Part 3 (1/2)
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 pa.s.sed 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 pa.s.sing 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 hards.h.i.+p 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 receivers.h.i.+p 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 receivers.h.i.+p 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 compet.i.tors. 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 receivers.h.i.+p, and an entirely new company, intelligently designed and having ample working capital for future development, was formed with E.
B. Thomas at its head. This new president, like Daniel Willard of the Baltimore and Ohio and many of the modern railroad leaders, was a practical railroad man who had worked up from the ranks and who had no large financial interest or banking connections to divert his attention from the real business of management. Under Thomas, who remained at the head of affairs from 1896 to 1900, the Erie made substantial progress.
The system was solidified and its territory was more uniformly and systematically developed. In 1898, the Erie secured control of the New York, Susquehanna and Western system, gaining thereby an important branch to Wilkesbarre; and in 1901 it purchased jointly with the Lehigh Valley Railroad the stock of the Pennsylvania Coal Company of which the Erie later became sole owner. The real achievement of the Thomas administration was the development of the property as a heavy carrier of anthracite coal. On the financial side during this period the credit of the House of Morgan, intelligent administration, and modern methods did much to improve the reputation of the Erie and enable it to live down its bad inheritance.
In 1901 Frederick D. Underwood succeeded Thomas. Like his predecessor, Underwood represented the modern type of railroad president--a hard-working, eminently practical big business manager of great executive talent. Underwood's idea was to make the Erie a great freight-carrying system by developing its tonnage and its freight capacity in every way possible. Consequently he favored opening up the property more extensively in the soft coal fields of Ohio and Indiana, reconstructing roadbeds, laying extra tracks, and eliminating grades and curves.
The history of the Erie Railroad ever since 1901 has been a record of progress. During these years the system has been practically rebuilt.
It now has a double track from New York to Chicago; it has extensive mileage in the soft coal regions of Ohio and Indiana, and its soft coal tonnage today far overtops its tonnage of anthracite coal; its train load averages far higher than that of the New York Central or of any other Eastern trunk lines except the Pennsylvania; its steep grades throughout New York State have been for the most part eliminated, and many short cuts for freight traffic have been built.
In carrying through these extensive developments in fifteen years the Erie has spent hundreds of millions of dollars. More money indeed has been used legitimately for improvement and development since the reorganization of 1896 than during the previous sixty years of its existence. Of course this outlay has meant that the Erie has had to create new mortgages and borrow many millions; but a large part of the expenditure for improvement has come directly from earnings. The Underwood administration has been conservative in paying dividends and the stockholders grumble. But the Erie is at last coming into its own.
Instead of being a speculative football and a hopelessly bankrupt road, as it was for nearly forty years, it is now in the forefront of the great trunk lines of the eastern section of the United States. It is no longer, what it was called for many years, the ”scarlet woman of Wall Street,” but is a respectable member of the American railroad family.
CHAPTER V. CROSSING THE APPALACHIAN RANGE
The story of the Baltimore and Ohio Railroad takes us back more than ninety years. When the scheme for the construction of a railroad from Baltimore to the waters of the Ohio River first began to take form, the United States had barely emerged from the Revolutionary period. Many of the famous men of that great day were still living. John Adams and Thomas Jefferson had been dead only a year; Madison and Monroe had recently retired from public life; John Quincy Adams held the office of President, and the ”reign” of Andrew Jackson had not yet begun.
At this time steam navigation on the rivers was only in its beginnings, but no one could doubt that it would come into general use. Two decades had pa.s.sed since the Clermont had been launched on the Hudson by Robert Fulton, and steamboats were now carrying cargoes successfully against the swift currents up the Mississippi from New Orleans and were threatening the extinction of the aggressive flatboat traffic. Great strides had also been made in the construction of turnpike roads. The famous National Pike from c.u.mberland to Vandalia, Illinois, had been in large part completed and had done much for the opening up of the Western territory.
Ca.n.a.l building was likewise an extensive development of this period. The idea of connecting the waters of the Chesapeake with those of the Ohio had been broached by George Was.h.i.+ngton before the Revolution, and he had also prophesied the union of the Hudson and Lake Erie by ca.n.a.l. He believed that a country of such great geographical extent as the United States could not be held together except by close commercial bonds.
The opening of the Erie Ca.n.a.l to New York in 1825 stimulated other cities on the Atlantic seaboard to put themselves into closer commercial touch with the West. This was especially true of the city of Baltimore.
A ca.n.a.l connecting Chesapeake Bay and the Ohio River was advocated to protect the trade of Baltimore and the South from the compet.i.tion of New York and the East which would inevitably result from the construction of the Erie Ca.n.a.l and the Public Works of Pennsylvania. But discouragements in plenty frustrated the plan. The cost was believed to be excessive and the engineering difficulties were said to be almost insuperable. George Bernard, a French engineer, was of the opinion that the high elevations and scarcity of water along the route would prevent such a ca.n.a.l from having much practical value. For these reasons Baltimore believed that its position as a center for the rapidly developing Western trade was slowly but surely slipping away.
This was the situation that led to the building of the Baltimore and Ohio Railroad. Two men--Philip E. Thomas and George Brown--were the pioneers in this great undertaking. They spent the year 1826 investigating railway enterprises in England, which were at that time being tested in a comprehensive fas.h.i.+on as commercial ventures. Their investigation completed, they held a meeting on February 12, 1827, including about twenty-five citizens, most of whom were Baltimore merchants or bankers, ”to take into consideration the best means of restoring to the city of Baltimore that portion of the western trade which has lately been diverted from it by the introduction of steam navigation and by other causes.” The outcome was an application to the Maryland Legislature for a charter for a company to be known as ”The Baltimore and Ohio Railroad Company” having the right to build and operate a railroad from the city of Baltimore to the Ohio River. The formal organization took place on April 24, 1827, with Philip E. Thomas as president and George Brown as treasurer. The capital of the proposed company was fixed at five million dollars.