CHAPTER VII. PENETRATING THE PACIFIC NORTHWEST
It is only when one reads such a book as Francis Parkman's "Oregon Trail" that one fully realizes the vast transformation which has taken place within little more than half a century in the great Northwestern territory beyond the Mississippi and the Missouri. In that fascinating history we read of the romantic and thrilling experiences of Parkman and his companions in their summer journey across the plains of Nebraska and through the mountain ranges of Wyoming, Montana, and Oregon. We read of their hairbreadth escapes from the Indians; their chase of the buffalo and other wild animals of the far Western country; of the wearisome weeks that they spent in crossing the deserts where absolute loneliness reigned; and finally of their arrival, after months of hardship, in the vast Oregon country, which with its great natural resources, splendid climate, and large extent has come to be known in these modern days as the Empire of the Northwest.
It was to penetrate and bring this great virgin region within reach of the East that the Northern Pacific Railroad Company was chartered by Congress in 1864, just prior to the closing of the Civil War. During this same period the Union Pacific route was being surveyed, and the first ground was broken in December, 1863, for the line which was later to connect Omaha with San Francisco.
Like the Union Pacific charter, that of the Northern Pacific also contained an extensive land grant. From the modern viewpoint, such land grants look colossal, but in those days the general opening up and development of the Western country had progressed to so slight an extent that the significance of giving away millions of acres of the public lands to encourage a precarious railroad enterprise was then no more than the passing over to capitalists today of exclusive rights in extensive tracts of territory in Brazil and the other South American Republics. Even these great opportunities to acquire almost an empire of fertile lands or rich forests were not as a rule looked upon as attractive enough to tempt capital into the wilderness. The old saying that capital is the most timid thing in the world and does not like pioneering is strongly emphasized by such instances as this, and no doubt in 1864 the enormous grants of free land made by Congress did not appear especially attractive to the man who had money to invest.
Whatever the public attitude may have been, the Act of Congress of July 2, 1864, creating the Northern Pacific Railroad, gave that Company the right to construct a line from some point on Lake Superior, either in Minnesota or in Wisconsin, westward and north of latitude 45 degrees, to or near Portland, Oregon. The land grant consisted of forty alternate sections of public land for each mile within the Territories penetrated and twenty alternate sections within the States through which the railroad might pass.
The hazardous character of this undertaking will be realized when it is remembered that at this time no railroad had yet penetrated the Rocky Mountains; that the entire railroad system of the United States was less than 40,000 miles; and that west of the Mississippi there was no mileage worth mentioning. It was still less than a generation since Parkman and his companions had made their four months' journey from St. Louis to the mouth of the Columbia River, and between the fringe of civilization along the Pacific slope and the region about Chicago and St. Louis lay almost a third of the continent uninhabited, undeveloped, and unknown. The scheme languished for several years until finally, in 1869, the firm of Jay Cooke and Company of Philadelphia undertook to raise the necessary capital.
The story of the Northern Pacific for the next few years was closely bound up with that of Jay Cooke, who was one of the most conspicuous characters of his time in the financial world. He was a man of commanding personality, great energy, unusual resourcefulness, and with a large personal following. He had built his reputation through his great success in financing United States government loans during the Civil War. He now undertook to raise more than one hundred million dollars to carry through the Northern Pacific enterprise. He achieved remarkable success for a time and within three years had built over five hundred miles of the main line to the Pacific coast. But the outbreak of the Franco-Prussian War and the consequent financial stringency abroad, the difficulty of marketing bonds on an uncompleted enterprise, combined with the poor showing made by those sections of the line completed and in operation, brought matters to a crisis, and in September, 1873, Jay Cooke and Company were obliged to close their doors. The affairs of the railroad were so closely involved with those of the banking firm that, although strenuous efforts were adopted to save the railroad, its revenues were inadequate. As a result, in April, 1874, General Lewis Cass was appointed receiver.
The uncompleted property was operated for some years thereafter under the protection of the courts and no plan of reorganization was devised until 1879. During the receivership only a moderate amount of additional mileage was constructed, and it was not until many years had passed that the system penetrated the mountains and reached the Pacific coast. But when the new company took possession in 1879, aggressive building was resumed, and for a time it looked as though the project would be promptly finished. However, in 1882, the company still had about one thousand miles to construct in order to complete its main artery. At this time financial difficulties appeared, and the days of stress were tided over only by the help of a syndicate and the Oregon and Transcontinental Company.
With the formation of the Oregon and Transcontinental Company begins the regime of Henry Villard, the dominating factor in Northern Pacific affairs for many years afterward. Some years before, Villard, who had long been interested in Western railroad enterprises and who had become prominent through his activities in connection with the Kansas and Pacific Railway, had succeeded in forming the Oregon Railway and Navigation Company as a combination of steamboat lines operating on the Willamette and Columbia rivers in Oregon, with an ocean line connecting Portland and San Francisco. A connecting railroad line, which had been built to Walla Walla in southeastern Washington, penetrated a portion of the territory through which the Northern Pacific was projected. In 1880 a contract was arranged between the two companies whereby the Oregon Railway and Navigation Company, in order to share in the traffic, undertook to construct a line eastward to meet the Northern Pacific line at the mouth of the Snake River. This arrangement would allow the Northern Pacific to run its trains into Portland and would obviate the necessity of constructing its own road into that city.
In spite of this arrangement, Villard feared that the Northern Pacific Company might decide, after all, to build its own line to Portland as soon as it was able to finance the project. It was for the purpose of preventing this move that he formed the Oregon and Transcontinental Company, a holding corporation which promptly acquired, in the open market and by private purchases, a dominating interest in the Northern Pacific Railroad. At the same time Villard placed the control of the Oregon Railroad and Navigation Company in the hands of the new Transcontinental.
Villard thus came to control the entire Northern Pacific system and, backed by the Deutsche Bank of Berlin and other German and Dutch interests, at once began an aggressive policy of expansion and development. The business of the system developed rapidly. The main line through to the Pacific coast was now in operation, and the entire system amounted to about 2300 miles of road. But Villard followed a financial policy which was not sound and paid dividends without justification. In a short time the company consequently found itself financially embarrassed.
As a result of financial losses in 1884, Villard was obliged to retire from active control of the properties. But in 1887 he once more got possession of the Northern Pacific with German capital and succeeded in arranging a lease of the Oregon Short Line, which had been developed by the Union Pacific interests, embracing a cross-country road from its main lines in Wyoming northward into Oregon and Washington. At the same time the interest of the Transcontinental Company in the Oregon Railway and Navigation Company was linked with the Oregon Short Line Company. These transactions, however, still left the Transcontinental Company in control of the situation, as it retained its majority ownership of Northern Pacific Railroad stock.
For the next few years the Northern Pacific did not follow a policy of rapid expansion. Other trunk lines, such as the Union Pacific, Rock Island, Santa Fe, Burlington, and North Western, were all growing and keeping pace with the rapid settlement of the West; but the Northern Pacific in these years simply rested content with its position as a single track transcontinental route having but few branches. Its only important extension was made by acquiring the Wisconsin Central Railroad, which gave the company a line between St. Paul and Chicago and a valuable and important entrance into the latter city. It was expected that, with this accession, the affairs of the company would be permanently established on a sound basis, but the overliberal policy of paying out practically all the surplus in dividends was continued in the face of large increases in fixed charges.
Early in 1892 it began to be rumored that the Northern Pacific was not in so easy a financial position as had been assumed. The stockholders took alarm; and the committee which was appointed to investigate the situation discovered a deplorable state of affairs. As a result of the severe criticism of Villard's policy, steps were at once taken to oust him from control, but without success until June, 1893. Two months later, receivers were appointed who discovered that the company was insolvent and had no funds to pay quickly maturing obligations. Receivers were appointed also for most of the branch lines, including the Wisconsin Central system. The Oregon Short Line, which was tied through guarantees with the Union Pacific although leased to the Northern Pacific, was involved in the general crash but was later separately reorganized.
To rehabilitate the Northern Pacific Railroad effectively was a difficult problem. Its debt was enormous; its roadbed and rolling stock had been neglected; and, as a result of the recent crash, its valuable feeders on both east and west, the Wisconsin Central and the Oregon properties, were removed from its control. Besides these adverse conditions, competition of a serious nature was looming up. James J. Hill had for many years been quietly developing the Great Northern Railway. This great system he had financed in an extremely conservative manner; he had extended it through territory where construction costs were low; and he had secured control of branches and feeders which might have come under the sway of the Northern Pacific had that company been more farsighted. Hill had operated his road from the beginning at very low cost; he had kept its credit high; and even in the period of financial depression he had reported large profits and had paid substantial dividends on his stock. With such a competitor in the field, it really looked for a while as though the Northern Pacific could have no future whatever.
Finally, in May, 1895, a plan sponsored by Edward D. Adams, representing New York interests and those of the Deutsche Bank of Berlin, proposed a practical merger with the Great Northern Railroad Company: the old stock and bondholders were to make all the sacrifices and to supply all the new capital, and the Great Northern was then to be presented with half the stock of the new company, in consideration for which it was to guarantee the new Northern Pacific bonds. The situation was somewhat similar to that which existed in New York State as early as 1868 when Commodore Vanderbilt had achieved his great reputation as a wizard at railroading by acquiring the Harlem and Hudson River railroads and by forcing the New York Central lines to terms. James J. Hill had become a modern wizard, and the only hope for the Northern Pacific seemed to be to lay the road at his feet and ask him to do with it what he had done with the Great Northern—make it a "gold mine."
This plan, however, met with too much opposition and was abandoned. During the following year a new plan, backed by both the American and the German interests, secured the strong cooperation and endorsement of J. P. Morgan and Company. This was the first instance of Morgan's entry into railroad reorganization in the West. During the previous few years he had been increasing his reputation as a reorganizer of Eastern railroad properties, and by this time he had successfully organized or was rehabilitating the Erie, the Reading, the Baltimore and Ohio, the Southern, and the Hocking Valley systems. But he had kept clear of the far Western field and had definitely refused to reorganize the Union Pacific on the ground that its territory was too sparsely settled and that there was little hope for its future, especially as its partial control by the United States Government made any reorganization extremely difficult. The new plan for the Northern Pacific was carried out with no regard to the Hill interests: the old stockholders were heavily assessed; all bondholders were forced to make sacrifices; the Wisconsin Central lines were entirely eliminated and separately reorganized; and the Oregon lines were dissociated from the Northern Pacific and afterwards returned to the control of the new Union Pacific.
While the new Northern Pacific as reorganized in 1898 came directly under Morgan's control and was immediately classed as a Morgan property, it did not remain exclusively such for very long. In the promotion and development of the Great Northern system, Hill had hitherto maintained an independent position so far as banking alliances were concerned, but he now began to develop closer relations with the Morgans and became heavily interested in the First National Bank of New York, an institution which for many years had been more or less directly identified with the Morgan interests. On more than one occasion thereafter the banking firm of J. P. Morgan and Company acted as financial agent for the Great Northern.
Soon after the reorganization of the Northern Pacific, it became known that Hill had acquired an important interest in the property, and as time went on this interest was substantially increased. Within a year or two the Northern Pacific began to be classed as one of the Hill lines. With a substantial Hill representation on the board of directors and a managerial policy which was clearly inspired by Hill, the company now entered upon a new stage in its career.
The outstanding dramatic event in the story of the modern Northern Pacific was the famous corner which occurred in the spring of 1901 as a result of a contest between the Hill and the Harriman interests for the control of the property. The details of this operation, which sent the price of Northern Pacific stock up to $1000 a share and precipitated a stock-market panic, form part of the story of the Harriman lines. The contest resulted in the formation of the Northern Securities Company, a corporation of $400,000,000 capital, devised as a holding company under the joint control of the Hill and Harriman interests, for the purpose of retaining a majority of the stocks of the Northern Pacific and the Great Northern.
The Hill interests, jointly with the Morgan control of the Northern Pacific, had been quietly accumulating stock in the Chicago, Burlington and Quincy Railroad, and Harriman felt that there was grave danger to the Union Pacific in this move, as the Burlington had already penetrated into the Union Pacific territory and might at any time start to build through to the coast its own line parallel to the Union Pacific. Harriman consequently began to buy up Northern Pacific stock in the open market and thus, together with the efforts of the Hill and Morgan people to retain and strengthen their control, brought about the corner.
The Northern Securities Company was designed to harmonize all interests and to keep the control of the Burlington property jointly in the hands of Harriman and Hill. But as the result of a suit under the Sherman Anti-Trust Act, this combination was declared illegal, and in 1904 the company was dissolved. The final outcome of the situation was that the Northern Pacific, sharing with the Great Northern the joint control of the Burlington lines, was left indisputably in the hands of the Hill-Morgan group, where it has ever since remained. These three great railroad systems, the Northern Pacific, the Great Northern, and the Chicago, Burlington and Quincy, constituting nearly twenty thousand miles of railroad, have been known ever since as Hill lines.
Since the dramatic days of the Harriman-Hill contest the history of the Northern Pacific system has been simply a striking reflection of the growth in population and wealth of the great Northwest. The States through which it operates have grown with astounding rapidity during the past two decades; small cities have spread into great centers of manufacture and trade; hundreds of smaller towns have sprung up; natural resources of untold value have been developed. In the meanwhile the Northern Pacific has forged ahead in its earnings and profits, and the stock of the road has come to be known as one of the highest class of investment issues. Although new competition appeared, in both the local and the through business of the company—notably by the extension of the St. Paul system largely through Northern Pacific territory to the Puget Sound region—the superior modern business management of James J. Hill, backed by the strong resources of the Morgan banking interests, made the Northern Pacific one of the standard railroad systems of America.
CHAPTER VIII. BUILDING ALONG THE SANTA FE TRAIL
The Santa Fe Route, or the Atchison, Topeka and Santa Fe Railroad, which has in modern times developed into one of the largest and most profitable railroad systems in this country, was projected long before the idea of a transcontinental line to the Pacific coast had taken full possession of men's minds. As early as 1858 a plan was worked out for the construction of a line of about forty miles within the State of Kansas to connect what were then the obscure and unimportant townships of Atchison and Topeka. At that time not a mile of railroad had been built in Kansas or in any Territory west of that State, except on the Pacific coast, to which there had been an enormous immigration occasioned by the wonderful discovery of gold.
The outbreak of the Civil War delayed the undertaking of the Atchison-Topeka line, and nothing more was done until 1868. In that year new interests took control of the enterprise and acquired rights for its extension through southwestern Kansas in the direction of Santa Fe, the capital of the Territory of New Mexico. The company, which had originally been the Atchison and Topeka, now changed its name to the Atchison, Topeka and Santa Fe and obtained from the Government a very valuable land grant of 6400 acres for every mile constructed, the only condition being that within ten years the line should be completed from Atchison to the western border of Kansas. The plan involved the building of only 470 miles of road, which when finished would assure the company nearly three million acres of land within the State of Kansas.
A decade would seem to be ample time for the construction of this comparatively short railroad, particularly with the inducement of so extraordinary a land grant. Not only the Union Pacific but the Central Pacific and Kansas Pacific—all built within this decade—had to accomplish far more construction in order to secure their respective grants, and yet they had their complete lines in operation years before the Santa Fe had fifty miles of track in actual commission. The reason for this delay was of course a financial one. The other roads had all received government aid in cash or securities in addition to land grants. But the Atchison line was, from the start, thrown on its own resources in raising capital, and it was not until late in 1869—nearly a year after the opening of the Union Pacific to the coast—that any construction work whatever was done. In that year the section from Topeka to Burlingame, consisting of about twenty-eight miles, was opened for traffic, and a year later the extension to Emporia was finished, thus making a total of sixty-one miles under operation.
The terms of the land grant provided that the entire line across Kansas should be completed by June, 1873. When by 1872 only sixty-one miles of track had been built, the company still had over four hundred miles to go within ten months if it expected to obtain the land grant. But so energetically did the owners of the property work from that time on that within seven months they had reached the eastern boundary of Colorado and had thus saved the grant.
But like most of the Western railroads built in those early days the Santa Fe property was, in a sense, ahead of its time. The rapidity with which it shot across the State of Kansas in 1872 was equaled only by the promptness with which it fell into financial straits. No sooner had its complete line been opened for traffic than the panic of 1873 occurred; the company became embarrassed by a large floating debt; and a compromise had to be made with the bondholders whereby a postponement of a year's interest was arranged.
No attempts were made to extend the Santa Fe during the long period of depression following the panic of 1873. The road ended in 1872 at the Colorado state line, and during the next few years the only building of importance was a western spur to connect with the Denver and Rio Grande at Pueblo, thereby giving an outlet to the growing city of Denver and the rapidly developing mining regions of Colorado. About 1880, construction was resumed in a leisurely way, down the valley of the Rio Grande into New Mexico and in the direction of Albuquerque. In this extension, as in later building, the line of the old Arizona trail was usually followed. One writer has declared that "the original builders of the Atchison followed the line of the Arizona trail so religiously that if the trail skirted a ten-foot stream for a quarter of a mile to strike a shallow spot for fording, the railroad builders did likewise, instead of bridging the stream where they struck it, and where the trail ran up a tree or hid in a hollow rock to avoid the wolves or savages, the railroad did the same!"
The traveler of a generation ago over this particular section of the Santa Fe lines might have felt that there was some truth in this criticism; but the Atchison has long since cut out these idiosyncrasies of early construction, and the main line in this section of New Mexico is now noted for alinement and absence of curves and grades.
The builders of the Santa Fe lines in the early days no doubt planned ultimately to penetrate to the Pacific coast, knowing that the real opportunity for the road lay in that direction. The Southwest was yet but sparsely settled; and no railroad which had as its objective the plains or alkali deserts of Arizona or New Mexico could thrive—at least it could not for decades to come. And yet in the early eighties the real objective of the Atchison system had not been determined. Having passed its original objective point, Santa Fe, the road had reached Albuquerque, but it could not afford to stop there. Through traffic it must have or die. New Mexico, with its thin population and its total lack of development, could not supply traffic in sufficient amount even to "feed the engines."
To extend somewhere, then, was an imperative necessity. But whither? Several routes were under consideration. The Southern Pacific lines had worked eastward to El Paso on the Mexican border, several hundred miles due south from Albuquerque, and it looked feasible to extend the Atchison to that point and arrange a traffic agreement with the Southern Pacific, or to build an extension through New Mexico to Deming and then westward along the river valleys and down into Mexico to Guaymas on the Gulf of California. It was possible, in the third place, to build directly west from Albuquerque through Arizona and Southern California to the coast. Ultimately all of these plans were carried out.
The first extension of the Santa Fe was to Deming, New Mexico, where in March, 1881, its tracks met those of the Southern Pacific, and by agreement the company secured the use of the Southern Pacific to Benson, Arizona. From the first this new through route to the Pacific began to pay handsomely. Later on the line into Guaymas, Mexico, was added by the purchase of the Sonora Railway. Soon afterward the Santa Fe secured from the St. Louis and San Francisco Railway a half interest in the charter of the Atlantic and Pacific, a company which planned to build through to the coast. Meanwhile the St. Louis and San Francisco had been acquired by the Gould and Huntington interests, which, as the owners of the Texas and Pacific and the Southern Pacific systems, naturally opposed the plans of the Santa Fe. The matter was compromised by the agreement of the Santa Fe to build no farther west than the Colorado River, where the Santa Fe was to be met by an extension of the Southern Pacific line from Mojave, California.
This arrangement proved unprofitable to the Santa Fe, for the Southern Pacific naturally diverted traffic to El Paso and Ogden. A new arrangement was accordingly made in 1884, involving the purchase, by the Atlantic and Pacific, of the Southern Pacific division between Needles and Mojave, the obtaining of trackage rights between Mojave and San Francisco, and the use of the Southern Pacific terminals at San Francisco. To assure a connection with the coast in Southern California, the Santa Fe built a line to Colton, acquired the California Southern Railway from Colton to San Diego, and effected an entrance to Los Angeles by leasing the Southern Pacific tracks from Colton.
The Santa Fe had now reached the Pacific coast over its own lines, but it was handicapped by poor connections with the East. Its next move therefore was eastward to Chicago, where it acquired the Chicago and St. Louis Railroad between Chicago and Streator, Illinois, and then constructed lines between the latter point and the Missouri River. During the same year the company opened branches southward to the Gulf of Mexico, until by May, 1888, the entire system comprised 7100 miles.
This rapid expansion of the property, combined with extravagance in management and a reckless policy in the payment of dividends, brought the company into financial difficulties within a year after the completion of the system. Unprofitable branches had been built, and these had become an immediate burden to the main system. It is the same story that has been told of most of the large railroads of those days. Strenuous efforts were made to save the property from a receivership, and a committee was appointed in September, 1889, to devise ways and means of reform and reorganization.
The new management of the Santa Fe was a rational one and substantially reduced the obligations of the road. Had its spirit been maintained, a second failure and reorganization a few years later would not have been necessary. New interests, however, came into the property, and, though it was hoped that they would support a conservative policy, the former programme of expansion was resumed until in 1890 the St. Louis and San Francisco system was merged with the Santa Fe on a very extravagant basis. Within a year it was clear that the St. Louis and San Francisco would prove more of a liability than an asset. During the same time the less important purchase of the Colorado Midland Railway also turned out to be a poor investment.
The next four years were marked by more bad financial management which culminated in the failure of the reorganized company. In 1892 an exchange of income bonds for fixed interest-bearing bonds so increased the fixed charges of the company that, as a result of the panic of 1893 and its ensuing depression, the great Santa Fe system suddenly found itself in the hands of a receiver. The president, John W. Reinhart, had persistently asserted throughout 1893 that the company was financially sound; but an examination of its books subsequently made in the interest of the security holders disclosed gross irregularities, dishonest management, and manipulation of the accounts.
During the year 1894 the property was operated under the protection of the courts, and early in 1895 a new and comprehensive scheme of reorganization was carried out. This latest plan involved dropping the St. Louis and San Francisco system, the Colorado Midland, and all other unprofitable branches; it wiped out the floating debt; it supplied millions of new capital; and it enabled the succeeding management at once to build up and improve the property.
At the head of the new company was placed Edward P. Ripley—a railroad manager of great executive ability and a practical, broad-minded business man of the modern type, who has ever since remained president of the road. The history of the Santa Fe since 1895 has been closely identified with Ripley's business career, and its record during these two decades has been an enviable one. Steady progress from year to year in volume of business, in general development of the system, in improvement of its rights of way, terminals, and equipment, has characterized its history through periods of depression as well as times of prosperity. Its resources have grown to vast totals; its credit equals that of the best of American railroads; its stocks and bonds are prime investments; and each year it pours millions of dollars of profits into the hands of its stockholders.
CHAPTER IX. THE GROWTH OF THE HILL LINES
The States which form the northern border of the United States westward from the Great Lakes to the Pacific coast include an area several times larger than France and could contain ten Englands and still have room to spare. The distance from the head of the Great Lakes at Duluth to the Pacific coast in the State of Washington is greater than the distance from London to Petrograd or the distance from Paris to Constantinople, and three times the distance from Washington, D.C., to Chicago.
Fifty years ago these States, with the single exception of Wisconsin, were practically a wilderness in which only the Indian and buffalo gave evidences of life and activity. No railroads penetrated the forests or the mountain ranges. Far southward some progress in the march of civilization had been made; the Union Pacific had linked the West with the East before the eighth decade of the century began, and the Northern Pacific project was being painfully pushed through the intermediate tier of States during the seventies. But the material resources of the Great Northwest had still to be discovered.
When the Northern Pacific Railway failed in 1873, the crash involved a little railroad known as the St. Paul and Pacific, running out of St. Paul for a couple of hundred miles westward, with a branch to the north joining the Northern Pacific at Brainerd, Minnesota. The St. Paul and Pacific had been acquired in the interest of the Northern Pacific some years earlier but was now regarded as a property so worthless that its owners would be glad to get rid of it, if only they could find a purchaser rash enough to take it over.
During the three years following the panic of 1873 the crops of Minnesota were practically eaten up by the grasshoppers, and poverty reigned among the farmers. At that time a short, stocky man with long hair, one blind eye, and the reputation of being the greatest talker in town, kept a coal and wood store in St. Paul. His name was James J. Hill. For years he had been a familiar figure, sitting in his old chair in front of his store and discoursing on current events. This man was not only an interesting talker; he was a visionary, a dreamer—and one of his dreams was to buy the St. Paul and Pacific Railroad and to transform it into a real railway line. Nearly twenty years had passed since he had drifted in, an eighteen-year-old Scotch-Irish boy from Ontario, and had begun work in a steamship office on the levee at St. Paul. Now, in 1876, he was thirty-eight years old and a town character. And the town felt that it had his measure. He had already tried a variety of occupations, and at this time was agent for lines of steamboats on the Mississippi and the Red River. Everybody knew him and liked him, but no one took him very seriously. The idea of his controlling the St. Paul and Pacific was even amusing.
Now the most promising part of the St. Paul and Pacific when it failed in 1873 was the line from St. Paul to Breckenridge on the Red River. Hill was the Mississippi steamboat agent at one end; at the other, an old Hudson Bay trader, Norman W. Kittson, ran two little old stern-wheel steamboats from Breckenridge to Winnipeg. A large part of the freight that Hill and Kittson handled was for the Hudson's Bay Company. It came up the Mississippi, went across on the St. Paul and Pacific to Breckenridge, and then down the Red River on Kittson's steamboats until it was received at Fort Garry, Winnipeg, by Donald Alexander Smith, then commissioner for the Hudson's Bay Company.
Smith, who became afterwards Lord Strathcona and High Commissioner for Canada in England, was a tall, lean, urbane Scotchman with a soft manner and a long red beard. In 1876 he was fifty-six years old, with a life of strange, wild adventure behind him. He had gone when little more than a boy to Labrador to take charge of a station of the Hudson's Bay Company. Among the northern Indians he stayed for thirteen years. In the sixties he was practically king over all the savage territory of the company along the waters entering Hudson Bay. By the seventies he was a man of means and he had some influence in the new Dominion of Canada.
It would be a great advantage to Smith to have a good railroad from St. Paul to Winnipeg as the Red River boats were frozen up in the winter and the service on the St. Paul and Pacific, under the receiver, was impossible. So Smith listened with favor to Hill's project of getting hold of the St. Paul and Pacific and making a real railroad out of it. And whenever Smith went to Montreal he talked the matter over with his cousin George Stephen—later Lord Mount Stephen—who was the head of the Bank of Montreal. In 1877 Stephen and Richard B. Angus, the general manager of the Bank, went to Chicago on business. While there, they had two weeks' time on their hands, and tossed a penny to decide whether to run down to St. Louis or up to St. Paul. The penny sent them to St. Paul. "I am glad of that," said Stephen; "it will give us a chance to see the prairies and look over that St. Paul and Pacific road that Donald Smith is always talking about."
When they arrived in St. Paul, James J. Hill took them over the line to Breckenridge. The country had been scoured by the grasshoppers and looked like the top of an old rusty stove. But Stephen was a broad-minded man, wise enough to know that the pest of grasshoppers could not last forever. He was greatly impressed with the ultimate possibilities of the soil and, under the hypnotic influence of Hill's eloquence, became quite enthusiastic over the scheme for getting hold of the railroad; but, as it would evidently involve millions, he didn't see how it could be done.
The road had originally been financed by bonds sold largely in Holland, and to do anything at all it was necessary to get in touch with these Dutch bondholders. In 1877 Stephen went over to Amsterdam and secured an option on the bonds at thirty cents on the dollar—less than the accrued interest which was due and unpaid on them. He then came back to America, conferred with John S. Kennedy at New York, who represented both Dutch and American bondholders, and brought Kennedy into the combination.
In the spring of 1878 the St. Paul and Pacific was taken over. People still smiled at Hill and wondered how he had induced a hard-headed bank president like Stephen to put up the money. Nobody in St. Paul believed in the future of the road. Even the syndicate's attorneys, when offered a choice between taking $25,000 in cash or $500,000 of the new road's stock for their services, preferred the cash. Had they taken the stock and held it for thirty years, they would have had, in principal and interest, some $30,000,000.
To the surprise of everybody, including Hill and his friends, the grasshoppers suddenly disappeared in the early summer of 1877 and never came back. That summer saw the biggest wheat crop that had ever been harvested in Minnesota. "Hill's Folly," as it was afterwards called, with its thirty locomotives and few hundred cars, was feverish with success. Hill worked every possible source to get extra cars and went all the way to New York to buy a lot of discarded passenger coaches from the Harlem Railroad. By the end of the season it was evident to everybody that the St. Paul and Pacific was going to have a career and that "Jim" Hill's dream was coming true.
Immediately the fortunate owners began to plan for the future. They had acquired the road at an initial cost of only $280,000 in cash. In the following year they advanced money for the completion of the unfinished section, as necessary to obtain the benefit of a generous grant of land from the State. Then, in 1879, having acquired full possession of the property, and having several millions of dollars in profits, they issued bonds for further developments. This gave them sufficient basis to enlarge their scheme greatly, and in the formation of the St. Paul, Minneapolis and Manitoba Railroad, they created $15,000,000 of stock, which was divided equitably among Hill, Stephen, Angus, Smith, Kennedy, and Kittson. This stock was all "water," but the railroad prospered so extraordinarily in the succeeding few years that by 1882 the stock was worth $140 a share. And in 1883 they issued to themselves $10,000,000 of six per cent bonds for $1,000,000—a further division of $9,000,000, coming out of nothing but good will, earning power, and future prospects.
The decade from 1880 to 1890 witnessed a steady growth of the system formed in 1879 under the name of the St. Paul, Minneapolis and Manitoba. The 600 odd miles which it embraced when Hill and his coterie made their big stock division had grown in 1890 to 2775 miles. It then consisted of a main line reaching from St. Paul and Minneapolis across Minnesota and the northern part of North Dakota, far into Montana, with a second main line from Duluth across Minnesota to a junction with the St. Paul line in North Dakota, besides numerous branches reaching points of importance in both these States.
But the development of the Hill properties had by no means reached its limit at this time. Hill's dream had been to construct a through line across the northern tier of States and Territories to the Pacific, and this plan had been constantly in his mind while he was building up the system in Manitoba. The original line running up into Manitoba and reaching Winnipeg was all very well as a start. It had paid so well that the original group of men had become millionaires almost overnight. But Hill meant to show the public that, after all, the early success was only an incident and merely a stepping-stone to the really great thing.
Practical railroad men everywhere ridiculed the idea of a railroad running across the far northern country, climbing mountain ranges, traversing hundreds of streams and extending for great stretches through absolutely wild and uninhabited regions. Especially did they deem it absurd to attempt such an undertaking without government aid, subsidies, or grants of land, pointing to the experience of such roads as the Union Pacific, Northern Pacific, and Santa Fe. All these had received financial assistance and large land grants, and yet all had gone through long periods of financial vicissitude before they had become profitable and stable enterprises.
But Hill was more farseeing than his critics. In 1889, the name of the company was changed to the Great Northern Railway, and under this title the extension to the coast was rapidly carried forward and was opened in the panic year of 1893. When all the other transcontinental lines went into bankruptcy, Hill's road not only kept out of the courts but actually earned and paid annual dividends of five per cent on its stock. The five years from 1896 to 1901 were years of uninterrupted prosperity for the Great Northern Railroad. Each year its credit rose; each year it grew to be more of a force in the Western railway situation. In these years the control of the property had somewhat changed and a few of the original promoters had died or had withdrawn. But Hill, Lord Strathcona, Lord Mount Stephen, and John S. Kennedy of the original group, all held their large interests, and Hill in particular had added to his holdings as the years had gone by.
The secret of Hill's striking success with his Western extension was the method by which the line was constructed. Hill had a theory that it was far better to go around mountains and avoid grades than to climb them or to bore through them; it was always better to find the route which would make long hauls easy and economical. He thus built his road with the idea of keeping down the operating costs and of showing a larger margin of profit than the others. From the very start the Great Northern was noted for its low ratio of operating expenses and its comparatively long trains and heavy trainloads. It was by this method that it really made its money.
By the year 1901 the Great Northern Railway absolutely controlled its own territory. But it was still handicapped by lack of an independent entrance into Chicago, as its eastern lines terminated at Duluth and St. Paul. At the western end also, the situation was unsatisfactory. It seemed important for the Great Northern to control a line of its own into Portland, Oregon, because the Northern Pacific Railroad, which, as we have seen, had been reorganized several years before by the Morgan interests, had been rapidly extending its lines in Oregon and Washington. Hill and his associates, therefore, had been quietly buying a substantial interest in the Northern Pacific property and thus, in the course of time, had come into closer relations with the Morgan group in New York. Soon afterward, under Hill's influence, the Northern Pacific began the construction of further extensions in Oregon and reached into territory that the Harriman interests in the Union Pacific Railroad had regarded as their own. This move created much friction between the Harriman and Hill groups, and in order to forestall danger Harriman in turn began quietly accumulating an interest in the Northern Pacific property by purchases in the open market.
The story of the battle royal between the Hill and Harriman interests will be told in a subsequent chapter. It is not necessary to repeat the history of the famous corner of 1901 nor of the compromise effected by the formation of the Northern Securities Company. The final result of this contest was the complete harmonizing of the Western railroad situation, so far as the Hill and the Harriman interests were concerned. In the succeeding years the Great Northern system penetrated to the heart of Manitoba and constructed lines through British Columbia to Nelson and Vancouver. It built other branches to Spokane, Washington, and Helena and Butte, Montana. Moreover by the discovery of extensive ore deposits on the lines of the company in northern Minnesota and by subsequent purchases of other mines, the Great Northern acquired control of about sixty-five thousand acres and hundreds of millions of tons of iron ore. All the properties so controlled were leased on a very profitable basis to the United States Steel Corporation. The Great Northern Railroad itself did not retain control of the ore lands but, through a trusteeship, gave a beneficial interest in them to its stockholders in the shape of a special dividend.
The profits under this lease promised to be very large in the course of time, but the Steel Corporation had the option to cancel after a five-year period, and in 1912, as the result of a United States Government suit for the dissolution of the Steel Corporation, the lease was canceled. Since that time the trustees of the ore lands have executed other leases, and the Great Northern ore certificates are bringing in a substantial return to their owners.
The three Hill lines—the Great Northern, the Northern Pacific, and the Chicago, Burlington and Quincy—have been unusually profitable. The Great Northern and the Northern Pacific have steadily paid liberal dividends to their stockholders on increasing amounts of capital stock; and the Burlington, whose whole stock is owned by these two roads, has also handed over liberal profits year by year, at the same time accumulating an earned surplus of more than one hundred million dollars and spending an almost equal amount of profits on the improvement and maintenance of the property. The Burlington today controls the Colorado Southern, which extends southward from the Burlington lines in Wyoming, passing through Denver, Pueblo, Fort Worth, and other points southward to the Gulf.