Published by EH.Net (January 2014)

Larry Haeg, Harriman vs. Hill: Wall Street’s Great Railroad War.  Minneapolis: University of Minnesota Press, 2013.  xv + 375 pp. $30 (hardcover), ISBN: 978-0-8166-8364-2.

Reviewed for EH.Net by K. Austin Kerr, Department of History, Ohio State University.

This book is narrative history at its best.  Larry Haeg, once an executive with Wells Fargo, has vividly told the story of the conflict in 1901 between E.H. Harriman and Jacob Schiff of the Union Pacific Railroad and James J. Hill and J.P. Morgan of the Great Northern and Northern Pacific railroads to gain majority control of the stock of the Northern Pacific.  The Harriman-Schiff stock purchases, at first covert, led to a huge bubble in May of 1901 of the value of Northern Pacific stock.  The end result was the ruination of some investors and the near collapse of some of the brokerage houses and banks that were involved.

Hill was a businessman who, with the backing of J.P. Morgan (the world’s most important financier), had turned a regional Minnesota railroad into a successful transcontinental line linking the upper Midwest to Seattle and Puget Sound.  The Great Northern also gained control of the twice-bankrupt Northern Pacific, which took a more southerly route from Minnesota to Puget Sound.  Hill had ambitions of integrating these railroads with steamship lines carrying freight on the Great Lakes and the Pacific Ocean.  To fulfill these ambitions he needed better rail connections to Chicago and other Midwestern points.  The best solution was to acquire the Burlington Railroad, a profitable line that connected Chicago with the Twin Cities, and the Midwest with the Northern Pacific in Billings, Montana.  The result could be agreements for through rates on traffic moving both east and west (and cotton from the south headed for Asian markets).

E.H. Harriman had gained control of the bankrupt Union Pacific Railroad in 1897 and was fulfilling ambitions to rebuild the original transcontinental and improve its connections to Pacific ports.  Harriman, supported by the Jacob Schiff, perhaps second only to Morgan in the American financial world, sought to prevent Hill from acquiring the Burlington, but their offer was rejected.  In 1901 Harriman and Schiff quietly started accumulating Northern Pacific stock with the goal of wresting control from Hill and Morgan and turning the Burlington into the arms of the Union Pacific.

When Hill and Morgan realized that their control of the Northern Pacific, and with it control of the Burlington, was threatened, they countered by entering the market.  The result was an incredible bubble, with the two interests cornering the market – owning all of the shares between them – with other investors and speculators caught short, having sold shares they did not possess in order to purchase them for later delivery.  After a few hectic days of trading in May 1901, shares in the recently bankrupt Northern Pacific reached $1000.

Harriman lost the battle for control but he still owned a large block of shares in the Northern Pacific.  After the chaos of that spring, Morgan formed a holding company, the Northern Securities Company, to hold the shares of the Great Northern and Northern Pacific (and with them of the Burlington.)  Soon, however, Theodore Roosevelt became President and the Department of Justice challenged the legality of Northern Securities under the Sherman Anti-Trust Act of 1890.  The Supreme Court in 1903 by the narrowest of margins declared the holding company illegal.  Soon it was dissolved, but the Hill-Morgan railroads still had overlapping boards of directors and operated profitably as a “community of interest.”

Haeg tells this story with marvelously rich detail based on a combination of skillful combing of contemporary accounts, private correspondence, and scholarly literature.  The book is a pleasure to read, with personalities vividly revealed and the drama of events, from cross-country trips in private rail cars to the hazards of stock trading in full display.  Illustrations and maps add to the clarity and understanding of the people involved.

Haeg’s purpose is well-fulfilled in having us understand this war.  He misses the full after-effects, long known in the literature, of the Northern Securities case, the understanding that developed between the “House of Morgan” and the Roosevelt administration, and later American policy and politics.  As an admirer of well-managed railroads (an admiration I share), his denouement of condemning American transportation policy is brief and not well-executed.   Readers wanting an understanding of later American transportation policy are better served by The Best Transportation System in the World: Railroads, Trucks, Airlines, and American Public Policy in the Twentieth Century by Mark H. Rose, Bruce E. Seely, and Paul F. Barrett, now issued in paperback by the University of Pennsylvania Press.

K. Austin Kerr, Professor Emeritus of History at Ohio State University, is a founding editor of H-Business and has published widely in business history.

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