THE RAILROAD BUILDERS A CHRONICLE OF THE WELDING OF THE STATES Volume 38 In The Chronicles Of America Series By John Moody New Haven: Yale University Press Toronto: Glasgow, Brook & Co. London: Humphrey Milford Oxford University Press 1919 CONTENTS I. A CENTURY OF RAILROAD BUILDING II. THE COMMODORE AND THE NEW YORK CENTRAL III. THE GREAT PENNSYLVANIA SYSTEM IV. THE ERIE RAILROAD V. CROSSING THE APPALACHIAN RANGE VI. LINKING THE OCEANS VII. PENETRATING THE PACIFIC NORTHWEST VIII. BUILDING ALONG THE SANTA FE TRAIL IX. THE GROWTH OF THE HILL LINES X. THE RAILROAD SYSTEM OF THE SOUTH XI. THE LIFE WORK OF EDWARD H. HARRIMAN XII. THE AMERICAN RAILROAD PROBLEM BIBLIOGRAPHY THE RAILROAD BUILDERS CHAPTER I. A CENTURY OF RAILROAD BUILDING The United States as we know it today is largely the result ofmechanical inventions, and in particular of agricultural machinery andthe railroad. One transformed millions of acres of uncultivated landinto fertile farms, while the other furnished the transportation whichcarried the crops to distant markets. Before these inventions appeared, it is true, Americans had crossed the Alleghanies, reached theMississippi Valley, and had even penetrated to the Pacific coast; thusin a thousand years or so the United States might conceivably havebecome a far-reaching, straggling, loosely jointed Roman Empire, depending entirely upon its oceans, internal watercourses, and imperialhighways for such economic and political integrity as it might achieve. But the great miracle of the nineteenth century--the building of a newnation, reaching more than three thousand miles from sea to sea, givingsustenance to more than one hundred million free people, and diffusingamong them the necessities and comforts of civilization to a greaterextent than the world had ever known before is explained by thedevelopment of harvesting machinery and of the railroad. The railroad is sprung from the application of two fundamentalideas--one the use of a mechanical means of developing speed, the otherthe use of a smooth running surface to diminish friction. Though thesetwo principles are today combined, they were originally absolutelydistinct. In fact there were railroads long before there were steamengines or locomotives. If we seek the real predecessor of the modernrailroad track, we must go back three hundred years to the wooden railson which were drawn the little cars used in English collieries tocarry the coal from the mines to tidewater. The natural history of thisinvention is clear enough. The driving of large coal wagons along thepublic highway made deep ruts in the road, and some ingenious personbegan repairing the damage by laying wooden planks in the furrows. Thecoal wagons drove over this crude roadbed so successfully that certainproprietors started constructing special planked roadways from the minesto the river mouth. Logs, forming what we now call "ties, " were placedcrosswise at intervals of three or four feet, and upon these supportsthin "rails, " likewise of wood, were laid lengthwise. So effectually didthis arrangement reduce friction that a single horse could now draw agreat wagon filled with coal--an operation which two or three teams, lunging over muddy roads, formerly had great difficulty in performing. In order to lengthen the life of the road, a thin sheeting of iron waspresently laid upon the wooden rail. The next improvement was an attemptto increase the durability of the wagons by making the wheels of iron. It was not, however, until 1767, when the first rails were cast entirelyof iron with a flange at one side to keep the wheel steadily in place, that the modern roadbed in all its fundamental principles made itsappearance. This, be it observed, was only two years after Watt hadpatented his first steam engine, and it was nearly fifty years beforeStephenson built his first locomotive. The railroad originally was ascompletely dissociated from steam propulsion as was the ship. Justas vessels had existed for ages before the introduction of mechanicalpower, so the railroad bad been a familiar sight in the mining districtsof England for at least two centuries before the invention of Wattreally gave it wings and turned it to wider uses. In this respect theprogress of the railroad resembles that of the automobile, which hadexisted in crude form long before the invention of the gasoline enginemade it practically useful. In the United States three new methods of transportation made theirappearance at almost the same time--the steamboat, the canal boat, and the rail car. Of all three, the last was the slowest in attainingpopularity. As early as 1812 John Stevens, of Hoboken, aroused muchinterest and more amused hostility by advocating the building of arailroad, instead of a canal, across New York State from the HudsonRiver to Lake Erie, and for several years this indefatigable spiritjourneyed from town to town and from State to State, in a fruitlesseffort to push his favorite scheme. The great success of the Erie Canalwas finally hailed as a conclusive argument against all the ridiculousclaims made in favor of the railroad and precipitated a canal maniawhich spread all over the country. Yet the enthusiasts for railroads could not be discouraged, andpresently the whole population divided into two camps, the friends ofthe canal, and the friends of the iron highway. Newspapers acrimoniouslychampioned either side; the question was a favorite topic with debatingsocieties; public meetings and conventions were held to uphold onemethod of transportation and to decry the other. The canal, it wasurged, was not an experiment; it had been tested and not found wanting;already the great achievement of De Witt Clinton in completing the ErieCanal had made New York City the metropolis of the western world. Therailroad, it was asserted, was just as emphatically an experiment; noone could tell whether it could ever succeed; why, therefore, pour moneyand effort into this new form of transportation when the other was ademonstrated success? It was a simple matter to find fault with the railroad; it has alwaysbeen its fate to arouse the opposition of the farmers. This hostilityappeared early and was based largely upon grounds that have a familiarsound even today. The railroad, they said, was a natural monopoly;no private citizen could hope ever to own one; it was thus a kind ofmonster which, if encouraged, would override all popular rights. Fromthis economic criticism the enemies of the railroad passed to detailsof construction: the rails would be washed out by rains; they couldbe destroyed by mischievous people; they would snap under the coldof winter or be buried under the snow for a considerable period, thusstopping all communication. The champions of artificial waterways wouldpoint in contrast to the beautiful packet boats on the Erie Canal, withtheir fine sleeping rooms, their restaurants, their spacious decks onwhich the fine ladies and gentlemen congregated every warm summer day, and would insist that such kind of travel was far more comfortable thanit could ever be on railroads. To all these pleas the advocates of therailroad had one unassailable argument--its infinitely greater speed. After all, it took a towboat three or four days to go from Albany toBuffalo, and the time was not far distant, they argued, when a railroadwould make the same trip in less than a day. Indeed, our forefathersmade one curious mistake: they predicted a speed for the railroad ahundred miles an hour--which it has never attained consistently withsafety. If the American of today could transport himself to one of the firstrailroad lines built in the United States it is not unlikely that hewould side with the canal enthusiast in his argument. The rough pictureswhich accompany most accounts of early railroad days, showing a trainof omnibus-like carriages pulled by a locomotive with upright boiler, really represent a somewhat advanced stage of development. ThoughStephenson had demonstrated the practicability of the locomotive in 1814and although the American, John Stevens, had constructed one in 1826which had demonstrated its ability to take a curve, local prejudiceagainst this innovation continued strong. The farmers asserted thatthe sparks set fire to their hayricks and barns and that the noisefrightened their hens so that they would not lay and their cows so thatthey could not give milk. On the earliest railroads, therefore, almostany other method of propulsion was preferred. Horses and dogs were used, winches turned by men were occasionally installed, and in some casescars were even fitted with sails. Of all these methods, the horse wasthe most popular: he sent out no sparks, he carried his own fuel, hemade little noise, and he would not explode. His only failing was thathe would leave the track; and to remedy this defect the early railroadbuilders hit upon a happy device. Sometimes they would fix a treadmillinside the car; two horses would patiently propel the caravan, theseats for passengers being arranged on either side. So unformed was theprevalent conception of the ultimate function of the railroad, and sopronounced was the fear of monopoly that, on certain lines, the roadbedwas laid as a state enterprise and the users furnished their owncars, just as the individual owners of towboats did on the canals. The drivers, however, were an exceedingly rough lot; no schedules wereobserved and as the first lines had only single tracks and infrequentturnouts, when the opposing sides would meet each other coming andgoing, precedence was usually awarded to the side which had the strongerarm. The roadbed showed little improvement over the mine tramways of theeighteenth century, and the rails were only long wooden stringers withstrap iron nailed on top. So undeveloped were the resources of thecountry that the builders of the Baltimore and Ohio Railroad in 1828petitioned Congress to remit the duty on the iron which it was compelledto import from England. The trains consisted of a string of little cars, with the baggage piled on the roof, and when they reached a hill theysometimes had to be pulled up the inclined plane by a rope. Yet thetraveling in these earliest days was probably more comfortable than inthose which immediately followed the general adoption of locomotives. When, five or ten years later, the advantages of mechanical as opposedto animal traction caused engines to be introduced extensively, thepassengers behind them rode through constant smoke and hot cinders thatmade railway travel an incessant torture. Yet the railroad speedily demonstrated its practical value; many of thefirst lines were extremely profitable, and the hostility with which theyhad been first received soon changed to an enthusiasm which was justas unreasoning. The speculative craze which invariably follows a newdiscovery swept over the country in the thirties and the forties andmanifested itself most unfortunately in the new Western States--Ohio, Indiana, Illinois, and Michigan. Here bonfires and public meetingswhipped up the zeal; people believed that railroads would not onlyimmediately open the wilderness and pay the interest on the bonds issuedto construct them, but that they would become a source Of revenue tosadly depleted state treasuries. Much has been heard of governmentownership in recent years; yet it is nothing particularly new, formany of the early railroads in these new Western States were built asgovernment enterprises, with results which were frequently disastrous. This mania, with the land speculation accompanying it, was largelyresponsible for the panic of 1837 and led to that repudiation of debtsin certain States which for so many years gave American investments anevil reputation abroad. In the more settled parts of the country, however, railroad buildinghad comparatively a more solid foundation. Yet the railroad map ofthe forties indicates that railroad building in this early period wasincoherent and haphazard. Practically everywhere the railroad was anindividual enterprise; the builders had no further conception of it thanas a line connecting two given points usually a short distance apart. The roads of those days began anywhere and ended almost anywhere. A fewmiles of iron rail connected Albany and Schenectady. There was a roadfrom Hartford to New Haven, but there was none from New Haven to NewYork. A line connected Philadelphia with Columbia; Baltimore had a roadto Washington; Charleston, South Carolina, had a similar contact withHamburg in the same State. By 1842, New York State, from Albany toBuffalo, possessed several disconnected stretches of railroad. It wasnot until 1836, when work was begun on the Erie Railroad, that a planwas adopted for a single line reaching several hundred miles from anobvious point, such as New York, to an obvious destination, such asLake Erie. Even then a few farsighted men could foresee the day whenthe railroad train would cross the plains and the Rockies and link theAtlantic and the Pacific. Yet, in 1850 nearly all the railroads in theUnited States lay east of the Mississippi River, and all of them, even when they were physically mere extensions of one another, wereseparately owned and separately managed. Successful as many of the railroads were, they had hardly yetestablished themselves as the one preeminent means of transportation. The canal had lost in the struggle for supremacy, but certain of theseconstructed waterways, particularly the Erie, were flourishing withlittle diminished vigor. The river steamboat had enjoyed a developmentin the first few decades of the nineteenth century almost as great asthat of the railroad itself. The Mississippi River was the great naturalhighway for the products and the passenger traffic of the South CentralStates; it had made New Orleans one of the largest and most flourishingcities in the country; and certainly the rich cotton planter of thefifties would have smiled at any suggestion that the "floating palaces"which plied this mighty stream would ever surrender their preeminence tothe rusty and struggling railroads which wound along its banks. This period, which may be taken as the first in American railroaddevelopment, ended about the middle of the century. It was an age ofgreat progress but not of absolutely assured success. A few linesearned handsome profits, but in the main the railroad business was notfavorably regarded and railroad investments everywhere were held insuspicion. The condition that prevailed in many railroads is illustratedby the fact that the directors of the Michigan and Southern, whenthey held their annual meeting in 1853, had to borrow chairs from anadjoining office as the sheriff had walked away with their own for debt. Even a railroad with such a territory as the Hudson River Valley, and extending from New York to Albany existed in a state of chronicdilapidation; and the New York and Harlem, which had an entrance intoNew York City as an asset of incalculable value, was looked upon merelyas a vehicle for Wall Street speculation. Meanwhile the increasing traffic in farm products, mules, and cattlefrom the Northwest to the plantations of the South created a demand formore ample transportation facilities. In the decade before the CivilWar various north and south lines of railway were projected and some ofthese were assisted by grants of land from the Federal Government. Thefirst of these, the Illinois Central, received a huge land-grant in 1850and ultimately reached the Gulf at Mobile by connecting with the Mobileand Ohio Railroad which had also been assisted by Federal grants. But the panic of 1857, followed by the Civil War, halted all railroadenterprises. In the year 1856 some 3600 miles of railroad had beenconstructed; in 1865 only 700 were laid down. The Southern railroadswere prostrated by the war and north and south lines lost all but localtraffic. After the war a brisk recovery began and brought to the fore the firstof the great railroad magnates and the shrewdest business genius of theday, Cornelius Vanderbilt. Though he had spent his early life and hadlaid the basis of his fortune in steamboats, he was the first man toappreciate the fact that these two methods of transportation were aboutto change places--that water transportation was to decline and thatrail transportation was to gain the ascendancy. It was about 1865 thatVanderbilt acted on this farsighted conviction, promptly sold out hissteamboats for what they would bring, and began buying railroads despitethe fact that his friends warned him that, in his old age, he waswrecking the fruits of a hard and thrifty life. But Vanderbilt perceivedwhat most American business men of the time failed to see, that a changehad come over the railroad situation as a result of the Civil War. The time extending from 1860 to about 1875 marks the second stage inthe railroad activity of the United States. The characteristic of thisperiod is the development of the great trunk lines and the constructionof a transcontinental route to the Pacific. The Civil War ended thesupremacy of the Mississippi River as the great transportation routeof the West. The fact that this river ran through hostileterritory--Vicksburg did not fall until July 4, 1863--forced the farmersof the West to find another outlet for their products. By this time thecountry from Chicago and St. Louis eastward to the Atlantic ports wasfairly completely connected by railroads. The necessities of war ledto great improvements in construction and equipment. Business which hadhitherto gone South now began to go East; New Orleans ceased to be thegreat industrial entrepot of this region and gave place to St. Louis andChicago. Yet, though this great change in traffic routes took place in the courseof the war, the actual consolidations of the various small railroadsinto great trunk lines did not begin until after peace had been assured. The establishment of five great railroads extending continuously fromthe Atlantic seaboard to Chicago and the West was perhaps the mostremarkable economic development of the ten or fifteen years succeedingthe war. By 1875 these five great trunk lines, the New York Central, thePennsylvania, the Erie, the Baltimore and Ohio, and the Grand Trunk, had connected their scattered units and established complete throughsystems. All the vexations that had necessarily accompanied railroad traffic inthe days when each one these systems had been a series of disconnectedroads had disappeared. The grain and meat products of the West, accumulating for the most part at Chicago and St. Louis, now camerapidly and uninterruptedly to the Atlantic seaboard, and railroadpassengers, no longer submitted to the inconveniences of the Civil Warperiod, now began to experience for the first time the pleasures ofrailroad travel. Together with the articulation of the routes, importantmechanical changes and reconstruction programmes completely transformedthe American railroad system. The former haphazard character of eachroad is evidenced by the fact that in Civil War days there were eightdifferent gages, with the result that it was almost impossible for therolling stock of one line to use another. A few years after the CivilWar, however, the present standard gage of four feet eight and one-halfinches had become uniform all over the United States. The malodorous"eating cribs" of the fifties and the sixties--little stationrestaurants located at selected spots along the line--now began todisappear, and the modern dining car made its appearance. The old roughand ready sleeping cars began to give place to the modern Pullman. Oneof the greatest drawbacks to ante-bellum travel had been the absence ofbridges across great rivers, such as the Hudson and the Susquehanna. At Albany, for example, the passengers in the summer time were ferriedacross, and in winter they were driven in sleighs or were sometimesobliged to walk across the ice. It was not until after the Civil Warthat a great iron bridge, two thousand feet long, was constructed acrossthe Hudson at this point. On the trains the little flickering oil lampsnow gave place to gas, and the wood burning stoves--frequently in thoseprimitive days smeared with tobacco juice--in a few years were displacedby the new method of heating by steam. The accidents which had been almost the prevailing rule in the fiftiesand sixties were greatly reduced by the Westinghouse air-brake, inventedin 1868, and the block signaling system, introduced somewhat later. Inthe ten years succeeding the Civil War, the physical appearance of therailroads entirely changed; new and larger locomotives were made, thefreight cars, which during the period of the Civil War had a capacity ofabout eight tons, were now built to carry fifteen or twenty. The formerlittle flimsy iron rails were taken up and were relaid with steel. Inthe early seventies when Cornelius Vanderbilt substituted steel for ironon the New York Central, he had to import the new material from England. In the Civil War period, practically all American railroads were singletrack fines--and this alone prevented any extensive traffic. Vanderbiltlaid two tracks along the Hudson River from New York to Albany, andfour from Albany to Buffalo, two exclusively for freight and two forpassengers. By 1880 the American railroad, in all its essential details, had definitely arrived. But in this same period even more sensational developments had takenplace. Soon after 1865 the imagination of the American railroadbuilder began to reach far beyond the old horizon. Up to that time theMississippi River had marked the Western railroad terminus. Now and thena road straggled beyond this barrier for a few miles into eastern Iowaand Missouri; but in the main the enormous territory reaching from theMississippi to the Pacific Ocean was crossed only by the old trails. Theone thing which perhaps did most to place the transcontinental road ona practical basis was the annexation of California in 1848; and the wildrush that took place on the discovery of the gold fields one year laterhad led Americans to realize that on the Pacific coast they had anempire which was great and incalculably rich but almost inaccessible. The loyalty of California to the Northern cause in the war naturallystimulated a desire for closer contact. In the ten years preceding 1860the importance of a transcontinental line had constantly been broughtto the attention of Congress and the project had caused much jealousybetween the North and the South, for each region desired to control itsEastern terminus. This impediment no longer stood in the way; early inhis term, therefore, President Lincoln signed the bill authorizing theconstruction of the Union Pacific--a name doubly significant, as markingthe union of the East and the West and also recognizing the sentiment ofloyalty or union that this great enterprise was intended to promote. The building of this railroad, as well as that of the others whichultimately made the Pacific and the Atlantic coast near neighbors--theSanta Fe, the Southern Pacific, the Northern Pacific, and the GreatNorthern--is described in the pages that follow. Here it is sufficientto emphasize the fact that they achieved the concluding triumph in whatis certainly the most extensive system of railroads in the world. Thesetranscontinental roads really completed the work of Columbus. He sailedto discover the western route to Cathay and found that his path wasblocked by a mighty continent. But the first train that crossed theplains and ascended the Rockies and reached the Golden Gate assuredthenceforth a rapid and uninterrupted transit westward from Europe toAsia. CHAPTER II. THE COMMODORE AND THE NEW YORK CENTRAL A story was told many years ago of Commodore Vanderbilt which, whileperhaps not strictly true, was pointed enough to warrant its constantrepetition for more than two generations. Back in the sixties, when thisgrizzled railroad chieftain was the chief factor in the rapidly growingNew York Central Railroad system, whose backbone then consisted of acontinuous one-track line connecting Albany with the Great Lakes, thepresident of a small cross-country road approached him one day andrequested an exchange of annual passes. "Why, my dear sir, " exclaimed the Commodore, "my railroad is more thanthree hundred miles long, while yours is only seventeen miles. " "That may all be so, " replied the other, "but my railroad is just aswide as yours. " This statement was true. Practically no railroad, even as late as thesixties, was wider than another. They were all single-tracked lines. Even the New York Central system in 1866 was practically a single-trackroad; and the Commodore could not claim to any particular superiorityover his neighbors and rivals in this particular. Instead of sneeringat his "seventeen-mile" colleague, Vanderbilt might have remembered thathis own fine system had grown up in less than two generations froma modest narrow-gage track running from "nothing to nowhere. " TheVanderbilt lines, which today with their controlled and affiliatedsystems comprise more than 13, 000 miles of railroad--a large portion ofwhich is double-tracked, no mean amount being laid with third and fourthtracks is the outgrowth of a little seventeen-mile line, first charteredin 1826, and finished for traffic in 1831. This little railroadwas known as the Mohawk and Hudson, and it extended from Albany toSchenectady. It was the second continuous section of railroad lineoperated by steam in the United States, and on it the third locomotivebuilt in America, the De Witt Clinton, made a satisfactory trial trip inAugust, 1831. The success of this experiment created a sensation far and wide and ledto rapid railroad building in other parts of the country in the yearsimmediately following. The experiences of a participant in this trialtrip are described about forty years later in a letter written by JudgeJ. L. Gillis of Philadelphia: "In the early part of the month of August of that year [1831], Ileft Philadelphia for Canandaigua, New York, traveling by stages andsteamboats to Albany and stopping at the latter place. I learned that alocomotive had arrived there and that it would make its first tripover the road to Schenectady the next day. I concluded to lie over andgratify my curiosity with a first ride after a locomotive. "That locomotive, the train of cars, together with the incidents of theday, made a very vivid impression on my mind. I can now look back fromone of Pullman's Palace cars, over a period of forty years, and see thattrain together with all the improvements that have been made inrailroad travel since that time.... I am not machinist enough to give adescription of the locomotive that drew us over the road that day, butI recollect distinctly the general make-up of the train. The trainwas composed of coach bodies, mostly from Thorpe and Sprague's stagecoaches, placed upon trucks. The trucks were coupled together withchains, leaving from two to three feet slack, and when the locomotivestarted it took up the slack by jerks, with sufficient force to jerkthe passengers who sat on seats across the tops of the coaches, out fromunder their hats, and in stopping, came together with such force as tosend them flying from the seats. "They used dry pitch for fuel, and there being no smoke or sparkcatcher to the chimney or smoke-stack, a volume of black smoke, stronglyimpregnated with sparks, coals, and cinders, came pouring back the wholelength of the train. Each of the tossed passengers who had an umbrellaraised it as a protection against the smoke and fire. They were foundto be but a momentary protection, for I think in the first mile thelast umbrella went overboard, all having their covers burnt off from theframes, when a general melee took place among the deck passengers, eachwhipping his neighbor to put out the fire. They presented a very motleyappearance on arriving at the first station. Then rails were secured andlashed between the trucks, taking the slack out of the coupling chains, thereby affording us a more steady run to the top of the inclined planeat Schenectady. "The incidents off the train were quite as striking as those on thetrain. A general notice of the contemplated trip had excited not onlythe curiosity of those living along the line of the road, but thoseliving remote from it, causing a large collection of people at all theintersecting roads along the route. Everybody, together with hiswife and all his children, came from a distance with all kinds ofconveyances, being as ignorant of what was coming as their horses, anddrove up to the road as near as they could get, only looking for thebest position to get a view of the train. As it approached a the horsestook fright and wheeled, upsetting buggies, carriages, and wagons, andleaving for parts unknown to the passengers if not to their owners, andit is not now positively known if some of them have stopped yet. Such isa hasty sketch of my recollection of my first ride after a locomotive. " The Mohawk and Hudson Railroad was originally constructed with inclinedplanes worked by stationary engines near each terminus, the inclinationsbeing one foot in eighteen. The rail used was a flat bar laid uponlongitudinal sills. This type of rail came into general use at thisperiod and continued in use in parts of the country even as late as theCivil War. The roads that now make up the New York Central were built piecemealfrom 1831 to 1853; and the organization of this company in the latteryear, to consolidate eleven independent roads extending from Albanyto Buffalo, finally put an end to the long debate between canalsand railroads. The founding of this company definitely meant thattransportation in the United States henceforth would follow the steelroute and not the water ditch and the towpath. Canals might indeedlinger for a time as feeders, even, as in the case of the Erie and a fewothers, as more or less important transportation routes, but every onenow realized that the railroad was to be the great agency which wouldgive plausibility to the industrial organization of the United Statesand develop its great territory. Besides the pioneer Mohawk and Hudson, this consolidation includedthe Utica and Schenectady, which had been opened in 1836 and which hadoperated profitably for many years, always paying large dividends. TheTonawanda Railroad, opened in 1837, and the Buffalo and Niagara Falls, also finished in the same year, were operated with profit until theywere absorbed by the new system. In 1838 the Auburn and Syracuse andthe Hudson and Berkshire Railroads were opened. The former after beingmerged in 1850 with the Rochester and Syracuse Railway, became a part ofthe consolidation. The Syracuse and Attica Railroad, opened in 1839, theAttica and Buffalo, opened in 1842, the Schenectady and Troy, openedin the same year, and several other small lines, some of which hadundergone various changes in name and ownership, were all merged intothe New York Central Railroad. This great property now comprised fivehundred and sixty miles of railroad, the main stem extending from Albanyto Buffalo. Though it had as yet no connection with the Hudson RiverRailroad, the New York Central Railroad at this period was the mostsubstantial and important of American railroad systems. It developed alarge and healthy through traffic to the Great Lakes and was practicallyfree from railroad competition. The Erie Railway, which for many yearshad been struggling under great difficulties to reach the Great Lakesand had gone through nearly a generation of financial vicissitudes, was just getting its through line actively under way. The PennsylvaniaRailroad was just pushing through to the waters of the Ohio and was notlikely for many years to compete with the New York Central for the laketraffic. The Baltimore and Ohio, while remotely a competitor, was, likethe Pennsylvania, looking more for the traffic of the Ohio Valley thanfor that of the Lakes. The period of six years following the consolidation of 1853 was one ofgreat prosperity for the New York Central system, and, notwithstandingthe setbacks to business caused by the panic of 1857, large dividendswere continuously paid on the capital stock. In the year 1859--beforethe Vanderbilt regime opened--the management embraced what to modernmen of affairs are famous names. Erastus Corning was president, DeanRichmond was vice-president, and John V. L. Pruyn, Nathaniel Thayer, Isaac Townsend, and Chauncey Vibbard were directors. The headquarters ofthe company were at Albany, and the stock was owned mainly by residentsof that city. Meanwhile the building of railroads in other parts of the State andunder other leadership was going forward rapidly. As far back as 1832the first mile of the New York and Harlem Railroad was opened fortraffic. This single mile remained for some time the only propertyof the company. It extended through what is now a thriving part ofdown-town New York. Its original terminus was at Prince Street, but theline was afterwards extended southward to the City Hall and later to theAstor House. It was not until 1837 that the road reached northwardto Harlem and not until 1842 that Williamsbridge became the northernterminus. The line was looked upon as a worthless piece of propertyuntil 1852, when it was extended north to Chatham, to connect with theAlbany and Stockbridge Railroad, and thus give a through line from NewYork City to Albany. Another property built in these days and destined to become eventuallyan important part of the Vanderbilt lines was the Hudson River Railroad. This company was chartered in 1846, but for many years was frowned on asan unsound business venture, because of the belief that it would be indirect competition with the river traffic and therefore could never bemade to pay. Nevertheless the promoters went ahead and by 1850 the roadhad been opened to Poughkeepsie. The entire line of one hundred andforty-four miles was completed to East Albany in 1851. At the sametime the Troy and Greenbush Railroad, extending six miles to Troy, wasleased, thus giving the new Hudson River Railroad an entry into the cityof Troy. The Hudson River Railroad was entirely independent of the NewYork Central enterprise and was controlled in those early days by agroup of New Yorkers, prominent among whom was Samuel Sloan. As we enter the Civil War period, we find the three important propertieswhich were afterwards to make up the Vanderbilt system all developingrapidly and logically into the strategical relationship which would makeultimate consolidation inevitable. The completion of the Erie Railwayand its gradual development as the only through line across the Statefrom New York to the Great Lakes; the opening, expansion, and generalsolidification of the Pennsylvania lines and their aggressive policy ofreaching out to the lake region on the west and across New Jersey on theeast; the extension of the Erie interests into the New England field, and the possibility that the latter might gain control of the Harlem orthe Hudson River Railroad--all these considerations naturally arousedin the New York Central interests a desire to insure the future byobtaining for themselves control of the lines that would connect theirown system with New York City and the Eastern seaboard. During the Civil War, however, no progress was made in this direction. It was not until 1869, four years after the closing of the war, that anyradical change took place. But in the years that had intervened, a newand commanding figure in the railroad world had come upon the scene. This man had grown to be the dominating genius, not only in the fieldof railway expansion, but in the world of finance as well. His name wasCornelius Vanderbilt. Born in 1794 in very humble circumstances, he hadreceived little or no education, and as a youth had eked out a living byferrying passengers and garden produce from Staten Island to New York. He had painfully saved a few hundred dollars within a year or twoafter his marriage, and with this capital he began his career in thetransportation business. From his first ferrying project he engaged inother undertakings and laid the foundation of his subsequent fortune insteamboat navigation. About 1860, at an age when most men are beginningto retire from active affairs, the "Commodore"--as he was called onaccount of his numerous fleet--entered actively into the field ofrailway development, management, and consolidation. The extraordinarycharacter and genius of the man are well depicted by the events of theyears that followed. Before the opening of the Civil War and until immediately after its end, the New York Central and the Erie systems were controlled by bitterlyantagonistic interests. These interests were beginning to foresee theday when extremely aggressive competition would call into play theirgreatest energies. Vanderbilt, wiser than his generation, foresaw morethan this. His vision took in the vast future values of the propertiesas developed trunk lines, and the greater possibilities of their controland operation as a consolidated whole. He was in a very real sensethe forerunner or pioneer of the great consolidation period of a halfcentury later. He was the Harriman and the Hill of his day. The Erie had its own approach to New York City, but the New YorkCentral was connected with the metropolis only by the river and the twoindependent roads--the Harlem Railroad and the Hudson River Railroad. To get the latter two roads under his complete control was Vanderbilt'sfirst object. He would then have unimpeded access to New York and sobecome independent of the river. He began his ambitious plans by making himself the master of the Harlemproperty, and in so doing got his first experience in railroad stockmanipulation and at the same time picked up a moderate fortune. Itwas comparatively easy to buy the control of the Harlem Railroad. TheCompany had never paid a dividend, and, in 1863, when the Commodorequietly began his work, the stock was selling below thirty dollars ashare. Before the close of this year he had manipulated the stock untilit had reached ninety-two, and by a corner, in August of that year, he raised it to 179. On this deal Vanderbilt reaped a nice littlefortune--but evidently not enough to enable him to carry through theambitious plans which were in the back of his head, for in 1864 we findhim manipulating another corner and this time running the price of thestock up to 285. In this wise the Commodore not only added millionsto his already growing fortune but also made himself a power inthe financial world. Financiers began to fear him, and he found itcomparatively easy later to buy up the control of the Hudson RiverRailroad, which he did by paying about 100 for the stock. Then he beganspeculating again, sent Hudson River up to 180, and incidentally reapedanother fortune for himself. By this time Vanderbilt had achieved a great reputation as a man whocreated values, earned dividends, and invented wealth as if by magic;other railroad managers now began to lay their properties at his feetand ask him to do with them what he had done with the Harlem and theHudson River. For under the Commodore's magic touch the Harlem Railroadfor the first time in its long history began to pay dividends at a highrate, and in four years the earnings of the Hudson River property hadnearly doubled. One of the first properties to be placed at Vanderbilt's feet was theNew York Central, and the control passed into his hands in the winter of1866-67. He was now in a powerful position and immediately began to layhis plans for obtaining control of the Erie Railroad in the followingyear. In the latter effort he did not succeed, however, and after aprotracted and dramatic contest he was defeated by his great adversary, "Uncle" Daniel Drew. The story of this contest need not be detailedhere, as it is given in full in the chapter on the Erie Railroad. In the fall of 1869 the Commodore, having secured everything in therailroad field he had sought except the Erie, put through his schemefor consolidation. The New York Central and Hudson River Railroad wasincorporated. It included the old New York Central and also the HudsonRiver Railroad but not the Harlem. The capital of the consolidatedcompany was placed at ninety million dollars, a figure of such magnitudein those days that the world was startled. The system embraced inall nearly 850 miles of railroad lines. A few years later the HarlemRailroad was leased to the property at a high valuation and a largedividend was guaranteed on the stock, the ownership of which wasretained by the Vanderbilt family. The Vanderbilt system as it is now understood really began with thesetransactions. From this time on, its history has been similar in manyrespects to that of other large systems which were the outgrowth ofmerger or manipulation in these early days. During the remarkable periodof commercial and industrial development in this country from 1870onward, when thousands of miles of new lines were built every year, when the growth of population was beginning to make the States of Ohio, Indiana, and Illinois centers of wealth and production, and whenthe wonderful Northwestern country embracing the States of Michigan, Wisconsin, and Minnesota, was so rapidly opened up and brought nearerto the Eastern markets, the Vanderbilt railroad interests were not idle. The original genius, Cornelius Vanderbilt, was soon gathered to hisfathers, but his son, William H. Vanderbilt, was in many ways a worthysuccessor. By 1885 the Vanderbilt lines had grown in extent and importance farbeyond any point of which the elder Vanderbilt had ever dreamed. Longbefore this year the system included many smaller lines within the Stateof New York, and it had also acquired close control of the great LakeShore and Michigan Southern system, with its splendid line from Buffaloto Chicago, consisting of more than 500 miles of railroad; the MichiganCentral, owning lines from Detroit to Chicago, with many branches inMichigan and Illinois; the Canada Southern Railway, extending fromDetroit to Toronto; and in addition to all these about 800 miles ofother lines in the States of Ohio, Indiana, Michigan, and Pennsylvania. In this same year 1885, another event of importance took place. The NewYork, West Shore and Buffalo Railroad, which after strenuous effortsextending over many years had constructed a new trunk line fromWeehawken along the west shore of the Hudson to Albany and thence toBuffalo, came under the control of the New York Central. The greatsystem in the Middle West, now known as the "Big Four, " or Cleveland, Cincinnati, Chicago and St. Louis--embracing 750 miles of lines westwardfrom Cleveland and Columbus, Ohio, to Indianapolis, Springfield, andCincinnati, and having traffic connections with St. Louis--was also aVanderbilt property at this time, although not under the formal controlof these interests. Another important competing line secured in thisperiod was the New York, Chicago and St. Louis, built to parallel theLake Shore and known as the "Nickel Plate" route. This road extendedfrom Buffalo to Chicago, and, like the West Shore, had been constructedwith the hope of ultimately selling out to its competitor. The development of railroad properties under the Vanderbilt influencewas not confined to the territory east of Chicago and the MississippiValley. As early as 1859 a large system of roads had been merged inthe section extending westward from Chicago to Omaha and radiatingthroughout Iowa, Minnesota, Kansas, Wisconsin, Missouri, and otherStates. This company was known as the Chicago and North WesternRailroad, and its property, which was one of large and growing value, by 1886 embraced a system of over 3500 miles of road. Although neithercontrolled by the New York Central nor directly affiliated therewith, itwas classed as a Vanderbilt property. While for many years after the death of the Commodore the Vanderbiltfamily remained in direct financial and operating control of the NewYork Central and its myriad of subsidiary lines and their genius asrailroad builders and operators was distinctly evident, yet the brainsand resources of the Vanderbilts were not alone responsible forthe brilliant career of the system down to recent times. William H. Vanderbilt, though a man of unusual ability, did not possess the breadthof view or the sagacity of his father, and in the course of a few yearshe found himself exposed to a cyclone of public criticism. He had letit be widely known that he was personally the owner of over eighty-sevenper cent of the hundred million capital of the company. In 1879 the NewYork Legislature, backed by the force of the popular anger and surpriseat the accumulation of a hundred million dollar fortune by one man inten years, was investigating the management of the New York Centralwith a view to curtailing its power; the rate wars were on between theseaboard and Chicago; and Jay Gould was threatening to divert all thetraffic of his Wabash, St. Louis, and Pacific lines from the New YorkCentral and turn it over to other Eastern connections unless Vanderbiltwould give him a vital interest in the Vanderbilt lines. Vanderbilt was harassed beyond endurance and, being of softer materialthan his father, was fearful of the outcome of public opinion, notwithstanding the fact that in a moment of anger--according to thestatement of a newspaper reporter whose veracity Vanderbilt deniedto his dying day--he had used the familiar expression, "The public bedamned!" There were intimations that the Legislature was planning toimpose heavy taxes on the property, solely because Vanderbilt held thisgigantic personal ownership in the property. This prospect frightenedhim and he consulted friends whose judgment he respected. They urged himto sell a considerable part of his holdings in order to distribute theownership of the property among a large number of people. This plan could not be carried out, however, in the ordinary way, because large sales of stock by the Vanderbilt interests, if thespeculating and investing public learned that he was making them, wouldgreatly depreciate the price and might create general demoralization anda panic, while they would certainly injure the credit of the New YorkCentral property. But a way out of the dilemma had to be found. It wasat this juncture that a new personality, later to be closely identifiedwith the Vanderbilt lines for a long series of years, appeared uponthe scene. Vanderbilt was advised to consult J. Pierpont Morgan, of thebanking house of Drexel, Morgan and Co. At that time the name of J. P. Morgan was just beginning to come prominently to the front in bankingcircles in New York. The Drexels had been conspicuous in business inPhiladelphia for many years and in a sense were the fiscal agents of thegreat Pennsylvania Railroad Company. But the spectacular success of theHouse of Morgan a few years before in marketing the French governmentloan in England had added largely to its prestige. And so Vanderbiltconcluded that, if any man could show him a way out in his difficultproblem, Pierpont Morgan was that man. The upshot of the matter was that Morgan devised a plan for the sale ofa large amount of Vanderbilt's stock holdings through private sale inEngland, and in such a way that the knowledge of such sale would notbecome public in America. A confidential syndicate was formed whichundertook to take the stock in a block and pass it on to Englishinvestors at approximately its current market price of about $130 pershare. The sale was promptly accomplished; the stock went into the handsof unknown interests abroad; Vanderbilt received more than $25, 000, 000in cash, which he largely reinvested in United States government bonds, and the Morgan syndicate reaped a profit of about $3, 000, 000. Fivemonths after the closing of the syndicate public announcement was madeof the sale and of the syndicate profit. The striking success of thistransaction naturally added greatly to the prestige of. J. P. Morgan asa financier of very large caliber, and it had the satisfactory effect ofcurtailing the legislative attacks on Vanderbilt. From that date forward, the history of the Vanderbilt railroads hasbeen closely identified with the House of Morgan. J. P. Morgan andhis business associates became the company's financial agents, andthereafter all plans of expansion or consolidation were handled directlyby them. In the board of directors Morgan banking interests had fullrepresentation, which they have held until this day. The subsequent history of the Vanderbilt lines is chiefly a story ofbusiness expansion and growth. From 1885 to 1893, the great panic year, the New York Central each year added to its mileage, either by merger ofsmaller lines or by construction. All this time it was consolidating thesystem, eliminating the weaker links, and strengthening the stronger. Its lines penetrated all the best Eastern railroad territory outside ofNew England, New Jersey, and Pennsylvania, and no other railroad systemin the country, with the single exception of the Pennsylvania, coveredanything like the same amount of rich and settled territory, or reachedso many cities and towns of importance. New York, Buffalo, Cleveland, Detroit, Chicago, St. Louis, Cincinnati, Indianapolis--these are afew of the great traffic centers which were included in the Vanderbiltpreserves. The population of all these cities, as well as that of thehundreds of smaller places and the countryside in general, was growingby leaps and bounds. Furthermore the Northwest, beyond the Great Lakesand through to the Pacific coast, saw the beginnings of its greatdevelopment at this time; and the wheat fields of the far westerncountry became a factor of profound importance in the nationaldevelopment. Consequently when the period of depression arrived with thepanic of 1893, the Vanderbilt properties were, as a whole, in a strongposition to meet the changed situation and, like the great Pennsylvaniaproperty, they all passed through to the advent of the new industrialera without the defaulting of a bond or the passing of a dividend. Theremarkable character of this achievement is evident in view of the factthat in the period from 1893 to 1898 more than sixty-five per cent ofall the railroad mileage in the United States went into the hands ofreceivers. After the close of this era of panic, the Vanderbilt lines beganexpanding again, though on a much smaller scale than in their moreactive time. In 1898 William K. Vanderbilt, then president, made theannouncement that the New York Central had leased the Boston and AlbanyRailroad, at that time a lucrative line running from Albany acrossMassachusetts into Boston. This gave the system an entry into the NewEngland field, which it has continuously held since. A few years laterthis New England interest was increased by the acquisition of theRutland Railroad in Vermont, thus making connection with the Ogdensburgand Lake Champlain, a line running across the northern part of New YorkState, which had also come under Vanderbilt control. When business revived in the closing years of the nineteenth century, the history of American railroads began a new chapter. Federal railroadregulation, which started in a moderate way with the passage of theInterstate Commerce Act in 1887, had steadily increased through theyears; the Sherman Anti-trust Act, passed in 1890, had been interpretedbroadly as affecting the railroads of the country as well as theindustrial and other combinations. These influences had thus greatlycurtailed the consolidation of competing lines which had gone on sorapidly during the decades following the Civil War. Railroad managersand financiers therefore began to face a very serious problem. Competition of a more or less serious nature was still rampant, rateswere cut, and traffic was pretty freely diverted by dubious means. Consequently many large railroad systems of heavy capitalization bidfair to run into difficulties on the first serious falling off ingeneral business. Great men are usually the products of their times and one of the mendeveloped by these times takes rank with the greatest railroad leadersin history. Edward H. Harriman had risen in ten years from comparativeobscurity and was now the president of the Union Pacific Railroad, whichhe had, in conjunction with the banking house of Kuhn, Loeb and Company, reorganized and taken out of bankruptcy. Harriman was one of theoriginators of the "community of interest" idea, a device for thepartial control of one railroad system by another. For instance, although the law forbade any railroad system from acquiring a completecontrol of a competing line by purchasing a majority of its capitalstock or by leasing it, nothing was said about one railroad having aminority investment interest in another. A minority investment, eventhough it be as low as ten or twenty per cent, usually constitutes adominating influence if held by a single interest, for in most casesthe majority of the shares will be owned in small blocks by thousands ofinvestors who never combine for a definite, practical purpose. Thus theinterest which has the one large block of stock usually controlsthe voting power, and runs little risk of losing it unless a contestdevelops with other powerful interests--and this is a contingency whichit almost never has to meet. Carrying out this policy of promoting harmony among competing lines, the New York Central and Pennsylvania Railroad early in 1900 acquired aworking control of the Reading Company, which in turn controlled theNew Jersey Central and dominated the anthracite coal traffic. Later theBaltimore and Ohio shared this Reading interest with the Lake Shore ofthe New York Central system. The New York Central and the Pennsylvaniaacquired a working control of the same kind in the Chesapeake and OhioRailway, which was an important element in the soft coal fields and wasreaching out to grasp soft coal properties in Ohio and Indiana. These and other purchases, and the consequent voice acquired in themanagement, established comparative harmony among Eastern railroads fora long time; they stabilized rates and enabled formerly competing roadsto parcel out territory equitably among the different interests. Later, Harriman, and to some extent Morgan, carried the community of interestidea some steps further. Morgan caused the New York Central to acquirestock interests in certain "feeder" lines such as the New York, NewHaven and Hartford and the Chicago, Milwaukee and St. Paul, as well asin competing lines; and Harriman caused the Union Pacific not only todominate the Southern Pacific Company by minority control but also toacquire interests in the Illinois Central, the Baltimore and Ohio, the New York Central, and other eastern properties. The fact was thatHarriman had plans in view for acquiring actual control of the New YorkCentral for the Union Pacific and thus, with the Illinois Central, ofcreating a continuous transcontinental line from ocean to ocean. In the past decade few unusual or startling events have marked thehistory of the Vanderbilt lines. The Vanderbilt family no longerpossesses a majority interest in the stock, or anything which approachesit, and the New York Central system and its subsidiaries have come to beknown more and more as Morgan properties. The system has grown up withthe country. Many of its former controlled roads have now been mergedinto the main corporation and many new lines have been added to it. Hundreds of millions of dollars of new capital have been spent onthe main lines and terminals since 1900. In 1919 the entire property, including controlled lines, embraced more than 13, 000 miles of maintrack, besides about 5000 miles of extra tracks; over 200, 000 freightcars are in use on the system, and every year upwards of 200, 000, 000tons of freight are transported. The gross annual revenues of theentire system now aggregate more than $400, 000, 000, while the totalcapitalization in stocks and bonds exceeds a billion dollars. It isindeed a far cry from that day in August, 1831, when the De WittClinton locomotive made its trial trip over the primitive rails of theseventeen-mile Mohawk and Hudson road--a far cry even from that otherday, thirty-eight years later, when the sagacious Commodore startled thefinancial world by his New York Central and Hudson River Railroad, witha capital of ninety million dollars. CHAPTER III. THE GREAT PENNSYLVANIA SYSTEM In the early forties the commercial importance of Philadelphia wasmenaced from two directions. A steadily increasing volume of trade waspassing through the Erie Canal from the Central West to the northernseaboard, while traffic over the new Baltimore and Ohio Railroadpromised a great commercial future to the rival city of Baltimore. Withcommendable enterprise the Baltimore and Ohio Company was even thenreaching out for connections with Pittsburgh in the hope of divertingwestern trade from eastern Pennsylvania. Moreover the financial prestigeof Philadelphia had suffered from recent events. The panic of 1837, thecontest of the United States Bank with President Jackson, its defeat, and its subsequent failure as a state bank, the consequent distress inlocal financial circles--all conspired to shift the monetary center ofthe country to New York. It was at this time that Philadelphia capitalists began to bestirthemselves in an attempt to recover their lost opportunities. Philadelphia must share in this trade with the Central West. Thedesigns of the Baltimore and Ohio Company must be defeated by bringingPittsburgh into contact with its natural Eastern market. To this end, the Pennsylvania Railroad was incorporated on April 13, 1846, with afranchise permitting the construction of a railroad across the Statefrom Harrisburg to Pittsburgh. An added incentive to constructiveexpansion was given by an act of the Legislature authorizing theBaltimore and Ohio to extend its line to Pittsburgh if the PennsylvaniaCompany failed to avail itself of its franchise. In order to avoid the heavy cost of constructing a road betweenPhiladelphia and Harrisburg, the Pennsylvania Railroad entered intoarrangements with the Philadelphia and Columbia--a railroad opened in1834 and owned by the State--which ran through Chester and Lancaster toColumbia. This road was primitive in the extreme and used both steam andhorse power. As late as 1842 a train was started only when sufficienttraffic was waiting along the road to warrant the use of the engine. Belated trains were hunted up by horsemen. Yet the road was in thosedays famous for the "rapidity and exceptional comforts of the trainservice. " Between Columbia and Harrisburg passengers westward bound hadto use the Pennsylvania Canal. Construction of the main line westward to Pittsburgh began at once andprogressed rapidly. By making use of the Alleghany Portage Railroad fromHollidaysburg, the Pennsylvania Railroad eventually secured a continuousline from Harrisburg to Pittsburgh. But between Philadelphiaand Harrisburg passengers were for a long time subjected to manyinconveniences. Finally in 1857 the Pennsylvania Railroad bought thePhiladelphia and Columbia from the State, rebuilt it, and extended itto Harrisburg. At the same time the Pennsylvania bought the main line ofthe Public Works, which included the Alleghany Portage Railroad. OnJuly 18, 1858, the first through train passed over the entire line fromPhiladelphia via Mount Joy to Pittsburgh without transfer of passengers. At the same time the first smoking car ever attached to a passengertrain was used, and sleeping cars also soon began to appear. The railroad genius identified with the history of the PennsylvaniaRailroad during the following decade is J. Edgar Thomson. A man ofvision and of great shrewdness and ability, he was more like the modernrailroad head of the Ripley or Underwood type than of the Vanderbilt, Garrett, or Drew type. His interest was never in the stock market nor inthe speculative side of railroading but was concentrated entirely onthe development and operation of the Pennsylvania Railroad system. His dreams were not of millions quickly made nor of railroad dominancesimply for the power that it gave; his mind was concentrated on thegrowth and prosperity of a vast railroad system which would increasewith the years, become lucrative in its operations, and not only radiatethroughout the State of Pennsylvania but extend far beyond into thegrowing West. Under the Thomson management, which lasted until 1874, the record of thePennsylvania Railroad was one of progress in every sense of the word. While Daniel Drew was lining his pockets with loot from the ErieRailroad and Commodore Vanderbilt was piling up his colossal fortunethrough consolidation and manipulation, J. Edgar Thomson was steadilybuilding up the greatest business organization on the continent. In1860, the entire Pennsylvania Railroad system was represented merelyby the main line from Philadelphia to Pittsburgh, with a few shortbranches. By 1869 the road had expanded within Pennsylvania alone tonearly one thousand miles and also controlled lines northward to theshores of Lake Erie, through the State of New York. But the master accomplishment of the Thomson administration was theacquisition of the Pittsburgh, Fort Wayne and Chicago line in 1869. Thisnew addition gave the Company its own connection with Chicago and made acontinuous system from the banks of the Delaware at Philadelphia to theshores of Lake Michigan, thus rivaling the far-flung Vanderbilt line, athousand miles long, which the industrious Commodore was now organizing. Shortly thereafter the Pennsylvania began to expand on the east also andobtained an entry into New York City by acquiring the United Railroadand Canal Company, which owned lines across the State of New Jersey, passing through Trenton. In the latter years of the Thomson management it became more and moreevident that it was important for the Pennsylvania Railroad to havefurther Western connections which would reach the growing cities of theMiddle West. While the Fort Wayne route made a very direct connectionwith Chicago and included branches of value, yet the keen competitionwhich was developing in the expansive years following the Civil Warmade actual control of the Middle Western territory a matter of soundbusiness policy. The Vanderbilt lines were reaching out through Ohio, Indiana, and Illinois; the Baltimore and Ohio was steadily developingits Western connections, and now Jay Gould had come actively on thescene with large projects for the Erie. To offset these projects, early in 1870 a "holding company"--probably the first of its kind onrecord--known as the Pennsylvania Company was formed for the expresspurpose of controlling and managing, in the interest of the PennsylvaniaRailroad, all lines leased or controlled or in the future to be acquiredby the Pennsylvania Railroad interests west of Pittsburgh and Erie. ThisCompany took over the lease of the Fort Wayne route and also acquiredcontrol by lease of the Erie and Pittsburgh, a road extending northwardthrough Ohio to Lake Erie. After this date the expansion of the system west of Pittsburgh went onrapidly. In 1871 the Cleveland and Pittsburgh Railroad, which had beenopened as early as 1852, came under the Pennsylvania control. Soon afterthis, many smaller lines in Ohio were merged in the system. The mostimportant acquisition during this period, however, was the result of thepurchase of the great lines extending westward from Pittsburgh to St. Louis, with branches reaching southward to Cincinnati and northward toChicago. This system--then known as the "Pan Handle" route and later asthe Pittsburgh, Cincinnati, Chicago and St. Louis was a consolidationof several independent properties of importance which had been graduallyextending themselves over this territory during the previous decade. This new system, which embraced over fourteen hundred miles of road, gave the Pennsylvania a second line to Chicago, a direct line toSt. Louis, a second line to Cincinnati, and access to territory notpreviously tapped. While the achievements of the Pennsylvania Railroad Company during theseyears of consolidation and expansion are not to be compared with thoseof more modern times, it is well to realize that even as early as theseventh decade of the last century this railroad was always in theforefront in matters of high standards and progressive practice. Itwas the pioneer in most of the improvements which were later adoptedby other roads. The Pennsylvania was the first American railroad to laysteel rails and the first to lay Bessemer rails; it was the first to putthe steel fire-box under the locomotive boiler; it was the first to usethe air brake and the block signal system; it was the first to use inits shops the overhead crane. In these earlier years also the Pennsylvania had established itsenviable record for conservative and non-speculative management. Norailroad wrecker or stock speculator had ever had anything to do withthe financial control of the company, and this tradition has been passedon from decade to decade. The stockholders themselves, even in thosedays of loose methods and careless finance, had the dominating voicein the affairs of the company and were also factors in the approval ordisapproval of any proposed policies. In the matter of its financesthe Pennsylvania developed and established an equally clean record. Thecompany began almost at the beginning to pay a satisfactory dividend onits shares and continued to do so right through the Civil War period. Since the through line from Philadelphia to Pittsburgh was opened, nota single year has passed without the payment of a dividend--a sixty-yearrecord which can be duplicated by no other American railroad system. The Pennsylvania still continued to forge ahead even during the excitingperiod from 1877 to about 1889, when the trunk lines were aggressivelycarrying on that policy of cutthroat competition between Chicago and theAtlantic seaboard which resulted in so severely weakening the creditand position of properties like the Baltimore and Ohio and the Erie. The Pennsylvania, too, indulged in rate cutting, but the management wasequal to the situation and made up in other directions what it lost inlower rates. It gave superior service, developed a high efficiency ofoperation, and steadily maintained its properties at a high standard. During these years the president was George B. Roberts, who hadsucceeded Thomas A. Scott in 1880. Roberts's management spanned the period from 1880 to 1897 and embraced adecade of comparative prosperity for the country as a whole and nearlya decade of panic and industrial and financial depression. Duringthe earlier decade the business of the Pennsylvania was continuallybenefited by the industrial development and growth which marked theperiod. It was at this time that the Pittsburgh district took itspermanent place as the great center of steel and iron manufacture. Thediscovery of petroleum in western Pennsylvania, creating an enormous newindustry in itself, proved to be an event of far-reaching significancefor the Pennsylvania Railroad. The extensive opening up of the soft coalsections of western Pennsylvania, Ohio, and Indiana, also meant much forthis great system of railroads. Still further developments in other directions accrued to the benefit ofthe Pennsylvania Railroad. In this period, by obtaining the control ofa line to Washington, the system acquired a Southern artery runningthrough Wilmington, Delaware, and Baltimore to Washington. Afterwards, with other roads, the Pennsylvania acquired control of the Richmond, Fredericksburg and Potomac Railroad and thus obtained a line toRichmond, Virginia. On the north and to the east the expanding movementalso went on. In addition to the development of its main line fromPhiladelphia to Jersey City, the Pennsylvania acquired many other NewJersey lines, including the West Jersey and Seashore, a road runningfrom Camden to Atlantic City and Cape May. During the whole of the aggressive administrations of both Thomas A. Scott and George B. Roberts the great system continued to spread outsteadily until it had penetrated as far as Mackinaw City on the northand Chesapeake Bay on the south. Its network of lines stretched acrossthe Eastern section of the continent from New York to Iowa and Missouri, while the intensive development of shorter lines in the State ofPennsylvania and to the north was unceasing. The Northern Centralrunning south from Sodus Bay on Lake Ontario through centralPennsylvania to Baltimore, the Buffalo and Alleghany Valley extendingfrom Oil City northward and joining the main system to the east, theWestern New York and Pennsylvania operating north from Oil City toBuffalo and Rochester--these lines the Pennsylvania Railroad acquiredand definitely consolidated in the Roberts regime. After the retirement of Roberts, Frank Thomson, a son of the earlierpresident of the same name, was placed at the head of the system forthree years. But in 1899 Alexander J. Cassatt, who had for manyyears been identified with the Pennsylvania as officer, director, andstockholder, took the helm, and a new chapter and probably the greatestin the history of this remarkable railroad began. The name of Alexander J. Cassatt will always be linked with thecomprehensive terminal developments in the region of New York City whichwere begun almost immediately on his accession to the presidency andwhich were carried forward on bold and far-reaching lines. Perhaps morethan any other one person, Cassatt foresaw the approach of the day whenNew York City as a commercial center would outstrip both in density ofpopulation and in amount of wealth all the other cities of the world. Heand his predecessors had for many years witnessed the great industrialdevelopment of the Pittsburgh district, where property values had grownby leaps and bounds and where the steadily advancing development ofindustry and material resources had been so unmistakably reflected inthe increasing earning power and value of the Pennsylvania Railroadproperties. But while at Pittsburgh the road had everything to favor it as far asterminals and rights of way through the heart of the great industrialdistrict were concerned, in the great Eastern metropolis thePennsylvania Railroad was at an obvious disadvantage, particularly ascompared with the New York Central, which had its splendid terminalrights penetrating to the heart of the city. Cassatt saw that hiscompany must without delay take a number of bold and, for the time, enormously expensive steps toward the development of terminal facilitiesin Greater New York or else forever abandon the idea of getting nearerthe heart of the city than the New Jersey shore and thus run the risk, in the keen contest for commercial supremacy, of ultimately fallingbehind other more advantageously situated lines. There were still further incentives to immediate action on the part ofthe Pennsylvania Railroad. While the New York Central was in an idealposition for handling all traffic destined for the New England States, the Pennsylvania could control practically none of this business, asits terminals were on the wrong side of the Hudson and necessitated notmerely the inconvenient transfer of passengers but also the much moreexpensive handling of freight. Other disadvantages from which thePennsylvania suffered were involved in its inability to make the mosteconomical terms for foreign shipping, as a large proportion of suchfreight had to be constantly transferred on lighters to the New York andBrooklyn sides of the harbor. Thus any comprehensive plan for terminaldevelopment on the part of the Pennsylvania must necessarily include notonly a tunnel system into New York City but also an outlet through thecity to Long Island and a connection with the New England railroads. The first move in the development of this terminal system was theacquisition in 1900 of the control of the Long Island Railroad, embracing all the steam railway mileage on Long Island, with linesextending along both the north and south shores to Montauk Point. Thisacquisition added extensive freight yards and terminals on the Brooklynside of the East River. The Company then obtained franchises and beganthe construction of its great tunnels under the North and East Riversand entirely across New York City, with a mammoth passenger station atSeventh Avenue and Thirty-second Street. A great railroad bridge wasplanned to cross from Long Island to the mainland, connecting withthe New York, New Haven and Hartford system, in the stock of which thePennsylvania at this time purchased an interest. The terminal construction occupied a period of many years and costover one hundred million dollars, besides the added costs involved inbuilding up and developing the old, worn-out Long Island Railroad. Onlyrecently has the project been rounded out and completed through thefinal construction of the important connection with the New Englandrailroad systems. But the realization of this plan is undoubtedlythe greatest achievement in all the long career of the PennsylvaniaRailroad. Had the project been delayed for another decade, it probablycould not have been accomplished because of the growing expense ofoperation and the difficulties of getting franchise rights and rights ofway through and under the metropolis. While the tunnel development is the notable achievement of the Cassattregime, this remarkable man's name is also closely identified withthe "community of interest" idea already explained. This "community ofinterest" scheme was pushed aggressively by Cassatt in cooperationwith Harriman, Hill, and Morgan. Large stock purchases were made inthe Norfolk and Western, the Chesapeake and Ohio, and the Baltimore andOhio. As the latter road had in its turn acquired, jointly with New YorkCentral interests, a working control of the Reading Company, and theReading Company had secured majority ownership of the New Jersey Centralsystem, it is apparent that the domination which the Pennsylvania hadobtained over the entire Eastern seaboard south of New York City andnorth of Baltimore was made nearly complete. The "community of interest" plan held sway with the large railroads ofthe country and was very effective for perhaps half a dozen years, untilthe interstate commerce laws were amended in such a way as to give theGovernment complete control over railroad freight and passenger rates. In 1906 the Pennsylvania began to dispose of the bulk of its holdingsin competing properties, the most notable transactions being the sale ofits entire interest in the Chesapeake and Ohio to independent interestsand a substantial part of its Baltimore and Ohio holdings to the UnionPacific Railroad. A few years later, when the Union Pacific was forcedby the Federal courts to dispose of its control of the Southern PacificCompany, a trade was made between the Pennsylvania and the Union Pacificwhereby the latter took from the Pennsylvania the remainder of itsBaltimore and Ohio investment and gave in exchange a portion of its ownlarge holding of Southern Pacific stock. To get a fair idea of the meaning and magnitude of the greatPennsylvania Railroad system today one must do more than scan maps andstudy statistics. One should travel by daylight over its main line fromNew York to Pittsburgh. Although the route is over the same groundwhich the road followed a generation or two ago, a four-track line runspractically all the way, with long stretches of hundreds of miles offive, six, and eight tracks. Where mountains were climbed thirty yearsago, one will now find them bored by tunnels; where sharp curves werenecessary before straight trackage only will be encountered today. Grades have been eliminated everywhere and the whole route has beenmodernized and strengthened by the laying of one hundred to one hundredand fifty pound rails. Undoubtedly the fortunate location of the Pennsylvania lines in the halfdozen States which represent the financial and industrial heart of thecontinent has had much to do with its vast growth and the expansion ofits business; but its high reputation can be explained only by thelong record of its superior methods and management. One of the primaryobjects of Pennsylvania Railroad policy has been to keep pace with thegrowth of the country. Instead of following in the wake of industrialprogress and making its improvements and extensions after itscompetitors had made theirs, its management has usually had theforesight to prepare well in advance for future needs. CHAPTER IV. THE ERIE RAILROAD "Before introducing a friend to a distinguished stranger, it isadvisable to give him some account of the person whose acquaintance heis about to make; and so, fellow-traveler, whom I introduce to the NewYork and Erie Railroad, it may be well to prefix here a brief sketch ofthe history and present condition of this, the Lion of Railways. True, he is yet in an unfinished state, but you will find that what thereis of him is complete, and of wondrous organization and activity. Hismagnificent head and front repose in grandeur on the shores of theHudson; his iron lungs puff vigorously among the Highland fastnesses ofRockland; his capacious maw fares sumptuously on the dairies of Orangeand the game and cattle of Broome; his lumbar region is built uponthe timber of Chemung, and the tuft of his royal extremity floatstriumphantly on the waters of Lake Erie. " This exultant, characteristically American, description appeared inHarper's "Guide-Book of the New York and Erie Railroad", published in1851, soon after the opening of the main line of more than four hundredand sixty miles from Piermont on the Hudson to Dunkirk on Lake Erie. That this railroad, which after nearly twenty years of struggle andof financial vicissitudes had finally linked the Great Lakes with theAtlantic coast, was looked upon as a property of wonderful characterand limitless future is indicated in all the railroad literature of thattime. Appleton's "Illustrated Handbook of American Travel", publishedin 1857, devotes several pages to a description of this remarkableachievement in railroad extension and among other things says: "This great route claims a special admiration for the grandeur of theenterprise which conceived and executed it, for the vast contribution ithas made to the facilities of travel, and for the multiplied andvarious landscape beauties which it has made so readily and pleasantlyaccessible. It traverses the southern portion of the Empire State inits entire length from east to west, passing through countless towns andvillages, over many rivers, through rugged mountain passes now, and anonamidst broad and fertile valleys and plains. In addition it has manybranches, connecting its stations with other routes in all directions, and opening new stores of pictorial pleasures.... An interesting featureof this road is its own telegraph, which runs by the side of the roadand has its operator in nearly every station house. This telegraph hasa double wire, enabling the company to transact the public, as wellas their own private business. Daily trains leave for the west on thisroute, with connections by boat from the foot of Duane Street, morning, noon, and night. " The Erie Railroad system was foreshadowed in the time of Queen Anne, when the Colony of New York appropriated the sum of five hundred dollarsto John Smith and other persons for the purpose of constructing a publicroad connecting the port of New York with the West in the vicinity ofthe Great Lakes. The appropriation was coupled with the condition thatwithin two years the beneficiaries should have constructed a road wideenough for two carriages to pass, from Nyack on the Hudson River toSterling Iron Works, a distance of about thirty miles; and that theyshould cut away the limbs of trees over the track in order to allow thecarriages to pass. In this way began the internal improvement systemof the State of New York, which after the lapse of more than a centuryresulted in opening the Erie Canal and in projecting a railroad systemconnecting New York and the valley of the Hudson with Lake Erie. After the opening of the Erie Canal in 1825, the Legislature of New Yorkdirected a survey of a state road which was to be constructed at publicexpense through the southern tier of counties from the Hudson River toLake Erie. The unfavorable profile exhibited in the survey apparentlycaused the project to be abandoned. But the idea still held sway overthe minds of many people; and the great benefits brought to the MohawkValley and surrounding country by the Erie Canal led the southerncounties to demand a transportation route which would work similarwonders in that region. This growing sentiment finally persuaded theLegislature to charter in April, 1832, the New York and Erie RailroadCompany, and to give it authority to construct a line and to regulateits own charges for transportation. During the following summer a survey of the route was made by Colonel DeWitt Clinton, Jr. , and in 1834 a second survey was made of the whole ofthe proposed route. When the probable cost was estimated, many opponentsarose who declaimed the undertaking was "chimerical, impractical, anduseless. " The road, they declared, could never be built and, if built, would never be used; the southern counties were mountainous, sterile, and worthless, and afforded no products requiring a market; and, in anycase, these counties should find their natural outlet in the valley ofthe Mohawk. This antagonism was successfully opposed, however, and theconstruction of the road was begun in 1836. The panic of 1837 interfered with the work, but in 1838 the stateLegislature came forward with a construction loan of three milliondollars, and the first section of line, extending from Piermont on theHudson to Goshen, was put into operation in September, 1841. In thefollowing year the company became financially embarrassed and was placedin the hands of receivers. This catastrophe delayed further progress foryears, and it was not until 1846 that sufficient new capital was raisedto go on with the work. The original estimate of the cost for buildingthe entire line of 485 miles had been three million dollars, but alreadythe road had cost over six millions and only a small portion had beenfinished. The final estimate now rose to fifteen millions, and, althoughsome money was raised from time to time and new sections were built, there was no certainty that the entire road would ever be completed. Ultimately the State of New York canceled its claim against theproperty, new subscriptions of some millions were secured, and moremoney was raised by mortgaging the finished sections. Finally, in 1851, after eighteen years of effort, the line was opened toLake Erie. In addition there had been added various feeders or branches, giving the road an entry into Scranton, Pennsylvania, and into Genevaand Buffalo, New York. It had its terminus on Lake Erie at Dunkirkand its eastern terminus at Piermont, near Nyack on the Hudson, abouttwenty-five miles by boat from New York City. The financial condition of the Erie at this time manifested thebeginning of that general policy of improvidence and recklessnesswhich afterward, for nearly a generation and a half, made the companya speculative football in some of the most disreputable games of WallStreet stock-jobbers. For though the original estimate had been threemillions and the highest estimate of the cost during construction hadbeen fifteen million dollars, the company, in 1851, started its careerwith capital obligations of no less than twenty-six millions--a verylarge sum for those days. The fact that these initial obligations constituted a heavy burdenbecame apparent when the Erie began operations. They made necessary suchhigh freight rates that shippers held indignation meetings and again andagain made appeals for legislative relief. Although much money had beenraised after 1849 for improvements, the condition of the Erie steadilygrew worse. It soon became notorious for many accidents due tocarelessness in running trains and to the breaking of the brittle ironrails. But in spite of these drawbacks the business of the Erie grew. In 1852it acquired the Ramapo and Paterson and the Paterson and Hudson Riverrailroads and in this way it obtained a more direct connection with NewYork City. It changed the tracks of its new railroads to the six-footgage, which the Erie had adopted from the start and which it persistedin maintaining for many years despite the world-wide practice ofestablishing a standard width of four feet eight and one-half inches. The most conspicuous figure in the history of the Erie Railroad systemin these early days was Daniel Drew. From 1851, when the main line wasopened, until 1868, this man was a director and, for the larger part ofthe time, treasurer. Born in 1797, he had driven cattle when a boy fromhis native town of Carmel in Putnam County to the New York City marketand, for some years later, he had been proprietor of the Bull's HeadTavern. Shrewd, unscrupulous, illiterate, good-natured, and sometimesgenerous, he was in many ways unlike his great adversary in the railroadworld, Commodore Vanderbilt. Drew affected a pious and sanctimoniousattitude in all his dealings, while Vanderbilt had a more frank and opennature and usually made no pretensions to righteousness. For many years following 1851, Drew, who owned or controlled nearlyone-half the stock of the Erie, appeared to think that his office oftreasurer carried with it the right to manipulate the stock of theroad at any time it might help his pocketbook to do so. He frequentlyadvanced money which the road could not obtain elsewhere, always takingfull security and excessive commissions. This practice gave him thename of "speculative director, " and by the time his great contestswith Commodore Vanderbilt broke out, he was reputed to be worth manymillions, most of which he had acquired by juggling in Wall Street withErie securities. The entire period in the affairs of the Erie system from the ascendancyof Daniel Drew in 1851 to the end of the Civil War witnessed an endlesssuccession of stock-market exploits both large and small. In thespring of 1866, however, Drew found an opportunity to achieve a realmasterpiece in manipulation. The stock of the Erie road was then sellingat about 95 and the company was in pressing need of funds. The treasurercame to the rescue as usual and made the necessary advances on adequatesecurity. The company had in its treasury a considerable amount ofunissued stock and had also the legal right to issue bonds to the extentof $3, 000, 000 which could be converted into stock. Drew took these bondsand the unissued stock as security for a loan of $3, 500, 000. It so happened, naturally, that Drew was soon heavily short of Eriestock in Wall Street. The market was buoyant; speculation was rampant;and the outside public, the delight and prey of Wall Street gamblers, were as usual drawn in by the fascination of acquiring wealth withoutlabor. All this time our friend, Daniel Drew, was quietly selling Eriestock and closing contracts for the future delivery of the certificates;and he was doing this at rising prices. As the days went by, his grave, desponding manner grew more and more apparent. Erie stock continued torise. In the loan market its scarcity became greater hour by hour. The rumor began to spread that "Uncle Daniel" was cornered. His largeobligations for future delivery must be met. Where was the Erie stockto come from? The stock continued to soar, and Treasurer Drew seemed tobecome more and more depressed. Then the blow fell. Drew laid his hands on the collateral which he heldfor his loan to the Erie. In the twinkling of an eye his $3, 000, 000 inErie bonds was converted into Erie stock, which he proceeded to dumpin Wall Street. Eric quotations fell from 90 to 50. Every one atlast realized the trap--but not before Daniel Drew had pocketed a fewmillions in profits. By this time Drew had come to be looked upon as a stock operator to beboth admired and feared, and this incident took its place in WallStreet history as a brilliant coup side by side with Vanderbilt's HarlemRailroad and other celebrated exploits. It was soon followed, however, by much more sensational events. We have seen that the portentous figureof Vanderbilt was just at this time looming up in the railroad world, and Vanderbilt had his own theory of the management and financing ofrailroads. It was inevitable that he should clash with Drew. He was afew years older than Drew, and the two men, as we have seen, had muchin common. Both were well on in life before they had transferred theiractivities to steam railroads. When finally, in 1868, they crossedswords in connection with the two railroad systems extending throughNew York State, both were more than seventy years old and had beensuccessful in the acquisition of millions by methods of their owninvention. They were no doubt equally unscrupulous, but, while Drewwas by nature a pessimist and "bearish, " Vanderbilt, in the Wall Streetvernacular, was always a "bull. " Having obtained control of the New York Central, the Hudson River, andthe Harlem railroads, Commodore Vanderbilt now decided in the summer of1867 to go after the Erie, of which Drew was nominally in possession, although no one knew when he owned a majority of the stock or when hewas temporarily short of it. Usually he loaded up as the annual electionof officers approached and liquidated shortly thereafter. BesidesVanderbilt there was another interest at this time trying for thecontrol of the Erie. This interest consisted of certain Wall Streetspeculators and certain Boston capitalists who proclaimed themselvesrailroad reformers. These so-called reformers were as unscrupulous andcrafty as either of the other men, and they really represented nothingbut an attempt to raid the Erie treasury in the interest of a bankruptNew England corporation known as the Boston, Hartford and Erie Railroad. As was well said, the name of this latter road was "synonymous withbankruptcy, litigation, fraud, and failure. " The Erie Railroad control was always nominally for sale, and, as theannual election approached, a majority of stockholders stood ready tosell their votes to the highest bidder. Commodore Vanderbilt cleverlysecured the cooperation of the "reformer" element, corralling theirproxies, and thus he appeared to be in a position to oust the Drewinterests without difficulty. On the Sunday preceding the election theCommodore saw Drew and amicably explained to him the trap he had laid, and showed him clearly that there was no way out of the situation. Uponthis disclosure, Treasurer Drew at once faced about and agreed to joinhands with Vanderbilt in giving the market for the stock the strongupward twist it had lacked before that hour. Jointly they would make somuch money that neither side would lose anything. "Uncle Daniel" wentaway apparently satisfied and contented with the compromise. But the Commodore had not finished. A few hours later he took theBoston adventurers into his confidence and explained that he proposedto continue Drew in the directorate. The Boston men were puzzled andconfused by this sudden change of front. Later, all parties metat Drew's house, and Vanderbilt brought the Boston men to terms byproposing a plan to Drew whereby they would be entirely left out. Thisruse succeeded and a written agreement to the advantage of all, but atthe expense of the outside stockholders and of the general public, wasthen drawn up. This, however, was only the beginning of the fight. Vanderbilt was nowin the Erie as a joint owner, but he had stretched out his hands tocontrol the road and he meant to succeed. In February of 1868, FrankWork, the single representative of Vanderbilt on the Erie board, appliedfor an injunction against Treasurer Drew and his brother directorsto restrain them from the repayment of the $3, 500, 000 borrowed by therailroad from Drew in 1866, and to restrain Drew from taking any legalsteps toward compelling a settlement. Judge Barnard granted a temporaryinjunction, and two days later Vanderbilt's attorney petitioned for theremoval from office of Treasurer Drew. The papers presented in the caseexposed a new fountain of Erie stock which had up to that time beenentirely overlooked. A recently enacted law of the State of New York--probably fathered byDrew--authorized any railroad company to create and issue its own stockin exchange for the stock of any other railroad under lease to it. Uponthe basis of this law Drew and his close satellites had secretly securedownership of a worthless piece of road connecting with the Erie andknown as the Buffalo, Bradford and Pittsburgh. Then, as their personalneeds in the stock-market or at elections demanded, they had suppliedthemselves with new Erie stock by leasing the worthless road to the Erieand then exchanging Erie stock for the worthless stock of the leasedline. The cost of the line to Drew and his friends, as financiers, wasabout $250, 000. They then issued, as proprietors, $2, 000, 000 in bondsof the road, payable to one of themselves as trustee. This person thenshifted his character, became counsel for both sides, and drew up acontract leasing the line to the Erie for 499 years, the Erie agreeingto guarantee the bonds in consideration. These men then reappeared asdirectors of the Erie and ratified the lease. After that it was a simplematter to divide the loot. The Erie was thus saddled with a $9, 000, 000mortgage at seven per cent in addition to a further issue of capitalstock. Following the first injunction another was now issued restrainingDrew and the Erie board from making any further issues of stock, byconversion of bonds or otherwise, and also forbidding the Erie toguarantee any further issues of bonds. An additional injunction forbadeDrew from having any transactions in Erie stock or fulfilling anycontracts until he had returned to the treasury the shares involvedin his loan transaction of 1866 and in the purchase of the worthlessBuffalo, Bradford and Pittsburgh road. Matters now looked forbidding for Treasurer Drew. Instead of beingallowed to manufacture fresh Erie stock certificates at his own will, ashad been his habit for fifteen years, he was to be cornered by a legalwrit and forced to work his own ruin. But notwithstanding the apparentlydesperate situation it was quite evident that Drew's nerves were notseriously affected. Although he seemed rushing on destruction, hecontinued day after day to put out more short stock, all in the face ofa steadily rising market. His plans, apparently, were carefully matured, and he said that if the Commodore wanted the stock of his road he wouldlet him have all he desired--at the proper price. As usual the Erie treasury was short of funds, and as usual "UncleDaniel" stood ready to advance all the money required--that is, onproper security. There was but one kind of security to offer and thatwas convertible bonds. No stock could be issued by the company for lessthan par, but convertible bonds could be disposed of by the directorsat any price. A secret meeting of the executive committee was held, at which it was voted to issue immediately and to offer for sale$10, 000, 000 in convertible bonds at 72 1/2. Drew's broker at once becamethe purchaser of $5, 000, 000 worth. In ten minutes after the meetinghad adjourned, the bonds had been issued, their conversion into stockdemanded and made, and certificates for 50, 000 shares of stock depositedin a broker's safe, subject to Drew's order. A few days later came the injunction, and Erie stock began to soarin the markets, in response to which "Uncle Daniel, " who had beenindustriously selling his many thousands of new shares, now determinedto bring up the reserves and let the eager buyers have the other fivemillions; but before the bonds could be converted the injunction hadbeen served. The date for the return of the writ was Tuesday the 10thof March; but the Erie ring needed less time than this and decided onMonday the 9th as the day to defeat the corner. Saturday and Sunday were busy days for Drew and his friends. All hisbrokers had been enjoined, so a dummy was made the nominal purchaser ofthe bonds. This dummy then made his formal demand for the conversion ofthe bonds and was refused. All this was done upon affidavit, as it wasthe plan of Drew to get from some judge a writ of mandamus to compelthe Erie Railroad to convert the bonds. The stock certificates forwhich they were to be exchanged were signed in blank and made ready fordelivery. Drew had agreed to sell 50, 000 shares of stock at 80 to the firms ofwhich Jay Gould and James Fisk, Jr. , were members; they were also Eriedirectors. On Monday morning, the 9th of March, the certificates, filledout in the names of these firms, were handed by the secretary to anemployee who was directed to carry them from the office of the companyin West Street to the transfer clerk in Pine Street. The messengerleft, but in a moment or two returned to report to the apparentlyamazed secretary that Fisk had met him outside the door, had taken thecertificates away from him, and "had run away with them. " It was true. The stock certificates had been "stolen" and were beyond the controlof an injunction. The stock certificates next appeared in every part ofWall Street. On the same day the Erie representatives applied to Judge Gilbert ofBrooklyn for an injunction on the ground that certain persons, includingJudge Barnard, had entered into a conspiracy to speculate in Erie stockand to use the process of the courts to aid the speculation. To theamazement of everybody, Judge Gilbert issued an injunction restrainingall parties to all the other suits from further proceedings; in oneparagraph ordering the Erie directors to continue in the discharge oftheir duties--in direct defiance of the injunction of one judge--and inthe next paragraph forbidding the directors to desist in the conversionof bonds--in direct defiance of another judge. The Drew interests werenow enjoined in every direction. One judge had forbidden them to move, and another judge had ordered them not to stand still. It was a strategic position which Drew and his agents could not haveimproved upon, and while matters stood this way the 50, 000 shares ofErie stock had been flung on the market. Vanderbilt, who was ignorant ofthis situation, bought the new stock as eagerly as the old. Then, whenthe facts came out, the quotations dropped with a thud. Uncle Daniel wasvictorious; the attempted corner had been a failure; and the Commodorewas holding the bag. Further dramatic events followed. The Erie directors learned thatprocess for contempt had been issued and that their only chance ofescape from jail lay in immediate flight. So, stuffing all that wasworth while of the Erie Railroad into their pockets, they made off undercover of darkness to Jersey City. One man carried with him in a hackneycoach over $6, 000, 000 in greenbacks. Two of the directors lingered andwere arrested; but a majority collected at the Erie station in JerseyCity and there, free from interference, went on with the transaction ofbusiness. Without disturbance they were able to count their expenses anddivide the profits. Vanderbilt was now loaded up with reams of Erie stock at high costs, and the load was a severe strain on him. He dared not sell for fear ofcausing a financial collapse. Drew had taken away about seven milliondollars of his money and an artificial stringency had been created inWall Street by this exodus of most of its available cash. But Vanderbiltweathered the storm and, as his generally optimistic attitude inspiredconfidence, the sky began to clear. But this stock-market battle did not end the war. New injunctions flewin all directions. Osgood, son-in-law of Vanderbilt, was appointedreceiver of the 100, 000 shares of illegally issued stock and wasimmediately enjoined from acting by another judge. Then Peter B. Sweeney, of the Tammany ring, was appointed in his stead without noticeto the other side. There was nothing for a receiver to do, as everydollar he was to "receive" was known to be in New Jersey and beyond hisreach. Nevertheless he was subsequently allowed a fee of $150, 000 byJudge Barnard for his services! While the legal battle was going on neither Drew nor Vanderbilt wasidle. A plot was arranged for bringing the Erie directors over by force, but this failed. In the meanwhile the Erie directors persuaded the NewJersey Legislature to rush through a bill making the Erie Railway a NewJersey corporation. This move, however, was intended merely to meet anemergency. It was the intention of the Erie interests to do their realwork with the Legislature at Albany. This was also the intention of theVanderbilt interests. Consequently, during the subsequent session, thegrafters in that body were wooed by both sides. When the Legislatureconvened, a bill was promptly introduced making legal the recentissue of Erie stock, regulating the power to issue convertible bonds, providing for the guaranty of the bonds of the Boston, Hartford andErie, and forbidding the consolidation of the Central and the Erie underthe control of Cornelius Vanderbilt. But evidently the Commodore's pursewas open wider than "Uncle Daniel's, " for this bill was defeated by adecisive vote. Now Jay Gould appeared upon the scene. He left Jersey City with halfa million of the Erie's money in his pocket and arrived in Albanyimmediately after the defeat of this bill. On his arrival he wasarrested on a writ issued against him for contempt of court and was heldin bail of half a million dollars for his appearance in New York a fewdays later. He appeared before Judge Barnard in New York and was putin the charge of a sheriff. But the sheriff was served with a writ ofhabeas corpus, and Gould was again brought before the court. Then insome mysterious way the hearing was deferred and Gould returned toAlbany, taking the officer as a traveling companion. After reaching his destination Gould became so ill that he could notreturn to New York, though he managed to go to the Capitol in a drivingsnowstorm. Here he became rapidly convalescent, as did also many membersof the Legislature. Members, indeed, who had been too sick or too feebleto attend the legislative sessions during this cold winter suddenlyfound their health returning and flocked to Albany on the fastesttrains. Gould stayed in Albany until April, and by this time aremarkable change had come over the mentality of a majority of thelegislators. On the 13th of April a bill was presented in the Senatewhich met the approval of the Erie interests and which Judge Barnardafterwards designated as a bill for legalizing counterfeit money. Thisbill, which was passed after due debate, legalized the issues of Eriebonds and stocks which had been put out by Drew; it provided for theguaranty of the bonds of connecting roads as desired by Drew; and itforbade all possible contracts for consolidation or division of receiptsbetween the Erie and the Vanderbilt roads, a provision also desired byDrew. In fact it was the same bill in different form that had been voteddown so decisively a short time before. But the real tug of war was to get the bill through the lower House. Fabulous stories were told of money which would be expended and themarket quotations for votes never soared so high. Then, at the criticalmoment, Vanderbilt surrendered, made a secret deal with his foe, andwithdrew his opposition to the bill. The anger of the disappointedgrafters and vote-sellers knew no bounds, and they immediately setto work passing other bills which they felt would annoy or injureVanderbilt, with the hope that he would still be induced to give themwhat they regarded as their rightful spoils. The details of this settlement between Drew and Vanderbilt were notannounced until some months afterward. By the terms agreed on Vanderbiltwas relieved of 50, 000 shares of Erie stock at 70, payable partly incash and partly in bonds guaranteed by the Erie, and received $1, 000, 000in cash for an option given the Erie Railroad to purchase his remaining50, 000 shares at 70 within four months, besides about $430, 000 tocompensate his friends who had worked so heroically for him. This totalsum of nearly $5, 000, 000 no doubt represented part of the "slush fund"which Drew expected that the company would have to give up to thevenal legislators, and it was therefore no hardship to hand it over toVanderbilt instead. As a part of the general settlement the Boston interests were relievedof their $5, 000, 000 of largely worthless bonds of the Boston, Hartford and Erie Railroad, for which they received $4, 000, 000 of Eriesecurities. Thus in all about $9, 000, 000 in cash or securities was drawnout of the Erie treasury in final settlement of this great stock marketmanipulation. And this does not include the pickings of Gould and Fiskand the smaller fry, of which there is no official record. But thatthese gentlemen did not go empty-handed there is not the shadow of adoubt! The sensational stock-market deal between the Drew and Vanderbiltinterests was but a truce, however, and did not settle the troubles ofthe Erie. Jay Gould was now becoming a dominating factor and in Octoberof 1868 was chosen president. The various stock-market struggles thatensued from the ascendency of Jay Gould to the receivership of the Eriein 1875 is a long and intricate tale. Suffice it to say that the eventswere generally similar to those already recounted--stock-market corners, over-issues of bonds and stocks, injunctions, court orders, arrests, legislative bribes. Less than a week after his election Jay Gouldfrankly announced that the company had just issued $10, 000, 000 ofconvertible bonds and that a third of these had already been convertedinto stock. He further announced that the company now had $60, 000, 000 ofcommon stock outstanding, whereas the public had understood that it wasonly $45, 000, 000. During the few years that followed, the poor Erie was systematicallylooted. Millions were wasted in New York real-estate speculation, andthe company's money was used in the erection of the Grand Opera House onTwenty-third Street, to which the executive offices of the Erie Railroadwere moved. Finally the new ring, comprising as leading spirits JayGould and James Fisk, Jr. , eliminated Daniel Drew and left him high anddry without a cent, through a new stock corner. About this time the roadwas financially on its last legs, and Jay Gould was appointed receiver. This started further litigation which dragged on for several yearsuntil, in 1874, Gould was turned out by General Daniel E. Sickles incombination with the English shareholders. The new interests, when theyfinally got control, elected an entirely new management and made H. J. Jewett, a practical railroad man, president. But the Erie was alreadybankrupt, and not much could be done toward saving the situation. InMay, 1875, the road confessed inability to meet its obligations, andJewett was appointed receiver. It was three years from the date of the receivership before the Erieproperty was taken out of the hands of the courts. In April, 1878, anew company, the New York, Lake Erie and Western Railroad, took overthe property; Jewett was elected its president, and a new chapter in thehistory of the property began. Had the reorganization of the Erie been drastic enough, the road mightnot so soon have fallen into financial difficulties again, for it ownedvaluable coal lands in Eastern Pennsylvania and rapidly increased itsearnings in this region. Moreover the extension of the system westwardshould have increased its earning capacity. Up to this time the Erie hadno Chicago connection and was at an obvious disadvantage compared withits competitors. It improved this situation in 1881 by acquiring theNew York, Pennsylvania and Ohio, and the franchise of the Chicago andAtlantic Railway. Two years later it obtained control of the Cincinnati, Hamilton and Dayton and found itself in a position in which it couldcompete for through traffic with the Pennsylvania and the New YorkCentral. But in carrying through these extensive plans, the Erie again becameinvolved in financial difficulties; the sensational Grant and Wardfailure in Wall Street in 1884 was a severe blow to the company'scredit, as this firm was at that time doing important financing for theErie. The English security holders stepped to the front again, demandedPresident Jewett's resignation, and elected John King in his stead. In 1885 and 1886 a financial readjustment took place, but the companycontinued to carry the bulk of the heavy load of obligations which hadbeen created during the years of the Drew and Gould managements. It wassurely an evidence of the inherent worth of the property that duringthe half dozen or more years following, the Erie succeeded in strugglingalong in the face of all its financial and other handicaps and at thesame time showed substantial growth in the volume of its business. Thecompany was kept above water until 1893 without again appealing to thecourts; but by that time the indebtedness had once more mounted, and inJuly of that year Erie receivers were appointed for the fourth time inits history. The name of Pierpont Morgan is closely identified with the story of therailroad during this latest reorganization period. Morgan's firm cameto the front in 1894, with the powerful backing of the large Englishinterests, and proposed a plan which involved heavy sacrifices by manyof the security holders but which was designed to insure the permanentfuture of the property. The plan was vigorously opposed, however, byEdward H. Harriman, August Belmont, and other powerful interests, and itwas not until August, 1896, that a final compromise was effected and areorganization was carried through. But at last the Erie was taken outof receivership, and an entirely new company, intelligently designed andhaving ample working capital for future development, was formed with E. B. Thomas at its head. This new president, like Daniel Willard ofthe Baltimore and Ohio and many of the modern railroad leaders, was apractical railroad man who had worked up from the ranks and who had nolarge financial interest or banking connections to divert his attentionfrom the real business of management. Under Thomas, who remained at thehead of affairs from 1896 to 1900, the Erie made substantial progress. The system was solidified and its territory was more uniformly andsystematically developed. In 1898, the Erie secured control of theNew York, Susquehanna and Western system, gaining thereby an importantbranch to Wilkesbarre; and in 1901 it purchased jointly with the LehighValley Railroad the stock of the Pennsylvania Coal Company of whichthe Erie later became sole owner. The real achievement of the Thomasadministration was the development of the property as a heavy carrier ofanthracite coal. On the financial side during this period the credit ofthe House of Morgan, intelligent administration, and modern methods didmuch to improve the reputation of the Erie and enable it to live downits bad inheritance. In 1901 Frederick D. Underwood succeeded Thomas. Like his predecessor, Underwood represented the modern type of railroad president--ahard-working, eminently practical big business manager of greatexecutive talent. Underwood's idea was to make the Erie a greatfreight-carrying system by developing its tonnage and its freightcapacity in every way possible. Consequently he favored opening up theproperty more extensively in the soft coal fields of Ohio and Indiana, reconstructing roadbeds, laying extra tracks, and eliminating grades andcurves. The history of the Erie Railroad ever since 1901 has been a record ofprogress. During these years the system has been practically rebuilt. It now has a double track from New York to Chicago; it has extensivemileage in the soft coal regions of Ohio and Indiana, and its soft coaltonnage today far overtops its tonnage of anthracite coal; its trainload averages far higher than that of the New York Central or of anyother Eastern trunk lines except the Pennsylvania; its steep gradesthroughout New York State have been for the most part eliminated, andmany short cuts for freight traffic have been built. In carrying through these extensive developments in fifteen years theErie has spent hundreds of millions of dollars. More money indeedhas been used legitimately for improvement and development since thereorganization of 1896 than during the previous sixty years of itsexistence. Of course this outlay has meant that the Erie has had tocreate new mortgages and borrow many millions; but a large part ofthe expenditure for improvement has come directly from earnings. TheUnderwood administration has been conservative in paying dividends andthe 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 thegreat trunk lines of the eastern section of the United States. It is nolonger, what it was called for many years, the "scarlet woman of WallStreet, " but is a respectable member of the American railroad family. CHAPTER V. CROSSING THE APPALACHIAN RANGE The story of the Baltimore and Ohio Railroad takes us back more thanninety years. When the scheme for the construction of a railroad fromBaltimore to the waters of the Ohio River first began to take form, theUnited States had barely emerged from the Revolutionary period. Manyof the famous men of that great day were still living. John Adams andThomas Jefferson had been dead only a year; Madison and Monroe hadrecently retired from public life; John Quincy Adams held the office ofPresident, 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 decadeshad passed since the Clermont had been launched on the Hudson by RobertFulton, and steamboats were now carrying cargoes successfully againstthe swift currents up the Mississippi from New Orleans and werethreatening the extinction of the aggressive flatboat traffic. Greatstrides had also been made in the construction of turnpike roads. Thefamous National Pike from Cumberland to Vandalia, Illinois, had been inlarge part completed and had done much for the opening up of the Westernterritory. Canal building was likewise an extensive development of this period. Theidea of connecting the waters of the Chesapeake with those of the Ohiohad been broached by George Washington before the Revolution, and hehad also prophesied the union of the Hudson and Lake Erie by canal. Hebelieved that a country of such great geographical extent as the UnitedStates could not be held together except by close commercial bonds. The opening of the Erie Canal to New York in 1825 stimulated othercities on the Atlantic seaboard to put themselves into closer commercialtouch with the West. This was especially true of the city of Baltimore. A canal connecting Chesapeake Bay and the Ohio River was advocated toprotect the trade of Baltimore and the South from the competition of NewYork and the East which would inevitably result from the construction ofthe Erie Canal and the Public Works of Pennsylvania. But discouragementsin plenty frustrated the plan. The cost was believed to be excessive andthe engineering difficulties were said to be almost insuperable. GeorgeBernard, a French engineer, was of the opinion that the high elevationsand scarcity of water along the route would prevent such a canal fromhaving much practical value. For these reasons Baltimore believed thatits position as a center for the rapidly developing Western trade wasslowly but surely slipping away. This was the situation that led to the building of the Baltimore andOhio Railroad. Two men--Philip E. Thomas and George Brown--werethe pioneers in this great undertaking. They spent the year 1826investigating railway enterprises in England, which were at that timebeing tested in a comprehensive fashion as commercial ventures. Theirinvestigation completed, they held a meeting on February 12, 1827, including about twenty-five citizens, most of whom were Baltimoremerchants or bankers, "to take into consideration the best means ofrestoring to the city of Baltimore that portion of the western tradewhich has lately been diverted from it by the introduction of steamnavigation and by other causes. " The outcome was an application to theMaryland Legislature for a charter for a company to be known as "TheBaltimore and Ohio Railroad Company" having the right to build andoperate a railroad from the city of Baltimore to the Ohio River. Theformal organization took place on April 24, 1827, with Philip E. Thomasas president and George Brown as treasurer. The capital of the proposedcompany was fixed at five million dollars. The construction of the railroad began on July 4, 1828. The venerableCharles Carroll of Carrollton, then more than ninety years old and theonly surviving signer of the Declaration of Independence of fifty-twoyears before, said on this occasion, as he laid the first stone: "Iconsider this among the most important acts of my life, second onlyto my signing the Declaration of Independence. " His vision was indeedprophetic. It was determined that the first section of road constructed shouldextend to Ellicott's Mills, twelve miles distant, but, owing to delaysin obtaining capital, the actual laying of the rails was not begun untilthe fall of 1829, and this first section was not opened for trafficuntil May 22, 1830. At first, experiments were made with sails forpropelling the cars, but it was soon found that a more effective sourceof power was supplied by mules and horses. The Flying Dutchman, one ofthe cars devised to furnish motive power, provided for the horse ormule a treadmill which would revolve the wheels and make the distance oftwelve miles in about an hour and a quarter. Steam locomotives at thistime were in their infancy and, until the opening of the Liverpool andManchester Railroad in this same year, they had attained a speed of onlysix miles an hour. Horses and mules, and even sail cars, made more rapidprogress than did the earliest locomotive. In spite of these crude andprimitive facilities for transportation, however, the traffic on the newrailroad was of large volume from the beginning, and the company couldnot handle the amount of merchandise offered for transport in the firstmonths. Construction was now rapidly pushed ahead, and by 1832 the whole linehad 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 tonsat the rate of fifteen miles an hour on level portions of the road. Thisachievement was regarded as a great triumph, and in 1832 the directorsof the road called attention to "the great increase in velocity" thathad been obtained in this way. From this time forward the expansion of the railroad proceeded with acertainty born of success. A branch was built to Washington and the mainline was extended to Harper's Ferry. Beyond this point construction wasslow because financial difficulties stood in the way, and it was notuntil after the panic of 1837 that further aggressive building began. But by 1842 the line was completed to Cumberland, Maryland, and by1853, to Wheeling. Meanwhile, the branch from Cumberland to Parkersburg, Virginia, was built. The road now comprised a total system of more thanfive hundred miles and reached two points of importance on the OhioRiver, one northward near the Pennsylvania-Ohio state line and onesouthward in the direction of Cincinnati. The Parkersburg extension wasof great importance because it opened a through route to St. Louis, bymeans of the Cincinnati and Marietta Railroad--which was at this timecompleted from Cincinnati to Belpre, Ohio, opposite Parkersburg--and theOhio and Mississippi, which extended more than three hundred miles fromSt. Louis to Cincinnati. Times were not the best, however, and, although much traffic wasdeveloped, the immense cost of the extensions heavily burdenedthe Baltimore and Ohio Company, while the panic of 1857 seriouslyembarrassed its credit. Soon after this panic and before the companyhad begun to recover from its effects, John W. Garrett, one of the largestockholders in the road and son of a Baltimore banker, was elected toits presidency, and a new chapter in the history of the Baltimoreand Ohio began. Almost immediately following Garrett's election, aremarkable change became apparent. Losses were turned into gains;deficits were converted into surpluses; and soon Garrett had gained thereputation of being the most remarkable and efficient railroad managerin the world. He seemed to be almost an Aladdin of railroad managementfor, even when he could not show increases in amount of business done, he reported greater profits by showing lower expenses. In those daysthe railroads did not furnish detailed reports of business to thestockholders or to the public. At the annual meetings it was customaryfor a president or the directors simply to announce, either orally or ina brief printed statement, the amount of gross business and profitsfor the year. No such thing as a balance sheet or detailed financialstatement saw the light of day--practically everything was taken bythe stockholders on faith. And great was their faith. When, therefore, Garrett announced large increases in profits in years when mostrailroads were standing still or were incurring losses, he wasimplicitly believed. Under Garrett's management a new era of expansion almost immediatelybegan; work was started on the long delayed branch to Pittsburgh andplans were laid for establishing a line of steamships from Baltimore tothe leading European ports. But the Civil War, which bore heavily on theBaltimore and Ohio, interfered with these ambitious schemes. Early in1861 the Confederates took possession of a large part of the line eastof Cumberland; in the next four years important sections of the roadwere repeatedly destroyed and rebuilt, as they passed into the hands ofthe Federal or Confederate troops. The company, however, managed to getthrough without default in its securities, and, when peace was restoredin 1865, the Baltimore and Ohio resumed its policy of aggressiveexpansion. Before very long the road, with its connections constructed orpurchased, reached the cities of Pittsburgh, Sandusky, and Chicago, andfurther strengthened its connections with Cincinnati and St. Louis. Itacquired steamboats, grain elevators, and docks; it constructed hotelsas mountain summer resorts; it built dry docks in Baltimore; and finallyit proceeded to organize and operate an express company, a telegraphcompany, and a sleeping-car company. To carry out these ambitious plansthe capital stock and debt were of course increased again and again, and in the course of these operations a large part of the new securitiesissued was sold to English investors. Notwithstanding these greatincreases in liabilities, the company continued to report largesurpluses and to pay large dividends, generally ten per cent annually. In fact, this liberal rate was, with brief exceptions, paid rightthrough the Civil War period, in spite of the fact that large partsof the line were frequently destroyed and traffic was often at astandstill. With such prosperity under such conditions Garrett'sreputation as a railroad manager naturally suffered no eclipse. In the course of the Civil War, as already noted, through traffic routesfrom New York to Chicago had been established, and in the succeedingyears the consolidations of the great competing systems into trunk lineshad taken place. The struggle of the Baltimore and Ohio for its shareof Western business led to fierce rivalry with the Pennsylvania. Thiscompetition became so severe and intense that, in 1874, the Pennsylvaniaroad refused to carry the Baltimore and Ohio cars over its line to NewYork on any terms whatever. Since this was the only way in which theBaltimore and Ohio could reach New York, the situation was a seriousone. Garrett retaliated by making destructive reductions in passengerrates from Washington and Baltimore to Western points. The cuts weresoon made on other roads and affected both freight and passengers. Allthe lines became involved. Passenger fares from Chicago to Baltimore andWashington were reduced from nineteen dollars to nine dollars, and thoseto New York and Boston from twenty-two to fifteen dollars. Still thefight continued, and before the end of 1875 it was possible to travelfrom Chicago to New York first class for twelve dollars and to shipgrain to New York for as low a rate as twelve cents. Despite the fact that competition had cut earnings almost to the pointof extinction, the Baltimore and Ohio continued to report surprisinglygood profits. The company borrowed additional funds from time to timebut 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 greatlydeceive the bankers, for the credit of the Baltimore and Ohio weakenedfrom day to day. The fact is that the reports of operations inspiredlittle public confidence; to the farseeing, there were danger signalsahead. Nevertheless the ten per cent dividends were resumed in 1879 andcontinued at this rate without interruption until 1886. On the death of John W. Garrett in 1884, his son Robert, who succeededhim as president, continued the same policy of competition andaggression. With the object of gaining an entrance into Philadelphia andthrough that gateway of reaching New York, he started work on a branchfrom Baltimore to Philadelphia to meet, at the northern boundaryof Maryland, the Baltimore and Philadelphia Railroad--a line whichindependent interests were then building through Delaware with theintention of obtaining an entrance into Philadelphia. The Pennsylvaniainterests strongly opposed Garrett's new project and many years beforehad gone so far, in their determination to block the Baltimore and Ohiofrom acquiring control of the Philadelphia, Wilmington and BaltimoreRailroad, as to purchase that road themselves. Despite this oppositionthe Baltimore and Ohio went forward with their plans and secured anentry into Philadelphia by acquiring control of the Schuylkill East SideRailway, which was a short terminal road of great strategic value. North of Philadelphia the company arranged a traffic contract withthe Philadelphia and Reading, whose lines extended to Bound Brook, NewJersey, and also with the Central Railroad of New Jersey beyond BoundBrook to Jersey City. Afterward, by purchasing the Staten Island RapidTransit Company the Baltimore and Ohio acquired extensive terminals attidewater on Staten Island and constructed a connection in New Jerseywith the New Jersey Central. Thus, after many years of struggle and atheavy cost, the Baltimore and Ohio finally secured an entry into the NewYork district independently of the Pennsylvania Railroad. Both freight and passenger charges, however, were still maintained at anunprofitable rate, and, after the death of John W. Garrett, the creditof the Baltimore and Ohio continued to decline. Dividends were graduallyreduced and by 1888 were omitted entirely. As is usually the case, thecessation of dividends awakened the sleeping stockholders. They beganan investigation to ascertain the whereabouts of that remarkable surpluswhich had been reported from year to year and which, according toofficial report, had shown a constant growth. This investigation disclosed a startling state of affairs. Instead ofa surplus, the company had been piling up deficits year after year, hadbeen borrowing money right and left on onerous terms, had been chargingup millions of dollars of expenses to capital accounts--and as a matterof fact, instead of making money, it had for the most part been losingit. Now the company urgently needed cash, and the only way it couldobtain that essential commodity was by selling its express, telegraph, and sleeping-car business. During the entire administration of John W. Garrett, extending over morethan two decades, current expenditures of enormous amounts which shouldhave been deducted from the income had been credited to the surplus;many millions which would never be returned had been advanced tosubsidiary lines, or had been spent, and therefore should have been putdown in the books as losses. When these facts became public, the capitalstock of the Baltimore and Ohio, which for generations had been lookedupon as one of the most secure of railroad investments, dropped toalmost nothing, and the most strenuous financial efforts were requiredto keep the company out of bankruptcy. These disclosures, towards the end of 1887, ended the first period ofactive Garrett management in the Baltimore and Ohio. The directorsthen turned to New York bankers for the cash that was needed to put theaffairs of the company on a sound basis. Samuel Spencer, who afterwardbecame a partner in the banking house of J. P. Morgan and Company, waselected president and active manager. He introduced radical reforms, entirely revolutionized the organization, and adopted modern methods. Hewrote off the books a large amount of the much vaunted "surplus" and hetook important steps toward the general improvement of the property. Had the new interests been allowed to continue their efforts unmolested, the history of the Baltimore and Ohio in the next decade might havebeen very different. But the original controlling interests, the Garrettfamily, still held the balance of power. As the bad bookkeeping andother irregularities of the past naturally reflected on the Garretts, itwas their interest to suppress further investigation as far as possible;and their antagonistic attitude toward the policy adopted by the newSpencer management was seen in the annual election of directors inNovember, 1888. Only five of the members of the board were reelected, President Spencer was ousted, and Charles J. Mayer was elected in hisplace. This second change in management sidetracked the plans for radicalreform, and little improvement resulted either in earning power or infinancial condition. The company had fallen upon evil days. The netprofits did not increase, and eight years after 1888 they were smallerthan in that year, while the debt and interest charges constantlygrew. Despite these ominous facts, dividends were paid regularly on thepreferred stock and in 1891 they were resumed on the common stock. Inthe latter year a twenty per cent dividend was declared "to compensateshareholders for expenditures in betterments and improvements inthe physical condition of the property, " while at the same time thedirectors decided to raise five million dollars of new capital forexpenditures which would be necessary to handle the increased trafficcreated by the World's Fair at Chicago. The traffic problem continued to be a thorn in the flesh and until 1893freight rates were constantly being cut. The opening of the Baltimoreand Ohio connection to New York had brought keener competition from thePennsylvania Railroad and had made deep inroads into the Baltimore andOhio revenues. Such conditions made even the Garrett interests feel thatsomething should be done, and in 1890 a "community of interest" schemewas proposed. To control the stock of the Baltimore and Ohio Railroad, Edward R. Bacon in New York, acting harmoniously with the Garrettfamily, formed a syndicate of capitalists representing the RichmondTerminal system, the Philadelphia and Reading Railroad, the NorthernPacific Railroad, and other properties. The ultimate plan, which provedtoo visionary, was to consolidate under one control a vast network oflines extending all over the continent. The syndicate had made little progress toward rehabilitation when thepanic of 1893 occurred. In this year and the next the earnings ofthe Baltimore and Ohio fell off rapidly and the dividend was reduced. Nevertheless, as late as January, 1895, the directors insisted thatfinancially the company was in better condition than for several yearsand that on the whole it was in a stronger position than at any timesince 1880. But in this same year it became necessary to stop alldividend payments; the company began to have difficulties in securingready money; and before the close of the year the situation seemedhopeless. Early in 1896 Mayer tendered his resignation, and John K. Cowan succeeded him. The new president did his utmost to obtain moneyto meet the current needs, but he was unsuccessful. A receivership andreorganization seemed absolutely necessary, and in February, 1896, thereceivership was announced. With the property now in the hands of the courts, the opportunity atlast came to make real the reforms which had been proposed andbegun nearly a decade earlier under the wise but quickly terminatedadministration of Samuel Spencer. A thorough housecleaning was nowcarried through without interference or interruption. A reorganizationcommittee was formed, with whom were deposited the Garrett shares aswell as those of the Morgan and New York and Philadelphia interests. Afull investigation of past management disclosed that the records forthe interim extending from the brief Morgan control under Spencer tothe receivership contained the same kind of irregularities and errorsof policy that had prevailed under the earlier Garrett management. Statements of profits had been swelled by arbitrary entries in the booksand nearly six million dollars which had not been earned had been paidout in dividends. Furthermore the company had endorsed the notes ofcertain subsidiary roads to the extent of over five million dollars, andhad made no record whatever of this action for the stockholders. As in the case of numerous other railroads, the financial breakdown ofthe Baltimore and Ohio Railroad was primarily due to a bad or recklessfinancial policy, for there was nothing inherently insecure in therailroad 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 inmatters of expansion and had built up its system to meet the needs ofmodern times. Its trackage and equipment compared favorably with similarsystems, and most of its extensions and branches had been wisely plannedand had proved profitable. The operating management of the railroad wasgenerally good and it usually secured its proportion of what businesswas to be obtained. But the steady increase in its debts over a numberof years, its extravagance in dividend payments, and its painful effortsto 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 toweather the storm. The only wonder is that the management succeeded inkeeping 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 ordinarybusiness. While the company had been depleting its credit and paying outall its cash in dividends, the equipment had been going into the scrapheap. For two years the receivers made large expenditures on equipmentand roadbed, borrowing money for this purpose; the result was thatwhen, in 1898, the courts surrendered the property, it was in splendidcondition to take advantage of the tide of commercial and industrialprosperity which was just then beginning to flow throughout the UnitedStates. While the reorganization of the Baltimore and Ohio was not so drasticas that of many other systems which went through the courts during thisperiod, it was thorough enough to meet the situation. The fixed chargeswere cut down radically and the stockholders were assessed in largeamounts. In all, more than thirty-six million dollars was raised byassessments and the sale of new securities; the liabilities of theCompany were greatly reduced; and its credit was promptly restored. Formerly the Baltimore and Ohio had been struggling under a burden offloating indebtedness, with so little money in its treasury that itcould not even put a new coat of paint on the passenger cars and had tocontinue to use oil lamps to light some of its best trains. But now thefloating debt was replaced by a large available cash capital, and as aresult of the liberal policy followed by the receivers, the equipmentand roadbed were brought fully up to the standards required for handlingthe traffic of the road both economically and effectively. With the reorganization of 1898 finished, the Baltimore and OhioRailroad entered a new period in its history. The strong, progressiveinterests which now took control concentrated their energies ondeveloping traffic, increasing earnings, and rounding out the generalsystem. They adopted careful measures for unifying the system by addingother lines and connections of value; they paid much attention to theimprovement and development of terminals; and they spent many millionsin acquiring and expanding the terminal properties of the company atChicago, St. Louis, Philadelphia, and Baltimore. The financial history of the Baltimore and Ohio since the close of thenineteenth century is interesting chiefly in connection with changesin the control of the property. After the reorganization a group ofprominent financiers, including Marshall Field, Philip D. Armour, NormanB. Ream, and James J. Hill jointly purchased a large interest in thestock. But this purchase, while perhaps representing a dominatinginterest, did not involve actual control. Soon afterward, interestsidentified with the Pennsylvania Railroad began to appear in theBaltimore and Ohio, and before long the Pennsylvania had a strongrepresentation on the board. As a consequence, the Baltimore and Ohioalmost lost its individuality and for a time was popularly regardedpractically as a subsidiary of its old rival line. The purpose of the Pennsylvania in obtaining this ascendency over theBaltimore and Ohio was to regulate the soft coal traffic. Already it hadacquired dominating interests in the Chesapeake and Ohio, the Norfolkand Western, and other soft coal properties. These purchases were merelymanifestations of that "community of interest" policy which at thistime led several large systems to acquire interests in competing lines. Several of the railroad leaders of that time, notably James J. Hill andEdward H. Harriman, believed that if these great systems actuallyowned large blocks of stock in each other's properties, this commonassociation 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 competingroads violated the Sherman AntiTrust Act; and the American public, whichnow was cultivating a new interest in railroad problems, believed thatthe "community of interest" plan was merely a scheme to defeat theInterstate Commerce Act and the Sherman Act and to maintain secretly allthe old railroad abuses. These inter-railroad purchases therefore becameso unpopular that the Pennsylvania sold its Baltimore and Ohio stock. At this time Edward H. Harriman of the Union Pacific, who had at hisdisposal vast funds of the latter property which he had obtained by thesettlement of the Great Northern and Northern Pacific deal, decided toacquire control of a system of roads in the East in order to establish acomplete transcontinental line in the interest of the Union Pacific. Itwas the theory that such a purchase by the Union Pacific would not defythe 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 theold 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, itacquired a substantial stock interest in the newly reorganized ReadingCompany, which controlled the Philadelphia and Reading Railroad andthe Philadelphia and Reading Coal and Iron Company. It did not obtaina majority interest but, with the Lake Shore and Michigan SouthernRailroad of the New York Central system, it now controlled the Readingsystem. The Reading Company meanwhile had secured control of the CentralRailroad of New Jersey, over the lines of which the Baltimore and Ohioreached New York City. In the following years the Baltimore and Ohio property was still furtherrounded out by purchasing the Cincinnati, Hamilton and Dayton, a smallsystem of doubtful value radiating through the State of Ohio and, byadditional extensions, into the soft coal fields of West Virginia. Newenergy was put into the expansion and improvement of the southwesternlines to St. Louis, while the eastern terminal properties were stillfurther improved. The practical control of the Baltimore and Ohio remained in the hands ofthe Union Pacific interests until 1913. In that year, however, theUnion Pacific liquidated its holdings by distributing them to itsown individual stockholders in the shape of a special dividend. TheBaltimore and Ohio thus became once more an independent property. The story of the Baltimore and Ohio for the past decade has been mainlya record of a growing, well-managed, and efficient business. It isclosely identified with the personality of its notable and efficientpresident, Daniel Willard, a conspicuous example of the modern type ofrailroad manager. In the earlier days of railroading, and especiallyin the long period which came to an end with the death of Harriman, thetypical railroad president was usually a man of great wealth whohad secured his position by owning a large financial interest in theproperty. The country was full of "Wall Street Railroad Generals. " Butin recent years the efficient railroad head has come more and more tobe the practical railroad man who has risen from the ranks, who has noimportant personal financial interest in the property but who is paidan adequate salary to operate a system in a purely businesslike way. Notable examples of this modern type of railroad president are, besidesDaniel Willard, Edward P. Ripley of the Atchison, Topeka and Santa, Fe, Benjamin F. Bush of the Missouri Pacific, and Fairfax Harrison of theSouthern. The efficient management of today is abundantly shown in the recentrecord of the Baltimore and Ohio. President Willard has been unmolestedby financial interests and has been continuously backed up in hispolicies by the owners of the road. As a result the Baltimore and Ohioof the present decade has reached an enviable position as one ofthe great Eastern trunk lines, comparing well with other progressiveproperties like the Pennsylvania, the New York Central, the Southern, the Illinois Central, and the Louisville and Nashville. Millions havebeen poured into the property in the past fifteen years; its main lineshave been largely rebuilt; its rolling stock is chiefly of the mostmodern types; and its terminals and structures are such as modernconditions demand. CHAPTER VI. LINKING THE OCEANS In 1862, when the charter was granted by the United States Governmentfor the construction of a railroad from Omaha to the Pacific coast, the only States west of the Mississippi Valley in which any railroadconstruction of importance existed were Iowa and Missouri. During thethree decades which had passed since the first railroad construction, the earlier methods of transportation by boat, canal, and stage coachgave place in the Eastern half of the United States to more modernmethods of transportation. As a result of these new conditions, theStates, cities, and towns were welded together, and population andprosperity increased rapidly in those inland sections which had formerlylanguished because they had no means of easy and rapid communication. The construction of extensive railways, however, and particularly theconsolidation of small, experimental lines into large systems, datesfrom the days of the discovery of gold in California. The nation didnot begin to realize the extraordinary possibilities of the vastWestern territory until its attention was thus suddenly and definitelyconcentrated on the Pacific by the annual addition of over fifty milliondollars to the circulating medium. The wealth drawn so copiously fromthis Western part of our continent had a stimulating effect on thecommerce, manufactures, and trade of the entire Eastern section. Peoplebegan to understand that with the acquisition of California thenation had obtained practically half a continent, of which the futurepossibilities were almost unlimited, so far as the development ofnatural resources and the general production of wealth were concerned. The public conviction that a railroad linking the West and the East wasan absolute necessity became so pronounced after the gold discoveriesof '49 that Congress passed an act in 1853 providing for a survey ofseveral lines from the Mississippi to the Pacific. Though the publishedreports of these surveys threw a flood of light on the interior ofthe continent, they led to no definite result at the time because therivalry of sections and groups of interests for the selection of this orthat 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 ofa main line from an initial point "on the one hundredth meridian oflongitude, " in the Territory of Nebraska to the eastern boundary ofCalifornia, with branch lines to be constructed by other companiesand to radiate from this initial point to Sioux City, to Omaha, to St. Joseph, to Leavenworth, and to Kansas City. * Provision was made fora subsidy of $16, 000 a mile for the level country east of the RockyMountains; $48, 000 a mile for the lines through mountain ranges; and$32, 000 a mile for the section between the ranges. The original planto secure the government subsidies by a first mortgage on the lines wasamended so as to allow private capital to take the first mortgage, theGovernment taking a second lien for its advances. In addition to thesesubsidies the several companies were to receive land grants of 12, 800acres to the mile in alternate sections contiguous to their lines. Uponthe same terms the Central Pacific, a company incorporated under thelaws of California, was authorized to construct a line from the Pacificcoast, at or near San Francisco, to meet the Union Pacific Railroad. * These ambitious designs were never fully realized. The mainline ran eventually west from Omaha, meeting the Sioux City branch atFremont. The only other branch which was constructed to connect with theUnion Pacific was that from Kansas City and it ran first to Denver. The public was quick to realize the significance of this hugeenterprise, for the papers of the day were full of such comments as thefollowing: "It is useless to enlarge upon the value and importance of this greatwork. It concerns, not the United States alone, but all mankind. Itsline is coincident with the natural and convenient route of commerce forthe world.... Over it the trip will be made from London to Hong Kong inforty days, over a route possessing every comfort and attraction, which takes a continent in its course, and which, from the variety andmagnitude of its sources, from the race which now dominates it, and fromthe extent of their numbers, wealth and productions, must soon give lawto the commercial world. " Notwithstanding these and similarly optimistic sentiments, the meagerfinancial support given to the enterprise by the public at large hadbeen very discouraging. Although the construction had been liberallysubsidized by the Government, gross extravagance had promptly creptin; juggling of accounts for the purpose of securing profits on thegovernment advances was freely indulged in, and after only a smallsection of the line had been completed it was announced that morecapital must be forthcoming or the work would cease. Out of thissituation grew the plan for subletting the work to a constructioncompany known as the Pennsylvania Fiscal Agency--a name which wasafterwards changed to that of the Credit Mobilier of America. The storyof the Credit Mobilier, with its irregularities involving conspicuouspoliticians, is one of the most disgraceful in American history. Thedetailed history of these operations need not be considered here; itis sufficient to say that finally, in spite of political scandals, theUnion Pacific lines were brought to completion. Within two years afterthe letting of the contracts to this new company, in 1866, over fivehundred miles of road were completed and in operation. An advertisementpublished late in 1868 announced that "five hundred and forty milesof the Union Pacific Railroad, running west from Omaha across thecontinent, are now completed, the track being laid and trains runningwithin ten miles of the Rocky Mountains.... The prospect that the wholegrand line to the Pacific will be completed by 1870 was never better. " As a matter of fact, the line through to the coast was finished earlierthan had been predicted. One fact which increased the rapidity ofconstruction was the growing financial difficulty of the company. It wasabsolutely imperative that the through line be completed in order thatthe resulting business might make the operation of trains pay. Butaside from this, another influence was at work to encourage rapidconstruction. The Act of 1862 provided that the Central Pacific mightalso build across Nevada to meet the Union Pacific, on condition thatit completed its own allotted section first. As the Central Pacificalso was receiving a heavy government subsidy per mile, and as there wasgreat profit in construction undertaken with this government subsidy, there was naturally a strong incentive for both companies to build allthe mileage possible and as rapidly as possible. The Central Pacific enterprise was backed by a group of men who wereawake to the possibilities of the situation and who had made largefortunes in the gold-mining boom of previous years, such as LelandStanford, Collis P. Huntington, Mark Hopkins, and the Crockers. Therivalry between them and the Union Pacific interests woke the wholecontinent and formed a chapter in American railroad history as startlingand romantic as anything in the stories of the Vanderbilts and Gouldswith their financial gymnastics. As the contest proceeded, public interest increased and the entirecountry watched to see which company would win the big governmentsubsidies through the mountains. Through the winter of 1868 the workcontinued on the Union Pacific with unabated energy, and freezingweather caught the builders at the base of the Wasatch Mountains;but blizzards could not stop them. The workmen laid tracks across theWasatch on a bed of snow and ice, and one of the track-laying trainsslid bodily, track and all, off the ice into a stream. The two companieshad over twenty thousand men at work that winter. Suddenly the CentralPacific surprised the Eastern builders by filing a map and plans forbuilding as far as Echo, some distance east of Ogden. The Union Pacificforces, however, were equal to the occasion. At first, one mile a dayhad been considered rapid construction, but now, even with the limiteddaylight of the winter months, they were laying over two miles a day, and they finally crowned their efforts by laying in one day betweensunrise and sunset nearly eight miles of track. In the meantime the Central Pacific also had stopped at nothing. Thecompany had a dozen tunnels to build but did not wait to finish them. Supplies were hauled over the Sierras, and the work was pushed aheadregardless of expense. On May 10, 1869, the junction was formed, theopposing track layers meeting at Promontory Point, five miles west ofOgden, Utah. Spikes of gold and silver were driven into the joiningtracks, and the through line from the Missouri River to the PacificOcean had been completed; the first engine from the Pacific coast facedthe first engine from the Atlantic. The whole country, from PresidentGrant in the White House to the newsboy who sold extras, celebrated thisachievement. Chicago held a parade several miles long; in New York Citythe chimes of Trinity were rung; and in Philadelphia the old LibertyBell in Independence Hall was tolled again. The cost of the Union Pacific Railroad from Omaha to its junction withthe Central Pacific formed a subject of controversy for a generation. The saving of six months of the allotted time for completing the roadno doubt increased its cost to the builders, for at times they borrowedmoney in the East at rates as high as 18 and 19 per cent. Besides, inpushing the line far beyond the bounds of civilization withoutwaiting for the slower pace of. The settler and the security which hisprotection afforded, it often became necessary for half the total numberof workmen to stand guard and thus reduce the working capacity ofthe construction force. Even so, hundreds were killed by the Indians. Governmental restrictions of various kinds also increased the cost ofthe road. For example, the stipulation that only American iron shouldbe used increased the cost by at least ten dollars for every ton of raillaid. The requirement that a cut should be made through each rise in theLaramie plains, thus giving the track a dead level instead of conformingto the natural roll of the country, ultimately resulted in a waste offrom 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 daysa fabulous sum of money. The records indicate that the profitswhich accrued through the Credit Mobilier and in other ways in theconstruction up to the time of the opening in 1869 exceeded fiftymillions of dollars. While the Union Pacific was being built, from 1862 to 1869, otherrailroads were not idle, and many were rapidly reaching out into theCentral West. Not only had the Chicago and North Western reached Omahaand made connection with the Union Pacific, but the Kansas Pacific hadpenetrated as far west as Denver and had joined the Union Pacific atCheyenne. The close relationship between railroad expansion and the generaldevelopment and prosperity of the country is nowhere brought moredistinctly into relief than in connection with the construction of thePacific railroads. With the opening of a transcontinental line the vastEl Dorado of the West was laid practically at the doorstep of Easterncapital. Not only did American pioneers turn definitely toward theWest, but foreign emigrants bent their steps in vast numbers in thatdirection, and capital in steadily increasing amounts made its waythere. Towns sprang up everywhere and soon developed into busy centersof trade and commerce. Caravan trains, which a few years before hadfollowed a single westward line, now started from points along therailroad artery and penetrated far to the north and south. The settlersknew that the time was not far distant when all the vast territory westof the Missouri, from the Canadian border to the Rio Grande, wouldbe reached by the rapid spread of the railroad. In the sixties andseventies there sprang up and rapidly developed in size and importancesuch 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 wassoon dotted with towns and cities, and even the great arid plains of theWest--as well as the "Great American Desert" covering Utah, Arizona, NewMexico, and parts of Nevada--began to take on signs of life which hadnot been dreamed of a decade before. But the development of this great section of the country during thenext few years was even more notable. By 1880 four different lines ofrailroad were running through to the Pacific States, and a fifth, theDenver and Rio Grande, had penetrated through the mountains of Coloradoand across Utah to the Great Salt Lake. These were the years whenthe modern industrial era was really beginning. Man's viewpointwas changing, and instead of remaining content with the materialachievements of the Atlantic and Central sections of the continent, hebegan to realize that the vast Western regions and the thousand miles ofPacific coast line were destined to be America's inexhaustible patrimonyfor the years to come. In 1880 the Union Pacific began its expansion to the eastward andacquired 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 thusobtained a continuous line from St. Louis westward. In the meantime theCentral Pacific, operating from Ogden west to the coast, had added manybranches, while a new company--known as the Southern Pacific Railroadof California--had for some years been constructing a system of linesthroughout that State south of the Central Pacific and by 1877 hadpenetrated to Yuma, Arizona, 727 miles southeast of San Francisco. Ithad also built lines into Arizona and New Mexico and soon joined theSanta Fe route, which had for some time been working westward. During 1881 the Southern Pacific continued its eastern extensions alongthe Rio Grande to El Paso, Texas, where it formed a connection with anew road under construction from New Orleans. A junction was also madeat El Paso with the Mexican Central, which was under construction to theCity of Mexico. The Southern Pacific Railroad was closely allied withthe Central Pacific interests headed by Collis P. Huntington, and in1884 the great Southern Pacific Company was formed, which acquiredstock control of the entire aggregation of railroads in the Southand Southwest. At the same time the Central Pacific came under directcontrol of the Southern Pacific through a long lease. During these eventful years, while the Southern Pacific properties werepenetrating eastward through the broad stretches of country to the southof the Union Pacific lines, equally interesting events were occurringin the north. In 1879 a consolidation was formed of the Oregon Steamshipand Navigation Company with several short railway lines in Oregon andWashington, under the name of the Oregon Railway and Navigation Company. These railroad lines extended east from Portland to the Oregon stateline, and north to Spokane, and they finally made connection with thenew Northern Pacific. At the same time, another road, known as theOregon Short Line Railroad, was built from Granger, Wyoming, on theline of the Union Pacific to a junction with the Oregon Railway andNavigation Company at Huntington, Oregon, on the Snake River. The OregonShort Line came under the control of the Union Pacific and was openedfor 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 Pacificcontrol, to be lost in the receivership of 1893, but later recoveredunder the Harriman regime. When, after ten more years of expansion, the great Union Pacificproperty went into the hands of receivers in 1893, it had grown to asystem of more than 8000 miles. It completely controlled the Oregonrailway and steamship lines, the lines to St. Louis, and also animportant extension known as the Union Pacific, Denver and GulfRailroad, running from a point in Wyoming across Colorado to Fort Worth, Texas. The financial failure of the system was due to a variety ofcauses. Its management had been extravagant and inefficient, andconstruction and expansion had been too rapid. The policy of buildingexpensive branch lines where they were not needed and of obligatingthe parent company to finance them had been a grievous mistake and hadcontributed largely to the downfall of the company. Further than this, the credit of the Union Pacific was steadily growing weaker becausethe time was drawing near when its heavy debt to the United StatesGovernment would fall due. In all its history of more than twenty yearsthe company had never paid any interest on the government debt norhad it maintained a sinking fund to meet the principal when due. Consequently, the accruing interest had mounted year by year and, shouldthe Government enforce payment at maturity in 1897-99, the companywould be doomed to bankruptcy. This government debt, including accruedinterest, amounted to the sum of $54, 000, 000. Attention should not, however, be diverted from the fact that during allthese years a vast expansion of competitive lines had been going on farsouthward of the Union Pacific. Under the guiding genius of Collis P. Huntington, the Southern Pacific Company in 1884 had consolidated andsolidified a gigantic system of railways extending from New Orleans tothe Pacific and throughout the entire State of California to Portland, Oregon, with branch lines radiating through Texas and making closeconnection with roads entering St. Louis. In addition to theserailroads, Huntington acquired control of a steamship line operatingfrom New York to New Orleans and Galveston, and subsequently of thePacific Mail Steamship Company, operating along the coast from Oregonsouth to the Isthmus of Panama and across the Pacific Ocean. The ever-growing effects of this powerful and well-managedcompetitor--combined with the large development of the Santa Fe systemduring 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 enoughin themselves to bring the Union Pacific upon evil days. Consequentlyfew were surprised when, under the great pressure of the panic of 1893, the property was forced to confess insolvency. The Union Pacific hadsimply repeated the story of most American railroads; it had beenconstructed in advance of population and had to pay the penalty. Yet ithad more than justified the hopes of the daring spirits who projectedit. It may have made individuals bankrupt, but it magnificentlyfulfilled the part which it was expected to play. It had opened upmillions of acres to cultivation, given homesteads to millions ofpeople, many of whom were immigrants from Europe, developed minerallands of incalculable value, created several new great States, and madethe American nation a unified whole. Its subsequent history belongs toanother chapter of this story--a history that is richer than the firstin the matter of financial success but that can never surpass the earlypioneering years in real and permanent achievement. CHAPTER VII. PENETRATING THE PACIFIC NORTHWEST It is only when one reads such a book as Francis Parkman's "OregonTrail" that one fully realizes the vast transformation which has takenplace within little more than half a century in the great Northwesternterritory beyond the Mississippi and the Missouri. In that fascinatinghistory we read of the romantic and thrilling experiences of Parkman andhis companions in their summer journey across the plains of Nebraska andthrough the mountain ranges of Wyoming, Montana, and Oregon. We read oftheir hairbreadth escapes from the Indians; their chase of the buffaloand other wild animals of the far Western country; of the wearisomeweeks that they spent in crossing the deserts where absolute lonelinessreigned; and finally of their arrival, after months of hardship, in thevast Oregon country, which with its great natural resources, splendidclimate, and large extent has come to be known in these modern days asthe Empire of the Northwest. It was to penetrate and bring this great virgin region within reach ofthe East that the Northern Pacific Railroad Company was chartered byCongress in 1864, just prior to the closing of the Civil War. Duringthis same period the Union Pacific route was being surveyed, and thefirst ground was broken in December, 1863, for the line which was laterto connect Omaha with San Francisco. Like the Union Pacific charter, that of the Northern Pacific alsocontained an extensive land grant. From the modern viewpoint, suchland grants look colossal, but in those days the general opening up anddevelopment of the Western country had progressed to so slight an extentthat the significance of giving away millions of acres of the publiclands to encourage a precarious railroad enterprise was then no morethan the passing over to capitalists today of exclusive rights inextensive tracts of territory in Brazil and the other South AmericanRepublics. Even these great opportunities to acquire almost an empireof fertile lands or rich forests were not as a rule looked upon asattractive enough to tempt capital into the wilderness. The old sayingthat capital is the most timid thing in the world and does not likepioneering is strongly emphasized by such instances as this, and nodoubt in 1864 the enormous grants of free land made by Congress did notappear especially attractive to the man who had money to invest. Whatever the public attitude may have been, the Act of Congress of July2, 1864, creating the Northern Pacific Railroad, gave that Company theright to construct a line from some point on Lake Superior, either inMinnesota or in Wisconsin, westward and north of latitude 45 degrees, to or near Portland, Oregon. The land grant consisted of forty alternatesections of public land for each mile within the Territories penetratedand twenty alternate sections within the States through which therailroad might pass. The hazardous character of this undertaking will be realized when it isremembered that at this time no railroad had yet penetrated the RockyMountains; that the entire railroad system of the United States was lessthan 40, 000 miles; and that west of the Mississippi there was no mileageworth mentioning. It was still less than a generation since Parkman andhis companions had made their four months' journey from St. Louis tothe mouth of the Columbia River, and between the fringe of civilizationalong the Pacific slope and the region about Chicago and St. Louis layalmost a third of the continent uninhabited, undeveloped, and unknown. The scheme languished for several years until finally, in 1869, thefirm of Jay Cooke and Company of Philadelphia undertook to raise thenecessary capital. The story of the Northern Pacific for the next few years was closelybound up with that of Jay Cooke, who was one of the most conspicuouscharacters of his time in the financial world. He was a man ofcommanding personality, great energy, unusual resourcefulness, and witha large personal following. He had built his reputation through hisgreat success in financing United States government loans during theCivil War. He now undertook to raise more than one hundred milliondollars to carry through the Northern Pacific enterprise. He achievedremarkable success for a time and within three years had built over fivehundred miles of the main line to the Pacific coast. But the outbreak ofthe Franco-Prussian War and the consequent financial stringency abroad, the difficulty of marketing bonds on an uncompleted enterprise, combinedwith the poor showing made by those sections of the line completed andin operation, brought matters to a crisis, and in September, 1873, JayCooke and Company were obliged to close their doors. The affairs of therailroad were so closely involved with those of the banking firm that, although strenuous efforts were adopted to save the railroad, itsrevenues were inadequate. As a result, in April, 1874, General LewisCass was appointed receiver. The uncompleted property was operated for some years thereafter underthe protection of the courts and no plan of reorganization was deviseduntil 1879. During the receivership only a moderate amount of additionalmileage was constructed, and it was not until many years had passed thatthe system penetrated the mountains and reached the Pacific coast. Butwhen the new company took possession in 1879, aggressive buildingwas resumed, and for a time it looked as though the project would bepromptly finished. However, in 1882, the company still had about onethousand miles to construct in order to complete its main artery. Atthis time financial difficulties appeared, and the days of stresswere tided over only by the help of a syndicate and the Oregon andTranscontinental Company. With the formation of the Oregon and Transcontinental Company beginsthe regime of Henry Villard, the dominating factor in Northern Pacificaffairs for many years afterward. Some years before, Villard, who hadlong been interested in Western railroad enterprises and who had becomeprominent through his activities in connection with the Kansas andPacific Railway, had succeeded in forming the Oregon Railway andNavigation Company as a combination of steamboat lines operating on theWillamette and Columbia rivers in Oregon, with an ocean line connectingPortland and San Francisco. A connecting railroad line, which had beenbuilt to Walla Walla in southeastern Washington, penetrated a portion ofthe territory through which the Northern Pacific was projected. In 1880a contract was arranged between the two companies whereby the OregonRailway and Navigation Company, in order to share in the traffic, undertook to construct a line eastward to meet the Northern Pacificline at the mouth of the Snake River. This arrangement would allow theNorthern Pacific to run its trains into Portland and would obviate thenecessity of constructing its own road into that city. In spite of this arrangement, Villard feared that the Northern PacificCompany might decide, after all, to build its own line to Portland assoon as it was able to finance the project. It was for the purpose ofpreventing this move that he formed the Oregon and TranscontinentalCompany, a holding corporation which promptly acquired, in the openmarket and by private purchases, a dominating interest in the NorthernPacific Railroad. At the same time Villard placed the control ofthe Oregon Railroad and Navigation Company in the hands of the newTranscontinental. Villard thus came to control the entire Northern Pacific system and, backed by the Deutsche Bank of Berlin and other German and Dutchinterests, at once began an aggressive policy of expansion anddevelopment. The business of the system developed rapidly. The main linethrough to the Pacific coast was now in operation, and the entire systemamounted to about 2300 miles of road. But Villard followed a financialpolicy which was not sound and paid dividends without justification. In a short time the company consequently found itself financiallyembarrassed. As a result of financial losses in 1884, Villard was obliged to retirefrom active control of the properties. But in 1887 he once more gotpossession of the Northern Pacific with German capital and succeeded inarranging a lease of the Oregon Short Line, which had been developedby the Union Pacific interests, embracing a cross-country road from itsmain lines in Wyoming northward into Oregon and Washington. At the sametime the interest of the Transcontinental Company in the Oregon Railwayand Navigation Company was linked with the Oregon Short Line Company. These transactions, however, still left the Transcontinental Companyin control of the situation, as it retained its majority ownership ofNorthern Pacific Railroad stock. For the next few years the Northern Pacific did not follow a policyof rapid expansion. Other trunk lines, such as the Union Pacific, RockIsland, Santa Fe, Burlington, and North Western, were all growing andkeeping pace with the rapid settlement of the West; but the NorthernPacific in these years simply rested content with its position as asingle track transcontinental route having but few branches. Itsonly important extension was made by acquiring the Wisconsin CentralRailroad, which gave the company a line between St. Paul and Chicago anda valuable and important entrance into the latter city. It wasexpected that, with this accession, the affairs of the company would bepermanently established on a sound basis, but the overliberal policy ofpaying out practically all the surplus in dividends was continued in theface of large increases in fixed charges. Early in 1892 it began to be rumored that the Northern Pacific was notin so easy a financial position as had been assumed. The stockholderstook alarm; and the committee which was appointed to investigate thesituation discovered a deplorable state of affairs. As a result of thesevere criticism of Villard's policy, steps were at once taken to ousthim from control, but without success until June, 1893. Two monthslater, receivers were appointed who discovered that the companywas insolvent and had no funds to pay quickly maturing obligations. Receivers were appointed also for most of the branch lines, includingthe Wisconsin Central system. The Oregon Short Line, which was tiedthrough guarantees with the Union Pacific although leased to theNorthern Pacific, was involved in the general crash but was laterseparately reorganized. To rehabilitate the Northern Pacific Railroad effectively was adifficult problem. Its debt was enormous; its roadbed and rolling stockhad been neglected; and, as a result of the recent crash, its valuablefeeders on both east and west, the Wisconsin Central and the Oregonproperties, were removed from its control. Besides these adverseconditions, competition of a serious nature was looming up. James J. Hill had for many years been quietly developing the Great NorthernRailway. This great system he had financed in an extremely conservativemanner; he had extended it through territory where construction costswere low; and he had secured control of branches and feeders which mighthave come under the sway of the Northern Pacific had that company beenmore farsighted. Hill had operated his road from the beginning atvery low cost; he had kept its credit high; and even in the periodof financial depression he had reported large profits and had paidsubstantial dividends on his stock. With such a competitor in the field, it really looked for a while as though the Northern Pacific could haveno future whatever. Finally, in May, 1895, a plan sponsored by Edward D. Adams, representingNew York interests and those of the Deutsche Bank of Berlin, proposed apractical merger with the Great Northern Railroad Company: the old stockand bondholders were to make all the sacrifices and to supply all thenew capital, and the Great Northern was then to be presented with halfthe stock of the new company, in consideration for which it was toguarantee the new Northern Pacific bonds. The situation was somewhatsimilar to that which existed in New York State as early as 1868 whenCommodore Vanderbilt had achieved his great reputation as a wizard atrailroading by acquiring the Harlem and Hudson River railroads and byforcing the New York Central lines to terms. James J. Hill had become amodern wizard, and the only hope for the Northern Pacific seemed to beto lay the road at his feet and ask him to do with it what he had donewith 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 andthe German interests, secured the strong cooperation and endorsement ofJ. P. Morgan and Company. This was the first instance of Morgan's entryinto railroad reorganization in the West. During the previous fewyears he had been increasing his reputation as a reorganizer of Easternrailroad properties, and by this time he had successfully organized orwas rehabilitating the Erie, the Reading, the Baltimore and Ohio, theSouthern, and the Hocking Valley systems. But he had kept clear of thefar Western field and had definitely refused to reorganize the UnionPacific on the ground that its territory was too sparsely settled andthat there was little hope for its future, especially as its partialcontrol by the United States Government made any reorganizationextremely difficult. The new plan for the Northern Pacific was carriedout with no regard to the Hill interests the old stockholders wereheavily assessed; all bondholders were forced to make sacrifices;the Wisconsin Central lines were entirely eliminated and separatelyreorganized; and the Oregon lines were dissociated from the NorthernPacific and afterwards returned to the control of the new Union Pacific. While the new Northern Pacific as reorganized in 1898 came directlyunder Morgan's control and was immediately classed as a Morgan property, it did not remain exclusively such for very long. In the promotion anddevelopment of the Great Northern system; Hill had hitherto maintainedan independent position so far as banking alliances were concerned, buthe now began to develop closer relations with the Morgans andbecame heavily interested in the First National Bank of New York, an institution which for many years had been more or less directlyidentified with the Morgan interests. On more than one occasionthereafter the banking firm of J. P. Morgan and Company acted asfinancial agent for the Great Northern. Soon after the reorganization of the Northern Pacific, it became knownthat Hill had acquired an important interest in the property, and astime went on this interest was substantially increased. Within a year ortwo the Northern Pacific began to be classed as one of the Hill lines. With a substantial Hill representation on the board of directors and amanagerial policy which was clearly inspired by Hill, the company nowentered upon a new stage in its career. The outstanding dramatic event in the story of the modern NorthernPacific was the famous corner which occurred in the spring of 1901 as aresult of a contest between the Hill and the Harriman interests for thecontrol of the property. The details of this operation, which sent theprice of Northern Pacific stock up to $1000 a share and precipitated astock-market panic, form part of the story of the Harriman lines. Thecontest resulted in the formation of the Northern Securities Company, acorporation of $400, 000, 000 capital, devised as a holding company underthe joint control of the Hill and Harriman interests, for the purpose ofretaining a majority of the stocks of the Northern Pacific and the GreatNorthern. The Hill interests, jointly with the Morgan control of the NorthernPacific, had been quietly accumulating stock in the Chicago, Burlingtonand Quincy Railroad, and Harriman felt that there was grave danger tothe Union Pacific in this move, as the Burlington had already penetratedinto the Union Pacific territory and might at any time start to buildthrough to the coast its own line parallel to the Union Pacific. Harriman consequently began to buy up Northern Pacific stock in the openmarket and thus, together with the efforts of the Hill and Morgan peopleto retain and strengthen their control, brought about the corner. The Northern Securities Company was designed to harmonize all interestsand to keep the control of the Burlington property jointly in the handsof Harriman and Hill. But as the result of a suit under the ShermanAntiTrust Act, this combination was declared illegal, and in 1904 thecompany was dissolved. The final outcome of the situation was that theNorthern Pacific, sharing with the Great Northern the joint controlof the Burlington lines, was left indisputably in the hands of theHill-Morgan group, where it has ever since remained. These three greatrailroad systems, the Northern Pacific, the Great Northern, and theChicago, Burlington and Quincy, constituting nearly twenty thousandmiles of railroad, have been known ever since as Hill lines. Since the dramatic days of the Harriman-Hill contest the history of theNorthern Pacific system has been simply a striking reflection of thegrowth in population and wealth of the great Northwest. The Statesthrough which it operates have grown with astounding rapidity duringthe past two decades; small cities have spread into great centers ofmanufacture and trade; hundreds of smaller towns have sprung up; naturalresources of untold value have been developed. In the meanwhile theNorthern Pacific has forged ahead in its earnings and profits, and thestock of the road has come to be known as one of the highest class ofinvestment issues. Although new competition appeared, in both the localand the through business of the company--notably by the extension of theSt. Paul system largely through Northern Pacific territory to the PugetSound region--the superior modern business management of James J. Hill, backed by the strong resources of the Morgan banking interests, made theNorthern Pacific one of the standard railroad systems of America. CHAPTER VIII. BUILDING ALONG THE SANTA FE TRAIL The Santa Fe Route, or the Atchison, Topeka and Santa Fe Railroad, which has in modern times developed into one of the largest and mostprofitable railroad systems in this country, was projected long beforethe idea of a transcontinental line to the Pacific coast had taken fullpossession of men's minds. As early as 1858 a plan was worked out forthe construction of a line of about forty miles within the State ofKansas to connect what were then the obscure and unimportant townshipsof Atchison and Topeka. At that time not a mile of railroad had beenbuilt in Kansas or in any Territory west of that State, except onthe Pacific coast, to which there had been an enormous immigrationoccasioned by the wonderful discovery of gold. The outbreak of the Civil War delayed the undertaking of theAtchison-Topeka line, and nothing more was done until 1868. In that yearnew interests took control of the enterprise and acquired rights for itsextension through southwestern Kansas in the direction of Santa Fe, the capital of the Territory of New Mexico. The company, which hadoriginally been the Atchison and Topeka, now changed its name to theAtchison, Topeka and Santa Fe and obtained from the Government a veryvaluable land grant of 6400 acres for every mile constructed, the onlycondition being that within ten years the line should be completed fromAtchison to the western border of Kansas. The plan involved the buildingof only 470 miles of road, which when finished would assure the companynearly three million acres of land within the State of Kansas. A decade would seem to be ample time for the construction of thiscomparatively short railroad, particularly with the inducement of soextraordinary a land grant. Not only the Union Pacific but the CentralPacific and Kansas Pacific--all built within this decade--had toaccomplish far more construction in order to secure their respectivegrants, and yet they had their complete lines in operation years beforethe Santa Fe had fifty miles of track in actual commission. The reasonfor this delay was of course a financial one. The other roads hadall received government aid in cash or securities in addition to landgrants. But the Atchison line was, from the start, thrown on its ownresources in raising capital, and it was not until late in 1869--nearlya year after the opening of the Union Pacific to the coast--that anyconstruction work whatever was done. In that year the section fromTopeka to Burlingame, consisting of about twenty-eight miles, was openedfor 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 Kansasshould be completed by June, 1873. When by 1872 only sixty-one miles oftrack had been built, the company still had over four hundred miles togo within ten months if it expected to obtain the land grant. But soenergetically did the owners of the property work from that time on thatwithin seven months they had reached the eastern boundary of Coloradoand had thus saved the grant. But like most of the Western railroads built in those early days theSanta Fe property was, in a sense, ahead of its time. The rapidity withwhich it shot across the State of Kansas in 1872 was equaled only by thepromptness with which it fell into financial straits. No sooner had itscomplete line been opened for traffic than the panic of 1873 occurred;the company became embarrassed by a large floating debt; and acompromise had to be made with the bondholders whereby a postponement ofa year's interest was arranged. No attempts were made to extend the Santa Fe during the long period ofdepression following the panic of 1873. The road ended in 1872 at theColorado state line, and during the next few years the only building ofimportance was a western spur to connect with the Denver and Rio Grandeat Pueblo, thereby giving an outlet to the growing city of Denverand the rapidly developing mining regions of Colorado. About 1880, construction was resumed in a leisurely way, down the valley of theRio Grande into New Mexico and in the direction of Albuquerque. In thisextension, as in later building, the line of the old Arizona trail wasusually followed. One writer has declared that "the original builders ofthe Atchison followed the line of the Arizona trail so religiously thatif the trail skirted a ten-foot stream for a quarter of a mile to strikea shallow spot for fording, the railroad builders did likewise, insteadof bridging the stream where they struck it, and where the trail ranup a tree or hid in a hollow rock to avoid the wolves or savages, therailroad did the same!" The traveler of a generation ago over this particular section ofthe Santa Fe lines might have felt that there was some truth in thiscriticism; but the Atchison has long since cut out these idiosyncrasiesof early construction, and the main line in this section of New Mexicois now noted for alinement and absence of curves and grades. The builders of the Santa Fe lines in the early days no doubt plannedultimately to penetrate to the Pacific coast, knowing that the realopportunity for the road lay in that direction. The Southwest was yetbut sparsely settled; and no railroad which had as its objective theplains or alkali deserts of Arizona or New Mexico could thrive--at leastit could not for decades to come. And yet in the early eighties the realobjective of the Atchison system had not been determined. Havingpassed its original objective point, Santa Fe, the road had reachedAlbuquerque, but it could not afford to stop there. Through traffic itmust have or die. New Mexico, with its thin population and its totallack of development, could not supply traffic in sufficient amount evento "feed the engines. " To extend somewhere, then, was an imperative necessity. But whither?Several routes were under consideration. The Southern Pacific lines hadworked eastward to El Paso on the Mexican border, several hundredmiles due south from Albuquerque, and it looked feasible to extend theAtchison to that point and arrange a traffic agreement with the SouthernPacific, or to build an extension through New Mexico to Deming and thenwestward along the river valleys and down into Mexico to Guaymas onthe Gulf of California. It was possible, in the third place, to builddirectly west from Albuquerque through Arizona and Southern Californiato the coast. Ultimately all of these plans were carried out. The first extension of the Santa Fe was to Deming, New Mexico, wherein March, 1881, its tracks met those of the Southern Pacific, and byagreement the company secured the use of the Southern Pacific to Benson, Arizona. From the first this new through route to the Pacific began topay handsomely. Later on the line into Guaymas, Mexico, was added by thepurchase of the Sonora Railway. Soon afterward the Santa Fe secured fromthe St. Louis and San Francisco Railway a half interest in the charterof the Atlantic and Pacific, a company which planned to build through tothe coast. Meanwhile the St. Louis and San Francisco had been acquiredby the Gould and Huntington interests, which, as the owners of the Texasand Pacific and the Southern Pacific systems, naturally opposed theplans of the Santa Fe. The matter was compromised by the agreement ofthe Santa Fe to build no farther west than the Colorado River, where theSanta Fe was to be met by an extension of the Southern Pacific line fromMojave, California. This arrangement proved unprofitable to the Santa Fe, for the SouthernPacific naturally diverted traffic to El Paso and Ogden, A newarrangement was accordingly made in 1884, involving the purchase, by theAtlantic and Pacific, of the Southern Pacific division between Needlesand Mojave, the obtaining of trackage rights between Mojave andSan Francisco, and the use of the Southern Pacific terminals at SanFrancisco. To assure a connection with the coast in Southern California, the Santa Fe built a line to Colton, acquired the California SouthernRailway from Colton to San Diego, and effected an entrance to LosAngeles by leasing the Southern Pacific tracks from Colton. The Santa Fe had now reached the Pacific coast over its own lines, butit was handicapped by poor connections with the East. Its next movetherefore was eastward to Chicago, where it acquired the Chicago andSt. Louis Railroad between Chicago and Streator, Illinois, and thenconstructed lines between the latter point and the Missouri River. During the same year the company opened branches southward to the Gulfof Mexico, until by May, 1888, the entire system comprised 7100 miles. This rapid expansion of the property, combined with extravagance inmanagement and a reckless policy in the payment of dividends, broughtthe company into financial difficulties within a year after thecompletion of the system. Unprofitable branches had been built, andthese had become an immediate burden to the main system. It is the samestory 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 andmeans of reform and reorganization. The new management of the Santa Fe was a rational one and substantiallyreduced the obligations of the road. Had its spirit been maintained, asecond failure and reorganization a few years later would not have beennecessary. New interests, however, came into the property, and, thoughit was hoped that they would support a conservative policy, the formerprogramme of expansion was resumed until in 1890 the St. Louis and SanFrancisco system was merged with the Santa Fe on a very extravagantbasis. Within a year it was clear that the St. Louis and San Franciscowould prove more of a liability than an asset. During the same time theless important purchase of the Colorado Midland Railway also turned outto be a poor investment. The next four years were marked by more bad financial managementwhich culminated in the failure of the reorganized company. In 1892 anexchange of income bonds for fixed interest-bearing bonds so increasedthe fixed charges of the company that, as a result of the panic of 1893and its ensuing depression, the great Santa Fe system suddenly founditself in the hands of a receiver. The president, John W. Reinhart, hadpersistently asserted throughout 1893 that the company was financiallysound; but an examination of its books subsequently made in the interestof the security holders disclosed gross irregularities, dishonestmanagement, and manipulation of the accounts. During the year 1894 the property was operated under the protectionof the courts, and early in 1895 a new and comprehensive scheme ofreorganization was carried out. This latest plan involved dropping theSt. Louis and San Francisco system, the Colorado Midland, and all otherunprofitable branches; it wiped out the floating debt; it suppliedmillions of new capital; and it enabled the succeeding management atonce to build up and improve the property. At the head of the new company was placed Edward P. Ripley--a railroadmanager of great executive ability and a practical, broad-mindedbusiness man of the modern type, who has ever since remained presidentof the road. The history of the Santa Fe since 1895 has been closelyidentified with Ripley's business career, and its record during thesetwo decades has been an enviable one. Steady progress from year toyear in volume of business, in general development of the system, in improvement of its rights of way, terminals, and equipment, hascharacterized its history through periods of depression as well astimes of prosperity. Its resources have grown to vast totals; its creditequals that of the best of American railroads; its stocks and bonds areprime investments; and each year it pours millions of dollars of profitsinto the hands of its stockholders. CHAPTER IX. THE GROWTH OF THE HILL LINES The States which form the northern border of the United States westwardfrom the Great Lakes to the Pacific coast include an area several timeslarger than France and could contain ten Englands and still have roomto spare. The distance from the head of the Great Lakes at Duluth to thePacific coast in the State of Washington is greater than the distancefrom 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 gaveevidences of life and activity. No railroads penetrated the forestsor the mountain ranges. Far southward some progress in the march ofcivilization had been made; the Union Pacific had linked the West withthe East before the eighth decade of the century began, and the NorthernPacific project was being painfully pushed through the intermediate tierof States during the seventies. But the material resources of the GreatNorthwest had still to be discovered. When the Northern Pacific Railway failed in 1873, the crash involved alittle 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 northjoining the Northern Pacific at Brainerd, Minnesota. The St. Paul andPacific had been acquired in the interest of the Northern Pacific someyears earlier but was now regarded as a property so worthless thatits owners would be glad to get rid of it, if only they could find apurchaser rash enough to take it over. During the three years following the panic of 1873 the crops ofMinnesota were practically eaten up by the grasshoppers, and povertyreigned among the farmers. At that time a short, stocky man with longhair, one blind eye, and the reputation of being the greatest talkerin 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 chairin front of his store and discoursing on current events. This man wasnot only an interesting talker; he was a visionary, a dreamer--andone of his dreams was to buy the St. Paul and Pacific Railroad and totransform it into a real railway line. Nearly twenty years had passedsince he had drifted in, an eighteen-year-old Scotch-Irish boy fromOntario, 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 trieda variety of occupations, and at this time was agent for lines ofsteamboats on the Mississippi and the Red River. Everybody knew himand liked him, but no one took him very seriously. The idea of hiscontrolling the St. Paul and Pacific was even amusing. Now the most promising part of the St. Paul and Pacific when it failedin 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, anold Hudson Bay trader, Norman W. Kittson, ran two little old sternwheelsteamboats from Breckenridge to Winnipeg. A large part of the freightthat Hill and Kittson handled was for the Hudson's Bay Company. Itcame up the Mississippi, went across on the St. Paul and Pacific toBreckenridge, and then down the Red River on Kittson's steamboats untilit was received at Fort Garry, Winnipeg, by Donald Alexander Smith, thencommissioner for the Hudson's Bay Company. Smith, who became afterwards Lord Strathcona and High Commissioner forCanada in England, was a tall, lean, urbane Scotchman with a soft mannerand a long red beard. In 1876 he was fifty-six years old, with a life ofstrange, wild adventure behind him. He had gone when little more than aboy 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 sixtieshe was practically king over all the savage territory of the companyalong the waters entering Hudson Bay. By the seventies he was a man ofmeans 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 winterand the service on the St. Paul and Pacific, under the receiver, wasimpossible. So Smith listened with favor to Hill's project of gettinghold 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 hiscousin George Stephen--later Lord Mount Stephen--who was the head ofthe Bank of Montreal. In 1877 Stephen and Richard B. Angus, the generalmanager of the Bank, went to Chicago on business. While there, they hadtwo weeks' time on their hands, and tossed a penny to decide whetherto 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 chanceto see the prairies and look over that St. Paul and Pacific road thatDonald Smith is always talking about. " When they arrived in St. Paul, James J. Hill took them over the lineto Breckenridge. The country had been scoured by the grasshoppers andlooked like the top of an old rusty stove. But Stephen was a broadmindedman, wise enough to know that the pest of grasshoppers could not lastforever. He was greatly impressed with the ultimate possibilities of thesoil and, under the hypnotic influence of Hill's eloquence, became quiteenthusiastic over the scheme for getting hold of the railroad; but, asit would evidently involve millions, he didn't see how it could be done. The road had originally been financed by bonds sold largely in Holland, and to do anything at all it was necessary to get in touch with theseDutch bondholders. In 1877 Stephen went over to Amsterdam and secured anoption on the bonds at thirty cents on the dollar--less than the accruedinterest which was due and unpaid on them. He then came back to America, conferred with John S. Kennedy at New York, who represented both Dutchand American bondholders, and brought Kennedy into the combination. In the spring of 1878 the St. Paul and Pacific was taken over. Peoplestill smiled at Hill and wondered how he had induced a hard-headed bankpresident like Stephen to put up the money. Nobody in St. Paul believedin the future of the road. Even the syndicate's attorneys, when offereda choice between taking $25, 000 in cash or $500, 000 of the new road'sstock for their services, preferred the cash. Had they taken the stockand held it for thirty years, they would have had, in principal andinterest, some $30, 000, 000. To the surprise of everybody, including Hill and his friends, thegrasshoppers suddenly disappeared in the early summer of 1877 and nevercame back. That summer saw the biggest wheat crop that had ever beenharvested in Minnesota. "Hill's Folly, " as it was afterwards called, with its thirty locomotives and few hundred cars, was feverish withsuccess. Hill worked every possible source to get extra cars and wentall the way to New York to buy a lot of discarded passenger coachesfrom the Harlem Railroad. By the end of the season it was evident toeverybody that the St. Paul and Pacific was going to have a career andthat "Jim" Hill's dream was coming true. Immediately the fortunate owners began to plan for the future. They hadacquired the road at an initial cost of only $280, 000 in cash. In thefollowing year they advanced money for the completion of the unfinishedsection, as necessary to obtain the benefit of a generous grant of landfrom the State. Then, in 1879, having acquired full possession of theproperty, and having several millions of dollars in profits, they issuedbonds for further developments. This gave them sufficient basis toenlarge 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 soextraordinarily in the succeeding few years that by 1882 the stock wasworth $140 a share. And in 1883 they issued to themselves $10, 000, 000of 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 futureprospects. The decade from 1880 to 1890 witnessed a steady growth of the systemformed 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 theirbig stock division had grown in 1890 to 2775 miles. It then consisted ofa main line reaching from St. Paul and Minneapolis across Minnesota andthe northern part of North Dakota, far into Montana, with a second mainline from Duluth across Minnesota to a junction with the St. Paul linein North Dakota, besides numerous branches reaching points of importancein both these States. But the development of the Hill properties had by no means reached itslimit at this time. Hill's dream had been to construct a through lineacross the northern tier of States and Territories to the Pacific, andthis plan had been constantly in his mind while he was building upthe system in Manitoba. The original line running up into Manitoba andreaching Winnipeg was all very well as a start. It had paid so well thatthe original group of men had become millionaires almost overnight. ButHill meant to show the public that, after all, the early success wasonly an incident and merely a stepping-stone to the really great thing. Practical railroad men everywhere ridiculed the idea of a railroadrunning across the far northern country, climbing mountain ranges, traversing hundreds of streams and extending for great stretches throughabsolutely wild and uninhabited regions. Especially did they deem itabsurd to attempt such an undertaking without government aid, subsidies, or grants of land, pointing to the experience of such roads as theUnion Pacific, Northern Pacific, and Santa Fe. All these had receivedfinancial assistance and large land grants, and yet all had gone throughlong periods of financial vicissitude before they had become profitableand stable enterprises. But Hill was more farseeing than his critics. In 1889, the name of thecompany was changed to the Great Northern Railway, and under this titlethe extension to the coast was rapidly carried forward and was opened inthe panic year of 1893. When all the other transcontinental lineswent into bankruptcy, Hill's road not only kept out of the courts butactually earned and paid annual dividends of five per cent on its stock. The five years from 1896 to 1901 were years of uninterrupted prosperityfor the Great Northern Railroad. Each year its credit rose; each yearit grew to be more of a force in the Western railway situation. In theseyears the control of the property had somewhat changed and a few of theoriginal promoters had died or had withdrawn. But Hill, Lord Strathcona, Lord Mount Stephen, and John S. Kennedy of the original group, all heldtheir large interests, and Hill in particular had added to his holdingsas the years had gone by. The secret of Hill's striking success with his Western extension was themethod by which the line was constructed. Hill had a theory that it wasfar better to go around mountains and avoid grades than to climb them orto bore through them; it was always better to find the route which wouldmake long hauls easy and economical. He thus built his road with theidea of keeping down the operating costs and of showing a larger marginof profit than the others. From the very start the Great Northern wasnoted for its low ratio of operating expenses and its comparatively longtrains and heavy trainloads. It was by this method that it really madeits money. By the year 1901 the Great Northern Railway absolutely controlled itsown territory. But it was still handicapped by lack of an independententrance into Chicago, as its eastern lines terminated at Duluth andSt. Paul. At the western end also, the situation was unsatisfactory. It seemed important for the Great Northern to control a line of its owninto Portland, Oregon, because the Northern Pacific Railroad, which, aswe have seen, had been reorganized several years before by theMorgan interests, had been rapidly extending its lines in Oregon andWashington. Hill and his associates, therefore, had been quietly buyinga substantial interest in the Northern Pacific property and thus, in thecourse of time, had come into closer relations with the Morgan group inNew York. Soon afterward, under Hill's influence, the Northern Pacificbegan the construction of further extensions in Oregon and reached intoterritory that the Harriman interests in the Union Pacific Railroadhad regarded as their own. This move created much friction between theHarriman and Hill groups, and in order to forestall danger Harrimanin turn began quietly accumulating an interest in the Northern Pacificproperty by purchases in the open market. The story of the battle royal between the Hill and Harriman interestswill be told in a subsequent chapter. It is not necessary to repeat thehistory of the famous corner of 1901 nor of the compromise effected bythe formation of the Northern Securities Company. The final resultof this contest was the complete harmonizing of the Western railroadsituation, so far as the Hill and the Harriman interests were concerned. In the succeeding years the Great Northern system penetrated to theheart of Manitoba and constructed lines through British Columbia toNelson and Vancouver. It built other branches to Spokane, Washington, and Helena and Butte, Montana. Moreover by the discovery of extensiveore deposits on the lines of the company in northern Minnesota and bysubsequent purchases of other mines, the Great Northern acquired controlof about sixty-five thousand acres and hundreds of millions of tonsof iron ore. All the properties so controlled were leased on a veryprofitable basis to the United States Steel Corporation. The GreatNorthern Railroad itself did not retain control of the ore landsbut, through a trusteeship, gave a beneficial interest in them to itsstockholders in the shape of a special dividend. The profits under this lease promised to be very large in the courseof time, but the Steel Corporation had the option to cancel aftera five-year period, and in 1912, as the result of a United StatesGovernment suit for the dissolution of the Steel Corporation, thelease was canceled. Since that time the trustees of the ore lands haveexecuted other leases, and the Great Northern ore certificates arebringing in a substantial return to their owners. The three Hill lines--the Great Northern, the Northern Pacific, andthe Chicago, Burlington and Quincy--have been unusually profitable. The Great Northern and the Northern Pacific have steadily paid liberaldividends 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 timeaccumulating an earned surplus of more than one hundred million dollarsand spending an almost equal amount of profits on the improvement andmaintenance of the property. The Burlington today controls the ColoradoSouthern, which extends southward from the Burlington lines in Wyoming, passing through Denver, Pueblo, Fort Worth, and other points southwardto the Gulf. CHAPTER X. THE RAILROAD SYSTEM OF THE SOUTH In the year 1856 a small single-track railroad was opened from Richmondto Danville, Virginia. This enterprise, like many others in ante-bellumdays, was carried out largely with funds supplied by the State. As longafterwards as 1867, three-fifths of the stock was owned by the State ofVirginia, but soon after this time the State disposed of its investmentto a railroad company operating a line in North Carolina from Goldsborowestward to Greensboro, and projected southward to Charlotte. In moderntimes, this little road, like the Richmond and Danville, has become anintegral part of the Southern Railway system, but in those days it wascontrolled, curiously enough, by the Pennsylvania Railroad Company. After 1867 the new owners of the Richmond and Danville beganaggressively to extend their lines. By leasing the North CarolinaRailroad, a small property forming a link with the Greensboro line, theycreated a through route from Richmond to Charlotte. By 1874 they hadbuilt the road southward to Atlanta, Georgia, and had thus formedthe first continuous route from Richmond to that city. Because of theextreme disorder and depression in the South during the years after theCivil War the line did not prosper and was sold under foreclosureabout 1875. But the company was reorganized in 1878 and acquired theCharlotte, Columbia and Augusta, thus extending its lines into the heartof South Carolina and tapping a rich territory. During these early yearsthe Pennsylvania Railroad interests, which still held control, suppliedthe funds necessary for making improvements. At the same time that the Richmond and Danville was linking upthe commercial centers of the southern Atlantic seaboard, anothersystem--known as the East Tennessee, Virginia and Georgia--was beingbuilt up in the Appalachian Mountains to the west. This property and itspredecessors had to some extent been state-owned enterprises at first, but in 1870 the Pennsylvania Railroad interests acquired control. Aholding company called the Southern Railway Securities Company was nowformed for the purpose of controlling all the Pennsylvania Railroadinterests south of Washington. Besides the properties mentioned, this Securities Company soon obtained several other Atlantic seaboardproperties extending from Richmond to Charleston, and also the Memphisand Charleston Railroad, running from Memphis to Chattanooga. Thus at this early day a considerable railroad system had been weldedtogether in the South, reaching many points of importance and formingdirect connection at Washington with the northern properties of thePennsylvania system. Had this experiment been successful, we wouldperhaps today reckon the great Southern Railway system as part of thePennsylvania group. But the outcome was disappointing; the roads did notprosper; and soon the poorer sections began to default. The Pennsylvaniathen disposed of its interests and left the roads to shift forthemselves. The East Tennessee was the best of these minor lines, and in 1877it began to acquire others extending through the South. Soon it hadpenetrated the heart of Alabama, reaching what is today known as theBirmingham district. Additional extensions were made to Macon and Rome, Georgia, and on the north an alliance was arranged with the Norfolk andWestern, while with a view to securing some of the business of the West, a connection was constructed at Kentucky-Tennessee state line. Such wasthe condition of the East Tennessee property by the end of 1881. In themeantime the Richmond and Danville had practically stood still. About this time a definite revival set in throughout the South as thelong-drawn-out period of depression following the war came to an end. Railroad activity revived, and both the East Tennessee, Virginia andGeorgia and the Richmond and Danville roads passed into the hands of newand more aggressive interests. The new owners constructed the GeorgiaPacific, which ultimately stretched across Alabama and Mississippi. To finance this enterprise and to consolidate their interests, a newholding company--the Richmond and West Point Terminal Railway andWarehouse Company--was formed in 1881 with large powers and authorityto acquire the stocks and bonds of railroad properties in many SouthernStates. In addition to the properties already named, the VirginiaMidland Railway was now acquired, and by 1883 the entire system had beenmerged under this organization. The company also secured the control ofa line of steamboats running from West Point, Virginia, to Baltimore, and made close traffic arrangements with the Clyde line of steamersrunning between New York and Philadelphia and all important Southernpoints. The personality at the head of the Richmond and West Point TerminalRailway and Warehouse Company was Calvin S. Brice, a man who had becomeincreasingly prominent in railway affairs in the Southern States. Bricewas something of a genius at combination and by 1883 had linked togetherand solidified the various properties in a very efficient manner. Nevertheless the competitive conditions of the time, combined withthe necessarily more or less crude and hazardous methods adopted infinancing and capitalizing the enterprise, prevented the credit ofthe organization from reaching a sound and secure level. The Tennesseeproperties especially proved an encumbrance, and they were almostimmediately threatened with bankruptcy. Brice therefore decided toreorganize these subsidiary lines, and a new company called the EastTennessee, Virginia and Georgia Railway took over this section of thesystem in 1886. In the meanwhile the Richmond and Danville properties, which werethemselves becoming burdened with an ever growing debt, gave the Briceinterests constant trouble. A large amount of the stock of the Richmondand Danville, as well as most of its bond issues, remained stilloutstanding in the hands of the public. Consequently the only wayin which Brice and his friends could save the Richmond and Danvilleproperty from completely breaking up was to merge it more closely withthe holding company in some way. But the credit and standing of theholding company itself were anything but high, for in addition to payingno dividends it had piled up a heavy floating debt of its own and had apoor reputation in Wall Street. The situation thus becoming acute, the management carried through aremarkable stock-juggling plan. Instead of merging the Richmond andDanville directly into the West Point Terminal Company, the directorssecretly decided to turn the Terminal Company assets over to theRichmond and Danville without apprising the stockholders of the TerminalCompany. In conformity with this plan, early in 1886 the Richmond andDanville leased the Virginia Midland, the Western North Carolina, andthe Charlotte, Columbia and Augusta railroads, and later in the year theColumbia and Greenville and certain other small lines. At about thesame time the Richmond and Danville obtained in some unknown way largeamounts of the Terminal Company stock, a portion of which it nowissued in exchange for stocks and bonds of certain of these subsidiarycompanies which it had leased. Having carried through these transfers, the Richmond and Danville then threw the remainder of its TerminalCompany stock on the market, where it was bought by investors who knewnothing about these secret transactions. The Terminal Company was now left high and dry so far as the Richmondand Danville was concerned. But at this juncture a surprising thinghappened. The management of the Terminal Company, in its turn, began tobuy shares of Richmond and Danville stock and in a short time regainedits former control. This shifting of power exactly reversed thesituation which had previously existed, when the Terminal Company itselfhad been controlled by the Danville Company. These changes were followedby a further move on the part of the Brice and Thomas interests, which now formed a syndicate and turned over to the Terminal Company amajority of the stock of the East Tennessee Company for $4, 000, 000 incash and a large amount of new Terminal Company stock. When these transactions had been accomplished, the Terminal Companyfound itself once more securely in control of the entire system, and theBrice and Thomas interests had incidentally very considerably increasedtheir fortunes and also their hold on the general situation. From thistime, the Terminal Company went aggressively forward in an ambitiousplan for further expansion. By acquiring control of the Central Railroadand Banking Company of Georgia, the Terminal management was involvedwith new financial interests which immediately sought to control thesystem and to eliminate the Brice and Thomas group. The consequentinternal contest was adjusted, however, in May, 1888, by electing aspresident John H. Inman, a man who had been identified with the CentralRailroad of Georgia system. The Richmond Terminal system now put in motion further plans forexpansion. In 1890 it acquired a system of lines extending south fromCincinnati to Vicksburg and Shreveport, known as the Queen and Crescentroute, and in the meantime made a close alliance with the Atlantic CoastLine system. By the end of 1891 the Richmond Terminal system embracedover 8500 miles of railroad, while the Louisville and Nashville, thenext largest system in the Southern States, had only about 2400 miles. But as 1891 opened, the vast Richmond Terminal system was perilouslynear financial collapse. Notwithstanding the great value of many ofthe lines, its physical condition was poor; the liabilities andcapitalization were enormous; and much of the mileage was distinctlyunprofitable. About this time many disquieting facts began to leak out:during the previous year the Richmond and Danville had been operated ata large loss, and this fact had been concealed by deceptive entries onthe books; the dividends, paid on the Central Railroad of Georgia stockhad not been earned for some years; and the East Tennessee propertieswere hardly paying their way. Various investigating committees were now appointed, and finally acommittee headed by Frederic P. Olcott of New York took charge andworked out a complete plan of reorganization. The scheme, however, metwith strenuous opposition, and thus matters dragged on into the panicperiod of 1893, when the entire system went into bankruptcy and intothe hands of receivers. The various sections were operated separatelyor jointly by receivers during this unsettled period, and it looked forsome time as though an effective reorganization which would preventthe properties from entirely disintegrating could not be successfullyaccomplished. In the dark days of 1893, after Olcott and the Central Trust Company hadfailed to effect a reorganization of the Richmond Terminal system, a newinterest came to the rescue, represented by the firm of J. P. Morgan andCompany, whose growing reputation was due to the unusual personalityof J. P. Morgan himself. He was essentially an organizer. The railroadproperties which had become more or less identified with the Morganinterests had for the most part prospered. It was felt that Morgan'sbanking-house was the only one in Wall Street which might be equal tothe task. The proposal was made to him; he did not invite it. In fact, it is said that for some time he was much opposed to taking hold of thisdisintegrated and broken-down system of railroads operating largely inpoor and unprogressive sections, populated for the most part by negroes. Said Morgan, "Niggers are lazy, ignorant, and unprogressive; railroadtraffic is created only by industrious, intelligent, and ambitiouspeople. " After months of discussion, however, Morgan finally agreed to undertakethe task, and out of the previous chaos there emerged the SouthernRailway Company, which has been closely identified with Morgan'sname ever since. Probably of the many railroad systems which Morganreorganized from 1894 down to the time of his death, no system hasbecome more distinctly a Morgan property than the Southern RailwayCompany. The plan of reorganization whereby this great aggregation of looselycontrolled and poorly managed Southern railroads was welded togetherinto an efficient whole was a very drastic one in its effect on the oldsecurity holders. Debts were slashed down everywhere, assessmentswere levied, and old worthless stock issues were wiped out. Valuelesssections of mileage were lopped off, and an effort was immediately madeto strengthen those of real or promising value. Millions of dollarsof new capital were spent in rebuilding the main lines; terminalsof adequate scope were constructed in all centers of population; andalliances were made with connecting links with a view to building upthrough traffic from the North and the West. The first ten years of the Southern Railway system under the Morgancontrol were practically years of rebuilding and construction. Whileafter ten years of work the main system still radiated through mostof the territory already occupied in a crude way in 1894, yet it hadacquired a large number of feeders and smaller railroads in othersections. The Mobile and Ohio, operating with its branches about onethousand miles from Mobile to St. Louis, Missouri; the Georgia Southernand Florida, furnishing an important connection from the main systemto various points in the State of Florida; the Alabama Great Southern, operating in and near the Birmingham district of Alabama--all theseproperties were molded into the system during these years. The systemwas then rounded out toward the North and consolidated through jointcontrol, with the Louisville and Nashville, of the Chicago, Indianapolisand Louisville Railroad, which operated lines northward into Ohioand Illinois and on to Chicago. Thus, with the lines of the Queen andCrescent route running southward from Cincinnati to New Orleans, thesystem secured a direct through line from its various southern points tothe shores of the Great Lakes. In addition to these developments, the management of the SouthernRailway system arranged direct connection with Washington through thejoint acquisition with other lines of the Richmond, Fredericksburg andPotomac; it made traffic arrangements with the Pennsylvania and theBaltimore and Ohio systems to Baltimore, Philadelphia, and New York; andit also developed close alliances with the coastwise steamships plyingnorthward from various Southern points. In the reorganization of 1894 the Central of Georgia Railway systemwas cut off and separately reorganized, although it remained under thecontrol of Morgan for a number of years. Finally in 1907 Morgan soldhis Georgia properties to Charles W. Morse. They subsequently passed toEdward H. Harriman, who afterwards merged them into the Illinois Centralsystem, under which control they have since remained. As compared with the old Richmond Terminal aggregation with itsbroken-down rails and roadbed, poor equipment, and miserable service, the modern Southern Railway system shows startling changes. The SouthernStates have grown enormously in population and wealth during the lastgeneration; the industrial activities of the South at the present timeare elements of large importance to the country as a whole. Cities havevastly increased in population; new towns and manufacturing districtshave been built up; and at the present there is scarcely a mile ofunprofitable railroad in the entire 9000 miles under operation. Inrecent years large soft coal deposits have been discovered and developedon many of the branch lines, and today the coal tonnage of the SouthernRailway is exceeding the relatively unstable lumber tonnage of two orthree decades ago. CHAPTER XI. THE LIFE WORK OF EDWARD H. HARRIMAN In a previous chapter there has been related the early history of thegreat line that first joined the Atlantic and the Pacific Oceans--theUnion Pacific. But the history of this property in recent years isalmost as startling and romantic as its story in the sixties andseventies. It was not until recent days that the golden dreamsentertained by these early builders came true. The man who reallyreaped the harvest and who at the same time gave the Union Pacific thatposition among American railroads which its founders foresaw was thelast, and some writers think, the greatest of all American railroadleaders. The Union Pacific, a bankrupt railroad in 1893, lay quiescent under thestress of the hard times that lasted until 1898. The long story of itstribulations hardly made it a tempting morsel for the men who werethen most active in the railroad field. In 1895 or 1896 the severalprotective committees which had been appointed to look after theinterests of stockholders and defaulted bondholders had tried to induceJ. P. Morgan to undertake the reorganization, but he had refused. To reorganize the Union Pacific meant that not far from one hundredmillions of new capital would sooner or later have to be supplied, andthere was no other banking-house in America at that time which seemedstrong enough for the task. Smaller concerns were all involved in theMorgan syndicates or in other undertakings, and a combination of theseat the moment seemed out of the question. About this time the German-Jewish bankinghouse of Kuhn, Loeb and Companybegan looking into the situation. Kuhn, Loeb and Company were known asa very conservative but very rich concern with close connections inFrankfort and Berlin. Though it had been long established in New Yorkit had not been identified with the railroad reorganization movement norhad it been prominent as an investing or underwriting institution. But now the active partner of the business, Jacob H. Schiff, setout seriously to persuade the various committees to adopt a plan ofreorganization which he had devised. Though he made some progress, he soon found much secret opposition and thought that Morgan might bequietly attempting to secure the property. Morgan, however, was notinterested. The mystery was still unsolved. The fact was that Edward H. Harriman, who for some years past had beena powerful influence in the affairs of the Illinois Central Railroad butwho was unknown to the average Wall Street promoter and totally unheardof throughout the country, had made up his mind to reorganize theUnion Pacific Railroad. He therefore began to work quietly with variousinterests in an attempt to tie up the property. But soon he, likeSchiff, encountered serious opposition. He also immediately jumped tothe conclusion that Morgan was secretly at work, and he called on Morganfor the facts. Morgan replied, as he had replied to Schiff, that he wasnot interested, but that he wished Harriman success. As Schiff continued to meet with difficulty, he soon called on Morganagain. Again Morgan replied that he was not interested. "But, " he said, "I think if you will go and see a chap named E. H. Harriman you may findout something. " Who was Harriman? Schiff had hardly heard of him and had never met him. How could a small man like Harriman, with no money, no powerful friends, no big financial backing, reorganize a great system like the UnionPacific Railroad? The idea seemed ridiculous. Nevertheless, as theopposition continued, Schiff soon got in touch with Harriman. In thecourse of a conference, he warned this daring interloper to keep hishands off the Union Pacific. But Harriman was not moved by threats. Onthe contrary, he insisted that Schiff should leave the Union Pacificalone; that he himself had already worked out his plans to reorganizeit. Schiff laughed at this idea, termed it chimerical, and asserted thatKuhn, Loeb and Company were easily able to obtain the needed one hundredmillions or more through their foreign connections on a basis of fromfour to five per cent, and that in America no such sum of new capitalcould at that time be raised through banking activities at better thansix or seven per cent. Harriman then sprang his surprise on Schiff. For some years he had beenfinancially interested in the affairs of the Illinois Central. Thisproperty had at that time higher credit than any other Americanrailroad; it had raised large sums of capital in Europe on as low abasis as three per cent, and on most of its bonds paid only three andone-half per cent interest. For nearly fifty years the property had beenpaying dividends with hardly an interruption, and altogether it hadan enviable reputation as one of the soundest investments. Harriman'sinfluence in the affairs of the company had been increasing quietly foryears; the management had been left almost completely in his hands; andthe directors were in effect largely his puppets, and a majority woulddo his bidding in almost anything he might propose. Harriman now announced to Schiff that he intended to have the UnionPacific reorganized as an appendage of the Illinois Central. Thenecessary one hundred millions would be raised by a first mortgage onthe entire Union Pacific lines at three per cent, and the mortgage wouldbe guaranteed by the Illinois Central, while the latter company wouldreceive a majority of the new Union Pacific stock in consideration forgiving its guarantee. Here was a poser for Schiff, who saw at once that if Harriman could usethe Illinois Central credit in this way, he certainly could carry outhis plan. Schiff soon found that Harriman would have no difficulty inusing Illinois Central credit. The upshot of the matter was that the twomen got together and jointly reorganized the Union Pacific. Harrimanwas made chairman of the Board of Directors, and Kuhn, Loeb and Companybecame the permanent bankers for the new railroad system. Thus with one bound Harriman had leaped to the forefront in Americanrailroad finance and by a bold act which was characteristic of the man. For Edward H. Harriman was not only a hardheaded, practical businessbuilder who like Morgan thought in big figures, but he was also a boldplunger, which Morgan was not. Possessing a vivid imagination, he notonly saw far into the future but he also planned far into that samefuture. Morgan was also a man of vision, but his vision did not carryhim far beyond the present. The things Morgan saw best were thoseimmediately before him, while the things that Harriman saw best were ata distance. Morgan's big plans of procedure were based on what he saw ina business way in the near future; he reorganized his railroads with theidea of making them pay their way as soon as possible and of showing agood return on the capital invested. He thought little of what might bethe outcome a decade or two hence or of what combinations might laterbe worked on the chessboard as a result of his immediate moves. Morgan'smind was not philosophical; it was intensely practical. While Morgan declined the proffered control of the Union Pacific on thetheory that it was only a "streak of rust" running through a sparselysettled country and across an arid desert, Harriman dreamed of the greatundeveloped West filling up with people during the following generation, of the empty plains being everywhere put under cultivation, and ofthe arid desert responding to the effects of irrigation on a large andcomprehensive scale. He foresaw the wonderful future of the PacificStates--the opening up of natural resources in the mountains, the steadystream of men and women who would ultimately emigrate to this vastsection from the East and from foreign lands and who would build uptowns and great cities. At the same time, with that practical mind ofhis, Harriman calculated that the Union Pacific Railroad--situated inthe heart of this huge area, having the most direct and shortest line tothe Pacific, and with all traffic from the East converging over half adozen feeder lines to Omaha and Kansas City--would haul enormousamounts of tonnage just as soon as the Western country revived from thedepression under which it had been struggling for half a dozen years. When Harriman took hold of the Union Pacific he had already determinedto absorb the Oregon lines, with their tributaries running up into thePuget Sound country and to the Butte mining district; to get hold of theSouthern Pacific properties at the earliest possible moment; and to linkthe Illinois Central in some way to the Union Pacific so that the latterwould have its own independent outlets to Chicago and St. Louis. Allthese plans he ultimately accomplished, as well as many others, some ofwhich his farseeing imagination may have conceived then. While Harriman was able very promptly to carry through his first schemeand recapture the Oregon lines, which had been separately reorganized asa result of the receivership, he found it a far more difficult matter tosecure a dominating interest in the great system of railroads controlledby Collis P. Huntington. Huntington was a hard man to deal with. Himselfone of the practical railroad magnates of his time, he also had the giftof vision and undoubtedly foresaw that the ultimate result must be aconsolidation of the properties; but he fully expected that his companywould absorb the Union Pacific. Had it not been that during the panicperiod the Southern Pacific had heavy loads of its own to carry and thatits credit was none too high, Huntington might then have attempted togain control of the Union Pacific. Events finally worked to the benefit of Harriman. When Collis P. Huntington died in 1900, it was in most people's minds only a questionof time as to when the powerful Harriman interests would take over theSouthern Pacific properties. Consequently there was no surprise whenin 1901 announcement was made that the Union Pacific had purchased theholdings of the Huntington estate in the Southern Pacific Company andwas therefore in virtual control. By a master stroke the railroad situation in the West had been radicallychanged. The Huntington system comprehended many properties of largeand growing value, which were now feeling the full benefit of theagricultural prosperity at that time spreading throughout the greatSouthwest. Aside from this prize, the Union Pacific acquired the mainline to the Pacific coast which it had always coveted and thus added toits system over nine thousand miles of railroad and over four thousandmiles of water lines, besides obtaining a grip on the railroad empireof this entire portion of the continent not to be readily loosened bycompetitors. At the same time that Harriman was strengthening his position on thewest and south, the Great Northern and Northern Pacific properties, bothnow operated under the definite control of James J. Hill, were followinga policy of expansion fully as gigantic as that of the Union Pacific. The Great Northern lines operating from Duluth to the Pacific coast hadbecome powerful elements in the Western railroad situation, and Hill haddevised many plans for diverting to the north the through traffic comingfrom the central section of the continent. He had established on theGreat Lakes a line of steamships running from Duluth to Buffalo, andwas also operating on the Pacific Ocean steamship lines which gave him aconnection with Japan, China, and other oriental countries. After the reorganization of the Northern Pacific Railroad, which fellunder the domination of Morgan, the affiliations of the Hill and Morganinterests became very close, and in a short time Hill had as secure agrip on the Northern Pacific as he had always had on the Great Northern. This powerful combination looked like a menace to the Harriman-Kuhn-Loebinterests which controlled the territory to the south and radiatedthroughout the State of Oregon. When, therefore, the Northern Pacificbegan a little later to build into territory in Oregon and Washingtonwhich the Union Pacific regarded as a part of its own preserves, muchbad feeling was engendered between the two interests. Matters werebrought to a climax in the spring of 1901 when the Harriman peoplesuddenly made the discovery that the Hill-Morgan combination had beenquietly buying control of the valuable Chicago, Burlington and QuincyRailroad, which operated a vast system west and northwest of Chicago, penetrated as far into the Union Pacific main-line territory as Denver, and connected at the north with the eastern terminals of both the GreatNorthern and Northern Pacific systems. This move meant but one thing toHarriman: the Hill-Morgan interests were trying to surround theUnion Pacific and make it powerless, just as the Southern Pacific hadattempted to do many years before. Harriman now played one of his bold strokes. He immediately began topurchase Northern Pacific stock in the open market in order to securecontrol of that property. It was well known that while the Hill-Morganalliance dominated the Northern Pacific, it did not actually own amajority of the stock, and to secure this majority was Harriman'spurpose. This move would effectually check the invasion of the UnionPacific territory by giving the Harriman interests a voice in thecontrol of the Chicago, Burlington and Quincy. The price of Northern Pacific common stock soared day after day until onMay 9, 1901, it sold at $1000 a share, and a momentary panic ensued. Atthe time Morgan was on the ocean and could not be reached. His partnerswere apparently not equal to the emergency. But Harriman was. When thepanic reached its height, both interests had purchased far more than amajority of Northern Pacific stock--in contracts for future delivery. It was seen that to insist on the delivery of shares which did not existwould not only bankrupt every "short" speculator, large and small, butwould undoubtedly bring all Wall Street tumbling down like a house ofcards. So, in the midst of the excitement, the two interests reached acompromise. The outcome was the formation of the Northern Securities Company with acapital of $400, 000, 000, nearly all of which was issued to acquire thecapital stocks of the Northern Pacific and Great Northern railroads. All the properties, including the Burlington, thus came under the jointcontrol of the Harriman and Hill groups. The division of territory onboth the east and the west was worked out amicably: the Northern Pacificabandoned some of its plans for extensions in Oregon, and the Burlingtonsystem remained as it was, with the understanding that no extensionsshould be built to the Pacific coast. Later the Burlington acquiredcontrol of a cross-country system, the Colorado Southern, extendingsouth to the Gulf, but to this day has made no attempt to build beyondthe lines it owned to Wyoming in 1901. As is well known, the Northern Securities Company was subsequentlydeclared to exist in violation of the Sherman Anti-Trust Act, and on adecision of the United States Supreme Court in 1904 it was practicallydissolved and all its securities were returned to the original holders. This dissolution left the Hill-Morgan interests in undisputed control ofthe Burlington properties, but harmonious relations had in the meantimebeen established among the contestants, assuring an equitable divisionof territory and traffic. The final outcome was that the Union PacificRailroad Company, which had purchased with its large surplus and by theuse of its high credit many million dollars' worth of the capital stocksof the Great Northern and Northern Pacific railroads, received thesestocks back after several years of great prosperity and afterthe appreciation in the market values of the stocks had exceeded$60, 000, 000. There was no further necessity for holding them and mostof the stocks were sold at the high prices of 1905 and 1906, with actualnet profit for the Union Pacific Railroad in excess of $50, 000, 000. Nosuch gigantic financial transaction as this had ever before been carriedthrough by an American railroad corporation. With an overflowing treasury in the Union Pacific, Harriman immediatelyturned his face toward the East. It had for years been one of hisdreams to control a continuous line of railroad from the Atlantic to thePacific. As early as 1902 he had all but completed negotiations for theacquisition of the New York Central lines in the interest of the UnionPacific; but this plan had met with opposition from the Vanderbiltsand Morgan and had been dropped. Harriman now took advantage of anopportunity which presented itself to acquire for the Union Pacific whatwas practically a dominating interest in the Baltimore and Ohio, alarge block of whose stock was disposed of by the Pennsylvania Railroad. Harriman had already largely added to the Union Pacific's holdings inthe Illinois Central. Jointly with the Lake Shore of the Vanderbiltsystem, the Baltimore and Ohio had, as already described, acquired adominating interest in the Reading Company, including all the lattercompany's interests and affiliations as well as its entry into the NewYork district through control of the Central Railroad of New Jersey. Harriman, therefore, by a single stroke, now found himself in practicalpossession of a coast-to-coast system of railroads extending all the wayfrom New York to San Francisco, Portland, and Los Angeles, and passingthrough all the important cities of the country. The Illinois Centralsystem, operating nearly five thousand miles of road southward fromChicago to New Orleans, passing through St. Louis, with an arm reachingout to Sioux City on the west and a network of branches covering theMiddle States, had thus become the great link welding together theeastern and western Harriman systems. Later the Union Pacific acquired large interests in other properties andpurchased substantial amounts of stock in the Atchison, Topeka andSanta Fe, the New York Central, the St. Paul, and the Chicago and NorthWestern railroads. It also acquired a dominating interest in the Chicagoand Alton property, operating from Chicago to St. Louis, with Westernbranches. In the panic period of 1907, Harriman personally purchasedfrom Charles W. Morse, who had acquired the property from Morgan a shorttime before, the entire capital stock of the Central of Georgia Railway, which he later turned over to the Illinois Central. The Central ofGeorgia lines connect at several points with the Illinois Central andhave given the system various outlets on the South Atlantic seaboard. Harriman died in September of 1909, and with his death the wizard touchwas clearly gone. What would have been the later history of the UnionPacific had he lived can be only conjectured. The new management, withJudge Robert S. Lovett at its head, continued the broad and efficientoperation which had characterized Mr. Harriman's regime, but it soonabandoned the policy of further growth and expansion. This alteration inpolicy, however, was perhaps more the result of changing conditions thanof relinquishment of Harriman's aims. Many new laws for the regulationof the railways had been passed, and in 1906 the powers of theInterstate Commerce Commission were greatly augmented. A periodof reform had now begun, and after 1909 a wave of "progressivism"overspread the country. New interpretations were given to the ShermanAct, and suits were soon under way against all the railroads andindustrial combinations which appeared to be infringing that statute. The great Standard Oil and Tobacco trusts were dissolved in this period, and a suit which was brought to divorce the Union Pacific and theSouthern Pacific Company was finally decided against the Union Pacific, with the result that the two big properties were separated. The UnionPacific turned a large amount of its Southern Pacific stock holdingsover to the Pennsylvania Railroad, in exchange for which it receivedfrom the Pennsylvania the remainder of the Baltimore and Ohio stockwhich the Pennsylvania interests had retained after the sale to theUnion Pacific in 1906. Immediately after this, the Union Pacificmanagement, seeing no particular advantage in retaining an interest inthe Baltimore and Ohio, gave the shares to its own stockholders in aspecial dividend. Thus, since Harriman's death, the Union Pacific Railroad has once morereturned to very much its original condition prior to its acquisitionof the Southern Pacific. It still controls the Illinois Central andthe Chicago and Alton and has investment interests in a large number ofother railroads. It is still the premier system of the West and promisesto remain so indefinitely; but the bold Harriman touch is gone and willnever return. CHAPTER XII. THE AMERICAN RAILROAD PROBLEM During the last fifty years the railroad has perhaps been most familiarto the American people as a "problem. " As a problem it has figuredconstantly in politics and has held an important position in manypolitical campaigns. The details that comprise this problem havebeen indicated to some extent in the preceding pages--the speculativecharacter of much railroad building, the rascality of some railroadpromoters, the corrupting influence which the railroad has toofrequently exerted in legislatures and even in the courts. The attemptsto subject this new "monster" to government regulation and control havefurnished many of the liveliest legislative and judicial battles inAmerican history. Farmers, merchants, manufacturers, and the travelingpublic have all had their troubles with the transportation lines, andthe difficulties to which these struggles have given rise have producedthat problem which is even now apparently far from solution. Railroads had been operating for many years in this country before itdawned upon the farmers that this great improvement, which many hadhailed as his greatest friend, might be his greatest enemy. It had beenoperating for several decades in the manufacturing sections before theenterprising industrialist discovered that the railroad might not onlybuild up his business but also destroy it. From these discoveries aroseall those discordant cries of "extortion, " "rebate, " "competition, ""long haul and short haul, " "regulation, " and "government ownership, "which have given railroad literature a vocabulary all its own and havewritten new chapters in the science of economics. The storm center ofall this agitation concerned primarily one thing--the amount which therailroad might fairly charge for transporting passengers and freight. The battle of the people with the railroads for fifty years has beenthe "battle of the rate. " This has taken mainly two forms, the agrarianagitation of the West against transportation charges, and the fight ofthe manufacturing centers, mainly in the East, against discriminations. Perhaps its most characteristic episodes have been the fight of the"Grangers" and their successors against the trunk lines and that of thegeneral public against the Standard Oil Company. Even in the fifties and the sixties, the American public had itsrailroad problem, but it was quite different in character from the onewith which we have since grown so familiar. The problem in this earlierperiod was merely that of getting more railroads. The farmer pioneersin those days were not demanding lower rates, better service, and nodiscrimination and antipooling clauses; they asked for the buildingof more lines upon practically any terms. This insistence on railroadconstruction in the sixties explains to a great extent the difficultiessubsequently encountered. In a large number of cases railroad buildingbecame a purely speculative enterprise; the capitalists who engaged inthis business had no interest in transportation but were seeking merelyto make their fortunes out of constructing the lines. Not infrequentlythe farmers themselves furnished a considerable amount of money, expecting to obtain not only personal dividends on the investment butlarger general dividends in the shape of cheap transportation rates andthe development of the country. Even when the builders were morehonest, their mistaken enthusiasm had consequences which were similarlydisastrous. The simple fact is that a considerable part of theMississippi Valley, five or ten years after the Civil War, found itselfin the possession of railroads far in excess of the public need. In thelong run this state of affairs was probably not a great economic evil, for it stimulated development on a tremendous scale; but its temporaryeffect was disastrous not only to the railroads themselves but to thestruggling population. The farmer had mortgaged his farm to buy stockin the road; and his town or county or State had subsidized the line byborrowing money which it frequently could not repay. When this propertybecame bankrupt, not only wiping out these investments but leaving theagricultural population at the mercy of what it regarded as exorbitantrates and all kinds of unfair discriminations with high interest chargeson its mortgages and high local taxes, the blind fury that resultedamong the farmers was not unnatural. Many of the railroad evils were inherent in the situation; they wereexplained by the fact that both managers and public were dealing with anew agency whose laws they did not completely understand. But the mereplay of personal forces in themselves aggravated the antagonism. Thefact that most of the railroad magnates lived in the East added thatelement of absentee landlordism which is essential to most agrarianproblems. Many of the Western capitalists were real leaders; yet it isonly necessary to remember that the most active man in Western railroadsin the seventies was Jay Gould, to understand the suspicion in which therailroad promoter of that day was generally held. It is significantthat of all the existing railroad abuses, the one which seemed toarouse particular hostility was the free pass. There were many greaterpractical evils than this, yet the fact that most editors and publicofficials and politicians and legislators and even many judges rode"deadhead" was a constant reminder of the influence which this "alien"power exercised over the government and the public opinion of thecommunities of which it was theoretically the servant. Many of theseroads had a greater income than the States they served; their payrollswere much larger; their head officials received higher salaries thangovernors and presidents. The extent to which these roads controlledlegislatures and, as it seemed at times, even the courts themselves, alarmed the people. The stock-jobbing that had formed so large a partof their history added nothing to their popularity. Yet, when all thesecharges against the railroads are admitted, the fundamental difficultywas one which, at that stage of public enlightenment, was beyond thepower of individuals to control. Nearly all the deep-seated evils arosefrom the fact that the railroads were attempting to do something which, in the nature of the case, they were entirely unfitted to do--thatis, compete against one another. When the great trunk lines wereconstructed, the idea that competition was the life of trade held swayin America, and the popular impression prevailed that this rule wouldapply to railroads as well as to other forms of business. To the fewfarseeing prophets who predicted the difficulties which subsequentlymaterialized, the answer was always made that competition would protectthe public from extortion and other abuses. But competition betweenrailroads is well-nigh impossible. Only in case different companiesoperated their cars upon the same roadbed--something which, in theearliest days, they actually did on certain lines--could they compete, and any such system as a general practice is clearly impracticable. Onerailroad which paralleled another in all its details might compete withit, but there are almost no routes that can furnish business enough fortwo such lines, and the carrying out of such an idea involves a wasteof capital on an enormous scale. Probably the country received its moststriking illustration of this when the West Shore Railroad in New YorkState was built almost completely duplicating the New York Central, withthe result that both roads were nearly bankrupted. While no one railroad can completely duplicate another line, two or moremay compete at particular points. By 1870 this contingency had producedwhat was regarded as the greatest abuse of the time--the familiarproblem of "long and short haul. " Two or more railroads, starting at anidentical point, would each pursue a separate course for several hundredmiles and then suddenly come together again at another large city. Theresult was that they competed at terminals, but that each existed as anindependent monopoly at intermediate points. The scramble for businesswould thus cause the roads to cut rates furiously at terminals; butsince there was no competition at the intervening places the rates atthese points were kept up, and sometimes, it was charged, were raisedin order to compensate for losses at the terminals. Thus resulted thatanomaly which strikes so strangely the investigator of the railroadproblem--that rates apparently have no relation to the distance covered, and that the charge for hauling a load for seventy-five miles may beactually higher than that for hauling the same load one hundred or onehundred and fifty miles. The expert, looking back upon nearly a hundredyears of railroad history, may now satisfactorily explain this curiouscircumstance; but it is not surprising that the farmer of the earlyseventies, overburdened with debt and burning his own corn for fuelbecause he could not pay the freight exacted for hauling it to market, saw in the system, only an attempt to plunder. Yet even the shippersat terminal points had their grievances, for the competition at thesepoints became so savage and so ruinous that the roads soon enteredinto agreements fixing rates or formed "pools. " In accordance withthis latter arrangement, all business was put into a common pot, asthe natural property of the roads constituting the pool; it was thenallotted to different lines according to a percentage agreement, and theprofits were divided accordingly. As the purpose of rate agreementsand pools was to stop competition and to keep up prices, it is hardlysurprising that they were not popular in the Communities which theyaffected. The circumstance that, after solemnly entering into pools, the allied roads would frequently violate their agreements and cut ratessurreptitiously merely added to the general confusion. The early seventies were not a time of great prosperity in the newlyopened West, and the farmers, looking about for the source of theirdiscomforts, not unnaturally fixed upon the railroads. Their period ofdiscontent coincided with what will always be known in American historyas "the Granger movement. " In its origin this organization apparentlyhad no relation to the dissatisfaction which its leaders afterward sosuccessfully capitalized. Its founder, Oliver Hudson Kelley, at the timewhen he started the fraternity was not even a farmer but a clerk inthe Agricultural Bureau at Washington. Afterward, when the Grangershad become an agrarian force to be feared, if not respected, it wasa popular jest to refer to the originators of this great farmers'organization as "one fruit grower and six government clerks. " Kelley'sfirst conception seems to have been to organize the farmers of thenation into a kind of Masonic order. The Patrons of Husbandry, whichwas the official title of his society, was a secret organization, withsigns, grips, passwords, oaths, degrees, and all the other impressiveparaphernalia of its prototype. Its officers were called Master, Lecturer, and Treasurer and Secretary; its subordinate degrees for menwere Laborer, Cultivator, Harvester, and Husbandman; for women--andwomen took an important part in the movement--were Maid, Shepherdess, Gleaner, and Matron, while there were higher orders for those especiallyambitious and influential, such as Pomona (Hope), Demeter (Faith), andFlora (Charity). Certainly these titles suggest peace and quiet ratherthan discontent and political agitation; and, indeed, the organization, as evolved in Kelley's brain, aimed at nothing more startling thanthe social, intellectual, and economic improvement of the agriculturalclasses. Its constitution especially excluded politics and religion asnot being appropriate fields of activity. It did propose certain formsof business cooperation, such as the common purchase of supplies, the marketing of products, perhaps the manufacture of agriculturalimplements; but its main idea was to contribute to the socialwell-being of the farmers and their families by frequent meetingsand entertainments, and to improve farming methods by collectingagricultural statistics and by spreading the earliest applications ofscience to agriculture. The idea that the "Grange, " as the organizationwas generally known, would ultimately devote the larger part of itsenergies to fighting the railroads apparently never entered the minds ofits founders. Had it not been for the increasing agricultural discontent againstrailroads and corporations in general, the Patrons of Husbandry wouldprobably have died a painless death. But in the early seventies thishostility broke out in the form of minority political parties, theprincipal plank in whose platform was the regulation of the railroads. Farmers' tickets, anti-monopoly parties, and anti-railroad candidatesbegan to appear in county and even state elections, sometimesachieving such success as to frighten the leaders of the establishedorganizations. The chief aim of the discontented was "protection fromthe intolerable wrongs now inflicted onus by the railroads. " "Railroadsteals, " "railroad pirates, " "Wall Street stock-jobbers, " and likephrases supplied the favorite slogans of the spirited rural campaigns. These parties, though much ridiculed by the metropolitan press, starteda political agitation which spread with increasing force in the nextforty years and in recent times eventually gained the ascendency in boththe old political parties. The panic of 1873 and the unusually hard times that followed added fuelto the flame. It was about this time that the Patrons of Husbandry gaveevidences of a new vitality, chiefly manifested in a rapidly increasingmembership. On May 19, 1873, there were 3360 Granges in the UnitedStates, while nineteen months later, on January 1, 1875, there were21, 697, with a total membership of over seven hundred thousand. In theEastern States the movement had made little progress; in the South ithad become somewhat more popular; in such States as Missouri, Iowa, Kansas, Nebraska, Montana, Idaho, and Oregon, it had developed intoalmost a dominating influence. It is not difficult to explain thissudden and astonishing growth: the farmers in the great grain Statesseized upon this organization as the most available agency for remedyingtheir wrongs and rescuing them from poverty. In their minds the NationalGrange now became the one means through which they could obtain thatwhich they most desired--cheaper transportation. Not only did itsmembership show great increase, but money from dues now filled thetreasury to overflowing. At the same time the organs of the capitalistpress began to attack the Grange violently, while the politicians inthe sections where it was strongest sedulously cultivated it. But theleaders of the movement never made the fatal mistake of converting theirorganization into a political party. It held no political conventions, named no candidates for office, and even officially warned its membersagainst discussing political questions at their meetings. Yet, accordingto a statement in the "New York Tribune", "within a few weeks the Grangemenaced the political equilibrium of the most steadfast States. It hadupset the calculations of veteran campaigners, and put the professionaloffice-seekers to more embarrassment than even the Back Pay. " TheGrangers fixed their eyes, not upon men or upon parties, but uponmeasures. They developed the habit of questioning candidates for officeconcerning their attitude on pending legislation and of publishing theirreplies. Another favorite device was to hold Granger conventions instate capitals while the legislature was sitting and thus to bringpersonal pressure in the interest of their favorite bills. This methodof suasion is an extremely potent political force and explains the factthat, in certain States where the Granges were most powerful, they hadpractically everything their own way in railroad legislation. The measures which they thus forced upon the statute books and whichrepresented the first comprehensive attempt to regulate railroads havealways been known as the "Granger Laws. " These differed in severityin different States, but in the main their outlines were the same. Practically all the Granger legislatures prohibited free passes tomembers of the legislatures and to public officials. A law fixing therate of passenger fares--the maximum ranging all the way from two andone-half to five cents a mile--was a regular feature of the Grangerprogramme. Attempts were made to end the "long and short haul" abuse bypassing acts which prohibited any road from charging more for the shortdistance than for the long one. More drastic still were the laws passedby Iowa in 1874 and the famous Potter bill passed by Wisconsin in thesame year. Both these measures, besides fixing passenger fares, wrotein the law itself detailed schedules of freight rates. The Iowa actincluded a provision establishing a fund of $10, 000 which was to be usedby private individuals to pay the expenses of suits for damages underthe act, and this same act made all railroad officials and employeeswho were convicted of violations subject to fine and imprisonment. The Potter act was even more severe. It not only fixed maximum freightrates, but it established classifications of its own. The railroadsasserted that the framers of this law had simply taken the lowest ratesin force everywhere and reduced them twenty-five per cent. But Iowa andWisconsin and practically all the States that passed the Grangerlaws also established railroad commissions. For the most part thesecommissions followed the model of that established by Massachusettsin 1869, a body which had little mandatory authority to fix rates ordetermine service, but which depended upon persuasion, arbitration, and, above all, publicity, to accomplish the desired ends. The Massachusettscommission, largely owing to the high character and ability ofits membership--Charles Francis Adams serving as chairman for manyyears--had worked admirably. In the most part these new Westerncommissions were limited in their activities to regulating accounting, obtaining detailed reports, collecting statistics, and enforcing the newrailroad laws. These measures, following one another in rapid succession, produceda national, even an international sensation. The railroad managementsstood aghast at what they regarded as demagogic invasions of theirrights, and the more conservative elements of the American public lookedupon them as a violent attack upon property. Up to this time there hadbeen little general understanding of the nature of railroad property. Inthe minds of most people a railroad was a business, precisely likeany other business, and the modern notion that it was "affected with apublic interest" and that the public was therefore necessarily a partnerin the railroad business had made practically no headway. "Can't I dowhat I want with my own?" Commodore Vanderbilt had exclaimed, assertinghis exclusive right to control the operations of the New York Centralsystem; and that question fairly well represented the popular attitude. That the railroad exercised certain rights of sovereignty, such as thatof eminent domain, that it actually used in its operations propertybelonging to the State, and that these facts in themselves gave theState the right to supervise its management, and even, if necessityarose, to control it--all this may have been recognized as an abstruselegal proposition, but it occupied no practical place in the businessconsciousness of that time. Naturally the first step of the railroadswas therefore to contest the constitutionality of the laws, and whilethese suits were pending they resorted to various expedients to evadethese laws or to mitigate their severity. A touch of liveliness andhumor was added to the situation by the thousands of legal fare casesthat filled the courts, for farmers used to indulge in one of theirfavorite agricultural sports--getting on trains and tendering thelegal two and a half cents a mile fare, a situation that usually led toejectment for nonpayment and then to a suit for damages. The railroadseasily met the laws forbidding lighter charges for long than for shorthauls by increasing the rates for the longer distances, and the lawsfixing maximum rates within the State by increasing the rates outsidethe State. When the courts decided the cases against the railroads, as in most cases they did, these corporations set about to secure therepeal of the laws. They started campaigns of education, frequentlythrough magazine or newspaper articles pointing out the injustice of theGranger laws and insisting that they were working great public damage. It is a fact that a decrease in railroad construction followed theGranger demonstration, and the friends of the railroads insisted thattimid capital hesitated to embark in an enterprise that was constantlysubject to legislative attack. These campaigns succeeded much betterthan the more violent opposition to which the railroads had firstresorted. The Western States in the majority of cases repealed theirmost drastic legislation. Nearly all the laws fixing maximum ratesdisappeared from the books, and even Iowa and Wisconsin substitutedfor these measures supervisory and advisory commissions after theMassachusetts model. While the Granger movement thus failed effectively to curb therailroads, it succeeded in arousing great popular interest in therailroad problem and in placing before the public several of the mostimportant details of that problem. Not the least of its achievementswere the decisions which it obtained from the Supreme Court of theUnited States. The Granger cases are among the most epoch-making inAmerican history, and they fixed for all time the principles of Americanpolicy in dealing with the railroad question. They are particularlyworthy of study by those who have regarded the Supreme Court as thebulwark of social injustice and as a body which can always be reliedupon to protect the rights of property against the interests of themasses. In its railroad decisions this change hardly holds; for theseGranger cases sustain practically all the legal contentions made by theGranger legislatures. * The cases fixed for all time the point thata State, acting under the police power, may regulate the charges of arailroad even to the extent of fixing maximum rates. They even wentso far as to hold that the right to fix rates is not subject to anyrestraint by the court on the ground of unreasonableness, a principlewhich the Supreme Court has reversed in more recent times. The courtsalso held that a State, at least until Congress acted, could regulateinterstate commerce, but this decision also has since then beenreversed. These subsequent reversals of decisions which were exceedinglypopular at the time, however, not only constituted sound law butpromoted the public interest, for they established that body of lawwhich has made possible the present more comprehensive system of Federalregulation of railroads. * The cases of particular interest were: Munn vs. Illinois, 94U. S. 114; Peik vs. Chicago and Northwestern Railway Company, 94 U. S. 164; and Chicago, Burlington and Quincy Railway Company vs. Cutts, 94U. S. 155. Meanwhile the demand for regulation was gaining strength in the EasternStates, but for somewhat different reasons. The farmers of New England, New York, and the Eastern region in general had not particularlysympathized with the Granger legislation; they already had greatdifficulty in competing with the large Western farms, and a reductionin rates to the seaboard would have made their position even lessendurable. This attitude was unquestionably selfish but entirelycomprehensible. The agitation for railroad reform in the East camechiefly from the manufacturing and commercial classes. Here the mainburden of the complaint was the railroad rebate. This was a method ofgiving lower rates to large shippers than to small--charging the favoredshipper the published rate and then, at stated periods, surreptitiouslyreturning part of the payment. This was perhaps the most vicious abuseof which the railroads have ever been guilty. That the common lawforbade the practice and that it likewise violated the implied contractupon which the railroad obtained its franchise was hardly open todispute; yet up to 1887 no specific law in this country prohibited thepractice. For many years the rebate hung over the American businessworld, a thing whose existence was half admitted, half denied, a kindof ghostly economic terror that seemed persistently to drive the smallcorporation to bankruptcy and the large corporation to dominatinginfluence. The Standard Oil Company was the "monster" that was believedespecially to thrive upon this kind of sustenance, though this was by nomeans the only industry that maintained such secret relations with therailroads; the Carnegie Steel Corporation, for example, acceptedrebates almost as persistently. It was not until 1879, when the HepburnCommittee in New York State had its hearings, that all the factsconcerning the rebate were exposed officially to public view. Thecontracts of the Standard Oil Company with the railroads were placedupon the records and these showed that all the worst suspicionsregarding this practice were justified. This disclosure made therailroad rebate one of the most familiar facts in American industriallife; and in consequence a demand arose for Federal legislation thatwould definitely make the practice a crime and also for some kindof Federal supervision to do effectively the work which the statecommissions had failed to do. By this time it was clear enough that the only hope of adequateregulation lay with the Federal Government. Congressman Reagan, ofTexas, had for years been pushing a bill to regulate interstate commerceand to prohibit unjust discriminations by common carriers; othermeasures periodically made their appearance in the Senate; but theHouses had been unable to agree and nothing had been done. Two facts presently gave great impetus to the movement; in 1886 theUnited States Supreme Court, reversing its previous decision, decidedthat no State could fix rates for railroad lines outside its ownborders, in other words, that interstate rates were exclusively withinthe jurisdiction of the Federal authority *; and a Senate committee, under the chairmanship of Shelby B. Cullom, conducted an investigationof railroad conditions which made clear the need of immediate reform. As a consequence, Congress passed the Interstate Commerce Act, whichreceived President Cleveland's signature on February 4, 1887. Thismeasure specifically made illegal rebates, pools, higher charges forshort than for long hauls (when the hauls in question were upon the sameroad); it required railroads to file their tariffs, and it establisheda commission of five members, who had powers of investigation, includingthe right to make the companies produce their books. This commissionreceived power to establish systems of accounting and the like, but ithad no prerogative to fix rates. Inadequate as this measure seemed tothe radical element, it was generally hailed as marking the beginningof an era in the Federal control not only of railroads but of othercorporations, and this impression was increased by the high character ofthe men whom President Cleveland appointed to the first board. * Wabash, St. Louis and Pacific Railway Company vs. Illinois, 118U. S. 557. The Interstate Commerce Commission lasted essentially in this formfor nearly twenty years. On the whole it was a failure. Such was thejudgment passed by Justice Harlan of the United States Supreme Courtwhen he remarked in one of his decisions that the commission was "auseless body for all practical purposes"; and such, indeed, was thejudgment of the commission itself, for in its report of 1898 it declaredthat the attempt at Federal regulation had failed. The chief reasonsfor this failure, the commission said, were the continued existence ofsecret rates and the fact that published tariffs were not observed. *The managers of the great American railroad systems would not yetadmit that the fixing of railroad rates was the concern of any one butthemselves, and they still regarded railroad management as essentiallya private business. If they could obtain large shipments by grantingspecial rates, even though they had to do it by such underhanded waysas granting rebates, they believed that they were entirely justified indoing so. Thus rebates flourished almost as much as ever, passes werestill liberally bestowed, and pools were still formed, though theysometimes took the shape of "gentlemen's agreements. " * But it should be added that the effectiveness of the commissionas an administrative and regulating body was diminished by decisionsof the courts, notably the decision of the Supreme Court in the maximumrate case. See 160 U. S. 479. In 1906, when President Roosevelt became intensely active in therailroad problem, conditions were fairly demoralized. Attempts toenforce the anti-pooling clause had led railroads to purchase competinglines, and when the United States Supreme Court pronounced this illegal, the situation became chaotic. The evils of overcapitalization alsobecame an issue of the times. The Interstate Commerce Commission hadbecome almost moribund, and there was a general sentiment that thetrouble arose from the fact that the commission had no power to fixrates and that the solution of the railroad problem would come only whensuch power was vested in it. * The Interstate Commerce Act which becamea law on June 29, 1906, was the outcome of one of the greatestbattles of President Roosevelt's political life. The act increased themembership of the commission from five to seven members, placed underits jurisdiction not only railroads but pipe lines, express companies, and sleeping-car companies, added to the other familiar restrictions a"commodities clause, " which prohibited any railroad from transportinga product which it had produced or mined, "except such articles orcommodities as may be necessary and intended for its use in the conductof its business as a common carrier"--this clause was intended to endthe railroad monopoly of the coal mines--and made the failure to observepublished tariffs a crime punishable with imprisonment. The amended lawdid not give the commission the right to fix rates in the first instancebut did empower it, on complaint, to investigate charges and onthe basis of this investigation to determine just maximum rates, regulations, and practices, though carriers were given the right ofappeal to the courts. * The Elkins Act of 1903 had, it is true, increased theeffectiveness of the commission in dealing with discriminations, but ithad not solved the problem of securing reasonable rates. Thus, in essence, the public had obtained the reform which it had beendemanding for years. The reorganized commission did not hesitate toexercise its new powers. It soon began actually fixing rates, and frombeing a half-alive despised institution it rapidly developed into oneof the most powerful agencies of administration. In the succeeding tenyears its powers were still further enlarged by acts of Congress and theprivilege of fixing charges practically passed out of the hands of therailroads into the control of the Interstate Commerce Commission. Therailroads, that is, practically lost the power to regulate their ownincome. Meanwhile, the progressive movement in American politics hadled to the creation of commissions in most of the States, with similarauthority over rate making within the States, besides exercisingnumerous other powers over service and capitalization. Many railroadsfell upon evil days and receiverships again became common. Naturally therailroad managers attributed these calamities to the fact that they wereso constantly being regulated; but they probably pushed this claim toofar, for the causes of their troubles were more complex. In 1916, in the heat of a political campaign, the Federal Governmenttook a step which introduced a new principle into railroad managementand made the roads practically helpless. The four brotherhoods ofrailroad operatives were making demands for a so-called eight-hour day, and threatened a general strike that would paralyze all business andindustry and throw the whole life of the nation into chaos. Properly toappreciate the consequences of this event, it is necessary to keep inmind the fact that the plea for an "eight-hour day" was spurious. Aneight-hour day cannot be rigidly enforced on railroads; the workmen wellknew this, and indeed they did not really demand such working hours. What they asked for was a full day's pay for eight hours and "time anda half" pay for all in excess of that amount; that is, they demandedan increase in wages. President Wilson, having failed in his attempt tosettle the difficulty by arbitration, compelled a Democratic Congressover which his sway was absolute to pass a law-sponsored by ChairmanAdamson of the House Committee on Interstate Commerce--which grantedpractically what the unions demanded. In passing this law, Congressasserted an entirely new power which no one had ever suspected thatit possessed--that of fixing the wages which should be paid by commoncarriers and possibly by other corporations engaged in interstatecommerce. The railroads immediately took the case to the UnitedStates Supreme Court, which promptly sustained the law. This decision, unquestionably the most radical in the history of that body, declaredvirtually that Congress could pass any law regulating railroads whichthe public interest demanded. And thus, after fifty years of almost incessant struggle with thepublic, was the mighty railroad monster humbled. It had lost power toregulate the two items which represent the existence of a business--itsincome and its outgo. The Interstate Commerce Commission was now fixingrailroad rates, and Congress was fixing the amounts of railroad wages. It remained for the Great War to precipitate the only logical outcomeof this situation--government control. The steadily increasingresponsibilities of war soon told heavily upon all lines until, in thelatter part of 1917, the whole railroad system of the United States hadall but broken down. The unions were pressing demands for wage increasesthat would have added a billion dollars a year to their annual budgets. The fact that so large a part of the output of American locomotive workswas being shipped to the Allies made it difficult for the American linesto maintain their own supply. Nearly all coastwise ships and tugs wereutilized for war work, a large part of them had been sent to the otherside, and this put an additional strain upon the railroads. The movementof troops, the heavy building operations in cantonments and shipbuildingplants, the manufacture and transportation of munitions, all put anunprecedented pressure upon them. Everywhere there was great shortage ofcars, equipment, and materials. Possibly the railroads might have risento the occasion except for the fact that the enormous increase in thecost of labor and supplies made demands upon their treasuries which theycould not meet. They repeatedly asked the Interstate Commerce Commissionfor an increase in rates, but this request was repeatedly refused. Theroads were therefore helpless, and their operations became so congestedas to create a positive military danger. Under these circumstances therewas profound relief when President Wilson took over the roads and placedthem under government control, with William Gibbs McAdoo, Secretary ofthe Treasury, in active charge. McAdoo immediately took the step which the Administration, while therailroads were under private control, had steadily refused to sanction, and now increased the rates. These increases were so great that theymade the public fairly gasp, but, under the impulse of patriotism, therewas a good-natured acquiescence. McAdoo also increased wages by hundredsof millions of dollars. His administration on the whole was an able one. He ignored for the moment the prevailing organization and managedthe roads as though they constituted a single system. He institutedeconomies by concentrating ticket offices, establishing uniform freightclassifications, making common the use of terminals and repair shops, abolishing circuitous routes, standardizing equipment, increasing theloads of cars and by introducing a multitude of other changes. All thesereforms greatly increased the usefulness of the roads, which now becamean important element in winning the war. Properly regarded, the Americanrailroads became as important a link in the chain of communicationsreaching France as the British fleet itself. It is not too much to saythat the fate of the world in the critical year 1918 hung upon thistremendous railroad system which the enterprise and genius of Americanshad built up in three-quarters of a century. In February, 1918, GreatBritain, France, and Italy made official representations to the AmericanGovernment, declaring that unless food deliveries could be made as theyhad been promised by Hoover's food administration, Germany would winthe war. McAdoo acted immediately upon this information. He gathered allavailable cars, taking them away from their ordinary routes, and rushedthem from all parts of the country to the great grain producing States. All other kinds of shipments were discontinued; officials and employeesfrom the highest to the lowest worked day and night; and presently thehuge supplies of the indispensable food started towards the Atlanticcoast. So successful was this operation that, on the 12th of March, the supplies so exceeded the shipping capacity of the Allies that6318 carloads of food stood at the great North Atlantic ports awaitingtransportation. This dramatic movement of American food supplies was animportant item in winning the war and fairly illustrated the great partwhich the American railroads played in turning the tide of battle fromdefeat to victory. BIBLIOGRAPHICAL NOTE General literature on the history of American railroads is surprisinglyscarce. While numerous volumes have been written in recent years onspecial phases of the railroad question, few histories of any real valueare available. Probably the best outline history of Americanrailroad development as a whole is still Arthur T. Hadley's "RailroadTransportation, its History and its Laws" (1885), but this necessarilycovers only the earlier periods of railroad growth and its discussionsare limited to the problems which confronted the carriers many yearsago. An extremely valuable book (now out of print) giving a verycomplete picture of railroad building and expansion in the pre-CivilWar period is "The Book of the Great Railway Celebration of 1857", byWilliam Prescott Smith. This is primarily a description of the openingof the Ohio and Mississippi Railway, which connected the MississippiValley for the first time with the Eastern seaboard. A volume of realvalue, but somewhat technical, giving a complete and accurate view ofthe reorganization period of the great railroad systems, from 1885 to1900, is "Railroad Reorganization", by Stewart Daggett (1910). This bookcontains outline sketches of the histories of nearly all of thelarge systems, as well as very accurate details of the financialreorganizations of all of the defaulted properties. The mostcomprehensive history of any American railroad system is "The Story ofErie", by H. S. Mott (1900), but even this is partially unreliable andmuch of it is compiled from unofficial sources. On the financial historyof the Erie Railroad, the really valuable authority is Charles FrancisAdams in his "Chapters of Erie" (1871). This book furnishes a full andaccurate account of the regime of Daniel Drew, Jay Gould, James Fisk, Jr. , and the famous "Erie ring, " including "Boss" Tweed, and also throwsside lights on the character and career of Commodore Vanderbilt. Among other important histories of particular railroad systems maybe mentioned "The Union Pacific Railway", by John P. Davis (1894) and"History of the Northern Pacific Railroad", by Eugene V. Smalley (1883);but neither of these volumes covers the recent and more interestingperiods in the development of these properties. To get a complete andsatisfactory view of the later development of the Northern Pacificsystem, one must turn to modern biographical works, such as the "Life ofJay Cooke", by E. P. Oberholtzer (1910), the "Memoirs of Henry Villard"(1909), and the "Life of James J. Hill", by Joseph Gilpin Pyle (1916), which also recounts at length the rise and development of the GreatNorthern Railway system. But in these volumes, as in many biographies ofgreat men, the authors often betray a bias and misrepresent factsvital to an understanding of the development of both of these railroadsystems. A recent volume entitled the "Life Story of J. P. Morgan", by Carl Hovey, although extremely laudatory and therefore in many waysmisleading, contains valuable information about the development of theVanderbilt lines after 1880 and also about the financial vicissitudesand rehabilitation of the many Morgan properties, such as the SouthernRailway, the modern Erie system, the Northern Pacific, the Reading, andthe Baltimore and Ohio. Some of the railroad companies many years ago themselves publishedhistories of their lines, but most of these attempts were of littlevalue, as they were always too laudatory and one-sided and evidentlywere usually written for political purposes. The best of this class ofrailroad histories was a book issued by the Pennsylvania Railroad manyyears ago, giving a record (largely statistical) of the growth anddevelopment of its lines. But this book has been long out of print andcovers the period prior to 1885 only. For original material on American railroad history, one must dependalmost entirely on financial and railroad periodicals and official andstate documents. By far the most valuable sources for all aspects ofrailroad building and financing during the long period from 1830 to 1870are the "American Railroad Journal" (1832-1871) and "Hunt's MerchantMagazine" (1831-1870). Both of these periodicals are replete withdetails of railroad building and growth. And for the period from 1870to the present time the best authority is the "Commercial andFinancial Chronicle", with its various supplements. The story of modernrailroading is so intertwined with finance and banking that to get anybroad and complete view of the subject one must consider it largelyfrom the viewpoint of Wall Street. For facts regarding operation andmanagement of modern railroads, the "Railroad Age-Gazette" alsois extremely useful. By far the most valuable sources for railroadstatistics, railroad legislation, and all related facts, are the annualreports and bulletins of the Interstate Commerce Commission, whichhave been regularly issued since 1888. Many state commissions also haveissued volumes of value. The best account of the origin of the Granger laws is contained in S. J. Buck's "The Granger Movement" (1913). The beginnings of Federalregulation are traced in L. H. Haney's "A Congressional History ofRailways in the United States, 1850-1887" (1910). The history of recentrailroad regulation by state and Federal legislation, and of courtdecisions affecting the railroads, is clearly and succinctly told inWilliam Z. Ripley's "Railroads: Rates and Regulation" (1912), and inJohnson and Van Metre's "Principles of Railroad Transportation" (1916).