The Life and Legend of E. H. Harriman

Published by EH.NET (August 2000)

Maury Klein, The Life and Legend of E. H. Harriman . Chapel Hill:

University of North Carolina Press, 2000. xvi + 521 pp. $34.95, ISBN:

0-8078-251-4

Reviewed for EH.NET by Albert Churella, Department of History, The Ohio State

University.

At a rare public speech given at the 1904 St. Louis World’s Fair, railroad

magnate Edward Henry Harriman set the tone for a new century of railroad

management by emphasizing the need to “not only reconstruct and re-equip these

lines, but to bring them under uniform methods and management . . . [through]

the combination of capital.” (p. 320). The twin goals of modernization and

control echoed through the life of E. H. Harriman and explain much about both

his contributions to railroad operations and finance and to his blighted public

image. Maury Klein draws on a wealth of archival sources in order to provide a

masterful account of Harriman’s contributions to the history of American

business. His book is more than a work of railroad or financial history, and

more than the simple facts of one individual’s existence; it is instead a

successful effort to use Harriman’s life as an entr?e into the complex

evolution of American business during the Gilded Age and the Progressive Era.

According to Klein, Harriman, like Jay Gould (the subject of an earlier

biography by the same author) has traditionally been defined by the mythology

that has grown up around him. The Harriman myth focused primarily on the

financier’s seemingly magical ability to transform rusting, decrepit railroads

into modern moneymakers and, less charitably, on his perceived role as an

old-style robber baron antithetical to such newly enlightened Progressives as

Theodore Roosevelt-a president who eschewed his earlier friendship to Harriman

in order to launch a highly publicized attack against him. As Klein points

out, these myths are at best half-truths, and do little more than scratch the

surface of a complex and often misunderstood individual whose success-and

significance-stemmed from his role as a transitional figure in the finance and

railroad industries.

Even before E.H. Harriman’s birth in 1848, his father had established a

reputation as a chronically unsuccessful entrepreneur, and one who was often

dependent on the charity of others. From his childhood, the younger Harriman

developed a deep sense of independence, a commitment to organization, and a

determination to be in absolute control of any situation. At age fourteen he

began working on Wall Street, fortuitously enough just as the Civil War was

unleashing a new speculative fervor in America’s financial institutions. By

age twenty-two (in 1870), Harriman had become a member of the New York Stock

Exchange. No one who sat on the exchange in the late 1800s could avoid

involvement in railroad finance, and Harriman soon became associated with the

nation’s first big business. His initial involvement in railroad ownership (of

the Ogdensburg and Lake Champlain in 1879 and the Sodus Bay & Southern in

1880), were financially unrewarding. Nevertheless, the latter railroad

initiated the mystique of Harriman as a rebuilder of railroads (in reality,

Harriman did nothing to improve the Sodus Bay’s physical plant) and more

importantly taught Harriman that railroads with no intrinsic value could still

be disposed of profitably to the giant system-building railroads that were

fighting to invade each other’s territories.

Harriman’s early railroad involvement led to an association with Stuyvesant

Fish and then to affiliation with the Illinois Central. By the mid-1880s

Harriman had thus begun to specialize in railroad securities without abandoning

entirely other investment opportunities-a transition that reflected the growing

financial specialization of the era. On the Illinois Central, Fish and

Harriman enhanced an already prosperous railroad by improving the physical

plant to enable the movement of larger volumes of traffic at lower per-unit

cost. They also reorganized the managerial structure on the basis of

decentralized operating divisions rather than centralized departments and

insured that, in Harriman’s words, “We should first adopt a plan & then make

our officers fit into it as best we can, & not make a plan to fit our

officers.” (p. 80) Harriman was certainly not the first industry executive to

think along those lines, and many of the policies for which he became famous

were in reality derivative of Fish and others. However, Harriman did realize

that the growth of giant railroad systems, increased competition, overbuilding,

and growing traffic volumes, especially on western railroads, mandated the

widespread application of these strategies.

Growing conflicts with Fish led Harriman away from the Illinois Central and

toward the Union Pacific. Before Harriman arrived on the scene in 1898, the UP

was hardly the antiquated streak of rust portrayed by the Harriman legend.

While it was a reasonably modern and successful railroad, Harriman realized

that its performance could be improved greatly by restructuring its debt (and

removing the federal government as a creditor) and by undertaking massive

physical improvements to accommodate the enormous traffic potential of a region

that was beginning to emerge from the depression of the 1890s. In rebuilding

the UP, Harriman overcame opposition from “organization men” at all levels of a

traditionally conservative industry, who saw few compelling reasons why they

should not continue the traditional practices of nineteenth-century

railroading. Eventually, Harriman created a line-and-staff organizational

structure (similar to that pioneered by the Pennsylvania Railroad) that granted

authority to both departments and operating divisions. Within ten years,

Harriman had orchestrated the expenditure of $160 million in capital

improvements, which produced the anticipated objective of tripling overall

ton-miles while increasing average train length, car capacity, and engine

utilization.

In addition to his commitment to modernization, Harriman developed an

appreciation for the value of communities of interest-essentially interlocking

boards of directors-in the railroad industry in order to prevent overbuilding,

guarantee equitable access to the traffic of connecting railroads at gateway

cities, and control the effects of “excess” competition. Harriman’s commitment

to communities of interest stemmed from his involvement in the Alton and was

reinforced by a battle with the Great Northern’s James J. Hill for control of

the Chicago, Burlington, and Quincy, yet eventually ran headlong into the

reformist impulses of the Progressive Era. Harriman envisioned these

communities of interest as the precursors of giant rail systems in the West.

To that end, he acquired the Southern Pacific in 1901 and began to

“Harrimanize” it in much the same manner as the Union Pacific. Together with

the Illinois Central, the UP and SP formed the core of the Harriman

system-three technically separate corporate entities that had similar

organizational structures and philosophies and whose standardization and

uniformity produced substantial economies in purchasing, operations, and

maintenance.

The battle for control of the Burlington led to the creation of a much less

harmonious system in the northern Plains states and Pacific Northwest, as

Harriman and Hill uneasily shared in the creation and control of the Northern

Securities Company in 1901. This holding company briefly knitted together the

Great Northern, the Northern Pacific, and the Burlington but soon became a

lightning rod for growing public opposition to “trusts” and an early target for

the nation’s first trustbusting President. If Harriman was disappointed by the

Supreme Court’s 1904 decision ordering the dissolution of Northern Securities,

he was even more distressed by Roosevelt’s attacks on his personal integrity,

particularly since the two men had once been friends. This presidential

condemnation did more than anything else to tar Harriman as a monopolistic

robber baron and enemy of the people. Harriman’s public disagreements with

former ally Stuyvesant Fish and his well-intentioned but misinterpreted efforts

to rescue the financially ailing Equitable Life further tarnished his

reputation.

At the same time, and perhaps because he was stung by what he felt was

unwarranted public criticism, Harriman pledged his corporate and personal

resources to a variety of public works. While Harriman never established a

charitable trust as did so many other philanthropists, he was instrumental in

the creation of a state park near his New York home, sponsored a scientific

expedition to Alaska (which, far more than his railroad activities, first

brought this essentially private individual into the public arena), assisted

victims of the 1906 San Francisco earthquake, and saved California’s Imperial

Valley from flooding. After Harriman’s death, his widow commissioned George

Kennan (whose distant relative George F. Kennan, like Harriman’s son W. Averell

Harriman, became a leading figure in U.S. foreign policy) to write a biography

telling the “true” story of her husband and in so doing to clear his name.

Harriman’s last years were not pleasant ones. While some of harshest critics

developed a new respect for the financier, the general public had “just begun

to grasp the distinction between corporations and the men who dominated them,”

(p. 395) and was not yet ready to admit that giant concentrations of capital

were are part of the American economy. Nor was the ICC convinced, and that

agency launched a scathing inquiry into Harriman’s various communities of

interest. An exhausted, weakened, and embattled Harriman succumbed to stomach

cancer in 1909.

As Klein points out, Harriman owed much of his success to historical

contingency-simply being in the right place at the right time. He arrived on

Wall Street just as the Civil War changed the nature of speculative finance,

entered the world of railroad finance at a time of rapid construction and

system building, embraced the concept of the community of interest at a time

when “merger mania” was sweeping the nation’s businesses, and, less favorably,

appeared in the guise of a soulless robber baron just as the era of the

industrial statesman gave way to Progressivism. Ultimately, Harriman succeeded

not so much because he was an original thinker, but because he “implement[ed]

the strategy [of high-volume traffic carried at low rates] on a grand scale

from which other managers shrank because they lacked the backbone.” (p. 445)

His ability to implement this vision not only revitalized the Union Pacific and

the Southern Pacific; it also enabled the railroad industry to survive

virtually intact against the emergence of various forms of modal competition.

His concept of communities of interest prefigured the giant railroad systems

that have emerged in the West in recent decades, after the now-defunct ICC

began to worry less about competition within the railroad industry and more

about the long-term survival of the industry itself.

Klein has succeeded admirably in weaving the various strands of Harriman’s

life together with larger secular developments in the railroad and financial

industries, government regulation, and public policy. While he does at times

seem to identify too closely with his subject, and occasionally teeters on the

brink of suggesting that Harriman can do no wrong, Klein is careful to point

out that Harriman’s greatest successes came from the application of ideas that

were not originally his own, that Harriman was controlled by events as often as

he controlled them, and that historical contingency lay behind a good portion

of Harriman’s success. In short, Klein does more than simply paint a portrait

of an individual-he sets Harriman with the broad landscape of a nation whose

economic and political values were in the midst of sweeping change.

Albert Churella is a Visiting Assistant Professor in the Department of History

at The Ohio State University at Lima.