Part 4 (1/2)
The rolling stock had run down until it could not handle even ordinary business. While the company had been depleting its credit and paying out all its cash in dividends, the equipment had been going into the sc.r.a.p heap. For two years the receivers made large expenditures on equipment and roadbed, borrowing money for this purpose; the result was that when, in 1898, the courts surrendered the property, it was in splendid condition to take advantage of the tide of commercial and industrial prosperity which was just then beginning to flow throughout the United States.
While the reorganization of the Baltimore and Ohio was not so drastic as that of many other systems which went through the courts during this period, it was thorough enough to meet the situation. The fixed charges were cut down radically and the stockholders were a.s.sessed in large amounts. In all, more than thirty-six million dollars was raised by a.s.sessments and the sale of new securities; the liabilities of the Company were greatly reduced; and its credit was promptly restored.
Formerly the Baltimore and Ohio had been struggling under a burden of floating indebtedness, with so little money in its treasury that it could not even put a new coat of paint on the pa.s.senger cars and had to continue to use oil lamps to light some of its best trains. But now the floating debt was replaced by a large available cash capital, and as a result of the liberal policy followed by the receivers, the equipment and roadbed were brought fully up to the standards required for handling the traffic of the road both economically and effectively.
With the reorganization of 1898 finished, the Baltimore and Ohio Railroad entered a new period in its history. The strong, progressive interests which now took control concentrated their energies on developing traffic, increasing earnings, and rounding out the general system. They adopted careful measures for unifying the system by adding other lines and connections of value; they paid much attention to the improvement and development of terminals; and they spent many millions in acquiring and expanding the terminal properties of the company at Chicago, St. Louis, Philadelphia, and Baltimore.
The financial history of the Baltimore and Ohio since the close of the nineteenth century is interesting chiefly in connection with changes in the control of the property. After the reorganization a group of prominent financiers, including Marshall Field, Philip D. Armour, Norman B. Ream, and James J. Hill jointly purchased a large interest in the stock. But this purchase, while perhaps representing a dominating interest, did not involve actual control. Soon afterward, interests identified with the Pennsylvania Railroad began to appear in the Baltimore and Ohio, and before long the Pennsylvania had a strong representation on the board. As a consequence, the Baltimore and Ohio almost lost its individuality and for a time was popularly regarded practically as a subsidiary of its old rival line.
The purpose of the Pennsylvania in obtaining this ascendency over the Baltimore and Ohio was to regulate the soft coal traffic. Already it had acquired dominating interests in the Chesapeake and Ohio, the Norfolk and Western, and other soft coal properties. These purchases were merely manifestations of that ”community of interest” policy which at this time led several large systems to acquire interests in competing lines.
Several of the railroad leaders of that time, notably James J. Hill and Edward H. Harriman, believed that if these great systems actually owned large blocks of stock in each other's properties, this common a.s.sociation would ipso facto end the compet.i.tion that, if continued, would ultimately ruin them all. The Supreme Court had decided that the ”pooling” arrangements which had so long prevailed among great competing roads violated the Sherman Ant.i.trust Act; and the American public, which now was cultivating a new interest in railroad problems, believed that the ”community of interest” plan was merely a scheme to defeat the Interstate Commerce Act and the Sherman Act and to maintain secretly all the old railroad abuses. These inter-railroad purchases therefore became so unpopular that the Pennsylvania sold its Baltimore and Ohio stock.
At this time Edward H. Harriman of the Union Pacific, who had at his disposal vast funds of the latter property which he had obtained by the settlement of the Great Northern and Northern Pacific deal, decided to acquire control of a system of roads in the East in order to establish a complete transcontinental line in the interest of the Union Pacific. It was the theory that such a purchase by the Union Pacific would not defy the law or outrage the popular conscience because the Union Pacific, unlike the Pennsylvania, did not compete with the Baltimore and Ohio, but was only a western extension of that system. Harriman in August, 1906, therefore purchased nearly all the Pennsylvania holdings in the old Garrett property and thus obtained virtual control.
At this same time the Baltimore and Ohio had been developing a ”community of interest” plan on its own account. In the year 1908, it acquired a substantial stock interest in the newly reorganized Reading Company, which controlled the Philadelphia and Reading Railroad and the Philadelphia and Reading Coal and Iron Company. It did not obtain a majority interest but, with the Lake Sh.o.r.e and Michigan Southern Railroad of the New York Central system, it now controlled the Reading system. The Reading Company meanwhile had secured control of the Central Railroad of New Jersey, over the lines of which the Baltimore and Ohio reached New York City.
In the following years the Baltimore and Ohio property was still further rounded out by purchasing the Cincinnati, Hamilton and Dayton, a small system of doubtful value radiating through the State of Ohio and, by additional extensions, into the soft coal fields of West Virginia. New energy was put into the expansion and improvement of the southwestern lines to St. Louis, while the eastern terminal properties were still further improved.
The practical control of the Baltimore and Ohio remained in the hands of the Union Pacific interests until 1913. In that year, however, the Union Pacific liquidated its holdings by distributing them to its own individual stockholders in the shape of a special dividend. The Baltimore and Ohio thus became once more an independent property.
The story of the Baltimore and Ohio for the past decade has been mainly a record of a growing, well-managed, and efficient business. It is closely identified with the personality of its notable and efficient president, Daniel Willard, a conspicuous example of the modern type of railroad manager. In the earlier days of railroading, and especially in the long period which came to an end with the death of Harriman, the typical railroad president was usually a man of great wealth who had secured his position by owning a large financial interest in the property. The country was full of ”Wall Street Railroad Generals.” But in recent years the efficient railroad head has come more and more to be the practical railroad man who has risen from the ranks, who has no important personal financial interest in the property but who is paid an adequate salary to operate a system in a purely businesslike way.
Notable examples of this modern type of railroad president are, besides Daniel Willard, Edward P. Ripley of the Atchison, Topeka and Santa, Fe, Benjamin F. Bush of the Missouri Pacific, and Fairfax Harrison of the Southern.
The efficient management of today is abundantly shown in the recent record of the Baltimore and Ohio. President Willard has been unmolested by financial interests and has been continuously backed up in his policies by the owners of the road. As a result the Baltimore and Ohio of the present decade has reached an enviable position as one of the great Eastern trunk lines, comparing well with other progressive properties like the Pennsylvania, the New York Central, the Southern, the Illinois Central, and the Louisville and Nashville. Millions have been poured into the property in the past fifteen years; its main lines have been largely rebuilt; its rolling stock is chiefly of the most modern types; and its terminals and structures are such as modern conditions demand.
CHAPTER VI. LINKING THE OCEANS
In 1862, when the charter was granted by the United States Government for the construction of a railroad from Omaha to the Pacific coast, the only States west of the Mississippi Valley in which any railroad construction of importance existed were Iowa and Missouri. During the three decades which had pa.s.sed since the first railroad construction, the earlier methods of transportation by boat, ca.n.a.l, and stage coach gave place in the Eastern half of the United States to more modern methods of transportation. As a result of these new conditions, the States, cities, and towns were welded together, and population and prosperity increased rapidly in those inland sections which had formerly languished because they had no means of easy and rapid communication.
The construction of extensive railways, however, and particularly the consolidation of small, experimental lines into large systems, dates from the days of the discovery of gold in California. The nation did not begin to realize the extraordinary possibilities of the vast Western territory until its attention was thus suddenly and definitely concentrated on the Pacific by the annual addition of over fifty million dollars to the circulating medium. The wealth drawn so copiously from this Western part of our continent had a stimulating effect on the commerce, manufactures, and trade of the entire Eastern section. People began to understand that with the acquisition of California the nation had obtained practically half a continent, of which the future possibilities were almost unlimited, so far as the development of natural resources and the general production of wealth were concerned.
The public conviction that a railroad linking the West and the East was an absolute necessity became so p.r.o.nounced after the gold discoveries of '49 that Congress pa.s.sed an act in 1853 providing for a survey of several lines from the Mississippi to the Pacific. Though the published reports of these surveys threw a flood of light on the interior of the continent, they led to no definite result at the time because the rivalry of sections and groups of interests for the selection of this or that route held up all progress.
The Act of 1862, which created the Union Pacific Railroad Company, together with the amending Act of 1864, authorized the construction of a main line from an initial point ”on the one hundredth meridian of longitude,” in the Territory of Nebraska to the eastern boundary of California, with branch lines to be constructed by other companies and to radiate from this initial point to Sioux City, to Omaha, to St.
Joseph, to Leavenworth, and to Kansas City. * Provision was made for a subsidy of $16,000 a mile for the level country east of the Rocky Mountains; $48,000 a mile for the lines through mountain ranges; and $32,000 a mile for the section between the ranges. The original plan to secure the government subsidies by a first mortgage on the lines was amended so as to allow private capital to take the first mortgage, the Government taking a second lien for its advances. In addition to these subsidies the several companies were to receive land grants of 12,800 acres to the mile in alternate sections contiguous to their lines. Upon the same terms the Central Pacific, a company incorporated under the laws of California, was authorized to construct a line from the Pacific coast, at or near San Francisco, to meet the Union Pacific Railroad.
* These ambitious designs were never fully realized. The main line ran eventually west from Omaha, meeting the Sioux City branch at Fremont. The only other branch which was constructed to connect with the Union Pacific was that from Kansas City and it ran first to Denver.
The public was quick to realize the significance of this huge enterprise, for the papers of the day were full of such comments as the following:
”It is useless to enlarge upon the value and importance of this great work. It concerns, not the United States alone, but all mankind. Its line is coincident with the natural and convenient route of commerce for the world.... Over it the trip will be made from London to Hong Kong in forty days, over a route possessing every comfort and attraction, which takes a continent in its course, and which, from the variety and magnitude of its sources, from the race which now dominates it, and from the extent of their numbers, wealth and productions, must soon give law to the commercial world.”
Notwithstanding these and similarly optimistic sentiments, the meager financial support given to the enterprise by the public at large had been very discouraging. Although the construction had been liberally subsidized by the Government, gross extravagance had promptly crept in; juggling of accounts for the purpose of securing profits on the government advances was freely indulged in, and after only a small section of the line had been completed it was announced that more capital must be forthcoming or the work would cease. Out of this situation grew the plan for subletting the work to a construction company known as the Pennsylvania Fiscal Agency--a name which was afterwards changed to that of the Credit Mobilier of America. The story of the Credit Mobilier, with its irregularities involving conspicuous politicians, is one of the most disgraceful in American history. The detailed history of these operations need not be considered here; it is sufficient to say that finally, in spite of political scandals, the Union Pacific lines were brought to completion. Within two years after the letting of the contracts to this new company, in 1866, over five hundred miles of road were completed and in operation. An advertis.e.m.e.nt published late in 1868 announced that ”five hundred and forty miles of the Union Pacific Railroad, running west from Omaha across the continent, are now completed, the track being laid and trains running within ten miles of the Rocky Mountains.... The prospect that the whole grand line to the Pacific will be completed by 1870 was never better.”
As a matter of fact, the line through to the coast was finished earlier than had been predicted. One fact which increased the rapidity of construction was the growing financial difficulty of the company. It was absolutely imperative that the through line be completed in order that the resulting business might make the operation of trains pay. But aside from this, another influence was at work to encourage rapid construction. The Act of 1862 provided that the Central Pacific might also build across Nevada to meet the Union Pacific, on condition that it completed its own allotted section first. As the Central Pacific also was receiving a heavy government subsidy per mile, and as there was great profit in construction undertaken with this government subsidy, there was naturally a strong incentive for both companies to build all the mileage possible and as rapidly as possible.
The Central Pacific enterprise was backed by a group of men who were awake to the possibilities of the situation and who had made large fortunes in the gold-mining boom of previous years, such as Leland Stanford, Collis P. Huntington, Mark Hopkins, and the Crockers. The rivalry between them and the Union Pacific interests woke the whole continent and formed a chapter in American railroad history as startling and romantic as anything in the stories of the Vanderbilts and Goulds with their financial gymnastics.
As the contest proceeded, public interest increased and the entire country watched to see which company would win the big government subsidies through the mountains. Through the winter of 1868 the work continued on the Union Pacific with unabated energy, and freezing weather caught the builders at the base of the Wasatch Mountains; but blizzards could not stop them. The workmen laid tracks across the Wasatch on a bed of snow and ice, and one of the track-laying trains slid bodily, track and all, off the ice into a stream. The two companies had over twenty thousand men at work that winter. Suddenly the Central Pacific surprised the Eastern builders by filing a map and plans for building as far as Echo, some distance east of Ogden. The Union Pacific forces, however, were equal to the occasion. At first, one mile a day had been considered rapid construction, but now, even with the limited daylight of the winter months, they were laying over two miles a day, and they finally crowned their efforts by laying in one day between sunrise and sunset nearly eight miles of track.
In the meantime the Central Pacific also had stopped at nothing. The company had a dozen tunnels to build but did not wait to finish them.