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The Railroad Builders by John Moody

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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

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.


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

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

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

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

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
AntiTrust 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
1908, 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.


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

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

* 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

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

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

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

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.


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

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

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

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

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 AntiTrust 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.


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

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

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,

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.


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 sternwheel 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

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 broadminded 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

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

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.


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

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

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

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.

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