From the time he signed on as chief almoner, Gates knew his life had changed irrevocably. “I now saw myself largely cut off from disinterested friendships and almost of necessity a centre of intrigue and dislike,” he wrote in his memoirs.20 As he watched people scheme and grovel for Rockefeller’s fortune, it was hard to preserve his faith in human nature. “If you could be here in this office,” he once wrote William Rainey Harper, explaining his own caution, “and see the exhibition of human meanness, and even dishonor, among otherwise respectable men when they come to negotiate with Mr. Rockefeller’s wealth, you would appreciate better than you can now how this perhaps unnatural caution has arisen.”21
A close student of the boss’s psychology, Gates was aware of Rockefeller’s preferred self-image and played on it effectively. There was a manipulative side to Gates, as shown by a letter he wrote a friend in which he set forth twenty-two fund-raising tips. Tip number six read: “If you find [the prospective donor] big with gift do not rush him too eagerly to the birth. Let him take his time, with gentle management. Make him feel that he is giving it, not that it is being taken from him with violence.” Number seven advised: “Appeal only to the noblest motives. His own mind will suggest to him the lower and selfish ones.”22 One suspects Gates applied some of these pointers to Rockefeller himself, posing all the while as the faithful servant.
Gates had a talent for dressing up proposals to Rockefeller with the right touch of historic drama. He made each gift seem a momentous advance in human civilization and often mimicked Rockefeller’s own business rhetoric— talking about educational trusts, for instance—to sell him a program. Gates knew that Rockefeller viewed himself as an instrument of God in business and philanthropy. By striking this note, Gates could always capture his mentor’s attention. Many years later, Gates sent him the following New Year’s greeting:
Certainly no man can survey your marvelous career without feeling that it bears in very high and special degree the marks of a “Plan of God.” I remember well how your life has been to yourself a series of great surprises, how vistas altogether unexpected have suddenly opened before your astonished gaze, and now that you have arrived at a point when you can look back over a long course, how often and how deeply must it have impressed itself on your mind that you have been simply an instrument in the hands of the Great Power that is not ourselves. How clear must it now be to you in the retrospect that this Great Unseen Power was guiding you all the time and ever to ends unseen, vaster, more varied, more far reaching than any human wisdom could compass or conceive. If now at the beginning of this new year I may venture to offer you a toast, it would be—John D. Rockefeller, His Life, A Plan of God.23
While Gates would function as a never-ending source of ideas for the philanthropies, it is important to credit Rockefeller’s own contribution. The same mind that created the Standard Oil empire was actively engaged in building up his charitable empire. As Gates noted, Rockefeller “came to have hardly less pleasure in the organization of his philanthropy than in the efficiency of his business.”24 In retirement, he actually gave more time to philanthropy than to investments. While Gates often generated ideas, Rockefeller never hesitated to wield his veto power or force Gates to rethink proposals. Gates had to take account of the many things that Rockefeller had ruled off-limits, such as funding social-welfare agencies. He never had infinite freedom to draw up programs and needed to conform to Rockefeller’s wishes. His power, if vast, was circumscribed.
Rockefeller developed such a mystique of infallibility that people assumed his touch was no less unerring in his private investments than at Standard Oil. Whenever it was known that he had bought a stock, exultant investors rushed to join him. Sometimes, Rockefeller contributed to his own myth. “It has always been my rule in business to make everything count,” he once told an old friend. “To make every cent something. I never go into an enterprise unless I feel sure it is coming out all right.” 25
If he ever set eyes on that windy boast, Frederick T. Gates would have grinned, for he had found Rockefeller’s personal finances in a shocking state, run haphazardly without a full-time portfolio manager. The mastermind of Standard Oil had proved to be a passive and easily hoodwinked investor. By 1890, as he banked ten million dollars in annual income, Rockefeller still deferred, with surprising credulity, to advice proffered by supposed friends. He fell particularly under the sway of two fellow congregants from the Fifth Avenue Baptist Church, Colgate Hoyt and Charles Colby. Hoyt often dropped by his house in the morning and accompanied him downtown, touting stocks all the while. Rockefeller reposed implicit faith in these two churchgoers, who induced him to pour millions into ruinous investments in a score of companies. Through their exertions, he acquired an investment empire that he knew solely from misleading figures on a statement. What reconciled Rockefeller to this setup was that he took minority stakes and imagined that his partners were investing equivalent amounts.
As members of the executive committee of the Northern Pacific Railroad when Rockefeller was its major stockholder, Colby and Hoyt avidly pushed investments in timber stands of the Pacific Northwest. They planned to build up the town of Everett, Washington, at the juncture where the Northern Pacific would supposedly establish its major terminus on Puget Sound. As the Great Northern Railroad also neared completion, the whole area was convulsed by a speculative mania. Colby and Hoyt erred, however, in one small but costly matter: The Northern Pacific terminal ended up in Tacoma, not Everett. Meanwhile, blindly following their counsel, Rockefeller had added mines, steel mills, paper mills, railroads, and even a nail factory to his holdings.
Rockefeller’s unwonted lack of vigilance owed something to his fragile health during the early 1890s, when he was trying to clear his mind of cares. Sensing that some of his outside investments might not be as sound as advertised, he mentioned to Gates one day that if, on his philanthropic excursions, he happened to be near one of these investments, he might want to scout out the premises. While Rockefeller was already impressed by Gates’s resourcefulness, he also knew that with Gates he risked less potential embarrassment than with a professional financial analyst who might broadcast his failures on Wall Street.
Soon after Gates moved to New York in 1891, he was about to embark on a tour of Baptist schools in Alabama when Rockefeller asked if he would inspect an iron furnace he had bought there on an old friend’s advice; he said he was perplexed why it had fallen into a receiver’s hands. When Gates filed his report, it was instantly clear that he was no courtier serving up syrupy lies to soothe his sovereign. The entire operation, Gates said bluntly, had nothing to do with iron but was a thinly veiled attempt to boom local real estate; many Baptist ministers had been tricked into buying nearby land that was supposed to appreciate because of its proximity to the iron operation. Rockefeller hid his amazement and contended breezily that he had taken this “little flyer” to help an old friend’s son learn the iron business. By way of comparison, Rockefeller alluded to his lucrative iron business in Wisconsin, then allegedly yielding $1,000 per day. A few months later, he sent the intrepid Gates to take a look.
Gates traveled to Wisconsin and with quiet tenacity began asking questions. He found exactly the same fraud as that perpetrated in Alabama: The iron-works were being used to pump up local real estate and auction off lots at inflated prices. The supposed profits were pure moonshine: Rockefeller was actually losing about $1,000 per day. To anyone who knew Rockefeller, the situation seemed inconceivable: He had made large investments without independently verifying the numbers sent by his friends.
When he appeared at Forest Hill to relay the bad news, Gates knew that the boss could not dismiss $600,000 in mortgage bonds as a “little flyer,” and Rockefeller was visibly upset. As Gates recounted the meeting:
He was deeply agitated and, had I not been able to give him the most positive assurances, would have been incredulous. He kept me with him at Forest Hill until he could get the old friend to his side from Wall Street, who
had been mainly instrumental in selling him the bonds. This gentleman denied every one of my allegations, but he could only meet my proofs with protestations and tears of rage and apprehension.26
A few days later, the contrite scoundrel—whether Colby or Hoyt is unclear— returned to Rockefeller, confirmed the truth of Gates’s allegations, and agreed to have the mortgage-bond covenants rewritten.
Shaken by this duplicity, Rockefeller sent his sleuth to probe his investment in the San Miguel Consolidated Mines high in the Rocky Mountains. The scheme’s promoter had entertained many previous investors who had journeyed westward to tour the site. At once, Gates scented trouble when he quizzed a mining engineer in Denver about the San Miguel properties. “What!” the man shouted. “Do you mean to tell me that John D. Rockefeller has invested money in that Damned Swindle!!”27 When Gates journeyed to Telluride, he learned that the mines were phantoms and that the company had only abandoned claims.
At this point—it was now late 1892—Gates was still operating at one remove from Rockefeller in a nearby office in the Temple Court; after the San Miguel fiasco, Rockefeller moved him into his office at 26 Broadway. He saw that Gates had a flair for business that surpassed anything he had encountered at Standard Oil. In a stunning display of trust, Rockefeller gave him unrestricted access to his files for all investments outside of Standard Oil. As Gates poked around in this fetid swamp, he was appalled by what he found. “I unearthed some twenty of these sick and dying corporations,” he recalled, “every one of which showed a balance sheet in red ink.” 28
As Gates sorted through the failed investments, George Rogers joined the chorus of those urging Rockefeller to institute new oversight procedures for his $23 million investment portfolio, including $14 million in railroad securities. Emboldened by Gates’s findings, Rogers suggested creation of an executive committee. Gates would handle investments and benevolent matters; Gates’s Montclair neighbor Starr Murphy would assume legal responsibilities; and Rogers would take care of office matters, each to be paid $10,000 a year. As Rogers candidly told his chastened boss, “This will seem to you at first as very high but it will be considerable [sic] cheaper than being robbed as you have been and even now you are without exact knowledge as to many of the investments in which you have large sums involved.” 29 Pointing out the perils of passive investment, he suggested that Rockefeller assign deputies to oversee these companies.
Beyond the shocking misrepresentation of his investments, Rockefeller had another dispiriting discovery in store: Hoyt and Colby had surreptitiously bailed out of the worthless operations and left him holding the bag, often with a majority stake. Even though he terminated relations with this pair, he could not dispose of their sour investments so easily and thought the most prudent course was to buy total control of the companies and turn them around. Holding practically all the stock of thirteen foundering companies, Rockefeller made Gates president of virtually all of them. Overnight, the young minister who had dreaded poverty was running two railroads plus a far-flung group of mines, timber, and manufacturing concerns. Most of these highly speculative investments never panned out.
As if born to rule business empires instead of saving souls, Gates operated with great swagger and panache. While he jettisoned many money-losing enterprises, he developed great affection for the Everett Timber and Investment Company. Touring this terrain each year in a luxurious private railroad car, he bought up for Rockefeller all the forests in sight, a spree that finally netted 50,000 acres in Washington State and another 40,000 on Vancouver Island. Eventually, these timber tracts fetched five or six times their purchase price, compensating Rockefeller for the losses he had sustained in the Pacific Northwest debacle. Gates himself invested in several of the companies he managed for Rockefeller, and in 1902 he cashed in a tidy $500,000 profit.
In Gates, Rockefeller had found not merely an able investor but a prodigy. In 1917, asked by B. C. Forbes to name the greatest businessman he had ever encountered, Rockefeller startled readers by skipping Flagler and Archbold—not to mention Henry Ford and Andrew Carnegie—and naming Frederick T. Gates. “He combines business skill and philanthropic aptitude to a higher degree than any other man I have ever known,” stated Rockefeller.30 Enough Puritan guilt resided in Gates’s soul that he always stressed his charitable work and deprecated his business exploits. When Adolph Ochs, publisher of The New York Times, asked for background information about him in 1912, Gates replied modestly, even evasively, “While I have had intimate relation with Mr. Rockefeller’s private business, that is, his private and personal investments, my interests are and always have been rather in his benevolent work than in his business.” 31 This would have been news to many on Wall Street who had experienced the temper of this hard-driving, cigar-smoking, flamboyant majordomo of the world’s largest private fortune.
Even though he stayed in the background, the press soon detected the power held by the eccentric, shaggy-haired Gates. “In appearance Mr. Gates is not the ordinary type of financier,” the New York Daily Tribune noted. “Everything about him, from the carelessly brushed iron gray hair and cropped moustache to his feet indicate breezy indifference to what others may think about him.”32 Investment houses trifled with him at their peril, for Gates oversaw a securities portfolio of unprecedented size for a private individual. At a time of thin capital markets, he needed to scrounge to find gilt-edged securities to absorb the Rockefeller millions. As if he were a one-man investment bank, Rockefeller participated, under Gates’s supervision, in major stock-and-bond underwriting syndicates alongside the most august Wall Street houses. While it was not unusual in that era for rich individuals to complete syndicates, the sheer scope of Rockefeller’s involvement was something novel.
Even in old age, Rockefeller received stock quotes twice daily and could rattle off the precise number of shares he owned in many stocks. He adhered to several hallowed investing rules. Perhaps the most sacred was that Gates not disturb his Standard Oil stock, the bulk of his fortune. As at Standard Oil, Rockefeller insisted upon keeping a cash balance that never dipped below $10 million. Since he also had a sizable stake in U.S. government bonds, he felt he could play the market with impunity. A born contrarian, Rockefeller insisted upon buying in declining markets and selling in rising ones. When accumulating a position, he bought stocks each time they declined an eighth of a point; when unwinding a position, he sold each time the stock rose an eighth of a point—a technique that gave him an average over an extended period. Having twice been sued by people for offering incorrect market advice, he refrained from offering stock tips. There was also some genuine humility at work, for Rockefeller admitted that he had no “prophetic vision as would make me try to mislead anybody else . . . by one of my miserable guesses.”33
Since his aides superintended a royal treasury of securities, he had to implement special security precautions. He laid down an ironclad rule that no employee could invest in stocks or bonds of any company in which he held a major stake, and a minimum of two people had to be present whenever the safe housing his securities was opened. Rockefeller’s subordinates seemed more jittery than their phlegmatic boss about dealing with such stupendous sums. Starr Murphy recalled an occasion when the boss asked him and a colleague to bring $60 million in securities to his Pocantico estate for his personal inspection. With no small dread, the two men drove up to Westchester, totally unguarded. Rockefeller did not show any anxiety about the absence of security and only at the end alluded to the situation by remarking, with deadpan face and humorous drawl, “I suppose that you gentlemen will return to New York together.”34
Efforts to manipulate Rockefeller often backfired after the Colby and Hoyt affair. In 1910, for instance, Rockefeller was vacationing in Augusta, Georgia, when he received a visit in his hotel suite from Henry Clay Frick, who solemnly advised him to buy 50,000 shares of Reading Railroad stock. The moment Frick left, Rockefeller got on the phone and issued orders to liquidate his block of 47,500 shares; he had t
he satisfaction of selling the final 2,500 shares at the stock’s peak.
Rockefeller grappled with the classic dilemma faced by all large investors: how to buy stocks without pumping them up or sell without dragging them down. As his fame spread, his market moves could set off frenzied stampedes of traders. To forestall this, Rockefeller employed a double set of brokers: a primary broker parceled out orders among dozens of secondary brokers who were ignorant of his identity, thus masking his steps behind a maze of intermediaries. For a long time, he paid double commissions, before he worked out a single-commission arrangement with a broker named Paul D. Langdon. On finde-siècle Wall Street, stock pools were both legal and voguish, and Rockefeller had no ethical qualms about participating in them.
Entering the autumnal phase of his life, Rockefeller preferred sure, steady gains to speculative killings. When one promoter tried to peddle some gold-mining shares, Gates cut him off short. “If you were to say that the vein was pure gold, 24 karats fine, broad, easily workable, and close to a railway, to be had for a song, I doubt if Mr. Rockefeller’s attention could be attracted. . . . He has come to a time in life and circumstances in fortune when these things no longer attract his cupidity.” 35 Rockefeller seldom responded to the countless inventors who trooped to his office hoping to sell patents. It was easier to lend large sums, backed by first-class securities as collateral, than to have investments dispersed among dozens of enterprises. For all his fabled rapacity, Rockefeller was a forgiving lender and, by all accounts, lenient to a fault. “Never have I known Mr. Rockefeller to call a private loan, foreclose a private mortgage, or oppress a debtor,” complained Gates.36 Another investment adviser, Henry E. Cooper, concurred: “He was never too hard on people in business; he was too easy.”37