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

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

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

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

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



CHAPTER VIII. BUILDING ALONG THE SANTA FE TRAIL

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER IX. THE GROWTH OF THE HILL LINES

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER X. THE RAILROAD SYSTEM OF THE SOUTH

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER XI. THE LIFE WORK OF EDWARD H. HARRIMAN

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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



CHAPTER XII. THE AMERICAN RAILROAD PROBLEM

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

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

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

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

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

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

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

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