The Railroad Builders: A Chronicle of the Welding of the States

By John Moody

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Title: The Railroad Builders
       A Chronicle of the Welding of the States, Volume 38 in The
       Chronicles of America Series

Author: John Moody

Editor: Allen Johnson

Posting Date: February 22, 2009 [EBook #3036]
Release Date: January, 2002
Last Updated: September 6, 2015

Language: English


*** START OF THIS PROJECT GUTENBERG EBOOK THE RAILROAD BUILDERS ***




Produced by The James J. Kelly Library of St. Gregory's
University, Alev Akman, Dianne Bean, and Stephanie Manke






THE RAILROAD BUILDERS

A CHRONICLE OF THE WELDING OF THE STATES

Volume 38 In The Chronicles Of America Series

By John Moody



New Haven: Yale University Press

Toronto: Glasgow, Brook & Co.

London: Humphrey Milford

Oxford University Press

1919



CONTENTS

     I.    A CENTURY OF RAILROAD BUILDING
     II.   THE COMMODORE AND THE NEW YORK CENTRAL
     III.  THE GREAT PENNSYLVANIA SYSTEM
     IV.   THE ERIE RAILROAD
     V.    CROSSING THE APPALACHIAN RANGE
     VI.   LINKING THE OCEANS
     VII.  PENETRATING THE PACIFIC NORTHWEST
     VIII. BUILDING ALONG THE SANTA FE TRAIL
     IX.   THE GROWTH OF THE HILL LINES
     X.    THE RAILROAD SYSTEM OF THE SOUTH
     XI.   THE LIFE WORK OF EDWARD H. HARRIMAN
     XII.  THE AMERICAN RAILROAD PROBLEM

     BIBLIOGRAPHY




THE RAILROAD BUILDERS



CHAPTER I. A CENTURY OF RAILROAD BUILDING

The United States as we know it today is largely the result of
mechanical inventions, and in particular of agricultural machinery and
the railroad. One transformed millions of acres of uncultivated land
into fertile farms, while the other furnished the transportation which
carried the crops to distant markets. Before these inventions appeared,
it is true, Americans had crossed the Alleghanies, reached the
Mississippi Valley, and had even penetrated to the Pacific coast; thus
in a thousand years or so the United States might conceivably have
become a far-reaching, straggling, loosely jointed Roman Empire,
depending entirely upon its oceans, internal watercourses, and imperial
highways for such economic and political integrity as it might achieve.
But the great miracle of the nineteenth century--the building of a new
nation, reaching more than three thousand miles from sea to sea, giving
sustenance to more than one hundred million free people, and diffusing
among them the necessities and comforts of civilization to a greater
extent than the world had ever known before is explained by the
development of harvesting machinery and of the railroad.

The railroad is sprung from the application of two fundamental
ideas--one the use of a mechanical means of developing speed, the other
the use of a smooth running surface to diminish friction. Though these
two principles are today combined, they were originally absolutely
distinct. In fact there were railroads long before there were steam
engines or locomotives. If we seek the real predecessor of the modern
railroad track, we must go back three hundred years to the wooden rails
on which were drawn the little cars used in English collieries to
carry the coal from the mines to tidewater. The natural history of this
invention is clear enough. The driving of large coal wagons along the
public highway made deep ruts in the road, and some ingenious person
began repairing the damage by laying wooden planks in the furrows. The
coal wagons drove over this crude roadbed so successfully that certain
proprietors started constructing special planked roadways from the mines
to the river mouth. Logs, forming what we now call "ties," were placed
crosswise at intervals of three or four feet, and upon these supports
thin "rails," likewise of wood, were laid lengthwise. So effectually did
this arrangement reduce friction that a single horse could now draw a
great wagon filled with coal--an operation which two or three teams,
lunging over muddy roads, formerly had great difficulty in performing.
In order to lengthen the life of the road, a thin sheeting of iron was
presently laid upon the wooden rail. The next improvement was an attempt
to increase the durability of the wagons by making the wheels of iron.
It was not, however, until 1767, when the first rails were cast entirely
of iron with a flange at one side to keep the wheel steadily in place,
that the modern roadbed in all its fundamental principles made its
appearance. This, be it observed, was only two years after Watt had
patented his first steam engine, and it was nearly fifty years before
Stephenson built his first locomotive. The railroad originally was as
completely dissociated from steam propulsion as was the ship. Just
as vessels had existed for ages before the introduction of mechanical
power, so the railroad had been a familiar sight in the mining districts
of England for at least two centuries before the invention of Watt
really gave it wings and turned it to wider uses. In this respect the
progress of the railroad resembles that of the automobile, which had
existed in crude form long before the invention of the gasoline engine
made it practically useful.

In the United States three new methods of transportation made their
appearance at almost the same time--the steamboat, the canal boat,
and the rail car. Of all three, the last was the slowest in attaining
popularity. As early as 1812 John Stevens, of Hoboken, aroused much
interest and more amused hostility by advocating the building of a
railroad, instead of a canal, across New York State from the Hudson
River to Lake Erie, and for several years this indefatigable spirit
journeyed from town to town and from State to State, in a fruitless
effort to push his favorite scheme. The great success of the Erie Canal
was finally hailed as a conclusive argument against all the ridiculous
claims made in favor of the railroad and precipitated a canal mania
which spread all over the country.

Yet the enthusiasts for railroads could not be discouraged, and
presently the whole population divided into two camps, the friends of
the canal, and the friends of the iron highway. Newspapers acrimoniously
championed either side; the question was a favorite topic with debating
societies; public meetings and conventions were held to uphold one
method of transportation and to decry the other. The canal, it was
urged, was not an experiment; it had been tested and not found wanting;
already the great achievement of De Witt Clinton in completing the Erie
Canal had made New York City the metropolis of the western world. The
railroad, it was asserted, was just as emphatically an experiment; no
one could tell whether it could ever succeed; why, therefore, pour money
and effort into this new form of transportation when the other was a
demonstrated success?

It was a simple matter to find fault with the railroad; it has always
been its fate to arouse the opposition of the farmers. This hostility
appeared early and was based largely upon grounds that have a familiar
sound even today. The railroad, they said, was a natural monopoly;
no private citizen could hope ever to own one; it was thus a kind of
monster which, if encouraged, would override all popular rights. From
this economic criticism the enemies of the railroad passed to details
of construction: the rails would be washed out by rains; they could
be destroyed by mischievous people; they would snap under the cold
of winter or be buried under the snow for a considerable period, thus
stopping all communication. The champions of artificial waterways would
point in contrast to the beautiful packet boats on the Erie Canal, with
their fine sleeping rooms, their restaurants, their spacious decks on
which the fine ladies and gentlemen congregated every warm summer day,
and would insist that such kind of travel was far more comfortable than
it could ever be on railroads. To all these pleas the advocates of the
railroad had one unassailable argument--its infinitely greater speed.
After all, it took a towboat three or four days to go from Albany to
Buffalo, and the time was not far distant, they argued, when a railroad
would make the same trip in less than a day. Indeed, our forefathers
made one curious mistake: they predicted a speed for the railroad a
hundred miles an hour--which it has never attained consistently with
safety.

If the American of today could transport himself to one of the first
railroad lines built in the United States it is not unlikely that he
would side with the canal enthusiast in his argument. The rough pictures
which accompany most accounts of early railroad days, showing a train
of omnibus-like carriages pulled by a locomotive with upright boiler,
really represent a somewhat advanced stage of development. Though
Stephenson had demonstrated the practicability of the locomotive in 1814
and although the American, John Stevens, had constructed one in 1826
which had demonstrated its ability to take a curve, local prejudice
against this innovation continued strong. The farmers asserted that
the sparks set fire to their hayricks and barns and that the noise
frightened their hens so that they would not lay and their cows so that
they could not give milk. On the earliest railroads, therefore, almost
any other method of propulsion was preferred. Horses and dogs were used,
winches turned by men were occasionally installed, and in some cases
cars were even fitted with sails. Of all these methods, the horse was
the most popular: he sent out no sparks, he carried his own fuel, he
made little noise, and he would not explode. His only failing was that
he would leave the track; and to remedy this defect the early railroad
builders hit upon a happy device. Sometimes they would fix a treadmill
inside the car; two horses would patiently propel the caravan, the
seats for passengers being arranged on either side. So unformed was the
prevalent conception of the ultimate function of the railroad, and so
pronounced was the fear of monopoly that, on certain lines, the roadbed
was laid as a state enterprise and the users furnished their own
cars, just as the individual owners of towboats did on the canals.
The drivers, however, were an exceedingly rough lot; no schedules were
observed and as the first lines had only single tracks and infrequent
turnouts, when the opposing sides would meet each other coming and
going, precedence was usually awarded to the side which had the stronger
arm. The roadbed showed little improvement over the mine tramways of the
eighteenth century, and the rails were only long wooden stringers with
strap iron nailed on top. So undeveloped were the resources of the
country that the builders of the Baltimore and Ohio Railroad in 1828
petitioned Congress to remit the duty on the iron which it was compelled
to import from England. The trains consisted of a string of little cars,
with the baggage piled on the roof, and when they reached a hill they
sometimes had to be pulled up the inclined plane by a rope. Yet the
traveling in these earliest days was probably more comfortable than in
those which immediately followed the general adoption of locomotives.
When, five or ten years later, the advantages of mechanical as opposed
to animal traction caused engines to be introduced extensively, the
passengers behind them rode through constant smoke and hot cinders that
made railway travel an incessant torture.

Yet the railroad speedily demonstrated its practical value; many of the
first lines were extremely profitable, and the hostility with which they
had been first received soon changed to an enthusiasm which was just
as unreasoning. The speculative craze which invariably follows a new
discovery swept over the country in the thirties and the forties and
manifested itself most unfortunately in the new Western States--Ohio,
Indiana, Illinois, and Michigan. Here bonfires and public meetings
whipped up the zeal; people believed that railroads would not only
immediately open the wilderness and pay the interest on the bonds issued
to construct them, but that they would become a source of revenue to
sadly depleted state treasuries. Much has been heard of government
ownership in recent years; yet it is nothing particularly new, for
many of the early railroads in these new Western States were built as
government enterprises, with results which were frequently disastrous.
This mania, with the land speculation accompanying it, was largely
responsible for the panic of 1837 and led to that repudiation of debts
in certain States which for so many years gave American investments an
evil reputation abroad.

In the more settled parts of the country, however, railroad building
had comparatively a more solid foundation. Yet the railroad map of
the forties indicates that railroad building in this early period was
incoherent and haphazard. Practically everywhere the railroad was an
individual enterprise; the builders had no further conception of it than
as a line connecting two given points usually a short distance apart.
The roads of those days began anywhere and ended almost anywhere. A few
miles of iron rail connected Albany and Schenectady. There was a road
from Hartford to New Haven, but there was none from New Haven to New
York. A line connected Philadelphia with Columbia; Baltimore had a road
to Washington; Charleston, South Carolina, had a similar contact with
Hamburg in the same State. By 1842, New York State, from Albany to
Buffalo, possessed several disconnected stretches of railroad. It was
not until 1836, when work was begun on the Erie Railroad, that a plan
was adopted for a single line reaching several hundred miles from an
obvious point, such as New York, to an obvious destination, such as
Lake Erie. Even then a few farsighted men could foresee the day when
the railroad train would cross the plains and the Rockies and link the
Atlantic and the Pacific. Yet, in 1850 nearly all the railroads in the
United States lay east of the Mississippi River, and all of them,
even when they were physically mere extensions of one another, were
separately owned and separately managed.

Successful as many of the railroads were, they had hardly yet
established themselves as the one preeminent means of transportation.
The canal had lost in the struggle for supremacy, but certain of these
constructed waterways, particularly the Erie, were flourishing with
little diminished vigor. The river steamboat had enjoyed a development
in the first few decades of the nineteenth century almost as great as
that of the railroad itself. The Mississippi River was the great natural
highway for the products and the passenger traffic of the South Central
States; it had made New Orleans one of the largest and most flourishing
cities in the country; and certainly the rich cotton planter of the
fifties would have smiled at any suggestion that the "floating palaces"
which plied this mighty stream would ever surrender their preeminence to
the rusty and struggling railroads which wound along its banks.

This period, which may be taken as the first in American railroad
development, ended about the middle of the century. It was an age of
great progress but not of absolutely assured success. A few lines
earned handsome profits, but in the main the railroad business was not
favorably regarded and railroad investments everywhere were held in
suspicion. The condition that prevailed in many railroads is illustrated
by the fact that the directors of the Michigan and Southern, when
they held their annual meeting in 1853, had to borrow chairs from an
adjoining office as the sheriff had walked away with their own for debt.
Even a railroad with such a territory as the Hudson River Valley,
and extending from New York to Albany existed in a state of chronic
dilapidation; and the New York and Harlem, which had an entrance into
New York City as an asset of incalculable value, was looked upon merely
as a vehicle for Wall Street speculation.

Meanwhile the increasing traffic in farm products, mules, and cattle
from the Northwest to the plantations of the South created a demand for
more ample transportation facilities. In the decade before the Civil
War various north and south lines of railway were projected and some of
these were assisted by grants of land from the Federal Government. The
first of these, the Illinois Central, received a huge land-grant in 1850
and ultimately reached the Gulf at Mobile by connecting with the Mobile
and Ohio Railroad which had also been assisted by Federal grants.
But the panic of 1857, followed by the Civil War, halted all railroad
enterprises. In the year 1856 some 3600 miles of railroad had been
constructed; in 1865 only 700 were laid down. The Southern railroads
were prostrated by the war and north and south lines lost all but local
traffic.

After the war a brisk recovery began and brought to the fore the first
of the great railroad magnates and the shrewdest business genius of the
day, Cornelius Vanderbilt. Though he had spent his early life and had
laid the basis of his fortune in steamboats, he was the first man to
appreciate the fact that these two methods of transportation were about
to change places--that water transportation was to decline and that
rail transportation was to gain the ascendancy. It was about 1865 that
Vanderbilt acted on this farsighted conviction, promptly sold out his
steamboats for what they would bring, and began buying railroads despite
the fact that his friends warned him that, in his old age, he was
wrecking the fruits of a hard and thrifty life. But Vanderbilt perceived
what most American business men of the time failed to see, that a change
had come over the railroad situation as a result of the Civil War.

The time extending from 1860 to about 1875 marks the second stage in
the railroad activity of the United States. The characteristic of this
period is the development of the great trunk lines and the construction
of a transcontinental route to the Pacific. The Civil War ended the
supremacy of the Mississippi River as the great transportation route
of the West. The fact that this river ran through hostile
territory--Vicksburg did not fall until July 4, 1863--forced the farmers
of the West to find another outlet for their products. By this time the
country from Chicago and St. Louis eastward to the Atlantic ports was
fairly completely connected by railroads. The necessities of war led
to great improvements in construction and equipment. Business which had
hitherto gone South now began to go East; New Orleans ceased to be the
great industrial entrepot of this region and gave place to St. Louis and
Chicago.

Yet, though this great change in traffic routes took place in the course
of the war, the actual consolidations of the various small railroads
into great trunk lines did not begin until after peace had been assured.
The establishment of five great railroads extending continuously from
the Atlantic seaboard to Chicago and the West was perhaps the most
remarkable economic development of the ten or fifteen years succeeding
the war. By 1875 these five great trunk lines, the New York Central, the
Pennsylvania, the Erie, the Baltimore and Ohio, and the Grand Trunk,
had connected their scattered units and established complete through
systems.

All the vexations that had necessarily accompanied railroad traffic in
the days when each one of these systems had been a series of disconnected
roads had disappeared. The grain and meat products of the West,
accumulating for the most part at Chicago and St. Louis, now came
rapidly and uninterruptedly to the Atlantic seaboard, and railroad
passengers, no longer submitted to the inconveniences of the Civil War
period, now began to experience for the first time the pleasures of
railroad travel. Together with the articulation of the routes, important
mechanical changes and reconstruction programmes completely transformed
the American railroad system. The former haphazard character of each
road is evidenced by the fact that in Civil War days there were eight
different gages, with the result that it was almost impossible for the
rolling stock of one line to use another. A few years after the Civil
War, however, the present standard gage of four feet eight and one-half
inches had become uniform all over the United States. The malodorous
"eating cribs" of the fifties and the sixties--little station
restaurants located at selected spots along the line--now began to
disappear, and the modern dining car made its appearance. The old rough
and ready sleeping cars began to give place to the modern Pullman. One
of the greatest drawbacks to ante-bellum travel had been the absence of
bridges across great rivers, such as the Hudson and the Susquehanna.
At Albany, for example, the passengers in the summer time were ferried
across, and in winter they were driven in sleighs or were sometimes
obliged to walk across the ice. It was not until after the Civil War
that a great iron bridge, two thousand feet long, was constructed across
the Hudson at this point. On the trains the little flickering oil lamps
now gave place to gas, and the wood burning stoves--frequently in those
primitive days smeared with tobacco juice--in a few years were displaced
by the new method of heating by steam.

The accidents which had been almost the prevailing rule in the fifties
and sixties were greatly reduced by the Westinghouse air-brake, invented
in 1868, and the block signaling system, introduced somewhat later. In
the ten years succeeding the Civil War, the physical appearance of the
railroads entirely changed; new and larger locomotives were made, the
freight cars, which during the period of the Civil War had a capacity of
about eight tons, were now built to carry fifteen or twenty. The former
little flimsy iron rails were taken up and were relaid with steel. In
the early seventies when Cornelius Vanderbilt substituted steel for iron
on the New York Central, he had to import the new material from England.
In the Civil War period, practically all American railroads were single
track lines--and this alone prevented any extensive traffic. Vanderbilt
laid two tracks along the Hudson River from New York to Albany, and
four from Albany to Buffalo, two exclusively for freight and two for
passengers. By 1880 the American railroad, in all its essential details,
had definitely arrived.

But in this same period even more sensational developments had taken
place. Soon after 1865 the imagination of the American railroad
builder began to reach far beyond the old horizon. Up to that time the
Mississippi River had marked the Western railroad terminus. Now and then
a road straggled beyond this barrier for a few miles into eastern Iowa
and Missouri; but in the main the enormous territory reaching from the
Mississippi to the Pacific Ocean was crossed only by the old trails. The
one thing which perhaps did most to place the transcontinental road on
a practical basis was the annexation of California in 1848; and the wild
rush that took place on the discovery of the gold fields one year later
had led Americans to realize that on the Pacific coast they had an
empire which was great and incalculably rich but almost inaccessible.
The loyalty of California to the Northern cause in the war naturally
stimulated a desire for closer contact. In the ten years preceding 1860
the importance of a transcontinental line had constantly been brought
to the attention of Congress and the project had caused much jealousy
between the North and the South, for each region desired to control its
Eastern terminus. This impediment no longer stood in the way; early in
his term, therefore, President Lincoln signed the bill authorizing the
construction of the Union Pacific--a name doubly significant, as marking
the union of the East and the West and also recognizing the sentiment of
loyalty or union that this great enterprise was intended to promote.
The building of this railroad, as well as that of the others which
ultimately made the Pacific and the Atlantic coast near neighbors--the
Santa Fe, the Southern Pacific, the Northern Pacific, and the Great
Northern--is described in the pages that follow. Here it is sufficient
to emphasize the fact that they achieved the concluding triumph in what
is certainly the most extensive system of railroads in the world. These
transcontinental roads really completed the work of Columbus. He sailed
to discover the western route to Cathay and found that his path was
blocked by a mighty continent. But the first train that crossed the
plains and ascended the Rockies and reached the Golden Gate assured
thenceforth a rapid and uninterrupted transit westward from Europe to
Asia.



CHAPTER II. THE COMMODORE AND THE NEW YORK CENTRAL

A story was told many years ago of Commodore Vanderbilt which, while
perhaps not strictly true, was pointed enough to warrant its constant
repetition for more than two generations. Back in the sixties, when this
grizzled railroad chieftain was the chief factor in the rapidly growing
New York Central Railroad system, whose backbone then consisted of a
continuous one-track line connecting Albany with the Great Lakes, the
president of a small cross-country road approached him one day and
requested an exchange of annual passes.

"Why, my dear sir," exclaimed the Commodore, "my railroad is more than
three hundred miles long, while yours is only seventeen miles."

"That may all be so," replied the other, "but my railroad is just as
wide as yours."

This statement was true. Practically no railroad, even as late as the
sixties, was wider than another. They were all single-tracked lines.
Even the New York Central system in 1866 was practically a single-track
road; and the Commodore could not claim to any particular superiority
over his neighbors and rivals in this particular. Instead of sneering
at his "seventeen-mile" colleague, Vanderbilt might have remembered that
his own fine system had grown up in less than two generations from
a modest narrow-gage track running from "nothing to nowhere." The
Vanderbilt lines, which today with their controlled and affiliated
systems comprise more than 13,000 miles of railroad--a large portion of
which is double-tracked, no mean amount being laid with third and fourth
tracks is the outgrowth of a little seventeen-mile line, first chartered
in 1826, and finished for traffic in 1831. This little railroad
was known as the Mohawk and Hudson, and it extended from Albany to
Schenectady. It was the second continuous section of railroad line
operated by steam in the United States, and on it the third locomotive
built in America, the De Witt Clinton, made a satisfactory trial trip in
August, 1831.

The success of this experiment created a sensation far and wide and led
to rapid railroad building in other parts of the country in the years
immediately following. The experiences of a participant in this trial
trip are described about forty years later in a letter written by Judge
J.L. Gillis of Philadelphia:

"In the early part of the month of August of that year [1831], I
left Philadelphia for Canandaigua, New York, traveling by stages and
steamboats to Albany and stopping at the latter place. I learned that a
locomotive had arrived there and that it would make its first trip
over the road to Schenectady the next day. I concluded to lie over and
gratify my curiosity with a first ride after a locomotive.

"That locomotive, the train of cars, together with the incidents of the
day, made a very vivid impression on my mind. I can now look back from
one of Pullman's Palace cars, over a period of forty years, and see that
train together with all the improvements that have been made in
railroad travel since that time.... I am not machinist enough to give a
description of the locomotive that drew us over the road that day, but
I recollect distinctly the general make-up of the train. The train
was composed of coach bodies, mostly from Thorpe and Sprague's stage
coaches, placed upon trucks. The trucks were coupled together with
chains, leaving from two to three feet slack, and when the locomotive
started it took up the slack by jerks, with sufficient force to jerk
the passengers who sat on seats across the tops of the coaches, out from
under their hats, and in stopping, came together with such force as to
send them flying from the seats.

"They used dry pitch for fuel, and there being no smoke or spark
catcher to the chimney or smoke-stack, a volume of black smoke, strongly
impregnated with sparks, coals, and cinders, came pouring back the whole
length of the train. Each of the tossed passengers who had an umbrella
raised it as a protection against the smoke and fire. They were found
to be but a momentary protection, for I think in the first mile the
last umbrella went overboard, all having their covers burnt off from the
frames, when a general melee took place among the deck passengers, each
whipping his neighbor to put out the fire. They presented a very motley
appearance on arriving at the first station. Then rails were secured and
lashed between the trucks, taking the slack out of the coupling chains,
thereby affording us a more steady run to the top of the inclined plane
at Schenectady.

"The incidents off the train were quite as striking as those on the
train. A general notice of the contemplated trip had excited not only
the curiosity of those living along the line of the road, but those
living remote from it, causing a large collection of people at all the
intersecting roads along the route. Everybody, together with his
wife and all his children, came from a distance with all kinds of
conveyances, being as ignorant of what was coming as their horses, and
drove up to the road as near as they could get, only looking for the
best position to get a view of the train. As it approached the horses
took fright and wheeled, upsetting buggies, carriages, and wagons, and
leaving for parts unknown to the passengers if not to their owners, and
it is not now positively known if some of them have stopped yet. Such is
a hasty sketch of my recollection of my first ride after a locomotive."

The Mohawk and Hudson Railroad was originally constructed with inclined
planes worked by stationary engines near each terminus, the inclinations
being one foot in eighteen. The rail used was a flat bar laid upon
longitudinal sills. This type of rail came into general use at this
period and continued in use in parts of the country even as late as the
Civil War.

The roads that now make up the New York Central were built piecemeal
from 1831 to 1853; and the organization of this company in the latter
year, to consolidate eleven independent roads extending from Albany
to Buffalo, finally put an end to the long debate between canals
and railroads. The founding of this company definitely meant that
transportation in the United States henceforth would follow the steel
route and not the water ditch and the towpath. Canals might indeed
linger for a time as feeders, even, as in the case of the Erie and a few
others, as more or less important transportation routes, but every one
now realized that the railroad was to be the great agency which would
give plausibility to the industrial organization of the United States
and develop its great territory.

Besides the pioneer Mohawk and Hudson, this consolidation included
the Utica and Schenectady, which had been opened in 1836 and which had
operated profitably for many years, always paying large dividends. The
Tonawanda Railroad, opened in 1837, and the Buffalo and Niagara Falls,
also finished in the same year, were operated with profit until they
were absorbed by the new system. In 1838 the Auburn and Syracuse and
the Hudson and Berkshire Railroads were opened. The former after being
merged in 1850 with the Rochester and Syracuse Railway, became a part of
the consolidation. The Syracuse and Attica Railroad, opened in 1839, the
Attica and Buffalo, opened in 1842, the Schenectady and Troy, opened
in the same year, and several other small lines, some of which had
undergone various changes in name and ownership, were all merged into
the New York Central Railroad. This great property now comprised five
hundred and sixty miles of railroad, the main stem extending from Albany
to Buffalo. Though it had as yet no connection with the Hudson River
Railroad, the New York Central Railroad at this period was the most
substantial and important of American railroad systems. It developed a
large and healthy through traffic to the Great Lakes and was practically
free from railroad competition. The Erie Railway, which for many years
had been struggling under great difficulties to reach the Great Lakes
and had gone through nearly a generation of financial vicissitudes,
was just getting its through line actively under way. The Pennsylvania
Railroad was just pushing through to the waters of the Ohio and was not
likely for many years to compete with the New York Central for the lake
traffic. The Baltimore and Ohio, while remotely a competitor, was, like
the Pennsylvania, looking more for the traffic of the Ohio Valley than
for that of the Lakes.

The period of six years following the consolidation of 1853 was one of
great prosperity for the New York Central system, and, notwithstanding
the setbacks to business caused by the panic of 1857, large dividends
were continuously paid on the capital stock. In the year 1859--before
the Vanderbilt regime opened--the management embraced what to modern
men of affairs are famous names. Erastus Corning was president, Dean
Richmond was vice-president, and John V. L. Pruyn, Nathaniel Thayer,
Isaac Townsend, and Chauncey Vibbard were directors. The headquarters of
the company were at Albany, and the stock was owned mainly by residents
of that city.

Meanwhile the building of railroads in other parts of the State and
under other leadership was going forward rapidly. As far back as 1832
the first mile of the New York and Harlem Railroad was opened for
traffic. This single mile remained for some time the only property
of the company. It extended through what is now a thriving part of
down-town New York. Its original terminus was at Prince Street, but the
line was afterwards extended southward to the City Hall and later to the
Astor House. It was not until 1837 that the road reached northward
to Harlem and not until 1842 that Williamsbridge became the northern
terminus. The line was looked upon as a worthless piece of property
until 1852, when it was extended north to Chatham, to connect with the
Albany and Stockbridge Railroad, and thus give a through line from New
York City to Albany.

Another property built in these days and destined to become eventually
an important part of the Vanderbilt lines was the Hudson River Railroad.
This company was chartered in 1846, but for many years was frowned on as
an unsound business venture, because of the belief that it would be in
direct competition with the river traffic and therefore could never be
made to pay. Nevertheless the promoters went ahead and by 1850 the road
had been opened to Poughkeepsie. The entire line of one hundred and
forty-four miles was completed to East Albany in 1851. At the same
time the Troy and Greenbush Railroad, extending six miles to Troy, was
leased, thus giving the new Hudson River Railroad an entry into the city
of Troy. The Hudson River Railroad was entirely independent of the New
York Central enterprise and was controlled in those early days by a
group of New Yorkers, prominent among whom was Samuel Sloan.

As we enter the Civil War period, we find the three important properties
which were afterwards to make up the Vanderbilt system all developing
rapidly and logically into the strategical relationship which would make
ultimate consolidation inevitable. The completion of the Erie Railway
and its gradual development as the only through line across the State
from New York to the Great Lakes; the opening, expansion, and general
solidification of the Pennsylvania lines and their aggressive policy of
reaching out to the lake region on the west and across New Jersey on the
east; the extension of the Erie interests into the New England field,
and the possibility that the latter might gain control of the Harlem or
the Hudson River Railroad--all these considerations naturally aroused
in the New York Central interests a desire to insure the future by
obtaining for themselves control of the lines that would connect their
own system with New York City and the Eastern seaboard.

During the Civil War, however, no progress was made in this direction.
It was not until 1869, four years after the closing of the war, that any
radical change took place. But in the years that had intervened, a new
and commanding figure in the railroad world had come upon the scene.
This man had grown to be the dominating genius, not only in the field
of railway expansion, but in the world of finance as well. His name was
Cornelius Vanderbilt. Born in 1794 in very humble circumstances, he had
received little or no education, and as a youth had eked out a living by
ferrying passengers and garden produce from Staten Island to New York.
He had painfully saved a few hundred dollars within a year or two
after his marriage, and with this capital he began his career in the
transportation business. From his first ferrying project he engaged in
other undertakings and laid the foundation of his subsequent fortune in
steamboat navigation. About 1860, at an age when most men are beginning
to retire from active affairs, the "Commodore"--as he was called on
account of his numerous fleet--entered actively into the field of
railway development, management, and consolidation. The extraordinary
character and genius of the man are well depicted by the events of the
years that followed.

Before the opening of the Civil War and until immediately after its end,
the New York Central and the Erie systems were controlled by bitterly
antagonistic interests. These interests were beginning to foresee the
day when extremely aggressive competition would call into play their
greatest energies. Vanderbilt, wiser than his generation, foresaw more
than this. His vision took in the vast future values of the properties
as developed trunk lines, and the greater possibilities of their control
and operation as a consolidated whole. He was in a very real sense
the forerunner or pioneer of the great consolidation period of a half
century later. He was the Harriman and the Hill of his day.

The Erie had its own approach to New York City, but the New York
Central was connected with the metropolis only by the river and the two
independent roads--the Harlem Railroad and the Hudson River Railroad.
To get the latter two roads under his complete control was Vanderbilt's
first object. He would then have unimpeded access to New York and so
become independent of the river.

He began his ambitious plans by making himself the master of the Harlem
property, and in so doing got his first experience in railroad stock
manipulation and at the same time picked up a moderate fortune. It
was comparatively easy to buy the control of the Harlem Railroad. The
Company had never paid a dividend, and, in 1863, when the Commodore
quietly began his work, the stock was selling below thirty dollars a
share. Before the close of this year he had manipulated the stock until
it had reached ninety-two, and by a corner, in August of that year,
he raised it to 179. On this deal Vanderbilt reaped a nice little
fortune--but evidently not enough to enable him to carry through the
ambitious plans which were in the back of his head, for in 1864 we find
him manipulating another corner and this time running the price of the
stock up to 285. In this wise the Commodore not only added millions
to his already growing fortune but also made himself a power in
the financial world. Financiers began to fear him, and he found it
comparatively easy later to buy up the control of the Hudson River
Railroad, which he did by paying about 100 for the stock. Then he began
speculating again, sent Hudson River up to 180, and incidentally reaped
another fortune for himself.

By this time Vanderbilt had achieved a great reputation as a man who
created values, earned dividends, and invented wealth as if by magic;
other railroad managers now began to lay their properties at his feet
and ask him to do with them what he had done with the Harlem and the
Hudson River. For under the Commodore's magic touch the Harlem Railroad
for the first time in its long history began to pay dividends at a high
rate, and in four years the earnings of the Hudson River property had
nearly doubled.

One of the first properties to be placed at Vanderbilt's feet was the
New York Central, and the control passed into his hands in the winter of
1866-67. He was now in a powerful position and immediately began to lay
his plans for obtaining control of the Erie Railroad in the following
year. In the latter effort he did not succeed, however, and after a
protracted and dramatic contest he was defeated by his great adversary,
"Uncle" Daniel Drew. The story of this contest need not be detailed
here, as it is given in full in the chapter on the Erie Railroad.

In the fall of 1869 the Commodore, having secured everything in the
railroad field he had sought except the Erie, put through his scheme
for consolidation. The New York Central and Hudson River Railroad was
incorporated. It included the old New York Central and also the Hudson
River Railroad but not the Harlem. The capital of the consolidated
company was placed at ninety million dollars, a figure of such magnitude
in those days that the world was startled. The system embraced in
all nearly 850 miles of railroad lines. A few years later the Harlem
Railroad was leased to the property at a high valuation and a large
dividend was guaranteed on the stock, the ownership of which was
retained by the Vanderbilt family.

The Vanderbilt system as it is now understood really began with these
transactions. From this time on, its history has been similar in many
respects to that of other large systems which were the outgrowth of
merger or manipulation in these early days. During the remarkable period
of commercial and industrial development in this country from 1870
onward, when thousands of miles of new lines were built every year,
when the growth of population was beginning to make the States of Ohio,
Indiana, and Illinois centers of wealth and production, and when
the wonderful Northwestern country embracing the States of Michigan,
Wisconsin, and Minnesota, was so rapidly opened up and brought nearer
to the Eastern markets, the Vanderbilt railroad interests were not idle.
The original genius, Cornelius Vanderbilt, was soon gathered to his
fathers, but his son, William H. Vanderbilt, was in many ways a worthy
successor.

By 1885 the Vanderbilt lines had grown in extent and importance far
beyond any point of which the elder Vanderbilt had ever dreamed. Long
before this year the system included many smaller lines within the State
of New York, and it had also acquired close control of the great Lake
Shore and Michigan Southern system, with its splendid line from Buffalo
to Chicago, consisting of more than 500 miles of railroad; the Michigan
Central, owning lines from Detroit to Chicago, with many branches in
Michigan and Illinois; the Canada Southern Railway, extending from
Detroit to Toronto; and in addition to all these about 800 miles of
other lines in the States of Ohio, Indiana, Michigan, and Pennsylvania.

In this same year 1885, another event of importance took place. The New
York, West Shore and Buffalo Railroad, which after strenuous efforts
extending over many years had constructed a new trunk line from
Weehawken along the west shore of the Hudson to Albany and thence to
Buffalo, came under the control of the New York Central. The great
system in the Middle West, now known as the "Big Four," or Cleveland,
Cincinnati, Chicago and St. Louis--embracing 750 miles of lines westward
from Cleveland and Columbus, Ohio, to Indianapolis, Springfield, and
Cincinnati, and having traffic connections with St. Louis--was also a
Vanderbilt property at this time, although not under the formal control
of these interests. Another important competing line secured in this
period was the New York, Chicago and St. Louis, built to parallel the
Lake Shore and known as the "Nickel Plate" route. This road extended
from Buffalo to Chicago, and, like the West Shore, had been constructed
with the hope of ultimately selling out to its competitor.

The development of railroad properties under the Vanderbilt influence
was not confined to the territory east of Chicago and the Mississippi
Valley. As early as 1859 a large system of roads had been merged in
the section extending westward from Chicago to Omaha and radiating
throughout Iowa, Minnesota, Kansas, Wisconsin, Missouri, and other
States. This company was known as the Chicago and North Western
Railroad, and its property, which was one of large and growing value,
by 1886 embraced a system of over 3500 miles of road. Although neither
controlled by the New York Central nor directly affiliated therewith, it
was classed as a Vanderbilt property.

While for many years after the death of the Commodore the Vanderbilt
family remained in direct financial and operating control of the New
York Central and its myriad of subsidiary lines and their genius as
railroad builders and operators was distinctly evident, yet the brains
and resources of the Vanderbilts were not alone responsible for
the brilliant career of the system down to recent times. William H.
Vanderbilt, though a man of unusual ability, did not possess the breadth
of view or the sagacity of his father, and in the course of a few years
he found himself exposed to a cyclone of public criticism. He had let
it be widely known that he was personally the owner of over eighty-seven
per cent of the hundred million capital of the company. In 1879 the New
York Legislature, backed by the force of the popular anger and surprise
at the accumulation of a hundred million dollar fortune by one man in
ten years, was investigating the management of the New York Central
with a view to curtailing its power; the rate wars were on between the
seaboard and Chicago; and Jay Gould was threatening to divert all the
traffic of his Wabash, St. Louis, and Pacific lines from the New York
Central and turn it over to other Eastern connections unless Vanderbilt
would give him a vital interest in the Vanderbilt lines.

Vanderbilt was harassed beyond endurance and, being of softer material
than his father, was fearful of the outcome of public opinion,
notwithstanding the fact that in a moment of anger--according to the
statement of a newspaper reporter whose veracity Vanderbilt denied
to his dying day--he had used the familiar expression, "The public be
damned!" There were intimations that the Legislature was planning to
impose heavy taxes on the property, solely because Vanderbilt held this
gigantic personal ownership in the property. This prospect frightened
him and he consulted friends whose judgment he respected. They urged him
to sell a considerable part of his holdings in order to distribute the
ownership of the property among a large number of people.

This plan could not be carried out, however, in the ordinary way,
because large sales of stock by the Vanderbilt interests, if the
speculating and investing public learned that he was making them, would
greatly depreciate the price and might create general demoralization and
a panic, while they would certainly injure the credit of the New York
Central property. But a way out of the dilemma had to be found. It was
at this juncture that a new personality, later to be closely identified
with the Vanderbilt lines for a long series of years, appeared upon
the scene. Vanderbilt was advised to consult J. Pierpont Morgan, of the
banking house of Drexel, Morgan and Co. At that time the name of J.P.
Morgan was just beginning to come prominently to the front in banking
circles in New York. The Drexels had been conspicuous in business in
Philadelphia for many years and in a sense were the fiscal agents of the
great Pennsylvania Railroad Company. But the spectacular success of the
House of Morgan a few years before in marketing the French government
loan in England had added largely to its prestige. And so Vanderbilt
concluded that, if any man could show him a way out in his difficult
problem, Pierpont Morgan was that man.

The upshot of the matter was that Morgan devised a plan for the sale of
a large amount of Vanderbilt's stock holdings through private sale in
England, and in such a way that the knowledge of such sale would not
become public in America. A confidential syndicate was formed which
undertook to take the stock in a block and pass it on to English
investors at approximately its current market price of about $130 per
share. The sale was promptly accomplished; the stock went into the hands
of unknown interests abroad; Vanderbilt received more than $25,000,000
in cash, which he largely reinvested in United States government bonds,
and the Morgan syndicate reaped a profit of about $3,000,000. Five
months after the closing of the syndicate public announcement was made
of the sale and of the syndicate profit. The striking success of this
transaction naturally added greatly to the prestige of. J. P. Morgan as
a financier of very large caliber, and it had the satisfactory effect of
curtailing the legislative attacks on Vanderbilt.

From that date forward, the history of the Vanderbilt railroads has
been closely identified with the House of Morgan. J.P. Morgan and
his business associates became the company's financial agents, and
thereafter all plans of expansion or consolidation were handled directly
by them. In the board of directors Morgan banking interests had full
representation, which they have held until this day.

The subsequent history of the Vanderbilt lines is chiefly a story of
business expansion and growth. From 1885 to 1893, the great panic year,
the New York Central each year added to its mileage, either by merger of
smaller lines or by construction. All this time it was consolidating the
system, eliminating the weaker links, and strengthening the stronger.
Its lines penetrated all the best Eastern railroad territory outside of
New England, New Jersey, and Pennsylvania, and no other railroad system
in the country, with the single exception of the Pennsylvania, covered
anything like the same amount of rich and settled territory, or reached
so many cities and towns of importance. New York, Buffalo, Cleveland,
Detroit, Chicago, St. Louis, Cincinnati, Indianapolis--these are a
few of the great traffic centers which were included in the Vanderbilt
preserves. The population of all these cities, as well as that of the
hundreds of smaller places and the countryside in general, was growing
by leaps and bounds. Furthermore the Northwest, beyond the Great Lakes
and through to the Pacific coast, saw the beginnings of its great
development at this time; and the wheat fields of the far western
country became a factor of profound importance in the national
development. Consequently when the period of depression arrived with the
panic of 1893, the Vanderbilt properties were, as a whole, in a strong
position to meet the changed situation and, like the great Pennsylvania
property, they all passed through to the advent of the new industrial
era without the defaulting of a bond or the passing of a dividend. The
remarkable character of this achievement is evident in view of the fact
that in the period from 1893 to 1898 more than sixty-five per cent of
all the railroad mileage in the United States went into the hands of
receivers.

After the close of this era of panic, the Vanderbilt lines began
expanding again, though on a much smaller scale than in their more
active time. In 1898 William K. Vanderbilt, then president, made the
announcement that the New York Central had leased the Boston and Albany
Railroad, at that time a lucrative line running from Albany across
Massachusetts into Boston. This gave the system an entry into the New
England field, which it has continuously held since. A few years later
this New England interest was increased by the acquisition of the
Rutland Railroad in Vermont, thus making connection with the Ogdensburg
and Lake Champlain, a line running across the northern part of New York
State, which had also come under Vanderbilt control.

When business revived in the closing years of the nineteenth century,
the history of American railroads began a new chapter. Federal railroad
regulation, which started in a moderate way with the passage of the
Interstate Commerce Act in 1887, had steadily increased through the
years; the Sherman Anti-trust Act, passed in 1890, had been interpreted
broadly as affecting the railroads of the country as well as the
industrial and other combinations. These influences had thus greatly
curtailed the consolidation of competing lines which had gone on so
rapidly during the decades following the Civil War. Railroad managers
and financiers therefore began to face a very serious problem.
Competition of a more or less serious nature was still rampant, rates
were cut, and traffic was pretty freely diverted by dubious means.
Consequently many large railroad systems of heavy capitalization bid
fair to run into difficulties on the first serious falling off in
general business.

Great men are usually the products of their times and one of the men
developed by these times takes rank with the greatest railroad leaders
in history. Edward H. Harriman had risen in ten years from comparative
obscurity and was now the president of the Union Pacific Railroad, which
he had, in conjunction with the banking house of Kuhn, Loeb and Company,
reorganized and taken out of bankruptcy. Harriman was one of the
originators of the "community of interest" idea, a device for the
partial control of one railroad system by another. For instance,
although the law forbade any railroad system from acquiring a complete
control of a competing line by purchasing a majority of its capital
stock or by leasing it, nothing was said about one railroad having a
minority investment interest in another. A minority investment, even
though it be as low as ten or twenty per cent, usually constitutes a
dominating influence if held by a single interest, for in most cases
the majority of the shares will be owned in small blocks by thousands of
investors who never combine for a definite, practical purpose. Thus the
interest which has the one large block of stock usually controls
the voting power, and runs little risk of losing it unless a contest
develops with other powerful interests--and this is a contingency which
it almost never has to meet.

Carrying out this policy of promoting harmony among competing lines,
the New York Central and Pennsylvania Railroad early in 1900 acquired a
working control of the Reading Company, which in turn controlled the
New Jersey Central and dominated the anthracite coal traffic. Later the
Baltimore and Ohio shared this Reading interest with the Lake Shore of
the New York Central system. The New York Central and the Pennsylvania
acquired a working control of the same kind in the Chesapeake and Ohio
Railway, which was an important element in the soft coal fields and was
reaching out to grasp soft coal properties in Ohio and Indiana.

These and other purchases, and the consequent voice acquired in the
management, established comparative harmony among Eastern railroads for
a long time; they stabilized rates and enabled formerly competing roads
to parcel out territory equitably among the different interests. Later,
Harriman, and to some extent Morgan, carried the community of interest
idea some steps further. Morgan caused the New York Central to acquire
stock interests in certain "feeder" lines such as the New York, New
Haven and Hartford and the Chicago, Milwaukee and St. Paul, as well as
in competing lines; and Harriman caused the Union Pacific not only to
dominate the Southern Pacific Company by minority control but also to
acquire interests in the Illinois Central, the Baltimore and Ohio,
the New York Central, and other eastern properties. The fact was that
Harriman had plans in view for acquiring actual control of the New York
Central for the Union Pacific and thus, with the Illinois Central, of
creating a continuous transcontinental line from ocean to ocean.

In the past decade few unusual or startling events have marked the
history of the Vanderbilt lines. The Vanderbilt family no longer
possesses a majority interest in the stock, or anything which approaches
it, and the New York Central system and its subsidiaries have come to be
known more and more as Morgan properties. The system has grown up with
the country. Many of its former controlled roads have now been merged
into the main corporation and many new lines have been added to it.
Hundreds of millions of dollars of new capital have been spent on
the main lines and terminals since 1900. In 1919 the entire property,
including controlled lines, embraced more than 13,000 miles of main
track, besides about 5000 miles of extra tracks; over 200,000 freight
cars are in use on the system, and every year upwards of 200,000,000
tons of freight are transported. The gross annual revenues of the
entire system now aggregate more than $400,000,000, while the total
capitalization in stocks and bonds exceeds a billion dollars. It is
indeed a far cry from that day in August, 1831, when the De Witt
Clinton locomotive made its trial trip over the primitive rails of the
seventeen-mile Mohawk and Hudson road--a far cry even from that other
day, thirty-eight years later, when the sagacious Commodore startled the
financial world by his New York Central and Hudson River Railroad, with
a capital of ninety million dollars.



CHAPTER III. THE GREAT PENNSYLVANIA SYSTEM

In the early forties the commercial importance of Philadelphia was
menaced from two directions. A steadily increasing volume of trade was
passing through the Erie Canal from the Central West to the northern
seaboard, while traffic over the new Baltimore and Ohio Railroad
promised a great commercial future to the rival city of Baltimore. With
commendable enterprise the Baltimore and Ohio Company was even then
reaching out for connections with Pittsburgh in the hope of diverting
western trade from eastern Pennsylvania. Moreover the financial prestige
of Philadelphia had suffered from recent events. The panic of 1837, the
contest of the United States Bank with President Jackson, its defeat,
and its subsequent failure as a state bank, the consequent distress in
local financial circles--all conspired to shift the monetary center of
the country to New York.

It was at this time that Philadelphia capitalists began to bestir
themselves in an attempt to recover their lost opportunities.
Philadelphia must share in this trade with the Central West. The
designs of the Baltimore and Ohio Company must be defeated by bringing
Pittsburgh into contact with its natural Eastern market. To this end,
the Pennsylvania Railroad was incorporated on April 13, 1846, with a
franchise permitting the construction of a railroad across the State
from Harrisburg to Pittsburgh. An added incentive to constructive
expansion was given by an act of the Legislature authorizing the
Baltimore and Ohio to extend its line to Pittsburgh if the Pennsylvania
Company failed to avail itself of its franchise.

In order to avoid the heavy cost of constructing a road between
Philadelphia and Harrisburg, the Pennsylvania Railroad entered into
arrangements with the Philadelphia and Columbia--a railroad opened in
1834 and owned by the State--which ran through Chester and Lancaster to
Columbia. This road was primitive in the extreme and used both steam and
horse power. As late as 1842 a train was started only when sufficient
traffic was waiting along the road to warrant the use of the engine.
Belated trains were hunted up by horsemen. Yet the road was in those
days famous for the "rapidity and exceptional comforts of the train
service." Between Columbia and Harrisburg passengers westward bound had
to use the Pennsylvania Canal.

Construction of the main line westward to Pittsburgh began at once and
progressed rapidly. By making use of the Alleghany Portage Railroad from
Hollidaysburg, the Pennsylvania Railroad eventually secured a continuous
line from Harrisburg to Pittsburgh. But between Philadelphia
and Harrisburg passengers were for a long time subjected to many
inconveniences. Finally in 1857 the Pennsylvania Railroad bought the
Philadelphia and Columbia from the State, rebuilt it, and extended it
to Harrisburg. At the same time the Pennsylvania bought the main line of
the Public Works, which included the Alleghany Portage Railroad. On
July 18, 1858, the first through train passed over the entire line from
Philadelphia via Mount Joy to Pittsburgh without transfer of passengers.
At the same time the first smoking car ever attached to a passenger
train was used, and sleeping cars also soon began to appear.

The railroad genius identified with the history of the Pennsylvania
Railroad during the following decade is J. Edgar Thomson. A man of
vision and of great shrewdness and ability, he was more like the modern
railroad head of the Ripley or Underwood type than of the Vanderbilt,
Garrett, or Drew type. His interest was never in the stock-market nor in
the speculative side of railroading but was concentrated entirely on
the development and operation of the Pennsylvania Railroad system.
His dreams were not of millions quickly made nor of railroad dominance
simply for the power that it gave; his mind was concentrated on the
growth and prosperity of a vast railroad system which would increase
with the years, become lucrative in its operations, and not only radiate
throughout the State of Pennsylvania but extend far beyond into the
growing West.

Under the Thomson management, which lasted until 1874, the record of the
Pennsylvania Railroad was one of progress in every sense of the word.
While Daniel Drew was lining his pockets with loot from the Erie
Railroad and Commodore Vanderbilt was piling up his colossal fortune
through consolidation and manipulation, J. Edgar Thomson was steadily
building up the greatest business organization on the continent. In
1860, the entire Pennsylvania Railroad system was represented merely
by the main line from Philadelphia to Pittsburgh, with a few short
branches. By 1869 the road had expanded within Pennsylvania alone to
nearly one thousand miles and also controlled lines northward to the
shores of Lake Erie, through the State of New York.

But the master accomplishment of the Thomson administration was the
acquisition of the Pittsburgh, Fort Wayne and Chicago line in 1869. This
new addition gave the Company its own connection with Chicago and made a
continuous system from the banks of the Delaware at Philadelphia to the
shores of Lake Michigan, thus rivaling the far-flung Vanderbilt line, a
thousand miles long, which the industrious Commodore was now organizing.
Shortly thereafter the Pennsylvania began to expand on the east also and
obtained an entry into New York City by acquiring the United Railroad
and Canal Company, which owned lines across the State of New Jersey,
passing through Trenton.

In the latter years of the Thomson management it became more and more
evident that it was important for the Pennsylvania Railroad to have
further Western connections which would reach the growing cities of the
Middle West. While the Fort Wayne route made a very direct connection
with Chicago and included branches of value, yet the keen competition
which was developing in the expansive years following the Civil War
made actual control of the Middle Western territory a matter of sound
business policy. The Vanderbilt lines were reaching out through Ohio,
Indiana, and Illinois; the Baltimore and Ohio was steadily developing
its Western connections, and now Jay Gould had come actively on the
scene with large projects for the Erie. To offset these projects,
early in 1870 a "holding company"--probably the first of its kind on
record--known as the Pennsylvania Company was formed for the express
purpose of controlling and managing, in the interest of the Pennsylvania
Railroad, all lines leased or controlled or in the future to be acquired
by the Pennsylvania Railroad interests west of Pittsburgh and Erie. This
Company took over the lease of the Fort Wayne route and also acquired
control by lease of the Erie and Pittsburgh, a road extending northward
through Ohio to Lake Erie.

After this date the expansion of the system west of Pittsburgh went on
rapidly. In 1871 the Cleveland and Pittsburgh Railroad, which had been
opened as early as 1852, came under the Pennsylvania control. Soon after
this, many smaller lines in Ohio were merged in the system. The most
important acquisition during this period, however, was the result of the
purchase of the great lines extending westward from Pittsburgh to St.
Louis, with branches reaching southward to Cincinnati and northward to
Chicago. This system--then known as the "Pan Handle" route and later as
the Pittsburgh, Cincinnati, Chicago and St. Louis was a consolidation
of several independent properties of importance which had been gradually
extending themselves over this territory during the previous decade.
This new system, which embraced over fourteen hundred miles of road,
gave the Pennsylvania a second line to Chicago, a direct line to
St. Louis, a second line to Cincinnati, and access to territory not
previously tapped.

While the achievements of the Pennsylvania Railroad Company during these
years of consolidation and expansion are not to be compared with those
of more modern times, it is well to realize that even as early as the
seventh decade of the last century this railroad was always in the
forefront in matters of high standards and progressive practice. It
was the pioneer in most of the improvements which were later adopted
by other roads. The Pennsylvania was the first American railroad to lay
steel rails and the first to lay Bessemer rails; it was the first to put
the steel fire-box under the locomotive boiler; it was the first to use
the air brake and the block signal system; it was the first to use in
its shops the overhead crane.

In these earlier years also the Pennsylvania had established its
enviable record for conservative and non-speculative management. No
railroad wrecker or stock speculator had ever had anything to do with
the financial control of the company, and this tradition has been passed
on from decade to decade. The stockholders themselves, even in those
days of loose methods and careless finance, had the dominating voice
in the affairs of the company and were also factors in the approval or
disapproval of any proposed policies. In the matter of its finances
the Pennsylvania developed and established an equally clean record. The
company began almost at the beginning to pay a satisfactory dividend on
its shares and continued to do so right through the Civil War period.
Since the through line from Philadelphia to Pittsburgh was opened, not
a single year has passed without the payment of a dividend--a sixty-year
record which can be duplicated by no other American railroad system.

The Pennsylvania still continued to forge ahead even during the exciting
period from 1877 to about 1889, when the trunk lines were aggressively
carrying on that policy of cutthroat competition between Chicago and the
Atlantic seaboard which resulted in so severely weakening the credit
and position of properties like the Baltimore and Ohio and the Erie.
The Pennsylvania, too, indulged in rate cutting, but the management was
equal to the situation and made up in other directions what it lost in
lower rates. It gave superior service, developed a high efficiency of
operation, and steadily maintained its properties at a high standard.
During these years the president was George B. Roberts, who had
succeeded Thomas A. Scott in 1880.

Roberts's management spanned the period from 1880 to 1897 and embraced a
decade of comparative prosperity for the country as a whole and nearly
a decade of panic and industrial and financial depression. During
the earlier decade the business of the Pennsylvania was continually
benefited by the industrial development and growth which marked the
period. It was at this time that the Pittsburgh district took its
permanent place as the great center of steel and iron manufacture. The
discovery of petroleum in western Pennsylvania, creating an enormous new
industry in itself, proved to be an event of far-reaching significance
for the Pennsylvania Railroad. The extensive opening up of the soft coal
sections of western Pennsylvania, Ohio, and Indiana, also meant much for
this great system of railroads.

Still further developments in other directions accrued to the benefit of
the Pennsylvania Railroad. In this period, by obtaining the control of
a line to Washington, the system acquired a Southern artery running
through Wilmington, Delaware, and Baltimore to Washington. Afterwards,
with other roads, the Pennsylvania acquired control of the Richmond,
Fredericksburg and Potomac Railroad and thus obtained a line to
Richmond, Virginia. On the north and to the east the expanding movement
also went on. In addition to the development of its main line from
Philadelphia to Jersey City, the Pennsylvania acquired many other New
Jersey lines, including the West Jersey and Seashore, a road running
from Camden to Atlantic City and Cape May.

During the whole of the aggressive administrations of both Thomas A.
Scott and George B. Roberts the great system continued to spread out
steadily until it had penetrated as far as Mackinaw City on the north
and Chesapeake Bay on the south. Its network of lines stretched across
the Eastern section of the continent from New York to Iowa and Missouri,
while the intensive development of shorter lines in the State of
Pennsylvania and to the north was unceasing. The Northern Central
running south from Sodus Bay on Lake Ontario through central
Pennsylvania to Baltimore, the Buffalo and Alleghany Valley extending
from Oil City northward and joining the main system to the east, the
Western New York and Pennsylvania operating north from Oil City to
Buffalo and Rochester--these lines the Pennsylvania Railroad acquired
and definitely consolidated in the Roberts regime.

After the retirement of Roberts, Frank Thomson, a son of the earlier
president of the same name, was placed at the head of the system for
three years. But in 1899 Alexander J. Cassatt, who had for many
years been identified with the Pennsylvania as officer, director, and
stockholder, took the helm, and a new chapter and probably the greatest
in the history of this remarkable railroad began.

The name of Alexander J. Cassatt will always be linked with the
comprehensive terminal developments in the region of New York City which
were begun almost immediately on his accession to the presidency and
which were carried forward on bold and far-reaching lines. Perhaps more
than any other one person, Cassatt foresaw the approach of the day when
New York City as a commercial center would outstrip both in density of
population and in amount of wealth all the other cities of the world. He
and his predecessors had for many years witnessed the great industrial
development of the Pittsburgh district, where property values had grown
by leaps and bounds and where the steadily advancing development of
industry and material resources had been so unmistakably reflected in
the increasing earning power and value of the Pennsylvania Railroad
properties.

But while at Pittsburgh the road had everything to favor it as far as
terminals and rights of way through the heart of the great industrial
district were concerned, in the great Eastern metropolis the
Pennsylvania Railroad was at an obvious disadvantage, particularly as
compared with the New York Central, which had its splendid terminal
rights penetrating to the heart of the city. Cassatt saw that his
company must without delay take a number of bold and, for the time,
enormously expensive steps toward the development of terminal facilities
in Greater New York or else forever abandon the idea of getting nearer
the heart of the city than the New Jersey shore and thus run the risk,
in the keen contest for commercial supremacy, of ultimately falling
behind other more advantageously situated lines.

There were still further incentives to immediate action on the part of
the Pennsylvania Railroad. While the New York Central was in an ideal
position for handling all traffic destined for the New England States,
the Pennsylvania could control practically none of this business, as
its terminals were on the wrong side of the Hudson and necessitated not
merely the inconvenient transfer of passengers but also the much more
expensive handling of freight. Other disadvantages from which the
Pennsylvania suffered were involved in its inability to make the most
economical terms for foreign shipping, as a large proportion of such
freight had to be constantly transferred on lighters to the New York and
Brooklyn sides of the harbor. Thus any comprehensive plan for terminal
development on the part of the Pennsylvania must necessarily include not
only a tunnel system into New York City but also an outlet through the
city to Long Island and a connection with the New England railroads.

The first move in the development of this terminal system was the
acquisition in 1900 of the control of the Long Island Railroad,
embracing all the steam railway mileage on Long Island, with lines
extending along both the north and south shores to Montauk Point. This
acquisition added extensive freight yards and terminals on the Brooklyn
side of the East River. The Company then obtained franchises and began
the construction of its great tunnels under the North and East Rivers
and entirely across New York City, with a mammoth passenger station at
Seventh Avenue and Thirty-second Street. A great railroad bridge was
planned to cross from Long Island to the mainland, connecting with
the New York, New Haven and Hartford system, in the stock of which the
Pennsylvania at this time purchased an interest.

The terminal construction occupied a period of many years and cost
over one hundred million dollars, besides the added costs involved in
building up and developing the old, worn-out Long Island Railroad. Only
recently has the project been rounded out and completed through the
final construction of the important connection with the New England
railroad systems. But the realization of this plan is undoubtedly
the greatest achievement in all the long career of the Pennsylvania
Railroad. Had the project been delayed for another decade, it probably
could not have been accomplished because of the growing expense of
operation and the difficulties of getting franchise rights and rights of
way through and under the metropolis.

While the tunnel development is the notable achievement of the Cassatt
regime, this remarkable man's name is also closely identified with
the "community of interest" idea already explained. This "community of
interest" scheme was pushed aggressively by Cassatt in cooperation
with Harriman, Hill, and Morgan. Large stock purchases were made in
the Norfolk and Western, the Chesapeake and Ohio, and the Baltimore and
Ohio. As the latter road had in its turn acquired, jointly with New York
Central interests, a working control of the Reading Company, and the
Reading Company had secured majority ownership of the New Jersey Central
system, it is apparent that the domination which the Pennsylvania had
obtained over the entire Eastern seaboard south of New York City and
north of Baltimore was made nearly complete.

The "community of interest" plan held sway with the large railroads of
the country and was very effective for perhaps half a dozen years, until
the interstate commerce laws were amended in such a way as to give the
Government complete control over railroad freight and passenger rates.
In 1906 the Pennsylvania began to dispose of the bulk of its holdings
in competing properties, the most notable transactions being the sale of
its entire interest in the Chesapeake and Ohio to independent interests
and a substantial part of its Baltimore and Ohio holdings to the Union
Pacific Railroad. A few years later, when the Union Pacific was forced
by the Federal courts to dispose of its control of the Southern Pacific
Company, a trade was made between the Pennsylvania and the Union Pacific
whereby the latter took from the Pennsylvania the remainder of its
Baltimore and Ohio investment and gave in exchange a portion of its own
large holding of Southern Pacific stock.

To get a fair idea of the meaning and magnitude of the great
Pennsylvania Railroad system today one must do more than scan maps and
study statistics. One should travel by daylight over its main line from
New York to Pittsburgh. Although the route is over the same ground
which the road followed a generation or two ago, a four-track line runs
practically all the way, with long stretches of hundreds of miles of
five, six, and eight tracks. Where mountains were climbed thirty years
ago, one will now find them bored by tunnels; where sharp curves were
necessary before straight trackage only will be encountered today.
Grades have been eliminated everywhere and the whole route has been
modernized and strengthened by the laying of one hundred to one hundred
and fifty pound rails.

Undoubtedly the fortunate location of the Pennsylvania lines in the half
dozen States which represent the financial and industrial heart of the
continent has had much to do with its vast growth and the expansion of
its business; but its high reputation can be explained only by the
long record of its superior methods and management. One of the primary
objects of Pennsylvania Railroad policy has been to keep pace with the
growth of the country. Instead of following in the wake of industrial
progress and making its improvements and extensions after its
competitors had made theirs, its management has usually had the
foresight to prepare well in advance for future needs.



CHAPTER IV. THE ERIE RAILROAD

"Before introducing a friend to a distinguished stranger, it is
advisable to give him some account of the person whose acquaintance he
is about to make; and so, fellow-traveler, whom I introduce to the New
York and Erie Railroad, it may be well to prefix here a brief sketch of
the history and present condition of this, the Lion of Railways. True,
he is yet in an unfinished state, but you will find that what there
is of him is complete, and of wondrous organization and activity. His
magnificent head and front repose in grandeur on the shores of the
Hudson; his iron lungs puff vigorously among the Highland fastnesses of
Rockland; his capacious maw fares sumptuously on the dairies of Orange
and the game and cattle of Broome; his lumbar region is built upon
the timber of Chemung, and the tuft of his royal extremity floats
triumphantly on the waters of Lake Erie."

This exultant, characteristically American, description appeared in
Harper's "Guide-Book of the New York and Erie Railroad", published in
1851, soon after the opening of the main line of more than four hundred
and sixty miles from Piermont on the Hudson to Dunkirk on Lake Erie.
That this railroad, which after nearly twenty years of struggle and
of financial vicissitudes had finally linked the Great Lakes with the
Atlantic coast, was looked upon as a property of wonderful character
and limitless future is indicated in all the railroad literature of that
time. Appleton's "Illustrated Handbook of American Travel", published
in 1857, devotes several pages to a description of this remarkable
achievement in railroad extension and among other things says:

"This great route claims a special admiration for the grandeur of the
enterprise which conceived and executed it, for the vast contribution it
has made to the facilities of travel, and for the multiplied and
various landscape beauties which it has made so readily and pleasantly
accessible. It traverses the southern portion of the Empire State in
its entire length from east to west, passing through countless towns and
villages, over many rivers, through rugged mountain passes now, and anon
amidst broad and fertile valleys and plains. In addition it has many
branches, connecting its stations with other routes in all directions,
and opening new stores of pictorial pleasures.... An interesting feature
of this road is its own telegraph, which runs by the side of the road
and has its operator in nearly every station house. This telegraph has
a double wire, enabling the company to transact the public, as well
as their own private business. Daily trains leave for the west on this
route, with connections by boat from the foot of Duane Street, morning,
noon, and night."

The Erie Railroad system was foreshadowed in the time of Queen Anne,
when the Colony of New York appropriated the sum of five hundred dollars
to John Smith and other persons for the purpose of constructing a public
road connecting the port of New York with the West in the vicinity of
the Great Lakes. The appropriation was coupled with the condition that
within two years the beneficiaries should have constructed a road wide
enough for two carriages to pass, from Nyack on the Hudson River to
Sterling Iron Works, a distance of about thirty miles; and that they
should cut away the limbs of trees over the track in order to allow the
carriages to pass. In this way began the internal improvement system
of the State of New York, which after the lapse of more than a century
resulted in opening the Erie Canal and in projecting a railroad system
connecting New York and the valley of the Hudson with Lake Erie.

After the opening of the Erie Canal in 1825, the Legislature of New York
directed a survey of a state road which was to be constructed at public
expense through the southern tier of counties from the Hudson River to
Lake Erie. The unfavorable profile exhibited in the survey apparently
caused the project to be abandoned. But the idea still held sway over
the minds of many people; and the great benefits brought to the Mohawk
Valley and surrounding country by the Erie Canal led the southern
counties to demand a transportation route which would work similar
wonders in that region. This growing sentiment finally persuaded the
Legislature to charter in April, 1832, the New York and Erie Railroad
Company, and to give it authority to construct a line and to regulate
its own charges for transportation.

During the following summer a survey of the route was made by Colonel De
Witt Clinton, Jr., and in 1834 a second survey was made of the whole of
the proposed route. When the probable cost was estimated, many opponents
arose who declaimed the undertaking was "chimerical, impractical, and
useless." The road, they declared, could never be built and, if built,
would never be used; the southern counties were mountainous, sterile,
and worthless, and afforded no products requiring a market; and, in any
case, these counties should find their natural outlet in the valley of
the Mohawk. This antagonism was successfully opposed, however, and the
construction of the road was begun in 1836.

The panic of 1837 interfered with the work, but in 1838 the state
Legislature came forward with a construction loan of three million
dollars, and the first section of line, extending from Piermont on the
Hudson to Goshen, was put into operation in September, 1841. In the
following year the company became financially embarrassed and was placed
in the hands of receivers. This catastrophe delayed further progress for
years, and it was not until 1846 that sufficient new capital was raised
to go on with the work. The original estimate of the cost for building
the entire line of 485 miles had been three million dollars, but already
the road had cost over six millions and only a small portion had been
finished. The final estimate now rose to fifteen millions, and, although
some money was raised from time to time and new sections were built,
there was no certainty that the entire road would ever be completed.
Ultimately the State of New York canceled its claim against the
property, new subscriptions of some millions were secured, and more
money was raised by mortgaging the finished sections.

Finally, in 1851, after eighteen years of effort, the line was opened to
Lake Erie. In addition there had been added various feeders or branches,
giving the road an entry into Scranton, Pennsylvania, and into Geneva
and Buffalo, New York. It had its terminus on Lake Erie at Dunkirk
and its eastern terminus at Piermont, near Nyack on the Hudson, about
twenty-five miles by boat from New York City.

The financial condition of the Erie at this time manifested the
beginning of that general policy of improvidence and recklessness
which afterward, for nearly a generation and a half, made the company
a speculative football in some of the most disreputable games of Wall
Street stock-jobbers. For though the original estimate had been three
millions and the highest estimate of the cost during construction had
been fifteen million dollars, the company, in 1851, started its career
with capital obligations of no less than twenty-six millions--a very
large sum for those days.

The fact that these initial obligations constituted a heavy burden
became apparent when the Erie began operations. They made necessary such
high freight rates that shippers held indignation meetings and again and
again made appeals for legislative relief. Although much money had been
raised after 1849 for improvements, the condition of the Erie steadily
grew worse. It soon became notorious for many accidents due to
carelessness in running trains and to the breaking of the brittle iron
rails.

But in spite of these drawbacks the business of the Erie grew. In 1852
it acquired the Ramapo and Paterson and the Paterson and Hudson River
railroads and in this way it obtained a more direct connection with New
York City. It changed the tracks of its new railroads to the six-foot
gage, which the Erie had adopted from the start and which it persisted
in maintaining for many years despite the world-wide practice of
establishing a standard width of four feet eight and one-half inches.

The most conspicuous figure in the history of the Erie Railroad system
in these early days was Daniel Drew. From 1851, when the main line was
opened, until 1868, this man was a director and, for the larger part of
the time, treasurer. Born in 1797, he had driven cattle when a boy from
his native town of Carmel in Putnam County to the New York City market
and, for some years later, he had been proprietor of the Bull's Head
Tavern. Shrewd, unscrupulous, illiterate, good-natured, and sometimes
generous, he was in many ways unlike his great adversary in the railroad
world, Commodore Vanderbilt. Drew affected a pious and sanctimonious
attitude in all his dealings, while Vanderbilt had a more frank and open
nature and usually made no pretensions to righteousness.

For many years following 1851, Drew, who owned or controlled nearly
one-half the stock of the Erie, appeared to think that his office of
treasurer carried with it the right to manipulate the stock of the
road at any time it might help his pocketbook to do so. He frequently
advanced money which the road could not obtain elsewhere, always taking
full security and excessive commissions. This practice gave him the
name of "speculative director," and by the time his great contests
with Commodore Vanderbilt broke out, he was reputed to be worth many
millions, most of which he had acquired by juggling in Wall Street with
Erie securities.

The entire period in the affairs of the Erie system from the ascendancy
of Daniel Drew in 1851 to the end of the Civil War witnessed an endless
succession of stock-market exploits both large and small. In the
spring of 1866, however, Drew found an opportunity to achieve a real
masterpiece in manipulation. The stock of the Erie road was then selling
at about 95 and the company was in pressing need of funds. The treasurer
came to the rescue as usual and made the necessary advances on adequate
security. The company had in its treasury a considerable amount of
unissued stock and had also the legal right to issue bonds to the extent
of $3,000,000 which could be converted into stock. Drew took these bonds
and the unissued stock as security for a loan of $3,500,000.

It so happened, naturally, that Drew was soon heavily short of Erie
stock in Wall Street. The market was buoyant; speculation was rampant;
and the outside public, the delight and prey of Wall Street gamblers,
were as usual drawn in by the fascination of acquiring wealth without
labor. All this time our friend, Daniel Drew, was quietly selling Erie
stock and closing contracts for the future delivery of the certificates;
and he was doing this at rising prices. As the days went by, his grave,
desponding manner grew more and more apparent. Erie stock continued to
rise. In the loan market its scarcity became greater hour by hour.
The rumor began to spread that "Uncle Daniel" was cornered. His large
obligations for future delivery must be met. Where was the Erie stock
to come from? The stock continued to soar, and Treasurer Drew seemed to
become more and more depressed.

Then the blow fell. Drew laid his hands on the collateral which he held
for his loan to the Erie. In the twinkling of an eye his $3,000,000 in
Erie bonds was converted into Erie stock, which he proceeded to dump
in Wall Street. Erie quotations fell from 90 to 50. Every one at
last realized the trap--but not before Daniel Drew had pocketed a few
millions in profits.

By this time Drew had come to be looked upon as a stock operator to be
both admired and feared, and this incident took its place in Wall
Street history as a brilliant coup side by side with Vanderbilt's Harlem
Railroad and other celebrated exploits. It was soon followed, however,
by much more sensational events. We have seen that the portentous figure
of Vanderbilt was just at this time looming up in the railroad world,
and Vanderbilt had his own theory of the management and financing of
railroads. It was inevitable that he should clash with Drew. He was a
few years older than Drew, and the two men, as we have seen, had much
in common. Both were well on in life before they had transferred their
activities to steam railroads. When finally, in 1868, they crossed
swords in connection with the two railroad systems extending through
New York State, both were more than seventy years old and had been
successful in the acquisition of millions by methods of their own
invention. They were no doubt equally unscrupulous, but, while Drew
was by nature a pessimist and "bearish," Vanderbilt, in the Wall Street
vernacular, was always a "bull."

Having obtained control of the New York Central, the Hudson River, and
the Harlem railroads, Commodore Vanderbilt now decided in the summer of
1867 to go after the Erie, of which Drew was nominally in possession,
although no one knew when he owned a majority of the stock or when he
was temporarily short of it. Usually he loaded up as the annual election
of officers approached and liquidated shortly thereafter. Besides
Vanderbilt there was another interest at this time trying for the
control of the Erie. This interest consisted of certain Wall Street
speculators and certain Boston capitalists who proclaimed themselves
railroad reformers. These so-called reformers were as unscrupulous and
crafty as either of the other men, and they really represented nothing
but an attempt to raid the Erie treasury in the interest of a bankrupt
New England corporation known as the Boston, Hartford and Erie Railroad.
As was well said, the name of this latter road was "synonymous with
bankruptcy, litigation, fraud, and failure."

The Erie Railroad control was always nominally for sale, and, as the
annual election approached, a majority of stockholders stood ready to
sell their votes to the highest bidder. Commodore Vanderbilt cleverly
secured the cooperation of the "reformer" element, corralling their
proxies, and thus he appeared to be in a position to oust the Drew
interests without difficulty. On the Sunday preceding the election the
Commodore saw Drew and amicably explained to him the trap he had laid,
and showed him clearly that there was no way out of the situation. Upon
this disclosure, Treasurer Drew at once faced about and agreed to join
hands with Vanderbilt in giving the market for the stock the strong
upward twist it had lacked before that hour. Jointly they would make so
much money that neither side would lose anything. "Uncle Daniel" went
away apparently satisfied and contented with the compromise.

But the Commodore had not finished. A few hours later he took the
Boston adventurers into his confidence and explained that he proposed
to continue Drew in the directorate. The Boston men were puzzled and
confused by this sudden change of front. Later, all parties met
at Drew's house, and Vanderbilt brought the Boston men to terms by
proposing a plan to Drew whereby they would be entirely left out. This
ruse succeeded and a written agreement to the advantage of all, but at
the expense of the outside stockholders and of the general public, was
then drawn up.

This, however, was only the beginning of the fight. Vanderbilt was now
in the Erie as a joint owner, but he had stretched out his hands to
control the road and he meant to succeed. In February of 1868, Frank
Work, the single representative of Vanderbilt on the Erie board, applied
for an injunction against Treasurer Drew and his brother directors
to restrain them from the repayment of the $3,500,000 borrowed by the
railroad from Drew in 1866, and to restrain Drew from taking any legal
steps toward compelling a settlement. Judge Barnard granted a temporary
injunction, and two days later Vanderbilt's attorney petitioned for the
removal from office of Treasurer Drew. The papers presented in the case
exposed a new fountain of Erie stock which had up to that time been
entirely overlooked.

A recently enacted law of the State of New York--probably fathered by
Drew--authorized any railroad company to create and issue its own stock
in exchange for the stock of any other railroad under lease to it. Upon
the basis of this law Drew and his close satellites had secretly secured
ownership of a worthless piece of road connecting with the Erie and
known as the Buffalo, Bradford and Pittsburgh. Then, as their personal
needs in the stock-market or at elections demanded, they had supplied
themselves with new Erie stock by leasing the worthless road to the Erie
and then exchanging Erie stock for the worthless stock of the leased
line. The cost of the line to Drew and his friends, as financiers, was
about $250,000. They then issued, as proprietors, $2,000,000 in bonds
of the road, payable to one of themselves as trustee. This person then
shifted his character, became counsel for both sides, and drew up a
contract leasing the line to the Erie for 499 years, the Erie agreeing
to guarantee the bonds in consideration. These men then reappeared as
directors of the Erie and ratified the lease. After that it was a simple
matter to divide the loot. The Erie was thus saddled with a $2,000,000
mortgage at seven per cent in addition to a further issue of capital
stock.

Following the first injunction another was now issued restraining
Drew and the Erie board from making any further issues of stock, by
conversion of bonds or otherwise, and also forbidding the Erie to
guarantee any further issues of bonds. An additional injunction forbade
Drew from having any transactions in Erie stock or fulfilling any
contracts until he had returned to the treasury the shares involved
in his loan transaction of 1866 and in the purchase of the worthless
Buffalo, Bradford and Pittsburgh road.

Matters now looked forbidding for Treasurer Drew. Instead of being
allowed to manufacture fresh Erie stock certificates at his own will, as
had been his habit for fifteen years, he was to be cornered by a legal
writ and forced to work his own ruin. But notwithstanding the apparently
desperate situation it was quite evident that Drew's nerves were not
seriously affected. Although he seemed rushing on destruction, he
continued day after day to put out more short stock, all in the face of
a steadily rising market. His plans, apparently, were carefully matured,
and he said that if the Commodore wanted the stock of his road he would
let him have all he desired--at the proper price.

As usual the Erie treasury was short of funds, and as usual "Uncle
Daniel" stood ready to advance all the money required--that is, on
proper security. There was but one kind of security to offer and that
was convertible bonds. No stock could be issued by the company for less
than par, but convertible bonds could be disposed of by the directors
at any price. A secret meeting of the executive committee was held,
at which it was voted to issue immediately and to offer for sale
$10,000,000 in convertible bonds at 72 1/2. Drew's broker at once became
the purchaser of $5,000,000 worth. In ten minutes after the meeting
had adjourned, the bonds had been issued, their conversion into stock
demanded and made, and certificates for 50,000 shares of stock deposited
in a broker's safe, subject to Drew's order.

A few days later came the injunction, and Erie stock began to soar
in the markets, in response to which "Uncle Daniel," who had been
industriously selling his many thousands of new shares, now determined
to bring up the reserves and let the eager buyers have the other five
millions; but before the bonds could be converted the injunction had
been served. The date for the return of the writ was Tuesday the 10th
of March; but the Erie ring needed less time than this and decided on
Monday the 9th as the day to defeat the corner.

Saturday and Sunday were busy days for Drew and his friends. All his
brokers had been enjoined, so a dummy was made the nominal purchaser of
the bonds. This dummy then made his formal demand for the conversion of
the bonds and was refused. All this was done upon affidavit, as it was
the plan of Drew to get from some judge a writ of mandamus to compel
the Erie Railroad to convert the bonds. The stock certificates for
which they were to be exchanged were signed in blank and made ready for
delivery.

Drew had agreed to sell 50,000 shares of stock at 80 to the firms of
which Jay Gould and James Fisk, Jr., were members; they were also Erie
directors. On Monday morning, the 9th of March, the certificates, filled
out in the names of these firms, were handed by the secretary to an
employee who was directed to carry them from the office of the company
in West Street to the transfer clerk in Pine Street. The messenger
left, but in a moment or two returned to report to the apparently
amazed secretary that Fisk had met him outside the door, had taken the
certificates away from him, and "had run away with them." It was true.
The stock certificates had been "stolen" and were beyond the control
of an injunction. The stock certificates next appeared in every part of
Wall Street.

On the same day the Erie representatives applied to Judge Gilbert of
Brooklyn for an injunction on the ground that certain persons, including
Judge Barnard, had entered into a conspiracy to speculate in Erie stock
and to use the process of the courts to aid the speculation. To the
amazement of everybody, Judge Gilbert issued an injunction restraining
all parties to all the other suits from further proceedings; in one
paragraph ordering the Erie directors to continue in the discharge of
their duties--in direct defiance of the injunction of one judge--and in
the next paragraph forbidding the directors to desist in the conversion
of bonds--in direct defiance of another judge. The Drew interests were
now enjoined in every direction. One judge had forbidden them to move,
and another judge had ordered them not to stand still.

It was a strategic position which Drew and his agents could not have
improved upon, and while matters stood this way the 50,000 shares of
Erie stock had been flung on the market. Vanderbilt, who was ignorant of
this situation, bought the new stock as eagerly as the old. Then, when
the facts came out, the quotations dropped with a thud. Uncle Daniel was
victorious; the attempted corner had been a failure; and the Commodore
was holding the bag.

Further dramatic events followed. The Erie directors learned that
process for contempt had been issued and that their only chance of
escape from jail lay in immediate flight. So, stuffing all that was
worth while of the Erie Railroad into their pockets, they made off under
cover of darkness to Jersey City. One man carried with him in a hackney
coach over $6,000,000 in greenbacks. Two of the directors lingered and
were arrested; but a majority collected at the Erie station in Jersey
City and there, free from interference, went on with the transaction of
business. Without disturbance they were able to count their expenses and
divide the profits.

Vanderbilt was now loaded up with reams of Erie stock at high costs,
and the load was a severe strain on him. He dared not sell for fear of
causing a financial collapse. Drew had taken away about seven million
dollars of his money and an artificial stringency had been created in
Wall Street by this exodus of most of its available cash. But Vanderbilt
weathered the storm and, as his generally optimistic attitude inspired
confidence, the sky began to clear.

But this stock-market battle did not end the war. New injunctions flew
in all directions. Osgood, son-in-law of Vanderbilt, was appointed
receiver of the 100,000 shares of illegally issued stock and was
immediately enjoined from acting by another judge. Then Peter B.
Sweeney, of the Tammany ring, was appointed in his stead without notice
to the other side. There was nothing for a receiver to do, as every
dollar he was to "receive" was known to be in New Jersey and beyond his
reach. Nevertheless he was subsequently allowed a fee of $150,000 by
Judge Barnard for his services!

While the legal battle was going on neither Drew nor Vanderbilt was
idle. A plot was arranged for bringing the Erie directors over by force,
but this failed. In the meanwhile the Erie directors persuaded the New
Jersey Legislature to rush through a bill making the Erie Railway a New
Jersey corporation. This move, however, was intended merely to meet an
emergency. It was the intention of the Erie interests to do their real
work with the Legislature at Albany. This was also the intention of the
Vanderbilt interests. Consequently, during the subsequent session, the
grafters in that body were wooed by both sides. When the Legislature
convened, a bill was promptly introduced making legal the recent
issue of Erie stock, regulating the power to issue convertible bonds,
providing for the guaranty of the bonds of the Boston, Hartford and
Erie, and forbidding the consolidation of the Central and the Erie under
the control of Cornelius Vanderbilt. But evidently the Commodore's purse
was open wider than "Uncle Daniel's," for this bill was defeated by a
decisive vote.

Now Jay Gould appeared upon the scene. He left Jersey City with half
a million of the Erie's money in his pocket and arrived in Albany
immediately after the defeat of this bill. On his arrival he was
arrested on a writ issued against him for contempt of court and was held
in bail of half a million dollars for his appearance in New York a few
days later. He appeared before Judge Barnard in New York and was put
in the charge of a sheriff. But the sheriff was served with a writ of
habeas corpus, and Gould was again brought before the court. Then in
some mysterious way the hearing was deferred and Gould returned to
Albany, taking the officer as a traveling companion.

After reaching his destination Gould became so ill that he could not
return to New York, though he managed to go to the Capitol in a driving
snowstorm. Here he became rapidly convalescent, as did also many members
of the Legislature. Members, indeed, who had been too sick or too feeble
to attend the legislative sessions during this cold winter suddenly
found their health returning and flocked to Albany on the fastest
trains. Gould stayed in Albany until April, and by this time a
remarkable change had come over the mentality of a majority of the
legislators. On the 13th of April a bill was presented in the Senate
which met the approval of the Erie interests and which Judge Barnard
afterwards designated as a bill for legalizing counterfeit money. This
bill, which was passed after due debate, legalized the issues of Erie
bonds and stocks which had been put out by Drew; it provided for the
guaranty of the bonds of connecting roads as desired by Drew; and it
forbade all possible contracts for consolidation or division of receipts
between the Erie and the Vanderbilt roads, a provision also desired by
Drew. In fact it was the same bill in different form that had been voted
down so decisively a short time before.

But the real tug of war was to get the bill through the lower House.
Fabulous stories were told of money which would be expended and the
market quotations for votes never soared so high. Then, at the critical
moment, Vanderbilt surrendered, made a secret deal with his foe, and
withdrew his opposition to the bill. The anger of the disappointed
grafters and vote-sellers knew no bounds, and they immediately set
to work passing other bills which they felt would annoy or injure
Vanderbilt, with the hope that he would still be induced to give them
what they regarded as their rightful spoils.

The details of this settlement between Drew and Vanderbilt were not
announced until some months afterward. By the terms agreed on Vanderbilt
was relieved of 50,000 shares of Erie stock at 70, payable partly in
cash and partly in bonds guaranteed by the Erie, and received $1,000,000
in cash for an option given the Erie Railroad to purchase his remaining
50,000 shares at 70 within four months, besides about $430,000 to
compensate his friends who had worked so heroically for him. This total
sum of nearly $5,000,000 no doubt represented part of the "slush fund"
which Drew expected that the company would have to give up to the
venal legislators, and it was therefore no hardship to hand it over to
Vanderbilt instead.

As a part of the general settlement the Boston interests were relieved
of their $5,000,000 of largely worthless bonds of the Boston,
Hartford and Erie Railroad, for which they received $4,000,000 of Erie
securities. Thus in all about $9,000,000 in cash or securities was drawn
out of the Erie treasury in final settlement of this great stock-market
manipulation. And this does not include the pickings of Gould and Fisk
and the smaller fry, of which there is no official record. But that
these gentlemen did not go empty-handed there is not the shadow of a
doubt!


The sensational stock-market deal between the Drew and Vanderbilt
interests was but a truce, however, and did not settle the troubles of
the Erie. Jay Gould was now becoming a dominating factor and in October
of 1868 was chosen president. The various stock-market struggles that
ensued from the ascendency of Jay Gould to the receivership of the Erie
in 1875 is a long and intricate tale. Suffice it to say that the events
were generally similar to those already recounted--stock-market corners,
over-issues of bonds and stocks, injunctions, court orders, arrests,
legislative bribes. Less than a week after his election Jay Gould
frankly announced that the company had just issued $10,000,000 of
convertible bonds and that a third of these had already been converted
into stock. He further announced that the company now had $60,000,000 of
common stock outstanding, whereas the public had understood that it was
only $45,000,000.

During the few years that followed, the poor Erie was systematically
looted. Millions were wasted in New York real-estate speculation, and
the company's money was used in the erection of the Grand Opera House on
Twenty-third Street, to which the executive offices of the Erie Railroad
were moved. Finally the new ring, comprising as leading spirits Jay
Gould and James Fisk, Jr., eliminated Daniel Drew and left him high and
dry without a cent, through a new stock corner. About this time the road
was financially on its last legs, and Jay Gould was appointed receiver.
This started further litigation which dragged on for several years
until, in 1874, Gould was turned out by General Daniel E. Sickles in
combination with the English shareholders. The new interests, when they
finally got control, elected an entirely new management and made H. J.
Jewett, a practical railroad man, president. But the Erie was already
bankrupt, and not much could be done toward saving the situation. In
May, 1875, the road confessed inability to meet its obligations, and
Jewett was appointed receiver.

It was three years from the date of the receivership before the Erie
property was taken out of the hands of the courts. In April, 1878, a
new company, the New York, Lake Erie and Western Railroad, took over
the property; Jewett was elected its president, and a new chapter in the
history of the property began.

Had the reorganization of the Erie been drastic enough, the road might
not so soon have fallen into financial difficulties again, for it owned
valuable coal lands in Eastern Pennsylvania and rapidly increased its
earnings in this region. Moreover the extension of the system westward
should have increased its earning capacity. Up to this time the Erie had
no Chicago connection and was at an obvious disadvantage compared with
its competitors. It improved this situation in 1881 by acquiring the
New York, Pennsylvania and Ohio, and the franchise of the Chicago and
Atlantic Railway. Two years later it obtained control of the Cincinnati,
Hamilton and Dayton and found itself in a position in which it could
compete for through traffic with the Pennsylvania and the New York
Central.

But in carrying through these extensive plans, the Erie again became
involved in financial difficulties; the sensational Grant and Ward
failure in Wall Street in 1884 was a severe blow to the company's
credit, as this firm was at that time doing important financing for the
Erie. The English security holders stepped to the front again, demanded
President Jewett's resignation, and elected John King in his stead.

In 1885 and 1886 a financial readjustment took place, but the company
continued to carry the bulk of the heavy load of obligations which had
been created during the years of the Drew and Gould managements. It was
surely an evidence of the inherent worth of the property that during
the half dozen or more years following, the Erie succeeded in struggling
along in the face of all its financial and other handicaps and at the
same time showed substantial growth in the volume of its business. The
company was kept above water until 1893 without again appealing to the
courts; but by that time the indebtedness had once more mounted, and in
July of that year Erie receivers were appointed for the fourth time in
its history.

The name of Pierpont Morgan is closely identified with the story of the
railroad during this latest reorganization period. Morgan's firm came
to the front in 1894, with the powerful backing of the large English
interests, and proposed a plan which involved heavy sacrifices by many
of the security holders but which was designed to insure the permanent
future of the property. The plan was vigorously opposed, however, by
Edward H. Harriman, August Belmont, and other powerful interests, and it
was not until August, 1896, that a final compromise was effected and a
reorganization was carried through. But at last the Erie was taken out
of receivership, and an entirely new company, intelligently designed and
having ample working capital for future development, was formed with E.
B. Thomas at its head. This new president, like Daniel Willard of
the Baltimore and Ohio and many of the modern railroad leaders, was a
practical railroad man who had worked up from the ranks and who had no
large financial interest or banking connections to divert his attention
from the real business of management. Under Thomas, who remained at the
head of affairs from 1896 to 1900, the Erie made substantial progress.
The system was solidified and its territory was more uniformly and
systematically developed. In 1898, the Erie secured control of the
New York, Susquehanna and Western system, gaining thereby an important
branch to Wilkesbarre; and in 1901 it purchased jointly with the Lehigh
Valley Railroad the stock of the Pennsylvania Coal Company of which
the Erie later became sole owner. The real achievement of the Thomas
administration was the development of the property as a heavy carrier of
anthracite coal. On the financial side during this period the credit of
the House of Morgan, intelligent administration, and modern methods did
much to improve the reputation of the Erie and enable it to live down
its bad inheritance.

In 1901 Frederick D. Underwood succeeded Thomas. Like his predecessor,
Underwood represented the modern type of railroad president--a
hard-working, eminently practical big business manager of great
executive talent. Underwood's idea was to make the Erie a great
freight-carrying system by developing its tonnage and its freight
capacity in every way possible. Consequently he favored opening up the
property more extensively in the soft coal fields of Ohio and Indiana,
reconstructing roadbeds, laying extra tracks, and eliminating grades and
curves.

The history of the Erie Railroad ever since 1901 has been a record of
progress. During these years the system has been practically rebuilt.
It now has a double track from New York to Chicago; it has extensive
mileage in the soft coal regions of Ohio and Indiana, and its soft coal
tonnage today far overtops its tonnage of anthracite coal; its train
load averages far higher than that of the New York Central or of any
other Eastern trunk lines except the Pennsylvania; its steep grades
throughout New York State have been for the most part eliminated, and
many short cuts for freight traffic have been built.

In carrying through these extensive developments in fifteen years the
Erie has spent hundreds of millions of dollars. More money indeed
has been used legitimately for improvement and development since the
reorganization of 1896 than during the previous sixty years of its
existence. Of course this outlay has meant that the Erie has had to
create new mortgages and borrow many millions; but a large part of
the expenditure for improvement has come directly from earnings. The
Underwood administration has been conservative in paying dividends and
the stockholders grumble. But the Erie is at last coming into its own.
Instead of being a speculative football and a hopelessly bankrupt road,
as it was for nearly forty years, it is now in the forefront of the
great trunk lines of the eastern section of the United States. It is no
longer, what it was called for many years, the "scarlet woman of Wall
Street," but is a respectable member of the American railroad family.



CHAPTER V. CROSSING THE APPALACHIAN RANGE

The story of the Baltimore and Ohio Railroad takes us back more than
ninety years. When the scheme for the construction of a railroad from
Baltimore to the waters of the Ohio River first began to take form, the
United States had barely emerged from the Revolutionary period. Many
of the famous men of that great day were still living. John Adams and
Thomas Jefferson had been dead only a year; Madison and Monroe had
recently retired from public life; John Quincy Adams held the office of
President, and the "reign" of Andrew Jackson had not yet begun.

At this time steam navigation on the rivers was only in its beginnings,
but no one could doubt that it would come into general use. Two decades
had passed since the Clermont had been launched on the Hudson by Robert
Fulton, and steamboats were now carrying cargoes successfully against
the swift currents up the Mississippi from New Orleans and were
threatening the extinction of the aggressive flatboat traffic. Great
strides had also been made in the construction of turnpike roads. The
famous National Pike from Cumberland to Vandalia, Illinois, had been in
large part completed and had done much for the opening up of the Western
territory.

Canal building was likewise an extensive development of this period. The
idea of connecting the waters of the Chesapeake with those of the Ohio
had been broached by George Washington before the Revolution, and he
had also prophesied the union of the Hudson and Lake Erie by canal. He
believed that a country of such great geographical extent as the United
States could not be held together except by close commercial bonds.

The opening of the Erie Canal to New York in 1825 stimulated other
cities on the Atlantic seaboard to put themselves into closer commercial
touch with the West. This was especially true of the city of Baltimore.
A canal connecting Chesapeake Bay and the Ohio River was advocated to
protect the trade of Baltimore and the South from the competition of New
York and the East which would inevitably result from the construction of
the Erie Canal and the Public Works of Pennsylvania. But discouragements
in plenty frustrated the plan. The cost was believed to be excessive and
the engineering difficulties were said to be almost insuperable. George
Bernard, a French engineer, was of the opinion that the high elevations
and scarcity of water along the route would prevent such a canal from
having much practical value. For these reasons Baltimore believed that
its position as a center for the rapidly developing Western trade was
slowly but surely slipping away.

This was the situation that led to the building of the Baltimore and
Ohio Railroad. Two men--Philip E. Thomas and George Brown--were
the pioneers in this great undertaking. They spent the year 1826
investigating railway enterprises in England, which were at that time
being tested in a comprehensive fashion as commercial ventures. Their
investigation completed, they held a meeting on February 12, 1827,
including about twenty-five citizens, most of whom were Baltimore
merchants or bankers, "to take into consideration the best means of
restoring to the city of Baltimore that portion of the western trade
which has lately been diverted from it by the introduction of steam
navigation and by other causes." The outcome was an application to the
Maryland Legislature for a charter for a company to be known as "The
Baltimore and Ohio Railroad Company" having the right to build and
operate a railroad from the city of Baltimore to the Ohio River. The
formal organization took place on April 24, 1827, with Philip E. Thomas
as president and George Brown as treasurer. The capital of the proposed
company was fixed at five million dollars.

The construction of the railroad began on July 4, 1828. The venerable
Charles Carroll of Carrollton, then more than ninety years old and the
only surviving signer of the Declaration of Independence of fifty-two
years before, said on this occasion, as he laid the first stone: "I
consider this among the most important acts of my life, second only
to my signing the Declaration of Independence." His vision was indeed
prophetic.

It was determined that the first section of road constructed should
extend to Ellicott's Mills, twelve miles distant, but, owing to delays
in obtaining capital, the actual laying of the rails was not begun until
the fall of 1829, and this first section was not opened for traffic
until May 22, 1830. At first, experiments were made with sails for
propelling the cars, but it was soon found that a more effective source
of power was supplied by mules and horses. The Flying Dutchman, one of
the cars devised to furnish motive power, provided for the horse or
mule a treadmill which would revolve the wheels and make the distance of
twelve miles in about an hour and a quarter. Steam locomotives at this
time were in their infancy and, until the opening of the Liverpool and
Manchester Railroad in this same year, they had attained a speed of only
six miles an hour. Horses and mules, and even sail cars, made more rapid
progress than did the earliest locomotive. In spite of these crude and
primitive facilities for transportation, however, the traffic on the new
railroad was of large volume from the beginning, and the company could
not handle the amount of merchandise offered for transport in the first
months.

Construction was now rapidly pushed ahead, and by 1832 the whole line
had been opened to Point of Rocks, with a branch to Frederick, Maryland,
making seventy-two miles in all. In 1831, steam locomotives were tested,
and one of them, the York, was found capable of conveying fifteen tons
at the rate of fifteen miles an hour on level portions of the road. This
achievement was regarded as a great triumph, and in 1832 the directors
of the road called attention to "the great increase in velocity" that
had been obtained in this way.

From this time forward the expansion of the railroad proceeded with a
certainty born of success. A branch was built to Washington and the main
line was extended to Harper's Ferry. Beyond this point construction was
slow because financial difficulties stood in the way, and it was not
until after the panic of 1837 that further aggressive building began.
But by 1842 the line was completed to Cumberland, Maryland, and by
1853, to Wheeling. Meanwhile, the branch from Cumberland to Parkersburg,
Virginia, was built. The road now comprised a total system of more than
five hundred miles and reached two points of importance on the Ohio
River, one northward near the Pennsylvania-Ohio state line and one
southward in the direction of Cincinnati. The Parkersburg extension was
of great importance because it opened a through route to St. Louis, by
means of the Cincinnati and Marietta Railroad--which was at this time
completed from Cincinnati to Belpre, Ohio, opposite Parkersburg--and the
Ohio and Mississippi, which extended more than three hundred miles from
St. Louis to Cincinnati.

Times were not the best, however, and, although much traffic was
developed, the immense cost of the extensions heavily burdened
the Baltimore and Ohio Company, while the panic of 1857 seriously
embarrassed its credit. Soon after this panic and before the company
had begun to recover from its effects, John W. Garrett, one of the large
stockholders in the road and son of a Baltimore banker, was elected to
its presidency, and a new chapter in the history of the Baltimore
and Ohio began. Almost immediately following Garrett's election, a
remarkable change became apparent. Losses were turned into gains;
deficits were converted into surpluses; and soon Garrett had gained the
reputation of being the most remarkable and efficient railroad manager
in the world. He seemed to be almost an Aladdin of railroad management
for, even when he could not show increases in amount of business done,
he reported greater profits by showing lower expenses. In those days
the railroads did not furnish detailed reports of business to the
stockholders or to the public. At the annual meetings it was customary
for a president or the directors simply to announce, either orally or in
a brief printed statement, the amount of gross business and profits
for the year. No such thing as a balance sheet or detailed financial
statement saw the light of day--practically everything was taken by
the stockholders on faith. And great was their faith. When, therefore,
Garrett announced large increases in profits in years when most
railroads were standing still or were incurring losses, he was
implicitly believed.

Under Garrett's management a new era of expansion almost immediately
began; work was started on the long delayed branch to Pittsburgh and
plans were laid for establishing a line of steamships from Baltimore to
the leading European ports. But the Civil War, which bore heavily on the
Baltimore and Ohio, interfered with these ambitious schemes. Early in
1861 the Confederates took possession of a large part of the line east
of Cumberland; in the next four years important sections of the road
were repeatedly destroyed and rebuilt, as they passed into the hands of
the Federal or Confederate troops. The company, however, managed to get
through without default in its securities, and, when peace was restored
in 1865, the Baltimore and Ohio resumed its policy of aggressive
expansion.

Before very long the road, with its connections constructed or
purchased, reached the cities of Pittsburgh, Sandusky, and Chicago, and
further strengthened its connections with Cincinnati and St. Louis. It
acquired steamboats, grain elevators, and docks; it constructed hotels
as mountain summer resorts; it built dry docks in Baltimore; and finally
it proceeded to organize and operate an express company, a telegraph
company, and a sleeping-car company. To carry out these ambitious plans
the capital stock and debt were of course increased again and again,
and in the course of these operations a large part of the new securities
issued was sold to English investors. Notwithstanding these great
increases in liabilities, the company continued to report large
surpluses and to pay large dividends, generally ten per cent annually.
In fact, this liberal rate was, with brief exceptions, paid right
through the Civil War period, in spite of the fact that large parts
of the line were frequently destroyed and traffic was often at a
standstill. With such prosperity under such conditions Garrett's
reputation as a railroad manager naturally suffered no eclipse.

In the course of the Civil War, as already noted, through traffic routes
from New York to Chicago had been established, and in the succeeding
years the consolidations of the great competing systems into trunk lines
had taken place. The struggle of the Baltimore and Ohio for its share
of Western business led to fierce rivalry with the Pennsylvania. This
competition became so severe and intense that, in 1874, the Pennsylvania
road refused to carry the Baltimore and Ohio cars over its line to New
York on any terms whatever. Since this was the only way in which the
Baltimore and Ohio could reach New York, the situation was a serious
one. Garrett retaliated by making destructive reductions in passenger
rates from Washington and Baltimore to Western points. The cuts were
soon made on other roads and affected both freight and passengers. All
the lines became involved. Passenger fares from Chicago to Baltimore and
Washington were reduced from nineteen dollars to nine dollars, and those
to New York and Boston from twenty-two to fifteen dollars. Still the
fight continued, and before the end of 1875 it was possible to travel
from Chicago to New York first class for twelve dollars and to ship
grain to New York for as low a rate as twelve cents.

Despite the fact that competition had cut earnings almost to the point
of extinction, the Baltimore and Ohio continued to report surprisingly
good profits. The company borrowed additional funds from time to time
but continued to pay the liberal ten per cent dividend until 1877,
when it somewhat reduced the rate. These dividend payments indicated,
however, a prosperity that was only apparent, and they did not greatly
deceive the bankers, for the credit of the Baltimore and Ohio weakened
from day to day. The fact is that the reports of operations inspired
little public confidence; to the farseeing, there were danger signals
ahead. Nevertheless the ten per cent dividends were resumed in 1879 and
continued at this rate without interruption until 1886.

On the death of John W. Garrett in 1884, his son Robert, who succeeded
him as president, continued the same policy of competition and
aggression. With the object of gaining an entrance into Philadelphia and
through that gateway of reaching New York, he started work on a branch
from Baltimore to Philadelphia to meet, at the northern boundary
of Maryland, the Baltimore and Philadelphia Railroad--a line which
independent interests were then building through Delaware with the
intention of obtaining an entrance into Philadelphia. The Pennsylvania
interests strongly opposed Garrett's new project and many years before
had gone so far, in their determination to block the Baltimore and Ohio
from acquiring control of the Philadelphia, Wilmington and Baltimore
Railroad, as to purchase that road themselves. Despite this opposition
the Baltimore and Ohio went forward with their plans and secured an
entry into Philadelphia by acquiring control of the Schuylkill East Side
Railway, which was a short terminal road of great strategic value.
North of Philadelphia the company arranged a traffic contract with
the Philadelphia and Reading, whose lines extended to Bound Brook, New
Jersey, and also with the Central Railroad of New Jersey beyond Bound
Brook to Jersey City. Afterward, by purchasing the Staten Island Rapid
Transit Company the Baltimore and Ohio acquired extensive terminals at
tidewater on Staten Island and constructed a connection in New Jersey
with the New Jersey Central. Thus, after many years of struggle and at
heavy cost, the Baltimore and Ohio finally secured an entry into the New
York district independently of the Pennsylvania Railroad.

Both freight and passenger charges, however, were still maintained at an
unprofitable rate, and, after the death of John W. Garrett, the credit
of the Baltimore and Ohio continued to decline. Dividends were gradually
reduced and by 1888 were omitted entirely. As is usually the case, the
cessation of dividends awakened the sleeping stockholders. They began
an investigation to ascertain the whereabouts of that remarkable surplus
which had been reported from year to year and which, according to
official report, had shown a constant growth.

This investigation disclosed a startling state of affairs. Instead of
a surplus, the company had been piling up deficits year after year, had
been borrowing money right and left on onerous terms, had been charging
up millions of dollars of expenses to capital accounts--and as a matter
of fact, instead of making money, it had for the most part been losing
it. Now the company urgently needed cash, and the only way it could
obtain that essential commodity was by selling its express, telegraph,
and sleeping-car business.

During the entire administration of John W. Garrett, extending over more
than two decades, current expenditures of enormous amounts which should
have been deducted from the income had been credited to the surplus;
many millions which would never be returned had been advanced to
subsidiary lines, or had been spent, and therefore should have been put
down in the books as losses. When these facts became public, the capital
stock of the Baltimore and Ohio, which for generations had been looked
upon as one of the most secure of railroad investments, dropped to
almost nothing, and the most strenuous financial efforts were required
to keep the company out of bankruptcy.

These disclosures, towards the end of 1887, ended the first period of
active Garrett management in the Baltimore and Ohio. The directors
then turned to New York bankers for the cash that was needed to put the
affairs of the company on a sound basis. Samuel Spencer, who afterward
became a partner in the banking house of J. P. Morgan and Company, was
elected president and active manager. He introduced radical reforms,
entirely revolutionized the organization, and adopted modern methods. He
wrote off the books a large amount of the much vaunted "surplus" and he
took important steps toward the general improvement of the property.

Had the new interests been allowed to continue their efforts unmolested,
the history of the Baltimore and Ohio in the next decade might have
been very different. But the original controlling interests, the Garrett
family, still held the balance of power. As the bad bookkeeping and
other irregularities of the past naturally reflected on the Garretts, it
was their interest to suppress further investigation as far as possible;
and their antagonistic attitude toward the policy adopted by the new
Spencer management was seen in the annual election of directors in
November, 1888. Only five of the members of the board were reelected,
President Spencer was ousted, and Charles J. Mayer was elected in his
place.

This second change in management sidetracked the plans for radical
reform, and little improvement resulted either in earning power or in
financial condition. The company had fallen upon evil days. The net
profits did not increase, and eight years after 1888 they were smaller
than in that year, while the debt and interest charges constantly
grew. Despite these ominous facts, dividends were paid regularly on the
preferred stock and in 1891 they were resumed on the common stock. In
the latter year a twenty per cent dividend was declared "to compensate
shareholders for expenditures in betterments and improvements in
the physical condition of the property," while at the same time the
directors decided to raise five million dollars of new capital for
expenditures which would be necessary to handle the increased traffic
created by the World's Fair at Chicago.

The traffic problem continued to be a thorn in the flesh and until 1893
freight rates were constantly being cut. The opening of the Baltimore
and Ohio connection to New York had brought keener competition from the
Pennsylvania Railroad and had made deep inroads into the Baltimore and
Ohio revenues. Such conditions made even the Garrett interests feel that
something should be done, and in 1890 a "community of interest" scheme
was proposed. To control the stock of the Baltimore and Ohio Railroad,
Edward R. Bacon in New York, acting harmoniously with the Garrett
family, formed a syndicate of capitalists representing the Richmond
Terminal system, the Philadelphia and Reading Railroad, the Northern
Pacific Railroad, and other properties. The ultimate plan, which proved
too visionary, was to consolidate under one control a vast network of
lines extending all over the continent.

The syndicate had made little progress toward rehabilitation when the
panic of 1893 occurred. In this year and the next the earnings of
the Baltimore and Ohio fell off rapidly and the dividend was reduced.
Nevertheless, as late as January, 1895, the directors insisted that
financially the company was in better condition than for several years
and that on the whole it was in a stronger position than at any time
since 1880. But in this same year it became necessary to stop all
dividend payments; the company began to have difficulties in securing
ready money; and before the close of the year the situation seemed
hopeless. Early in 1896 Mayer tendered his resignation, and John K.
Cowan succeeded him. The new president did his utmost to obtain money
to meet the current needs, but he was unsuccessful. A receivership and
reorganization seemed absolutely necessary, and in February, 1896, the
receivership was announced.

With the property now in the hands of the courts, the opportunity at
last came to make real the reforms which had been proposed and
begun nearly a decade earlier under the wise but quickly terminated
administration of Samuel Spencer. A thorough housecleaning was now
carried through without interference or interruption. A reorganization
committee was formed, with whom were deposited the Garrett shares as
well as those of the Morgan and New York and Philadelphia interests. A
full investigation of past management disclosed that the records for
the interim extending from the brief Morgan control under Spencer to
the receivership contained the same kind of irregularities and errors
of policy that had prevailed under the earlier Garrett management.
Statements of profits had been swelled by arbitrary entries in the books
and nearly six million dollars which had not been earned had been paid
out in dividends. Furthermore the company had endorsed the notes of
certain subsidiary roads to the extent of over five million dollars, and
had made no record whatever of this action for the stockholders.

As in the case of numerous other railroads, the financial breakdown of
the Baltimore and Ohio Railroad was primarily due to a bad or reckless
financial policy, for there was nothing inherently insecure in the
railroad property itself. During all the years of the Garrett regime,
the company had shared in the general growth and expansion of industry,
wealth, and population within its territory. It had been progressive in
matters of expansion and had built up its system to meet the needs of
modern times. Its trackage and equipment compared favorably with similar
systems, and most of its extensions and branches had been wisely planned
and had proved profitable. The operating management of the railroad was
generally good and it usually secured its proportion of what business
was to be obtained. But the steady increase in its debts over a number
of years, its extravagance in dividend payments, and its painful efforts
to keep down its operating expenses had so weakened the property that,
when the hard times of 1893 to 1896 arrived, it was in no position to
weather the storm. The only wonder is that the management succeeded in
keeping the system intact and apparently solvent so long as it did.

The receivership at once adopted a vigorous policy of improvement.
The rolling stock had run down until it could not handle even ordinary
business. While the company had been depleting its credit and paying out
all its cash in dividends, the equipment had been going into the scrap
heap. For two years the receivers made large expenditures on equipment
and roadbed, borrowing money for this purpose; the result was that
when, in 1898, the courts surrendered the property, it was in splendid
condition to take advantage of the tide of commercial and industrial
prosperity which was just then beginning to flow throughout the United
States.

While the reorganization of the Baltimore and Ohio was not so drastic
as that of many other systems which went through the courts during this
period, it was thorough enough to meet the situation. The fixed charges
were cut down radically and the stockholders were assessed in large
amounts. In all, more than thirty-six million dollars was raised by
assessments and the sale of new securities; the liabilities of the
Company were greatly reduced; and its credit was promptly restored.
Formerly the Baltimore and Ohio had been struggling under a burden of
floating indebtedness, with so little money in its treasury that it
could not even put a new coat of paint on the passenger cars and had to
continue to use oil lamps to light some of its best trains. But now the
floating debt was replaced by a large available cash capital, and as a
result of the liberal policy followed by the receivers, the equipment
and roadbed were brought fully up to the standards required for handling
the traffic of the road both economically and effectively.

With the reorganization of 1898 finished, the Baltimore and Ohio
Railroad entered a new period in its history. The strong, progressive
interests which now took control concentrated their energies on
developing traffic, increasing earnings, and rounding out the general
system. They adopted careful measures for unifying the system by adding
other lines and connections of value; they paid much attention to the
improvement and development of terminals; and they spent many millions
in acquiring and expanding the terminal properties of the company at
Chicago, St. Louis, Philadelphia, and Baltimore.

The financial history of the Baltimore and Ohio since the close of the
nineteenth century is interesting chiefly in connection with changes
in the control of the property. After the reorganization a group of
prominent financiers, including Marshall Field, Philip D. Armour, Norman
B. Ream, and James J. Hill jointly purchased a large interest in the
stock. But this purchase, while perhaps representing a dominating
interest, did not involve actual control. Soon afterward, interests
identified with the Pennsylvania Railroad began to appear in the
Baltimore and Ohio, and before long the Pennsylvania had a strong
representation on the board. As a consequence, the Baltimore and Ohio
almost lost its individuality and for a time was popularly regarded
practically as a subsidiary of its old rival line.

The purpose of the Pennsylvania in obtaining this ascendency over the
Baltimore and Ohio was to regulate the soft coal traffic. Already it had
acquired dominating interests in the Chesapeake and Ohio, the Norfolk
and Western, and other soft coal properties. These purchases were merely
manifestations of that "community of interest" policy which at this
time led several large systems to acquire interests in competing lines.
Several of the railroad leaders of that time, notably James J. Hill and
Edward H. Harriman, believed that if these great systems actually
owned large blocks of stock in each other's properties, this common
association would ipso facto end the competition that, if continued,
would ultimately ruin them all. The Supreme Court had decided that the
"pooling" arrangements which had so long prevailed among great competing
roads violated the Sherman Anti-Trust Act; and the American public, which
now was cultivating a new interest in railroad problems, believed that
the "community of interest" plan was merely a scheme to defeat the
Interstate Commerce Act and the Sherman Act and to maintain secretly all
the old railroad abuses. These inter-railroad purchases therefore became
so unpopular that the Pennsylvania sold its Baltimore and Ohio stock.
At this time Edward H. Harriman of the Union Pacific, who had at his
disposal vast funds of the latter property which he had obtained by the
settlement of the Great Northern and Northern Pacific deal, decided to
acquire control of a system of roads in the East in order to establish a
complete transcontinental line in the interest of the Union Pacific. It
was the theory that such a purchase by the Union Pacific would not defy
the law or outrage the popular conscience because the Union Pacific,
unlike the Pennsylvania, did not compete with the Baltimore and Ohio,
but was only a western extension of that system. Harriman in August,
1906, therefore purchased nearly all the Pennsylvania holdings in the
old Garrett property and thus obtained virtual control.

At this same time the Baltimore and Ohio had been developing a
"community of interest" plan on its own account. In the year 1903, it
acquired a substantial stock interest in the newly reorganized Reading
Company, which controlled the Philadelphia and Reading Railroad and
the Philadelphia and Reading Coal and Iron Company. It did not obtain
a majority interest but, with the Lake Shore and Michigan Southern
Railroad of the New York Central system, it now controlled the Reading
system. The Reading Company meanwhile had secured control of the Central
Railroad of New Jersey, over the lines of which the Baltimore and Ohio
reached New York City.

In the following years the Baltimore and Ohio property was still further
rounded out by purchasing the Cincinnati, Hamilton and Dayton, a small
system of doubtful value radiating through the State of Ohio and, by
additional extensions, into the soft coal fields of West Virginia. New
energy was put into the expansion and improvement of the southwestern
lines to St. Louis, while the eastern terminal properties were still
further improved.

The practical control of the Baltimore and Ohio remained in the hands of
the Union Pacific interests until 1913. In that year, however, the
Union Pacific liquidated its holdings by distributing them to its
own individual stockholders in the shape of a special dividend. The
Baltimore and Ohio thus became once more an independent property.

The story of the Baltimore and Ohio for the past decade has been mainly
a record of a growing, well-managed, and efficient business. It is
closely identified with the personality of its notable and efficient
president, Daniel Willard, a conspicuous example of the modern type of
railroad manager. In the earlier days of railroading, and especially
in the long period which came to an end with the death of Harriman, the
typical railroad president was usually a man of great wealth who
had secured his position by owning a large financial interest in the
property. The country was full of "Wall Street Railroad Generals." But
in recent years the efficient railroad head has come more and more to
be the practical railroad man who has risen from the ranks, who has no
important personal financial interest in the property but who is paid
an adequate salary to operate a system in a purely businesslike way.
Notable examples of this modern type of railroad president are, besides
Daniel Willard, Edward P. Ripley of the Atchison, Topeka and Santa, Fe,
Benjamin F. Bush of the Missouri Pacific, and Fairfax Harrison of the
Southern.

The efficient management of today is abundantly shown in the recent
record of the Baltimore and Ohio. President Willard has been unmolested
by financial interests and has been continuously backed up in his
policies by the owners of the road. As a result the Baltimore and Ohio
of the present decade has reached an enviable position as one of
the great Eastern trunk lines, comparing well with other progressive
properties like the Pennsylvania, the New York Central, the Southern,
the Illinois Central, and the Louisville and Nashville. Millions have
been poured into the property in the past fifteen years; its main lines
have been largely rebuilt; its rolling stock is chiefly of the most
modern types; and its terminals and structures are such as modern
conditions demand.



CHAPTER VI. LINKING THE OCEANS

In 1862, when the charter was granted by the United States Government
for the construction of a railroad from Omaha to the Pacific coast,
the only States west of the Mississippi Valley in which any railroad
construction of importance existed were Iowa and Missouri. During the
three decades which had passed since the first railroad construction,
the earlier methods of transportation by boat, canal, and stage coach
gave place in the Eastern half of the United States to more modern
methods of transportation. As a result of these new conditions, the
States, cities, and towns were welded together, and population and
prosperity increased rapidly in those inland sections which had formerly
languished because they had no means of easy and rapid communication.

The construction of extensive railways, however, and particularly the
consolidation of small, experimental lines into large systems, dates
from the days of the discovery of gold in California. The nation did
not begin to realize the extraordinary possibilities of the vast
Western territory until its attention was thus suddenly and definitely
concentrated on the Pacific by the annual addition of over fifty million
dollars to the circulating medium. The wealth drawn so copiously from
this Western part of our continent had a stimulating effect on the
commerce, manufactures, and trade of the entire Eastern section. People
began to understand that with the acquisition of California the
nation had obtained practically half a continent, of which the future
possibilities were almost unlimited, so far as the development of
natural resources and the general production of wealth were concerned.

The public conviction that a railroad linking the West and the East was
an absolute necessity became so pronounced after the gold discoveries
of '49 that Congress passed an act in 1853 providing for a survey of
several lines from the Mississippi to the Pacific. Though the published
reports of these surveys threw a flood of light on the interior of
the continent, they led to no definite result at the time because the
rivalry of sections and groups of interests for the selection of this or
that route held up all progress.

The Act of 1862, which created the Union Pacific Railroad Company,
together with the amending Act of 1864, authorized the construction of
a main line from an initial point "on the one hundredth meridian of
longitude," in the Territory of Nebraska to the eastern boundary of
California, with branch lines to be constructed by other companies
and to radiate from this initial point to Sioux City, to Omaha, to St.
Joseph, to Leavenworth, and to Kansas City. * Provision was made for
a subsidy of $16,000 a mile for the level country east of the Rocky
Mountains; $48,000 a mile for the lines through mountain ranges; and
$32,000 a mile for the section between the ranges. The original plan
to secure the government subsidies by a first mortgage on the lines was
amended so as to allow private capital to take the first mortgage, the
Government taking a second lien for its advances. In addition to these
subsidies the several companies were to receive land grants of 12,800
acres to the mile in alternate sections contiguous to their lines. Upon
the same terms the Central Pacific, a company incorporated under the
laws of California, was authorized to construct a line from the Pacific
coast, at or near San Francisco, to meet the Union Pacific Railroad.


    * These ambitious designs were never fully realized. The main
line ran eventually west from Omaha, meeting the Sioux City branch at
Fremont. The only other branch which was constructed to connect with the
Union Pacific was that from Kansas City and it ran first to Denver.


The public was quick to realize the significance of this huge
enterprise, for the papers of the day were full of such comments as the
following:

"It is useless to enlarge upon the value and importance of this great
work. It concerns, not the United States alone, but all mankind. Its
line is coincident with the natural and convenient route of commerce for
the world.... Over it the trip will be made from London to Hong Kong in
forty days, over a route possessing every comfort and attraction,
which takes a continent in its course, and which, from the variety and
magnitude of its sources, from the race which now dominates it, and from
the extent of their numbers, wealth and productions, must soon give law
to the commercial world."

Notwithstanding these and similarly optimistic sentiments, the meager
financial support given to the enterprise by the public at large had
been very discouraging. Although the construction had been liberally
subsidized by the Government, gross extravagance had promptly crept
in; juggling of accounts for the purpose of securing profits on the
government advances was freely indulged in, and after only a small
section of the line had been completed it was announced that more
capital must be forthcoming or the work would cease. Out of this
situation grew the plan for subletting the work to a construction
company known as the Pennsylvania Fiscal Agency--a name which was
afterwards changed to that of the Credit Mobilier of America. The story
of the Credit Mobilier, with its irregularities involving conspicuous
politicians, is one of the most disgraceful in American history. The
detailed history of these operations need not be considered here; it
is sufficient to say that finally, in spite of political scandals, the
Union Pacific lines were brought to completion. Within two years after
the letting of the contracts to this new company, in 1866, over five
hundred miles of road were completed and in operation. An advertisement
published late in 1868 announced that "five hundred and forty miles
of the Union Pacific Railroad, running west from Omaha across the
continent, are now completed, the track being laid and trains running
within ten miles of the Rocky Mountains.... The prospect that the whole
grand line to the Pacific will be completed by 1870 was never better."

As a matter of fact, the line through to the coast was finished earlier
than had been predicted. One fact which increased the rapidity of
construction was the growing financial difficulty of the company. It was
absolutely imperative that the through line be completed in order that
the resulting business might make the operation of trains pay. But
aside from this, another influence was at work to encourage rapid
construction. The Act of 1862 provided that the Central Pacific might
also build across Nevada to meet the Union Pacific, on condition that
it completed its own allotted section first. As the Central Pacific
also was receiving a heavy government subsidy per mile, and as there was
great profit in construction undertaken with this government subsidy,
there was naturally a strong incentive for both companies to build all
the mileage possible and as rapidly as possible.

The Central Pacific enterprise was backed by a group of men who were
awake to the possibilities of the situation and who had made large
fortunes in the gold-mining boom of previous years, such as Leland
Stanford, Collis P. Huntington, Mark Hopkins, and the Crockers. The
rivalry between them and the Union Pacific interests woke the whole
continent and formed a chapter in American railroad history as startling
and romantic as anything in the stories of the Vanderbilts and Goulds
with their financial gymnastics.

As the contest proceeded, public interest increased and the entire
country watched to see which company would win the big government
subsidies through the mountains. Through the winter of 1868 the work
continued on the Union Pacific with unabated energy, and freezing
weather caught the builders at the base of the Wasatch Mountains;
but blizzards could not stop them. The workmen laid tracks across the
Wasatch on a bed of snow and ice, and one of the track-laying trains
slid bodily, track and all, off the ice into a stream. The two companies
had over twenty thousand men at work that winter. Suddenly the Central
Pacific surprised the Eastern builders by filing a map and plans for
building as far as Echo, some distance east of Ogden. The Union Pacific
forces, however, were equal to the occasion. At first, one mile a day
had been considered rapid construction, but now, even with the limited
daylight of the winter months, they were laying over two miles a day,
and they finally crowned their efforts by laying in one day between
sunrise and sunset nearly eight miles of track.

In the meantime the Central Pacific also had stopped at nothing. The
company had a dozen tunnels to build but did not wait to finish them.
Supplies were hauled over the Sierras, and the work was pushed ahead
regardless of expense. On May 10, 1869, the junction was formed, the
opposing track layers meeting at Promontory Point, five miles west of
Ogden, Utah. Spikes of gold and silver were driven into the joining
tracks, and the through line from the Missouri River to the Pacific
Ocean had been completed; the first engine from the Pacific coast faced
the first engine from the Atlantic. The whole country, from President
Grant in the White House to the newsboy who sold extras, celebrated this
achievement. Chicago held a parade several miles long; in New York City
the chimes of Trinity were rung; and in Philadelphia the old Liberty
Bell in Independence Hall was tolled again.

The cost of the Union Pacific Railroad from Omaha to its junction with
the Central Pacific formed a subject of controversy for a generation.
The saving of six months of the allotted time for completing the road
no doubt increased its cost to the builders, for at times they borrowed
money in the East at rates as high as 18 and 19 per cent. Besides, in
pushing the line far beyond the bounds of civilization without
waiting for the slower pace of the settler and the security which his
protection afforded, it often became necessary for half the total number
of workmen to stand guard and thus reduce the working capacity of
the construction force. Even so, hundreds were killed by the Indians.
Governmental restrictions of various kinds also increased the cost of
the road. For example, the stipulation that only American iron should
be used increased the cost by at least ten dollars for every ton of rail
laid. The requirement that a cut should be made through each rise in the
Laramie plains, thus giving the track a dead level instead of conforming
to the natural roll of the country, ultimately resulted in a waste of
from five to ten million dollars. Extraordinary costs such as these,
combined with the extravagant methods of construction and financing,
brought the total cost of the property up to what was in those days
a fabulous sum of money. The records indicate that the profits
which accrued through the Credit Mobilier and in other ways in the
construction up to the time of the opening in 1869 exceeded fifty
millions of dollars.

While the Union Pacific was being built, from 1862 to 1869, other
railroads were not idle, and many were rapidly reaching out into the
Central West. Not only had the Chicago and North Western reached Omaha
and made connection with the Union Pacific, but the Kansas Pacific had
penetrated as far west as Denver and had joined the Union Pacific at
Cheyenne.

The close relationship between railroad expansion and the general
development and prosperity of the country is nowhere brought more
distinctly into relief than in connection with the construction of the
Pacific railroads. With the opening of a transcontinental line the vast
El Dorado of the West was laid practically at the doorstep of Eastern
capital. Not only did American pioneers turn definitely toward the
West, but foreign emigrants bent their steps in vast numbers in that
direction, and capital in steadily increasing amounts made its way
there. Towns sprang up everywhere and soon developed into busy centers
of trade and commerce. Caravan trains, which a few years before had
followed a single westward line, now started from points along the
railroad artery and penetrated far to the north and south. The settlers
knew that the time was not far distant when all the vast territory west
of the Missouri, from the Canadian border to the Rio Grande, would
be reached by the rapid spread of the railroad. In the sixties and
seventies there sprang up and rapidly developed in size and importance
such centers as Kansas City, Sioux City, Denver, Salt Lake City,
Cheyenne, Atchison, Topeka, Helena, Portland, Seattle, Duluth, St. Paul,
Minneapolis, and scores of smaller places. The entire Pacific slope was
soon dotted with towns and cities, and even the great arid plains of the
West--as well as the "Great American Desert" covering Utah, Arizona, New
Mexico, and parts of Nevada--began to take on signs of life which had
not been dreamed of a decade before.

But the development of this great section of the country during the
next few years was even more notable. By 1880 four different lines of
railroad were running through to the Pacific States, and a fifth, the
Denver and Rio Grande, had penetrated through the mountains of Colorado
and across Utah to the Great Salt Lake. These were the years when
the modern industrial era was really beginning. Man's viewpoint
was changing, and instead of remaining content with the material
achievements of the Atlantic and Central sections of the continent, he
began to realize that the vast Western regions and the thousand miles of
Pacific coast line were destined to be America's inexhaustible patrimony
for the years to come.

In 1880 the Union Pacific began its expansion to the eastward and
acquired control of the Kansas Pacific, which had come upon evil days,
and of the Denver Pacific, a most important connecting link. In January,
1880, these two companies were absorbed by the Union Pacific, which thus
obtained a continuous line from St. Louis westward. In the meantime the
Central Pacific, operating from Ogden west to the coast, had added many
branches, while a new company--known as the Southern Pacific Railroad
of California--had for some years been constructing a system of lines
throughout that State south of the Central Pacific and by 1877 had
penetrated to Yuma, Arizona, 727 miles southeast of San Francisco. It
had also built lines into Arizona and New Mexico and soon joined the
Santa Fe route, which had for some time been working westward.

During 1881 the Southern Pacific continued its eastern extensions along
the Rio Grande to El Paso, Texas, where it formed a connection with a
new road under construction from New Orleans. A junction was also made
at El Paso with the Mexican Central, which was under construction to the
City of Mexico. The Southern Pacific Railroad was closely allied with
the Central Pacific interests headed by Collis P. Huntington, and in
1884 the great Southern Pacific Company was formed, which acquired
stock control of the entire aggregation of railroads in the South
and Southwest. At the same time the Central Pacific came under direct
control of the Southern Pacific through a long lease.

During these eventful years, while the Southern Pacific properties were
penetrating eastward through the broad stretches of country to the south
of the Union Pacific lines, equally interesting events were occurring
in the north. In 1879 a consolidation was formed of the Oregon Steamship
and Navigation Company with several short railway lines in Oregon and
Washington, under the name of the Oregon Railway and Navigation Company.
These railroad lines extended east from Portland to the Oregon state
line, and north to Spokane, and they finally made connection with the
new Northern Pacific. At the same time, another road, known as the
Oregon Short Line Railroad, was built from Granger, Wyoming, on the
line of the Union Pacific to a junction with the Oregon Railway and
Navigation Company at Huntington, Oregon, on the Snake River. The Oregon
Short Line came under the control of the Union Pacific and was opened
for traffic in 1881. Later a close alliance was made with Henry Villard,
the controlling spirit in the Oregon Railway and Navigation Company.
Ultimately the entire system of Oregon lines passed under Union Pacific
control, to be lost in the receivership of 1893, but later recovered
under the Harriman regime.

When, after ten more years of expansion, the great Union Pacific
property went into the hands of receivers in 1893, it had grown to a
system of more than 8000 miles. It completely controlled the Oregon
railway and steamship lines, the lines to St. Louis, and also an
important extension known as the Union Pacific, Denver and Gulf
Railroad, running from a point in Wyoming across Colorado to Fort Worth,
Texas. The financial failure of the system was due to a variety of
causes. Its management had been extravagant and inefficient, and
construction and expansion had been too rapid. The policy of building
expensive branch lines where they were not needed and of obligating
the parent company to finance them had been a grievous mistake and had
contributed largely to the downfall of the company. Further than this,
the credit of the Union Pacific was steadily growing weaker because
the time was drawing near when its heavy debt to the United States
Government would fall due. In all its history of more than twenty years
the company had never paid any interest on the government debt nor
had it maintained a sinking fund to meet the principal when due.
Consequently, the accruing interest had mounted year by year and, should
the Government enforce payment at maturity in 1897-99, the company
would be doomed to bankruptcy. This government debt, including accrued
interest, amounted to the sum of $54,000,000.

Attention should not, however, be diverted from the fact that during all
these years a vast expansion of competitive lines had been going on far
southward of the Union Pacific. Under the guiding genius of Collis P.
Huntington, the Southern Pacific Company in 1884 had consolidated and
solidified a gigantic system of railways extending from New Orleans to
the Pacific and throughout the entire State of California to Portland,
Oregon, with branch lines radiating through Texas and making close
connection with roads entering St. Louis. In addition to these
railroads, Huntington acquired control of a steamship line operating
from New York to New Orleans and Galveston, and subsequently of the
Pacific Mail Steamship Company, operating along the coast from Oregon
south to the Isthmus of Panama and across the Pacific Ocean.
The ever-growing effects of this powerful and well-managed
competitor--combined with the large development of the Santa Fe system
during these years, the competition of the completed Northern Pacific,
and the possibilities of the new Great Northern Railway or Hill line,
now completing its main artery to the Pacific--were far-reaching enough
in themselves to bring the Union Pacific upon evil days. Consequently
few were surprised when, under the great pressure of the panic of 1893,
the property was forced to confess insolvency. The Union Pacific had
simply repeated the story of most American railroads; it had been
constructed in advance of population and had to pay the penalty. Yet it
had more than justified the hopes of the daring spirits who projected
it. It may have made individuals bankrupt, but it magnificently
fulfilled the part which it was expected to play. It had opened up
millions of acres to cultivation, given homesteads to millions of
people, many of whom were immigrants from Europe, developed mineral
lands of incalculable value, created several new great States, and made
the American nation a unified whole. Its subsequent history belongs to
another chapter of this story--a history that is richer than the first
in the matter of financial success but that can never surpass the early
pioneering years in real and permanent achievement.



CHAPTER VII. PENETRATING THE PACIFIC NORTHWEST

It is only when one reads such a book as Francis Parkman's "Oregon
Trail" that one fully realizes the vast transformation which has taken
place within little more than half a century in the great Northwestern
territory beyond the Mississippi and the Missouri. In that fascinating
history we read of the romantic and thrilling experiences of Parkman and
his companions in their summer journey across the plains of Nebraska and
through the mountain ranges of Wyoming, Montana, and Oregon. We read of
their hairbreadth escapes from the Indians; their chase of the buffalo
and other wild animals of the far Western country; of the wearisome
weeks that they spent in crossing the deserts where absolute loneliness
reigned; and finally of their arrival, after months of hardship, in the
vast Oregon country, which with its great natural resources, splendid
climate, and large extent has come to be known in these modern days as
the Empire of the Northwest.

It was to penetrate and bring this great virgin region within reach of
the East that the Northern Pacific Railroad Company was chartered by
Congress in 1864, just prior to the closing of the Civil War. During
this same period the Union Pacific route was being surveyed, and the
first ground was broken in December, 1863, for the line which was later
to connect Omaha with San Francisco.

Like the Union Pacific charter, that of the Northern Pacific also
contained an extensive land grant. From the modern viewpoint, such
land grants look colossal, but in those days the general opening up and
development of the Western country had progressed to so slight an extent
that the significance of giving away millions of acres of the public
lands to encourage a precarious railroad enterprise was then no more
than the passing over to capitalists today of exclusive rights in
extensive tracts of territory in Brazil and the other South American
Republics. Even these great opportunities to acquire almost an empire
of fertile lands or rich forests were not as a rule looked upon as
attractive enough to tempt capital into the wilderness. The old saying
that capital is the most timid thing in the world and does not like
pioneering is strongly emphasized by such instances as this, and no
doubt in 1864 the enormous grants of free land made by Congress did not
appear especially attractive to the man who had money to invest.

Whatever the public attitude may have been, the Act of Congress of July
2, 1864, creating the Northern Pacific Railroad, gave that Company the
right to construct a line from some point on Lake Superior, either in
Minnesota or in Wisconsin, westward and north of latitude 45 degrees,
to or near Portland, Oregon. The land grant consisted of forty alternate
sections of public land for each mile within the Territories penetrated
and twenty alternate sections within the States through which the
railroad might pass.

The hazardous character of this undertaking will be realized when it is
remembered that at this time no railroad had yet penetrated the Rocky
Mountains; that the entire railroad system of the United States was less
than 40,000 miles; and that west of the Mississippi there was no mileage
worth mentioning. It was still less than a generation since Parkman and
his companions had made their four months' journey from St. Louis to
the mouth of the Columbia River, and between the fringe of civilization
along the Pacific slope and the region about Chicago and St. Louis lay
almost a third of the continent uninhabited, undeveloped, and unknown.
The scheme languished for several years until finally, in 1869, the
firm of Jay Cooke and Company of Philadelphia undertook to raise the
necessary capital.

The story of the Northern Pacific for the next few years was closely
bound up with that of Jay Cooke, who was one of the most conspicuous
characters of his time in the financial world. He was a man of
commanding personality, great energy, unusual resourcefulness, and with
a large personal following. He had built his reputation through his
great success in financing United States government loans during the
Civil War. He now undertook to raise more than one hundred million
dollars to carry through the Northern Pacific enterprise. He achieved
remarkable success for a time and within three years had built over five
hundred miles of the main line to the Pacific coast. But the outbreak of
the Franco-Prussian War and the consequent financial stringency abroad,
the difficulty of marketing bonds on an uncompleted enterprise, combined
with the poor showing made by those sections of the line completed and
in operation, brought matters to a crisis, and in September, 1873, Jay
Cooke and Company were obliged to close their doors. The affairs of the
railroad were so closely involved with those of the banking firm that,
although strenuous efforts were adopted to save the railroad, its
revenues were inadequate. As a result, in April, 1874, General Lewis
Cass was appointed receiver.

The uncompleted property was operated for some years thereafter under
the protection of the courts and no plan of reorganization was devised
until 1879. During the receivership only a moderate amount of additional
mileage was constructed, and it was not until many years had passed that
the system penetrated the mountains and reached the Pacific coast. But
when the new company took possession in 1879, aggressive building
was resumed, and for a time it looked as though the project would be
promptly finished. However, in 1882, the company still had about one
thousand miles to construct in order to complete its main artery. At
this time financial difficulties appeared, and the days of stress
were tided over only by the help of a syndicate and the Oregon and
Transcontinental Company.

With the formation of the Oregon and Transcontinental Company begins
the regime of Henry Villard, the dominating factor in Northern Pacific
affairs for many years afterward. Some years before, Villard, who had
long been interested in Western railroad enterprises and who had become
prominent through his activities in connection with the Kansas and
Pacific Railway, had succeeded in forming the Oregon Railway and
Navigation Company as a combination of steamboat lines operating on the
Willamette and Columbia rivers in Oregon, with an ocean line connecting
Portland and San Francisco. A connecting railroad line, which had been
built to Walla Walla in southeastern Washington, penetrated a portion of
the territory through which the Northern Pacific was projected. In 1880
a contract was arranged between the two companies whereby the Oregon
Railway and Navigation Company, in order to share in the traffic,
undertook to construct a line eastward to meet the Northern Pacific
line at the mouth of the Snake River. This arrangement would allow the
Northern Pacific to run its trains into Portland and would obviate the
necessity of constructing its own road into that city.

In spite of this arrangement, Villard feared that the Northern Pacific
Company might decide, after all, to build its own line to Portland as
soon as it was able to finance the project. It was for the purpose of
preventing this move that he formed the Oregon and Transcontinental
Company, a holding corporation which promptly acquired, in the open
market and by private purchases, a dominating interest in the Northern
Pacific Railroad. At the same time Villard placed the control of
the Oregon Railroad and Navigation Company in the hands of the new
Transcontinental.

Villard thus came to control the entire Northern Pacific system and,
backed by the Deutsche Bank of Berlin and other German and Dutch
interests, at once began an aggressive policy of expansion and
development. The business of the system developed rapidly. The main line
through to the Pacific coast was now in operation, and the entire system
amounted to about 2300 miles of road. But Villard followed a financial
policy which was not sound and paid dividends without justification.
In a short time the company consequently found itself financially
embarrassed.

As a result of financial losses in 1884, Villard was obliged to retire
from active control of the properties. But in 1887 he once more got
possession of the Northern Pacific with German capital and succeeded in
arranging a lease of the Oregon Short Line, which had been developed
by the Union Pacific interests, embracing a cross-country road from its
main lines in Wyoming northward into Oregon and Washington. At the same
time the interest of the Transcontinental Company in the Oregon Railway
and Navigation Company was linked with the Oregon Short Line Company.
These transactions, however, still left the Transcontinental Company
in control of the situation, as it retained its majority ownership of
Northern Pacific Railroad stock.

For the next few years the Northern Pacific did not follow a policy
of rapid expansion. Other trunk lines, such as the Union Pacific, Rock
Island, Santa Fe, Burlington, and North Western, were all growing and
keeping pace with the rapid settlement of the West; but the Northern
Pacific in these years simply rested content with its position as a
single track transcontinental route having but few branches. Its
only important extension was made by acquiring the Wisconsin Central
Railroad, which gave the company a line between St. Paul and Chicago and
a valuable and important entrance into the latter city. It was
expected that, with this accession, the affairs of the company would be
permanently established on a sound basis, but the overliberal policy of
paying out practically all the surplus in dividends was continued in the
face of large increases in fixed charges.

Early in 1892 it began to be rumored that the Northern Pacific was not
in so easy a financial position as had been assumed. The stockholders
took alarm; and the committee which was appointed to investigate the
situation discovered a deplorable state of affairs. As a result of the
severe criticism of Villard's policy, steps were at once taken to oust
him from control, but without success until June, 1893. Two months
later, receivers were appointed who discovered that the company
was insolvent and had no funds to pay quickly maturing obligations.
Receivers were appointed also for most of the branch lines, including
the Wisconsin Central system. The Oregon Short Line, which was tied
through guarantees with the Union Pacific although leased to the
Northern Pacific, was involved in the general crash but was later
separately reorganized.

To rehabilitate the Northern Pacific Railroad effectively was a
difficult problem. Its debt was enormous; its roadbed and rolling stock
had been neglected; and, as a result of the recent crash, its valuable
feeders on both east and west, the Wisconsin Central and the Oregon
properties, were removed from its control. Besides these adverse
conditions, competition of a serious nature was looming up. James J.
Hill had for many years been quietly developing the Great Northern
Railway. This great system he had financed in an extremely conservative
manner; he had extended it through territory where construction costs
were low; and he had secured control of branches and feeders which might
have come under the sway of the Northern Pacific had that company been
more farsighted. Hill had operated his road from the beginning at
very low cost; he had kept its credit high; and even in the period
of financial depression he had reported large profits and had paid
substantial dividends on his stock. With such a competitor in the field,
it really looked for a while as though the Northern Pacific could have
no future whatever.

Finally, in May, 1895, a plan sponsored by Edward D. Adams, representing
New York interests and those of the Deutsche Bank of Berlin, proposed a
practical merger with the Great Northern Railroad Company: the old stock
and bondholders were to make all the sacrifices and to supply all the
new capital, and the Great Northern was then to be presented with half
the stock of the new company, in consideration for which it was to
guarantee the new Northern Pacific bonds. The situation was somewhat
similar to that which existed in New York State as early as 1868 when
Commodore Vanderbilt had achieved his great reputation as a wizard at
railroading by acquiring the Harlem and Hudson River railroads and by
forcing the New York Central lines to terms. James J. Hill had become a
modern wizard, and the only hope for the Northern Pacific seemed to be
to lay the road at his feet and ask him to do with it what he had done
with the Great Northern--make it a "gold mine."

This plan, however, met with too much opposition and was abandoned.
During the following year a new plan, backed by both the American and
the German interests, secured the strong cooperation and endorsement of
J. P. Morgan and Company. This was the first instance of Morgan's entry
into railroad reorganization in the West. During the previous few
years he had been increasing his reputation as a reorganizer of Eastern
railroad properties, and by this time he had successfully organized or
was rehabilitating the Erie, the Reading, the Baltimore and Ohio, the
Southern, and the Hocking Valley systems. But he had kept clear of the
far Western field and had definitely refused to reorganize the Union
Pacific on the ground that its territory was too sparsely settled and
that there was little hope for its future, especially as its partial
control by the United States Government made any reorganization
extremely difficult. The new plan for the Northern Pacific was carried
out with no regard to the Hill interests: the old stockholders were
heavily assessed; all bondholders were forced to make sacrifices;
the Wisconsin Central lines were entirely eliminated and separately
reorganized; and the Oregon lines were dissociated from the Northern
Pacific and afterwards returned to the control of the new Union Pacific.

While the new Northern Pacific as reorganized in 1898 came directly
under Morgan's control and was immediately classed as a Morgan property,
it did not remain exclusively such for very long. In the promotion and
development of the Great Northern system, Hill had hitherto maintained
an independent position so far as banking alliances were concerned, but
he now began to develop closer relations with the Morgans and
became heavily interested in the First National Bank of New York,
an institution which for many years had been more or less directly
identified with the Morgan interests. On more than one occasion
thereafter the banking firm of J. P. Morgan and Company acted as
financial agent for the Great Northern.

Soon after the reorganization of the Northern Pacific, it became known
that Hill had acquired an important interest in the property, and as
time went on this interest was substantially increased. Within a year or
two the Northern Pacific began to be classed as one of the Hill lines.
With a substantial Hill representation on the board of directors and a
managerial policy which was clearly inspired by Hill, the company now
entered upon a new stage in its career.

The outstanding dramatic event in the story of the modern Northern
Pacific was the famous corner which occurred in the spring of 1901 as a
result of a contest between the Hill and the Harriman interests for the
control of the property. The details of this operation, which sent the
price of Northern Pacific stock up to $1000 a share and precipitated a
stock-market panic, form part of the story of the Harriman lines. The
contest resulted in the formation of the Northern Securities Company, a
corporation of $400,000,000 capital, devised as a holding company under
the joint control of the Hill and Harriman interests, for the purpose of
retaining a majority of the stocks of the Northern Pacific and the Great
Northern.

The Hill interests, jointly with the Morgan control of the Northern
Pacific, had been quietly accumulating stock in the Chicago, Burlington
and Quincy Railroad, and Harriman felt that there was grave danger to
the Union Pacific in this move, as the Burlington had already penetrated
into the Union Pacific territory and might at any time start to build
through to the coast its own line parallel to the Union Pacific.
Harriman consequently began to buy up Northern Pacific stock in the open
market and thus, together with the efforts of the Hill and Morgan people
to retain and strengthen their control, brought about the corner.

The Northern Securities Company was designed to harmonize all interests
and to keep the control of the Burlington property jointly in the hands
of Harriman and Hill. But as the result of a suit under the Sherman
Anti-Trust Act, this combination was declared illegal, and in 1904 the
company was dissolved. The final outcome of the situation was that the
Northern Pacific, sharing with the Great Northern the joint control
of the Burlington lines, was left indisputably in the hands of the
Hill-Morgan group, where it has ever since remained. These three great
railroad systems, the Northern Pacific, the Great Northern, and the
Chicago, Burlington and Quincy, constituting nearly twenty thousand
miles of railroad, have been known ever since as Hill lines.

Since the dramatic days of the Harriman-Hill contest the history of the
Northern Pacific system has been simply a striking reflection of the
growth in population and wealth of the great Northwest. The States
through which it operates have grown with astounding rapidity during
the past two decades; small cities have spread into great centers of
manufacture and trade; hundreds of smaller towns have sprung up; natural
resources of untold value have been developed. In the meanwhile the
Northern Pacific has forged ahead in its earnings and profits, and the
stock of the road has come to be known as one of the highest class of
investment issues. Although new competition appeared, in both the local
and the through business of the company--notably by the extension of the
St. Paul system largely through Northern Pacific territory to the Puget
Sound region--the superior modern business management of James J. Hill,
backed by the strong resources of the Morgan banking interests, made the
Northern Pacific one of the standard railroad systems of America.



CHAPTER VIII. BUILDING ALONG THE SANTA FE TRAIL

The Santa Fe Route, or the Atchison, Topeka and Santa Fe Railroad,
which has in modern times developed into one of the largest and most
profitable railroad systems in this country, was projected long before
the idea of a transcontinental line to the Pacific coast had taken full
possession of men's minds. As early as 1858 a plan was worked out for
the construction of a line of about forty miles within the State of
Kansas to connect what were then the obscure and unimportant townships
of Atchison and Topeka. At that time not a mile of railroad had been
built in Kansas or in any Territory west of that State, except on
the Pacific coast, to which there had been an enormous immigration
occasioned by the wonderful discovery of gold.

The outbreak of the Civil War delayed the undertaking of the
Atchison-Topeka line, and nothing more was done until 1868. In that year
new interests took control of the enterprise and acquired rights for its
extension through southwestern Kansas in the direction of Santa Fe,
the capital of the Territory of New Mexico. The company, which had
originally been the Atchison and Topeka, now changed its name to the
Atchison, Topeka and Santa Fe and obtained from the Government a very
valuable land grant of 6400 acres for every mile constructed, the only
condition being that within ten years the line should be completed from
Atchison to the western border of Kansas. The plan involved the building
of only 470 miles of road, which when finished would assure the company
nearly three million acres of land within the State of Kansas.

A decade would seem to be ample time for the construction of this
comparatively short railroad, particularly with the inducement of so
extraordinary a land grant. Not only the Union Pacific but the Central
Pacific and Kansas Pacific--all built within this decade--had to
accomplish far more construction in order to secure their respective
grants, and yet they had their complete lines in operation years before
the Santa Fe had fifty miles of track in actual commission. The reason
for this delay was of course a financial one. The other roads had
all received government aid in cash or securities in addition to land
grants. But the Atchison line was, from the start, thrown on its own
resources in raising capital, and it was not until late in 1869--nearly
a year after the opening of the Union Pacific to the coast--that any
construction work whatever was done. In that year the section from
Topeka to Burlingame, consisting of about twenty-eight miles, was opened
for traffic, and a year later the extension to Emporia was finished,
thus making a total of sixty-one miles under operation.

The terms of the land grant provided that the entire line across Kansas
should be completed by June, 1873. When by 1872 only sixty-one miles of
track had been built, the company still had over four hundred miles to
go within ten months if it expected to obtain the land grant. But so
energetically did the owners of the property work from that time on that
within seven months they had reached the eastern boundary of Colorado
and had thus saved the grant.

But like most of the Western railroads built in those early days the
Santa Fe property was, in a sense, ahead of its time. The rapidity with
which it shot across the State of Kansas in 1872 was equaled only by the
promptness with which it fell into financial straits. No sooner had its
complete line been opened for traffic than the panic of 1873 occurred;
the company became embarrassed by a large floating debt; and a
compromise had to be made with the bondholders whereby a postponement of
a year's interest was arranged.

No attempts were made to extend the Santa Fe during the long period of
depression following the panic of 1873. The road ended in 1872 at the
Colorado state line, and during the next few years the only building of
importance was a western spur to connect with the Denver and Rio Grande
at Pueblo, thereby giving an outlet to the growing city of Denver
and the rapidly developing mining regions of Colorado. About 1880,
construction was resumed in a leisurely way, down the valley of the
Rio Grande into New Mexico and in the direction of Albuquerque. In this
extension, as in later building, the line of the old Arizona trail was
usually followed. One writer has declared that "the original builders of
the Atchison followed the line of the Arizona trail so religiously that
if the trail skirted a ten-foot stream for a quarter of a mile to strike
a shallow spot for fording, the railroad builders did likewise, instead
of bridging the stream where they struck it, and where the trail ran
up a tree or hid in a hollow rock to avoid the wolves or savages, the
railroad did the same!"

The traveler of a generation ago over this particular section of
the Santa Fe lines might have felt that there was some truth in this
criticism; but the Atchison has long since cut out these idiosyncrasies
of early construction, and the main line in this section of New Mexico
is now noted for alinement and absence of curves and grades.

The builders of the Santa Fe lines in the early days no doubt planned
ultimately to penetrate to the Pacific coast, knowing that the real
opportunity for the road lay in that direction. The Southwest was yet
but sparsely settled; and no railroad which had as its objective the
plains or alkali deserts of Arizona or New Mexico could thrive--at least
it could not for decades to come. And yet in the early eighties the real
objective of the Atchison system had not been determined. Having
passed its original objective point, Santa Fe, the road had reached
Albuquerque, but it could not afford to stop there. Through traffic it
must have or die. New Mexico, with its thin population and its total
lack of development, could not supply traffic in sufficient amount even
to "feed the engines."

To extend somewhere, then, was an imperative necessity. But whither?
Several routes were under consideration. The Southern Pacific lines had
worked eastward to El Paso on the Mexican border, several hundred
miles due south from Albuquerque, and it looked feasible to extend the
Atchison to that point and arrange a traffic agreement with the Southern
Pacific, or to build an extension through New Mexico to Deming and then
westward along the river valleys and down into Mexico to Guaymas on
the Gulf of California. It was possible, in the third place, to build
directly west from Albuquerque through Arizona and Southern California
to the coast. Ultimately all of these plans were carried out.

The first extension of the Santa Fe was to Deming, New Mexico, where
in March, 1881, its tracks met those of the Southern Pacific, and by
agreement the company secured the use of the Southern Pacific to Benson,
Arizona. From the first this new through route to the Pacific began to
pay handsomely. Later on the line into Guaymas, Mexico, was added by the
purchase of the Sonora Railway. Soon afterward the Santa Fe secured from
the St. Louis and San Francisco Railway a half interest in the charter
of the Atlantic and Pacific, a company which planned to build through to
the coast. Meanwhile the St. Louis and San Francisco had been acquired
by the Gould and Huntington interests, which, as the owners of the Texas
and Pacific and the Southern Pacific systems, naturally opposed the
plans of the Santa Fe. The matter was compromised by the agreement of
the Santa Fe to build no farther west than the Colorado River, where the
Santa Fe was to be met by an extension of the Southern Pacific line from
Mojave, California.

This arrangement proved unprofitable to the Santa Fe, for the Southern
Pacific naturally diverted traffic to El Paso and Ogden. A new
arrangement was accordingly made in 1884, involving the purchase, by the
Atlantic and Pacific, of the Southern Pacific division between Needles
and Mojave, the obtaining of trackage rights between Mojave and
San Francisco, and the use of the Southern Pacific terminals at San
Francisco. To assure a connection with the coast in Southern California,
the Santa Fe built a line to Colton, acquired the California Southern
Railway from Colton to San Diego, and effected an entrance to Los
Angeles by leasing the Southern Pacific tracks from Colton.

The Santa Fe had now reached the Pacific coast over its own lines, but
it was handicapped by poor connections with the East. Its next move
therefore was eastward to Chicago, where it acquired the Chicago and
St. Louis Railroad between Chicago and Streator, Illinois, and then
constructed lines between the latter point and the Missouri River.
During the same year the company opened branches southward to the Gulf
of Mexico, until by May, 1888, the entire system comprised 7100 miles.

This rapid expansion of the property, combined with extravagance in
management and a reckless policy in the payment of dividends, brought
the company into financial difficulties within a year after the
completion of the system. Unprofitable branches had been built, and
these had become an immediate burden to the main system. It is the same
story that has been told of most of the large railroads of those days.
Strenuous efforts were made to save the property from a receivership,
and a committee was appointed in September, 1889, to devise ways and
means of reform and reorganization.

The new management of the Santa Fe was a rational one and substantially
reduced the obligations of the road. Had its spirit been maintained, a
second failure and reorganization a few years later would not have been
necessary. New interests, however, came into the property, and, though
it was hoped that they would support a conservative policy, the former
programme of expansion was resumed until in 1890 the St. Louis and San
Francisco system was merged with the Santa Fe on a very extravagant
basis. Within a year it was clear that the St. Louis and San Francisco
would prove more of a liability than an asset. During the same time the
less important purchase of the Colorado Midland Railway also turned out
to be a poor investment.

The next four years were marked by more bad financial management
which culminated in the failure of the reorganized company. In 1892 an
exchange of income bonds for fixed interest-bearing bonds so increased
the fixed charges of the company that, as a result of the panic of 1893
and its ensuing depression, the great Santa Fe system suddenly found
itself in the hands of a receiver. The president, John W. Reinhart, had
persistently asserted throughout 1893 that the company was financially
sound; but an examination of its books subsequently made in the interest
of the security holders disclosed gross irregularities, dishonest
management, and manipulation of the accounts.

During the year 1894 the property was operated under the protection
of the courts, and early in 1895 a new and comprehensive scheme of
reorganization was carried out. This latest plan involved dropping the
St. Louis and San Francisco system, the Colorado Midland, and all other
unprofitable branches; it wiped out the floating debt; it supplied
millions of new capital; and it enabled the succeeding management at
once to build up and improve the property.

At the head of the new company was placed Edward P. Ripley--a railroad
manager of great executive ability and a practical, broad-minded
business man of the modern type, who has ever since remained president
of the road. The history of the Santa Fe since 1895 has been closely
identified with Ripley's business career, and its record during these
two decades has been an enviable one. Steady progress from year to
year in volume of business, in general development of the system,
in improvement of its rights of way, terminals, and equipment, has
characterized its history through periods of depression as well as
times of prosperity. Its resources have grown to vast totals; its credit
equals that of the best of American railroads; its stocks and bonds are
prime investments; and each year it pours millions of dollars of profits
into the hands of its stockholders.



CHAPTER IX. THE GROWTH OF THE HILL LINES

The States which form the northern border of the United States westward
from the Great Lakes to the Pacific coast include an area several times
larger than France and could contain ten Englands and still have room
to spare. The distance from the head of the Great Lakes at Duluth to the
Pacific coast in the State of Washington is greater than the distance
from London to Petrograd or the distance from Paris to Constantinople,
and three times the distance from Washington, D.C., to Chicago.

Fifty years ago these States, with the single exception of Wisconsin,
were practically a wilderness in which only the Indian and buffalo gave
evidences of life and activity. No railroads penetrated the forests
or the mountain ranges. Far southward some progress in the march of
civilization had been made; the Union Pacific had linked the West with
the East before the eighth decade of the century began, and the Northern
Pacific project was being painfully pushed through the intermediate tier
of States during the seventies. But the material resources of the Great
Northwest had still to be discovered.

When the Northern Pacific Railway failed in 1873, the crash involved a
little railroad known as the St. Paul and Pacific, running out of St.
Paul for a couple of hundred miles westward, with a branch to the north
joining the Northern Pacific at Brainerd, Minnesota. The St. Paul and
Pacific had been acquired in the interest of the Northern Pacific some
years earlier but was now regarded as a property so worthless that
its owners would be glad to get rid of it, if only they could find a
purchaser rash enough to take it over.

During the three years following the panic of 1873 the crops of
Minnesota were practically eaten up by the grasshoppers, and poverty
reigned among the farmers. At that time a short, stocky man with long
hair, one blind eye, and the reputation of being the greatest talker
in town, kept a coal and wood store in St. Paul. His name was James J.
Hill. For years he had been a familiar figure, sitting in his old chair
in front of his store and discoursing on current events. This man was
not only an interesting talker; he was a visionary, a dreamer--and
one of his dreams was to buy the St. Paul and Pacific Railroad and to
transform it into a real railway line. Nearly twenty years had passed
since he had drifted in, an eighteen-year-old Scotch-Irish boy from
Ontario, and had begun work in a steamship office on the levee at St.
Paul. Now, in 1876, he was thirty-eight years old and a town character.
And the town felt that it had his measure. He had already tried
a variety of occupations, and at this time was agent for lines of
steamboats on the Mississippi and the Red River. Everybody knew him
and liked him, but no one took him very seriously. The idea of his
controlling the St. Paul and Pacific was even amusing.

Now the most promising part of the St. Paul and Pacific when it failed
in 1873 was the line from St. Paul to Breckenridge on the Red River.
Hill was the Mississippi steamboat agent at one end; at the other, an
old Hudson Bay trader, Norman W. Kittson, ran two little old stern-wheel
steamboats from Breckenridge to Winnipeg. A large part of the freight
that Hill and Kittson handled was for the Hudson's Bay Company. It
came up the Mississippi, went across on the St. Paul and Pacific to
Breckenridge, and then down the Red River on Kittson's steamboats until
it was received at Fort Garry, Winnipeg, by Donald Alexander Smith, then
commissioner for the Hudson's Bay Company.

Smith, who became afterwards Lord Strathcona and High Commissioner for
Canada in England, was a tall, lean, urbane Scotchman with a soft manner
and a long red beard. In 1876 he was fifty-six years old, with a life of
strange, wild adventure behind him. He had gone when little more than a
boy to Labrador to take charge of a station of the Hudson's Bay Company.
Among the northern Indians he stayed for thirteen years. In the sixties
he was practically king over all the savage territory of the company
along the waters entering Hudson Bay. By the seventies he was a man of
means and he had some influence in the new Dominion of Canada.

It would be a great advantage to Smith to have a good railroad from St.
Paul to Winnipeg as the Red River boats were frozen up in the winter
and the service on the St. Paul and Pacific, under the receiver, was
impossible. So Smith listened with favor to Hill's project of getting
hold of the St. Paul and Pacific and making a real railroad out of it.
And whenever Smith went to Montreal he talked the matter over with his
cousin George Stephen--later Lord Mount Stephen--who was the head of
the Bank of Montreal. In 1877 Stephen and Richard B. Angus, the general
manager of the Bank, went to Chicago on business. While there, they had
two weeks' time on their hands, and tossed a penny to decide whether
to run down to St. Louis or up to St. Paul. The penny sent them to St.
Paul. "I am glad of that," said Stephen; "it will give us a chance
to see the prairies and look over that St. Paul and Pacific road that
Donald Smith is always talking about."

When they arrived in St. Paul, James J. Hill took them over the line
to Breckenridge. The country had been scoured by the grasshoppers and
looked like the top of an old rusty stove. But Stephen was a broad-minded
man, wise enough to know that the pest of grasshoppers could not last
forever. He was greatly impressed with the ultimate possibilities of the
soil and, under the hypnotic influence of Hill's eloquence, became quite
enthusiastic over the scheme for getting hold of the railroad; but, as
it would evidently involve millions, he didn't see how it could be done.

The road had originally been financed by bonds sold largely in Holland,
and to do anything at all it was necessary to get in touch with these
Dutch bondholders. In 1877 Stephen went over to Amsterdam and secured an
option on the bonds at thirty cents on the dollar--less than the accrued
interest which was due and unpaid on them. He then came back to America,
conferred with John S. Kennedy at New York, who represented both Dutch
and American bondholders, and brought Kennedy into the combination.

In the spring of 1878 the St. Paul and Pacific was taken over. People
still smiled at Hill and wondered how he had induced a hard-headed bank
president like Stephen to put up the money. Nobody in St. Paul believed
in the future of the road. Even the syndicate's attorneys, when offered
a choice between taking $25,000 in cash or $500,000 of the new road's
stock for their services, preferred the cash. Had they taken the stock
and held it for thirty years, they would have had, in principal and
interest, some $30,000,000.

To the surprise of everybody, including Hill and his friends, the
grasshoppers suddenly disappeared in the early summer of 1877 and never
came back. That summer saw the biggest wheat crop that had ever been
harvested in Minnesota. "Hill's Folly," as it was afterwards called,
with its thirty locomotives and few hundred cars, was feverish with
success. Hill worked every possible source to get extra cars and went
all the way to New York to buy a lot of discarded passenger coaches
from the Harlem Railroad. By the end of the season it was evident to
everybody that the St. Paul and Pacific was going to have a career and
that "Jim" Hill's dream was coming true.

Immediately the fortunate owners began to plan for the future. They had
acquired the road at an initial cost of only $280,000 in cash. In the
following year they advanced money for the completion of the unfinished
section, as necessary to obtain the benefit of a generous grant of land
from the State. Then, in 1879, having acquired full possession of the
property, and having several millions of dollars in profits, they issued
bonds for further developments. This gave them sufficient basis to
enlarge their scheme greatly, and in the formation of the St. Paul,
Minneapolis and Manitoba Railroad, they created $15,000,000 of stock,
which was divided equitably among Hill, Stephen, Angus, Smith, Kennedy,
and Kittson. This stock was all "water," but the railroad prospered so
extraordinarily in the succeeding few years that by 1882 the stock was
worth $140 a share. And in 1883 they issued to themselves $10,000,000
of six per cent bonds for $1,000,000--a further division of $9,000,000,
coming out of nothing but good will, earning power, and future
prospects.

The decade from 1880 to 1890 witnessed a steady growth of the system
formed in 1879 under the name of the St. Paul, Minneapolis and Manitoba.
The 600 odd miles which it embraced when Hill and his coterie made their
big stock division had grown in 1890 to 2775 miles. It then consisted of
a main line reaching from St. Paul and Minneapolis across Minnesota and
the northern part of North Dakota, far into Montana, with a second main
line from Duluth across Minnesota to a junction with the St. Paul line
in North Dakota, besides numerous branches reaching points of importance
in both these States.

But the development of the Hill properties had by no means reached its
limit at this time. Hill's dream had been to construct a through line
across the northern tier of States and Territories to the Pacific, and
this plan had been constantly in his mind while he was building up
the system in Manitoba. The original line running up into Manitoba and
reaching Winnipeg was all very well as a start. It had paid so well that
the original group of men had become millionaires almost overnight. But
Hill meant to show the public that, after all, the early success was
only an incident and merely a stepping-stone to the really great thing.

Practical railroad men everywhere ridiculed the idea of a railroad
running across the far northern country, climbing mountain ranges,
traversing hundreds of streams and extending for great stretches through
absolutely wild and uninhabited regions. Especially did they deem it
absurd to attempt such an undertaking without government aid, subsidies,
or grants of land, pointing to the experience of such roads as the
Union Pacific, Northern Pacific, and Santa Fe. All these had received
financial assistance and large land grants, and yet all had gone through
long periods of financial vicissitude before they had become profitable
and stable enterprises.

But Hill was more farseeing than his critics. In 1889, the name of the
company was changed to the Great Northern Railway, and under this title
the extension to the coast was rapidly carried forward and was opened in
the panic year of 1893. When all the other transcontinental lines
went into bankruptcy, Hill's road not only kept out of the courts but
actually earned and paid annual dividends of five per cent on its stock.
The five years from 1896 to 1901 were years of uninterrupted prosperity
for the Great Northern Railroad. Each year its credit rose; each year
it grew to be more of a force in the Western railway situation. In these
years the control of the property had somewhat changed and a few of the
original promoters had died or had withdrawn. But Hill, Lord Strathcona,
Lord Mount Stephen, and John S. Kennedy of the original group, all held
their large interests, and Hill in particular had added to his holdings
as the years had gone by.

The secret of Hill's striking success with his Western extension was the
method by which the line was constructed. Hill had a theory that it was
far better to go around mountains and avoid grades than to climb them or
to bore through them; it was always better to find the route which would
make long hauls easy and economical. He thus built his road with the
idea of keeping down the operating costs and of showing a larger margin
of profit than the others. From the very start the Great Northern was
noted for its low ratio of operating expenses and its comparatively long
trains and heavy trainloads. It was by this method that it really made
its money.

By the year 1901 the Great Northern Railway absolutely controlled its
own territory. But it was still handicapped by lack of an independent
entrance into Chicago, as its eastern lines terminated at Duluth and
St. Paul. At the western end also, the situation was unsatisfactory.
It seemed important for the Great Northern to control a line of its own
into Portland, Oregon, because the Northern Pacific Railroad, which, as
we have seen, had been reorganized several years before by the
Morgan interests, had been rapidly extending its lines in Oregon and
Washington. Hill and his associates, therefore, had been quietly buying
a substantial interest in the Northern Pacific property and thus, in the
course of time, had come into closer relations with the Morgan group in
New York. Soon afterward, under Hill's influence, the Northern Pacific
began the construction of further extensions in Oregon and reached into
territory that the Harriman interests in the Union Pacific Railroad
had regarded as their own. This move created much friction between the
Harriman and Hill groups, and in order to forestall danger Harriman
in turn began quietly accumulating an interest in the Northern Pacific
property by purchases in the open market.

The story of the battle royal between the Hill and Harriman interests
will be told in a subsequent chapter. It is not necessary to repeat the
history of the famous corner of 1901 nor of the compromise effected by
the formation of the Northern Securities Company. The final result
of this contest was the complete harmonizing of the Western railroad
situation, so far as the Hill and the Harriman interests were concerned.
In the succeeding years the Great Northern system penetrated to the
heart of Manitoba and constructed lines through British Columbia to
Nelson and Vancouver. It built other branches to Spokane, Washington,
and Helena and Butte, Montana. Moreover by the discovery of extensive
ore deposits on the lines of the company in northern Minnesota and by
subsequent purchases of other mines, the Great Northern acquired control
of about sixty-five thousand acres and hundreds of millions of tons
of iron ore. All the properties so controlled were leased on a very
profitable basis to the United States Steel Corporation. The Great
Northern Railroad itself did not retain control of the ore lands
but, through a trusteeship, gave a beneficial interest in them to its
stockholders in the shape of a special dividend.

The profits under this lease promised to be very large in the course
of time, but the Steel Corporation had the option to cancel after
a five-year period, and in 1912, as the result of a United States
Government suit for the dissolution of the Steel Corporation, the
lease was canceled. Since that time the trustees of the ore lands have
executed other leases, and the Great Northern ore certificates are
bringing in a substantial return to their owners.

The three Hill lines--the Great Northern, the Northern Pacific, and
the Chicago, Burlington and Quincy--have been unusually profitable.
The Great Northern and the Northern Pacific have steadily paid liberal
dividends to their stockholders on increasing amounts of capital stock;
and the Burlington, whose whole stock is owned by these two roads,
has also handed over liberal profits year by year, at the same time
accumulating an earned surplus of more than one hundred million dollars
and spending an almost equal amount of profits on the improvement and
maintenance of the property. The Burlington today controls the Colorado
Southern, which extends southward from the Burlington lines in Wyoming,
passing through Denver, Pueblo, Fort Worth, and other points southward
to the Gulf.



CHAPTER X. THE RAILROAD SYSTEM OF THE SOUTH

In the year 1856 a small single-track railroad was opened from Richmond
to Danville, Virginia. This enterprise, like many others in ante-bellum
days, was carried out largely with funds supplied by the State. As long
afterwards as 1867, three-fifths of the stock was owned by the State of
Virginia, but soon after this time the State disposed of its investment
to a railroad company operating a line in North Carolina from Goldsboro
westward to Greensboro, and projected southward to Charlotte. In modern
times, this little road, like the Richmond and Danville, has become an
integral part of the Southern Railway system, but in those days it was
controlled, curiously enough, by the Pennsylvania Railroad Company.

After 1867 the new owners of the Richmond and Danville began
aggressively to extend their lines. By leasing the North Carolina
Railroad, a small property forming a link with the Greensboro line, they
created a through route from Richmond to Charlotte. By 1874 they had
built the road southward to Atlanta, Georgia, and had thus formed
the first continuous route from Richmond to that city. Because of the
extreme disorder and depression in the South during the years after the
Civil War the line did not prosper and was sold under foreclosure
about 1875. But the company was reorganized in 1878 and acquired the
Charlotte, Columbia and Augusta, thus extending its lines into the heart
of South Carolina and tapping a rich territory. During these early years
the Pennsylvania Railroad interests, which still held control, supplied
the funds necessary for making improvements.

At the same time that the Richmond and Danville was linking up
the commercial centers of the southern Atlantic seaboard, another
system--known as the East Tennessee, Virginia and Georgia--was being
built up in the Appalachian Mountains to the west. This property and its
predecessors had to some extent been state-owned enterprises at first,
but in 1870 the Pennsylvania Railroad interests acquired control. A
holding company called the Southern Railway Securities Company was now
formed for the purpose of controlling all the Pennsylvania Railroad
interests south of Washington. Besides the properties mentioned,
this Securities Company soon obtained several other Atlantic seaboard
properties extending from Richmond to Charleston, and also the Memphis
and Charleston Railroad, running from Memphis to Chattanooga.

Thus at this early day a considerable railroad system had been welded
together in the South, reaching many points of importance and forming
direct connection at Washington with the northern properties of the
Pennsylvania system. Had this experiment been successful, we would
perhaps today reckon the great Southern Railway system as part of the
Pennsylvania group. But the outcome was disappointing; the roads did not
prosper; and soon the poorer sections began to default. The Pennsylvania
then disposed of its interests and left the roads to shift for
themselves.

The East Tennessee was the best of these minor lines, and in 1877
it began to acquire others extending through the South. Soon it had
penetrated the heart of Alabama, reaching what is today known as the
Birmingham district. Additional extensions were made to Macon and Rome,
Georgia, and on the north an alliance was arranged with the Norfolk and
Western, while with a view to securing some of the business of the West,
a connection was constructed at Kentucky-Tennessee state line. Such was
the condition of the East Tennessee property by the end of 1881. In the
meantime the Richmond and Danville had practically stood still.

About this time a definite revival set in throughout the South as the
long-drawn-out period of depression following the war came to an end.
Railroad activity revived, and both the East Tennessee, Virginia and
Georgia and the Richmond and Danville roads passed into the hands of new
and more aggressive interests. The new owners constructed the Georgia
Pacific, which ultimately stretched across Alabama and Mississippi.
To finance this enterprise and to consolidate their interests, a new
holding company--the Richmond and West Point Terminal Railway and
Warehouse Company--was formed in 1881 with large powers and authority
to acquire the stocks and bonds of railroad properties in many Southern
States. In addition to the properties already named, the Virginia
Midland Railway was now acquired, and by 1883 the entire system had been
merged under this organization. The company also secured the control of
a line of steamboats running from West Point, Virginia, to Baltimore,
and made close traffic arrangements with the Clyde line of steamers
running between New York and Philadelphia and all important Southern
points.

The personality at the head of the Richmond and West Point Terminal
Railway and Warehouse Company was Calvin S. Brice, a man who had become
increasingly prominent in railway affairs in the Southern States. Brice
was something of a genius at combination and by 1883 had linked together
and solidified the various properties in a very efficient manner.
Nevertheless the competitive conditions of the time, combined with
the necessarily more or less crude and hazardous methods adopted in
financing and capitalizing the enterprise, prevented the credit of
the organization from reaching a sound and secure level. The Tennessee
properties especially proved an encumbrance, and they were almost
immediately threatened with bankruptcy. Brice therefore decided to
reorganize these subsidiary lines, and a new company called the East
Tennessee, Virginia and Georgia Railway took over this section of the
system in 1886.

In the meanwhile the Richmond and Danville properties, which were
themselves becoming burdened with an ever growing debt, gave the Brice
interests constant trouble. A large amount of the stock of the Richmond
and Danville, as well as most of its bond issues, remained still
outstanding in the hands of the public. Consequently the only way
in which Brice and his friends could save the Richmond and Danville
property from completely breaking up was to merge it more closely with
the holding company in some way. But the credit and standing of the
holding company itself were anything but high, for in addition to paying
no dividends it had piled up a heavy floating debt of its own and had a
poor reputation in Wall Street.

The situation thus becoming acute, the management carried through a
remarkable stock-juggling plan. Instead of merging the Richmond and
Danville directly into the West Point Terminal Company, the directors
secretly decided to turn the Terminal Company assets over to the
Richmond and Danville without apprising the stockholders of the Terminal
Company. In conformity with this plan, early in 1886 the Richmond and
Danville leased the Virginia Midland, the Western North Carolina, and
the Charlotte, Columbia and Augusta railroads, and later in the year the
Columbia and Greenville and certain other small lines. At about the
same time the Richmond and Danville obtained in some unknown way large
amounts of the Terminal Company stock, a portion of which it now
issued in exchange for stocks and bonds of certain of these subsidiary
companies which it had leased. Having carried through these transfers,
the Richmond and Danville then threw the remainder of its Terminal
Company stock on the market, where it was bought by investors who knew
nothing about these secret transactions.

The Terminal Company was now left high and dry so far as the Richmond
and Danville was concerned. But at this juncture a surprising thing
happened. The management of the Terminal Company, in its turn, began to
buy shares of Richmond and Danville stock and in a short time regained
its former control. This shifting of power exactly reversed the
situation which had previously existed, when the Terminal Company itself
had been controlled by the Danville Company. These changes were followed
by a further move on the part of the Brice and Thomas interests,
which now formed a syndicate and turned over to the Terminal Company a
majority of the stock of the East Tennessee Company for $4,000,000 in
cash and a large amount of new Terminal Company stock.

When these transactions had been accomplished, the Terminal Company
found itself once more securely in control of the entire system, and the
Brice and Thomas interests had incidentally very considerably increased
their fortunes and also their hold on the general situation. From this
time, the Terminal Company went aggressively forward in an ambitious
plan for further expansion. By acquiring control of the Central Railroad
and Banking Company of Georgia, the Terminal management was involved
with new financial interests which immediately sought to control the
system and to eliminate the Brice and Thomas group. The consequent
internal contest was adjusted, however, in May, 1888, by electing as
president John H. Inman, a man who had been identified with the Central
Railroad of Georgia system.

The Richmond Terminal system now put in motion further plans for
expansion. In 1890 it acquired a system of lines extending south from
Cincinnati to Vicksburg and Shreveport, known as the Queen and Crescent
route, and in the meantime made a close alliance with the Atlantic Coast
Line system. By the end of 1891 the Richmond Terminal system embraced
over 8500 miles of railroad, while the Louisville and Nashville, the
next largest system in the Southern States, had only about 2400 miles.

But as 1891 opened, the vast Richmond Terminal system was perilously
near financial collapse. Notwithstanding the great value of many of
the lines, its physical condition was poor; the liabilities and
capitalization were enormous; and much of the mileage was distinctly
unprofitable. About this time many disquieting facts began to leak out:
during the previous year the Richmond and Danville had been operated at
a large loss, and this fact had been concealed by deceptive entries on
the books; the dividends, paid on the Central Railroad of Georgia stock
had not been earned for some years; and the East Tennessee properties
were hardly paying their way.

Various investigating committees were now appointed, and finally a
committee headed by Frederic P. Olcott of New York took charge and
worked out a complete plan of reorganization. The scheme, however, met
with strenuous opposition, and thus matters dragged on into the panic
period of 1893, when the entire system went into bankruptcy and into
the hands of receivers. The various sections were operated separately
or jointly by receivers during this unsettled period, and it looked for
some time as though an effective reorganization which would prevent
the properties from entirely disintegrating could not be successfully
accomplished.

In the dark days of 1893, after Olcott and the Central Trust Company had
failed to effect a reorganization of the Richmond Terminal system, a new
interest came to the rescue, represented by the firm of J. P. Morgan and
Company, whose growing reputation was due to the unusual personality
of J. P. Morgan himself. He was essentially an organizer. The railroad
properties which had become more or less identified with the Morgan
interests had for the most part prospered. It was felt that Morgan's
banking-house was the only one in Wall Street which might be equal to
the task. The proposal was made to him; he did not invite it. In fact,
it is said that for some time he was much opposed to taking hold of this
disintegrated and broken-down system of railroads operating largely in
poor and unprogressive sections, populated for the most part by negroes.
Said Morgan, "Niggers are lazy, ignorant, and unprogressive; railroad
traffic is created only by industrious, intelligent, and ambitious
people."

After months of discussion, however, Morgan finally agreed to undertake
the task, and out of the previous chaos there emerged the Southern
Railway Company, which has been closely identified with Morgan's
name ever since. Probably of the many railroad systems which Morgan
reorganized from 1894 down to the time of his death, no system has
become more distinctly a Morgan property than the Southern Railway
Company.

The plan of reorganization whereby this great aggregation of loosely
controlled and poorly managed Southern railroads was welded together
into an efficient whole was a very drastic one in its effect on the old
security holders. Debts were slashed down everywhere, assessments
were levied, and old worthless stock issues were wiped out. Valueless
sections of mileage were lopped off, and an effort was immediately made
to strengthen those of real or promising value. Millions of dollars
of new capital were spent in rebuilding the main lines; terminals
of adequate scope were constructed in all centers of population; and
alliances were made with connecting links with a view to building up
through traffic from the North and the West.

The first ten years of the Southern Railway system under the Morgan
control were practically years of rebuilding and construction. While
after ten years of work the main system still radiated through most
of the territory already occupied in a crude way in 1894, yet it had
acquired a large number of feeders and smaller railroads in other
sections. The Mobile and Ohio, operating with its branches about one
thousand miles from Mobile to St. Louis, Missouri; the Georgia Southern
and Florida, furnishing an important connection from the main system
to various points in the State of Florida; the Alabama Great Southern,
operating in and near the Birmingham district of Alabama--all these
properties were molded into the system during these years. The system
was then rounded out toward the North and consolidated through joint
control, with the Louisville and Nashville, of the Chicago, Indianapolis
and Louisville Railroad, which operated lines northward into Ohio
and Illinois and on to Chicago. Thus, with the lines of the Queen and
Crescent route running southward from Cincinnati to New Orleans, the
system secured a direct through line from its various southern points to
the shores of the Great Lakes.

In addition to these developments, the management of the Southern
Railway system arranged direct connection with Washington through the
joint acquisition with other lines of the Richmond, Fredericksburg and
Potomac; it made traffic arrangements with the Pennsylvania and the
Baltimore and Ohio systems to Baltimore, Philadelphia, and New York; and
it also developed close alliances with the coastwise steamships plying
northward from various Southern points.

In the reorganization of 1894 the Central of Georgia Railway system
was cut off and separately reorganized, although it remained under the
control of Morgan for a number of years. Finally in 1907 Morgan sold
his Georgia properties to Charles W. Morse. They subsequently passed to
Edward H. Harriman, who afterwards merged them into the Illinois Central
system, under which control they have since remained.

As compared with the old Richmond Terminal aggregation with its
broken-down rails and roadbed, poor equipment, and miserable service,
the modern Southern Railway system shows startling changes. The Southern
States have grown enormously in population and wealth during the last
generation; the industrial activities of the South at the present time
are elements of large importance to the country as a whole. Cities have
vastly increased in population; new towns and manufacturing districts
have been built up; and at the present there is scarcely a mile of
unprofitable railroad in the entire 9000 miles under operation. In
recent years large soft coal deposits have been discovered and developed
on many of the branch lines, and today the coal tonnage of the Southern
Railway is exceeding the relatively unstable lumber tonnage of two or
three decades ago.



CHAPTER XI. THE LIFE WORK OF EDWARD H. HARRIMAN

In a previous chapter there has been related the early history of the
great line that first joined the Atlantic and the Pacific Oceans--the
Union Pacific. But the history of this property in recent years is
almost as startling and romantic as its story in the sixties and
seventies. It was not until recent days that the golden dreams
entertained by these early builders came true. The man who really
reaped the harvest and who at the same time gave the Union Pacific that
position among American railroads which its founders foresaw was the
last, and some writers think, the greatest of all American railroad
leaders.

The Union Pacific, a bankrupt railroad in 1893, lay quiescent under the
stress of the hard times that lasted until 1898. The long story of its
tribulations hardly made it a tempting morsel for the men who were
then most active in the railroad field. In 1895 or 1896 the several
protective committees which had been appointed to look after the
interests of stockholders and defaulted bondholders had tried to induce
J. P. Morgan to undertake the reorganization, but he had refused.
To reorganize the Union Pacific meant that not far from one hundred
millions of new capital would sooner or later have to be supplied, and
there was no other banking-house in America at that time which seemed
strong enough for the task. Smaller concerns were all involved in the
Morgan syndicates or in other undertakings, and a combination of these
at the moment seemed out of the question.

About this time the German-Jewish bankinghouse of Kuhn, Loeb and Company
began looking into the situation. Kuhn, Loeb and Company were known as
a very conservative but very rich concern with close connections in
Frankfort and Berlin. Though it had been long established in New York
it had not been identified with the railroad reorganization movement nor
had it been prominent as an investing or underwriting institution.
But now the active partner of the business, Jacob H. Schiff, set
out seriously to persuade the various committees to adopt a plan of
reorganization which he had devised. Though he made some progress,
he soon found much secret opposition and thought that Morgan might be
quietly attempting to secure the property. Morgan, however, was not
interested. The mystery was still unsolved.

The fact was that Edward H. Harriman, who for some years past had been
a powerful influence in the affairs of the Illinois Central Railroad but
who was unknown to the average Wall Street promoter and totally unheard
of throughout the country, had made up his mind to reorganize the
Union Pacific Railroad. He therefore began to work quietly with various
interests in an attempt to tie up the property. But soon he, like
Schiff, encountered serious opposition. He also immediately jumped to
the conclusion that Morgan was secretly at work, and he called on Morgan
for the facts. Morgan replied, as he had replied to Schiff, that he was
not interested, but that he wished Harriman success.

As Schiff continued to meet with difficulty, he soon called on Morgan
again. Again Morgan replied that he was not interested. "But," he said,
"I think if you will go and see a chap named E. H. Harriman you may find
out something."

Who was Harriman? Schiff had hardly heard of him and had never met him.
How could a small man like Harriman, with no money, no powerful friends,
no big financial backing, reorganize a great system like the Union
Pacific Railroad? The idea seemed ridiculous. Nevertheless, as the
opposition continued, Schiff soon got in touch with Harriman. In the
course of a conference, he warned this daring interloper to keep his
hands off the Union Pacific. But Harriman was not moved by threats. On
the contrary, he insisted that Schiff should leave the Union Pacific
alone; that he himself had already worked out his plans to reorganize
it. Schiff laughed at this idea, termed it chimerical, and asserted that
Kuhn, Loeb and Company were easily able to obtain the needed one hundred
millions or more through their foreign connections on a basis of from
four to five per cent, and that in America no such sum of new capital
could at that time be raised through banking activities at better than
six or seven per cent.

Harriman then sprang his surprise on Schiff. For some years he had been
financially interested in the affairs of the Illinois Central. This
property had at that time higher credit than any other American
railroad; it had raised large sums of capital in Europe on as low a
basis as three per cent, and on most of its bonds paid only three and
one-half per cent interest. For nearly fifty years the property had been
paying dividends with hardly an interruption, and altogether it had
an enviable reputation as one of the soundest investments. Harriman's
influence in the affairs of the company had been increasing quietly for
years; the management had been left almost completely in his hands; and
the directors were in effect largely his puppets, and a majority would
do his bidding in almost anything he might propose.

Harriman now announced to Schiff that he intended to have the Union
Pacific reorganized as an appendage of the Illinois Central. The
necessary one hundred millions would be raised by a first mortgage on
the entire Union Pacific lines at three per cent, and the mortgage would
be guaranteed by the Illinois Central, while the latter company would
receive a majority of the new Union Pacific stock in consideration for
giving its guarantee.

Here was a poser for Schiff, who saw at once that if Harriman could use
the Illinois Central credit in this way, he certainly could carry out
his plan. Schiff soon found that Harriman would have no difficulty in
using Illinois Central credit. The upshot of the matter was that the two
men got together and jointly reorganized the Union Pacific. Harriman
was made chairman of the Board of Directors, and Kuhn, Loeb and Company
became the permanent bankers for the new railroad system.

Thus with one bound Harriman had leaped to the forefront in American
railroad finance and by a bold act which was characteristic of the man.
For Edward H. Harriman was not only a hardheaded, practical business
builder who like Morgan thought in big figures, but he was also a bold
plunger, which Morgan was not. Possessing a vivid imagination, he not
only saw far into the future but he also planned far into that same
future. Morgan was also a man of vision, but his vision did not carry
him far beyond the present. The things Morgan saw best were those
immediately before him, while the things that Harriman saw best were at
a distance. Morgan's big plans of procedure were based on what he saw in
a business way in the near future; he reorganized his railroads with the
idea of making them pay their way as soon as possible and of showing a
good return on the capital invested. He thought little of what might be
the outcome a decade or two hence or of what combinations might later
be worked on the chessboard as a result of his immediate moves. Morgan's
mind was not philosophical; it was intensely practical.

While Morgan declined the proffered control of the Union Pacific on the
theory that it was only a "streak of rust" running through a sparsely
settled country and across an arid desert, Harriman dreamed of the great
undeveloped West filling up with people during the following generation,
of the empty plains being everywhere put under cultivation, and of
the arid desert responding to the effects of irrigation on a large and
comprehensive scale. He foresaw the wonderful future of the Pacific
States--the opening up of natural resources in the mountains, the steady
stream of men and women who would ultimately emigrate to this vast
section from the East and from foreign lands and who would build up
towns and great cities. At the same time, with that practical mind of
his, Harriman calculated that the Union Pacific Railroad--situated in
the heart of this huge area, having the most direct and shortest line to
the Pacific, and with all traffic from the East converging over half a
dozen feeder lines to Omaha and Kansas City--would haul enormous
amounts of tonnage just as soon as the Western country revived from the
depression under which it had been struggling for half a dozen years.

When Harriman took hold of the Union Pacific he had already determined
to absorb the Oregon lines, with their tributaries running up into the
Puget Sound country and to the Butte mining district; to get hold of the
Southern Pacific properties at the earliest possible moment; and to link
the Illinois Central in some way to the Union Pacific so that the latter
would have its own independent outlets to Chicago and St. Louis. All
these plans he ultimately accomplished, as well as many others, some of
which his farseeing imagination may have conceived then.

While Harriman was able very promptly to carry through his first scheme
and recapture the Oregon lines, which had been separately reorganized as
a result of the receivership, he found it a far more difficult matter to
secure a dominating interest in the great system of railroads controlled
by Collis P. Huntington. Huntington was a hard man to deal with. Himself
one of the practical railroad magnates of his time, he also had the gift
of vision and undoubtedly foresaw that the ultimate result must be a
consolidation of the properties; but he fully expected that his company
would absorb the Union Pacific. Had it not been that during the panic
period the Southern Pacific had heavy loads of its own to carry and that
its credit was none too high, Huntington might then have attempted to
gain control of the Union Pacific.

Events finally worked to the benefit of Harriman. When Collis P.
Huntington died in 1900, it was in most people's minds only a question
of time as to when the powerful Harriman interests would take over the
Southern Pacific properties. Consequently there was no surprise when
in 1901 announcement was made that the Union Pacific had purchased the
holdings of the Huntington estate in the Southern Pacific Company and
was therefore in virtual control.

By a master stroke the railroad situation in the West had been radically
changed. The Huntington system comprehended many properties of large
and growing value, which were now feeling the full benefit of the
agricultural prosperity at that time spreading throughout the great
Southwest. Aside from this prize, the Union Pacific acquired the main
line to the Pacific coast which it had always coveted and thus added to
its system over nine thousand miles of railroad and over four thousand
miles of water lines, besides obtaining a grip on the railroad empire
of this entire portion of the continent not to be readily loosened by
competitors.

At the same time that Harriman was strengthening his position on the
west and south, the Great Northern and Northern Pacific properties, both
now operated under the definite control of James J. Hill, were following
a policy of expansion fully as gigantic as that of the Union Pacific.
The Great Northern lines operating from Duluth to the Pacific coast had
become powerful elements in the Western railroad situation, and Hill had
devised many plans for diverting to the north the through traffic coming
from the central section of the continent. He had established on the
Great Lakes a line of steamships running from Duluth to Buffalo, and
was also operating on the Pacific Ocean steamship lines which gave him a
connection with Japan, China, and other oriental countries.

After the reorganization of the Northern Pacific Railroad, which fell
under the domination of Morgan, the affiliations of the Hill and Morgan
interests became very close, and in a short time Hill had as secure a
grip on the Northern Pacific as he had always had on the Great Northern.
This powerful combination looked like a menace to the Harriman-Kuhn-Loeb
interests which controlled the territory to the south and radiated
throughout the State of Oregon. When, therefore, the Northern Pacific
began a little later to build into territory in Oregon and Washington
which the Union Pacific regarded as a part of its own preserves, much
bad feeling was engendered between the two interests. Matters were
brought to a climax in the spring of 1901 when the Harriman people
suddenly made the discovery that the Hill-Morgan combination had been
quietly buying control of the valuable Chicago, Burlington and Quincy
Railroad, which operated a vast system west and northwest of Chicago,
penetrated as far into the Union Pacific main-line territory as Denver,
and connected at the north with the eastern terminals of both the Great
Northern and Northern Pacific systems. This move meant but one thing to
Harriman: the Hill-Morgan interests were trying to surround the
Union Pacific and make it powerless, just as the Southern Pacific had
attempted to do many years before.

Harriman now played one of his bold strokes. He immediately began to
purchase Northern Pacific stock in the open market in order to secure
control of that property. It was well known that while the Hill-Morgan
alliance dominated the Northern Pacific, it did not actually own a
majority of the stock, and to secure this majority was Harriman's
purpose. This move would effectually check the invasion of the Union
Pacific territory by giving the Harriman interests a voice in the
control of the Chicago, Burlington and Quincy.

The price of Northern Pacific common stock soared day after day until on
May 9, 1901, it sold at $1000 a share, and a momentary panic ensued. At
the time Morgan was on the ocean and could not be reached. His partners
were apparently not equal to the emergency. But Harriman was. When the
panic reached its height, both interests had purchased far more than a
majority of Northern Pacific stock--in contracts for future delivery.
It was seen that to insist on the delivery of shares which did not exist
would not only bankrupt every "short" speculator, large and small, but
would undoubtedly bring all Wall Street tumbling down like a house of
cards. So, in the midst of the excitement, the two interests reached a
compromise.

The outcome was the formation of the Northern Securities Company with a
capital of $400,000,000, nearly all of which was issued to acquire the
capital stocks of the Northern Pacific and Great Northern railroads.
All the properties, including the Burlington, thus came under the joint
control of the Harriman and Hill groups. The division of territory on
both the east and the west was worked out amicably: the Northern Pacific
abandoned some of its plans for extensions in Oregon, and the Burlington
system remained as it was, with the understanding that no extensions
should be built to the Pacific coast. Later the Burlington acquired
control of a cross-country system, the Colorado Southern, extending
south to the Gulf, but to this day has made no attempt to build beyond
the lines it owned to Wyoming in 1901.

As is well known, the Northern Securities Company was subsequently
declared to exist in violation of the Sherman Anti-Trust Act, and on a
decision of the United States Supreme Court in 1904 it was practically
dissolved and all its securities were returned to the original holders.
This dissolution left the Hill-Morgan interests in undisputed control of
the Burlington properties, but harmonious relations had in the meantime
been established among the contestants, assuring an equitable division
of territory and traffic. The final outcome was that the Union Pacific
Railroad Company, which had purchased with its large surplus and by the
use of its high credit many million dollars' worth of the capital stocks
of the Great Northern and Northern Pacific railroads, received these
stocks back after several years of great prosperity and after
the appreciation in the market values of the stocks had exceeded
$60,000,000. There was no further necessity for holding them and most
of the stocks were sold at the high prices of 1905 and 1906, with actual
net profit for the Union Pacific Railroad in excess of $50,000,000. No
such gigantic financial transaction as this had ever before been carried
through by an American railroad corporation.

With an overflowing treasury in the Union Pacific, Harriman immediately
turned his face toward the East. It had for years been one of his
dreams to control a continuous line of railroad from the Atlantic to the
Pacific. As early as 1902 he had all but completed negotiations for the
acquisition of the New York Central lines in the interest of the Union
Pacific; but this plan had met with opposition from the Vanderbilts
and Morgan and had been dropped. Harriman now took advantage of an
opportunity which presented itself to acquire for the Union Pacific what
was practically a dominating interest in the Baltimore and Ohio, a
large block of whose stock was disposed of by the Pennsylvania Railroad.
Harriman had already largely added to the Union Pacific's holdings in
the Illinois Central. Jointly with the Lake Shore of the Vanderbilt
system, the Baltimore and Ohio had, as already described, acquired a
dominating interest in the Reading Company, including all the latter
company's interests and affiliations as well as its entry into the New
York district through control of the Central Railroad of New Jersey.
Harriman, therefore, by a single stroke, now found himself in practical
possession of a coast-to-coast system of railroads extending all the way
from New York to San Francisco, Portland, and Los Angeles, and passing
through all the important cities of the country. The Illinois Central
system, operating nearly five thousand miles of road southward from
Chicago to New Orleans, passing through St. Louis, with an arm reaching
out to Sioux City on the west and a network of branches covering the
Middle States, had thus become the great link welding together the
eastern and western Harriman systems.

Later the Union Pacific acquired large interests in other properties and
purchased substantial amounts of stock in the Atchison, Topeka and
Santa Fe, the New York Central, the St. Paul, and the Chicago and North
Western railroads. It also acquired a dominating interest in the Chicago
and Alton property, operating from Chicago to St. Louis, with Western
branches. In the panic period of 1907, Harriman personally purchased
from Charles W. Morse, who had acquired the property from Morgan a short
time before, the entire capital stock of the Central of Georgia Railway,
which he later turned over to the Illinois Central. The Central of
Georgia lines connect at several points with the Illinois Central and
have given the system various outlets on the South Atlantic seaboard.

Harriman died in September of 1909, and with his death the wizard touch
was clearly gone. What would have been the later history of the Union
Pacific had he lived can be only conjectured. The new management, with
Judge Robert S. Lovett at its head, continued the broad and efficient
operation which had characterized Mr. Harriman's regime, but it soon
abandoned the policy of further growth and expansion. This alteration in
policy, however, was perhaps more the result of changing conditions than
of relinquishment of Harriman's aims. Many new laws for the regulation
of the railways had been passed, and in 1906 the powers of the
Interstate Commerce Commission were greatly augmented. A period
of reform had now begun, and after 1909 a wave of "progressivism"
overspread the country. New interpretations were given to the Sherman
Act, and suits were soon under way against all the railroads and
industrial combinations which appeared to be infringing that statute.
The great Standard Oil and Tobacco trusts were dissolved in this period,
and a suit which was brought to divorce the Union Pacific and the
Southern Pacific Company was finally decided against the Union Pacific,
with the result that the two big properties were separated. The Union
Pacific turned a large amount of its Southern Pacific stock holdings
over to the Pennsylvania Railroad, in exchange for which it received
from the Pennsylvania the remainder of the Baltimore and Ohio stock
which the Pennsylvania interests had retained after the sale to the
Union Pacific in 1906. Immediately after this, the Union Pacific
management, seeing no particular advantage in retaining an interest in
the Baltimore and Ohio, gave the shares to its own stockholders in a
special dividend.

Thus, since Harriman's death, the Union Pacific Railroad has once more
returned to very much its original condition prior to its acquisition
of the Southern Pacific. It still controls the Illinois Central and
the Chicago and Alton and has investment interests in a large number of
other railroads. It is still the premier system of the West and promises
to remain so indefinitely; but the bold Harriman touch is gone and will
never return.



CHAPTER XII. THE AMERICAN RAILROAD PROBLEM

During the last fifty years the railroad has perhaps been most familiar
to the American people as a "problem." As a problem it has figured
constantly in politics and has held an important position in many
political campaigns. The details that comprise this problem have
been indicated to some extent in the preceding pages--the speculative
character of much railroad building, the rascality of some railroad
promoters, the corrupting influence which the railroad has too
frequently exerted in legislatures and even in the courts. The attempts
to subject this new "monster" to government regulation and control have
furnished many of the liveliest legislative and judicial battles in
American history. Farmers, merchants, manufacturers, and the traveling
public have all had their troubles with the transportation lines, and
the difficulties to which these struggles have given rise have produced
that problem which is even now apparently far from solution.

Railroads had been operating for many years in this country before it
dawned upon the farmers that this great improvement, which many had
hailed as his greatest friend, might be his greatest enemy. It had been
operating for several decades in the manufacturing sections before the
enterprising industrialist discovered that the railroad might not only
build up his business but also destroy it. From these discoveries arose
all those discordant cries of "extortion," "rebate," "competition,"
"long haul and short haul," "regulation," and "government ownership,"
which have given railroad literature a vocabulary all its own and have
written new chapters in the science of economics. The storm center of
all this agitation concerned primarily one thing--the amount which the
railroad might fairly charge for transporting passengers and freight.
The battle of the people with the railroads for fifty years has been
the "battle of the rate." This has taken mainly two forms, the agrarian
agitation of the West against transportation charges, and the fight of
the manufacturing centers, mainly in the East, against discriminations.
Perhaps its most characteristic episodes have been the fight of the
"Grangers" and their successors against the trunk lines and that of the
general public against the Standard Oil Company.

Even in the fifties and the sixties, the American public had its
railroad problem, but it was quite different in character from the one
with which we have since grown so familiar. The problem in this earlier
period was merely that of getting more railroads. The farmer pioneers
in those days were not demanding lower rates, better service, and no
discrimination and antipooling clauses; they asked for the building
of more lines upon practically any terms. This insistence on railroad
construction in the sixties explains to a great extent the difficulties
subsequently encountered. In a large number of cases railroad building
became a purely speculative enterprise; the capitalists who engaged in
this business had no interest in transportation but were seeking merely
to make their fortunes out of constructing the lines. Not infrequently
the farmers themselves furnished a considerable amount of money,
expecting to obtain not only personal dividends on the investment but
larger general dividends in the shape of cheap transportation rates and
the development of the country. Even when the builders were more
honest, their mistaken enthusiasm had consequences which were similarly
disastrous. The simple fact is that a considerable part of the
Mississippi Valley, five or ten years after the Civil War, found itself
in the possession of railroads far in excess of the public need. In the
long run this state of affairs was probably not a great economic evil,
for it stimulated development on a tremendous scale; but its temporary
effect was disastrous not only to the railroads themselves but to the
struggling population. The farmer had mortgaged his farm to buy stock
in the road; and his town or county or State had subsidized the line by
borrowing money which it frequently could not repay. When this property
became bankrupt, not only wiping out these investments but leaving the
agricultural population at the mercy of what it regarded as exorbitant
rates and all kinds of unfair discriminations with high interest charges
on its mortgages and high local taxes, the blind fury that resulted
among the farmers was not unnatural.

Many of the railroad evils were inherent in the situation; they were
explained by the fact that both managers and public were dealing with a
new agency whose laws they did not completely understand. But the mere
play of personal forces in themselves aggravated the antagonism. The
fact that most of the railroad magnates lived in the East added that
element of absentee landlordism which is essential to most agrarian
problems. Many of the Western capitalists were real leaders; yet it is
only necessary to remember that the most active man in Western railroads
in the seventies was Jay Gould, to understand the suspicion in which the
railroad promoter of that day was generally held. It is significant
that of all the existing railroad abuses, the one which seemed to
arouse particular hostility was the free pass. There were many greater
practical evils than this, yet the fact that most editors and public
officials and politicians and legislators and even many judges rode
"deadhead" was a constant reminder of the influence which this "alien"
power exercised over the government and the public opinion of the
communities of which it was theoretically the servant. Many of these
roads had a greater income than the States they served; their payrolls
were much larger; their head officials received higher salaries than
governors and presidents. The extent to which these roads controlled
legislatures and, as it seemed at times, even the courts themselves,
alarmed the people. The stock-jobbing that had formed so large a part
of their history added nothing to their popularity. Yet, when all these
charges against the railroads are admitted, the fundamental difficulty
was one which, at that stage of public enlightenment, was beyond the
power of individuals to control. Nearly all the deep-seated evils arose
from the fact that the railroads were attempting to do something which,
in the nature of the case, they were entirely unfitted to do--that
is, compete against one another. When the great trunk lines were
constructed, the idea that competition was the life of trade held sway
in America, and the popular impression prevailed that this rule would
apply to railroads as well as to other forms of business. To the few
farseeing prophets who predicted the difficulties which subsequently
materialized, the answer was always made that competition would protect
the public from extortion and other abuses. But competition between
railroads is well-nigh impossible. Only in case different companies
operated their cars upon the same roadbed--something which, in the
earliest days, they actually did on certain lines--could they compete,
and any such system as a general practice is clearly impracticable. One
railroad which paralleled another in all its details might compete with
it, but there are almost no routes that can furnish business enough for
two such lines, and the carrying out of such an idea involves a waste
of capital on an enormous scale. Probably the country received its most
striking illustration of this when the West Shore Railroad in New York
State was built almost completely duplicating the New York Central, with
the result that both roads were nearly bankrupted.

While no one railroad can completely duplicate another line, two or more
may compete at particular points. By 1870 this contingency had produced
what was regarded as the greatest abuse of the time--the familiar
problem of "long and short haul." Two or more railroads, starting at an
identical point, would each pursue a separate course for several hundred
miles and then suddenly come together again at another large city. The
result was that they competed at terminals, but that each existed as an
independent monopoly at intermediate points. The scramble for business
would thus cause the roads to cut rates furiously at terminals; but
since there was no competition at the intervening places the rates at
these points were kept up, and sometimes, it was charged, were raised
in order to compensate for losses at the terminals. Thus resulted that
anomaly which strikes so strangely the investigator of the railroad
problem--that rates apparently have no relation to the distance covered,
and that the charge for hauling a load for seventy-five miles may be
actually higher than that for hauling the same load one hundred or one
hundred and fifty miles. The expert, looking back upon nearly a hundred
years of railroad history, may now satisfactorily explain this curious
circumstance; but it is not surprising that the farmer of the early
seventies, overburdened with debt and burning his own corn for fuel
because he could not pay the freight exacted for hauling it to market,
saw in the system only an attempt to plunder. Yet even the shippers
at terminal points had their grievances, for the competition at these
points became so savage and so ruinous that the roads soon entered
into agreements fixing rates or formed "pools." In accordance with
this latter arrangement, all business was put into a common pot, as
the natural property of the roads constituting the pool; it was then
allotted to different lines according to a percentage agreement, and the
profits were divided accordingly. As the purpose of rate agreements
and pools was to stop competition and to keep up prices, it is hardly
surprising that they were not popular in the communities which they
affected. The circumstance that, after solemnly entering into pools,
the allied roads would frequently violate their agreements and cut rates
surreptitiously merely added to the general confusion.

The early seventies were not a time of great prosperity in the newly
opened West, and the farmers, looking about for the source of their
discomforts, not unnaturally fixed upon the railroads. Their period of
discontent coincided with what will always be known in American history
as "the Granger movement." In its origin this organization apparently
had no relation to the dissatisfaction which its leaders afterward so
successfully capitalized. Its founder, Oliver Hudson Kelley, at the time
when he started the fraternity was not even a farmer but a clerk in
the Agricultural Bureau at Washington. Afterward, when the Grangers
had become an agrarian force to be feared, if not respected, it was
a popular jest to refer to the originators of this great farmers'
organization as "one fruit grower and six government clerks." Kelley's
first conception seems to have been to organize the farmers of the
nation into a kind of Masonic order. The Patrons of Husbandry, which
was the official title of his society, was a secret organization, with
signs, grips, passwords, oaths, degrees, and all the other impressive
paraphernalia of its prototype. Its officers were called Master,
Lecturer, and Treasurer and Secretary; its subordinate degrees for men
were Laborer, Cultivator, Harvester, and Husbandman; for women--and
women took an important part in the movement--were Maid, Shepherdess,
Gleaner, and Matron, while there were higher orders for those especially
ambitious and influential, such as Pomona (Hope), Demeter (Faith), and
Flora (Charity). Certainly these titles suggest peace and quiet rather
than discontent and political agitation; and, indeed, the organization,
as evolved in Kelley's brain, aimed at nothing more startling than
the social, intellectual, and economic improvement of the agricultural
classes. Its constitution especially excluded politics and religion as
not being appropriate fields of activity. It did propose certain forms
of business cooperation, such as the common purchase of supplies,
the marketing of products, perhaps the manufacture of agricultural
implements; but its main idea was to contribute to the social
well-being of the farmers and their families by frequent meetings
and entertainments, and to improve farming methods by collecting
agricultural statistics and by spreading the earliest applications of
science to agriculture. The idea that the "Grange," as the organization
was generally known, would ultimately devote the larger part of its
energies to fighting the railroads apparently never entered the minds of
its founders.

Had it not been for the increasing agricultural discontent against
railroads and corporations in general, the Patrons of Husbandry would
probably have died a painless death. But in the early seventies this
hostility broke out in the form of minority political parties, the
principal plank in whose platform was the regulation of the railroads.
Farmers' tickets, anti-monopoly parties, and anti-railroad candidates
began to appear in county and even state elections, sometimes
achieving such success as to frighten the leaders of the established
organizations. The chief aim of the discontented was "protection from
the intolerable wrongs now inflicted onus by the railroads." "Railroad
steals," "railroad pirates," "Wall Street stock-jobbers," and like
phrases supplied the favorite slogans of the spirited rural campaigns.
These parties, though much ridiculed by the metropolitan press, started
a political agitation which spread with increasing force in the next
forty years and in recent times eventually gained the ascendency in both
the old political parties.

The panic of 1873 and the unusually hard times that followed added fuel
to the flame. It was about this time that the Patrons of Husbandry gave
evidences of a new vitality, chiefly manifested in a rapidly increasing
membership. On May 19, 1873, there were 3360 Granges in the United
States, while nineteen months later, on January 1, 1875, there were
21,697, with a total membership of over seven hundred thousand. In the
Eastern States the movement had made little progress; in the South it
had become somewhat more popular; in such States as Missouri, Iowa,
Kansas, Nebraska, Montana, Idaho, and Oregon, it had developed into
almost a dominating influence. It is not difficult to explain this
sudden and astonishing growth: the farmers in the great grain States
seized upon this organization as the most available agency for remedying
their wrongs and rescuing them from poverty. In their minds the National
Grange now became the one means through which they could obtain that
which they most desired--cheaper transportation. Not only did its
membership show great increase, but money from dues now filled the
treasury to overflowing. At the same time the organs of the capitalist
press began to attack the Grange violently, while the politicians in
the sections where it was strongest sedulously cultivated it. But the
leaders of the movement never made the fatal mistake of converting their
organization into a political party. It held no political conventions,
named no candidates for office, and even officially warned its members
against discussing political questions at their meetings. Yet, according
to a statement in the "New York Tribune", "within a few weeks the Grange
menaced the political equilibrium of the most steadfast States. It had
upset the calculations of veteran campaigners, and put the professional
office-seekers to more embarrassment than even the Back Pay." The
Grangers fixed their eyes, not upon men or upon parties, but upon
measures. They developed the habit of questioning candidates for office
concerning their attitude on pending legislation and of publishing their
replies. Another favorite device was to hold Granger conventions in
state capitals while the legislature was sitting and thus to bring
personal pressure in the interest of their favorite bills. This method
of suasion is an extremely potent political force and explains the fact
that, in certain States where the Granges were most powerful, they had
practically everything their own way in railroad legislation.

The measures which they thus forced upon the statute books and which
represented the first comprehensive attempt to regulate railroads have
always been known as the "Granger Laws." These differed in severity
in different States, but in the main their outlines were the same.
Practically all the Granger legislatures prohibited free passes to
members of the legislatures and to public officials. A law fixing the
rate of passenger fares--the maximum ranging all the way from two and
one-half to five cents a mile--was a regular feature of the Granger
programme. Attempts were made to end the "long and short haul" abuse by
passing acts which prohibited any road from charging more for the short
distance than for the long one. More drastic still were the laws passed
by Iowa in 1874 and the famous Potter bill passed by Wisconsin in the
same year. Both these measures, besides fixing passenger fares, wrote
in the law itself detailed schedules of freight rates. The Iowa act
included a provision establishing a fund of $10,000 which was to be used
by private individuals to pay the expenses of suits for damages under
the act, and this same act made all railroad officials and employees
who were convicted of violations subject to fine and imprisonment.
The Potter act was even more severe. It not only fixed maximum freight
rates, but it established classifications of its own. The railroads
asserted that the framers of this law had simply taken the lowest rates
in force everywhere and reduced them twenty-five per cent. But Iowa and
Wisconsin and practically all the States that passed the Granger
laws also established railroad commissions. For the most part these
commissions followed the model of that established by Massachusetts
in 1869, a body which had little mandatory authority to fix rates or
determine service, but which depended upon persuasion, arbitration, and,
above all, publicity, to accomplish the desired ends. The Massachusetts
commission, largely owing to the high character and ability of
its membership--Charles Francis Adams serving as chairman for many
years--had worked admirably. In the most part these new Western
commissions were limited in their activities to regulating accounting,
obtaining detailed reports, collecting statistics, and enforcing the new
railroad laws.

These measures, following one another in rapid succession, produced
a national, even an international sensation. The railroad managements
stood aghast at what they regarded as demagogic invasions of their
rights, and the more conservative elements of the American public looked
upon them as a violent attack upon property. Up to this time there had
been little general understanding of the nature of railroad property. In
the minds of most people a railroad was a business, precisely like
any other business, and the modern notion that it was "affected with a
public interest" and that the public was therefore necessarily a partner
in the railroad business had made practically no headway. "Can't I do
what I want with my own?" Commodore Vanderbilt had exclaimed, asserting
his exclusive right to control the operations of the New York Central
system; and that question fairly well represented the popular attitude.
That the railroad exercised certain rights of sovereignty, such as that
of eminent domain, that it actually used in its operations property
belonging to the State, and that these facts in themselves gave the
State the right to supervise its management, and even, if necessity
arose, to control it--all this may have been recognized as an abstruse
legal proposition, but it occupied no practical place in the business
consciousness of that time. Naturally the first step of the railroads
was therefore to contest the constitutionality of the laws, and while
these suits were pending they resorted to various expedients to evade
these laws or to mitigate their severity. A touch of liveliness and
humor was added to the situation by the thousands of legal fare cases
that filled the courts, for farmers used to indulge in one of their
favorite agricultural sports--getting on trains and tendering the
legal two and a half cents a mile fare, a situation that usually led to
ejectment for nonpayment and then to a suit for damages. The railroads
easily met the laws forbidding lighter charges for long than for short
hauls by increasing the rates for the longer distances, and the laws
fixing maximum rates within the State by increasing the rates outside
the State. When the courts decided the cases against the railroads,
as in most cases they did, these corporations set about to secure the
repeal of the laws. They started campaigns of education, frequently
through magazine or newspaper articles pointing out the injustice of the
Granger laws and insisting that they were working great public damage.
It is a fact that a decrease in railroad construction followed the
Granger demonstration, and the friends of the railroads insisted that
timid capital hesitated to embark in an enterprise that was constantly
subject to legislative attack. These campaigns succeeded much better
than the more violent opposition to which the railroads had first
resorted. The Western States in the majority of cases repealed their
most drastic legislation. Nearly all the laws fixing maximum rates
disappeared from the books, and even Iowa and Wisconsin substituted
for these measures supervisory and advisory commissions after the
Massachusetts model.

While the Granger movement thus failed effectively to curb the
railroads, it succeeded in arousing great popular interest in the
railroad problem and in placing before the public several of the most
important details of that problem. Not the least of its achievements
were the decisions which it obtained from the Supreme Court of the
United States. The Granger cases are among the most epoch-making in
American history, and they fixed for all time the principles of American
policy in dealing with the railroad question. They are particularly
worthy of study by those who have regarded the Supreme Court as the
bulwark of social injustice and as a body which can always be relied
upon to protect the rights of property against the interests of the
masses. In its railroad decisions this charge hardly holds; for these
Granger cases sustain practically all the legal contentions made by the
Granger legislatures. * The cases fixed for all time the point that
a State, acting under the police power, may regulate the charges of a
railroad even to the extent of fixing maximum rates. They even went
so far as to hold that the right to fix rates is not subject to any
restraint by the court on the ground of unreasonableness, a principle
which the Supreme Court has reversed in more recent times. The courts
also held that a State, at least until Congress acted, could regulate
interstate commerce, but this decision also has since then been
reversed. These subsequent reversals of decisions which were exceedingly
popular at the time, however, not only constituted sound law but
promoted the public interest, for they established that body of law
which has made possible the present more comprehensive system of Federal
regulation of railroads.


    * The cases of particular interest were: Munn vs. Illinois, 94
U.S. 114; Peik vs. Chicago and Northwestern Railway Company, 94 U.S.
164; and Chicago, Burlington and Quincy Railway Company vs. Cutts, 94
U.S. 155.


Meanwhile the demand for regulation was gaining strength in the Eastern
States, but for somewhat different reasons. The farmers of New England,
New York, and the Eastern region in general had not particularly
sympathized with the Granger legislation; they already had great
difficulty in competing with the large Western farms, and a reduction
in rates to the seaboard would have made their position even less
endurable. This attitude was unquestionably selfish but entirely
comprehensible. The agitation for railroad reform in the East came
chiefly from the manufacturing and commercial classes. Here the main
burden of the complaint was the railroad rebate. This was a method of
giving lower rates to large shippers than to small--charging the favored
shipper the published rate and then, at stated periods, surreptitiously
returning part of the payment. This was perhaps the most vicious abuse
of which the railroads have ever been guilty. That the common law
forbade the practice and that it likewise violated the implied contract
upon which the railroad obtained its franchise was hardly open to
dispute; yet up to 1887 no specific law in this country prohibited the
practice. For many years the rebate hung over the American business
world, a thing whose existence was half admitted, half denied, a kind
of ghostly economic terror that seemed persistently to drive the small
corporation to bankruptcy and the large corporation to dominating
influence. The Standard Oil Company was the "monster" that was believed
especially to thrive upon this kind of sustenance, though this was by no
means the only industry that maintained such secret relations with the
railroads; the Carnegie Steel Corporation, for example, accepted
rebates almost as persistently. It was not until 1879, when the Hepburn
Committee in New York State had its hearings, that all the facts
concerning the rebate were exposed officially to public view. The
contracts of the Standard Oil Company with the railroads were placed
upon the records and these showed that all the worst suspicions
regarding this practice were justified. This disclosure made the
railroad rebate one of the most familiar facts in American industrial
life; and in consequence a demand arose for Federal legislation that
would definitely make the practice a crime and also for some kind
of Federal supervision to do effectively the work which the state
commissions had failed to do.

By this time it was clear enough that the only hope of adequate
regulation lay with the Federal Government. Congressman Reagan, of
Texas, had for years been pushing a bill to regulate interstate commerce
and to prohibit unjust discriminations by common carriers; other
measures periodically made their appearance in the Senate; but the
Houses had been unable to agree and nothing had been done.

Two facts presently gave great impetus to the movement; in 1886 the
United States Supreme Court, reversing its previous decision, decided
that no State could fix rates for railroad lines outside its own
borders, in other words, that interstate rates were exclusively within
the jurisdiction of the Federal authority *; and a Senate committee,
under the chairmanship of Shelby B. Cullom, conducted an investigation
of railroad conditions which made clear the need of immediate reform.
As a consequence, Congress passed the Interstate Commerce Act, which
received President Cleveland's signature on February 4, 1887. This
measure specifically made illegal rebates, pools, higher charges for
short than for long hauls (when the hauls in question were upon the same
road); it required railroads to file their tariffs, and it established
a commission of five members, who had powers of investigation, including
the right to make the companies produce their books. This commission
received power to establish systems of accounting and the like, but it
had no prerogative to fix rates. Inadequate as this measure seemed to
the radical element, it was generally hailed as marking the beginning
of an era in the Federal control not only of railroads but of other
corporations, and this impression was increased by the high character of
the men whom President Cleveland appointed to the first board.


    * Wabash, St. Louis and Pacific Railway Company vs. Illinois, 118
U.S. 557.


The Interstate Commerce Commission lasted essentially in this form
for nearly twenty years. On the whole it was a failure. Such was the
judgment passed by Justice Harlan of the United States Supreme Court
when he remarked in one of his decisions that the commission was "a
useless body for all practical purposes"; and such, indeed, was the
judgment of the commission itself, for in its report of 1898 it declared
that the attempt at Federal regulation had failed. The chief reasons
for this failure, the commission said, were the continued existence of
secret rates and the fact that published tariffs were not observed. *
The managers of the great American railroad systems would not yet
admit that the fixing of railroad rates was the concern of any one but
themselves, and they still regarded railroad management as essentially
a private business. If they could obtain large shipments by granting
special rates, even though they had to do it by such underhanded ways
as granting rebates, they believed that they were entirely justified in
doing so. Thus rebates flourished almost as much as ever, passes were
still liberally bestowed, and pools were still formed, though they
sometimes took the shape of "gentlemen's agreements."


    * But it should be added that the effectiveness of the commission
as an administrative and regulating body was diminished by decisions
of the courts, notably the decision of the Supreme Court in the maximum
rate case. See 160 U.S. 479.


In 1906, when President Roosevelt became intensely active in the
railroad problem, conditions were fairly demoralized. Attempts to
enforce the anti-pooling clause had led railroads to purchase competing
lines, and when the United States Supreme Court pronounced this illegal,
the situation became chaotic. The evils of overcapitalization also
became an issue of the times. The Interstate Commerce Commission had
become almost moribund, and there was a general sentiment that the
trouble arose from the fact that the commission had no power to fix
rates and that the solution of the railroad problem would come only when
such power was vested in it. * The Interstate Commerce Act which became
a law on June 29, 1906, was the outcome of one of the greatest
battles of President Roosevelt's political life. The act increased the
membership of the commission from five to seven members, placed under
its jurisdiction not only railroads but pipe lines, express companies,
and sleeping-car companies, added to the other familiar restrictions a
"commodities clause," which prohibited any railroad from transporting
a product which it had produced or mined, "except such articles or
commodities as may be necessary and intended for its use in the conduct
of its business as a common carrier"--this clause was intended to end
the railroad monopoly of the coal mines--and made the failure to observe
published tariffs a crime punishable with imprisonment. The amended law
did not give the commission the right to fix rates in the first instance
but did empower it, on complaint, to investigate charges and on
the basis of this investigation to determine just maximum rates,
regulations, and practices, though carriers were given the right of
appeal to the courts.


    * The Elkins Act of 1903 had, it is true, increased the
effectiveness of the commission in dealing with discriminations, but it
had not solved the problem of securing reasonable rates.


Thus, in essence, the public had obtained the reform which it had been
demanding for years. The reorganized commission did not hesitate to
exercise its new powers. It soon began actually fixing rates, and from
being a half-alive despised institution it rapidly developed into one
of the most powerful agencies of administration. In the succeeding ten
years its powers were still further enlarged by acts of Congress and the
privilege of fixing charges practically passed out of the hands of the
railroads into the control of the Interstate Commerce Commission. The
railroads, that is, practically lost the power to regulate their own
income. Meanwhile, the progressive movement in American politics had
led to the creation of commissions in most of the States, with similar
authority over rate making within the States, besides exercising
numerous other powers over service and capitalization. Many railroads
fell upon evil days and receiverships again became common. Naturally the
railroad managers attributed these calamities to the fact that they were
so constantly being regulated; but they probably pushed this claim too
far, for the causes of their troubles were more complex.

In 1916, in the heat of a political campaign, the Federal Government
took a step which introduced a new principle into railroad management
and made the roads practically helpless. The four brotherhoods of
railroad operatives were making demands for a so-called eight-hour day,
and threatened a general strike that would paralyze all business and
industry and throw the whole life of the nation into chaos. Properly to
appreciate the consequences of this event, it is necessary to keep in
mind the fact that the plea for an "eight-hour day" was spurious. An
eight-hour day cannot be rigidly enforced on railroads; the workmen well
knew this, and indeed they did not really demand such working hours.
What they asked for was a full day's pay for eight hours and "time and
a half" pay for all in excess of that amount; that is, they demanded
an increase in wages. President Wilson, having failed in his attempt to
settle the difficulty by arbitration, compelled a Democratic Congress
over which his sway was absolute to pass a law-sponsored by Chairman
Adamson of the House Committee on Interstate Commerce--which granted
practically what the unions demanded. In passing this law, Congress
asserted an entirely new power which no one had ever suspected that
it possessed--that of fixing the wages which should be paid by common
carriers and possibly by other corporations engaged in interstate
commerce. The railroads immediately took the case to the United
States Supreme Court, which promptly sustained the law. This decision,
unquestionably the most radical in the history of that body, declared
virtually that Congress could pass any law regulating railroads which
the public interest demanded.

And thus, after fifty years of almost incessant struggle with the
public, was the mighty railroad monster humbled. It had lost power to
regulate the two items which represent the existence of a business--its
income and its outgo. The Interstate Commerce Commission was now fixing
railroad rates, and Congress was fixing the amounts of railroad wages.
It remained for the Great War to precipitate the only logical outcome
of this situation--government control. The steadily increasing
responsibilities of war soon told heavily upon all lines until, in the
latter part of 1917, the whole railroad system of the United States had
all but broken down. The unions were pressing demands for wage increases
that would have added a billion dollars a year to their annual budgets.
The fact that so large a part of the output of American locomotive works
was being shipped to the Allies made it difficult for the American lines
to maintain their own supply. Nearly all coastwise ships and tugs were
utilized for war work, a large part of them had been sent to the other
side, and this put an additional strain upon the railroads. The movement
of troops, the heavy building operations in cantonments and shipbuilding
plants, the manufacture and transportation of munitions, all put an
unprecedented pressure upon them. Everywhere there was great shortage of
cars, equipment, and materials. Possibly the railroads might have risen
to the occasion except for the fact that the enormous increase in the
cost of labor and supplies made demands upon their treasuries which they
could not meet. They repeatedly asked the Interstate Commerce Commission
for an increase in rates, but this request was repeatedly refused. The
roads were therefore helpless, and their operations became so congested
as to create a positive military danger. Under these circumstances there
was profound relief when President Wilson took over the roads and placed
them under government control, with William Gibbs McAdoo, Secretary of
the Treasury, in active charge.

McAdoo immediately took the step which the Administration, while the
railroads were under private control, had steadily refused to sanction,
and now increased the rates. These increases were so great that they
made the public fairly gasp, but, under the impulse of patriotism, there
was a good-natured acquiescence. McAdoo also increased wages by hundreds
of millions of dollars. His administration on the whole was an able one.
He ignored for the moment the prevailing organization and managed
the roads as though they constituted a single system. He instituted
economies by concentrating ticket offices, establishing uniform freight
classifications, making common the use of terminals and repair shops,
abolishing circuitous routes, standardizing equipment, increasing the
loads of cars and by introducing a multitude of other changes. All these
reforms greatly increased the usefulness of the roads, which now became
an important element in winning the war. Properly regarded, the American
railroads became as important a link in the chain of communications
reaching France as the British fleet itself. It is not too much to say
that the fate of the world in the critical year 1918 hung upon this
tremendous railroad system which the enterprise and genius of Americans
had built up in three-quarters of a century. In February, 1918, Great
Britain, France, and Italy made official representations to the American
Government, declaring that unless food deliveries could be made as they
had been promised by Hoover's food administration, Germany would win
the war. McAdoo acted immediately upon this information. He gathered all
available cars, taking them away from their ordinary routes, and rushed
them from all parts of the country to the great grain producing States.
All other kinds of shipments were discontinued; officials and employees
from the highest to the lowest worked day and night; and presently the
huge supplies of the indispensable food started towards the Atlantic
coast. So successful was this operation that, on the 12th of March,
the supplies so exceeded the shipping capacity of the Allies that
6318 carloads of food stood at the great North Atlantic ports awaiting
transportation. This dramatic movement of American food supplies was an
important item in winning the war and fairly illustrated the great part
which the American railroads played in turning the tide of battle from
defeat to victory.



BIBLIOGRAPHICAL NOTE

General literature on the history of American railroads is surprisingly
scarce. While numerous volumes have been written in recent years on
special phases of the railroad question, few histories of any real value
are available. Probably the best outline history of American
railroad development as a whole is still Arthur T. Hadley's "Railroad
Transportation, its History and its Laws" (1885), but this necessarily
covers only the earlier periods of railroad growth and its discussions
are limited to the problems which confronted the carriers many years
ago. An extremely valuable book (now out of print) giving a very
complete picture of railroad building and expansion in the pre-Civil
War period is "The Book of the Great Railway Celebration of 1857", by
William Prescott Smith. This is primarily a description of the opening
of the Ohio and Mississippi Railway, which connected the Mississippi
Valley for the first time with the Eastern seaboard. A volume of real
value, but somewhat technical, giving a complete and accurate view of
the reorganization period of the great railroad systems, from 1885 to
1900, is "Railroad Reorganization", by Stewart Daggett (1910). This book
contains outline sketches of the histories of nearly all of the
large systems, as well as very accurate details of the financial
reorganizations of all of the defaulted properties. The most
comprehensive history of any American railroad system is "The Story of
Erie", by H. S. Mott (1900), but even this is partially unreliable and
much of it is compiled from unofficial sources. On the financial history
of the Erie Railroad, the really valuable authority is Charles Francis
Adams in his "Chapters of Erie" (1871). This book furnishes a full and
accurate account of the regime of Daniel Drew, Jay Gould, James Fisk,
Jr., and the famous "Erie ring," including "Boss" Tweed, and also throws
side lights on the character and career of Commodore Vanderbilt.
Among other important histories of particular railroad systems may
be mentioned "The Union Pacific Railway", by John P. Davis (1894) and
"History of the Northern Pacific Railroad", by Eugene V. Smalley (1883);
but neither of these volumes covers the recent and more interesting
periods in the development of these properties. To get a complete and
satisfactory view of the later development of the Northern Pacific
system, one must turn to modern biographical works, such as the "Life of
Jay Cooke", by E. P. Oberholtzer (1910), the "Memoirs of Henry Villard"
(1909), and the "Life of James J. Hill", by Joseph Gilpin Pyle (1916),
which also recounts at length the rise and development of the Great
Northern Railway system. But in these volumes, as in many biographies of
great men, the authors often betray a bias and misrepresent facts
vital to an understanding of the development of both of these railroad
systems. A recent volume entitled the "Life Story of J. P. Morgan",
by Carl Hovey, although extremely laudatory and therefore in many ways
misleading, contains valuable information about the development of the
Vanderbilt lines after 1880 and also about the financial vicissitudes
and rehabilitation of the many Morgan properties, such as the Southern
Railway, the modern Erie system, the Northern Pacific, the Reading, and
the Baltimore and Ohio.

Some of the railroad companies many years ago themselves published
histories of their lines, but most of these attempts were of little
value, as they were always too laudatory and one-sided and evidently
were usually written for political purposes. The best of this class of
railroad histories was a book issued by the Pennsylvania Railroad many
years ago, giving a record (largely statistical) of the growth and
development of its lines. But this book has been long out of print and
covers the period prior to 1885 only.

For original material on American railroad history, one must depend
almost entirely on financial and railroad periodicals and official and
state documents. By far the most valuable sources for all aspects of
railroad building and financing during the long period from 1830 to 1870
are the "American Railroad Journal" (1832-1871) and "Hunt's Merchant
Magazine" (1831-1870). Both of these periodicals are replete with
details of railroad building and growth. And for the period from 1870
to the present time the best authority is the "Commercial and
Financial Chronicle", with its various supplements. The story of modern
railroading is so intertwined with finance and banking that to get any
broad and complete view of the subject one must consider it largely
from the viewpoint of Wall Street. For facts regarding operation and
management of modern railroads, the "Railroad Age-Gazette" also
is extremely useful. By far the most valuable sources for railroad
statistics, railroad legislation, and all related facts, are the annual
reports and bulletins of the Interstate Commerce Commission, which
have been regularly issued since 1888. Many state commissions also have
issued volumes of value.

The best account of the origin of the Granger laws is contained in S.
J. Buck's "The Granger Movement" (1913). The beginnings of Federal
regulation are traced in L. H. Haney's "A Congressional History of
Railways in the United States, 1850-1887" (1910). The history of recent
railroad regulation by state and Federal legislation, and of court
decisions affecting the railroads, is clearly and succinctly told in
William Z. Ripley's "Railroads: Rates and Regulation" (1912), and in
Johnson and Van Metre's "Principles of Railroad Transportation" (1916).





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