The Railroad Builders: A Chronicle of the Welding of the States

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 passed 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 Cumberland to Vandalia, Illinois, had been in large part completed and had done much for the opening up of the Western territory.

Canal 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 Washington before the Revolution, and he had also prophesied the union of the Hudson and Lake Erie by canal. 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 Canal 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 canal connecting Chesapeake Bay and the Ohio River was advocated to protect the trade of Baltimore and the South from the competition of New York and the East which would inevitably result from the construction of the Erie Canal 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 canal 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 fashion 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.

The construction of the railroad began on July 4, 1828. The venerable Charles Carroll of Carrollton, then more than ninety years old and the only surviving signer of the Declaration of Independence of fifty-two years before, said on this occasion, as he laid the first stone: "I consider this among the most important acts of my life, second only to my signing the Declaration of Independence." His vision was indeed prophetic.

It was determined that the first section of road constructed should extend to Ellicott's Mills, twelve miles distant, but, owing to delays in obtaining capital, the actual laying of the rails was not begun until the fall of 1829, and this first section was not opened for traffic until May 22, 1830. At first, experiments were made with sails for propelling the cars, but it was soon found that a more effective source of power was supplied by mules and horses. The Flying Dutchman, one of the cars devised to furnish motive power, provided for the horse or mule a treadmill which would revolve the wheels and make the distance of twelve miles in about an hour and a quarter. Steam locomotives at this time were in their infancy and, until the opening of the Liverpool and Manchester Railroad in this same year, they had attained a speed of only six miles an hour. Horses and mules, and even sail cars, made more rapid progress than did the earliest locomotive. In spite of these crude and primitive facilities for transportation, however, the traffic on the new railroad was of large volume from the beginning, and the company could not handle the amount of merchandise offered for transport in the first months.

Construction was now rapidly pushed ahead, and by 1832 the whole line had been opened to Point of Rocks, with a branch to Frederick, Maryland, making seventy-two miles in all. In 1831, steam locomotives were tested, and one of them, the York, was found capable of conveying fifteen tons at the rate of fifteen miles an hour on level portions of the road. This achievement was regarded as a great triumph, and in 1832 the directors of the road called attention to "the great increase in velocity" that had been obtained in this way.

From this time forward the expansion of the railroad proceeded with a certainty born of success. A branch was built to Washington and the main line was extended to Harper's Ferry. Beyond this point construction was slow because financial difficulties stood in the way, and it was not until after the panic of 1837 that further aggressive building began. But by 1842 the line was completed to Cumberland, Maryland, and by 1853, to Wheeling. Meanwhile, the branch from Cumberland to Parkersburg, Virginia, was built. The road now comprised a total system of more than five hundred miles and reached two points of importance on the Ohio River, one northward near the Pennsylvania-Ohio state line and one southward in the direction of Cincinnati. The Parkersburg extension was of great importance because it opened a through route to St. Louis, by means of the Cincinnati and Marietta Railroad—which was at this time completed from Cincinnati to Belpre, Ohio, opposite Parkersburg—and the Ohio and Mississippi, which extended more than three hundred miles from St. Louis to Cincinnati.

Times were not the best, however, and, although much traffic was developed, the immense cost of the extensions heavily burdened the Baltimore and Ohio Company, while the panic of 1857 seriously embarrassed its credit. Soon after this panic and before the company had begun to recover from its effects, John W. Garrett, one of the large stockholders in the road and son of a Baltimore banker, was elected to its presidency, and a new chapter in the history of the Baltimore and Ohio began. Almost immediately following Garrett's election, a remarkable change became apparent. Losses were turned into gains; deficits were converted into surpluses; and soon Garrett had gained the reputation of being the most remarkable and efficient railroad manager in the world. He seemed to be almost an Aladdin of railroad management for, even when he could not show increases in amount of business done, he reported greater profits by showing lower expenses. In those days the railroads did not furnish detailed reports of business to the stockholders or to the public. At the annual meetings it was customary for a president or the directors simply to announce, either orally or in a brief printed statement, the amount of gross business and profits for the year. No such thing as a balance sheet or detailed financial statement saw the light of day—practically everything was taken by the stockholders on faith. And great was their faith. When, therefore, Garrett announced large increases in profits in years when most railroads were standing still or were incurring losses, he was implicitly believed.

Under Garrett's management a new era of expansion almost immediately began; work was started on the long delayed branch to Pittsburgh and plans were laid for establishing a line of steamships from Baltimore to the leading European ports. But the Civil War, which bore heavily on the Baltimore and Ohio, interfered with these ambitious schemes. Early in 1861 the Confederates took possession of a large part of the line east of Cumberland; in the next four years important sections of the road were repeatedly destroyed and rebuilt, as they passed into the hands of the Federal or Confederate troops. The company, however, managed to get through without default in its securities, and, when peace was restored in 1865, the Baltimore and Ohio resumed its policy of aggressive expansion.

Before very long the road, with its connections constructed or purchased, reached the cities of Pittsburgh, Sandusky, and Chicago, and further strengthened its connections with Cincinnati and St. Louis. It acquired steamboats, grain elevators, and docks; it constructed hotels as mountain summer resorts; it built dry docks in Baltimore; and finally it proceeded to organize and operate an express company, a telegraph company, and a sleeping-car company. To carry out these ambitious plans the capital stock and debt were of course increased again and again, and in the course of these operations a large part of the new securities issued was sold to English investors. Notwithstanding these great increases in liabilities, the company continued to report large surpluses and to pay large dividends, generally ten per cent annually. In fact, this liberal rate was, with brief exceptions, paid right through the Civil War period, in spite of the fact that large parts of the line were frequently destroyed and traffic was often at a standstill. With such prosperity under such conditions Garrett's reputation as a railroad manager naturally suffered no eclipse.

In the course of the Civil War, as already noted, through traffic routes from New York to Chicago had been established, and in the succeeding years the consolidations of the great competing systems into trunk lines had taken place. The struggle of the Baltimore and Ohio for its share of Western business led to fierce rivalry with the Pennsylvania. This competition became so severe and intense that, in 1874, the Pennsylvania road refused to carry the Baltimore and Ohio cars over its line to New York on any terms whatever. Since this was the only way in which the Baltimore and Ohio could reach New York, the situation was a serious one. Garrett retaliated by making destructive reductions in passenger rates from Washington and Baltimore to Western points. The cuts were soon made on other roads and affected both freight and passengers. All the lines became involved. Passenger fares from Chicago to Baltimore and Washington were reduced from nineteen dollars to nine dollars, and those to New York and Boston from twenty-two to fifteen dollars. Still the fight continued, and before the end of 1875 it was possible to travel from Chicago to New York first class for twelve dollars and to ship grain to New York for as low a rate as twelve cents.

Despite the fact that competition had cut earnings almost to the point of extinction, the Baltimore and Ohio continued to report surprisingly good profits. The company borrowed additional funds from time to time but continued to pay the liberal ten per cent dividend until 1877, when it somewhat reduced the rate. These dividend payments indicated, however, a prosperity that was only apparent, and they did not greatly deceive the bankers, for the credit of the Baltimore and Ohio weakened from day to day. The fact is that the reports of operations inspired little public confidence; to the farseeing, there were danger signals ahead. Nevertheless the ten per cent dividends were resumed in 1879 and continued at this rate without interruption until 1886.

On the death of John W. Garrett in 1884, his son Robert, who succeeded him as president, continued the same policy of competition and aggression. With the object of gaining an entrance into Philadelphia and through that gateway of reaching New York, he started work on a branch from Baltimore to Philadelphia to meet, at the northern boundary of Maryland, the Baltimore and Philadelphia Railroad—a line which independent interests were then building through Delaware with the intention of obtaining an entrance into Philadelphia. The Pennsylvania interests strongly opposed Garrett's new project and many years before had gone so far, in their determination to block the Baltimore and Ohio from acquiring control of the Philadelphia, Wilmington and Baltimore Railroad, as to purchase that road themselves. Despite this opposition the Baltimore and Ohio went forward with their plans and secured an entry into Philadelphia by acquiring control of the Schuylkill East Side Railway, which was a short terminal road of great strategic value. North of Philadelphia the company arranged a traffic contract with the Philadelphia and Reading, whose lines extended to Bound Brook, New Jersey, and also with the Central Railroad of New Jersey beyond Bound Brook to Jersey City. Afterward, by purchasing the Staten Island Rapid Transit Company the Baltimore and Ohio acquired extensive terminals at tidewater on Staten Island and constructed a connection in New Jersey with the New Jersey Central. Thus, after many years of struggle and at heavy cost, the Baltimore and Ohio finally secured an entry into the New York district independently of the Pennsylvania Railroad.

Both freight and passenger charges, however, were still maintained at an unprofitable rate, and, after the death of John W. Garrett, the credit of the Baltimore and Ohio continued to decline. Dividends were gradually reduced and by 1888 were omitted entirely. As is usually the case, the cessation of dividends awakened the sleeping stockholders. They began an investigation to ascertain the whereabouts of that remarkable surplus which had been reported from year to year and which, according to official report, had shown a constant growth.

This investigation disclosed a startling state of affairs. Instead of a surplus, the company had been piling up deficits year after year, had been borrowing money right and left on onerous terms, had been charging up millions of dollars of expenses to capital accounts—and as a matter of fact, instead of making money, it had for the most part been losing it. Now the company urgently needed cash, and the only way it could obtain that essential commodity was by selling its express, telegraph, and sleeping-car business.

During the entire administration of John W. Garrett, extending over more than two decades, current expenditures of enormous amounts which should have been deducted from the income had been credited to the surplus; many millions which would never be returned had been advanced to subsidiary lines, or had been spent, and therefore should have been put down in the books as losses. When these facts became public, the capital stock of the Baltimore and Ohio, which for generations had been looked upon as one of the most secure of railroad investments, dropped to almost nothing, and the most strenuous financial efforts were required to keep the company out of bankruptcy.

These disclosures, towards the end of 1887, ended the first period of active Garrett management in the Baltimore and Ohio. The directors then turned to New York bankers for the cash that was needed to put the affairs of the company on a sound basis. Samuel Spencer, who afterward became a partner in the banking house of J. P. Morgan and Company, was elected president and active manager. He introduced radical reforms, entirely revolutionized the organization, and adopted modern methods. He wrote off the books a large amount of the much vaunted "surplus" and he took important steps toward the general improvement of the property.

Had the new interests been allowed to continue their efforts unmolested, the history of the Baltimore and Ohio in the next decade might have been very different. But the original controlling interests, the Garrett family, still held the balance of power. As the bad bookkeeping and other irregularities of the past naturally reflected on the Garretts, it was their interest to suppress further investigation as far as possible; and their antagonistic attitude toward the policy adopted by the new Spencer management was seen in the annual election of directors in November, 1888. Only five of the members of the board were reelected, President Spencer was ousted, and Charles J. Mayer was elected in his place.

This second change in management sidetracked the plans for radical reform, and little improvement resulted either in earning power or in financial condition. The company had fallen upon evil days. The net profits did not increase, and eight years after 1888 they were smaller than in that year, while the debt and interest charges constantly grew. Despite these ominous facts, dividends were paid regularly on the preferred stock and in 1891 they were resumed on the common stock. In the latter year a twenty per cent dividend was declared "to compensate shareholders for expenditures in betterments and improvements in the physical condition of the property," while at the same time the directors decided to raise five million dollars of new capital for expenditures which would be necessary to handle the increased traffic created by the World's Fair at Chicago.

The traffic problem continued to be a thorn in the flesh and until 1893 freight rates were constantly being cut. The opening of the Baltimore and Ohio connection to New York had brought keener competition from the Pennsylvania Railroad and had made deep inroads into the Baltimore and Ohio revenues. Such conditions made even the Garrett interests feel that something should be done, and in 1890 a "community of interest" scheme was proposed. To control the stock of the Baltimore and Ohio Railroad, Edward R. Bacon in New York, acting harmoniously with the Garrett family, formed a syndicate of capitalists representing the Richmond Terminal system, the Philadelphia and Reading Railroad, the Northern Pacific Railroad, and other properties. The ultimate plan, which proved too visionary, was to consolidate under one control a vast network of lines extending all over the continent.

The syndicate had made little progress toward rehabilitation when the panic of 1893 occurred. In this year and the next the earnings of the Baltimore and Ohio fell off rapidly and the dividend was reduced. Nevertheless, as late as January, 1895, the directors insisted that financially the company was in better condition than for several years and that on the whole it was in a stronger position than at any time since 1880. But in this same year it became necessary to stop all dividend payments; the company began to have difficulties in securing ready money; and before the close of the year the situation seemed hopeless. Early in 1896 Mayer tendered his resignation, and John K. Cowan succeeded him. The new president did his utmost to obtain money to meet the current needs, but he was unsuccessful. A receivership and reorganization seemed absolutely necessary, and in February, 1896, the receivership was announced.

With the property now in the hands of the courts, the opportunity at last came to make real the reforms which had been proposed and begun nearly a decade earlier under the wise but quickly terminated administration of Samuel Spencer. A thorough housecleaning was now carried through without interference or interruption. A reorganization committee was formed, with whom were deposited the Garrett shares as well as those of the Morgan and New York and Philadelphia interests. A full investigation of past management disclosed that the records for the interim extending from the brief Morgan control under Spencer to the receivership contained the same kind of irregularities and errors of policy that had prevailed under the earlier Garrett management. Statements of profits had been swelled by arbitrary entries in the books and nearly six million dollars which had not been earned had been paid out in dividends. Furthermore the company had endorsed the notes of certain subsidiary roads to the extent of over five million dollars, and had made no record whatever of this action for the stockholders.

As in the case of numerous other railroads, the financial breakdown of the Baltimore and Ohio Railroad was primarily due to a bad or reckless financial policy, for there was nothing inherently insecure in the railroad property itself. During all the years of the Garrett regime, the company had shared in the general growth and expansion of industry, wealth, and population within its territory. It had been progressive in matters of expansion and had built up its system to meet the needs of modern times. Its trackage and equipment compared favorably with similar systems, and most of its extensions and branches had been wisely planned and had proved profitable. The operating management of the railroad was generally good and it usually secured its proportion of what business was to be obtained. But the steady increase in its debts over a number of years, its extravagance in dividend payments, and its painful efforts to keep down its operating expenses had so weakened the property that, when the hard times of 1893 to 1896 arrived, it was in no position to weather the storm. The only wonder is that the management succeeded in keeping the system intact and apparently solvent so long as it did.

The receivership at once adopted a vigorous policy of improvement. 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 scrap 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 assessed in large amounts. In all, more than thirty-six million dollars was raised by assessments 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 passenger 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 association would ipso facto end the competition 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 Anti-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 1903, 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 Shore 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 passed since the first railroad construction, the earlier methods of transportation by boat, canal, 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 pronounced after the gold discoveries of '49 that Congress passed 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.

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 advertisement 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. Supplies were hauled over the Sierras, and the work was pushed ahead regardless of expense. On May 10, 1869, the junction was formed, the opposing track layers meeting at Promontory Point, five miles west of Ogden, Utah. Spikes of gold and silver were driven into the joining tracks, and the through line from the Missouri River to the Pacific Ocean had been completed; the first engine from the Pacific coast faced the first engine from the Atlantic. The whole country, from President Grant in the White House to the newsboy who sold extras, celebrated this achievement. Chicago held a parade several miles long; in New York City the chimes of Trinity were rung; and in Philadelphia the old Liberty Bell in Independence Hall was tolled again.

The cost of the Union Pacific Railroad from Omaha to its junction with the Central Pacific formed a subject of controversy for a generation. The saving of six months of the allotted time for completing the road no doubt increased its cost to the builders, for at times they borrowed money in the East at rates as high as 18 and 19 per cent. Besides, in pushing the line far beyond the bounds of civilization without waiting for the slower pace of the settler and the security which his protection afforded, it often became necessary for half the total number of workmen to stand guard and thus reduce the working capacity of the construction force. Even so, hundreds were killed by the Indians. Governmental restrictions of various kinds also increased the cost of the road. For example, the stipulation that only American iron should be used increased the cost by at least ten dollars for every ton of rail laid. The requirement that a cut should be made through each rise in the Laramie plains, thus giving the track a dead level instead of conforming to the natural roll of the country, ultimately resulted in a waste of from five to ten million dollars. Extraordinary costs such as these, combined with the extravagant methods of construction and financing, brought the total cost of the property up to what was in those days a fabulous sum of money. The records indicate that the profits which accrued through the Credit Mobilier and in other ways in the construction up to the time of the opening in 1869 exceeded fifty millions of dollars.

While the Union Pacific was being built, from 1862 to 1869, other railroads were not idle, and many were rapidly reaching out into the Central West. Not only had the Chicago and North Western reached Omaha and made connection with the Union Pacific, but the Kansas Pacific had penetrated as far west as Denver and had joined the Union Pacific at Cheyenne.

The close relationship between railroad expansion and the general development and prosperity of the country is nowhere brought more distinctly into relief than in connection with the construction of the Pacific railroads. With the opening of a transcontinental line the vast El Dorado of the West was laid practically at the doorstep of Eastern capital. Not only did American pioneers turn definitely toward the West, but foreign emigrants bent their steps in vast numbers in that direction, and capital in steadily increasing amounts made its way there. Towns sprang up everywhere and soon developed into busy centers of trade and commerce. Caravan trains, which a few years before had followed a single westward line, now started from points along the railroad artery and penetrated far to the north and south. The settlers knew that the time was not far distant when all the vast territory west of the Missouri, from the Canadian border to the Rio Grande, would be reached by the rapid spread of the railroad. In the sixties and seventies there sprang up and rapidly developed in size and importance such centers as Kansas City, Sioux City, Denver, Salt Lake City, Cheyenne, Atchison, Topeka, Helena, Portland, Seattle, Duluth, St. Paul, Minneapolis, and scores of smaller places. The entire Pacific slope was soon dotted with towns and cities, and even the great arid plains of the West—as well as the "Great American Desert" covering Utah, Arizona, New Mexico, and parts of Nevada—began to take on signs of life which had not been dreamed of a decade before.

But the development of this great section of the country during the next few years was even more notable. By 1880 four different lines of railroad were running through to the Pacific States, and a fifth, the Denver and Rio Grande, had penetrated through the mountains of Colorado and across Utah to the Great Salt Lake. These were the years when the modern industrial era was really beginning. Man's viewpoint was changing, and instead of remaining content with the material achievements of the Atlantic and Central sections of the continent, he began to realize that the vast Western regions and the thousand miles of Pacific coast line were destined to be America's inexhaustible patrimony for the years to come.

In 1880 the Union Pacific began its expansion to the eastward and acquired control of the Kansas Pacific, which had come upon evil days, and of the Denver Pacific, a most important connecting link. In January, 1880, these two companies were absorbed by the Union Pacific, which thus obtained a continuous line from St. Louis westward. In the meantime the Central Pacific, operating from Ogden west to the coast, had added many branches, while a new company—known as the Southern Pacific Railroad of California—had for some years been constructing a system of lines throughout that State south of the Central Pacific and by 1877 had penetrated to Yuma, Arizona, 727 miles southeast of San Francisco. It had also built lines into Arizona and New Mexico and soon joined the Santa Fe route, which had for some time been working westward.

During 1881 the Southern Pacific continued its eastern extensions along the Rio Grande to El Paso, Texas, where it formed a connection with a new road under construction from New Orleans. A junction was also made at El Paso with the Mexican Central, which was under construction to the City of Mexico. The Southern Pacific Railroad was closely allied with the Central Pacific interests headed by Collis P. Huntington, and in 1884 the great Southern Pacific Company was formed, which acquired stock control of the entire aggregation of railroads in the South and Southwest. At the same time the Central Pacific came under direct control of the Southern Pacific through a long lease.

During these eventful years, while the Southern Pacific properties were penetrating eastward through the broad stretches of country to the south of the Union Pacific lines, equally interesting events were occurring in the north. In 1879 a consolidation was formed of the Oregon Steamship and Navigation Company with several short railway lines in Oregon and Washington, under the name of the Oregon Railway and Navigation Company. These railroad lines extended east from Portland to the Oregon state line, and north to Spokane, and they finally made connection with the new Northern Pacific. At the same time, another road, known as the Oregon Short Line Railroad, was built from Granger, Wyoming, on the line of the Union Pacific to a junction with the Oregon Railway and Navigation Company at Huntington, Oregon, on the Snake River. The Oregon Short Line came under the control of the Union Pacific and was opened for traffic in 1881. Later a close alliance was made with Henry Villard, the controlling spirit in the Oregon Railway and Navigation Company. Ultimately the entire system of Oregon lines passed under Union Pacific control, to be lost in the receivership of 1893, but later recovered under the Harriman regime.

When, after ten more years of expansion, the great Union Pacific property went into the hands of receivers in 1893, it had grown to a system of more than 8000 miles. It completely controlled the Oregon railway and steamship lines, the lines to St. Louis, and also an important extension known as the Union Pacific, Denver and Gulf Railroad, running from a point in Wyoming across Colorado to Fort Worth, Texas. The financial failure of the system was due to a variety of causes. Its management had been extravagant and inefficient, and construction and expansion had been too rapid. The policy of building expensive branch lines where they were not needed and of obligating the parent company to finance them had been a grievous mistake and had contributed largely to the downfall of the company. Further than this, the credit of the Union Pacific was steadily growing weaker because the time was drawing near when its heavy debt to the United States Government would fall due. In all its history of more than twenty years the company had never paid any interest on the government debt nor had it maintained a sinking fund to meet the principal when due. Consequently, the accruing interest had mounted year by year and, should the Government enforce payment at maturity in 1897-99, the company would be doomed to bankruptcy. This government debt, including accrued interest, amounted to the sum of $54,000,000.

Attention should not, however, be diverted from the fact that during all these years a vast expansion of competitive lines had been going on far southward of the Union Pacific. Under the guiding genius of Collis P. Huntington, the Southern Pacific Company in 1884 had consolidated and solidified a gigantic system of railways extending from New Orleans to the Pacific and throughout the entire State of California to Portland, Oregon, with branch lines radiating through Texas and making close connection with roads entering St. Louis. In addition to these railroads, Huntington acquired control of a steamship line operating from New York to New Orleans and Galveston, and subsequently of the Pacific Mail Steamship Company, operating along the coast from Oregon south to the Isthmus of Panama and across the Pacific Ocean. The ever-growing effects of this powerful and well-managed competitor—combined with the large development of the Santa Fe system during these years, the competition of the completed Northern Pacific, and the possibilities of the new Great Northern Railway or Hill line, now completing its main artery to the Pacific—were far-reaching enough in themselves to bring the Union Pacific upon evil days. Consequently few were surprised when, under the great pressure of the panic of 1893, the property was forced to confess insolvency. The Union Pacific had simply repeated the story of most American railroads; it had been constructed in advance of population and had to pay the penalty. Yet it had more than justified the hopes of the daring spirits who projected it. It may have made individuals bankrupt, but it magnificently fulfilled the part which it was expected to play. It had opened up millions of acres to cultivation, given homesteads to millions of people, many of whom were immigrants from Europe, developed mineral lands of incalculable value, created several new great States, and made the American nation a unified whole. Its subsequent history belongs to another chapter of this story—a history that is richer than the first in the matter of financial success but that can never surpass the early pioneering years in real and permanent achievement.