedto selling the business, but that was out of the question. I know of the ten thousand dollars that was added to the purchase price of the property at your request, and I know that you paid three times the value of the property, and I know that all that ever saved our company from ruin was the sale of its property to you, and I simply want to ease my mind by doing justice to you by saying so. After the sale to your company I was simple enough to go to Buffalo and try it again, but soon met with defeat and retired with my flag in the dust. I then went to Duluth, and was on the top wave, till the real-estate bubble broke, and I broke with it. I have had my ups and downs, but I have tried to take my medicine and look pleasant instead of sitting down under a juniper tree and blaming my losses to John D. Rockefeller.
I suppose I would have put off writing this letter for another year or more as I have done so long, had it not been for a little chat that I had with Mr. Hanafin, Superintendent of the Buckeye Pipe Line Company, a day or two since when I was relating the sale, etc., of the old B.O. Co.'s business, and in that way revived the intention that had lain dormant since the last good resolution in regard to writing it was made. But it's done now, and off my mind.
With much respect and admiration to John D. Rockefeller I remain,
Yours truly,
H.M. Backus.
It appears from the affidavits that the negotiations were conducted on behalf of Mrs. Backus and her company by Charles H. Marr, who had been in the employ of the Backus Company for some time, and by Mr. Maloney, who was thesuperintendent of the company from the time of its organization and was also a stockholder; and on behalf of the Standard Oil Company by Mr. Peter S. Jennings.
There has been an impression that the Standard Oil Company purchased for $79,000 property which was reasonably worth much more, and that this sacrifice was occasioned by threats and compulsion. Mr. Jennings requested Mr. Marr to submit a written proposition giving the price put by the Backus Company upon the several items of property and assets which it desired to sell. This statement was furnished and was annexed to Mr. Jennings's affidavit. The Standard Oil Company finally decided not to purchase all of the assets of the company, but only the oil on hand, for which it paid the full market price, amounting to about $19,000, and the item "works, good-will, and successorship," which were offered by Mr. Marr at $71,000, and for which the Standard offered $60,000, which was promptly accepted. Mr. Marr made affidavit as follows:
"Charles H. Marr, being duly sworn, says that, in behalf of the Backus Oil Company, he conducted the negotiations which led to the sale of its works, good-will, and stock of oils and during same when said company had offered to sell itsentire stock for a gross sum, to wit, the sum of one hundred and fifty thousand dollars ($150,000), which was to include cash on hand, accrued dividends, accounts, etc., said Jennings requested said company to submit an itemized proposition fixing values upon different articles proposed to be sold, and that he, after full consideration with Mrs. Backus and with her knowledge and consent, submitted the written proposition attached to said Jennings's affidavit; that the same is in his handwriting, and was copied at the office of the American Lubricating Oil Company from the original by himself at the request of said Jennings, and said original was submitted by affiant to Mrs. Backus."That she was fully cognizant of all the details of said negotiations and the items and values attached thereto in said proposition, consulted with at every step thereof, none of which were taken without her advice, as she was by far the largest stockholder in said Backus Oil Company, owning about seven-tenths (7/10) of said company's stock, and she fully approved of said proposition, and accepted the offer of said Jennings to pay sixty thousand dollars ($60,000) for the item works, good-will, and successorship without any opposition, so far as affiant knows. And affiant says that the amount realized from the assets of the Backus Oil Company, including purchase price, has been about one hundred and thirty-three thousand dollars ($133,000), and a part of its assets have not yet been converted into money as affiant is informed."
"Charles H. Marr, being duly sworn, says that, in behalf of the Backus Oil Company, he conducted the negotiations which led to the sale of its works, good-will, and stock of oils and during same when said company had offered to sell itsentire stock for a gross sum, to wit, the sum of one hundred and fifty thousand dollars ($150,000), which was to include cash on hand, accrued dividends, accounts, etc., said Jennings requested said company to submit an itemized proposition fixing values upon different articles proposed to be sold, and that he, after full consideration with Mrs. Backus and with her knowledge and consent, submitted the written proposition attached to said Jennings's affidavit; that the same is in his handwriting, and was copied at the office of the American Lubricating Oil Company from the original by himself at the request of said Jennings, and said original was submitted by affiant to Mrs. Backus.
"That she was fully cognizant of all the details of said negotiations and the items and values attached thereto in said proposition, consulted with at every step thereof, none of which were taken without her advice, as she was by far the largest stockholder in said Backus Oil Company, owning about seven-tenths (7/10) of said company's stock, and she fully approved of said proposition, and accepted the offer of said Jennings to pay sixty thousand dollars ($60,000) for the item works, good-will, and successorship without any opposition, so far as affiant knows. And affiant says that the amount realized from the assets of the Backus Oil Company, including purchase price, has been about one hundred and thirty-three thousand dollars ($133,000), and a part of its assets have not yet been converted into money as affiant is informed."
Mr. Marr, who was, it will be remembered, the widow's representative, refers to the negotiations leading up to the purchase and says:
"But affiant says that nothing that was said by Mr. Jennings or anybody else during their progress could be construed intoa threat, nor did anything that was said or done by said Jennings hasten or push forward said trade."
"But affiant says that nothing that was said by Mr. Jennings or anybody else during their progress could be construed intoa threat, nor did anything that was said or done by said Jennings hasten or push forward said trade."
He also says:
"Affiant says that the negotiations extended over a period of from two to three weeks ... and during their pendency that Mrs. Backus frequently urged affiant to bring the same to a conclusion as she was anxious to dispose of said business and relieve herself from further care and responsibility therewith. And when the said offer of purchase by said Jennings upon the terms aforesaid was conveyed to her by affiant, she expressed herself as entirely satisfied therewith."
"Affiant says that the negotiations extended over a period of from two to three weeks ... and during their pendency that Mrs. Backus frequently urged affiant to bring the same to a conclusion as she was anxious to dispose of said business and relieve herself from further care and responsibility therewith. And when the said offer of purchase by said Jennings upon the terms aforesaid was conveyed to her by affiant, she expressed herself as entirely satisfied therewith."
Mr. Maloney made an affidavit that he was superintendent of the Backus Oil Company from the time of its organization, and also a stockholder in the company, and had been associated in business with Mr. Backus for many years previous to his death; that he took part in the negotiations for the sale, representing Mrs. Backus in the matter. After speaking of the negotiations, he says:
"Finally, after consultation, the proposition was made by her to dispose of the works, good-will, and successorship for $71,000. A few days after the proposal was made to her to pay the sum of $60,000 for works and good-will, and to take the oil on hand at its market price, which proposition she accepted, and the sale was concluded."During these negotiations Mrs. Backus was anxious to sell, and was entirely satisfied with the sale after it was concluded. I know of the fact that about a year and a half previous she had offered to sell out the stock of the Backus Oil Company at from 30 to 33 per cent. less than she received in the sale referred to, and the value of the works and property sold had not increased in the meantime. I was well acquainted with the works of the Backus Oil Company and their value. I could at the time of the sale have built the works new for $25,000. There were no threats nor intimidations, nor anything of the kind used to force the sale. The negotiations were pleasant and fair, and the price paid in excess of the value, and satisfactory to Mrs. Backus and all concerned for her."
"Finally, after consultation, the proposition was made by her to dispose of the works, good-will, and successorship for $71,000. A few days after the proposal was made to her to pay the sum of $60,000 for works and good-will, and to take the oil on hand at its market price, which proposition she accepted, and the sale was concluded.
"During these negotiations Mrs. Backus was anxious to sell, and was entirely satisfied with the sale after it was concluded. I know of the fact that about a year and a half previous she had offered to sell out the stock of the Backus Oil Company at from 30 to 33 per cent. less than she received in the sale referred to, and the value of the works and property sold had not increased in the meantime. I was well acquainted with the works of the Backus Oil Company and their value. I could at the time of the sale have built the works new for $25,000. There were no threats nor intimidations, nor anything of the kind used to force the sale. The negotiations were pleasant and fair, and the price paid in excess of the value, and satisfactory to Mrs. Backus and all concerned for her."
So far as I can see, after more than 30 years have elapsed, there was nothing but the most kindly and considerate treatment of Mrs. Backus on the part of the Standard Oil Company. I regret that Mrs. Backus did not take at least part of her pay in Standard certificates, as we suggested she should do.
Of all the subjects which seem to have attracted the attention of the public to the affairs of the Standard Oil Company, the matter of rebates from railroads has perhaps been uppermost. The Standard Oil Company of Ohio, of which I was president, did receive rebates from the railroads prior to 1880, but received no advantages for which it did not give full compensation. The reason for rebateswas that such was the railroads' method of business. A public rate was made and collected by the railroad companies, but, so far as my knowledge extends, was seldom retained in full; a portion of it was repaid to the shippers as a rebate. By this method the real rate of freight which any shipper paid was not known by his competitors nor by other railroad companies, the amount being a matter of bargain with the carrying company. Each shipper made the best bargain that he could, but whether he was doing better than his competitor was only a matter of conjecture. Much depended upon whether the shipper had the advantage of competition of carriers.
The Standard Oil Company of Ohio, being situated at Cleveland, had the advantage of different carrying lines, as well as of water transportation in the summer; taking advantage of those facilities, it made the best bargains possible for its freights. Other companies sought to do the same. The Standard gave advantages to the railroads for the purpose of reducing the cost of transportation of freight. It offered freights in large quantity, car-loads and train-loads. It furnished loading facilities and discharging facilities at great cost. It provided regular traffic, so that a railroad couldconduct its transportation to the best advantage and use its equipment to the full extent of its hauling capacity without waiting for the refiner's convenience. It exempted railroads from liability for fire and carried its own insurance. It provided at its own expense terminal facilities which permitted economies in handling. For these services it obtained contracts for special allowances on freights.
But notwithstanding these special allowances, this traffic from the Standard Oil Company was far more profitable to the railroad companies than the smaller and irregular traffic, which might have paid a higher rate.
To understand the situation which affected the giving and taking of rebates it must be remembered that the railroads were all eager to enlarge their freight traffic. They were competing with the facilities and rates offered by the boats on lake and canal and by the pipe-lines. All these means of transporting oil cut into the business of the railroads, and they were desperately anxious to successfully meet this competition. As I have stated we provided means for loading and unloading cars expeditiously, agreed to furnish a regular fixed number of car-loads to transport each day, and arranged with them for all the otherthings that I have mentioned, the final result being to reduce the cost of transportation for both the railroads and ourselves. All this was following in the natural laws of trade.
The building of the pipe-lines introduced another formidable competitor to the railroads, but as oil could be transported by pumping through pipes at a much less cost than by hauling in tank-cars in a railroad train the development of the pipe-line was inevitable. The question was simply whether the oil traffic was sufficient in volume to make the investment profitable. When pipe-lines had been built to oil fields where the wells had ceased to yield, as often happened, they were about the most useless property imaginable.
An interesting feature developed through the relations which grew up between the railroads and the pipe-lines. In many cases it was necessary to combine the facilities of both, because the pipes reached only part of the way, and from the place where they ended the railroad carried the oil to its final destination. In some instances a railroad had formerly carried the oil the entire distance upon an agreed rate, but now that this oil waspartly pumped by pipe-lines and partly carried by rail, the freight payment was divided between the two. But, as a through rate had been provided, the owners of the pipe-line agreed to remit a part of its charges to the railroad, so we had cases where the Standard paid a rebate to the railroad instead of the reverse—but I do not remember having heard any complaint of this coming from the students of these complicated subjects.
The profits of the Standard Oil Company did not come from advantages given by railroads. The railroads, rather, were the ones who profited by the traffic of the Standard Oil Company, and whatever advantage it received in its constant efforts to reduce rates of freight was only one of the many elements of lessening cost to the consumer which enabled us to increase our volume of business the world over because we could reduce the selling price.
How general was the complicated bargaining for rates can hardly be imagined; everyone got the best rate that he could. After the passage of the Interstate Commerce Act, it was learned that many small companies which shipped limited quantities had received lower rates than we had been able to secure, notwithstanding the fact that we had made large investments to provide for terminal facilities, regular shipments, and other economies. I well remember a bright man from Boston who had much to say about rebates and drawbacks. He was an old and experienced merchant, and looked after his affairs with a cautious and watchful eye. He feared that some of his competitors were doing better than he in bargaining for rates, and he delivered himself of this conviction:
"I am opposed on principle to the whole system of rebates and drawbacks—unless I am in it."
Going into the iron-ore fields was one of those experiences in which one finds oneself rather against the will, for it was not a deliberate plan of mine to extend my cares and responsibilities. My connection with iron ores came about through some unfortunate investments in the Northwest country.
These interests had included a good many different industries, mines, steel mills, paper mills, a nail factory, railroads, lumber fields, smelting properties, and other investments about which I have now forgotten. I was a minority stockholder in all these enterprises, and had no part in their management. Not all of them were profitable. As a matter of fact, for a period of years just preceding the panic of 1893, values were more or less inflated, and many people who thought they were wealthy found that the actual facts were quite different from what they had imagined when the hardexperiences of that panic forced upon them the unpalatable truth.
Most of these properties I had not even seen, having relied upon the investigation of others respecting their worth; indeed, it has never been my custom to rely alone upon my own knowledge of the value of such plants. I have found other people who knew much better than I how to investigate such enterprises.
Even at this time I had been planning to relieve myself of business cares, and the panic only caused me to postpone taking the long holiday to which I had been looking forward. I was fortunate in making the acquaintance of Mr. Frederick T. Gates, who was then engaged in some work in connection with the American Baptist Education Society, which required him to travel extensively over the country, north, south, east, and west.
It occurred to me that Mr. Gates, who had a great store of common sense, though no especial technical information about factories and mills, might aid me in securing some first-hand information as to how these concerns were actually prospering. Once, as he was going South, I suggested that he look over an iron mill in which I had some interest which happened to be on his route.
His report was a model of what such a report should be. It stated the facts, and in this case they were almost all unfavourable. A little later he happened to be going West, and I gave him the name and address of property in that region in which I held a minority interest. I felt quite sure that this particular property was doing well, and it was somewhat of a shock to me to learn through his clear and definite account that it was only a question of time before this enterprise, too, which had been represented as rolling in money, would get into trouble if things kept on as they were going.
I then arranged with Mr. Gates to accept a position whereby he could help me unravel these tangled affairs, and become, like myself, a man of business, but it was agreed between us that he should not abandon his larger and more important plans for working out some philanthropic aspirations that he had.
Right here I may stop to give credit to Mr. Gates for possessing a combination of rare business ability, very highly developed and very honourably exercised, overshadowed by a passion to accomplish some great and far-reaching benefits to mankind, the influenceof which will last. He is the chairman of the General Education Board and active in many other boards, and for years he has helped in the various plans that we have been interested in where money was given in the hope that it would do something more than temporary service.
Mr. Gates has for many years been closely associated with my personal affairs. He has been through strenuous times with me, and has taken cares of many kinds off my shoulders, leaving me more time to play golf, plan roads, move trees, and follow other congenial occupations. His efforts in the investigations in connection with our educational contributions, our medical research, and other kindred works have been very successful. During the last ten or twelve years my son has shared with Mr. Gates the responsibility of this work, and more recently Mr. Starr J. Murphy has also joined with us to help Mr. Gates, who has borne the heat and burden of the day, and has well earned some leisure which we have wanted him to enjoy.
But to return to the story of our troubled investments: Mr. Gates went into the study of each of these business concerns, and did the best he could with them. It has been ourpolicy never to allow a company in which we had an interest to be thrown into the bankruptcy court if we could prevent it; for receiverships are very costly in many ways and often involve heavy sacrifices of genuine values. Our plan has been to stay with the institution, nurse it, lend it money when necessary, improve facilities, cheapen production, and avail ourselves of the opportunities which time and patience are likely to bring to make it self-sustaining and successful. So we went carefully through the affairs of these crippled enterprises in the hard times of 1893 and 1894, carrying many of them for years after; sometimes buying the interests of others and sometimes selling our own interest, but all or nearly all escaped the expenses and humiliation of bankruptcy, receivership, and foreclosure.
Before these matters were entirely closed up we had a vast amount of experience in the doctoring of the commercially ill. My only excuse for dwelling upon the subject at this late day is to point out the fact to some business men who get discouraged that much can be done by careful and patient attention, even when the business is apparently in very deep water. It requires two things: some addedcapital, put in by one's self or secured from others, and a strict adherence to the sound natural laws of business.
Among these investments were some shares in a number of ore mines and an interest in the stocks and bonds of a railroad being built to carry the ore from the mines to lake ports. We had great faith in these mines, but to work them the railroad was necessary. It had been begun, but in the panic of 1893 it and all other developments were nearly ruined. Although we were minority holders of the stock, it seemed to be "up to us" to keep the enterprise alive through the harrowing panic days. I had to loan my personal securities to raise money, and finally we were compelled to supply a great deal of actual cash, and to get it we were obliged to go into the then greatly upset money market and buy currency at a high premium to ship west by express to pay the labourers on the railroad and to keep them alive. When the fright of the panic period subsided, and matters became a little more settled, we began to realize our situation. We had invested many millions, and no one wanted to go in with us to buy stock. On the contrary, everybody else seemed to wantto sell. The stock was offered to us in alarming quantities—substantially all of the capital stock of the companies came without any solicitation on our part—quite the contrary—and we paid for it in cash.
We now found ourselves in control of a great amount of ore lands, from some of which the ore could be removed by a steam shovel for a few cents a ton, but we still faced a most imperfect and inadequate method of transporting the ore to market.
When we realized that events were shaping themselves so that to protect our investments we should be obliged to go into the business of selling in a large way, we felt that we must not stop short of doing the work as effectively as possible; and having already put in so much money, we bought all the ore land that we thought was good that was offered to us. The railroad and the ships were only a means to an end. The ore lands were the crux of the whole matter, and we believed that we could never have too many good mines.
It was a surprise to me that the great iron and steel manufacturers did not place what seemed to be an adequate value on these mines. The lands which contained a good many of our best ore mines could have been purchasedvery cheaply before we became interested. Having launched ourselves into the venture, we decided to supply ore to every one who needed it, by mining and transporting with the newest and most effective facilities, and our profits we invested in more ore lands.
Mr. Gates became the president of the various companies which owned the mines and the railroad to the lake to transport the ores, and he started to learn and develop the business of ore mining and transportation. He not only proved to be an apt scholar, but he really mastered the various complexities of the business. He did all the work, and only consulted me when he wished to; yet I remember several interesting experiences connected with the working out of these problems.
After this railroad problem was solved, it was apparent that we needed our own ships to transport the ore down the lakes. We knew absolutely nothing of building ships for ore transportation, and so, following out our custom, we went to the man who, in our judgment, had the widest knowledge of the subject. He was already well known to us, but was in the ore transportation business on a large scale onhis own account and, of course, the moment we began to ship ore we realized that we would become competitors. Mr. Gates got into communication with this expert, and came with him one evening to my house in New York just before dinner. He said he could stay only a few minutes, but I told him that I thought we could finish up our affairs in ten minutes and we did. This is the only time I remember seeing personally any one on the business of the ore company. All the conferences, as I said before, were carried on by Mr. Gates, who seemed to enjoy work, and he has had abundant privileges in that direction.
We explained to this gentleman that we were proposing to transport our ore from these Lake Superior lands ourselves, and that we should like to have him assume charge of the construction of several ships, to be of the largest and most approved type, for our chance of success lay in having boats which could be operated with the greatest efficiency. At that time the largest ships carried about five thousand tons, but in 1900, when we sold out, we had ships that carried seven thousand or eight thousand tons, and now there are some that transport as much as ten thousand tons and more.
This expert naturally replied that as he was in the ore-carrying trade himself, he had no desire to encourage us to go into it. We explained to him that as we had made this large investment, it seemed to us to be necessary for the protection of our interests to control our own lake carriers, so we had decided to mine, ship, and market the ore; that we came to him because he could plan and superintend the construction of the best ships for us, and that we wanted to deal with him for that reason; that notwithstanding that he represented one of the largest firms among our competitors, we knew that he was honest and straightforward; and that we were most anxious to deal with him.
He still demurred, but we tried to convince him that we were not to be deterred from going into the trade, and that we were willing to pay him a satisfactory commission for looking after the building of the ships. Somebody, we explained, was going to do the work for us, and he might as well have the profit as the next man. This argument finally seemed to impress him and we then and there closed an agreement, the details of which were worked outafterward to our mutual satisfaction. This gentleman was Mr. Samuel Mather of Cleveland. He spent only a few minutes in the house, during which time we gave him the order for about $3,000,000 worth of ships and this was the only time I saw him. But Mr. Mather is a man of high business honour, we trusted him implicitly although he was a competitor, and we never had occasion to regret it.
At that time there were some nine or ten shipbuilding companies located at various points on the Great Lakes. All were independent of each other and there was sharp competition between them. Times were pretty hard with them; their business had not yet recovered from the panic of 1893, they were not able to keep their works in full operation; it was in the fall of the year and many of their employees were facing a hard winter. We took this into account in considering how many ships we should build, and we made up our minds that we would build all the ships that could be built and give employment to the idle men on the Great Lakes. Accordingly we instructed Mr. Mather to write to each firm of shipbuilders and ascertain how many ships they could build and put in readiness for operation at the opening of navigation the next spring. He foundthat some companies could build one, some could build two, and that the total number would be twelve. Accordingly we asked him to have constructed twelve ships, all of steel, all of the largest capacity then understood to be practicable on the Great Lakes. Some of them were to be steamships and some consorts, for towing, but all were to be built on substantially the same general pattern, which was to represent the best ideals then prevalent for ore-carrying ships.
In giving such an order he was exposed, of course, to the risk of paying very high prices. This would have been certain if Mr. Mather had announced in advance that he was prepared to build twelve ships and asked bids on them. Just how he managed it I was not told until long after, and though it is now an old story of the lakes I repeat it as it may be new to many. Mr. Mather kept the secret of the number of ships he wished to construct absolutely to himself. He sent his plans and specifications, each substantially a duplicate of the others, to each of the firms, and asked each firm to bid on one or two ships as the case might be. All naturally supposed that at most only two ships were to be built, and each was extremely eager to get the work, or at least one of the two vessels.
On the day before the contracts were to be let, all the bidders were in Cleveland on the invitation of Mr. Mather. One by one they were taken into his private office for special conference covering all the details preparatory to the final bid. At the appointed hour the bids were in. Deep was the interest on the part of all the gentlemen as to who would be the lucky one to draw the prize. Mr. Mather's manner had convinced each that somehow he himself must be the favoured bidder, yet when he came to meet his competitors in the hotel lobby the beams of satisfaction which plainly emanated from their faces also compelled many heart searchings.
At last the crucial hour came, and at about the same moment each gentleman received a little note from Mr. Mather, conveying to him the tidings that to him had been awarded a contract sufficient to supply his works to their utmost capacity. They all rushed with a common impulse to the hotel lobby where they had been accustomed to meet, each bent on displaying his note and commiserating his unsuccessful rivals, only to discover that each had a contract for all he could do, and that each had been actually bidding against nobody but himself. Great was the hilarity which coveredtheir chagrin when they met and compared notes and looked into each others' faces. However, all were happy and satisfied. But it may be said in passing that these amiable gentlemen all united subsequently in one company, which has had a highly satisfactory career, and that we paid a more uniform price for our subsequent purchases of ships after the combination had been made.
With these ships ordered, we were fairly at the beginning of the ore enterprise. But we realized that we had to make some arrangement to operate the ships, and we again turned to our competitor, Mr. Mather, in the hope that he would add this to his cares. Unfortunately, because of his obligations to others, he felt that this was impractical. I asked Mr. Gates one day soon after this:
"How are we to get some one to run these big ships we have ordered? Do you know of any experienced firm?"
"No," said Mr. Gates, "I do not know of any firm to suggest at the moment, but why not run them ourselves?"
"You don't know anything about ships, do you?"
"No," he admitted, "but I have in mind a man who I believe could do it, although when I tell you about him I fear you will think that his qualifications are not the best. However, he has the essentials. He lives up the state, and never was on a ship in his life. He probably wouldn't know the bow from the stern, or a sea-anchor from an umbrella, but he has good sense, he is honest, enterprising, keen, and thrifty. He has the art of quickly mastering a subject even though it be new to him and difficult. We still have some months before the ships will be completed, and if we put him to work now, he will be ready to run the ships as soon as they are ready to be run."
"All right," I said, "let's give him the job," and we did.
That man was Mr. L.M. Bowers; he came from Broome County, New York. Mr. Bowers went from point to point on the lakes where the boats were building, and studied them minutely. He was quickly able to make valuable suggestions about their construction, which were approved and adopted by the designers. When the vessels were finished, he took charge of them from the moment they floated, and he managed these and the dozens which followed with a skill and ability thatcommanded the admiration of all the sailors on the lakes. He even invented an anchor which he used with our fleet, and later it was adopted by other vessels, and I have heard that it is used in the United States Navy. He remained in his position until we sold out. We have given Mr. Bowers all sorts of hard tasks since we retired from the lake traffic and have found him always successful. Lately the health of a member of his family has made it desirable for him to live in Colorado, and he is now the vigorous and efficient vice-president of the Colorado Fuel and Iron Company.
The great ships and the railroad put us in possession of the most favourable facilities. From the first the organization was successful. We built up a huge trade, mining and carrying ore to Cleveland and other lake ports. We kept on building and developing until finally the fleet grew until it included fifty-six large steel vessels, This enterprise, in common with many other important business undertakings in which I was interested, required very little of my personal attention, owing to my good fortune in having active, competent, and thoroughly reliable representatives who assumed so largely the responsibilities of administration. It gives me pleasure to state that the confidencewhich I have freely given to business men with whom I have been associated has been so fully justified.
The work went on uninterruptedly and prosperously until the formation of the United States Steel Corporation. A representative of this corporation came to see us about selling the land, the ore, and the fleet of ships. The business was going on smoothly, and we had no pressing need to sell, but as the organizer of the new company felt that our mines and railroads and ships were a necessary part of the scheme, we told him we would be pleased to facilitate the completion of the great undertaking. They had, I think, already closed with Mr. Carnegie for his various properties. After some negotiation, they made an offer which we accepted, whereby the whole plant—mines, ships, railway, etc.—should become a part of the United States Steel Corporation. The price paid was, we felt, very moderate considering the present and prospective value of the property.
This transaction bids fair to show a great profit to the Steel Company for many years, and as our payment was largely in the securities of the company we had the opportunity to participate in this prosperity. And so, after a period of about seven years, I went out of all association with the mining, the transporting, and the selling of iron ore.
Going over again in my mind the events connected with this ore experience that grew out of investments that seemed at the time, to say the least, rather unpromising, I am impressed anew with the importance of a principle I have often referred to. If I can make this point clear to the young man who has had the patience to follow these Reminiscences so far, it will be a satisfaction to me and I hope it may be a benefit to him.
The underlying, essential element of success in business affairs is to follow the established laws of high-class dealing. Keep to broad and sure lines, and study them to be certain that they are correct ones. Watch the natural operations of trade, and keep within them. Don't even think of temporary or sharp advantages. Don't waste your effort on a thing which ends in a petty triumph unless you are satisfied with a life of petty success. Be sure that before you go into an enterpriseyou see your way clear to stay through to a successful end. Look ahead. It is surprising how many bright business men go into important undertakings with little or no study of the controlling conditions they risk their all upon.
Study diligently your capital requirements, and fortify yourself fully to cover possible set-backs, because you can absolutely count on meeting set-backs. Be sure that you are not deceiving yourself at any time about actual conditions. The man who starts out simply with the idea of getting rich won't succeed; you must have a larger ambition. There is no mystery in business success. The great industrial leaders have told again and again the plain and obvious fact that there can be no permanent success without fair dealing that leads to wide-spread confidence in the man himself, and that is the real capital we all prize and work for. If you do each day's task successfully, and stay faithfully within these natural operations of commercial laws which I talk so much about, and keep your head clear, you will come out all right, and will then, perhaps, forgive me for moralizing in this old-fashioned way. It is hardly necessary to caution a young man who reads so sober a book as this not to lose hishead over a little success, or to grow impatient or discouraged by a little failure.
I had desired to retire from business in the early nineties. Having begun work so young, I felt that at fifty it was due me to have freedom from absorption in active business affairs and to devote myself to a variety of interests other than money making, which had claimed a portion of my time since the beginning of my business career. But 1891-92 were years of ominous outlook. In 1893 the storm broke, and I had many investments to care for, as I have already related. This year and the next was a trying period of grave anxiety to every one. No one could retire from work at such a time. In the Standard we continued to make progress even through all these panic years, as we had large reserves of cash on account of our very conservative methods of financing. In 1894 or 1895 I was able to carry out my plans to be relieved from any association with the actual management of the company's affairs. From that time, as I have said, I have had little or no part in the conduct of the business.
Since 1857 I can remember all the greatpanics, but I believe the panic of 1907 was the most trying. No one escaped from it, great or small. Important institutions had to be supported and carried through the time of distrust and unreasoning fear. To Mr. Morgan's real and effective help I should join with other business men and give great praise. His commanding personality served a most valuable end. He acted quickly and resolutely when quickness and decision were the things most needed to regain confidence, and he was efficiently seconded by many able and leading financiers of the country who coöperated courageously and effectively to restore confidence and prosperity. The question has been asked if I think we shall revive quickly from the panic of October, 1907. I hesitate to speak on the subject, since I am not a prophet nor the son of a prophet; but as to the ultimate outcome there is, of course, no doubt. This temporary set-back will lead to safer institutions and more conservative management upon the part of every one, and this is a quality we need. It will not long depress our wonderful spirit of initiative. The country's resources have not been cut down nor injured by financial distrust. A gradual recovery will only tend to make the future all the more secure,and patience is a virtue in business affairs as in other things.
Here again I would venture to utter a word of caution to business men. Let them study their own affairs frankly, and face the truth. If their methods are extravagant, let them realize the facts and act accordingly. One cannot successfully go against natural tendencies, and it is folly to fail to recognize them. It is not easy for so impressionable and imaginative a people as we Americans are to come down to plain, hard facts, yet we are doing it without loss of self-esteem or prestige throughout the world.
It is, no doubt, easy to write platitudes and generalities about the joys of giving, and the duty that one owes to one's fellow men, and to put together again all the familiar phrases that have served for generations whenever the subject has been taken up.
I can hardly hope to succeed in starting any new interest in this great subject when gifted writers have so often failed. Yet I confess I find much more interest in it at this time than in rambling on, as I have been doing, about the affairs of business and trade. It is most difficult, however, to dwell upon a very practical and business-like side of benefactions generally, without seeming to ignore, or at least to fail to appreciate fully, the spirit of giving which has its source in the heart, and which, of course, makes it all worth while.
In this country we have come to the period when we can well afford to ask the ablest men to devote more of their time, thought, and money to the public well-being. I amnot so presumptuous as to attempt to define exactly what this betterment work should consist of. Every man will do that for himself, and his own conclusion will be final for himself. It is well, I think, that no narrow or preconceived plan should be set down as the best.
I am sure it is a mistake to assume that the possession of money in great abundance necessarily brings happiness. The very rich are just like all the rest of us; and if they get pleasure from the possession of money, it comes from their ability to do things which give satisfaction to someone besides themselves.
The mere expenditure of money for things, so I am told by those who profess to know, soon palls upon one. The novelty of being able to purchase anything one wants soon passes, because what people most seek cannot be bought with money. These rich men we read about in the newspapers cannot get personal returns beyond a well-defined limit for their expenditure. They cannot gratify the pleasures of the palate beyond very moderate bounds, since they cannot purchase a good digestion; they cannot lavish very much money on fineraiment for themselves or their families without suffering from public ridicule; and in their homes they cannot go much beyond the comforts of the less wealthy without involving them in more pain than pleasure. As I study wealthy men, I can see but one way in which they can secure a real equivalent for money spent, and that is to cultivate a taste for giving where the money may produce an effect which will be a lasting gratification.
A man of business may often most properly consider that he does his share in building up a property which gives steady work for few or many people; and his contribution consists in giving to his employees good working conditions, new opportunities, and a strong stimulus to good work. Just so long as he has the welfare of his employees in his mind and follows his convictions, no one can help honouring such a man. It would be the narrowest sort of view to take, and I think the meanest, to consider that good works consist chiefly in the outright giving of money.
The best philanthropy, the help that does the most good and the least harm, the help that nourishes civilization at its very root, that mostwidely disseminates health, righteousness, and happiness, is not what is usually called charity. It is, in my judgment, the investment of effort or time or money, carefully considered with relation to the power of employing people at a remunerative wage, to expand and develop the resources at hand, and to give opportunity for progress and healthful labour where it did not exist before. No mere money-giving is comparable to this in its lasting and beneficial results.
If, as I am accustomed to think, this statement is a correct one, how vast indeed is the philanthropic field! It may be urged that the daily vocation of life is one thing, and the work of philanthropy quite another. I have no sympathy with this notion. The man who plans to do all his giving on Sunday is a poor prop for the institutions of the country.
The excuse for referring so often to the busy man of affairs is that his help is most needed. I know of men who have followed out this large plan of developing work, not as a temporary matter, but as a permanent principle. These men have taken up doubtful enterprises and carried them through to success often at great risk, and in the face of great scepticism,not as a matter only of personal profit, but in the larger spirit of general uplift.
If I were to give advice to a young man starting out in life, I should say to him: If you aim for a large, broad-gauged success, do not begin your business career, whether you sell your labour or are an independent producer, with the idea of getting from the world by hook or crook all you can. In the choice of your profession or your business employment, let your first thought be: Where can I fit in so that I may be most effective in the work of the world? Where can I lend a hand in a way most effectively to advance the general interests? Enter life in such a spirit, choose your vocation in that way, and you have taken the first step on the highest road to a large success. Investigation will show that the great fortunes which have been made in this country, and the same is probably true of other lands, have come to men who have performed great and far-reaching economic services—men who, with great faith in the future of their country, have done most for the development of its resources. The man will be most successful who confers the greatest service on the world. Commercialenterprises that are needed by the public will pay. Commercial enterprises that are not needed fail, and ought to fail.
On the other hand, the one thing which such a business philosopher would be most careful to avoid in his investments of time and effort or money, is the unnecessary duplication of existing industries. He would regard all money spent in increasing needless competition as wasted, and worse. The man who puts up a second factory when the factory in existence will supply the public demand adequately and cheaply is wasting the national wealth and destroying the national prosperity, taking the bread from the labourer and unnecessarily introducing heartache and misery into the world.
Probably the greatest single obstacle to the progress and happiness of the American people lies in the willingness of so many men to invest their time and money in multiplying competitive industries instead of opening up new fields, and putting their money into lines of industry and development that are needed. It requires a better type of mind to seek out and to support or to create the new than to follow the worn paths of accepted success; but here is the great chance in our still rapidly developing country. The penalty of a selfish attempt tomake the world confer a living without contributing to the progress or happiness of mankind is generally a failure to the individual. The pity is that when he goes down he inflicts heartache and misery also on others who are in no way responsible.
Probably the most generous people in the world are the very poor, who assume each other's burdens in the crises which come so often to the hard pressed. The mother in the tenement falls ill and the neighbour in the next room assumes her burdens. The father loses his work, and neighbours supply food to his children from their own scanty store. How often one hears of cases where the orphans are taken over and brought up by the poor friend whose benefaction means great additional hardship! This sort of genuine service makes the most princely gift from superabundance look insignificant indeed. The Jews have had for centuries a precept that one-tenth of a man's possessions must be devoted to good works, but even this measure of giving is but a rough yardstick to go by. To give a tenth of one's income is wellnigh an impossibility to some, while to others it means a miserablepittance. If the spirit is there, the matter of proportion is soon lost sight of. It is only the spirit of giving that counts, and the very poor give without any self-consciousness. But I fear that I am dealing with generalities again.
The education of children in my early days may have been straightlaced, yet I have always been thankful that the custom was quite general to teach young people to give systematically of money that they themselves had earned. It is a good thing to lead children to realize early the importance of their obligations to others but, I confess, it is increasingly difficult; for what were luxuries then have become commonplaces now. It should be a greater pleasure and satisfaction to give money for a good cause than to earn it, and I have always indulged the hope that during my life I should be able to help establish efficiency in giving so that wealth may be of greater use to the present and future generations.
Perhaps just here lies the difference between the gifts of money and of service. The poor meet promptly the misfortunes which confront the home circle and household of the neighbour. The giver of money, if his contribution is to be valuable, must add service in the way of study, and he must help to attack and improve underlying conditions. Not being so pressed by the racking necessities, it is he that should be better able to attack the subject from a more scientific standpoint; but the final analysis is the same: his money is a feeble offering without the study behind it which will make its expenditure effective.
Great hospitals conducted by noble and unselfish men and women are doing wonderful work; but no less important are the achievements in research that reveal hitherto unknown facts about diseases and provide the remedies by which many of them can be relieved or even stamped out.
To help the sick and distressed appeals to the kind-hearted always, but to help the investigator who is striving successfully to attack the causes which bring about sickness and distress does not so strongly attract the giver of money. The first appeals to the sentiments overpoweringly, but the second has the head to deal with. Yet I am sure we are making wonderful advances in this field of scientific giving. All over the world the need of dealing with the questions of philanthropy with something beyond the impulses of emotion is evident, and everywhere help is being given to those heroic men and women who are devoting themselves to the practical and essentially scientific tasks. It is a good and inspiring thing to recall occasionally the heroism, for example, of the men who risked and sacrificed their lives to discover the facts about yellow fever, a sacrifice for which untold generations will bless them; and this same spirit has animated the professions of medicine and surgery.
How far may this spirit of sacrifice properly extend? A great number of scientific men every year give up everything to arrive at some helpful contribution to the sum of human knowledge, and I have sometimes thought that good people who lightly and freely criticize their actions scarcely realize just what such criticism means. It is one thing to stand on the comfortable ground of placid inaction and put forth words of cynical wisdom, and another to plunge into the work itself and through strenuous experience earn the right to express strong conclusions.
For my own part, I have stood so much as a placid onlooker that I have not had the hardihood even to suggest how people so much more experienced and wise in those things than I should work out the details even of those planswith which I have had the honour to be associated.
There has been a good deal of criticism, no doubt sincere, of experiments on living dumb animals, and the person who stands for the defenceless animal has such an overwhelming appeal to the emotions that it is perhaps useless to allude to the other side of the controversy. Dr. Simon Flexner, of the Institute for Medical Research, has had to face exaggerated and even sensational reports, which have no basis of truth whatever. But consider for a moment what has been accomplished recently, under the direction of Dr. Flexner in discovering a remedy for epidemic cerebro-spinal meningitis. It is true that in discovering this cure the lives of perhaps fifteen animals were sacrificed, as I learn, most of them monkeys; but for each one of these animals which lost its life, already scores of human lives have been saved. Large-hearted men like Dr. Flexner and his associates do not permit unnecessary pain to defenceless animals.
I have been deeply interested in the story of a desperate experiment to save a child's life, told in a letter written by one of my associates soon after the event described; and it seems worthy of repeating. Dr. Alexis Carrel has beenassociated with Dr. Flexner and his work, and his wonderful skill has been the result of his experiments and experiences.