Wealth Against Commonwealth/24

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CHAPTER XXIV.

HIGH FINANCE

WHEN Judge Jackson refused to enjoin the city from issuing its bonds an appeal was taken. The court and the lawyers of the city were promised that it would be carried up without delay. Months passed, and no use was made of the privilege of filing new pleadings and taking new testimony—that is, no use but to make the suits the basis for libels on Toledo and its bonds.

Time ran on until the day was at hand for opening bids for the bonds. That was to be Wednesday. Then the counsel for the opposition notified the city that on Monday they would begin the taking of depositions. This was not then or afterwards done, but on the strength of the notification news despatches were sent over the country that the proceedings against the legality of the Toledo bonds were being "pressed." In consequence of this and other maneuvers, when Wednesday came there were no bids. A hasty rally of some public-spirited capitalists at home, learning of the emergency, made up a subscription of $300,000. The names of the citizens who made this patriotic subscription were printed in the daily paper under the heading of "The Honor Roll."

Only by extraordinary maneuvers could the market for such securities offered by such a community have been thus killed in a time of great general and local prosperity, and extraordinary they were. What they were was formally and authoritatively ascertained by an investigation made by a committee appointed at a mass-meeting[1] of the citizens of Toledo called by the mayor, the Hon. J. K. Hamilton. The call ran:

"For the first time in the history of Toledo, its general bonds, secured by the faith and property of the city, and bearing a fair rate of interest, have been offered, and only such of them sold as were taken at home by popular subscription. It is deemed desirable that under such circumstances the citizens of Toledo should meet together and determine what further steps should be taken to carry out the will of the people as expressed by 62 per cent. of the voters of the city.

"It is believed that with proper effort a large additional popular subscription may be obtained, and thus notice given to the world that notwithstanding all opposition the citizens of Toledo have confidence in and will maintain the credit of this fair city, and that a great enterprise undertaken by its people will not be defeated by the machinations of private opposing interests, no matter how powerful and unscrupulous."

The meeting appointed a committee of three—David Robinson, Jr., Frank J. Scott, and Albert E. Macomber—"to prepare and circulate throughout the financial circles of the country a pamphlet which shall set forth the case of the city of Toledo in its struggle against those who by anonymous circulars and other dishonorable ways have attempted to prevent the sale of the Toledo natural-gas bonds." This committee put the facts before the public in a very able pamphlet, "The City of Toledo and Its Natural Gas Bonds." In an official statement asked for by this committee the city natural-gas trustees say: "Skilled writers were employed to furnish articles for Eastern financial journals, to cast discredit on the bonds on the very grounds that had been set aside by Judge Jackson's decision. Not content with this open warfare, anonymous circulars were sent to leading investment agencies in the United States, warning them to beware of these bonds, as they were under the cloud of doubtful constitutionality and an impending lawsuit. When the day arrived for bidding for the bonds no bids were made. Agents of investors were present, who came to bid, but by some unknown and powerful influence they were induced not to put in their bids. The writers are not aware that any similar mode of striking at the credit of a whole community was ever before resorted to in this country. It is an insult and a wrong not only to this city, against which it is aimed, but to people of independence everywhere in the United States who have a common interest in the maintenance of the rights of all."[2]

Press despatches impugning the validity of the bonds and misrepresenting the facts were sent all over the country. The anonymous circulars referred to were mailed to all the leading banks, investment agencies, capitalists, and newspapers. The New York Mail and Express said: "It would be decidedly interesting to know who is responsible for the . . . methods by which it was thought to prevent the city from undertaking the enterprise. A number of volunteer attorneys and correspondents deluged bankers and newspapers with letters warning them against the bonds which the city proposes to issue, on the ground that it had no right to issue them. The Mail and Express received several communications of this kind."

"Not only the financial centres of this country," say the city's natural-gas trustees in their official report for 1890, "but those of Europe were invaded with these circulars."[3] The circular was headed "Caveat Emptor." It contained twenty-four questions, and every one of the answers, except those which referred to matters of record and routine, like the date, amount, name, etc., of the bonds, was incorrect. What hurt the people of Toledo most, as it was most base and baseless, was its attack on their hitherto unquestioned credit and financial honor. Asking the question, "How does the credit of the city stand?" the circular answered: "Refunding has been going on ever since 1883. The bonded debt was greater at the beginning of 1889 than of 1888; bonds bearing interest at 8 per cent. will become due in three or four years. The mayor, in his last annual message, admits the inability of the city to pay much of these except the refunding." "Willing to wound, and yet afraid to strike," the authors of this attempt to pull down an entire city managed, by the interweaving of such phrases as "ever since 1883," "bonded debt greater," "inability of the city to pay," to create by insinuation the feeling of financial distrust for which their greatest industry and ingenuity had been able to find not a particle of foundation. No modern municipality is asked or expected or desired "to pay much except the refunding." Capitalists would greatly prefer that even the refunding should not be carried on, but that the debt should run along at the original high rates of interest, which they regretfully see dwindling away. The circular failed to state that the city was borrowing money at 4 per cent. to pay off debts bearing 8 per cent. The insinuations of the circular could have been used of "the credit" of the United States, New York, Paris, London, Chicago, with the same appropriateness—with this exception, that Toledo's municipal financial credit was relatively to its resources on a sounder and more conservative basis than these much more highly financed cities. The circular did not state that the proportions of debt to population had been decreasing for many years past.[4]

"Toledo has not two years' supply of gas," the circular said, "in all the territory acquired." The State Geologist, in his annual report for 1890, said that Toledo would have no gas to supply its pipe lines or citizens in 1891. In 1892 the city pipe line supplied gas to the value of $168,954.46. Three years have passed, Toledo wells still flow, and new ones are being found continually. "Whatever may have been his object," say the city gas trustees, "in volunteering such a statement, we know that so far in 1891 it is untrue, and that such positive declarations, based upon hypothetical conditions, are utterly unworthy of scientific pretensions."[5] The State Geologist also took part in his annual report in the debate between municipal control and private enterprise, siding altogether with the latter.

The quantity of gas land owned by the city was put by the circular at 300 to 500 acres. The city had 650 acres. The circular declared the life of an ordinary well to be one to three years. There is no such limit. Referring to the quantity of gas land the city had, the circular asked and answered:

"Cannot other territory be acquired? "Not in Northwestern Ohio, and not nearer than the gas fields of Indiana."

This was untrue, for the gas trustees had already been offered, as stated, several thousands of acres of the best gas lands in addition to those they had bought. But the authors of the circular did their best to make it true. The city's natural-gas trustees say in their report for 1890: "As soon as the trustees were prepared to negotiate for gas wells and gas territory, the field swarmed with emissaries and agents of the Northwestern Ohio Natural Gas Company to compete with the trustees. In order to prove what had been previously stated, 'that Toledo could procure no gas territory,' no means were left untried; agents of that company even fraudulently represented themselves to the owners of gas property that they were connected with the gas trustees and working in their interest, and in some instances introducing themselves as the president of this board. Prices went up 1000 per cent. in some instances rather than let it fall into the hands of the trustees. A conspicuous officer of that company, as an excuse for paying an enormous sum of money for a gas well, is reported as saying, 'We did not want the gas well, but we had to buy it in order to keep Toledo from getting hold of it.'"[6]

Referring to the private companies, "Are the people of the city already supplied with natural gas for public and private use?" the circular asked. "They are," it answered, and goes on: "Why does the city want to go into the natural-gas business, then?" "To boom the lands of real-estate speculators. This is a charge affecting the Legislature and Executive and State courts of Ohio, the courts of the United States, the people of Toledo, and all the members of their city government. Burke confessed that he did not know how to draw up an indictment against a whole people. That art has been acquired since his day.

"Are these bonds of unquestionable validity?" this catechism of libel upon a community queries. "By no means. Prominent taxpayers have suits pending attacking the constitutionality of the act under which they are issued." "Have these cases," the last question ran, "ever been tried on their merits?" "They have not."

They had been tried so far that the United States and State courts had refused on every ground urged to interfere with their issue and sale, declaring the legislation authorizing them to be valid. They had never been tried any further in the United States courts for a very good—or bad—reason. The "prominent taxpayers," after their defeat before Judge Jackson, took every possible means to prevent the case from reaching a final adjudication. The invariable rule of the United States Supreme Court has been to treat as final and conclusive the decisions of State courts as to such domestic issues. During the hundred years of its existence not a case can be found in which that court has overruled the fixed and received construction given to a State law by the courts of that State.[7] The only hope for the suit of the "prominent taxpayers " was, therefore, that the Supreme Court of the United States would for their special profit reverse the practice to which it had consistently adhered since the establishment of the government. What they really thought of their prospect of success in that effort they confessed when their case, no longer delayable, was upon the point of being reached.

They who had been so "anxious to get to the case as soon as possible" refrained from printing the record, a condition precedent to putting the case on the docket of the United States Supreme Court. The city wanted the decision, and in order that the case might not be dismissed for this failure to print the record, and a decision upon the merits be thus prevented, the city's gas trustees advanced the money—$1100—to the court printer for printing the record. Pushed thus against their will to trial, when the day came on which they most rise to state their case the opponents of Toledo folded their tents and stole silently away. On the motion of their attorney the case was dismissed, against the protest of the city. They paid all the costs, including the money advanced by the city for printing the record. To their defeat all along the line they did not want to add a formal decision against them from the Supreme Court, which was inevitable. And they ran away to fight another day.

Another purpose of these suits was confessed only a few weeks after this circular was issued. The existence of the suits was used to try to frighten the city's natural-gas trustees into accepting a "compromise." The compromise was that they should abandon the enterprise, sell out pipes and lands for a fraction of their worth, get their gas from the private company at higher rates, and put the city in its power for all time to come. "It will be three or four years before your case is through the Supreme Court," its representative told the natural-gas trustees, in urging them to accept. "You can't sell your bonds," he continued; "you have no money." The "compromise" was refused, but the city's pipe line had been delayed so long that the profits of the company for another twelvemonth were secure.

The demonstration against the bonds in the United States Circuit Court had been followed by similar suits in the State courts. Here again the city was successful. It was upheld on every controverted ground—in the enabling act, in the vote of the people, in the appointment of the trustees by the governor, and in the issue of the city bonds. Appeal was taken here, as in the United States courts, and, as there, for delay, not for decision. To checkmate further use of this lawsuit to smother the law and cripple the city, the friends of the pipe line began a suit against the authorities to force an immediate decision from the Ohio Supreme Court as to the legality of the bonds. It was certainly, as was said in the press, "a curious state of things when the defendant is compelled to bring suit against himself because the plaintiff refuses to allow trial in his own case."

These litigations, the circulars, the press, were only part of the campaign. One of the committees of the Common Council was brought under control, and induced to throw technical difficulties in the way of the sale of the bonds, which caused months of delay.[8] Effort was made to get the Governor to appoint natural gas trustees hostile to the city, but failed. It was attempted, also without success, to get the Legislature to prevent the sale of the bonds at private sale. During all this controversy the city was most fortunate in receiving the needful authority from the State Legislature. This was due mainly to a faithful and able representative of Toledo in that body, the Hon. C. P. Griffin. He was offered every promise of political preferment and other allurements to betray his constituents, but he always remained faithful. Without his support the efforts of the city would have failed. His services amid great temptations deserve the grateful remembrance of the public.

Some of the devices of "private enterprise" were childish enough. "A Business Men's Protest" was published, which proved under the microscope to have been largely signed by men whose names could not be found in the directory. A similarly formidable-looking remonstrance against the pipeline bill was sent to the Legislature. It had 1426 names; of these 464 could not be found in the directory, and over 300 of the 962 remaining names signed the petition for the city's bill. Many of them avowed that when they had signed the "Remonstrance" it had a heading in favor of the pipe line, which must have been changed afterwards. As part of the tactics of misinformation, a report was published—in January, 1890—claiming to give the business of both the private companies; but the members of the Council Committee on Gas, when afterwards examining the books for the gas company, found that it gave the receipts of only one company. A paper was prepared by a citizens' meeting for circulation among the manufacturers to ascertain how much they would contribute towards the city pipe line; but when reported back to the meeting it had become, in some mysterious way, a paper asking the manufacturers how much they would advance to quite a different scheme, the effect of which would be to sell out the city pipe line or convert it into a manufacturers' line.

These were the infantile methods of men who could not see the ludicrousness of the position they put themselves in by such efforts to keep a business which they were constantly declaring to be hazardous and unprofitable.

Detectives appear in almost every scene of our story, and are as common in its plot as in any extravagant melodrama of the Bowery thirty years ago. To counteract the anonymous circulars the City Council sent a committee headed by Mayor Hamilton—the "War Mayor," one of the ablest lawyers of the city, upright and loyal at all times to Toledo—to visit the Eastern money-markets. The committee, in their official report, state that they were assured by responsible dealers in municipal securities in New York and Boston that they would bid for the entire amount to be sold. "We regret, however, to have to report that the powerful and influential parties who have on all occasions and in every way sought to obstruct and defeat the enterprise for which the proceeds of these bonds were to be used, in some way succeeded in inducing those who intended to purchase to withhold their bids—in fact, no matter how guarded our movements, we believe that every person or firm with whom we had interviews was reported to the agents of the Standard Oil Company, for in every instance where from our interviews we had encouragement that the bonds would be bid for, within a short time more or less influential agents of opponents interviewed these parties and succeeded in changing their minds."

What a picture of "high finance," of the "beneficent interplay of the forces of supply and demand," of the "marvellous perfection" with which capital moves under "natural laws" to carry its fertilizing influences where they are most needed! The officials of this free city compelled to sneak around in the open money-market under cover with "guarded movements," seeking buyers for its bonds as if they were stolen goods! About them a cloud of spies and detectives reporting every movement as if it were a crime to the little handful of trust millionaires in their grand building on Broadway! "They have entered the Bank!" "They have just left —'s office!" After each report the leash is slipped of a waiting sleuth, who flies away to run down the quarry.

The gas trustees made public a letter and telegram they received from a prominent New York bank:

"NEW YORK, November 27, 1889. "DEAR SIR,—A gentleman named" (naming a man who signs the certificates of the Standard Oil Trust as treasurer),[9]

The telegram sent on Friday is as follows: "introduced by the card of Mr.—" (one of the richest men in New York not otherwise known as connected with the trust), "called on us to-day and stated that understanding that our firm was on the point of bidding on the Toledo bonds, etc., he would caution against the purchase, as they were not legal. Mr. — represented himself as coming from —" (one of the companies of the oil combination), "and referred us to their lawyer for further information. Now as this may hurt the sale of the bonds we want to be cautious, and on Friday will make further inquiries, and will wire you accordingly. We may not care to hand in our bids on this account."

"NEW YORK November 30th. "Fearing sale of bonds has been injured, will not bid at present."

"That tells the story," said one of the trustees, "in a nutshell."

A local bank bid for $500,000 of the bonds, but did not sustain its bid. A reputable citizen, an ex-mayor, wrote for publication in one of the leading journals that he had been informed by a well-known banker there was reason to believe a banking firm which, in 1892, defaulted on its bid for bonds, had been indemnified by the opposition for the $5000 it thereby forfeited to the city, and for the profits it would have made from the sale of the bonds. With the city line crippled the gas company would pocket the profits on the sale of a million dollars' worth of gas a year. Five thousand dollars, or several times that, was a small insurance to pay for such a gain.

This was the game of hide-and-seek played in Wall Street by detectives and financial stilettos against "simple greens," who thought supply and demand still rule values. This was the reality which the officials of Toledo found behind the outward aspect of its magnificent buildings, the benevolent millionaires who look out through their plate-glass, the grandiloquent generalizations of professors about "the money-market."

The city was brought to the humiliation of seeing its officials meet in public session at an appointed hour to open bids it had invited from all the money centres for its bonds, only to have the news flashed all over the country that not a bid from abroad had been made. This opposition cost the city in one way and another not less than $1,000,000, according to the estimate of the city's natural-gas trustees. The feeling of the people was expressed in the following language in a circular sent out with the pamphlet report of the committee appointed in mass-meeting to make a statement of Toledo's case to the public:

"We have seen the modern aggregation of corporations—trusts—suppress other corporations in the same line of business. But this Toledo contest is believed to be the first instance where private corporations—creatures of the State—have assumed to exercise monarchical powers over a portion of the State—one of its leading municipalities; to dictate the policy of its people; to seek to control the legislation as to the laws that should be enacted for such portion of the State; to bribe and intimidate the votes of such city at the polls; to attempt to subsidize the press by the most liberal expenditure of money; to at last purchase, out and out, a heretofore leading paper of the city, place its own managers and attorneys as directors, import one of its long-trained men as editor, and turn this paper into an engine of attack upon the city, an attack upon the city's honor and credit, characterized by the most unscrupulous misrepresentation and a perfect abandonment of all the amenities of civilized warfare."

The Toledo public felt no doubt as to who were attacking it under the convenient anonymity of the two gas corporations. At a public conference, January 16, 1889, between the presidents of the private natural-gas companies and the people assembled in mass-meeting, the representative of the former said the only condition on which the members of the oil trust had been induced to interest themselves in natural gas in Northwestern Ohio was that of absolute and unqualified control of the entire business through a majority of the stock of all the gas companies to be organized.

"The trust is interested in companies engaged in supplying natural gas? the president of the oil trust was asked by the New York Legislature about this time. "To a limited extent, yes." "Have they a majority interest in any of these companies?" "I think they have."[10]

This was identically the arrangement by which the nine trustees owned as their private property the control of the oil business. At several later conferences with the city's trustees and the Common Council the gas companies were represented by one of the principal members of the oil combination, the ingenious gentleman who had managed the negotiations with the railroads by which, under the alias of the American Transfer Company, the trust claimed and got a rebate of 20 to 35 cents a barrel,[11] not only on all oil it shipped, but on all shipped by its competitors. He was also its representative in the similar arrangement by which the Cleveland and Marietta Railroad agreed to carry its oil for 10 cents a barrel, to charge Rice 35 cents, and to pay it 25 out of every 35 cents Rice paid.[12] He had acted in the same interest throughout the gas field as well as in oil, and his pathway could be traced through one independent company after another, whose wrecks, like those in oil, are milestones.

July 27,1889, in an item originating in New York, in the Tribune, a friendly paper, and given an extensive circulation by news despatches sent to the leading papers in other cities, it was said that the representatives of the oil trust "in this city say emphatically that they will attack in the courts the right of the city to issue them"—the bonds.

At the great meeting of the citizens, October 19,1889, to organize a popular subscription to take the bonds killed in the money-market, the resolutions named the oil combination as the power responsible for the attacks on the city, and appealed to the people to observe that it, "no longer content with destroying individuals and associations which stand in the way of its moneyed interests, now rises to grapple with and destroy the rights of cities and states; we therefore ask all liberty-loving men to make common cause with us in the defence of the community against the aggression of colossal power."

The aldermen and the Common Council of Toledo unanimously adopted resolutions, September 15, 1890, requesting the State and Federal courts to give decisions as promptly as possible in the suits pending against the validity of the natural-gas bonds. These bodies in their official utterance declared that the oil combination, "through its officers and agents in the city of Toledo and at many other points in the United States, has circulated false and malicious statements about the bonds of the city of Toledo issued for natural-gas purposes." The natural-gas trustees of the city say in their report for 1890: "These injunctions and circulars, although fathered in the first instance by non-resident taxpayers, and in the second by irresponsible or anonymous parties, were traced directly to the oil trust, a trust having a large number of corporations within its control, among which is the Northwestern Ohio Natural Gas Company, and to whom the city of Toledo may reasonably attribute a loss of more than a million of dollars already. What further financial embarrassment it may suffer in the future cannot be measured by the depravity and moral turpitude which its seeds have sown in our midst."[13]

When the warfare against Toledo became a scandal ringing throughout the country and beyond, the organ of the trust in Toledo attempted to make it appear that the oil trust was not the party in interest. But there was open confession on the record. Its connection and its control were admitted by two representatives in conference with a committee appointed by the mayor at their request to discuss the situation.[14] They described the circumstances under which the members of the oil trust had gone into the project of the Toledo line and the project of the natural-gas business. One of the two stated that he came into it as its "more direct representative." The pipe line of the private gas company was built, he went on to say, by one of the principal corporations in the oil trust. At the same interview it was admitted that the oil trust owned 60 per cent. of the natural-gas company's stock.

The people of Toledo did not surrender to this success of their enemies in the money-market. The bonds which calumny and espionage prevented them from selling at wholesale to the great capitalists of New York and Boston they took themselves at retail. The legislature having given authority for such sales, a committee of one hundred had been appointed by the citizens' meeting, October 19, 1889, to canvass all the wards of the city for subscriptions to the gas bonds. "Gas Bond Pledges" were circulated, to which people subscribed according to their ability, in amounts ranging from $2 to $5000. The employees at the Wabash Railway' car shops sent in a list signed by fifty names for a total of $1102, an average of $22 each. The labor of two hundred men for a week without pay was offered the gas trustees as an earnest of the good-will of the people. Piece by piece the city's pipe line was pushed through. At a critical moment a shrewd and patriotic contractor saved the enterprise by building a large part of the line, and taking for his pay the bonds the banks would not take. In June, 1890, the public were gratified by the announcement that their trustees had secured the means "for the construction of three miles more," making eight miles in all, or nearly one-fourth the entire line. In August a contract was made for five miles more, and so the work went on, step after step.

[1] October 19, 1889. [2] City of Toledo and Its Natural Gas Bonds, pp. 6-7. [3] Annual Report of the Natural Gas Trustees, 1890, p. 9 [4] City of Toledo and Its Natural Gas Bonds, p. 3. [5] Toledo Natural Gas Trustees' Report, 1890, p. 7. [6] Annual Report of the Natural Gas Trustees, 1890, p. 8. [7] "Constitutional History as Seen in the Development of American Law." Lecture by D. H. Chamberlain. G. P. Putnam's Sons, New York. [8] Report of the Toledo Natural Gas Trustees, 1890, pp. 8-9. [9] Trusts, New York Senate, 1888, p. 659. [10] 'Testimony, Trusts, New York Senate, 1888, p. 428. [11] See p. 99. [12] See p. 206. [13] Annual Report of Natural Gas Trustees, 1890. [14] Toledo Blade, February 7 and 27, 1889.