The Railroad Builders
by
John Moody
Part 1 out of 3
KELLY LIBRARY OF ST. GREGORY'S UNIVERSITY; THANKS TO ALEV AKMAN.
Scanned by Dianne Bean.
Proofread by Stephanie Manke.
THE RAILROAD BUILDERS, A CHRONICLE OF THE WELDING OF THE STATES
BY JOHN MOODY
NEW HAVEN: YALE UNIVERSITY PRESS
TORONTO: GLASGOW, BROOK & CO.
LONDON: HUMPHREY MILFORD
OXFORD UNIVERSITY PRESS
1919
CONTENTS
I. A CENTURY OF RAILROAD BUILDING
II. THE COMMODORE AND THE NEW YORK CENTRAL
III. THE GREAT PENNSYLVANIA SYSTEM
IV. THE ERIE RAILROAD
V. CROSSING THE APPALACHIAN RANGE
VI. LINKING THE OCEANS
VII. PENETRATING THE PACIFIC NORTHWEST
VIII. BUILDING ALONG THE SANTA FE TRAIL
IX. THE GROWTH OF THE HILL LINES
X. THE RAILROAD SYSTEM OF THE SOUTH
XI. THE LIFE WORK OF EDWARD H. HARRIMAN
XII. THE AMERICAN RAILROAD PROBLEM
BIBLIOGRAPHY
THE RAILROAD BUILDERS
CHAPTER I. A CENTURY OF RAILROAD BUILDING
The United States as we know it today is largely the result of
mechanical inventions, and in particular of agricultural
machinery and the railroad. One transformed millions of acres of
uncultivated land into fertile farms, while the other furnished
the transportation which carried the crops to distant markets.
Before these inventions appeared, it is true, Americans had
crossed the Alleghanies, reached the Mississippi Valley, and had
even penetrated to the Pacific coast; thus in a thousand years or
so the United States might conceivably have become a
far-reaching, straggling, loosely jointed Roman Empire, depending
entirely upon its oceans, internal watercourses, and imperial
highways for such economic and political integrity as it might
achieve. But the great miracle of the nineteenth century--the
building of a new nation, reaching more than three thousand miles
from sea to sea, giving sustenance to more than one hundred
million free people, and diffusing among them the necessities and
comforts of civilization to a greater extent than the world had
ever known before is explained by the development of harvesting
machinery and of the railroad.
The railroad is sprung from the application of two fundamental
ideas--one the use of a mechanical means of developing speed, the
other the use of a smooth running surface to diminish friction.
Though these two principles are today combined, they were
originally absolutely distinct. In fact there were railroads long
before there were steam engines or locomotives. If we seek the
real predecessor of the modern railroad track, we must go back
three hundred years to the wooden rails on which were drawn the
little cars used in English collieries to carry the coal from the
mines to tidewater. The natural history of this invention is
clear enough. The driving of large coal wagons along the public
highway made deep ruts in the road, and some ingenious person
began repairing the damage by laying wooden planks in the
furrows. The coal wagons drove over this crude roadbed so
successfully that certain proprietors started constructing
special planked roadways from the mines to the river mouth. Logs,
forming what we now call "ties," were placed crosswise at
intervals of three or four feet, and upon these supports thin
"rails," likewise of wood, were laid lengthwise. So effectually
did this arrangement reduce friction that a single horse could
now draw a great wagon filled with coal--an operation which two
or three teams, lunging over muddy roads, formerly had great
difficulty in performing. In order to lengthen the life of the
road, a thin sheeting of iron was presently laid upon the wooden
rail. The next improvement was an attempt to increase the
durability of the wagons by making the wheels of iron. It was
not, however, until 1767, when the first rails were cast entirely
of iron with a flange at one side to keep the wheel steadily in
place, that the modern roadbed in all its fundamental principles
made its appearance. This, be it observed, was only two years
after Watt had patented his first steam engine, and it was nearly
fifty years before Stephenson built his first locomotive. The
railroad originally was as completely dissociated from steam
propulsion as was the ship. Just as vessels had existed for ages
before the introduction of mechanical power, so the railroad bad
been a familiar sight in the mining districts of England for at
least two centuries before the invention of Watt really gave it
wings and turned it to wider uses. In this respect the progress
of the railroad resembles that of the automobile, which had
existed in crude form long before the invention of the gasoline
engine made it practically useful.
In the United States three new methods of transportation made
their appearance at almost the same time--the steamboat, the
canal boat, and the rail car. Of all three, the last was the
slowest in attaining popularity. As early as 1812 John Stevens,
of Hoboken, aroused much interest and more amused hostility by
advocating the building of a railroad, instead of a canal, across
New York State from the Hudson River to Lake Erie, and for
several years this indefatigable spirit journeyed from town to
town and from State to State, in a fruitless effort to push his
favorite scheme. The great success of the Erie Canal was finally
hailed as a conclusive argument against all the ridiculous claims
made in favor of the railroad and precipitated a canal mania
which spread all over the country.
Yet the enthusiasts for railroads could not be discouraged, and
presently the whole population divided into two camps, the
friends of the canal, and the friends of the iron highway.
Newspapers acrimoniously championed either side; the question was
a favorite topic with debating societies; public meetings and
conventions were held to uphold one method of transportation and
to decry the other. The canal, it was urged, was not an
experiment; it had been tested and not found wanting; already the
great achievement of De Witt Clinton in completing the Erie Canal
had made New York City the metropolis of the western world. The
railroad, it was asserted, was just as emphatically an
experiment; no one could tell whether it could ever succeed; why,
therefore, pour money and effort into this new form of
transportation when the other was a demonstrated success?
It was a simple matter to find fault with the railroad; it has
always been its fate to arouse the opposition of the farmers.
This hostility appeared early and was based largely upon grounds
that have a familiar sound even today. The railroad, they said,
was a natural monopoly; no private citizen could hope ever to own
one; it was thus a kind of monster which, if encouraged, would
override all popular rights. From this economic criticism the
enemies of the railroad passed to details of construction: the
rails would be washed out by rains; they could be destroyed by
mischievous people; they would snap under the cold of winter or
be buried under the snow for a considerable period, thus stopping
all communication. The champions of artificial waterways would
point in contrast to the beautiful packet boats on the Erie
Canal, with their fine sleeping rooms, their restaurants, their
spacious decks on which the fine ladies and gentlemen congregated
every warm summer day, and would insist that such kind of travel
was far more comfortable than it could ever be on railroads. To
all these pleas the advocates of the railroad had one
unassailable argument--its infinitely greater speed. After all,
it took a towboat three or four days to go from Albany to
Buffalo, and the time was not far distant, they argued, when a
railroad would make the same trip in less than a day. Indeed, our
forefathers made one curious mistake: they predicted a speed for
the railroad a hundred miles an hour--which it has never attained
consistently with safety.
If the American of today could transport himself to one of the
first railroad lines built in the United States it is not
unlikely that he would side with the canal enthusiast in his
argument. The rough pictures which accompany most accounts of
early railroad days, showing a train of omnibus-like carriages
pulled by a locomotive with upright boiler, really represent a
somewhat advanced stage of development. Though Stephenson had
demonstrated the practicability of the locomotive in 1814 and
although the American, John Stevens, had constructed one in 1826
which had demonstrated its ability to take a curve, local
prejudice against this innovation continued strong. The farmers
asserted that the sparks set fire to their hayricks and barns and
that the noise frightened their hens so that they would not lay
and their cows so that they could not give milk. On the earliest
railroads, therefore, almost any other method of propulsion was
preferred. Horses and dogs were used, winches turned by men were
occasionally installed, and in some cases cars were even fitted
with sails. Of all these methods, the horse was the most popular:
he sent out no sparks, he carried his own fuel, he made little
noise, and he would not explode. His only failing was that he
would leave the track; and to remedy this defect the early
railroad builders hit upon a happy device. Sometimes they would
fix a treadmill inside the car; two horses would patiently propel
the caravan, the seats for passengers being arranged on either
side. So unformed was the prevalent conception of the ultimate
function of the railroad, and so pronounced was the fear of
monopoly that, on certain lines, the roadbed was laid as a state
enterprise and the users furnished their own cars, just as the
individual owners of towboats did on the canals. The drivers,
however, were an exceedingly rough lot; no schedules were
observed and as the first lines had only single tracks and
infrequent turnouts, when the opposing sides would meet each
other coming and going, precedence was usually awarded to the
side which had the stronger arm. The roadbed showed little
improvement over the mine tramways of the eighteenth century, and
the rails were only long wooden stringers with strap iron nailed
on top. So undeveloped were the resources of the country that the
builders of the Baltimore and Ohio Railroad in 1828 petitioned
Congress to remit the duty on the iron which it was compelled to
import from England. The trains consisted of a string of little
cars, with the baggage piled on the roof, and when they reached a
hill they sometimes had to be pulled up the inclined plane by a
rope. Yet the traveling in these earliest days was probably more
comfortable than in those which immediately followed the general
adoption of locomotives. When, five or ten years later, the
advantages of mechanical as opposed to animal traction caused
engines to be introduced extensively, the passengers behind them
rode through constant smoke and hot cinders that made railway
travel an incessant torture.
Yet the railroad speedily demonstrated its practical value; many
of the first lines were extremely profitable, and the hostility
with which they had been first received soon changed to an
enthusiasm which was just as unreasoning. The speculative craze
which invariably follows a new discovery swept over the country
in the thirties and the forties and manifested itself most
unfortunately in the new Western States--Ohio, Indiana, Illinois,
and Michigan. Here bonfires and public meetings whipped up the
zeal; people believed that railroads would not only immediately
open the wilderness and pay the interest on the bonds issued to
construct them, but that they would become a source Of revenue to
sadly depleted state treasuries. Much has been heard of
government ownership in recent years; yet it is nothing
particularly new, for many of the early railroads in these new
Western States were built as government enterprises, with results
which were frequently disastrous. This mania, with the land
speculation accompanying it, was largely responsible for the
panic of 1837 and led to that repudiation of debts in certain
States which for so many years gave American investments an evil
reputation abroad.
In the more settled parts of the country, however, railroad
building had comparatively a more solid foundation. Yet the
railroad map of the forties indicates that railroad building in
this early period was incoherent and haphazard. Practically
everywhere the railroad was an individual enterprise; the
builders had no further conception of it than as a line
connecting two given points usually a short distance apart. The
roads of those days began anywhere and ended almost anywhere. A
few miles of iron rail connected Albany and Schenectady. There
was a road from Hartford to New Haven, but there was none from
New Haven to New York. A line connected Philadelphia with
Columbia; Baltimore had a road to Washington; Charleston, South
Carolina, had a similar contact with Hamburg in the same State.
By 1842, New York State, from Albany to Buffalo, possessed
several disconnected stretches of railroad. It was not until
1836, when work was begun on the Erie Railroad, that a plan was
adopted for a single line reaching several hundred miles from an
obvious point, such as New York, to an obvious destination, such
as Lake Erie. Even then a few farsighted men could foresee the
day when the railroad train would cross the plains and the
Rockies and link the Atlantic and the Pacific. Yet, in 1850
nearly all the railroads in the United States lay east of the
Mississippi River, and all of them, even when they were
physically mere extensions of one another, were separately owned
and separately managed.
Successful as many of the railroads were, they had hardly yet
established themselves as the one preeminent means of
transportation. The canal had lost in the struggle for supremacy,
but certain of these constructed waterways, particularly the
Erie, were flourishing with little diminished vigor. The river
steamboat had enjoyed a development in the first few decades of
the nineteenth century almost as great as that of the railroad
itself. The Mississippi River was the great natural highway for
the products and the passenger traffic of the South Central
States; it had made New Orleans one of the largest and most
flourishing cities in the country; and certainly the rich cotton
planter of the fifties would have smiled at any suggestion that
the "floating palaces" which plied this mighty stream would ever
surrender their preeminence to the rusty and struggling railroads
which wound along its banks.
This period, which may be taken as the first in American railroad
development, ended about the middle of the century. It was an age
of great progress but not of absolutely assured success. A few
lines earned handsome profits, but in the main the railroad
business was not favorably regarded and railroad investments
everywhere were held in suspicion. The condition that prevailed
in many railroads is illustrated by the fact that the directors
of the Michigan and Southern, when they held their annual meeting
in 1853, had to borrow chairs from an adjoining office as the
sheriff had walked away with their own for debt. Even a railroad
with such a territory as the Hudson River Valley, and extending
from New York to Albany existed in a state of chronic
dilapidation; and the New York and Harlem, which had an entrance
into New York City as an asset of incalculable value, was looked
upon merely as a vehicle for Wall Street speculation.
Meanwhile the increasing traffic in farm products, mules, and
cattle from the Northwest to the plantations of the South created
a demand for more ample transportation facilities. In the decade
before the Civil War various north and south lines of railway
were projected and some of these were assisted by grants of land
from the Federal Government. The first of these, the Illinois
Central, received a huge land-grant in 1850 and ultimately
reached the Gulf at Mobile by connecting with the Mobile and Ohio
Railroad which had also been assisted by Federal grants. But the
panic of 1857, followed by the Civil War, halted all railroad
enterprises. In the year 1856 some 3600 miles of railroad had
been constructed; in 1865 only 700 were laid down. The Southern
railroads were prostrated by the war and north and south lines
lost all but local traffic.
After the war a brisk recovery began and brought to the fore the
first of the great railroad magnates and the shrewdest business
genius of the day, Cornelius Vanderbilt. Though he had spent his
early life and had laid the basis of his fortune in steamboats,
he was the first man to appreciate the fact that these two
methods of transportation were about to change places--that water
transportation was to decline and that rail transportation was to
gain the ascendancy. It was about 1865 that Vanderbilt acted on
this farsighted conviction, promptly sold out his steamboats for
what they would bring, and began buying railroads despite the
fact that his friends warned him that, in his old age, he was
wrecking the fruits of a hard and thrifty life. But Vanderbilt
perceived what most American business men of the time failed to
see, that a change had come over the railroad situation as a
result of the Civil War.
The time extending from 1860 to about 1875 marks the second stage
in the railroad activity of the United States. The characteristic
of this period is the development of the great trunk lines and
the construction of a transcontinental route to the Pacific. The
Civil War ended the supremacy of the Mississippi River as the
great transportation route of the West. The fact that this river
ran through hostile territory--Vicksburg did not fall until July
4, 1863--forced the farmers of the West to find another outlet
for their products. By this time the country from Chicago and St.
Louis eastward to the Atlantic ports was fairly completely
connected by railroads. The necessities of war led to great
improvements in construction and equipment. Business which had
hitherto gone South now began to go East; New Orleans ceased to
be the great industrial entrepot of this region and gave place to
St. Louis and Chicago.
Yet, though this great change in traffic routes took place in the
course of the war, the actual consolidations of the various small
railroads into great trunk lines did not begin until after peace
had been assured. The establishment of five great railroads
extending continuously from the Atlantic seaboard to Chicago and
the West was perhaps the most remarkable economic development of
the ten or fifteen years succeeding the war. By 1875 these five
great trunk lines, the New York Central, the Pennsylvania, the
Erie, the Baltimore and Ohio, and the Grand Trunk, had connected
their scattered units and established complete through systems.
All the vexations that had necessarily accompanied railroad
traffic in the days when each one these systems had been a series
of disconnected roads had disappeared. The grain and meat
products of the West, accumulating for the most part at Chicago
and St. Louis, now came rapidly and uninterruptedly to the
Atlantic seaboard, and railroad passengers, no longer submitted
to the inconveniences of the Civil War period, now began to
experience for the first time the pleasures of railroad travel.
Together with the articulation of the routes, important
mechanical changes and reconstruction programmes completely
transformed the American railroad system. The former haphazard
character of each road is evidenced by the fact that in Civil War
days there were eight different gages, with the result that it
was almost impossible for the rolling stock of one line to use
another. A few years after the Civil War, however, the present
standard gage of four feet eight and one-half inches had become
uniform all over the United States. The malodorous "eating cribs"
of the fifties and the sixties--little station restaurants
located at selected spots along the line--now began to disappear,
and the modern dining car made its appearance. The old rough and
ready sleeping cars began to give place to the modern Pullman.
One of the greatest drawbacks to ante-bellum travel had been the
absence of bridges across great rivers, such as the Hudson and
the Susquehanna. At Albany, for example, the passengers in the
summer time were ferried across, and in winter they were driven
in sleighs or were sometimes obliged to walk across the ice. It
was not until after the Civil War that a great iron bridge, two
thousand feet long, was constructed across the Hudson at this
point. On the trains the little flickering oil lamps now gave
place to gas, and the wood burning stoves--frequently in those
primitive days smeared with tobacco juice--in a few years were
displaced by the new method of heating by steam.
The accidents which had been almost the prevailing rule in the
fifties and sixties were greatly reduced by the Westinghouse
air-brake, invented in 1868, and the block signaling system,
introduced somewhat later. In the ten years succeeding the Civil
War, the physical appearance of the railroads entirely changed;
new and larger locomotives were made, the freight cars, which
during the period of the Civil War had a capacity of about eight
tons, were now built to carry fifteen or twenty. The former
little flimsy iron rails were taken up and were relaid with
steel. In the early seventies when Cornelius Vanderbilt
substituted steel for iron on the New York Central, he had to
import the new material from England. In the Civil War period,
practically all American railroads were single track fines--and
this alone prevented any extensive traffic. Vanderbilt laid two
tracks along the Hudson River from New York to Albany, and four
from Albany to Buffalo, two exclusively for freight and two for
passengers. By 1880 the American railroad, in all its essential
details, had definitely arrived.
But in this same period even more sensational developments had
taken place. Soon after 1865 the imagination of the American
railroad builder began to reach far beyond the old horizon. Up to
that time the Mississippi River had marked the Western railroad
terminus. Now and then a road straggled beyond this barrier for a
few miles into eastern Iowa and Missouri; but in the main the
enormous territory reaching from the Mississippi to the Pacific
Ocean was crossed only by the old trails. The one thing which
perhaps did most to place the transcontinental road on a
practical basis was the annexation of California in 1848; and the
wild rush that took place on the discovery of the gold fields one
year later had led Americans to realize that on the Pacific coast
they had an empire which was great and incalculably rich but
almost inaccessible. The loyalty of California to the Northern
cause in the war naturally stimulated a desire for closer
contact. In the ten years preceding 1860 the importance of a
transcontinental line had constantly been brought to the
attention of Congress and the project had caused much jealousy
between the North and the South, for each region desired to
control its Eastern terminus. This impediment no longer stood in
the way; early in his term, therefore, President Lincoln signed
the bill authorizing the construction of the Union Pacific--a
name doubly significant, as marking the union of the East and the
West and also recognizing the sentiment of loyalty or union that
this great enterprise was intended to promote. The building of
this railroad, as well as that of the others which ultimately
made the Pacific and the Atlantic coast near neighbors--the Santa
Fe, the Southern Pacific, the Northern Pacific, and the Great
Northern--is described in the pages that follow. Here it is
sufficient to emphasize the fact that they achieved the
concluding triumph in what is certainly the most extensive system
of railroads in the world. These transcontinental roads really
completed the work of Columbus. He sailed to discover the western
route to Cathay and found that his path was blocked by a mighty
continent. But the first train that crossed the plains and
ascended the Rockies and reached the Golden Gate assured
thenceforth a rapid and uninterrupted transit westward from
Europe to Asia.
CHAPTER II. THE COMMODORE AND THE NEW YORK CENTRAL
A story was told many years ago of Commodore Vanderbilt which,
while perhaps not strictly true, was pointed enough to warrant
its constant repetition for more than two generations. Back in
the sixties, when this grizzled railroad chieftain was the chief
factor in the rapidly growing New York Central Railroad system,
whose backbone then consisted of a continuous one-track line
connecting Albany with the Great Lakes, the president of a small
cross-country road approached him one day and requested an
exchange of annual passes.
"Why, my dear sir," exclaimed the Commodore, "my railroad is more
than three hundred miles long, while yours is only seventeen
miles."
"That may all be so," replied the other, "but my railroad is just
as wide as yours."
This statement was true. Practically no railroad, even as late as
the sixties, was wider than another. They were all single-tracked
lines. Even the New York Central system in 1866 was practically a
single-track road; and the Commodore could not claim to any
particular superiority over his neighbors and rivals in this
particular. Instead of sneering at his "seventeen-mile"
colleague, Vanderbilt might have remembered that his own fine
system had grown up in less than two generations from a modest
narrow-gage track running from "nothing to nowhere." The
Vanderbilt lines, which today with their controlled and
affiliated systems comprise more than 13,000 miles of railroad--a
large portion of which is double-tracked, no mean amount being
laid with third and fourth tracks is the outgrowth of a little
seventeen-mile line, first chartered in 1826, and finished for
traffic in 1831. This little railroad was known as the Mohawk and
Hudson, and it extended from Albany to Schenectady. It was the
second continuous section of railroad line operated by steam in
the United States, and on it the third locomotive built in
America, the De Witt Clinton, made a satisfactory trial trip in
August, 1831.
The success of this experiment created a sensation far and wide
and led to rapid railroad building in other parts of the country
in the years immediately following. The experiences of a
participant in this trial trip are described about forty years
later in a letter written by Judge J.L. Gillis of Philadelphia:
"In the early part of the month of August of that year [1831], I
left Philadelphia for Canandaigua, New York, traveling by stages
and steamboats to Albany and stopping at the latter place. I
learned that a locomotive had arrived there and that it would
make its first trip over the road to Schenectady the next day. I
concluded to lie over and gratify my curiosity with a first ride
after a locomotive.
"That locomotive, the train of cars, together with the incidents
of the day, made a very vivid impression on my mind. I can now
look back from one of Pullman's Palace cars, over a period of
forty years, and see that train together with all the
improvements that have been made in railroad travel since that
time.... I am not machinist enough to give a description of
the locomotive that drew us over the road that day, but I
recollect distinctly the general make-up of the train. The train
was composed of coach bodies, mostly from Thorpe and Sprague's
stage coaches, placed upon trucks. The trucks were coupled
together with chains, leaving from two to three feet slack, and
when the locomotive started it took up the slack by jerks, with
sufficient force to jerk the passengers who sat on seats across
the tops of the coaches, out from under their hats, and in
stopping, came together with such force as to send them flying
from the seats.
"They used dry pitch for fuel, and there being no smoke or spark
catcher to the chimney or smoke-stack, a volume of black smoke,
strongly impregnated with sparks, coals, and cinders, came
pouring back the whole length of the train. Each of the tossed
passengers who had an umbrella raised it as a protection against
the smoke and fire. They were found to be but a momentary
protection, for I think in the first mile the last umbrella went
overboard, all having their covers burnt off from the frames,
when a general melee took place among the deck passengers, each
whipping his neighbor to put out the fire. They presented a very
motley appearance on arriving at the first station. Then rails
were secured and lashed between the trucks, taking the slack out
of the coupling chains, thereby affording us a more steady run to
the top of the inclined plane at Schenectady.
"The incidents off the train were quite as striking as those on
the train. A general notice of the contemplated trip had excited
not only the curiosity of those living along the line of the
road, but those living remote from it, causing a large collection
of people at all the intersecting roads along the route.
Everybody, together with his wife and all his children, came from
a distance with all kinds of conveyances, being as ignorant of
what was coming as their horses, and drove up to the road as near
as they could get, only looking for the best position to get a
view of the train. As it approached a the horses took fright and
wheeled, upsetting buggies, carriages, and wagons, and leaving
for parts unknown to the passengers if not to their owners, and
it is not now positively known if some of them have stopped yet.
Such is a hasty sketch of my recollection of my first ride after
a locomotive."
The Mohawk and Hudson Railroad was originally constructed with
inclined planes worked by stationary engines near each terminus,
the inclinations being one foot in eighteen. The rail used was a
flat bar laid upon longitudinal sills. This type of rail came
into general use at this period and continued in use in parts of
the country even as late as the Civil War.
The roads that now make up the New York Central were built
piecemeal from 1831 to 1853; and the organization of this company
in the latter year, to consolidate eleven independent roads
extending from Albany to Buffalo, finally put an end to the long
debate between canals and railroads. The founding of this company
definitely meant that transportation in the United States
henceforth would follow the steel route and not the water ditch
and the towpath. Canals might indeed linger for a time as
feeders, even, as in the case of the Erie and a few others, as
more or less important transportation routes, but every one now
realized that the railroad was to be the great agency which would
give plausibility to the industrial organization of the United
States and develop its great territory.
Besides the pioneer Mohawk and Hudson, this consolidation
included the Utica and Schenectady, which had been opened in 1836
and which had operated profitably for many years, always paying
large dividends. The Tonawanda Railroad, opened in 1837, and the
Buffalo and Niagara Falls, also finished in the same year, were
operated with profit until they were absorbed by the new system.
In 1838 the Auburn and Syracuse and the Hudson and Berkshire
Railroads were opened. The former after being merged in 1850 with
the Rochester and Syracuse Railway, became a part of the
consolidation. The Syracuse and Attica Railroad, opened in 1839,
the Attica and Buffalo, opened in 1842, the Schenectady and Troy,
opened in the same year, and several other small lines, some of
which had undergone various changes in name and ownership, were
all merged into the New York Central Railroad. This great
property now comprised five hundred and sixty miles of railroad,
the main stem extending from Albany to Buffalo. Though it had as
yet no connection with the Hudson River Railroad, the New York
Central Railroad at this period was the most substantial and
important of American railroad systems. It developed a large and
healthy through traffic to the Great Lakes and was practically
free from railroad competition. The Erie Railway, which for many
years had been struggling under great difficulties to reach the
Great Lakes and had gone through nearly a generation of financial
vicissitudes, was just getting its through line actively under
way. The Pennsylvania Railroad was just pushing through to the
waters of the Ohio and was not likely for many years to compete
with the New York Central for the lake traffic. The Baltimore and
Ohio, while remotely a competitor, was, like the Pennsylvania,
looking more for the traffic of the Ohio Valley than for that of
the Lakes.
The period of six years following the consolidation of 1853 was
one of great prosperity for the New York Central system, and,
notwithstanding the setbacks to business caused by the panic of
1857, large dividends were continuously paid on the capital
stock. In the year 1859--before the Vanderbilt regime opened--the
management embraced what to modern men of affairs are famous
names. Erastus Corning was president, Dean Richmond was
vice-president, and John V. L. Pruyn, Nathaniel Thayer, Isaac
Townsend, and Chauncey Vibbard were directors. The headquarters
of the company were at Albany, and the stock was owned mainly by
residents of that city.
Meanwhile the building of railroads in other parts of the State
and under other leadership was going forward rapidly. As far back
as 1832 the first mile of the New York and Harlem Railroad was
opened for traffic. This single mile remained for some time the
only property of the company. It extended through what is now a
thriving part of down-town New York. Its original terminus was at
Prince Street, but the line was afterwards extended southward to
the City Hall and later to the Astor House. It was not until 1837
that the road reached northward to Harlem and not until 1842 that
Williamsbridge became the northern terminus. The line was looked
upon as a worthless piece of property until 1852, when it was
extended north to Chatham, to connect with the Albany and
Stockbridge Railroad, and thus give a through line from New York
City to Albany.
Another property built in these days and destined to become
eventually an important part of the Vanderbilt lines was the
Hudson River Railroad. This company was chartered in 1846, but
for many years was frowned on as an unsound business venture,
because of the belief that it would be in direct competition with
the river traffic and therefore could never be made to pay.
Nevertheless the promoters went ahead and by 1850 the road had
been opened to Poughkeepsie. The entire line of one hundred and
forty-four miles was completed to East Albany in 1851. At the
same time the Troy and Greenbush Railroad, extending six miles to
Troy, was leased, thus giving the new Hudson River Railroad an
entry into the city of Troy. The Hudson River Railroad was
entirely independent of the New York Central enterprise and was
controlled in those early days by a group of New Yorkers,
prominent among whom was Samuel Sloan.
As we enter the Civil War period, we find the three important
properties which were afterwards to make up the Vanderbilt system
all developing rapidly and logically into the strategical
relationship which would make ultimate consolidation inevitable.
The completion of the Erie Railway and its gradual development as
the only through line across the State from New York to the Great
Lakes; the opening, expansion, and general solidification of the
Pennsylvania lines and their aggressive policy of reaching out to
the lake region on the west and across New Jersey on the east;
the extension of the Erie interests into the New England field,
and the possibility that the latter might gain control of the
Harlem or the Hudson River Railroad--all these considerations
naturally aroused in the New York Central interests a desire to
insure the future by obtaining for themselves control of the
lines that would connect their own system with New York City and
the Eastern seaboard.
During the Civil War, however, no progress was made in this
direction. It was not until 1869, four years after the closing of
the war, that any radical change took place. But in the years
that had intervened, a new and commanding figure in the railroad
world had come upon the scene. This man had grown to be the
dominating genius, not only in the field of railway expansion,
but in the world of finance as well. His name was Cornelius
Vanderbilt. Born in 1794 in very humble circumstances, he had
received little or no education, and as a youth had eked out a
living by ferrying passengers and garden produce from Staten
Island to New York. He had painfully saved a few hundred dollars
within a year or two after his marriage, and with this capital he
began his career in the transportation business. From his first
ferrying project he engaged in other undertakings and laid the
foundation of his subsequent fortune in steamboat navigation.
About 1860, at an age when most men are beginning to retire from
active affairs, the "Commodore"--as he was called on account of
his numerous fleet--entered actively into the field of railway
development, management, and consolidation. The extraordinary
character and genius of the man are well depicted by the events
of the years that followed.
Before the opening of the Civil War and until immediately after
its end, the New York Central and the Erie systems were
controlled by bitterly antagonistic interests. These interests
were beginning to foresee the day when extremely aggressive
competition would call into play their greatest energies.
Vanderbilt, wiser than his generation, foresaw more than this.
His vision took in the vast future values of the properties as
developed trunk lines, and the greater possibilities of their
control and operation as a consolidated whole. He was in a very
real sense the forerunner or pioneer of the great consolidation
period of a half century later. He was the Harriman and the Hill
of his day.
The Erie had its own approach to New York City, but the New York
Central was connected with the metropolis only by the river and
the two independent roads--the Harlem Railroad and the Hudson
River Railroad. To get the latter two roads under his complete
control was Vanderbilt's first object. He would then have
unimpeded access to New York and so become independent of the
river.
He began his ambitious plans by making himself the master of the
Harlem property, and in so doing got his first experience in
railroad stock manipulation and at the same time picked up a
moderate fortune. It was comparatively easy to buy the control of
the Harlem Railroad. The Company had never paid a dividend, and,
in 1863, when the Commodore quietly began his work, the stock was
selling below thirty dollars a share. Before the close of this
year he had manipulated the stock until it had reached
ninety-two, and by a corner, in August of that year, he raised it
to 179. On this deal Vanderbilt reaped a nice little fortune--but
evidently not enough to enable him to carry through the ambitious
plans which were in the back of his head, for in 1864 we find him
manipulating another corner and this time running the price of
the stock up to 285. In this wise the Commodore not only added
millions to his already growing fortune but also made himself a
power in the financial world. Financiers began to fear him, and
he found it comparatively easy later to buy up the control of the
Hudson River Railroad, which he did by paying about 100 for the
stock. Then he began speculating again, sent Hudson River up to
180, and incidentally reaped another fortune for himself.
By this time Vanderbilt had achieved a great reputation as a man
who created values, earned dividends, and invented wealth as if
by magic; other railroad managers now began to lay their
properties at his feet and ask him to do with them what he had
done with the Harlem and the Hudson River. For under the
Commodore's magic touch the Harlem Railroad for the first time in
its long history began to pay dividends at a high rate, and in
four years the earnings of the Hudson River property had nearly
doubled.
One of the first properties to be placed at Vanderbilt's feet was
the New York Central, and the control passed into his hands in
the winter of 1866-67. He was now in a powerful position and
immediately began to lay his plans for obtaining control of the
Erie Railroad in the following year. In the latter effort he did
not succeed, however, and after a protracted and dramatic contest
he was defeated by his great adversary, "Uncle" Daniel Drew. The
story of this contest need not be detailed here, as it is given
in full in the chapter on the Erie Railroad.
In the fall of 1869 the Commodore, having secured everything in
the railroad field he had sought except the Erie, put through his
scheme for consolidation. The New York Central and Hudson River
Railroad was incorporated. It included the old New York Central
and also the Hudson River Railroad but not the Harlem. The
capital of the consolidated company was placed at ninety million
dollars, a figure of such magnitude in those days that the world
was startled. The system embraced in all nearly 850 miles of
railroad lines. A few years later the Harlem Railroad was leased
to the property at a high valuation and a large dividend was
guaranteed on the stock, the ownership of which was retained by
the Vanderbilt family.
The Vanderbilt system as it is now understood really began with
these transactions. From this time on, its history has been
similar in many respects to that of other large systems which
were the outgrowth of merger or manipulation in these early days.
During the remarkable period of commercial and industrial
development in this country from 1870 onward, when thousands of
miles of new lines were built every year, when the growth of
population was beginning to make the States of Ohio, Indiana, and
Illinois centers of wealth and production, and when the wonderful
Northwestern country embracing the States of Michigan, Wisconsin,
and Minnesota, was so rapidly opened up and brought nearer to the
Eastern markets, the Vanderbilt railroad interests were not idle.
The original genius, Cornelius Vanderbilt, was soon gathered to
his fathers, but his son, William H. Vanderbilt, was in many ways
a worthy successor.
By 1885 the Vanderbilt lines had grown in extent and importance
far beyond any point of which the elder Vanderbilt had ever
dreamed. Long before this year the system included many smaller
lines within the State of New York, and it had also acquired
close control of the great Lake Shore and Michigan Southern
system, with its splendid line from Buffalo to Chicago,
consisting of more than 500 miles of railroad; the Michigan
Central, owning lines from Detroit to Chicago, with many branches
in Michigan and Illinois; the Canada Southern Railway, extending
from Detroit to Toronto; and in addition to all these about 800
miles of other lines in the States of Ohio, Indiana, Michigan,
and Pennsylvania.
In this same year 1885, another event of importance took place.
The New York, West Shore and Buffalo Railroad, which after
strenuous efforts extending over many years had constructed a new
trunk line from Weehawken along the west shore of the Hudson to
Albany and thence to Buffalo, came under the control of the New
York Central. The great system in the Middle West, now known as
the "Big Four," or Cleveland, Cincinnati, Chicago and St. Louis
--embracing 750 miles of lines westward from Cleveland and
Columbus, Ohio, to Indianapolis, Springfield, and Cincinnati, and
having traffic connections with St. Louis--was also a Vanderbilt
property at this time, although not under the formal control of
these interests. Another important competing line secured in this
period was the New York, Chicago and St. Louis, built to parallel
the Lake Shore and known as the "Nickel Plate" route. This road
extended from Buffalo to Chicago, and, like the West Shore, had
been constructed with the hope of ultimately selling out to its
competitor.
The development of railroad properties under the Vanderbilt
influence was not confined to the territory east of Chicago and
the Mississippi Valley. As early as 1859 a large system of roads
had been merged in the section extending westward from Chicago to
Omaha and radiating throughout Iowa, Minnesota, Kansas,
Wisconsin, Missouri, and other States. This company was known as
the Chicago and North Western Railroad, and its property, which
was one of large and growing value, by 1886 embraced a system of
over 3500 miles of road. Although neither controlled by the New
York Central nor directly affiliated therewith, it was classed as
a Vanderbilt property.
While for many years after the death of the Commodore the
Vanderbilt family remained in direct financial and operating
control of the New York Central and its myriad of subsidiary
lines and their genius as railroad builders and operators was
distinctly evident, yet the brains and resources of the
Vanderbilts were not alone responsible for the brilliant career
of the system down to recent times. William H. Vanderbilt, though
a man of unusual ability, did not possess the breadth of view or
the sagacity of his father, and in the course of a few years he
found himself exposed to a cyclone of public criticism. He had
let it be widely known that he was personally the owner of over
eighty-seven per cent of the hundred million capital of the
company. In 1879 the New York Legislature, backed by the force of
the popular anger and surprise at the accumulation of a hundred
million dollar fortune by one man in ten years, was investigating
the management of the New York Central with a view to curtailing
its power; the rate wars were on between the seaboard and
Chicago; and Jay Gould was threatening to divert all the traffic
of his Wabash, St. Louis, and Pacific lines from the New York
Central and turn it over to other Eastern connections unless
Vanderbilt would give him a vital interest in the Vanderbilt
lines.
Vanderbilt was harassed beyond endurance and, being of softer
material than his father, was fearful of the outcome of public
opinion, notwithstanding the fact that in a moment of
anger--according to the statement of a newspaper reporter whose
veracity Vanderbilt denied to his dying day--he had used the
familiar expression, "The public be damned!" There were
intimations that the Legislature was planning to impose heavy
taxes on the property, solely because Vanderbilt held this
gigantic personal ownership in the property. This prospect
frightened him and he consulted friends whose judgment he
respected. They urged him to sell a considerable part of his
holdings in order to distribute the ownership of the property
among a large number of people.
This plan could not be carried out, however, in the ordinary way,
because large sales of stock by the Vanderbilt interests, if the
speculating and investing public learned that he was making them,
would greatly depreciate the price and might create general
demoralization and a panic, while they would certainly injure the
credit of the New York Central property. But a way out of the
dilemma had to be found. It was at this juncture that a new
personality, later to be closely identified with the Vanderbilt
lines for a long series of years, appeared upon the scene.
Vanderbilt was advised to consult J. Pierpont Morgan, of the
banking house of Drexel, Morgan and Co. At that time the name of
J.P. Morgan was just beginning to come prominently to the front
in banking circles in New York. The Drexels had been conspicuous
in business in Philadelphia for many years and in a sense were
the fiscal agents of the great Pennsylvania Railroad Company. But
the spectacular success of the House of Morgan a few years before
in marketing the French government loan in England had added
largely to its prestige. And so Vanderbilt concluded that, if any
man could show him a way out in his difficult problem, Pierpont
Morgan was that man.
The upshot of the matter was that Morgan devised a plan for the
sale of a large amount of Vanderbilt's stock holdings through
private sale in England, and in such a way that the knowledge of
such sale would not become public in America. A confidential
syndicate was formed which undertook to take the stock in a block
and pass it on to English investors at approximately its current
market price of about $130 per share. The sale was promptly
accomplished; the stock went into the hands of unknown interests
abroad; Vanderbilt received more than $25,000,000 in cash, which
he largely reinvested in United States government bonds, and the
Morgan syndicate reaped a profit of about $3,000,000. Five months
after the closing of the syndicate public announcement was made
of the sale and of the syndicate profit. The striking success of
this transaction naturally added greatly to the prestige of. J.
P. Morgan as a financier of very large caliber, and it had the
satisfactory effect of curtailing the legislative attacks on
Vanderbilt.
>From that date forward, the history of the Vanderbilt railroads
has been closely identified with the House of Morgan. J.P. Morgan
and his business associates became the company's financial
agents, and thereafter all plans of expansion or consolidation
were handled directly by them. In the board of directors Morgan
banking interests had full representation, which they have held
until this day.
The subsequent history of the Vanderbilt lines is chiefly a story
of business expansion and growth. From 1885 to 1893, the great
panic year, the New York Central each year added to its mileage,
either by merger of smaller lines or by construction. All this
time it was consolidating the system, eliminating the weaker
links, and strengthening the stronger. Its lines penetrated all
the best Eastern railroad territory outside of New England, New
Jersey, and Pennsylvania, and no other railroad system in the
country, with the single exception of the Pennsylvania, covered
anything like the same amount of rich and settled territory, or
reached so many cities and towns of importance. New York,
Buffalo, Cleveland, Detroit, Chicago, St. Louis, Cincinnati,
Indianapolis--these are a few of the great traffic centers which
were included in the Vanderbilt preserves. The population of all
these cities, as well as that of the hundreds of smaller places
and the countryside in general, was growing by leaps and bounds.
Furthermore the Northwest, beyond the Great Lakes and through to
the Pacific coast, saw the beginnings of its great development at
this time; and the wheat fields of the far western country became
a factor of profound importance in the national development.
Consequently when the period of depression arrived with the panic
of 1893, the Vanderbilt properties were, as a whole, in a strong
position to meet the changed situation and, like the great
Pennsylvania property, they all passed through to the advent of
the new industrial era without the defaulting of a bond or the
passing of a dividend. The remarkable character of this
achievement is evident in view of the fact that in the period
from 1893 to 1898 more than sixty-five per cent of all the
railroad mileage in the United States went into the hands of
receivers.
After the close of this era of panic, the Vanderbilt lines began
expanding again, though on a much smaller scale than in their
more active time. In 1898 William K. Vanderbilt, then president,
made the announcement that the New York Central had leased the
Boston and Albany Railroad, at that time a lucrative line running
from Albany across Massachusetts into Boston. This gave the
system an entry into the New England field, which it has
continuously held since. A few years later this New England
interest was increased by the acquisition of the Rutland Railroad
in Vermont, thus making connection with the Ogdensburg and Lake
Champlain, a line running across the northern part of New York
State, which had also come under Vanderbilt control.
When business revived in the closing years of the nineteenth
century, the history of American railroads began a new chapter.
Federal railroad regulation, which started in a moderate way with
the passage of the Interstate Commerce Act in 1887, had steadily
increased through the years; the Sherman Anti-trust Act, passed
in 1890, had been interpreted broadly as affecting the railroads
of the country as well as the industrial and other combinations.
These influences had thus greatly curtailed the consolidation of
competing lines which had gone on so rapidly during the decades
following the Civil War. Railroad managers and financiers
therefore began to face a very serious problem. Competition of a
more or less serious nature was still rampant, rates were cut,
and traffic was pretty freely diverted by dubious means.
Consequently many large railroad systems of heavy capitalization
bid fair to run into difficulties on the first serious falling
off in general business.
Great men are usually the products of their times and one of the
men developed by these times takes rank with the greatest
railroad leaders in history. Edward H. Harriman had risen in ten
years from comparative obscurity and was now the president of the
Union Pacific Railroad, which he had, in conjunction with the
banking house of Kuhn, Loeb and Company, reorganized and taken
out of bankruptcy. Harriman was one of the originators of the
"community of interest" idea, a device for the partial control of
one railroad system by another. For instance, although the law
forbade any railroad system from acquiring a complete control of
a competing line by purchasing a majority of its capital stock or
by leasing it, nothing was said about one railroad having a
minority investment interest in another. A minority investment,
even though it be as low as ten or twenty per cent, usually
constitutes a dominating influence if held by a single interest,
for in most cases the majority of the shares will be owned in
small blocks by thousands of investors who never combine for a
definite, practical purpose. Thus the interest which has the one
large block of stock usually controls the voting power, and runs
little risk of losing it unless a contest develops with other
powerful interests--and this is a contingency which it almost
never has to meet.
Carrying out this policy of promoting harmony among competing
lines, the New York Central and Pennsylvania Railroad early in
1900 acquired a working control of the Reading Company, which in
turn controlled the New Jersey Central and dominated the
anthracite coal traffic. Later the Baltimore and Ohio shared this
Reading interest with the Lake Shore of the New York Central
system. The New York Central and the Pennsylvania acquired a
working control of the same kind in the Chesapeake and Ohio
Railway, which was an important element in the soft coal fields
and was reaching out to grasp soft coal properties in Ohio and
Indiana.
These and other purchases, and the consequent voice acquired in
the management, established comparative harmony among Eastern
railroads for a long time; they stabilized rates and enabled
formerly competing roads to parcel out territory equitably among
the different interests. Later, Harriman, and to some extent
Morgan, carried the community of interest idea some steps
further. Morgan caused the New York Central to acquire stock
interests in certain "feeder" lines such as the New York, New
Haven and Hartford and the Chicago, Milwaukee and St. Paul, as
well as in competing lines; and Harriman caused the Union Pacific
not only to dominate the Southern Pacific Company by minority
control but also to acquire interests in the Illinois Central,
the Baltimore and Ohio, the New York Central, and other eastern
properties. The fact was that Harriman had plans in view for
acquiring actual control of the New York Central for the Union
Pacific and thus, with the Illinois Central, of creating a
continuous transcontinental line from ocean to ocean.
In the past decade few unusual or startling events have marked
the history of the Vanderbilt lines. The Vanderbilt family no
longer possesses a majority interest in the stock, or anything
which approaches it, and the New York Central system and its
subsidiaries have come to be known more and more as Morgan
properties. The system has grown up with the country. Many of its
former controlled roads have now been merged into the main
corporation and many new lines have been added to it. Hundreds of
millions of dollars of new capital have been spent on the main
lines and terminals since 1900. In 1919 the entire property,
including controlled lines, embraced more than 13,000 miles of
main track, besides about 5000 miles of extra tracks; over
200,000 freight cars are in use on the system, and every year
upwards of 200,000,000 tons of freight are transported. The gross
annual revenues of the entire system now aggregate more than
$400,000,000, while the total capitalization in stocks and bonds
exceeds a billion dollars. It is indeed a far cry from that day
in August, 1831, when the De Witt Clinton locomotive made its
trial trip over the primitive rails of the seventeen-mile Mohawk
and Hudson road--a far cry even from that other day, thirty-eight
years later, when the sagacious Commodore startled the financial
world by his New York Central and Hudson River Railroad, with a
capital of ninety million dollars.
CHAPTER III. THE GREAT PENNSYLVANIA SYSTEM
In the early forties the commercial importance of Philadelphia
was menaced from two directions. A steadily increasing volume of
trade was passing through the Erie Canal from the Central West to
the northern seaboard, while traffic over the new Baltimore and
Ohio Railroad promised a great commercial future to the rival
city of Baltimore. With commendable enterprise the Baltimore and
Ohio Company was even then reaching out for connections with
Pittsburgh in the hope of diverting western trade from eastern
Pennsylvania. Moreover the financial prestige of Philadelphia had
suffered from recent events. The panic of 1837, the contest of
the United States Bank with President Jackson, its defeat, and
its subsequent failure as a state bank, the consequent distress
in local financial circles--all conspired to shift the monetary
center of the country to New York.
It was at this time that Philadelphia capitalists began to bestir
themselves in an attempt to recover their lost opportunities.
Philadelphia must share in this trade with the Central West. The
designs of the Baltimore and Ohio Company must be defeated by
bringing Pittsburgh into contact with its natural Eastern market.
To this end, the Pennsylvania Railroad was incorporated on April
13, 1846, with a franchise permitting the construction of a
railroad across the State from Harrisburg to Pittsburgh. An added
incentive to constructive expansion was given by an act of the
Legislature authorizing the Baltimore and Ohio to extend its line
to Pittsburgh if the Pennsylvania Company failed to avail itself
of its franchise.
In order to avoid the heavy cost of constructing a road between
Philadelphia and Harrisburg, the Pennsylvania Railroad entered
into arrangements with the Philadelphia and Columbia--a railroad
opened in 1834 and owned by the State--which ran through Chester
and Lancaster to Columbia. This road was primitive in the extreme
and used both steam and horse power. As late as 1842 a train was
started only when sufficient traffic was waiting along the road
to warrant the use of the engine. Belated trains were hunted up
by horsemen. Yet the road was in those days famous for the
"rapidity and exceptional comforts of the train service." Between
Columbia and Harrisburg passengers westward bound had to use the
Pennsylvania Canal.
Construction of the main line westward to Pittsburgh began at
once and progressed rapidly. By making use of the Alleghany
Portage Railroad from Hollidaysburg, the Pennsylvania Railroad
eventually secured a continuous line from Harrisburg to
Pittsburgh. But between Philadelphia and Harrisburg passengers
were for a long time subjected to many inconveniences. Finally in
1857 the Pennsylvania Railroad bought the Philadelphia and
Columbia from the State, rebuilt it, and extended it to
Harrisburg. At the same time the Pennsylvania bought the main
line of the Public Works, which included the Alleghany Portage
Railroad. On July 18, 1858, the first through train passed over
the entire line from Philadelphia via Mount Joy to Pittsburgh
without transfer of passengers. At the same time the first
smoking car ever attached to a passenger train was used, and
sleeping cars also soon began to appear.
The railroad genius identified with the history of the
Pennsylvania Railroad during the following decade is J. Edgar
Thomson. A man of vision and of great shrewdness and ability, he
was more like the modern railroad head of the Ripley or Underwood
type than of the Vanderbilt, Garrett, or Drew type. His interest
was never in the stock market nor in the speculative side of
railroading but was concentrated entirely on the development and
operation of the Pennsylvania Railroad system. His dreams were
not of millions quickly made nor of railroad dominance simply for
the power that it gave; his mind was concentrated on the growth
and prosperity of a vast railroad system which would increase
with the years, become lucrative in its operations, and not only
radiate throughout the State of Pennsylvania but extend far
beyond into the growing West.
Under the Thomson management, which lasted until 1874, the record
of the Pennsylvania Railroad was one of progress in every sense
of the word. While Daniel Drew was lining his pockets with loot
from the Erie Railroad and Commodore Vanderbilt was piling up his
colossal fortune through consolidation and manipulation, J. Edgar
Thomson was steadily building up the greatest business
organization on the continent. In 1860, the entire Pennsylvania
Railroad system was represented merely by the main line from
Philadelphia to Pittsburgh, with a few short branches. By 1869
the road had expanded within Pennsylvania alone to nearly one
thousand miles and also controlled lines northward to the shores
of Lake Erie, through the State of New York.
But the master accomplishment of the Thomson administration was
the acquisition of the Pittsburgh, Fort Wayne and Chicago line in
1869. This new addition gave the Company its own connection with
Chicago and made a continuous system from the banks of the
Delaware at Philadelphia to the shores of Lake Michigan, thus
rivaling the far-flung Vanderbilt line, a thousand miles long,
which the industrious Commodore was now organizing. Shortly
thereafter the Pennsylvania began to expand on the east also and
obtained an entry into New York City by acquiring the United
Railroad and Canal Company, which owned lines across the State of
New Jersey, passing through Trenton.
In the latter years of the Thomson management it became more and
more evident that it was important for the Pennsylvania Railroad
to have further Western connections which would reach the growing
cities of the Middle West. While the Fort Wayne route made a very
direct connection with Chicago and included branches of value,
yet the keen competition which was developing in the expansive
years following the Civil War made actual control of the Middle
Western territory a matter of sound business policy. The
Vanderbilt lines were reaching out through Ohio, Indiana, and
Illinois; the Baltimore and Ohio was steadily developing its
Western connections, and now Jay Gould had come actively on the
scene with large projects for the Erie. To offset these projects,
early in 1870 a "holding company"--probably the first of its kind
on record--known as the Pennsylvania Company was formed for the
express purpose of controlling and managing, in the interest of
the Pennsylvania Railroad, all lines leased or controlled or in
the future to be acquired by the Pennsylvania Railroad interests
west of Pittsburgh and Erie. This Company took over the lease of
the Fort Wayne route and also acquired control by lease of the
Erie and Pittsburgh, a road extending northward through Ohio to
Lake Erie.
After this date the expansion of the system west of Pittsburgh
went on rapidly. In 1871 the Cleveland and Pittsburgh Railroad,
which had been opened as early as 1852, came under the
Pennsylvania control. Soon after this, many smaller lines in Ohio
were merged in the system. The most important acquisition during
this period, however, was the result of the purchase of the great
lines extending westward from Pittsburgh to St. Louis, with
branches reaching southward to Cincinnati and northward to
Chicago. This system -then known as the "Pan Handle" route and
later as the Pittsburgh, Cincinnati, Chicago and St. Louis was a
consolidation of several independent properties of importance
which had been gradually extending themselves over this territory
during the previous decade. This new system, which embraced over
fourteen hundred miles of road, gave the Pennsylvania a second
line to Chicago, a direct line to St. Louis, a second line to
Cincinnati, and access to territory not previously tapped.
While the achievements of the Pennsylvania Railroad Company
during these years of consolidation and expansion are not to be
compared with those of more modern times, it is well to realize
that even as early as the seventh decade of the last century this
railroad was always in the forefront in matters of high standards
and progressive practice. It was the pioneer in most of the
improvements which were later adopted by other roads. The
Pennsylvania was the first American railroad to lay steel rails
and the first to lay Bessemer rails; it was the first to put the
steel fire-box under the locomotive boiler; it was the first to
use the air brake and the block signal system; it was the first
to use in its shops the overhead crane.
In these earlier years also the Pennsylvania had established its
enviable record for conservative and non-speculative management.
No railroad wrecker or stock speculator had ever had anything to
do with the financial control of the company, and this tradition
has been passed on from decade to decade. The stockholders
themselves, even in those days of loose methods and careless
finance, had the dominating voice in the affairs of the company
and were also factors in the approval or disapproval of any
proposed policies. In the matter of its finances the Pennsylvania
developed and established an equally clean record. The company
began almost at the beginning to pay a satisfactory dividend on
its shares and continued to do so right through the Civil War
period. Since the through line from Philadelphia to Pittsburgh
was opened, not a single year has passed without the payment of a
dividend--a sixty-year record which can be duplicated by no other
American railroad system.
The Pennsylvania still continued to forge ahead even during the
exciting period from 1877 to about 1889, when the trunk lines
were aggressively carrying on that policy of cutthroat
competition between Chicago and the Atlantic seaboard which
resulted in so severely weakening the credit and position of
properties like the Baltimore and Ohio and the Erie. The
Pennsylvania, too, indulged in rate cutting, but the management
was equal to the situation and made up in other directions what
it lost in lower rates. It gave superior service, developed a
high efficiency of operation, and steadily maintained its
properties at a high standard. During these years the president
was George B. Roberts, who had succeeded Thomas A. Scott in 1880.
Roberts's management spanned the period from 1880 to 1897 and
embraced a decade of comparative prosperity for the country as a
whole and nearly a decade of panic and industrial and financial
depression. During the earlier decade the business of the
Pennsylvania was continually benefited by the industrial
development and growth which marked the period. It was at this
time that the Pittsburgh district took its permanent place as the
great center of steel and iron manufacture. The discovery of
petroleum in western Pennsylvania, creating an enormous new
industry in itself, proved to be an event of far-reaching
significance for the Pennsylvania Railroad. The extensive opening
up of the soft coal sections of western Pennsylvania, Ohio, and
Indiana, also meant much for this great system of railroads.
Still further developments in other directions accrued to the
benefit of the Pennsylvania Railroad. In this period, by
obtaining the control of a line to Washington, the system
acquired a Southern artery running through Wilmington, Delaware,
and Baltimore to Washington. Afterwards, with other roads, the
Pennsylvania acquired control of the Richmond, Fredericksburg and
Potomac Railroad and thus obtained a line to Richmond, Virginia.
On the north and to the east the expanding movement also went on.
In addition to the development of its main line from Philadelphia
to Jersey City, the Pennsylvania acquired many other New Jersey
lines, including the West Jersey and Seashore, a road running
from Camden to Atlantic City and Cape May.
During the whole of the aggressive administrations of both Thomas
A. Scott and George B. Roberts the great system continued to
spread out steadily until it had penetrated as far as Mackinaw
City on the north and Chesapeake Bay on the south. Its network of
lines stretched across the Eastern section of the continent from
New York to Iowa and Missouri, while the intensive development of
shorter lines in the State of Pennsylvania and to the north was
unceasing. The Northern Central running south from Sodus Bay on
Lake Ontario through central Pennsylvania to Baltimore, the
Buffalo and Alleghany Valley extending from Oil City northward
and joining the main system to the east, the Western New York and
Pennsylvania operating north from Oil City to Buffalo and
Rochester--these lines the Pennsylvania Railroad acquired and
definitely consolidated in the Roberts regime.
After the retirement of Roberts, Frank Thomson, a son of the
earlier president of the same name, was placed at the head of the
system for three years. But in 1899 Alexander J. Cassatt, who had
for many years been identified with the Pennsylvania as officer,
director, and stockholder, took the helm, and a new chapter and
probably the greatest in the history of this remarkable railroad
began.
The name of Alexander J. Cassatt will always be linked with the
comprehensive terminal developments in the region of New York
City which were begun almost immediately on his accession to the
presidency and which were carried forward on bold and
far-reaching lines. Perhaps more than any other one person,
Cassatt foresaw the approach of the day when New York City as a
commercial center would outstrip both in density of population
and in amount of wealth all the other cities of the world. He and
his predecessors had for many years witnessed the great
industrial development of the Pittsburgh district, where property
values had grown by leaps and bounds and where the steadily
advancing development of industry and material resources had been
so unmistakably reflected in the increasing earning power and
value of the Pennsylvania Railroad properties.
But while at Pittsburgh the road had everything to favor it as
far as terminals and rights of way through the heart of the great
industrial district were concerned, in the great Eastern
metropolis the Pennsylvania Railroad was at an obvious
disadvantage, particularly as compared with the New York Central,
which had its splendid terminal rights penetrating to the heart
of the city. Cassatt saw that his company must without delay take
a number of bold and, for the time, enormously expensive steps
toward the development of terminal facilities in Greater New York
or else forever abandon the idea of getting nearer the heart of
the city than the New Jersey shore and thus run the risk, in the
keen contest for commercial supremacy, of ultimately falling
behind other more advantageously situated lines.
There were still further incentives to immediate action on the
part of the Pennsylvania Railroad. While the New York Central was
in an ideal position for handling all traffic destined for the
New England States, the Pennsylvania could control practically
none of this business, as its terminals were on the wrong side of
the Hudson and necessitated not merely the inconvenient transfer
of passengers but also the much more expensive handling of
freight. Other disadvantages from which the Pennsylvania suffered
were involved in its inability to make the most economical terms
for foreign shipping, as a large proportion of such freight had
to be constantly transferred on lighters to the New York and
Brooklyn sides of the harbor. Thus any comprehensive plan for
terminal development on the part of the Pennsylvania must
necessarily include not only a tunnel system into New York City
but also an outlet through the city to Long Island and a
connection with the New England railroads.
The first move in the development of this terminal system was the
acquisition in 1900 of the control of the Long Island Railroad,
embracing all the steam railway mileage on Long Island, with
lines extending along both the north and south shores to Montauk
Point. This acquisition added extensive freight yards and
terminals on the Brooklyn side of the East River. The Company
then obtained franchises and began the construction of its great
tunnels under the North and East Rivers and entirely across New
York City, with a mammoth passenger station at Seventh Avenue and
Thirty-second Street. A great railroad bridge was planned to
cross from Long Island to the mainland, connecting with the New
York, New Haven and Hartford system, in the stock of which the
Pennsylvania at this time purchased an interest.
The terminal construction occupied a period of many years and
cost over one hundred million dollars, besides the added costs
involved in building up and developing the old, worn-out Long
Island Railroad. Only recently has the project been rounded out
and completed through the final construction of the important
connection with the New England railroad systems. But the
realization of this plan is undoubtedly the greatest achievement
in all the long career of the Pennsylvania Railroad. Had the
project been delayed for another decade, it probably could not
have been accomplished because of the growing expense of
operation and the difficulties of getting franchise rights and
rights of way through and under the metropolis.
While the tunnel development is the notable achievement of the
Cassatt regime, this remarkable man's name is also closely
identified with the "community of interest" idea already
explained. This "community of interest" scheme was pushed
aggressively by Cassatt in cooperation with Harriman, Hill, and
Morgan. Large stock purchases were made in the Norfolk and
Western, the Chesapeake and Ohio, and the Baltimore and Ohio. As
the latter road had in its turn acquired, jointly with New York
Central interests, a working control of the Reading Company, and
the Reading Company had secured majority ownership of the New
Jersey Central system, it is apparent that the domination which
the Pennsylvania had obtained over the entire Eastern seaboard
south of New York City and north of Baltimore was made nearly
complete.
The "community of interest" plan held sway with the large
railroads of the country and was very effective for perhaps half
a dozen years, until the interstate commerce laws were amended in
such a way as to give the Government complete control over
railroad freight and passenger rates. In 1906 the Pennsylvania
began to dispose of the bulk of its holdings in competing
properties, the most notable transactions being the sale of its
entire interest in the Chesapeake and Ohio to independent
interests and a substantial part of its Baltimore and Ohio
holdings to the Union Pacific Railroad. A few years later, when
the Union Pacific was forced by the Federal courts to dispose of
its control of the Southern Pacific Company, a trade was made
between the Pennsylvania and the Union Pacific whereby the latter
took from the Pennsylvania the remainder of its Baltimore and
Ohio investment and gave in exchange a portion of its own large
holding of Southern Pacific stock.
To get a fair idea of the meaning and magnitude of the great
Pennsylvania Railroad system today one must do more than scan
maps and study statistics. One should travel by daylight over its
main line from New York to Pittsburgh. Although the route is over
the same ground which the road followed a generation or two ago,
a four-track line runs practically all the way, with long
stretches of hundreds of miles of five, six, and eight tracks.
Where mountains were climbed thirty years ago, one will now find
them bored by tunnels; where sharp curves were necessary before
straight trackage only will be encountered today. Grades have
been eliminated everywhere and the whole route has been
modernized and strengthened by the laying of one hundred to one
hundred and fifty pound rails.
Undoubtedly the fortunate location of the Pennsylvania lines in
the half dozen States which represent the financial and
industrial heart of the continent has had much to do with its
vast growth and the expansion of its business; but its high
reputation can be explained only by the long record of its
superior methods and management. One of the primary objects of
Pennsylvania Railroad policy has been to keep pace with the
growth of the country. Instead of following in the wake of
industrial progress and making its improvements and extensions
after its competitors had made theirs, its management has usually
had the foresight to prepare well in advance for future needs.
CHAPTER IV. THE ERIE RAILROAD
"Before introducing a friend to a distinguished stranger, it is
advisable to give him some account of the person whose
acquaintance he is about to make; and so, fellow-traveler, whom I
introduce to the New York and Erie Railroad, it may be well to
prefix here a brief sketch of the history and present condition
of this, the Lion of Railways. True, he is yet in an unfinished
state, but you will find that what there is of him is complete,
and of wondrous organization and activity. His magnificent head
and front repose in grandeur on the shores of the Hudson; his
iron lungs puff vigorously among the Highland fastnesses of
Rockland; his capacious maw fares sumptuously on the dairies of
Orange and the game and cattle of Broome; his lumbar region is
built upon the timber of Chemung, and the tuft of his royal
extremity floats triumphantly on the waters of Lake Erie."
This exultant, characteristically American, description appeared
in Harper's "Guide-Book of the New York and Erie Railroad",
published in 1851, soon after the opening of the main line of
more than four hundred and sixty miles from Piermont on the
Hudson to Dunkirk on Lake Erie. That this railroad, which after
nearly twenty years of struggle and of financial vicissitudes had
finally linked the Great Lakes with the Atlantic coast, was
looked upon as a property of wonderful character and limitless
future is indicated in all the railroad literature of that time.
Appleton's "Illustrated Handbook of American Travel", published
in 1857, devotes several pages to a description of this
remarkable achievement in railroad extension and among other
things says:
"This great route claims a special admiration for the grandeur of
the enterprise which conceived and executed it, for the vast
contribution it has made to the facilities of travel, and for the
multiplied and various landscape beauties which it has made so
readily and pleasantly accessible. It traverses the southern
portion of the Empire State in its entire length from east to
west, passing through countless towns and villages, over many
rivers, through rugged mountain passes now, and anon amidst broad
and fertile valleys and plains. In addition it has many branches,
connecting its stations with other routes in all directions, and
opening new stores of pictorial pleasures.... An interesting
feature of this road is its own telegraph, which runs by the side
of the road and has its operator in nearly every station house.
This telegraph has a double wire, enabling the company to
transact the public, as well as their own private business. Daily
trains leave for the west on this route, with connections by boat
from the foot of Duane Street, morning, noon, and night."
The Erie Railroad system was foreshadowed in the time of Queen
Anne, when the Colony of New York appropriated the sum of five
hundred dollars to John Smith and other persons for the purpose
of constructing a public road connecting the port of New York
with the West in the vicinity of the Great Lakes. The
appropriation was coupled with the condition that within two
years the beneficiaries should have constructed a road wide
enough for two carriages to pass, from Nyack on the Hudson River
to Sterling Iron Works, a distance of about thirty miles; and
that they should cut away the limbs of trees over the track in
order to allow the carriages to pass. In this way began the
internal improvement system of the State of New York, which after
the lapse of more than a century resulted in opening the Erie
Canal and in projecting a railroad system connecting New York and
the valley of the Hudson with Lake Erie.
After the opening of the Erie Canal in 1825, the Legislature of
New York directed a survey of a state road which was to be
constructed at public expense through the southern tier of
counties from the Hudson River to Lake Erie. The unfavorable
profile exhibited in the survey apparently caused the project to
be abandoned. But the idea still held sway over the minds of many
people; and the great benefits brought to the Mohawk Valley and
surrounding country by the Erie Canal led the southern counties
to demand a transportation route which would work similar wonders
in that region. This growing sentiment finally persuaded the
Legislature to charter in April, 1832, the New York and Erie
Railroad Company, and to give it authority to construct a line
and to regulate its own charges for transportation.
During the following summer a survey of the route was made by
Colonel De Witt Clinton, Jr., and in 1834 a second survey was
made of the whole of the proposed route. When the probable cost
was estimated, many opponents arose who declaimed the undertaking
was "chimerical, impractical, and useless." The road, they
declared, could never be built and, if built, would never be
used; the southern counties were mountainous, sterile, and
worthless, and afforded no products requiring a market; and, in
any case, these counties should find their natural outlet in the
valley of the Mohawk. This antagonism was successfully opposed,
however, and the construction of the road was begun in 1836.
The panic of 1837 interfered with the work, but in 1838 the state
Legislature came forward with a construction loan of three
million dollars, and the first section of line, extending from
Piermont on the Hudson to Goshen, was put into operation in
September, 1841. In the following year the company became
financially embarrassed and was placed in the hands of receivers.
This catastrophe delayed further progress for years, and it was
not until 1846 that sufficient new capital was raised to go on
with the work. The original estimate of the cost for building the
entire line of 485 miles had been three million dollars, but
already the road had cost over six millions and only a small
portion had been finished. The final estimate now rose to fifteen
millions, and, although some money was raised from time to time
and new sections were built, there was no certainty that the
entire road would ever be completed. Ultimately the State of New
York canceled its claim against the property, new subscriptions
of some millions were secured, and more money was raised by
mortgaging the finished sections.
Finally, in 1851, after eighteen years of effort, the line was
opened to Lake Erie. In addition there had been added various
feeders or branches, giving the road an entry into Scranton,
Pennsylvania, and into Geneva and Buffalo, New York. It had its
terminus on Lake Erie at Dunkirk and its eastern terminus at
Piermont, near Nyack on the Hudson, about twenty-five miles by
boat from New York City.
The financial condition of the Erie at this time manifested the
beginning of that general policy of improvidence and recklessness
which afterward, for nearly a generation and a half, made the
company a speculative football in some of the most disreputable
games of Wall Street stock-jobbers. For though the original
estimate had been three millions and the highest estimate of the
cost during construction had been fifteen million dollars, the
company, in 1851, started its career with capital obligations of
no less than twenty-six millions--a very large sum for those
days.
The fact that these initial obligations constituted a heavy
burden became apparent when the Erie began operations. They made
necessary such high freight rates that shippers held indignation
meetings and again and again made appeals for legislative relief.
Although much money had been raised after 1849 for improvements,
the condition of the Erie steadily grew worse. It soon became
notorious for many accidents due to carelessness in running
trains and to the breaking of the brittle iron rails.
But in spite of these drawbacks the business of the Erie grew. In
1852 it acquired the Ramapo and Paterson and the Paterson and
Hudson River railroads and in this way it obtained a more direct
connection with New York City. It changed the tracks of its new
railroads to the six-foot gage, which the Erie had adopted from
the start and which it persisted in maintaining for many years
despite the world-wide practice of establishing a standard width
of four feet eight and one-half inches.
The most conspicuous figure in the history of the Erie Railroad
system in these early days was Daniel Drew. From 1851, when the
main line was opened, until 1868, this man was a director and,
for the larger part of the time, treasurer. Born in 1797, he had
driven cattle when a boy from his native town of Carmel in Putnam
County to the New York City market and, for some years later, he
had been proprietor of the Bull's Head Tavern. Shrewd,
unscrupulous, illiterate, good-natured, and sometimes generous,
he was in many ways unlike his great adversary in the railroad
world, Commodore Vanderbilt. Drew affected a pious and
sanctimonious attitude in all his dealings, while Vanderbilt had
a more frank and open nature and usually made no pretensions to
righteousness.
For many years following 1851, Drew, who owned or controlled
nearly one-half the stock of the Erie, appeared to think that his
office of treasurer carried with it the right to manipulate the
stock of the road at any time it might help his pocketbook to do
so. He frequently advanced money which the road could not obtain
elsewhere, always taking full security and excessive commissions.
This practice gave him the name of "speculative director," and by
the time his great contests with Commodore Vanderbilt broke out,
he was reputed to be worth many millions, most of which he had
acquired by juggling in Wall Street with Erie securities.
The entire period in the affairs of the Erie system from the
ascendancy of Daniel Drew in 1851 to the end of the Civil War
witnessed an endless succession of stock-market exploits both
large and small. In the spring of 1866, however, Drew found an
opportunity to achieve a real masterpiece in manipulation. The
stock of the Erie road was then selling at about 95 and the
company was in pressing need of funds. The treasurer came to the
rescue as usual and made the necessary advances on adequate
security. The company had in its treasury a considerable amount
of unissued stock and had also the legal right to issue bonds to
the extent of $3,000,000 which could be converted into stock.
Drew took these bonds and the unissued stock as security for a
loan of $3,500,000.
It so happened, naturally, that Drew was soon heavily short of
Erie stock in Wall Street. The market was buoyant; speculation
was rampant; and the outside public, the delight and prey of Wall
Street gamblers, were as usual drawn in by the fascination of
acquiring wealth without labor. All this time our friend, Daniel
Drew, was quietly selling Erie stock and closing contracts for
the future delivery of the certificates; and he was doing this at
rising prices. As the days went by, his grave, desponding manner
grew more and more apparent. Erie stock continued to rise. In the
loan market its scarcity became greater hour by hour. The rumor
began to spread that "Uncle Daniel" was cornered. His large
obligations for future delivery must be met. Where was the Erie
stock to come from? The stock continued to soar, and Treasurer
Drew seemed to become more and more depressed.
Then the blow fell. Drew laid his hands on the collateral which
he held for his loan to the Erie. In the twinkling of an eye his
$3,000,000 in Erie bonds was converted into Erie stock, which he
proceeded to dump in Wall Street. Eric quotations fell from 90 to
50. Every one at last realized the trap--but not before Daniel
Drew had pocketed a few millions in profits.
By this time Drew had come to be looked upon as a stock operator
to be both admired and feared, and this incident took its place
in Wall Street history as a brilliant coup side by side with
Vanderbilt's Harlem Railroad and other celebrated exploits. It
was soon followed, however, by much more sensational events. We
have seen that the portentous figure of Vanderbilt was just at
this time looming up in the railroad world, and Vanderbilt had
his own theory of the management and financing of railroads. It
was inevitable that he should clash with Drew. He was a few years
older than Drew, and the two men, as we have seen, had much in
common. Both were well on in life before they had transferred
their activities to steam railroads. When finally, in 1868, they
crossed swords in connection with the two railroad systems
extending through New York State, both were more than seventy
years old and had been successful in the acquisition of millions
by methods of their own invention. They were no doubt equally
unscrupulous, but, while Drew was by nature a pessimist and
"bearish," Vanderbilt, in the Wall Street vernacular, was always
a "bull."
Having obtained control of the New York Central, the Hudson
River, and the Harlem railroads, Commodore Vanderbilt now decided
in the summer of 1867 to go after the Erie, of which Drew was
nominally in possession, although no one knew when he owned a
majority of the stock or when he was temporarily short of it.
Usually he loaded up as the annual election of officers
approached and liquidated shortly thereafter. Besides Vanderbilt
there was another interest at this time trying for the control of
the Erie. This interest consisted of certain Wall Street
speculators and certain Boston capitalists who proclaimed
themselves railroad reformers. These so-called reformers were as
unscrupulous and crafty as either of the other men, and they
really represented nothing but an attempt to raid the Erie
treasury in the interest of a bankrupt New England corporation
known as the Boston, Hartford and Erie Railroad. As was well
said, the name of this latter road was "synonymous with
bankruptcy, litigation, fraud, and failure."
The Erie Railroad control was always nominally for sale, and, as
the annual election approached, a majority of stockholders stood
ready to sell their votes to the highest bidder. Commodore
Vanderbilt cleverly secured the cooperation of the "reformer"
element, corralling their proxies, and thus he appeared to be in
a position to oust the Drew interests without difficulty. On the
Sunday preceding the election the Commodore saw Drew and amicably
explained to him the trap he had laid, and showed him clearly
that there was no way out of the situation. Upon this disclosure,
Treasurer Drew at once faced about and agreed to join hands with
Vanderbilt in giving the market for the stock the strong upward
twist it had lacked before that hour. Jointly they would make so
much money that neither side would lose anything. "Uncle Daniel"
went away apparently satisfied and contented with the compromise.
But the Commodore had not finished. A few hours later he took the
Boston adventurers into his confidence and explained that he
proposed to continue Drew in the directorate. The Boston men were
puzzled and confused by this sudden change of front. Later, all
parties met at Drew's house, and Vanderbilt brought the Boston
men to terms by proposing a plan to Drew whereby they would be
entirely left out. This ruse succeeded and a written agreement to
the advantage of all, but at the expense of the outside
stockholders and of the general public, was then drawn up.
This, however, was only the beginning of the fight. Vanderbilt
was now in the Erie as a joint owner, but he had stretched out
his hands to control the road and he meant to succeed. In
February of 1868, Frank Work, the single representative of
Vanderbilt on the Erie board, applied for an injunction against
Treasurer Drew and his brother directors to restrain them from
the repayment of the $3,500,000 borrowed by the railroad from
Drew in 1866, and to restrain Drew from taking any legal steps
toward compelling a settlement. Judge Barnard granted a temporary
injunction, and two days later Vanderbilt's attorney petitioned
for the removal from office of Treasurer Drew. The papers
presented in the case exposed a new fountain of Erie stock which
had up to that time been entirely overlooked.
A recently enacted law of the State of New York--probably
fathered by Drew--authorized any railroad company to create and
issue its own stock in exchange for the stock of any other
railroad under lease to it. Upon the basis of this law Drew and
his close satellites had secretly secured ownership of a
worthless piece of road connecting with the Erie and known as the
Buffalo, Bradford and Pittsburgh. Then, as their personal needs
in the stock-market or at elections demanded, they had supplied
themselves with new Erie stock by leasing the worthless road to
the Erie and then exchanging Erie stock for the worthless stock
of the leased line. The cost of the line to Drew and his friends,
as financiers, was about $250,000. They then issued, as
proprietors, $2,000,000 in bonds of the road, payable to one of
themselves as trustee. This person then shifted his character,
became counsel for both sides, and drew up a contract leasing the
line to the Erie for 499 years, the Erie agreeing to guarantee
the bonds in consideration. These men then reappeared as
directors of the Erie and ratified the lease. After that it was a
simple matter to divide the loot. The Erie was thus saddled with
a $9,000,000 mortgage at seven per cent in addition to a further
issue of capital stock.
Following the first injunction another was now issued restraining
Drew and the Erie board from making any further issues of stock,
by conversion of bonds or otherwise, and also forbidding the Erie
to guarantee any further issues of bonds. An additional
injunction forbade Drew from having any transactions in Erie
stock or fulfilling any contracts until he had returned to the
treasury the shares involved in his loan transaction of 1866 and
in the purchase of the worthless Buffalo, Bradford and Pittsburgh
road.
Matters now looked forbidding for Treasurer Drew. Instead of
being allowed to manufacture fresh Erie stock certificates at his
own will, as had been his habit for fifteen years, he was to be
cornered by a legal writ and forced to work his own ruin. But
notwithstanding the apparently desperate situation it was quite
evident that Drew's nerves were not seriously affected. Although
he seemed rushing on destruction, he continued day after day to
put out more short stock, all in the face of a steadily rising
market. His plans, apparently, were carefully matured, and he
said that if the Commodore wanted the stock of his road he would
let him have all be desired-at the proper price.
As usual the Erie treasury was short of funds, and as usual
"Uncle Daniel" stood ready to advance all the money
required--that is, on proper security. There was but one kind of
security to offer and that was convertible bonds. No stock could
be issued by the company for less than par, but convertible bonds
could be disposed of by the directors at any price. A secret
meeting of the executive committee was held, at which it was
voted to issue immediately and to offer for sale $10,000,000 in
convertible bonds at 72 1/2. Drew's broker at once became the
purchaser of $5,000,000 worth. In ten minutes after the meeting
had adjourned, the bonds had been issued, their conversion into
stock demanded and made, and certificates for 50,000 shares of
stock deposited in a broker's safe, subject to Drew's order.
A few days later came the injunction, and Erie stock began to
soar in the markets, in response to which "Uncle Daniel," who had
been industriously selling his many thousands of new shares, now
determined to bring up the reserves and let the eager buyers have
the other five millions; but before the bonds could be converted
the injunction had been served. The date for the return of the
writ was Tuesday the 10th of March; but the Erie ring needed less
time than this and decided on Monday the 9th as the day to defeat
the corner.
Saturday and Sunday were busy days for Drew and his friends. All
his brokers had been enjoined, so a dummy was made the nominal
purchaser of the bonds. This dummy then made his formal demand
for the conversion of the bonds and was refused. All this was
done upon affidavit, as it was the plan of Drew to get from some
judge a writ of mandamus to compel the Erie Railroad to convert
the bonds. The stock certificates for which they were to be
exchanged were signed in blank and made ready for delivery.
Drew had agreed to sell 50,000 shares of stock at 80 to the firms
of which Jay Gould and James Fisk, Jr., were members; they were
also Erie directors. On Monday morning, the 9th of March, the
certificates, filled out in the names of these firms, were handed
by the secretary to an employee who was directed to carry them
from the office of the company in West Street to the transfer
clerk in Pine Street. The messenger left, but in a moment or two
returned to report to the apparently amazed secretary that Fisk
had met him outside the door, had taken the certificates away
from him, and "had run away with them." It was true. The stock
certificates had been "stolen" and were beyond the control of an
injunction. The stock certificates next appeared in every part of
Wall Street.
On the same day the Erie representatives applied to Judge Gilbert
of Brooklyn for an injunction on the ground that certain persons,
including Judge Barnard, had entered into a conspiracy to
speculate in Erie stock and to use the process of the courts to
aid the speculation. To the amazement of everybody, Judge Gilbert
issued an injunction restraining all parties to all the other
suits from further proceedings; in one paragraph ordering the
Erie directors to continue in the discharge of their duties--in
direct defiance of the injunction of one judge--and in the next
paragraph forbidding the directors to desist in the conversion of
bonds--in direct defiance of another judge. The Drew interests
were now enjoined in every direction. One judge had forbidden
them to move, and another judge had ordered them not to stand
still.
It was a strategic position which Drew and his agents could not
have improved upon, and while matters stood this way the 50,000
shares of Erie stock had been flung on the market. Vanderbilt,
who was ignorant of this situation, bought the new stock as
eagerly as the old. Then, when the facts came out, the quotations
dropped with a thud. Uncle Daniel was victorious; the attempted
corner had been a failure; and the Commodore was holding the bag.
Further dramatic events followed. The Erie directors learned that
process for contempt had been issued and that their only chance
of escape from jail lay in immediate flight. So, stuffing all
that was worth while of the Erie Railroad into their pockets,
they made off under cover of darkness to Jersey City. One man
carried with him in a hackney coach over $6,000,000 in
greenbacks. Two of the directors lingered and were arrested; but
a majority collected at the Erie station in Jersey City and
there, free from interference, went on with the transaction of
business. Without disturbance they were able to count their
expenses and divide the profits.
Vanderbilt was now loaded up with reams of Erie stock at high
costs, and the load was a severe strain on him. He dared not sell
for fear of causing a financial collapse. Drew had taken away
about seven million dollars of his money and an artificial
stringency had been created in Wall Street by this exodus of most
of its available cash. But Vanderbilt weathered the storm and, as
his generally optimistic attitude inspired confidence, the sky
began to clear.
But this stock-market battle did not end the war. New injunctions
flew in all directions. Osgood, son-in-law of Vanderbilt, was
appointed receiver of the 100,000 shares of illegally issued
stock and was immediately enjoined from acting by another judge.
Then Peter B. Sweeney, of the Tammany ring, was appointed in his
stead without notice to the other side. There was nothing for a
receiver to do, as every dollar he was to "receive" was known to
be in New Jersey and beyond his reach. Nevertheless he was
subsequently allowed a fee of $150,000 by Judge Barnard for his
services!
While the legal battle was going on neither Drew nor Vanderbilt
was idle. A plot was arranged for bringing the Erie directors
over by force, but this failed. In the meanwhile the Erie
directors persuaded the New Jersey Legislature to rush through a
bill making the Erie Railway a New Jersey corporation. This move,
however, was intended merely to meet an emergency. It was the
intention of the Erie interests to do their real work with the
Legislature at Albany. This was also the intention of the
Vanderbilt interests. Consequently, during the subsequent
session, the grafters in that body were wooed by both sides. When
the Legislature convened, a bill was promptly introduced making
legal the recent issue of Erie stock, regulating the power to
issue convertible bonds, providing for the guaranty of the bonds
of the Boston, Hartford and Erie, and forbidding the
consolidation of the Central and the Erie under the control of
Cornelius Vanderbilt. But evidently the Commodore's purse was
open wider than "Uncle Daniel's," for this bill was defeated by a
decisive vote.
Now Jay Gould appeared upon the scene. He left Jersey City with
half a million of the Erie's money in his pocket and arrived in
Albany immediately after the defeat of this bill. On his arrival
he was arrested on a writ issued against him for contempt of
court and was held in bail of half a million dollars for his
appearance in New York a few days later. He appeared before Judge
Barnard in New York and was put in the charge of a sheriff. But
the sheriff was served with a writ of habeas corpus, and Gould
was again brought before the court. Then in some mysterious way
the hearing was deferred and Gould returned to Albany, taking the
officer as a traveling companion.
After reaching his destination Gould became so ill that he could
not return to New York, though he managed to go to the Capitol in
a driving snowstorm. Here he became rapidly convalescent, as did
also many members of the Legislature. Members, indeed, who had
been too sick or too feeble to attend the legislative sessions
during this cold winter suddenly found their health returning and
flocked to Albany on the fastest trains. Gould stayed in Albany
until April, and by this time a remarkable change had come over
the mentality of a majority of the legislators. On the 13th of
April a bill was presented in the Senate which met the approval
of the Erie interests and which Judge Barnard afterwards
designated as a bill for legalizing counterfeit money. This bill,
which was passed after due debate, legalized the issues of Erie
bonds and stocks which had been put out by Drew; it provided for
the guaranty of the bonds of connecting roads as desired by Drew;
and it forbade all possible contracts for consolidation or
division of receipts between the Erie and the Vanderbilt roads, a
provision also desired by Drew. In fact it was the same bill in
different form that had been voted down so decisively a short
time before.
But the real tug of war was to get the bill through the lower
House. Fabulous stories were told of money which would be
expended and the market quotations for votes never soared so
high. Then, at the critical moment, Vanderbilt surrendered, made
a secret deal with his foe, and withdrew his opposition to the
bill. The anger of the disappointed grafters and vote-sellers
knew no bounds, and they immediately set to work passing other
bills which they felt would annoy or injure Vanderbilt, with the
hope that he would still be induced to give them what they
regarded as their rightful spoils.
The details of this settlement between Drew and Vanderbilt were
not announced until some months afterward. By the terms agreed on
Vanderbilt was relieved of 50,000 shares of Erie stock at 70,
payable partly in cash and partly in bonds guaranteed by the
Erie, and received $1,000,000 in cash for an option given the
Erie Railroad to purchase his remaining 50,000 shares at 70
within four months, besides about $430,000 to compensate his
friends who had worked so heroically for him. This total sum of
nearly $5,000,000 no doubt represented part of the "slush fund"
which Drew expected that the company would have to give up to the
venal legislators, and it was therefore no hardship to hand it
over to Vanderbilt instead.
As a part of the general settlement the Boston interests were
relieved of their $5,000,000 of largely worthless bonds of the
Boston, Hartford and Erie Railroad, for which they received
$4,000,000 of Erie securities. Thus in all about $9,000,000 in
cash or securities was drawn out of the Erie treasury in final
settlement of this great stock market manipulation. And this does
not include the pickings of Gould and Fisk and the smaller fry,
of which there is no official record. But that these gentlemen
did not go empty-handed there is not the shadow of a doubt!
The sensational stock-market deal between the Drew and Vanderbilt
interests was but a truce, however, and did not settle the
troubles of the Erie. Jay Gould was now becoming a dominating
factor and in October of 1868 was chosen president. The various
stock-market struggles that ensued from the ascendency of Jay
Gould to the receivership of the Erie in 1875 is a long and
intricate tale. Suffice it to say that the events were generally
similar to those already recounted--stock-market corners,
over-issues of bonds and stocks, injunctions, court orders,
arrests, legislative bribes. Less than a week after his election
Jay Gould frankly announced that the company had just issued
$10,000,000 of convertible bonds and that a third of these had
already been converted into stock. He further announced that the
company now had $60,000,000 of common stock outstanding, whereas
the public had understood that it was only $45,000,000.
During the few years that followed, the poor Erie was
systematically looted. Millions were wasted in New York
real-estate speculation, and the company's money was used in the
erection of the Grand Opera House on Twenty-third Street, to
which the executive offices of the Erie Railroad were moved.
Finally the new ring, comprising as leading spirits Jay Gould and
James Fisk, Jr., eliminated Daniel Drew and left him high and dry
without a cent, through a new stock corner. About this time the
road was financially on its last legs, and Jay Gould was
appointed receiver. This started further litigation which dragged
on for several years until, in 1874, Gould was turned out by
General Daniel E. Sickles in combination with the English
shareholders. The new interests, when they finally got control,
elected an entirely new management and made H. J. Jewett, a
practical railroad man, president. But the Erie was already
bankrupt, and not much could be done toward saving the situation.
In May, 1875, the road confessed inability to meet its
obligations, and Jewett was appointed receiver.
It was three years from the date of the receivership before the
Erie property was taken out of the hands of the courts. In April,
1878, a new company, the New York, Lake Erie and Western
Railroad, took over the property; Jewett was elected its
president, and a new chapter in the history of the property
began.
Had the reorganization of the Erie been drastic enough, the road
might not so soon have fallen into financial difficulties again,
for it owned valuable coal lands in Eastern Pennsylvania and
rapidly increased its earnings in this region. Moreover the
extension of the system westward should have increased its
earning capacity. Up to this time the Erie had no Chicago
connection and was at an obvious disadvantage compared with its
competitors. It improved this situation in 1881 by acquiring the
New York, Pennsylvania and Ohio, and the franchise of the Chicago
and Atlantic Railway. Two years later it obtained control of the
Cincinnati, Hamilton and Dayton and found itself in a position in
which it could compete for through traffic with the Pennsylvania
and the New York Central.
But in carrying through these extensive plans, the Erie again
became involved in financial difficulties; the sensational Grant
and Ward failure in Wall Street in 1884 was a severe blow to the
company's credit, as this firm was at that time doing important
financing for the Erie. The English security holders stepped to
the front again, demanded President Jewett's resignation, and
elected John King in his stead.
In 1885 and 1886 a financial readjustment took place, but the
company continued to carry the bulk of the heavy load of
obligations which had been created during the years of the Drew
and Gould managements. It was surely an evidence of the inherent
worth of the property that during the half dozen or more years
following, the Erie succeeded in struggling along in the face of
all its financial and other handicaps and at the same time showed
substantial growth in the volume of its business. The company was
kept above water until 1893 without again appealing to the
courts; but by that time the indebtedness had once more mounted,
and in July of that year Erie receivers were appointed for the
fourth time in its history.
The name of Pierpont Morgan is closely identified with the story
of the railroad during this latest reorganization period.
Morgan's firm came to the front in 1894, with the powerful
backing of the large English interests, and proposed a plan which
involved heavy sacrifices by many of the security holders but
which was designed to insure the permanent future of the
property. The plan was vigorously opposed, however, by Edward H.
Harriman, August Belmont, and other powerful interests, and it
was not until August, 1896, that a final compromise was effected
and a reorganization was carried through. But at last the Erie
was taken out of receivership, and an entirely new company,
intelligently designed and having ample working capital for
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