III.

The Railroad Era

Soon after, Morgan began to promote American railroads to European investors. In one of his first major forays into railroads, he managed to sell a huge chunk of William Vanderbilt's holdings in the New York Central Railroad without driving down the price. When Morgan marketed railroad bonds and stocks, he frequently demanded that he or his partners have control of the railroad for a period of time. To protect his investors from bankruptcy, Morgan would often reorganize the railroad, reduce its debt to avoid bankruptcy in the near future, and place men loyal to him in control. This process, called Morganization, was applied to railroads as diverse as the Northern Pacific, the Erie, the Reading, and the Richmond Terminal.

Increasingly, Morgan sought to minimize competition among American firms because he believed it brought waste and losses. At first he tried to have railroads form pools (informal agreements to share traffic and maintain rates). As these pools failed in the face of withering competition, Morgan promoted self-contained systems, in which railroad corporations bought up competitors within a region. By 1900 most of the American railway system was owned by 30 corporations, and these corporations cooperated to avoid competing with each other. When competition threatened American manufacturing, Morgan became deeply involved in the great merger wave of the early 1900s, promoting the formation of General Electric, the International Merchant Marine, International Harvester, and most famously, the United States Steel Corporation. When Federal Steel, which Morgan had helped form, faced the prospect of stiff competition from Carnegie Steel, owned by Andrew Carnegie, Morgan bought out Carnegie to create U.S. Steel, the first billion-dollar corporation.