Kleider Kultur and Merchant Bankers

I T WAS NO LONGER a minuscule community. In the immediate postwar period, as many as sixty thousand additional Jews poured in from Central and Eastern Europe. By 1880, the nation's Jewish population had grown to perhaps two hundred ten thousand. As always, the largest number remained in New York. “There are 80,000 Israelites in the city,” wrote Joseph A. Scoville in The Old Merchants of New York City (1877), “and it is the high standards of excellence of the old Israelite merchants of 1800 that has made the race occupy the proud position it does now in this city and nation.” In its “Gilded Age” of postwar capitalism, the United States was fostering a dynamic new entrepreneurial elite. Within that ethos, no community, native or immigrant, rose quite as swiftly as did the Jews. In 1889 the Bureau of the Census studied eighteen thousand Jewish families, of whom fourfifths were first-or second-generation Central Europeans. The data revealed that 50 percent of the men were wholesale or retail merchants, 20 percent were accountants, bookkeepers, or clerks, 2 percent were bankers, brokers, or company officials, 5 percent were professionals, while less than 1 percent remained peddlers. In the South, where Jews made up less than 1 percent of the population, their mercantile role in an overwhelmingly agrarian economy bulked even larger than in the North. In Natchez, Mississippi, the wholesale merchants who in effect served as bankers for the surrounding farmers and planters were almost entirely Jewish. In the larger cities, the modest general stores and markets of earlier years were flowering into the South's best-known department stores, among them Garfinkle's in Washington, Thalheimer's in Little Rock, Goldsmith's in Memphis, Sakowitz's and Foley's in Houston, Godchaux's in New Orleans, Rich's in Atlanta, Cohen Brothers in Jacksonville.

Virtually synonymous with German-Jewish merchandising in the late nineteenth century, it was the omnibus, one-stop department store that emerged now as a central feature of the American urban landscape in both the North and the South. Jacob Kaufmann, son of a Rhenish cattle dealer, pack-peddled in western Pennsylvania before setting up a little general store in Pittsburgh in 1871. Twenty years later, with his three brothers, Kaufmann proudly opened the city's first “emporium.” It flourished and set the standard for comparable enterprises around the nation. In Boston during the 1880s, the storekeepers Wilhelm and Lincoln Katz—later Filene—devised a “scientific” technique for monitoring their inventory. The operation rapidly became a department store of the first magnitude. Bavarian-born Adam Gimbel pack-peddled in Indiana before opening a general store in Wabash shortly before the Civil War. Marrying and siring seven sons, Gimbel moved on to Milwaukee later in the century, opened a larger store—in effect, a department store—prospered, and moved on to Philadelphia to acquire still larger premises. In 1909 a grandson, Bernard, risked the company's fortune by establishing Gimbel's flagship store in New York. By then the city's vast retail terrain already had been staked out by Altman's, Abraham & Straus, and Bloomingdale's. More challenging yet, Gimbel was launching his new venture only one block from the nation's single largest department store, Macy's. Thus began the most famous rivalry in American retail history.

It was in 1852 that Lazarus Straus departed his native Bavaria for the United States. Pack-peddling in the South, he saved enough to open a general store in Talbotton, Georgia, and to send for his wife and three sons. It was the xenophobia of the Civil War that induced them to leave (see this page ), and eventually to settle in New York. Here it was that Isidor, the eldest son, scouted a foundering wholesale crockery firm on the lower floor of a building owned by Captain R. H. Macy, a retired whaler. Purchasing the business, the family soon made it profitable. With their first earnings, too, they paid off the entirety of their prewar debt to their former Northern suppliers. It was a rare gesture for a Southern businessman in the postwar era; and from then on, the Strauses' credit rating was unsurpassed. Several years later, the family had no difficulty borrowing the funds to purchase Captain Macy's building outright, to convert it into a department store, and eventually to buy an even larger building on Thirty-fourth Street. Isidore, who succeeded his father as managing partner, pioneered the technique of “comparative” shopping and rigorous quality control. By the early twentieth century, Macy's was the largest department store in the world. Its competition with Gimbel's and with other Jewish-owned department stores, in New York and elsewhere in branch stores, offered American consumers an embarras de richesses of quality goods at reasonable prices unmatched in any other country.

Whether as department store magnates or as small retailers, meanwhile, Jews continued to display a preference for nonperishable merchandise. They dealt extensively with household furnishings, with tobacco and stationery products, above all with dry goods. Textiles were Jewish. Clothing was Jewish. In New York alone by 1880, possibly 80 percent of all retail and 90 percent of all wholesale clothing firms were owned by Jews. Smaller communities revealed the same proportions. In Columbus, Ohio, in 1872, every retail clothing store in town was Jewish-owned. By then, too, important changes had occurred in the clothing industry. One of these was the invention of the sewing machine by Elias Howe in 1846 and its perfection by Isaac Singer in 1851. For the first time, speeded manufacture of piecework became technologically possible. It became economically feasible, moreover, with the Civil War, and the Union Army's vast requirements for uniforms. By the end of hostilities, the groundwork had been laid for expansion of the ready-made-clothing industry into the civilian market.

It was all but predictable that Jews, who dominated the wholesale and retail markets in clothing, would be the first to graduate to manufacture. As early as the 1840s, the Posen-born Herman Spitz had moved into the large-scale production of uniforms for the Mexican War. In the 1850s, the firms of Gans, Leberman & Arnold and Nusband & Nirlinger, both of Philadelphia, and Bernheimer Brothers and William Seligman & Co., both of New York, began to produce ready-made clothing for the civilian market. And during the Civil War itself, a dense network of Jewish clothiers in New York, Cincinnati, Syracuse, Rochester, Cleveland, Chicago, Baltimore, Philadelphia, and Boston won government contracts for the production of uniforms. Between 1860 and 1880, then, the manufacture of ready-made clothing, in common with its distribution and sale throughout the United States, became a pillar of the German-Jewish immigrant economy.

Noteworthy was the achievement of the Hart family, arriving in Chicago in 1858 from the Bavarian Palatinate with a brood of eight children. Two of the older sons, Max and Harry, opened a small clothing store in 1872. It thrived with the expansion of the city. In the 1870s, the brothers turned to manufacture and distribution. Supplied with additional capital by a cousin, Marcus Marx, and taking in another cousin, Joseph Schaffner, an experienced bookkeeper, the four partners opened a small workroom on Chicago's South Side. The quality of their garments exceeded current standards. Theirs was the first company to adopt an all-wool policy and to guarantee colorfastnesses. Schaffner, in turn, developed the advertising, marketing, and distribution techniques that ultimately became the norm for the industry. By the turn of the century, Hart, Schaffner & Marx had emerged as the largest manufacturer of men's clothing in the world. Other Jewish firms would compete vigorously for an expanding market. Indeed, even as ready-to-wear clothing won acceptance, specialized categories rapidly followed. A Galician immigrant, Louis Borgenicht, who started out in 1889 as a peddler on New York's East Side, discerned the possibilities of the children's market. His wife then designed and initially hand-fashioned durable children's garments. Borgenicht peddled them from house to house. Within ten years he emerged as “King of the Children's Dress Trade.” Pioneering the mass production of reasonably priced, decent-quality clothing, immigrant Jews altogether made their fortunes by helping to blur the more visible external distinctions between rich and poor, master and servant.

The postwar boom decades offered still additional opportunities for those with specialized skills. Joseph Seligman (né Seligmann), eldest of eleven children of a Bavarian-Jewish wool merchant, arrived in America in 1837, at the age of seventeen, and peddled. In 1840 he brought over his two eldest brothers, and together the young men opened a general store in Lancaster, Pennsylvania. It thrived. More brothers arrived. They opened branches in other cities. One of these was San Francisco. Supervising the operation personally, Jesse and Leopold Seligman conducted their business by extending credit, making cash loans for interest, taking money on deposit, and accepting payment in gold dust or bullion—which they sold for a profit in the New York bullion market. In effect, the brothers were operating a bank, one that soon proved more profitable even than merchandising. As head of the family, Joseph Seligman decided then to concentrate increasingly on investment banking, and to establish headquarters in New York. The Seligmans flourished. During the Civil War they proved especially adept at buying up Union government bonds, then marketing the securities in Europe. Eventually the underwriting of government bonds became their specialty. No American investment bank rivaled Seligman & Co. in this field.

In the postwar era, other Jewish investment bankers soon were making their mark. Heinrich Lehman, son of a Würzburg cattle dealer, arrived in the United States in 1844, peddled, opened a general store in Montgomery, Alabama, then brought over his younger brothers Emanuel and Mayer. In a churning cotton economy, customers often paid in the raw cotton itself, and Lehman Brothers soon developed into resourceful brokers of the commodity. Indeed, upon Heinrich's premature death in 1858, Emanuel and Mayer steered the company into commodities brokerage full-time. After the war they moved to New York, and within a decade the firm emerged as the largest commodities brokers on Wall Street. The evolution continued. Once acquiring a seat on the New York Stock Exchange in 1887, Lehman Bros, turned increasingly to investment banking. By the end of the century, a second generation of Lehman brothers and cousins had transformed the company essentially into a merchant banker for industry, with particular emphasis on modern technology, automobiles, rubber tires, and tobacco-curing machinery.

There were minor variations en route to investment banking. Marcus Goldman, another Bavarian immigrant peddler-storekeeper, circa 1847, hung out a shingle on New York's Pine Street announcing himself as “Banker and Broker.” More accurately, he was a factor—a bill discounter—and he carried his business literally in his hat. Starting off each morning to visit his fellow Jews among the wholesale jewelers on Maiden Lane, Goldman understood that their principal need was cash. With commercial-bank rates high, small merchants normally obtained cash by selling their promissory notes at a discount to men like Goldman. Goldman, in turn, marketed the notes to commercial banks for a modest profit. Lending on a more substantial scale had to await the end of the Civil War, when Goldman joined forces with Samuel Sachs, son of a Bavarian rabbi. In 1894, Goldman, Sachs & Co. became members of the Stock Exchange, and the firm was poised for its takeoff in merchant banking (see this page ). Other prominent firms were Jules Bache & Co., Heidelbach, Ickelheimer & Co., Salomon Brothers, Kuhn, Loeb & Co., Speyer & Co., Ladenburg, Thalmann & Co. Although Jews never quite constituted a majority among investment bankers, by the turn of the century their houses had emerged as major players on Wall Street.

Increasingly, too, these Jewish bankers sensed challenging new opportunities for railroads, heavy industry, and utilities. Thus, Speyer & Co. placed tens of millions of dollars of Central Pacific and Southern Pacific bonds in Europe and sold hundreds of millions more for other railroads, including the Illinois Central and the Baltimore & Ohio. Bache & Co. was a major underwriter both of the Pullman and of the Budd Railway Carriage corporations. By far the most impressive record in railroad finance, however, was achieved by Kuhn, Loeb & Co. In 1849 twenty-year-old Solomon Loeb arrived in the United States from the Rhineland. Pack-peddling in Cincinnati, he was taken on later as a salesman by Abraham Kuhn, who had made his way up to ownership of a small trouser factory. The two men worked well together. When Loeb successfully opened another factory outlet in New York, he and Kuhn became partners, then celebrated their emergent success by bringing over from Germany thirteen sibling Kuhns and Loebs. Kuhn married Loeb's sister; Loeb married Kuhn's sister. Other Kuhns married other Loebs. They all lived together in neighboring houses in German Cincinnati. But even as they prospered—accepting, discounting, and selling for profit their customers' promissory notes—the two partners sensed the even handsomer potential rewards of venture finance. In 1867, with their own funds and money put up by cousins and brothers-in-law, the firm of Kuhn, Netter, Loeb and Wolff, “Brokers and Bankers,” opened for business in New York. Dealing essentially with the city's Jewish small businessmen, this enterprise too went well.

In 1874, during a return visit to Germany, Kuhn met Jacob Schiff, a handsome, twenty-six-year-old son of a prosperous Frankfurt banking family. Impressed by the young man's mature grasp of complex financial issues, Kuhn invited him to join the firm in the United States. Schiff accepted, eager to spread his wings overseas. Possibly his ambition influenced other decisions. Within a year of arriving in New York, he was betrothed to Solomon Loeb's singularly plain daughter, Theresa. Shortly afterward he was made a full partner in Kuhn, Loeb & Co. In fact, Schiff earned his keep. While still in Germany, he had made a detailed study of railroads and discerned in them a key to the industrial future. Now he persuaded his father-in-law to invest a portion of the firm's assets in such promising lines as Union Pacific and Great Northern. Indeed, Schiff evaluated these companies personally—inspected their track, interviewed their shop workers, poked about their warehouses, talked to engineers, brakemen, and conductors. His grasp of railroad economics soon became almost unnervingly encyclopedic. It paid off. Under Scruff's guidance, Kuhn, Loeb & Co. during the next thirty years became the largest underwriter of railroad issues in the world. At the same time, the firm raised capital for Bethlehem Steel, U.S. Rubber, Westinghouse Electric, American Smelting and Refining, American Telegraph and Telephone. By the early twentieth century, Kuhn, Loeb forged ahead of Seligman & Co. to become Wall Street's largest Jewish investment house, and one of its two or three most respected.

By then, too, foreign governments were turning increasingly to these great Jewish firms. The companies' roots were in Europe, after all; their banking correspondents on the Continent often were fellow Jews, like the Disconto Gesellschaft, or, indeed, Scruff's future in-laws, the Warburgs, upon whom they could draw for both information and pooled capital. With these resources, Kuhn, Loeb underwrote an $80-million bond issue for the German government in 1900 and a $200-million subscription for Japan in 1904 (see this page ). Goldman, Sachs similarly enjoyed intimate relationships with correspondent—often family-related—Jewish houses in London, Amsterdam, Berlin, Zurich. The Speyers were closely tied to Speyer-Ellison in Frankfurt, and later to Speyer Brothers in London. Hallgarten & Co. was allied with the Darmstädter Bank. In ensuing years, these relationships would evoke populist accusations that a small group of Jewish financiers in New York and Germany “controlled” the economic life of the United States. In fact, most of the older American firms also maintained correspondent relationships overseas, particularly with London. Ultimately, it was the historic combination of business experience, speed of decision, and calculated risk-taking that assured this imposing Jewish success. Kem4G/UE1yZ4V0f/VAHzi6rVr1jUtwU7mOXZy2k4Q5xfglWNVxlgVK9dv2qm6UfX