STORIES of the GREAT RAILROADS CHARLES EDWARDRUSSELI w STORIES OF THE GREAT RAILROADS BY CHARLES EDWARD RUSSELL CHICAGO CHARLES H. KERR & COMPANY 1912 1 Copyright, 1908, 1909, 1910, by HAMPTON'S MAGAZINE Copyright, 1912, by CHARLES H. KBRR & COMPANY PRINTED A NO BINDER .80 376-382 MONROE STREET CHICAGO, ILLINOIS PREFATORY ANECDOTE. Most of the matter in this book originally appeared in Hampton's Magazine in the form of separate articles. After the manuscript of Chapter III had been taken to the magazine office, before there had been any publication, and when the article, in fact, had advanced no farther than the proof stage, I received a letter from a railroad agent in a western city, displaying an intimate acquaintance with the article, attempting to refute some of its statements, and urging me not to print them. Again, while the chapter on Death Avenue was lying at the office in proofs, and two weeks before the magazine that contained it had been made up, a gentleman declaring himself to be a representative of the New York Central railroad and known in the office to be such, called with the information that he knew the nature and scope of the article the magazine intended to publish about the New York Central, and he plainly intimated that unless it was suppressed the railroad company would withdraw all its advertising from Hampton's. The article was published and railroad advertising was accordingly withdrawn. About two weeks before the publication of Chapter XIII, and while it, too, had advanced no farther than the proof stage, there came to the office of the magazine a gentleman that introduced himself as coming from Mr. Charles S. Mellen, president of the New York, New Haven and Hart- ford Railroad company, which is made the subject of that chapter. He said that Mr. Mellen understood that an article attacking the railroad company was about to be pub- lished in Hampton's ; that it was as he expressed it, "full of 5 248588 O '".PREFATORY ANECDOTE lies," and he came to warn the editor not to publish any such matter. In describing the article, he showed such familiarity with it as a man could hardly have unless he had read it, although Mr. Hampton had believed that no one outside of the office (except myself) knew of the existence of the article. Proofs of the matter were now produced and the caller requested to indicate which of the statements were "lies." Each important sentence was read to him separately, and he was asked whether it were true or false. In every instance, except four, he was obliged to admit that it was true. The four instances to the contrary were either trivial or they were matters that Mr. Hampton himself knew to be accu- rately stated. He had told his caller at the beginning of the interview that he would change or omit every statement in the article that could be shown to be false. After spending the bet- ter part of the day in the careful consideration of the mat- ter sentence by sentence, there appeared to be nothing ma- terial to change. Nevertheless the visitor demanded that the article be not printed. He said that if it should be, the financial pow- ers back of the New Haven railroad would ruin the maga- zine and Mr. Hampton. The article was printed in the issue of November, 1910. From that time Mr. Hampton found it increasingly difficult to get any money at the banks. Even when he offered paper of the best kind, endorsed by four men of wealth that had no trouble about borrowing money on their own account, the banks refused him all accommodation. Twenty-one banks and trust companies were approached with the same result. More than one declared a willingness to accept the paper for any other purpose than Hampton's Magazine. Several times the paper was accepted and subsequently, at PREFATORY ANECDOTE 7 some mysterious signal, rejected. The result was that Mr. Hampton was ruined according to prediction and his maga- zine was swept out of his hands. It had a circulation of more than 400,000 and a very large advertising business, and not a bank in New York would advance to it one dollar. Meantime, spies had made their way into the business office of the magazine, copied the list of stockholders, and these were besieged with circulars intimating that the con- cern was about to fail, and they had better protect them- selves, with the inevitable result of destroying the maga- zine's credit and bringing upon it a swarm of frightened stockholders. These are the facts. The author earnestly desires opinions upon them from unprejudiced sources and others. They seem to him to represent a condition incompatible with any assertion of a free press in America, and a state of espionage by the cor- porations that deserves the thoughtful attention of every citizen. CONTENTS PAGE PREFATORY ANECDOTE 5 THE ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS AND THE ST. PAUL AND PACIFIC 11 THE ROMANCE OF THE INLAND EMPIRE 33 THE GREATEST MELON PATCH IN THE WORLD 57 i THE ROMANCE OF DEATH AVENUE 80 ROMANTIC DAYS IN EARLY CALIFORNIA 102 UNCLE MARK PACKS UP THE.BOOKS 128 MR. HUNTINGTON WRITES TO FRIEND COLTON 158 MRS. COLTON LEARNS ABOUT PHILANTHROPY 197 SPEAKING OF WIDOWS AND ORPHANS. 212 WHAT THE LAW DOES FOR Us 226 THE STORY OF THE HARBOR FIGHT 255 THE STORY OF THE LEMON RATE 281 THE STORY OF THE NEW HAVEN.. ..309 Stories of the Great Railroads. CHAPTER I. THE ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS AND THE ST. PAUL AND PACIFIC. Sir George Stephen, Knight Grand Cross of the Royal Victorian Order, Baron Mount Stephen in the Province of British Columbia, Dominion of Canada and of Duffstown, Banff, in the Peerage of the United Kingdom ; so created June 23, 1891 ; and Baronet, so created March 3, 1886; late President of the Canadian Pacific Rail- way, Deputy Lieutenant, County Banff, Motto, Contra Audentior. Seats, Grand Metis, Quebec, and Brocket Hall, Hatfield, Herts. Town House, 17 Carlton House Terrace. Burke's Peerage, 1909. The Baron Strathcona and Mount Royal, Sir Donald Alexander Smith, G.C.M.G., F.R.S. (Cross of the Order of St. Michael and St. George, Fellow of the Royal Society) of Glencoe, County of Argyle, Quebec, Canada; late Resident Governor and Chief Com- missioner at Montreal of the Hudson Bay Company, President of the Bank of Montreal, Vice-President Dominion Rifle Association, Honorary Colonel 8th Vol. Batt. Liverpool Regiment, some time member for Montreal in the Dominion Parliament, Chancellor of Aberdeen University since 1893, and of the McGill University, Hon. LL.D. of the Universities of Cambridge, Yale, Glasgow, Aberdeen, Toronto, etc., and Hon. D.C.L., Oxford; F.R.S. High Commissioner for Canada in London since 1896, member of Royal Commission on War in South Africa, 1902, etc. Seats Glencoe, Argyleshire; Silver Heights, Winnipeg ; Norway House, Pictou, NoVa Scotia ; Resi- dences, Knebworth House, Stevenage, Herts, and Debden Hall, Newport, Essex. Town Residences, 1157 Dorchester Street, Mon- treal ; 28 Grosvenor Square, W. Burke's Peerage, 1909. As a rule, the luminous pages of the estimable Mr. Burke have for -us in this country but slight concern (except very likely for those of us that have marriageable daughters 11 12 STORIES OF THE GREAT RAILROADS ready for the title market), but about the two peerages above noted, there should dwell for Americans all the keen interest that pertains always to the work of our own hands ; because these two peerages we have made. In that sense they are far more truly American than British; and the tourist from Minnesota or Montana, straying through the awful precincts of Carlton House Terrace or Grosvenor Square, can look with peculiar, and in a sense proprietory interest upon two of the stately houses there, since we con- ferred them upon their present inhabitants. If he be phil- osophical, also, the spectacle may properly spur him to much profitable thought, one subject powerfully suggested being a question Whether, after all, we Americans are really as smart as we think we are. Lord Mount Stephen and Lord Strathcona began as poor boys and humble commoners. Look upward and observe the dizzy heights to which they have climbed; the lofty dis- tinctions, the great wealth, the many palaces, the station where in a long sonorous rumble a row of titles must fol- low each utterance of their names, lords and peers and baronets and what not each referred to in the English press as His Lordship, each loaded with honors, decorated by universities, including our own. What an apparent splendor of achievement! What grandeur! As we ordi- narily view these matters, what a lesson to the young ! And all done with American dollars ! About this sort of thing there clings in our minds the traditional halo and allurement of romance. Beyond any exploit of any soldier on any battlefield, beyond all physical daring or prowess, our hearts acclaim the glorious record of the boy that begins desperately poor and wins fortune, fame, eminence, power; and among such histories the instances I mention here leave for romantic splendor nothing further to be conceived. Donald Smith, for example, was once a poor and obscure drudge in the service of the Hudson Bay ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 13 Company; he spent thirteen years in the humblest labor, almost marooned among the savages of Labrador; he en- dured countless vicissitudes and dangers; he made his way to affluence; he became a peer of the realm. At his own expense he raised, equipped, and maintained a body of ef- ficient troops that greatly helped to save his country when in the crisis of her imminent peril at the hands of 25,000 Boer farmers. To him, therefore, the whole nation gives praise and honor. Novelist never conceived a career more inspiring to persons of our predilections, and not the least of its attractions is the fact that we gave so much to assist it; even if our contributions were involuntary. But have we on our side of the international boundary no careers comparable with these, even if of necessity they be uncrowned with peerage? Most assuredly have we. There is Mr. James J. Hill, distinguished as easily the great- est and most admired of our railroad kings, who though still without a lordship (by name) is well known to deserve this and even greater honor. His is the life of achievement most often and most reasonably held up as the perfect model for our aspiring youth. In solidity of performance, in the making by irreproachable methods of a great fortune, in application, industry, zeal, ability, fidelity, integrity, in short in all the most laudable traits of manhood, here we are informed is the ideal type. He began very poor and with every disadvantage, including uncompleted schooling; he appears now in possession of a colossal fortune, at the head of a vast system of railroads, endowed with truly im- perial power, praised by the press and by educators, cited by the pulpit as the conspicuous exponent of wealth honestly acquired, admired of all men (or nearly all), embalmed in literature as the typical example of the romance of success. What could be beyond all this ? I know not how these things can be better said than in the words of one of his most eloquent panegyrists, Mr. 14 STORIES OF THE GREAT RAILROADS Henry Lee Higginson, of State Street, Boston, in the At- lantic Monthly for January, 1908. "He was," says Mr. Hig- ginson, " a poor boy who passed through one stage of hon- est industry after another, never fagged in his task, * * * using his knowledge and skill to win success ; who has toiled without salary, allowing neither to himself nor any of his officials side profits or interest in adjoining lands, factories, or mines contributing business to his railroad; who has distributed throughout his country at his own cost the best live stock and has helped in divers ways everybody within his domain." Good! Let us then betake ourselves to profitable study of the man to whom are thus frankly ascribed regal powers and attributes in "his domain," and whose career can hardly fail to be a suitable companion piece to the careers of his friends, Lord Mount Stephen and Lord Strathcona. With the more good will since it happens that we can observe all these admirable exploits compendiously and at one glance. Because Lord Mount Stephen and Lord Strathcona made their fortunes at the same time that Mr. Hill made his, in the same operations and from the same people, who are ourselves a happy and rare conjunction of circumstances for which we can hardly be too thankful. Mr. Hill was born in a log house on a little farm near Rockwood, Ontario, September 16, 1838. Fourteen years later his father died, and young Hill left school to go to work in the village store, the family being in extreme pov- erty. At eighteen, he joined the western flowing tide of emigration, and was carried by it as far as St. Paul, where he secured the place of shipping clerk with the agents of a Mississippi River steamboat line. He was both industrious and thrifty ; it was noted then that for some reasons of per- sonal economy he used to get his dinners aboard the incom- ing steamers, where they were free. In 1867 he became the local freight agent of the St. Paul & Pacific Railroad, and ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 15 held that place until 1873. For a short time he was engaged in steamboating on the Red River of the North, and next he had much experience in the forwarding and commission business; with a side line in fuel. At the time this roman- tic story really begins, he was nearing forty, a stocky, spade-bearded man, active, a keen trader, fairly well known in St. Paul, and not, as a rule, taken very seriously. He was just Jim Hill, shrewd bargainer, a good judge of butter and a commission man. Our enthusiasm concerning the romantic phases of American railroad history should not lead us to overlook the extraordinary liberality wherewith our government once bestowed the public domain upon any gentlemen that hap- pened to be in the railroad line of enterprise. Therefore, we shall do well to introduce the first chapter in this great- est of all railroad romances, by reciting that in 1857 what is now the State of Minnesota was a territory, and that on March 3rd of that year, the Congress of the United States granted to the territory of Minnesota a vast area of public lands to be used to encourage the building of railroads. Nineteen days later, which at that time was about as quickly as the good news could be hurried to St. Paul, the territorial legislature chartered the Minnesota & Pacific Railroad com- pany, which patriotic gentlemen had formed in expectation of congressional generosity, and to them, therefore, was conveyed much of the land bestowed by Congress subse- quently enhanced by further largess of the same kind. What this was, I hesitate somewhat to say. because I doubt if in these days I shall be believed. I can only assure you that I have examined the records in the Federal Court at St. Paul, and what with diffidence I transcribe here, is taken from official documents. From these it appears that in its final state, the gift of public property upon the patri- otic gentlemen in the railroad way was, free of all charge, all the odd-numbered sections of land for a distance of ten 16 STORIES OF THE GREAT RAILROADS miles on each side of the line of the railroad. A section, let me remark in your ear, consists of six hundred and forty acres, and the land was the richest, the most fertile, the most desirable in the northwest. Few facts seem more romantic than this. In other ways the Minnesota & Pacific might have suc- ceeded admirably; as a railroad its achievements were not notable, being confined to a track from St. Paul to St. Anthony Falls (now Minneapolis), ten miles long which for an enterprise with a name so ambitious and a land grant so prodigal, hardly seems all that might have been expected. In 1862, there was a reorganization and all the rights and properties of the Minnesota & Pacific passed to a new com- pany called the St. Paul & Pacific, which proceeded to do many things, including the building of some real and much imitation track, and the issuing of many bonds, all of which were sold to the lowly and ignorant European, and chiefly to him of Holland. But observe that by an act of the Minnesota Legislature in 1864, the St. Paul & Pacific was, in the most singular way, divided, so that thereafter it seemed to be possessed by two companies, one called the St. Paul & Pacific Railroad company, and the other bearing the remarkable title of The First Division of the St. Paul & Pacific Railroad company. Inasmuch as the officers of the companies remained the same and the trackage to be divided (real and imitation) was a trifle, this performance seems very mysterious until you learn that one of these companies operated as a construction company for the other. Then if you know anything about the true romance of the American railroad, you begin to understand the mystery, an enlightenment much facilitated by carefully considering the alleged cost of construction (to be given later in these pages) and incidentally remembering that the money for the construction came from the lowly and ignorant European. ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 17 There were five successive issues of bonds, and on the proceeds of these, when sold as above noted, the building of the road was, in the classic phrase, pushed (more or less) from St. Paul toward the North and Northwest. Until 1872, that is. Then the lowly Hollander ceased to produce funds and consequently the building stopped. Also the pay- ment of interest. Inasmuch as the last bond issue of $15,- 000,000 had been made so late as April, 1871, and the pro- ceeds could hardly have been in that time expended upon construction at least, these romantic facts occasioned some astonishment and unpleasant comment. Of these $15,000,000 of latest style bonds, $10,700,000 had been sold in Holland through the banking house of Lipmann, Rosenthal & Co., Amsterdam, and $4,300,000 were held by the same firm as security for advances made. Nobody knows what had become of these advances. The firm of John S. Kennedy '& Co., New York, was trustee for some of the bonds. In consequence of the de- fault on them, it brought suit and on August 1, 1873, Judge John F. Dillon of the United States Circuit Court appointed Jesse P. Farley, of Dubuque, Iowa, to be receiver for the St. Paul & Pacific company. Mr. Farley was of long and varied railroad experience. At the time of his appointment, he was superintendent of the Iowa Division of the Illinois Central. He went to St. Paul and proceeded to receive also to operate the property as a railroad, the which I judge to have been an innovation in its history. Hitherto its function had been chiefly to get money from the Hollanders. Mr. Farley seems to have come upon some of the most romantic junk that even the picturesque annals of the American railroad have revealed. When he arrived in St. Paul, he notified his predecessor in the control of things to turn over to him the property of the road. "If you can find any property belonging to the St. Paul & Pacific," his predecessor replied, "you had better 18 STORIES OF THE GREAT RAILROADS seize it." But even at that it would hardly have seemed worth seizing, except possibly for museum purposes. In some places the tracks looked like a Virginia rail fence and nothing but a squirrel could run over them; elsewhere the receiver had no locomotives nor cars and must rent all his equipment from the Northern Pacific. Yet, being of undoubted capacity and dogged resolution, he worked his way through all these troubles. He patched up the road bed and put all of it in good working order; he secured equipment and material; he supplied a service, developed the traffic, increased the revenue and diminished the outgo; he enhanced the through business to Manitoba by the way of the Red River, in which he made his road an important link. Settlers began to arrive in large numbers, the country was filling up, the railroad traffic kept pace with and shared in the resulting prosperity; the poor old St. Paul & Pacific began to get upon its legs. When Farley came into the road the First Division com- pany (of which he was General Manager, but not Receiver) had the line from St. Paul to Breckenridge, and the branch to Sauk Rapids ; the other company had the extension from Watab to Brainerd and the line from St. Cloud to St. Vin- cent, in all something more than four hundred miles of track. Farley not only put these in order, but he completed connections with the Canadian railroad at the frontier. He still further proved his capacity when after three or four years of his receivership, the Minnesota legislature (in a moment of unprecedented righteousness) passed an act pro- viding that unless the road should be completed to a certain point within a certain time, it must forfeit part of the rich land grant whereof the people's representatives had been so liberal. Judge Dillon authorized the receiver to construct this extension and to issue receiver's debentures for the ex- pense. So the receiver built one hundred and twelve miles of new road and saved the land grant. ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 19 Four facts connected with this operation are important to you : First, Judge Dillon limited the cost of construction to $10,000 a mile, and this sum must include station buildings, grounds, side tracks and equipment. Second, The Receiver built and equipped the one hundred and twelve miles for less than the limit fixed, expending only about $9,500 a mile, some stretches being done for $8,225 a mile. Kindly remember this. You will have reason to re- fer to it later in these chapters, and it is a good fact to have handy when you encounter the assertion of gentlemen in the railroad way that it costs $60,000 to $75,000 a mile to build a railroad. Third, The Receiver filed with the court detailed ac- counts of every item of expense connected with this work, and every citizen can go now and see in the office of the clerk of the United States Circuit Court at St. Paul, Minne- sota, exactly what it costs to build and equip a railroad when the work is honestly done. Fourth, The construction company with the alias, as be- fore noted, expending the money of the lowly and ignorant foreigner, had charged up $30,000 a mile for construction in the same region and had done the work so badly that when the Receiver took charge, the track was unsafe. Do you begin now to see something of the real romance of these things? Mr. Hill, as we have before observed, had been for six years the local freight agent of the St. Paul & Pacific. His experience in the commission business had made him familiar with the farm products and agricultural possibili- ties of the Northwest. He himself had been born on a farm, and a tough one. Having been agent for the rail- road, he knew also about the rich land grants on each side of the railroad line. It has been supposed that because of these items of knowledge and by reason of marvelous gifts 20 STORIES OF THE GREAT RAILROADS of ability, he foresaw the vast agricultural wealth of the Northwest and determined now to take advantage of it. All of these matters came subsequently under judicial in- quiry, when there appeared no reason to believe that Mr. Hill foresaw anything beyond what he himself described as a good speculation. But, however that may be, his were the next moves that completely changed the history of the railroad and laid the foundation for these admired peerages and Mr. Hill's own regal state. Mr. Hill is a Canadian. Among the interesting traits of the truly admirable people of Canada, is their touching sense of loyalty. No Canadian ever forgets the tie that binds him to every other Canadian, and not even Scotland has produced a stronger feeling of the clan. I do not know why this is so; I think nobody knows; but the fact itself must be familiar to all observers. As soon as it occurred to Mr. Hill that he had what he called a good speculation, his first impulse was to bring into the good thing another Canadian. There was one then living in St. Paul that was a, conspicuous figure of his times, Norman Wolford Kitt- son, native of Sorel in the Province of Quebec. Hr. Hill broached his speculation to his compatriot Kittson. His second impulse seems to have been to confer much with the Receiver. Mr. Farley subsequently testified that one day in the summer of 1876, Mr. Hill came into his office and, after many prolegomena, outlined a scheme by which bonds of the railroad could be obtained at cheap prices, foreclosure forced, the company reorganized, and much profits secured. Mr. Farley conceded that the scheme was fair to look upon if anyone could get the money where- withal the bonds were to be bought. Mr. Hill said he be- lieved he knew where the money could be had. As to what followed, the record shows divergent testi- mony. The one fact' that is clear, is that Mr. Hill and Mr. Kitt- ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 21 son, Canadians, drew into the combination Mr. Kittson's friends, George Stephen of Montreal, and Donald Alexan- der Smith of Winnipeg, also Canadians, and that these gentlemen executed a document afterwards known as the "Montreal agreement," by which Mr. Hill's suggestion was indorsed and amplified and the spoils of the Yankees de- cently apportioned. Some money seemed to be required. None of the signatories had money, but Mr. Stephen, who was manager of the Bank of Montreal, and Mr. Smith, who had been an active and romantic adventurer in the North- west, had financial connections from which they believed they could secure what was needful. In the benevolent partnership thus formed Mr. Farley believed he had a full and equal share. The profits had been divided in advance into five equal parts, and one of these shares, he said, was assigned to him. He had been taken into the deal, he said, in return for his services, and he had continually guided the combination with advice founded upon his superior knowledge as Receiver and Man- ager of the property. Thus, for example, Mr. Hill wished to send quietly to Holland and buy the bonds from the lowly foreigners. Mr. Farley, as Receiver, knew the location of practically every bond, and negatived Mr. Hill's idea as un- wise and unnecessary. He said the bonds could be obtained without sending to Holland. In a short time there appeared in St. Paul a man sent by the unfortunate bondholders to see what had become of their money. Mr. Farley introduced this man to Mr. Hill and Mr. Kittson. They carried on some negotiations with him, as a result of which they entered into an agreement to purchase bonds on these terms : For the $1,200,000 Branch Line issue of June 2, 1862, seventy-five per cent of par value. For the $3,000,000 Main Line issue of March 1, 1864, thirty per cent, of par value. 22 STORIES OF THE GREAT RAILROADS For the $2,800,000 Branch Line issue of October 1, 1865, twenty-eight per cent, of par value. For the $6,000,000 Main Line issue of July 1, 1868, thirty-five per cent, of par value. For the $15,000,000 Extension issue of April 1, 1871, thirteen and three-fourths per cent, of par value. All unpaid coupons to be included in the sales. These bonds were first mortgages on more than five hun- dred miles of operated railroad, and two million five hun- dred and eighty thousand six hundred and six acres of the best land in the world. The romance involved in these facts would almost bring tears to your eyes. Having secured such of these bonds as were necessary to the genial plans of the five partners, and chiefly on the un- derstanding that the purchases should not be paid for until the road should be reorganized, the Canadian brotherhood proceeded, on May 23, 1879, to form the St. Paul, Minne- apolis & Manitoba Railroad company, of which George Stephen was president, Norman W. Kittson and Donald A. Smith, Directors, and James J. Hill, General Manager. Whereupon there was appointed a Master in Chancery, who, on the 14th day of June, 1879, sold all the property of the two St. Paul & Pacifies to the St. Paul, Minneapolis & Manitoba Railway company for $3,600,000 which hap- pened to be less than the total of the bonds secured at the agreeable rates quoted above. Some outlying piece of junk purchased at the same time, brought the exact cost to $4,- 380,000. In making payments, the purchasers were al- lowed to turn in receiver's debentures and also the bonds, for all the purchase price, except a small percentage in cash. 1 4 It is unfortunate that the court records at St. Paul are in a con- dition so incomplete and unsatisfactory that no one now can trace with entire accuracy the successive steps in these proceedings. There is no question, however, that foreclosure was accomplished and the road sold to the new company as outlined here, ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 23 This cash is an exhibit of historic interest being all the money the partners ever invested in the enterprise and that not of their furnishing. Then were the happy days before those vile creatures, the muck-rakers, had begun to cast their baleful shadows upon our fair land, but even at that halcyon time the ro- mantic nature of these transactions seems to have occa- sioned unpleasant remarks, and some of the holders of bonds outside of the circle affected by the Canadian broth- erhood, brought suit to have the sale set aside and the liti- gation reopened. Here were five hundred and sixty-five miles of operated railroad and two million five hundred and eighty thousand six hundred and six acres of the best land out of doors, all sold for $4,380,000 mostly in prom- ises to pay one of the most romantic events in railroad history, and too romantic for those that did not share in it. Two developments of later years tended to enhance even this delicious romance. The first was the sale by the St. Paul, Minneapolis & Manitoba Railway company of the greater part of the land for $13,068,887, and the other was the sworn testimony of the Receiver that the railroad prop- erty sold for $4,380,000 was worth at the time more than $15,000,000. 2 He ought to have known; he helped to sell it. However, the railroad and the rich lands passed into the hands of the partners, and at once the new owners issued upon the property $8,000,000 of new bonds with which they paid for the old bonds they had secured, returned to their friends in Canada what sums had been advanced for neces- sary expenses, and in this highly agreeable manner began their operations on American soil ; having secured from the simple-minded Americans, five hundred and sixty-five miles of railroad, two million five hundred and eighty thousand 'Farley v. Hill et al., Supreme Court of the United States, about which see succeeding pages. 24 STORIES OF THE GREAT RAILROADS six hundred and six acres of fertile land, and $3,620,000 of surplus bonds (worth 104), representing additional profits. All without investing a cent a romantic triumph, as you will readily perceive, of a truly touching nature. There was also issued by the brotherhood $15,000,000 of St. Paul, Minneapolis & Manitoba stock, for which not one cent was ever paid into the company's treasury, being in fact, the purest water that ever gushed and gurgled from the financial rocks. Of this stock, Mr. Hill, Mr. Kittson, and Mr. Smith took twenty-eight thousand eight hundred and twenty-three shares each, being about one-fifth. Mr. Stephen took two-fifths, one of which he held in trust for some person or persons not stated a curious fact to which we shall have occasion to refer later. You will observe now that this is one of those romances that deepen in interest as they progress, for the $15,000,000 of stock thus neatly created out of nothing by the mere wav- ing of the wand of financial wizardry presently became an enormously valuable possession, and is therefore to be added to the spoils secured from the outwitted Yankees. On this pellucid water stock, the first dividend from the Yankees was declared August 1, 1882. It was at the rate of seven per cent a year, and the stock was then worth 140: which was doing fairly well, everything considered. Through the issue of more bonds, the mileage of the road had been increased to 1,058, the fat lands were being sold for fat prices, and, of course, every time a farm was carved out of them some tons were added to the freight traffic. The Canadians were perfectly right; they had a Good Thing ; one of the best Good Things in this world. Still, this life here below affords few instances of per- fectly unalloyed joy. The loyal Canadian brethren were reaping seven per cent dividends on stock that cost abso- lutely nothing beyond the expense of printing it, and other emoluments were theirs or loomed large ahead; but in the ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 25 precious ointment of content was still the noxious fly. There was the Receiver. Great Scott yes! We almost forgot the Receiver. What became of him ? Well, Mr. Farley, the Receiver, did not a thing but clamor day and night for what he said was his just share in these goodly profits. He said that from the beginning he had been a full partner in the enterprise; one American in the same boat with four Canadians ; that he had helped to plan, devise, and consummate the operations ; that his advice, co- operation and knowledge as Receiver, had been indispens- able; that his full and equal partnership had been recog- nized by the others, although, because of his position, it had been kept a secret; that he had been promised a one-fifth share of all the profits, the same as the others received ; but that when the road had been sold and the new owners had taken possession, the Canadians had coldly refused to recog- nize his claims; had repudiated the contract that he alleged existed among them; and had thrown him out of the boat. How in the world a Receiver, who is a court officer and certainly has sacred relations to the court and to his trust, could properly enter upon any such arrangement as Mr. Farley asserted, or how he could perform any proper serv- ice to such a combination, I do not pretend to say ; but these were his allegations, and after a time he brought suit against Mr. Hill, Mr. Kittson, and the St. Paul, Minneapolis & Manitoba company to secure an accounting of profits and to enforce his contract. This strange suit, which you will find fully reported as No. 287 in the October term of the Supreme Court of the United States, 1893, dragged on for thirteen years, being twice fought from St. Paul to Washington and back. You might think it of a nature to cause a national scandal, in view of the position of the Receiver and the significance of his allegations. If he told the truth, he had made with the Canadian brotherhood a bargain of a kind wholly incom- 26 STORIES OF THE GREAT RAILROADS patible with our cherished conceptions of our courts, and one that should have had the prompt attention of a district attorney. Also, if his allegations were true, the romantic gentlemen from Canada were put in a light still worse and highly in- consistent with the true spirit of any other romance than that of the card-sharp. For even the most desperate devotee of railroad romanticism will hardly go so far as to admire a greasy, sinister and utterly illegal bargain with an officer of a court and a bargain that was not kept. This, of course, is the conclusion suggested by Mr. Farley's allegations. Perhaps those allegations were unfounded. Thirteen years of litigation failed to produce any definite judicial decision on this point, but it brought forth other things of almost equal value to those that believe in great fortunes "honestly acquired." When the case was tried in the lower court, Mr. Farley took the stand and told an extraordinary and detailed nar- rative of the many conferences at which (he said) the plan to secure the road had been discussed, including his own share therein. He said that he was, in fact, absolutely necessary to the enterprise, because as Receiver he "had knowledge not possessed by the others as to the whereabouts and situation of the bonds, their rated value by the holders, the mode whereby they could be reached and procured, the situation, amount, character, and value of the lines of rail- road and other property, and in respect to the pending fore- closure suits." He quoted Kittson as insisting upon Far- ley's participation and refusing otherwise to join the broth- erhood. "I know nothing about a railroad and don't care to know,'* Kittson was alleged to have said. "Jim Hill knows nothing about the management of a railroad, and it would be folly for men to go into an enterprise of this kind even if they were successful, without some person with them ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 27 with railroad ability and experience to manage the prop- erty." On this, according to Farley's testimony, he agreed to join the enterprise if Kittson could get the money re- quired. Kittson, Farley testified, undertook to get the money from his Canadian connections, and an agreement was made that Farley should have share and share alike with the others. On June 3, 1876, Farley wrote to John S. Barnes of New York, a member of the firm of John S. Kennedy & Co., with which he regularly corresponded, that "he (Kittson) can get the money," and on August 23rd, same year, he wrote : "His friend, who is expected to furnish the money, has unlimited control of Canadian politics. It might become a Canada project, but that would be a matter of no moment to you or me if we could make some money." Here are bits of alleged conversation at the conferences taken from the testimony in the case: Kittson I won't have anything to do with it, unless you [Farley] are interested. We don't know anything about railroads. Farley I have no money, Mr. Kittson. Kittson We don't want you to furnish any money. Hill Certainly not. Kittson We will furnish the money. On another occasion. Farley If you cannot get the Litchfield stock [in the old company], why, you will have to step into the Dutch shoes, take the place of the Dutch bondholders, and go ahead and foreclose organize a new company, put on all the securi- ties the property will bear, use enough of the securities to pay back what the bonds cost, and the balance is profit on the thing. Which, as we have seen, is exactly what was done. 28 STORIES OF THE GREAT RAILROADS On another occasion, according to the testimony, Farley's position as Receiver was discussed. Kittson We will have to keep this thing to ourselves. Hill Certainly; it won't do to let anybody know any- thing about it. Farley [to Fisher, his assistant, who participated in many of the conferences] Now, Mr. Fisher, we will have to keep this thing perfectly quiet. It seems that at first Mr. Stephen went to England and tried to raise money there, but failed. It must have been later, then, that the scheme of conditional purchase of the bonds was hit upon and proved eminently successful. One of Farley's letters taken from the record of the case, may serve to lighten these matters with a passing ray of grim humor. It was written after the sale of the property and read thus : "Since the election of Bigelow and Galusha as Directors in the New Company, men of no Money, railroad experi- ence or Influence, And myself left out in the cold, I am forced to the conclusion that My time and claims on the St. Paul & Pacific is Short. I did expect better things of Hill and Kittson. I had a talk with Jim Hill last knight. He disclaims any intention on his part to ignore my claim. But he is such a Lyer can't believe him. It is a matter of aston- ishment to every Person in St. Paul, to see the way Jim handles Mr. Stephens. * * * You must not blame me if I should try to get even with Jim Hill before I leave here." Mr. Farley's story was supported on the witness stand by Mr. Fisher, who at the time he testified, was President of the St. Paul & Duluth Railroad. Mr. Kittson had died before the case came to trial, but Mr. Hill, in his testimony, denied emphatically that there had been an agreement with Farley, and that Farley had been in any way a partner in the enterprise. In this he was supported by depositions ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 29 from Stephen, Smith and others. Certain letters that it was said Farley had written to John S. Kennedy in New York, letters that, according to his lawyers, would help ma- terially to establish his case, he was not able to put in evi- dence because, as was asserted at the trial, Mr. Kennedy went to Switzerland when the suit was begun and remained there out of the court's jurisdiction, refusing to furnish the letters or copies thereof. Mr. Kennedy died not long ago, leaving a great fortune, much of which was bequeathed to charity, causing many enthusiastic panegyrics. In the list of his possessions, published at that time, appeared quanti- ties of securities in what are known as the Hill properties. His name occurs frequently through this narrative ; through his firm, for example, the first foreclosure suit was begun which resulted in the receivership. When Mr. Farley's suit was tried in the United States Circuit Court, it was dismissed on the ground that the al- leged agreement had not been established, and even if it had been, it would have been improper and illegal, because it was made with a Receiver, who was an officer of the court and the guardian of the property. Farley appealed and se- cured an order for a new hearing. Finally, the case came for decision on its merits to the Supreme Court, which, on December 11, 1893, ruled against Farley. Justice Shiras wrote the opinion, which was based solely on Farley's fail- ure to establish the agreement, the Justice pointing out that nothing in the nature of a written contract or memorandum of the agreement had been submitted, and that Farley being a man of affairs, "it was unlikely he would rely in an affair of such magnitude upon a merely verbal agreement." How, being a Receiver, he could have put his name to a written agreement of that character, did not appear. After this final disposition of the matter, the Canadians were left in undisturbed possession of the property. Mean- time the great tide of settlers into the Northwest had filled 30 STORIES OF THE GREAT RAILROADS the country; cities and towns grew almost overnight on the prairies; the fertile land began to produce monster wheat crops ; Minneapolis and St. Paul developed into a great me- tropolis ; the railroad traffic piled up ; the line was extended year by year ; Winnipeg and the Canadian Northwest began to attract a great population ; this railroad was the grand highway of Manitoba travel ; a flood of profits rolled in upon the fortunate owners. Mr. Stephen and Mr. Smith used theirs in furthering their social ambitions in England; Mr. Stephen becoming Lord Mount Stephen, Mr. Smith becoming first Sir Donald Smith, and then Lord Strathcona. Mr. Hill used his share to extend his railroad holdings. First he built his railroad (now reorganized again into the Great Northern) through to the Pacific coast. Then he secured, with his share of the profits, control of the Northern Pacific, and of the great Burlington system. To these he added road after road until in December, 1908, he completed his gigantic system with the Colorado & Southern, and held in his control trunk lines from the Great Lakes to the Pacific Ocean, and from the Canadian border to the Gulf of Mexico, approximately twenty-five thousand miles of track, traversing and dominat- ing an area fitly termed the Inland Empire, of which, as he owns the highways, he is the practical ruler. When to these advantages you add newspapers, politicians, conventions, parties, houses, lands, farms, sycophants, praise-chanters, knee-crookers, legislatures, senators, and other matters, here appears one of the most colossal figures of the times. Why recite these things now? The Past is past: let it be. True. But I recite them because they have direct and absolute bearing upon the greatest public question that this generation will have to deal with. We cannot think that much longer we shall be able to dodge that issue: it is too insistent and too important. ROMANTIC HISTORY OF THE DUTCH BONDHOLDERS 31 Some other considerations are also to be noted. M.r. Hill is admitted by most of his adulators to have some slight imperfections, but these are generously over- looked because he is alleged to have used some of his vast profits (made out of nothing) to develop the Northwest. I purpose to show in a succeeding chapter, exactly how he has developed the Northwest, and to that showing what has been recalled here from his other achievements was an indispensable preliminary. Furthermore, Mr. Hill, being declared so loudly to be able, generous, honest and successful, and having risen in this marvelous fashion from penury to great wealth, may well be taken as the perfect type of the product of that free opportunity that America is said to offer to all men and of which we are so proud. Therefore, it should be well to see exactly what the gathering of this great fortune and great power has meant for Mr. Hill and meant for other persons to the end that we may the better judge whether this free opportunity is all of the public benefit we have held it to be. In the next place Mr. Hill is much admired because he has served, without salary, as General Manager and as President of his railroad. If he had been paid a salary of $50,000 a year, he would by this time have drawn from the enterprise $1,600,000. He has had no salary, but he has, with Lord Mount Stephen and Lord Strathcona and others, drawn from the enterprise his share of a very much larger sum. To-wit, four hundred and seven million dollars. This sum, with which the partners have been endowed as one of the results of the original agreement, is exclusive, please note, exclusive of all dividends, interest, or other emoluments four hundred and seven million dollars in thirty years. Does that amount seem incredible or stupend- ous to you? I assure you it is only a part of the colossal profits coined from an investment of nothing by this most 32 STORIES OF THE GREAT RAILROADS wonderful of all machines, and when you come to see the full balance sheet of these operations, you will agree with me that never before have there been such marvelous re- sults from a beginning so inconsiderable. I propose next to show just how the partners were put in possession of this money, and who furnished it. Will the showing be interesting to you? It will be if your monthly rent interests you, or your butcher bill, or your coal bill, or your grocery bill ; because to each of these items the story I have to tell has a direct relation. Finally, the transcontinental railroads of this country adopted on January 1, 1909, an increase of freight rates ranging from three to eighteen per cent, and calculated to produce for them an increased annual revenue of many millions of dollars. When we are through with the study of these matters you will see exactly how fair, reasonable, and necessary is this increase, and how just it is that to furnish this additional income, you should pay more for your meat, your fuel, and your shelter. CHAPTER II. THE ROMANCE OF THE INLAND EMPIRE. And now for the exact way in which this tremendous, incalculable power we bestowed upon Mr. Hill and his friends, "builds up the Northwest" also other regions. Take a map of the United States and study attentively the distribution of the large cities. You will observe that after you leave the Atlantic seaboard, the natural population centers are about equidistant. Pittsburg is about as far from the coast as Buffalo is, Cleveland is situated relatively much like Detroit; you go four hundred and twenty miles northwest of Chicago and find the metropolis of St. Paul and Minneapolis, or you go five hundred miles southwest and you find Kansas City, or five hundred miles due west and find Omaha. Denver is as far from Omaha as Omaha is from Chicago ; Salt Lake City is another five hundred miles' remove. Portland, Oregon, is about seven hundred miles north, and Los Angeles about five hundred miles south of San Francisco. Cities like At- lanta and Fort Worth, even though inland, are clearly destined to be great central points for production and dis- tribution. Streams of trade head for such places; inevita- ble markets for vast areas of rich country, they are noted of men as the industrial capitals to be. In the far Northwest the obvious inland center, having not alone the favored situation, but a marvelous combina- tion of natural advantages, is the City of Spokane, Wash- ington. It is about three hundred and forty miles inland from any 33 34 STORIES OF THE GREAT RAILROADS Pacific Coast City; 1 it is fifteen hundred miles west of St Paul and Minneapolis; there is no indication of any other metropolis within three or four hundred miles. Beyond all this, it is the natural center and market place for an enormous area of marvelously fertile and very beau- tiful country, the true garden spot of the Northwest, the granary and orchard of that part of the national territory, one hundred and fifty thousand square miles, so rich in so many different ways that probably twenty million people could be supported there. Of all this magnificent region, Spokane is the cross-roads and supply depot. Eastern Washington, eastern Oregon, northern Idaho, western Montana and part of British Co- lumbia are embraced in the Spokane country. Here the wheat fields grow more than forty-five million bushels of wheat every year, the orchards yield nine or ten million dol- lars' worth of fruits, the dairies yield about five million dol- lars' worth of their products, there are lumber, lead, silver, gold and copper ; coal is not far away. Three hundred billion feet of timber stand in this region and a great lumber industry is indicated. Above all, Spokane, situated at the falls of the Spokane River, has the incalculable advantage of water power. It is perfectly equipped, therefore, to be a great manufacturing as well as a great commercial center. In the sanguine local literature, it is termed the Power City. Taking a comprehensive view of the Spokane country, its fertility, extent, resources, location, you would naturally ex- pect Spokane to be a great city. You would look for 200,- 000 or 250,000 people in a city so blessed with every natural advantage. 'Four hundred miles from Seattle by the Northern Pacific Rail- road, five hundred and forty-one miles from Portland, three hun- dred and thirty-nine miles from Seattle by the Great Northern Railroad. THE ROMANCE OF THE INLAND EMPIRE 35 Spokane has not 250,000 people, nor 200,000. The cen- sus of 1910 gave its population as 104,402. Not alone is the population of the city below the normal, but the industrial development is impressively small. The magnificent water power largely goes to waste. Of all kinds of production that can be called manufacturing, the annual total is only about $9,000,000. With such a country about it, with such natural wealth poured into its lap, a total twenty times as great would not be by this time an unreasonable expectation. Yet Spokane sticks at 104,- 402 people and $9,000,000 of manufactures. So sticks all the Inland Empire. What is the trouble? Why does it not grow? No nat- ural disadvantage interferes. Location most charming; cli- mate mild, healthful, invigorating; a beautiful city in a beautiful environment ; nothing is lacking here. Nor is one known quality of progress deficient in this people; for per- tinacity and public spirit, for industry and zeal and all the other civic virtues, I know not how or where they can be excelled. And yet the capital of the Inland Empire sticks fast. What is the matter? This is the matter : It is strangled with railroad rates. That is all Spokane and the whole Spokane country. How? Thus: Spokane is reached by four great trans-continental rail- road systems and several branch lines. Towns are accustomed to view such facilities as an asset of great value. In the case of Spokane and the Spokane country, it has been no asset, but a terrible injury. The transcontinental systems are the Great Northern, the Northern Pacific, the Canadian Pacific, and the Union Pa- cific (Oregon Railroad & Navigation company). These lines, supposed by a convenient fiction to be rivals and to furnish the shipping public with what we are pleased 36 STORIES OF THE GREAT RAILROADS to call the advantages of competition, are practically one so far as the Spokane country is concerned. That is to say, they have formed an iron-bound compact the essence of which is to throttle Spokane and the whole Spokane country obligingly referred to by Mr. Higginson as "Mr. Hill's domain." This compact is doubtless facili- tated by the fact that two of the lines mentioned are the property of Mr. Hill, being part of the wealth we conferred upon the Canadian brotherhood, as related in the foregoing chapter of this chronicle. If you are a merchant, or manufacturer, or farmer in this domain, it makes not the slightest difference which of the lines you choose for your shipments. By one or by all you are subjected to exactly the same extortionate rates. This is the extortion: Spokane is 340 miles east of Se- attle ; the haul from Chicago to Seattle is about 2,248 miles ; the haul from Chicago to Spokane is only 1,980 miles. The lines by which freight is hauled from Chicago to Seattle pass through Spokane and go 340 miles farther to reach Seattle. 2 Is that clear? Good. To a traveler passing from Chicago to Seattle, Spokane is relatively like Syracuse to one passing from New York to Buffalo. Let us say that you are a dry-goods merchant in Spokane and you have shipped to you from Chicago, a carload of calico and other fabrics in your line. On that carload the freight rate that you will pay is not the normal freight rate from Chicago to Spokane, 1,980 miles, but the normal freight rate from Chicago to Seattle, 2,248 miles, plus (ap- proximately) the normal freight rate back again from Seat- tle to Spokane, 340 miles. Thus if the rate from Chicago to Seattle is one dollar a hundredweight, and the local rate on the same commodity from Seattle to Spokane is thirty- five cents, the rate from Chicago to Spokane, 340 miles nearer to Chicago, and on the same line, is usually about 'I have used in all these calculations the shortest distances. THE ROMANCE OF THE INLAND EMPIRE 37 $1.35 a hundredweight. I know full well that if you have never looked into the subject of railroad rates in America you will think that I am in this either mad or imagining a vain thing. Yet I am but reciting the certainties of the tariff sheets. All the railroads actually do charge to the Spo- kane country what they charge to the Pacific coast, plus the rate back from the Pacific coast to the Spokane country. They do it now, they have been doing it for many years, they will probably keep on doing it; and so long as they do it the Inland Empire will stick where it is. This is the way the railroads develop the Northwest. Merely as an illustration I have supposed a shipment from Chicago. The rule holds good on shipments from all other eastern points; shipments from New York, Boston, Philadelphia, Pittsburg, or other cities to the Spokane prov- ince of "Mr. Hill's domain" must pay the rate to the Pa- cific coast and then the rate back from the Pacific coast to their destination. A wholesale dealer in a Pacific coast city can get his goods from New York and have them shipped to his own city and reshipped to towns in the Spo- kane district, and the total freight rate is substantially the same as if they had been shipped originally to Spokane, although meantime they have traveled 680 miles farther than they would have traveled if they had been sent direct to Spokane, through which city they were actually hauled when they went to the Pacific coast and to which they now return. In other words, if the rate from New York to Spokane is fair, then the rest of the haul from Spokane to the coast and back, 680 miles, is performed for nothing. To this practice all the railroads are equally committed. But, you say, what is the reason for this most singular performance? Railroads are not ordinarily conducted on whim or caprice. There must be some reason for this dis- crimination. Surely. There are, in fact, not one but three 38 STORIES OF THE GREAT RAILROADS reasons. The first is that the railroads have the power and can lay the Spokane or any region under such tribute as they may be pleased to exact. They can; therefore they do. You will not find this reason mentioned in the argu- ments for the railroads, but be not disappointed; it exists, nevertheless. The second reason, on which the railroads lay great stress, is that their capitalization and value are such that if they were to reduce the rates to the Spokane country by no possibility could they earn a fair interest on their capital. You will see a little later how just and fair is this reason. The third reason is that there is water competition to the Pacific Coast points and none to Spokane. Water competition? How is that? Why, a shipper can sometimes send something from New York around Cape Horn to San Francisco. The plea of the railroads is that they made a low rate to the Pacific coast cities to meet this competition. I invite careful attention to this plea, because it shows us exactly how freight rates are made in this country. Water shipments via Cape Horn at the time the railroads began this practice, were made in sailing vessels. Very few vessels 3 were engaged in the trade, and these sailed irregu- larly. From New York to San Francisco averaged about one hundred and fifteen days. The merchandise that could be transported, subject to such delay, was limited in char- acter and of small amount. Not one shipper in ten thou- sand knew of the existence of the water route; not one in twenty thousand could use it. Yet because of this compe- tition, which existed only in name, the railroads put on an extra rate to the interior points, asserting that the lower rate to the coast cities was the result of water competition. This seems sufficiently ridiculous, and yet it is only a "The navigation laws compel such shipments to be made in Amer- ican vessels, and there are very few American vessels. THE ROMANCE OF THE INLAND EMPIRE 39 small part of the story. Admitting that a man could ship something from New York to the Pacific coast by one of these occasional sailing vessels, he certainly could not so ship it from Pittsburg, Chicago, Alabama, Muncie, Colum- bus, Atlanta, or St. Paul. And yet the discrimination in rates was applied to shipments from all these places exactly as to rates from New York. Again, admitting that the bugaboo of an occasional old hooker beating her way through the Cape Horn squalls was sufficiently terrifying to excuse a rate to Seattle as low as the rate to Spokane, what excuse could any ingenuity find for the addition of the local rate back from Seattle to Spo- kane on shipments made directly to Spokane from Eastern points ? I do not know. Except for the explanation contained in the first reason, that mystery remains insoluble. But at least there the rates were, and there they remained, and because of these rates Spokane did not fulfill its obvious destiny, it did not become a great metropolis, the Spokane country did not become populous, the almost unexampled resources were not developed, the region capable of sup- porting many millions, had a population of three hundred thousand. Of course ! What good lies in fertile soil if you cannot market its products? Of what use is water power if it makes nothing that can be sold? Of what use is any ad- vantage of situation if the railroads embargo shipments? Against this deadly condition the people of Spokane groaned and protested. To the injustice from which they suffered was added a needless aggravation: they had been fooled and disappointed. Having been brought up in the school of economics that resolutely holds competition to be the infallible cure-all, they had believed their rate troubles to arise from having too few railroads and too little compe- tition. They welcomed the coming of a new line only to 40 STORIES OF THE GREAT RAILROADS find it joined hands with the oppressor. The more railroads, the stronger the combination to maintain the oppressive rates. Whenever their hope has been raised by the promise of competition, it has been immediately disappointed when the new line began to be operated. Yet the very suggestive fact remains that in all these years of struggle the policy of the railroads has steadily violated the intention and, so far as a mere plain citizen can see, the letter of the Interstate Commerce Act. By the fourth clause of that act a railroad is strictly for- bidden to charge more for a short haul than it charges for a long haul. This is precisely what the railroads do here. They charge more for a haul to Spokane than they charge for a haul to Seattle, three hundred and forty miles farther. How, then, if it is so clearly illegal, do the railroads man- age to continue this practice ? Quite simply. In every one of these regulative laws there is a joker. The joker in this law is a provision that the fourth clause is suspended when "controlling competition" exists. The railroads merely said that this was such a case, and that the possibility of shipping some things occasionally around the Horn in a sailing vessel was "controlling compe- tition." What it controlled, or how and where, when or with what it competed, no one ever explained. The ghost of an American clipper was seen at long intervals off the Cape, and that was a reason why freight from Chicago to Spokane should bear an extra rate of thirty per cent. To what extent it is "controlling" may be readily gauged. In recent years the phantom clipper has disappeared and there is now operated from New York to Hawaii, calling at San Francisco, a line of steamers. The utmost capacity of these steamers, including what they carry to Hawaii and what they carry to San Francisco, is stated in the brief of the Great Northern Railway Com- pany to be 250,000 tons a year, and when their freight is THE ROMANCE OF THE INLAND EMPIRE 41 landed at San Francisco it is still nine hundred miles from Seattle. When you contemplate these facts you will be lost in wonder at the supreme and unsurpassable audacity of the American railroad management. You should not let your admiration obscure from you the fact that the fruits of this audacity are reflected daily in your grocery bills, meat bills, tailor bills and rent. But to return to the long-suffering people of Spokane, who are, after all, but a type of the American community in the hands of the American railroad. From the some- what despondent and cynical mood that I have mentioned as the result of the failure of competition to relieve their distress, .they were now happily aroused by the appearance of a new and rosy harbinger of joy, being none other than our old friend, Mr. James J. Hill. In the year of grace 1889 Mr. Hill had been for ten years in the enjoyment of the wealth wherewith the good-natured and confiding Americans had so pleasantly endowed him. His path had fallen in goodly places; from an investment of nothing he and his fellow Canadians had reaped (in ways presently to be shown), profits of many millions. So sud- den and so dazzling an ascent can hardly be paralleled in even our gracious annals of good fortune. But a dozen years back and he had been a lowly commission merchant in St. Paul, appraising pats of butter and baskets of eggs; and now stood he forth a financial Colossus with a great and populous region for what Mr. Higginson calls "his domain," in which, as he owned the highways he was practically ruler. And all made almost automatically by the mere revolving of a machine that rested neither day or night, grinding out profits. How poor by comparison seem the tales of Ori- ental enchantment and the Magic Lamp! Naturally Mr. Hill thought well of this machine and was bent upon extending and enlarging it that it might coin yet more money for its fortunate owners. He had, there- 42 STORIES OF THE GREAT RAILROADS fore (as I mentioned in the last chapter), re-organized the original St. Paul, Minneapolis & Manitoba, under which name he and his fellow Canadians had secured the machine, and renamed it the Great Northern, a railroad having branches in many directions. One of these branches he de- termined to extend from St. Paul to the Pacific Coast. There was already one line of railroad from St. Paul to the Pacific coast the Northern Pacific, a name none too fragrant in our commercial history, for it had been the re- cipient of monster grants of the public land and had been plundered and wrecked and revived and plundered again, in the highest style of the art. Mr. Hill decided to build a line that would reach all the important places reached by the Northern Pacific and be so cheaply built and so lightly loaded with bonds, stocks, preferred stocks, debentures, re- funding certificates, consolidated mortgages and other agreeable mementos of plunder that with it he should have the Northern Pacific at his mercy. That is to say, he meant that if it came to rate-cutting, he could cut the heart out of the Northern Pacific and possess himself of the carcass. This benevolent purpose he carried out to the letter. Few railroads have been more cheaply built. To the engineers the instructions were to find the low levels, so that the grades on the line are usually less than one per cent. And then the people along the route were invited to assist the enterprise by contributions from their own slen- der purses. On what ground? On the ground that Mr. Hill was to free them from the deadly grip and devastating blight of railroad monopoly. Happy thought! said the people. Let us be free from this terrible monster. So they gave of their substance and Mr. Hill built his railroad. In due time he dawned thus upon the oppressed and weary citizens of the Spokane country, bringing glad tidings of great joy. THE ROMANCE OF THE INLAND EMPIRE 43 If you doubt that literally he dawned, go back to the newspaper files of the period and see. It was February 9, 1892, when Mr. Hill came to Spokane town in his private car over the Northern Pacific railroad, and in an interview in the Spokane Review of February 10th, the good news was heralded to all. Mr. Hill was pushing his railroad westward, headed straight toward Spo- kane. He hoped it would reach Spokane, he most earnestly desired that it should. And, indeed, it would if certain difficulties could be cleared away. You see the natural line of the railroad was north of the city. Mr. Hill desired with all his heart that the railroad should not pass by with- out entering, but to come in would involve a very great ex- pense that was the trouble, a very great expense. I understand that even in those days, Mr. Hill had ac- quired something of the large, warm, patriarchal manner that has since become so justly famous, and we can readily imagine how impressive were these words that next fell from his lips. "We come to give you people the lowest possible rates, which are absolutely necessary for the development of the country, and to do that, we must have a cheaply operated road. The rates you people are paying at the present time are in many cases absolutely prohibitive, and are very much higher than they ought to be. * * * I hear your coal costs you $8 per ton. It ought not to be more than half of that, and when my road gets in here, you will be supplied with fuel at not near that rate. * * * We propose, too, to give you people a rate on flour so low that the whole grain crop of the Palouse country and the Big Bend will be drawn here and converted into flour." The heart of Spokane leaped with joy. No wonder! In the midst of the loud acclaim, the mayor issued a proc- lamation, a grand mass meeting was called in the Audi- torium, all classes of citizens packed the hall. Mr. 44 STORIES OF THE GREAT RAILROADS made a speech, declared by the Spokane Review to be "A Plain and Manly Statement of Facts." It was greeted with salvos of applause. Mr. Hill again expressed his ar- dent desire to bring the Great Northern into Spokane in- stead of carrying it along to the north. But there was that same difficulty in the way the great expense. To build the line into Spokane would cost a million dollars, and the com- pany could not really afford such an outlay. "Some gentlemen whom I have met," said Mr. Hill (I quote from the report in the Spokane Review of February 12th), "have raised the point as to what would be our policy when our road is completed in regard to the present method of making tariff [rate discriminations]. I say frankly that our policy will be to back the country where the Great Northern goes through. You can make a dis- tributing point of Spokane and compete with, if not surpass, other distributing centers in this community [Applause] and we should not feel that we are doing ourselves justice if we cannot bring goods here to sell at a competing point less than any city west or south of here." [Applause.] Yet there was still the one sad fact about the expense. Even this, however, was not a condition wholly without hope. Mr. Hill had looked the situation over and he saw one way out. If Spokane would present the railroad with the right of way through the city the matter of expense would be overlooked. [Tremendous applause.] A right of way? That all? Spokane went out to get it overnight. The newspapers, always foremost in good works, made fervent appeals, the best citizens took off their coats and rested not from the toil of gathering subscrip- tions ; a great wave of enthusiasm swept over the com- munity. Freedom was in sight, here came the herald there- of with the magic emblem upon his banners inscribed, and an editorial in the Spokane Review warned the citizens that whosoever should be backward or reluctant in this THE ROMANCE OF THE INLAND EMPIRE 45 great crisis must look well to himself thereafter. "The occasion," said the Review, u calls for the supreme effort of encouragement. No man who at this critical juncture in the history of the city should fail to come forward with the most liberal tokens of assistance need ever afterwards to be considered a true friend of the city. The occasion is one when lack of generosity and public spirit will be little better than a crime." Meanwhile Mr. Hill was not silent. In an interview pub- lished February 14th, he eloquently denounced the wicked practice of the railroads already in Spokane by which they discriminated against the city. Their invariable rule of making the rate to the Pacific coast plus the rate back, seemed to him not only evil but clearly illegal. He gently rebuked the people of Spokane for complaining to the In- terstate Commerce Commission about such a matter. They should have gone at once to the courts, refused to pay the extortion and compelled a test case. "I don't think that a jury of twelve men," said Mr. Hill, "could have been found to decide that such a charge was legal." As for the competition of water carriers, a fig for that! "We are not coming here to show fear of the water car- riers," said Mr. Hill. "If we had been afraid of them we would not now be building our road to the coast." At this bold declaration the last doubter in Spokane sur- rendered. Here was clearly the railroad Moses. Deliver- ance was at hand. When the poorest resident of the city read that statement he fished up another nickel and the well-to-do added from their hoards. So the sum required was raised; $70,000 and the right of way, five miles long, straight through the city, were conferred upon Mr. Hill according to his desire ; the Great Northern was built into and beyond Spokane. At last it reached the Pacific coast at Seattle, and the people of Spo- kane sat down to watch the resulting prosperity. 46 STORIES OF THE GREAT RAILROADS Somehow it did not come. For a time the Great North- ern operated on a lower tariff rate than the other roads. Presently it abandoned this tariff and adopted precisely the rates and methods of the other roads. That is to say, it made the rate to Spokane the rate to the Pacific coast plus the rate back. The rosy promises of Mr. Hill vanished into air thin and hot, whereof they had been born. Spokane had given of its money and bestowed the right of way five miles long through the heart of the city mere- ly to add to the number of its oppressors simply this and nothing more. Sadly Mr. Hill's attention was called to the discrepancy between his unctuous promise and his arid performance. Alas ! that great and good man had become afflicted with a malady that seems reserved for the great and good in his position. He had lapsus memorise in its worst form. As to everything connected with his visit to Spokane his mind seemed a blank. But he kept the $70,000 and he kept the right of way. The malady did not affect his power to keep things; only his power to remember things. Hence, the spoliation of Spokane and the Inland Empire goes merrily on today as at any time for the last twenty- five years. I will give some examples of the rates actually charged that I may show just what these things mean to the Inland Empire. Incidentally you may get some impression of what similar things mean to you. You can see that if a grocer in Spokane is charged an abnormal freight rate on everything he sells he has no resource but to pass that rate along to the people that buy of him ; so that, as a matter of fact, it is not the wholesaler of Spokane, nor the retailer, nor the manufacturer, that pays these extortionate rates, but al- ways and invariably the consumer. THE ROMANCE OF THE INLAND EMPIRE 47 And similarly, you that do not live in Spokane but are subjected to the like extortionate freight rates, it is not the shipper that pays these rates, nor the wholesale merchant, nor the retail merchant, nor anyone in the world but just you, the consumer. You pay them all and each, of what- soever kind and for whatsoever purpose levied. You pay whenever you purchase anything from apples to zinc. For every dollar of watered stock and needless bonds, you pay. Every time the merry railroad gentlemen cut what they pleasantly term "another watermelon," you pay for it. Everything you eat and everything you wear and everything you use in your house or your office or your shop has an extra price to pay for these watermelons and the like good things. Bearing in mind these indisputable facts, you should find a peculiar interest in the table on another page showing exactly how the extra price was landed upon the people of one region. I hope before we get through to have some other tables showing how the extra price is landed upon people in other regions. One item in this list deserves a word of comment. You may note that in one case, and one only, that of pig iron, the rate to Spokane is the same as the rate to the coast cities. The reason is instructive. Up to 1904 the freight rate on pig iron from Alabama to Spokane was $21.90 a ton, which was $6.80 a ton more than the rate from Alabama to the Pacific coast. Some Spokane men that needed pig iron discovered they could buy it in Eng- land, have it shipped as ballast in the wheat ships to Port- land, Oregon, and thence by rail to Spokane at a total cost of $27.80 a ton, which included the price of the iron. Whereas to buy iron in Alabama, have it shipped direct to Spokane and pay the rates demanded by the railroad com- bination would make the cost of the iron $30.80 a ton. When this fact had been demonstrated the railroads secret- 48 STORIES OF THE GREAT RAILROADS ly made a rate on iron of $13 a ton^from Alabama to Spo- kane, the same as the rate from Alabama to Pacific coast points. FREIGHT RATES TO SPOKANE AND TO THE PA- CIFIC COAST, 340 MILES FARTHER. Commodity Shipped From Rate to Spokane Rate to Coast a Pacific Point. Agricultural implements Chicago 1 65 1 25 < Baking powder Missis- sippi river points New York & Boston Chicago 1.45 1.75 1 64 1.15 1.25 1 10 Bath tubs sheet steel 3 25 2 40 Bath tubs cast iron u 2 10 1 40 Belting Eastern 1.95 1.10 Belting (less than car load)... Belting link points Chicago u 3.13 1 73 1.65 85 Bicycles u 3 70 2 50 Books blank etc (t 1 79 1 25 Boots and shoes u 2 90 2 35 Boxes paper u 1 44 90 Beef extract 2 18 1 40 Bolts nuts washers etc. . . Pittsburg 1 28 80 Canned corn . district New York 1 43 95 Car wheels mining and Ohio Chicago 1 26 85 Canned goods district Chicago 1 35 95 Carpets 2 60 1 75 Coffee . . u 1 38 00 Cast-iron stoves, cooking, etc.. Clothing it (( 1.70 2 35 1.40 1 50 Castings, plain l( 1.45 75 Crockery (C 1 49 95 Cotton piece goods New York .85 1 00 Cottons duck and denims Chicago 75 90 j)ry goods calicoes etc 85 1 00 Farthenware 2 18 1 40 Fire escapes .... u 70 1 25 Furnaces (( 91 1 40 Gas stoves (( 3 77 2 50 Glass, common window " 2.35 1.50 THE ROMANCE OF THE INLAND EMPIRE Commodity Shipped From Rate to Spokane Rate to a Pacific Coast Point. Glassware " 1.80 1.10 Granite ware 1 80 1 10 2.20 1.75 Horse blankets New York 3.88 2.40 Horseshoe nails . ...... .... Chicago 1.39 .85 Ink M 1.81 1.00 1.60 .75 || 1.23 .75 ft 1.10 .75 Iron, bar (less than car load). 2.07 1.23 1.25 .75 Alabama 13.00 13.00 Chicago 3 20 2 00 M 1.95 1.10 2 35 1.10 New York 1 72*/ 2 1 00 2.98 1.50 C~'hica.Q r o 2.10 1.25 a 1 64 1.10 1 79 1.10 New York 1 68 1.40 Nails and wire 1 10 65 Nuts 2 31 1.30 New York 2 45 1.60 Oilcloth table 1 70 1.00 Chicago 1 21 .90 1 85 1.00 M 1 78 .85 1 19 75 New York 1 29 75 Paper bags 1 40 1 00 t 1 80 1.20 New York 2 00 1.20 C"hica.2ro 1 00 50 Pipe corrugated Meanwhile the good old game went on with undiminished ardor, the absorbing of outlying roads by watering stock already overflowing, and the capitalizing or concealing of earnings. In 1898, the management took care of $1,345,- 948 of surplus earnings by charging them to "extraordinary expenses and additions to property" not specified. In 1899 the financial Moses struck the rocks again and out THE ROMANCE OF DEATH AVENUE 93 gushed $15,000,000 of new stock, issued to stockholders at par; market value, 137; melon, $5,550,000. In 1900 the management sopped up $1,691,060, of surplus earnings as "extraordinary expenses" (unexplained) and $2,000,000 in a "special improvements fund" possibly having an ethical purpose, none other being specified. Some of the railroads and securities purchased with surplus earnings, cost a pretty sum ($23,000,000 in one year) and yet the enterprise earned five per cent dividends on the stock, the annual deficit on the West Shore bonds and the rest of the fancy financiering. It was a community both patient and rich that was worked for these things. Every time a new property was bought, there was more water, and between water issues ripened the luscious melon. Thus, in 1902, $35,000,000 of additional stock was autho- rized, one-half to be held in the directors' discretion, and the other half issued to stockholders at 125. The market price was 163, and the melon $6,650,000. In the four years ending with 1903, there had been absorbed into the capitali- zation $7,000,000 of surplus earnings, disguised under the heads of "betterments," "extensions," and so on, all consti- tuting water. In 1904 the company charged off to operat- ing expenses $3,196,452 of additions and replacements, and set aside $1,500,000 of another "special improvement fund" (also possibly ethical). These are but samples of the good- ly fruitage. The company now went into the trolley field and used millions of surplus earnings in the purchase of various trol- ley lines. Additional capitalizations seem to have reached the balance sheet under the head of "extraordinary expen- ditures" which they certainly were. In 1905 the direct- ors issued the remaining $17,500,000 of stock to stockhold- ers at par, market 150; melon $8,750,000. As an example of what the management was doing meanwhile with the subsidiary lines, I may mention that it capitalized this year 94 STORIES OF THE GREAT RAILROADS more than $7,000,000 of the surplus earnings of the Lake Shore besides the 12 per cent that the Lake Shore regularly earned on its stock. I give one other sweet sample. It is the year 1907 in which the New York Central put $2,800,000 of its surplus earnings into a "special improvement fund," charged off $1,308,260 more as operating expenses, bought 5,748 shares of Boston & Albany stock, paid 6 per cent dividends on its own stock, milked all of trie connecting, subsidiary, trolley and other lines into which it had converted its surplus earn- ings, and convinced Charles Evans Hughes, then governor of New York, now a Supreme Court justice of the United States, that it could not afford to carry passengers at two cents a mile. The legislature had passed an act reducing fares to the two-cent basis, and the governor vetoed it. We must suppose Governor Hughes never to have studied a New York Central balance sheet. I urge him to get one. He will enjoy reading it. In the year 1907, the capital stock was $178,632,000, the funded debt $230,414,845, the total capitalization $409,946,- 845, of which $175,814,990 was water or capitalized earn- ings. On this $175,000,000 the interest charges to the pub- lic are something like $8,750,000 a year. The total receipts from passenger traffic in 1907 were $29,837,859.02. It is to pay interest on this fictitious capitalization that the pas- senger rates are based upon three cents, instead of two. But bearing well in mind the decision of the Interstate Commerce Commission in the Spokane case, here arise two questions pivotal, inevitable, to be thrust more and more into our lives. The Commission entertained the contention that a rail- road may not base freight rates upon a fictitious valuation. If it may not base freight rates thereon, how can it base passenger rates thereon? THE ROMANCE OF DEATH AVENUE 95 If it may not base rates thereon may it pay dividends thereon ? To these questions I should be charmed to receive ans- wers from the reactionary mind. In the year following the conversion of Governor Hughes to the three-cent theory, there was taken from the railroads owned or controlled by the New York Central, $5,331,384 of surplus earnings and converted into "special improve- ment funds," while $12,595,440 of new equipment and new construction was charged off as "expenses." In that year alone, almost $18,000,000 of surplus earnings was con- cealed. This is more than one-half of the total passenger receipts. I should be most happy to have the comments of the re- actionary and three-cent champions on these significant facts. In addition, the New York Central holds $153,700,000 of the stocks of other railroads, purchased out of surplus earnings. On these its income in 1907 was $10,078,- 754.29. No wonder Governor Hughes stood firm for a company in such a poverty-stricken condition. Capital stock, $178,632,000. Water in original stocks, lowest estimates: Old New York Central $13,894,560 Old Hudson River 6,480,985 Consolidation, 1869 44,428,000 $64,802,545 Actual capitalization (most liberal estimate), $113,- 828,455. This seems so romantic. The net earnings in 1907 were $22,565,725.67, or twenty per cent on the utmost sum that can be regarded as actual capitalization. Yet Governor Hughes vetoed the two-cent fare bill. 96 STORIES OF THE GREAT RAILROADS In view of that fact, who is it that pays for the water in the stock? There is also in the funded capital (with other water) $45,289,200 of water from the Lake Shore deal, and $2,- 522,145 from the Michigan Central deal, $47,811,345 in all. Besides which $63,200,000 of surplus earnings have been capitalized. Altogether the water and the capitalized earn- ings amount to $175,814,990. Dear old Blenheim ! In mitigation of such showings as these in the tables be- low it is urged that some of the water has since become real value, and is therefore justified. No. None of it is justified. For this reason: There are only two possible views of a railroad. Either it is sovereign, with powers equal or superior to govern- ment and not to be regulated or restrained. Or it is an agent of the government, employed to maintain a highway and taking as compensation for its services "a just and reasonable profit." Then, as an agent of the government, which in turn is nothing but a trustee for the public, all its earnings in excess of "a just and reasonable profit," should be returned to the public in the shape of reduced rates. By such methods as are here described, such earnings have not been returned at all, but have been concealed, jug- gled, manipulated and finally swept, through the device of watered stock, year after year, into the coffers of the in- siders. Such are some of the results of the private ownership of public highways. Others exist that affect you and me in our citizenship and freedom as gravely as these effect us in our pocketbooks and household expenses. Of such results 1 can indicate here no more than one, and that by but one example taken at random from a cata- logue without end. THE ROMANCE OF DEATH AVENUE 97 In the city of New York, the metropolis of Western civilization, with more than four million inhabitants, a steam railroad is operated for miles through crowded streets and on the street level. For miles, from St. John's Park (Freight station) on the lower west side of New York through one crowded street after another, crossing at grade important busy thoroughfares like Canal, Christopher, Fourteenth, Twenty- third and Forty-second streets, through the densely popu- lated region of the upper west side to the head of Manhat- tan Island, runs this private public highway owned by the same New York Central Railroad Company, of watered stock and shady financial history. In popular speech the street it thus traverses has earned another and more fearful name. It is called Death Avenue. Along this private public highway, trains that earn the dividends on this watered stock and produce these rich watermelons roll all day, obstructing traffic, killing or maim- ing people. Most of the street crossings are wholly un- guarded ; a few are watched by infirm or superannuated flagmen. One of these trains has killed more people than any other train in the world. Kindly note that it is a passenger train not operated to carry passengers. It is operated to hold one of the franchises that produce melons and enable the watered stocks to reap dividends. Since 1897 the validity of that franchise has been more than doubtful, but no public officer has moved to test the question. And on the last day of the session of 1909 of the New York legislature, the railroad lobby rushed through an act making this doubtful franchise valid and perpetual in- cluding the right to kill people. Mayor McClellan of New York City, to whom the bill was referred, vetoed the meas- 98 STORIES OF THE GREAT RAILROADS ure, but meantime the company's trains continue running through Death Avenue. A fraction of the water in the New York Central capi- talization, of the amount on which you and I annually pay an unjust and improper tribute, would suffice to elevate the track and put an end to Death Avenue. So terrible have been the Death Avenue casualties, espe- cially among children, that many parents in that neighbor- hood have refused to allow their children to go to school because to go to school the child must cross these tracks, and up and down these tracks all day in the heart of the me- tropolis, thunder the flying trains franchise savers and freight trains. To date, the number of persons recorded as having been killed by the New York Central Railroad Company in Death Avenue, is nearly 400. This is not a complete total. Also, the maimed numbered hundreds ; nobody knows how many. Against this frightful slaughter-house, the people of the region traversed have carried on for twenty-seven years a pathetically fruitless agitation. They have petitioned the legislature, they have besieged commissions, they have sent men to Albany, they have maintained associations, pleaded with public officers, introduced bills, signed protests, held mass meetings, deluged the mails with complaints; and the net effects is that the situation has only grown worse. How they have been defeated you can readily understand if you know anything about the vast and sinister control that the railroad companies exercise over legislative bodies. In 1906, the outraged citizens felt that they could endure no more. In a memorable uprising they elected to the sen- ate a man that they believed could not be bribed, bought, humbugged, influenced, nor bullied. He introduced a bill to compel the New York Central to cease slaughtering people in Death Avenue. It was about the one hundredth bill of that kind. The railroad lobby THE ROMANCE OF DEATH AVENUE 99 had succeeded in strangling the others in committee. This man would not let his bill be strangled. He got it through. It provided that on or before May 1, 1908, the New York Central Railroad Company should contract with the City of New York for the elevating of the tracks in Death Ave- nue. If no such contract were made by May 1, 1908, the city should seize and condemn the tracks. The act was passed and became part of the law of the sovereign State of New York. May 1, 1908, came and went. The New York Central made no contract with the City to elevate the tracks. The City did not seize and con- demn the tracks. The tracks are just where they were when they were put down. On them the trains rush to and fro killing and maiming people. Not the slightest attention has been paid to the law. It remains on the statute book a monument to our methods in dealing with this problem, and when the suggestion was made to certain officers of the New York Central Railroad Company that the City might seize and condemn those tracks, the officers defied the City to do anything of the kind. Law and order, you know. We must have law and order about everything but the corporations. But is there no reason why masses of people are allowed thus to protest, petition and beg in vain for relief from a most barbarous and intolerable condition? Certainly. An excellent reason. Let me indicate it to you. Seth Low Hascamp, seven years old, living at No. 544 West Forty-fourth Street, was a pet of his neighborhood and a favorite with his schoolmates. On October 22, 1908, on his way to school he crossed Death Avenue. A fran- chise-saving train was flying down the tracks. It caught Seth and tore him to pieces. When they picked up the little mangled limbs, men found that this boy had been clad only in a blouse, overalls, and a pair of shoes. His parents were poor. 100 STORIES OF THE GREAT RAILROADS It was a tragedy commonplace enough; he was the one hundred and fiftieth or one hundred and sixtieth child that had gone that way, on that deadly avenue: and yet his funeral was the occasion of one of the strangest spectacles ever seen in New York. Behind the cheap hearse and poor little coffin marched five hundred school children, the dead boy's companions and playmates. They marched in solemn silence on their own suggestion, behind that hearse, as a spontaneous protest against his death, and because they had loved him and because they felt he had been cruelly mur- dered and they had no other way to protest against his mur- der. They marched by the church and parish house of St. Ambrose and the good fathers came out and stood with bared heads while the silent children passed. They marched by the school in which the boy had been a pupil and the flag was at half mast and the teachers stood at the windows and cried. Men lined the sidewalks to watch the procession and some had tears in their eyes and some cursed. It was only a little boy, but everybody had loved him and he had been cut down as a needless sacrifice to the system that makes of public highways a private graft. And now for your reason. He had been poor, his par- ents were poor, all the children that marched in that proces- sion were poor, all the people that dwell in that region are poor, all the people that have been cut to pieces by the fran- chise savers were poor, all the people that have petitioned and pleaded so many years in vain, were poor. There is your reason. How do you like it? You think I am bitter and unfair about this because you read these things with your eyes but not with your under- standing. I do, therefore, beseech you to reflect upon one certain fact. If they had been rich they could have met bribery with bribery, lobby with lobby, influence with influence, wrong with wrong. True, is it not? Being but poor they must submit to the monstrous perver- THE ROMANCE OF DEATH AVENUE 02 sion of justice and law-making that always and inevitably attends the gathering of wealth by illegitimate means of which the history of the New York Central Railroad Com- pany affords these conspicuous examples. Private public highways ! We are the only nation in this wide world that has ever tolerated any such monstrous and insane doctrine. The price we pay for tolerating it is expressed to us on one side in augmented cost of living and on the other in such stories of lawless tyranny and wrong as this of Death Avenue. Brethren, is not the price too high ? For when all is said and done, what do we get for surrendering the rights that other peoples hold to be inalienable? Or what is it to us that Blenheim Castle should be repaired or partnerships like the Canadian brotherhood should be made suddenly rich? TABLE OF SOME OF THE SURPLUS EARNINGS OF THE NEW YORK CENTRAL THAT HAS BEEN CAPITALIZED. 1890 Earnings in debentures $10,000,000 1900-1907 "Special improvement funds" 16,600,000 1902-1907 Equipment charged off to operating ex- penses 20,600,000 1898-1900 1905 Charged off as extraordinary expenses 7,400,000 1903 Charged off as additions, improvements, etc. 3,200,000 1887-1888 Enlarging terminals 5,400,000 $63,200,000 FIFTEEN YEARS OF THIS MELON PATCH GOOD THINGS SE- CURED IN NEW YORK CENTRAL INSIDERS. 1893 3% on 1899 37% on 1902 38% on 1905 50% on 1906 40% on 510,000,000 stock issue $ 300,000 515,000,000 stock issue 5,550,000 517,500,000 stock issue 6,650,000 517,500,000 stock issue 8,750,000 529,839,000 stock issue 11,935,600 Total melons of fifteen years $33,185,600 CHAPTER V. ROMANTIC DAYS IN EARLY CALIFORNIA. The large, bland, unctuous man in the witness chair was with a visible effort maintaining his habitual poise and air of benevolent tolerance while the chief inquisitor of the government's commission pounded at him with sharp ques- tions. One after another there had been produced before him receipts signed with his name, showing that he had drawn from the railroad company of which he was president great sums of money for purposes wholly unexplained. The state legislature had been in session, he had been in the capital city, he had made mysterious drafts upon the company's treasury. With uneasy shif tings and a face like the must of wine, he had heard repeated questions as to the nature of these drafts. Sometimes he had answered that he could not remember ; sometimes his lawyers, paid by the railroad com- pany and watching like hawks, had commanded him to silence. One of these drafts was for $171,000, two were for $83,000 each, one was for $111,000, another for $91,- 000, one for $52,000, many were for smaller sums, $20,000, $46,000, and so on. The chairman asked ironically whether the witness were so much in the habit of carrying $100,000 in his trousers pocket that he could not remember the cir- cumstance. To this the witness made no response, except to show on his swollen neck and face a deeper shade of purple. A half hour passed thus. Finally, in the midst of a tense and painful silence (for the witness had been governor of his state, was then a United States Senator, and was the 102 ROMANTIC DAYS IN EARLY CALIFORNIA 103 most eminent citizen of California), the inquisitor said: "As to any of the sums referred to, were any of these payments made for the purpose of influencing legislation?" Before answer could be made, the watchful counsel cut in : "For the reasons already stated," said he, "the witness declines to answer." "For reasons above stated," parroted the witness, obvi- ously relieved, "I decline to answer." The three members of the commission conferred, and then Governor Pattison, who had been asking the questions, arose and abruptly announced: "The hearing is adjourned until tomorrow at ten o'clock." The spectators began to file out of the room in the Palace Hotel, San Francisco, where the commission was holding its sessions. Putting on their hats, the commissioners moved briskly toward the door. A reporter approached Governor Pattison. "May I ask where you are going?" says he. "Going? We are going down to the Federal Court." "Ah, yes," says the reporter. "And may I ask what for ?" "To get an order compelling Governor Stanford here to answer the question I put to him." "Ah!" said the reporter. "It is a pleasant day for a walk. Yes you will enjoy it. I think, if I may, I will walk along with you. I can show you the sights." They went down to the Federal building. Little time was lost. Justice Stephen J. Field and Justice Sawyer promptly decided that Governor Stanford need not answer the ques- tion he had been asked, nor apparently any other questions that were disagreeable to him. It was a lovely day, but contrary to the reporter's prediction, the commissioners did not seem to enjoy their excursion. The next morning the hearing was resumed. Governor Stanford did not answer the question. So far as the Na- 104 STORIES OF THE GREAT RAILROADS tional Pacific Railroad Commission of 1887 was concerned that august body appointed by the President of the United States and clothed with dignity and such extraordi- nary authority the question was never answered. And yet it was a question upon which rested a matter of grave concern to the government of these United States, and of direct personal interest to every citizen therein. The Central Pacific Railroad owed to the treasury of the United States more than $50,000,000, being an original loan, and the interest thereon. Of this sum the company was endeavoring to cheat the government. In violation of its explicit contract and agree- ment, it had declined to meet the payment of the interest long overdue. Essentially its attitude was that the laws of the nation and the practice of good faith, incumbent upon all others, were not valid upon itself. The first question, therefore, was whether a corporation practically created by the government could defy its creator and maintain in respect to itself a condition of anarchy. Ostensibly the first plea of the company was that it was too poor to pay a plea that the government and the com- mission and the entire nation knew perfectly well to be a lie. It was, moreover, a lie having in it a certain touch of impudence that aggravated the company's myriad other of- fenses, for it was annually refuted in all men's eyes by the company's own reports. The business of the commission was to put that lie on record, and to expose something of the vast diversion of the company's funds from the paying of its just debts to the making of great fortunes and to other purposes far more detestable. What did Governor Stanford, at Sacramento, draw the money for? And how did it happen that the books of the company offered no explanation of the transactions? Le- gitimate business enterprises do not pay out money without ROM AN I 1C DAYS IN !:. \KI.V CALIFORNIA 10 ad( -(piate bookkeeping, nor without the material for an audit, ^hould one he required. Hou did it happen that the e sinister entries were among hundred- imilarly unsupported and unexplained ? I low came it that millions upon millions of dollars had thu^ vanidied from the coffers of this company? That, the recipient of the most lavish and extravagant bounty from the nation, it had returned upon its benefactor a contemptuous disregard of all legal obligations, seizing the bounty for private aggrandizement and using one un- warranted privilege to get another? That its management, from the iir I secret, predatory, and dishonest, had been able to do as it pleased under all kinds of administrations? How did all this come about? We shall do very well to go into this story because now we can begin to see clearly what it means and will mean for us. This is no chapter of ancient history that we can notice or neglect as we please. Here is something started that as uiely as the earth revolves will, before long, bring us up with a round turn, jostle us out of our national compla- , and compel us against our wills to revolutionize our national practices. The men that built the Central Pacific and drew from it their k'itfantic fortunes, are dead; but the system they founded goes on ; and now day by day we pay for it all ; for the \ urn, the fortunes, the diverted funds, the dishonest om tracts, the burned books, the broken laws, the pelf and plunder, the unpaid debts, the whole great structure of fraud every day something's taken from each of us to pay for it. \Ve pay heavily today and we shall pay more heavily to- morrow. We shall keep on paying much today and more tomorrow so long as the system endures. We shall not elude itj.it is not to be turned, regulated, nor checked. 106 STORIES OF THE GREAT RAILROADS It is not any matter of theories, doctrine, nor the well- trained hobby horse. It is simply a matter of cold fact that will soon be thrust upon our attention in a way not to be ignored, for it will come to us in our rent bills, butcher bills, and grocery bills, telling daily of increase. How in this particular instance this great force, no doubt the greatest that ever existed among men, was organized and started on its way is a very marvelous story. From a long and humble study of its records, I come with the con- viction that, considering the century in which it occurred, it belongs among the most amazing histories of human activi- ties, to be ranked with empire building and conquests. I shall not tell it well, but even badly told, it should seem something to think much about. How an enterprise purporting to be for the public good came to usurp all the functions of government ; to rule great states, not nominally nor spasmodically, but as a definite and minutely organized system of society; how it inflicted upon one of those states a very great and irreparable injury; how it corrupted all grades of public service from town con- stabulary to national legislators; how it was stained with crimes ranging from petty larceny to manslaughter; how laws and constitution were nullified; how a fertile empire was deprived of much of its incomparable resources ; how a system enabled one small combination of men to reach their hands into a storehouse of natural wealth and help themselves ; how they maintained a political oligarchy as autocratic as that of old Venice and far greedier ; how they abolished government by majorities and established govern- ment by a corporation ; and how for these achievements also we pay and must pay cent per cent and many times over that is the story. All elements of interest are here: human, economic, moral, philosophic. ROMANTIC DAYS IN EARLY CALIFORNIA 107 Take first the men that created this gigantic instrument of evil what a study! Good men, in their way, not bad; each a perfect expression of a certain system and a certain ideal; each, no doubt, with a code and standard of morals to which he believed himself to adhere; each highly re- spected and, according to the existing system, respectable; all following out logically the tuition of their times; not much different from other men, no worse and no better ; like other men the product of conditions; brought up to accept without one question the essential morality of the dollar hunt; trained to it, eager for it, snuffing it like hounds on the trail. And then being endowed with the opportunity of wealth, making of it (in accordance with their training and the accepted system) this misuse for which the next genera- tion pays such a price ! A curious and fascinating study! And typical, too Whatever we may say, however hard, after the nationa fashion, we may chase the scapegoat, the fact remains tha this one American railroad enterprise is fundamentally no very different from other railroad enterprises. Somethin of the price we are paying for this we pay for the others Only here it happens that we can see with startling clearne every step and its consequences to us; we can make t actors repeat all the scenes ; we can see the deed and the r suit. And that rarely happens. We should note something else. The men of this story began very poor and very obscure. All had been penniless adventurers starting in life with no wealth but their hands and their wills. They rose to eminence, almost inconceiv- able wealth, and colossal power. Achievements of this order have long been held up to us as the most admirable; our young men have been pointed to them as to the chief and highest aims of life; the win- ners in this race have had praise and honor. 108 STORIES OF THE GREAT RAILROADS We have not often an opportunity to see exactly how great fortunes are quickly gathered and how this exalted goal of ours is won. Then this is a very unusual chance; we should not neglect it. We can see now what this for- tune-getting really is and what it means for the rest of us, for the physical and moral stamina of the nation for in- stance, national honor and political safety. All is here, turned up for your instruction, link by link; not told by me, the poor story teller ; told in the records and in the towering facts. All through I must remind you hourly that the course of these fortunes from your pockets to the pockets of these four men is clearer than day ; you can actually see the hands passing to and fro, transferring your means; not once but all the time, today, tomorrow, and always, so long as we keep the system, taking your money. Because, as you may see here, these fortunes are not fortunes alone ; once estab- lished at the public expense, they cease not day and night to draw the means of life from those that need it and to amass it upon those that need it not. So. And the scene being made ready, let us bring in the characters of the story. Of the four men that founded* the Central Pacific system, one stands out conspicuous. The rest are rather common- place types ; you can find men like them anywhere about the country now. We grow them in herds, and until fortune in their own despite puts much money into their purses, we think lightly of them, they being money grubbers and among the dullest of God's creatures. But Huntington was different: there was always some- thing tigerish and irrational in his ravenous pursuit of money that made him interesting. He was always on the scent; he struck and clawed at money as men long starving would strike and claw to get food, gorging and making strange sounds. ROMANTIC DAYS IN EARLY CALIFORNIA 109 The others got money for what money would buy for them: power, position, ease, enjoyment, travel, luxury, and applause. This man got it for its own sake, piling it up be- hind him as he reached out his long arms for more, using the power of one million only to secure another; cold, shrewd, relentless, getting money and defending his hoard with a kind of snarling ferocity a most extraordinary figure ! About him the whole story revolves Collis Potter Hunt- ington; he dominated all. We can easily see now why he selected the others. One was a man of details, systems, and accounts; one was a smooth, adroit politician, able to throw over any transac- tion, however questionable, a glamor of respectability and statesmanship; one was a good builder and a born com- mander of men. But Huntington himself was at all times chief, because he was so made, I suppose a big man physically, six feet in height, broad shouldered, with muscles so strong that he could lift a barrel of flour by the chines and set it upon his shoulder; a frame like a grizzly bear, incapable of fatigue, delighting in labor as other men delight in ease, delighting in his strength and the use of it, abounding in health, and full of the love of combat. Mentally he seems to have been the incarnation of the idea of gain, and particularly the chilliest aspect of that idea that has been called a product of New England. To trade with men and to outwit them ; to make them think he meant one thing when he meant another ; to mine and undermine to add always to his store ; to take in much, to pay out little this was the substance of his philosophy. His earliest activities were devoted to its practice; there was something insatiable, even beyond American precedent, in his avid pur- , suit. Nothing could withstand him: "methought if the 110 STORIES OF THE GREAT RAILROADS great wall of China were to arise across his path, he would attack it with his nails." He had almost no schooling and needed none; school- house education would have been a handicap to him. In his habits he was generally exemplary; a man without a vice, without a weakness, without tolerance for vice or weakness in others; rugged, abstemious, and looking upon luxury as ; a kind of crime. To him life was very simple. It was to jwork without ceasing and to regard as essentially right Whatever was necessary to secure money, and essentially wrong whatever wasted money. In this he was perfectly sincere and perfectly honest. He i could not conceive that there could be anything wrong about getting money through business or through the devel- i :>ping of an enterprise of the kind that with easy consciences live have called "legitimate." It was wrong to break into a safe, to pick a pocket, or to forge a note of hand ; it was not wrong to manipulate stock deals nor to cheat the govern- ment nor to "influence" a legislature if conditions made "in- fluence" necessary. He had no sense of humor, which was, no doubt, a for- tunate omission in his make-up; and with a kind of naive sincerity he believed that a man's right to anything consisted in his ability to keep it from other men a recrudescence of jungle creed that should interest all students of reversion- ary types. He was an ill man to cross. Once he left Washington, traveled by rail to the Missouri River, thence by stage coach more than a thousand miles in peril of Indians, floods, and the roads, for the pleasure of orally expressing his opinion of a contractor struggling in the mountains to lay a piece of track. For some hours the sound of his big, harsh voice rang through the canons, conveying objurgations; having relieved his system of which, he instantly wheeled about, and traversed plains and mountains straight to Washington. ROMANTIC DAYS IN EARLY CALIFORNIA 111 As he grew in wealth he grew in contempt of weaker men until he was a kind of modern imperator, quelling and domi- nating with his look and his presence and to che last years of his life accustomed to unquestioned sway. He was born October 22, 1821, in the hamlet of Harwin- ton, Litchfield County, Connecticut, a region where in his time the struggle for life was hard and primitive. His father was so penurious that he was called a miser, a name that, considering the time and place, seems of peculiar signif- icance; but his mother possessed unusual gifts and exalted character. At fourteen he turned out to shift for himself, first for a year as a farmer's boy on a wage of $7 a month and board and clothes. Characteristically, he saved from this meager income $84 and had it when he returned. "Why, that's all the money you received for the whole year's work," said somebody to whom he showed his hoard. "Exactly," said Huntington, "that's the reason I didn't save any more." * Even then, it was as if the strong jaws and great teeth gripped money and would not be unclosed upon it. All his days he never received wages and never made a profit with- out laying by something, pinching himself to save, and toil- ing for money with a kind of fanatical desperation. Thrift, thrift, the much bepraised virtue ! No man ever had more of it. From the farm he entered a country store as clerk ; then to New York City whence he peddled watch findings, walk- ing or driving over much of the United States, a young Yankee peddler sharpening his wits against many minds and learning to surpass them in cunning. In the South once, he saw a chance for profit in what is called, I believe, "note shaving." He bought for a very low price a lot of doubtful notes that a man had taken in ex- 1 Bancroft's "Life of C. P. Huntington," p. 13. 112 STORIES OF THE GREAT RAILROADS change for patent clocks, and went out and collected the money and kept it. After some years, he made his way to Oneonta, Otsego County, New York, where his brother Solon had a store. He was there as his brother's partner when, in 1849, the news came of the gold discoveries in California. At once he determined to join the rush to the new country; not to dig gold, for he was never so much of a fool, but to trade with the new population in the gold fields, and at high prices sell it what it must have. He had $1,200 he had saved from his business ventures; with that he started for California by way of the Isthmus of Panama. There he was delayed three months, waiting for a vessel to take him north on the Pacific side. He wasted no time. His first exploit was to transport his fel- low passengers on the river Chagres (this was before the days of the Panama Railroad) and his next to enter actively into trade with the natives and the halted emigrants. In these operations he walked twenty times across the Isthmus, bought and sold a trading schooner, and made $4,000. A sailing vessel took him to San Francisco, whence he pushed on to Sacramento, then of 12,000 inhabitants, and a place of great importance because, being near the gold fields, it was a headquarters for the miners. He had a capital of $5,000, most of which he had invested in hardware and miners' supplies. A tent was his first wareroom; in it he began to sell goods and to make money, added other tents until he had five, and then got him a store. Anything that people must have and he could buy for little and sell for much was in his line. Once he cornered the shovel market (rare stroke in a mining region!) and made the miners pay dearly for shovels ; once he bought old bars of steel at one cent a pound, and when quartz mining came in and men must have steel, sold his purchase (with which he had filled his back yard), getting for most of it $1 a pound. ROMANTIC DAYS IN EARLY CALIFORNIA 113 Men called him "Old Huntington/' when he was not thirty, because he was always serious, always full of busi- ness, always intent upon the money for which he hungered and thirsted. After some years, he took into partnership his near neigh- bor, Mark Hopkins, a native of Henderson, New York, an older man, methodical and exact. Hopkins kept the ac- counts and the stock in good condition ; Huntington sold the goods. The firm prospered; Huntington & Hopkins became a name well known. For the head of the house, men in Sac- ramento had a peculiar respect after his achievement with the shovels and the bar steel; a town full of traders and speculators saw here a master of chance and one that looked far ahead. Indeed, he did seem for a time to be prescient, spying out needs long in advance and supplying them at the top of the market ; and yet to one primal necessity, then most apparent to all about him, he was indifferent until it came to force fortune into his hand a fact that would prove (if any proof were necessary) the fortuitous nature of achievement, how little there is in the assertion of superior intelligence, and how little control men have over the opportunities of success. All this time the attraction of the gold fields was drawing every year great hordes of emigrants to California. You know all that story, how almost over night San Francisco, from a lonely station by an empty bay, grew to be a metropolis ; how the mountains were gashed by armies of miners ; how sudden camps ^filled the wastes ; how towns supplanted the camps ; how, in the face of appalling difficul- ties, more and more men and women were leaving the east- ern states for California. By three ways they could risk their lives to reach it : They could undergo the voyage around Cape Horn, 17,000 miles, 114 STORIES OF THE GREAT RAILROADS at all times a passage of frightful hardships and in the Antarctic winter season offering scarcely two chances in five of security; they could go down to the Isthmus and make their way across Panama or Nicaragua, thence going North on the Pacific as they could find shipping; or by wagons they could attempt the overland journey, threading unknown plains, hideous deserts, and the snows of two mountain ranges. No other chapter of our history is so picturesque as this ; for all its brilliant literature it seems imperfectly celebrated. For the first thousand miles of the overland journey, the way was among hostile Indians; if the emigrants escaped these, they were exposed to death from starvation or thirst on the deserts, or to freezing among the mountains. From the Missouri River until their slow wagons lumbered down the last slopes into the smiling Sacramento valley, hardly one mile of their passage was without its separate peril. Yet in one year (so it is said), 30,000 persons left the eastern states and faced the horrors of that journey of 2,500 miles, unequalled in all the migrations of men. Sometimes they were a year or more upon the way; so often in their ignorance or inexperience they met with disaster that the plains, at the beginning untracked, came to have defined trails marked in white bones of oxen and of men. At St. Louis, Jefferson City, St. Joseph, Atchison, Leav- enworth, finally at Omaha in Civil War days, the travelers would gather with their wagons and for better protection form themselves into companies, well armed, being at last taught caution by so many reports of tragedies. At the first sign of Indian attack, the wagons would be swept into a circle for a fortification, the women and children in the center, the men crouching behind the wagon boxes with their rifles. Thus beleaguered they would endure a siege sometimes of hours, sometimes of days, very likely to be ROMANTIC DAYS IN EARLY CALIFORNIA 115 overwhelmed at last by the number of the savages, or by thirst if they were caught far from water. Even if they beat off their mortal foes they might be lost in the alkali desert and wander miserably until they per- ished; or be trapped by the snow in the mountains. The name of a beautiful lake in the Sierras preserves one such terrible story from among many that are forgotten. There in the pass the Donner party from Illinois, sixty persons, was overtaken by the Sierra winter, and after such terrible sufferings as have since literally filled a book of its mishaps, only a few of its members escaped starvation. 2 Naturally, as the traffic increased, the routes became bet- ter recognized and something like system began to appear. Emigrants for Oregon and the North and sometimes men for the gold fields went up the Missouri River in steamboats to the head of navigation and followed thence the old Lewis and Clark trail, shortening the overland journey. Lines of stagecoaches were established, and at last came men like John Butterfield and Ben Halliday, organizing the business of travel. Butterfield chose the southern and easiest route ; from St. Louis by way of El Paso he turned, as it were, the flank of the mountain ranges, and his coaches went bowling through to San Francisco in twenty-one days. Meantime the railroads were creeping westward and all men that could think saw the great transcontinental line close at hand and inevitable from the sheer force of so great a necessity. It was a very old project; before the discovery of gold, before California was an American possession, men had advocated it. I find a curious record of a public meet- ing held in Dubuque, Iowa, as far back as 1838, at which a civil engineer named John Plumbe spoke for a railroad to the Pacific and showed how it could be built the first of many such meetings. * This is the story that suggested "Gabriel Conroy" to Bret Harte. 116 STORIES OF THE GREAT RAILROADS Thomas H. Benton devoted much of his life to ardent support of this cause. A Pacific railroad convention 3 was held at St. Louis in 1849; Stephen A. Douglas presided. Two years later, a Pacific railroad bill was introduced in the United States Senate. In 1853, Congress appropriated $150,000 for a preliminary survey and $190,000 the next year for additional surveying work. Both the Republican and Democratic conventions of 1856 demanded the railroad and by that time the legislatures of eighteen states had in- dorsed it. In California many railroads had already been built on paper and one or two had a physical existence, all looking toward the transcontinental route. One of the tangible kind was actually opened in 1856 from Sacramento to Folsom. The San Francisco and Marysville dates from 1857, and the Western Pacific, which undertook to build from San Jose, fifty miles south of San Francisco, to Sacramento, is almost as old. These are names with which we shall have to deal hereafter. Most of the materials for railroad building were brought at great expense around Cape Horn in sailing vessels; yet despite the cost that this entailed, all the roads honestly con- structed and operated, became at once profitable. As to the transcontinental line, most men thought it would come by the southern and easy route, where Butterfield's coaches rolled over moderate grades and the level alkali desert. We know now that this was the opinion of Colonel Thomas A. Scott, of the Pennsylvania, one of the world's ablest railroad constructors. In this direction several lines 8 At another Pacific Railroad convention held at Philadelphia in 1850, Joel B. Sutherland advocated a national railroad, and as if by inspiration pointed out the evils that would result from private ownership. "No man living," he concluded, "ought to have the power of building this road vested in him and his heirs nor should any company have that grant made to it." This man seems to have been a prophet KC:/I ANTIC BAYS IN EARLY CALIFORNIA 117 were already heading from the East. Enterprises and plans were not lacking; what really was needed was capital, for want of which, and for no other reason, California was still without the transcontinental railroad when the new decade began. Sacramento, thriving with the growth of the state and already a metropolis, hoped for a northerly route, but ad- mitted the barrier of the Sierras. Theodore D. Judah, a very able civil engineer, who had directed the construction of the best California railroad, was the first to attack this notion. He seems to have had his original impetus from Daniel W. Strong, an old pioneer of Dutch Flat, who from his own observations was convinced that more than one way was open through the mountains. In the course of twenty lonely excursions among the canons, Judah found what seemed to his trained eye a perfectly feasible route to the East by the way of Dutch Flat and the Truckee. He had in Sacramento a friend, James Bailey, a jeweler, to whom he explained his conclusions and measurements, and in the spring of 1861, with Bailey's co-operation, he called, at the St. Charles Hotel, a meeting of merchants, who listened ap- parently without much enthusiasm to his appeal that they should subscribe funds for a definite survey and secure the transcontinental line for Sacramento. Bailey, warmly indorsing the project, introduced Judah to Huntington and Hopkins. They studied Judah's scheme and were convinced by him that is was practicable. Hunt- ington brought in Leland Stanford, of the Sacramento firm of Stanford Brothers, a rising politician, and Republican leader, and Charles Crocker, at that time a dry goods mer- chant but with experience in developing coal mines and directing construction work. These and others organized on June 28, 1861, the Central Pacific Railroad Company of California, capital stock $8,- 500,000. Stanford was President ; Huntington, Vice-Presi- 118 STORIES OF THE GREAT RAILROADS dent; Hopkins, Treasurer; Bailey, Secretary; and Judah, Engineer. Stanford, Huntington, Hopkins, Crocker, and Judah took 150 shares each. The par value of each share was $100. There were a few other subscribers, among them Strong, the two Lambards and Samuel Brannan, of Sacramento. Ten per cent of the subscriptions was paid in cash; this gave to the company a working capital sufficient for its first movements, which were not in railroad building but in lobbying. Huntington and his three friends were the real directors of the enterprise. None of them was of more than very moderate wealth even for that day; the four being worth .together not a quarter of a million dollars. 4 The only cash they ever invested in their enterprise was represented by their stock subscriptions. Even their payments on this ac- count are extremely doubtful, and so far as can now be ascertained, never exceeded the first ten per cent. With the money thus secured, Huntington and Judah went to Washington, where they planned and carried out a wonderful campaign against Congress. Of Mr. Hunting- ton's tactics there we shall have to say much hereafter ; all we need now to observe is that, considering the times, the amount of loot secured, and the terms, the achievement 4 According to the sworn statement made by each of the four and accompanying the memorial to Congress asking for subsidies, Leland Stanford and his brother were worth, in 1862, $32,950; Charles Crocker was worth $25,000; Mark Hopkins was worth $9,700; C. P. Huntington, $7,222; and the firm of Huntington & Hopkins, $34,115; total, $108,987. Some years later, before a com- mittee of Congress, Mr. Huntington testified that in 1862 each of the firm was worth several hundred thousand dollars and the total wealth of the four at that time was about $1,000,000. Un- luckily, such discrepancies under oath are common in testimony about railroads. In Sacramento, it is said that each of the four put in cash and credit to about $100,000 and strained his credit to do that; but in the suit of Robinson versus the Central Pacific the assertion was directly made that Messrs. Stanford, Huntington, Hopkins, and Crocker never paid for their stock and their total investment in the enterprise was nothing. ROMANTIC DAYS IN EARLY CALIFORNIA 119 stands unequaled in the history of lobbying. It is not at all wonderful that Congress was induced to grant aid to a Pacific railroad ; Congress had been ready for years to grant such aid, and now the exigencies of the Civil War had made the railroad an imperative necessity. What is wonderful is that Congress, discarding many better and fairer plansf should have made with these four adventurers a contract that bestowed upon them such vast and unjustified advan- tages. About this, men will marvel so long as they read the story. The bill passed both houses and was signed July 1, 1862. In substance and effect the government built the road with public funds, made of it a present to the four gentlemen, and loaded them besides with great fortunes. The wording was, of course, somewhat different. First there was given to the Central Pacific Railroad Company every alternate section of public land designated by the ode numbers to the amount of five alternate sections for each mile of the railroad, and on each side of it. You will not understand this unless you are familiar with the mystery oi railroad grants, so I will translate it for you. A section as I have explained in a previous chapter, is 640 acres. The bill set apart a strip of land twenty miles wide, ten miles on each side of the track for the whole distance, and then gave to the company half of the land in that twenty-mile strip, or 6,400 acres of the people's land for every mile oi railroad. This land was worth, at the lowest possible esti- mate, $15,000,000. The bill then provided that as soon as the company should complete forty miles of track the government should issue to it bonds of the United States of $1,000 each, bearing 6 per cent interest, for each mile of railroad constructed, as follows : For every mile in valley or level land, $16,000 in bonds. For every mile in the foothills, $32,000 in bonds. 120 STORIES OF THE GREAT RAILROADS \ For every mile in the mountains, $48,000 a mile. \ On the route planned by the Central Pacific, the value of this subsidy was $27,500,000. Total gift from the govern- hient so far, $42,500,000. J Meantime Lelancl Stanford, President of the Central Pacific, had been elected Governor of California, and under his care the legislature passed many bills for the company's benefit, most of them allowing the towns and counties to contribute to the company's coffer, which they promptly did. San Francisco gave $400,000; Placer County, $250,000; Sacramento County, $300,000, all in subscriptions to the stock; and the state of California gave a liberal donation. With all these and still other resources in hand, the com- pany saw that it was in a condition to begin actual opera- tions, and on January 8, 1863, with much ceremony, ground for the new line was broken at Sacramento, the legislature being present in a body and Governor Stanford digging the first shovelful of earth. Contracts for the first eighteen miles were let to nine different persons. Beyond that and so far as the 138th mile, Mr. Crocker was the sole contractor. Thirty-one miles of track had been laid up to September, 1864. Although the grants to the company under the Act of July 1, 1862, had been so amazingly liberal, Mr. Hunting- on was not satisfied with them, and believed that still more could be extracted from a government so generous with the people's money. Partly in conjunction with the interests back of the Union Pacific, he planned a new raid on Con- gress. The Union Pacific had been authorized to build- west from the Missouri River to meet the Central Pacific, and had received similar grants. Mr. Huntington particu- larly wished to have the act of 1862 enlarged about the bond gift. As it stood it read thus : "The issue of said bonds and delivery to the company shall ipso facto constitute a first mortgage on the whole line ROMANTIC DAYS IN EARLY CALIFORNIA 121 "of the railroad and telegraph, together with the rolling stock, fixtures, and property of every kind and description, and in consideration of which said bonds may be issued." Mr. Huntington maneuvered so well and, in his own apt phrase, "explained things" so successfully to congressmen that he got a new act passed in July, 1864, drawn apparently in every respect to his will. It changed the first mortgage of the government bonds into a second mortgage, and al- lowed the company to issue its own first mortgage bonds to the same amount as the government bonds. It also changed the land grant. The strip of donated land on each side ofl the track was now made forty miles wide instead of twenty,! and the number of acres bestowed upon the company in-\ creased from 6,400 to 12,800 for every mile constructed.] In the old act mineral land in the donated tracts had been exempted. Mr. Huntington had that changed so that min- eral lands containing coal and iron were included in the gift to the company, the reason being that much good coal lay along the route. Bonds of both kinds were also allowed to be issued in advance of construction. Land grant value now was $30,000,000. The new law virtually made the government guarantee the company's first mortgage bonds, and the company now began to issue such bonds and to sell them. Mr. Hunting- ton went to Boston and sold a great many at par and inter- est; and some at a premium. Mr. Crocker pressed on with the building, Mr. Hunting- ton buying the material in New York and shipping it around the Horn. He was a shrewd and successful buyer ; of some of his exploits in that line Bancroft, his fervent biographer, says they should be judged by the exigencies of business, rather than by the code of ethics 5 a comment that will strike the present-day reader of these annals as extremely Bancroft's "Life of C P. Huntington," p. 49. 122 STORIES OF THE GREAT RAILROADS well merited. One of the achievements thus defended by casuistry was to trick the rail manufacturers into furnishing 60,000 tons of rails at abnormally low rates, and another to trick a ship broker into supplying twenty-three vessels. As fast as the road was built, it was opened and began to do business and to make money. For the construction from the eighteenth to the 138th mile, Mr. Crocker received a little more than $10,000,000 in bonds and stocks, besides the cash that was advanced to him. This liberal reward, averaging more than $82,000 a mile for work in regions presenting no great difficulty, he did not keep, but for a peculiar reason, to be explained hereafter, bestowed upon others. After the 138th mile, another contractor assumed the work and carried it to completion. The strange and interesting details of this part of the story are to be told in a succeeding chapter, but to give some notion now of what went on, I may say that the company (charged the government at the mountain rate, $48,000 a [mile, for building on thirty miles of level or nearly level ground near Sacramento, and at the foothill rate, $32,000 a mile, for many miles of level building in the valley east of the Sierras. This is the origin of the familiar saying in /California that the Central Pacific was the strongest corpo- / ration in the world because it had moved the Sierra Ne- I vada Mountains thirty miles. It not only made these I charges, but collected for them, although Mr. Judah, the 1 engineer, refused to assent to the transaction. Meantime, most of the other stockholders than the four congenial gentlemen of Sacramento had been frozen out, and in the process the interests of Bailey and Judah, 6 who were the real projectors of the road, were callously sacri- 8 Theodore D. Judah died in 1863 on his way to Washington. He left some very interesting letters, which subsequently threw light upon certain phases of the early history of the road when it was investigated by the Pacific Railroad Commission. ROMANTIC DAYS IN EARLY CALIFORNIA 123 ficed. Mr. Huntington's proposal was that they should buy or sell. As they had no money to buy with, the alternative was like a pistol at their heads. Still they hesitated. To encourage decision, Mr. Huntington rode one day along the entire line and stopped all work, a privilege he had retained under the contract. Menaced with the failure of the enter- prise, the outsiders were driven to sell, and Huntington, Hopkins, Stanford and Crocker secured the ownership, which they retained uninterruptedly for sixteen years. They increased the capital stock first to $20,000,000, and finally to $100,000,000, of which $62,000,000 was issued. This, by a clever device that I shall describe later, they divided among themselves without paying for it one cent. They had in sight : Stock (issued up to 1873) $62,000,000 Land 30,000,000 Government bonds 27,500,000 Their own guaranteed bonds 27,500,000 Donations, about 2,000,000 Total $149,000,000 And their railroad was steadily pushing eastward. Only one prospect clouded their felicity. The Union Pacific Railroad, backed by a band of specu- lators as greedy but not nearly so fortunate, was now (with government money) building its line westward from Omaha. For three or four hundred miles its way led through a country flat as a board, close to water, and in sandy soil easily dug. It, therefore, progressed with great rapidity, sometimes laying as much as -ten miles of track in a day. The act of 1864 had authorized the Central Pacific to build eastward to a junction with the Union Pacific, where- ever that might be. At first the four partners had assumed that this junction would be far to the eastward, allowing them goodly mileage and many fat bonds, but the swift ad- 124 STORIES OF THE GREAT RAILROADS vance of the Union Pacific began to annoy them, and by 1867 they were thoroughly alarmed. The Union Pacific was approaching the mountains. If it should thread them first, the Central Pacific would lose the fattest part of its contract with the government; also the best of the joint haul when the roads should be united. There ensued the maddest chapter in all railroad history. The two roads entered into a race, tearing into the work before them regardless of any question of cost, working day and night with relay gangs.S- On the line of the Central Pacific 12,000 men dug, blasted, tunneled, and graded, urged to greater haste by the incessant goading of the overseers, To add to the mileage, and therefore to the compensation, much of the railroad had been laid out on the plan of a corkscrew or a ram's horn ; but this could not now be reme- died, and the builders followed the line, pressing on without a moment's halt. This was where the so-called difficulties of the work arose. Nothing about the grades was particularly difficult if the work had been normally done, the steepest gradient being 116 feet to the mile, which had already been equaled by the Baltimore and Ohio. But the insane haste made the task arduous and often dangerous. The builders did not wait for a completed road, but sent gangs of men far in ad- vance, sometimes forty miles, hauling with wagons all the material, as well as supplies for the men. Often the wagon roads had first to be cut through the forest. Camps were built and rebuilt in a vast solitude as the lines of attack moved on ; even water had to be hauled forty miles. It was the wild romance of railroading. Winter came on, the terrible Sierra winter with its phenomenal snow- falls, but to the world's amazement the work never stopped. In the tunnels the men worked securely; otherwise they toiled on in the canons where there was less of snowfall, ind great fires constantly burning kept them from freezing. ROMANTIC DAYS IN EARLY CALIFORNIA 125 In the dead of winter, rails, machinery, cars, even locomo- tives in pieces, were dragged hundreds of miles on wagons, traversing roads heavy and badly made, threatened with im- minent disaster from the snowslides and the storms. The problem of the commissariat for the working army was often acute; stores must be brought up and deposited far in advance of the line. 7 Over the snow the builders hauled to the ill-omened Donner lake the materials for forty miles of track, three locomotives, and forty cars, besides all the stores for so many men, the region being destitute of human habitation or of any supplies save fuel. At that time the end of the continuous track was fifty miles away. Of human life the builders were equally prodigal. Men I froze or slipped down the steep canon to their death, other j men took their places, and the work went on. More than one squad a foreman saw as they clung to the hillside, above them the white mountain heads, below them the canon down 300 feet, perhaps more, deep snow at the bottom, snow above and about them, while they dug and blasted into the frozen earth. Then there would be a shout, a rumbling sound that the watchers knew too well, the im- pending field of snow would rush down the mountain, a great cloud of snow dust would arise with a sullen roar, and when the air was clear, peering down the canon they would see a wide spreading of tumbled snow on the white expanse and maybe a man's arm sinking, or a pickax, and the squad was gone. In the spring when the snow melted they might find the bodies ; or the freshet might carry them off to beat them to pieces on the bowlders. It was but fifteen or twenty China- men gone. What mattered ? Once there were two white men standing side by side in a cutting. So they were seen one instant ; the next, an ava- 7 Governor Stanford's testimony before the Pacific Railroad Commission. 126 STORIES OF THE GREAT RAILROADS lanche poured into the cutting and hid them from view. Weeks afterwards the cutting was dug out; the men still stood there erect, leaning on their shovels, dead two grisly monuments to the mileage race of the Union and Central Pacific. In April, 1869, they were almost within sight of the enemy's lines. Before them was Ogden, the goal of the race, in the great valley between the Rocky and Sierra Ne- vada ranges. In the fury of competition both companies far overshot the mark. The Union Pacific had its graders one hundred miles west of Ogden; the Central Pacific had its advance line forty miles beyond its track layers. Only the iron actually put into position counted in the race. On the last day, ten miles of track were laid; on April 28th, they struck the Union Pacific line fifty-three miles west of Ogden; and May 10th, they drove the golden spike that cemented the two roads. The Union Pacific had won by fifty-three miles. Subsequently, the Central Pacific bought of the Union Pacific, at a high price, the over lapping road 8 and charged this and its own superfluous building and all the other lunacies of the race into the capital on which we now have the pleasure of paying interest. But the road was built, and the four promoters of Sacramento had a mileage sufficient to justify their bond issues. They now sat down to figure the cost and to pass it to the public in a needless and increasing burden that the public has patiently borne ever since. The world rang with the exploit; the country rejoiced; California was superbly happy. That May day she hailed as her deliverance ; she was now truly of the country, bound to it with more than iron cords. The new communication, reducing her distance by three-fourths, brought her into the house of states; all would now be well with her. So her Pacific Railroad Commission Report. ROMANTIC DAYS IN EARLY CALIFORNIA 127 people said. And yet, so tangled and contradictory are the affairs of men, there was at the same time laid upon her a heavy and bitter curse that to this day she has never been able to shake off. The rapid building of the Central Pacific through the mountains was for the times a great exploit. Naturally it has since been far surpassed as an achievement of engineer- ing and construction. Abating nothing of admiration for the physical performance, it is time now to reflect that it was also a monstrous triumph of greed, fraud, and corrup- tion ; that it might have been had at a fraction of its cost to the public ; and that it might very easily have been a blessing instead of a blight to that rich country of which it was ecstatically miscalled the Gateway. For the Gate was quickly closed and before it appeared the grim figure of Collis Potter Huntington, one hand hold- ing the key and the other stretched out taking toll. The physical figure of Huntington is no longer there, but the Gateway remains closed and before it are his successors, still busily taking toll. How much do you think? From the day the Gate was erected and closed, down to the present year, first Mr. Huntington and his associates and then their successors have taken and divided more than $700,000,000 in unjust tolls, all from the people of the United States, who so kindly erected the Gate across their own highway. With that sum, the people could have built ten railroads from the Missouri River to the Pacific. And they need have had no closed Gateway and no toll takers fattening upon an enforced and arbitrary tribute. CHAPTER VI. UNCLE MARK PACKS UP THE BOOKS. John Miller came, a young man, from Virginia to Califor- nia, in 1870, and found employment with the California Pacific Railroad as clerk and ticket agent at the South Val- lejo station. He was capable and industrious; and capable railroad men were few in California. A year later when some men in the railroad way at Sacra- mento wanted an efficient accountant, they learned of Mil- ler, sent for him, looked him over, and thought he would do ; so he went up to Sacramento and entered upon his new job, which was better than his old one had been. It was with the Contract and Finance Company, of which a kindly old man known as Uncle Mark Hopkins was the president. The office was right over Huntington & Hopkins' hardware store in K Street, and across the hall were the offices of the Central Pacific Railroad, of which Uncle Mark Hopkins was treasurer and director. Young Mr. Miller's task was to assist the paymaster of the Contract and Finance Company, and to keep books not the main books of the concern, for these were always kept by William E. Brown, the company's secretary, but certain other books that he called auxiliary books. To build and keep in repair the lines of the Central Pa- cific and of railroads with other names, was the business of the Contract and Finance Company, but the books that young Mr. Miller kept did not contain a complete record of these matters ; they related only to minor phases of the work in hand. Young Mr. Miller was observant as well as studious, and when, some months after he entered the office, he observed 128 UNCLE MARK PACKS UP THE BOOKS 129 Mr. Brown to be employed diligently upon the main books of the concern, the nature of this employment aroused your Mr. Miller's curiosity. He took occasion when Mr. Brown was absent to examine the books that Mr. Brown kept, and found them to contain matter of much interest. In fact, the more he examined them, the more interested he became. They were books that recorded the building and repairing of railroad lines for the Central Pacific what the work actually cost, and what had been paid for it 1 and might, therefore, be deemed to be among the most juiceless and unattractive volumes in the world ; but young Mr. Mil- ler found them remarkably diverting. Finally, he became so much interested that, like the care- ful student he was, he made from day to day a series of abstracts and memoranda of the matter wherewith he was being entertained, and these he took home, perhaps for more deliberate enjoyment in quiet hours. He did not let Mr. Brown nor anyone else know of the literary treasures he had found, but just read and made ab- stracts and copies and put them away. I am not to suppose that he knew Charles Reade's "Hard Cash," that he was familiar with the character of Young Skinner therein, nor that suspicion evil sprite! had been aroused in his breast by Reade's somewhat cruel jest about man as a cooking animal, being a cooker of books, but unconsciously he came to enact rather closely a vivid passage in a sensational novel, the while he furnished a sig- nificant chapter in railroad history. Of a sudden, one day in September, 1873, Mr. Brown en- tered the office and hailed young Mr. Miller with glad tidings. "The Contract and Finance Company has elected you to the office of secretary," said Mr. Brown. "I have resigned 1 Pacific Railroad Commission Report, testimony of Miller. 130 STORIES OF THE GREAT RAILROADS and am going to Europe. And now here is a set of new books for you to go to work with." Young Mr. Miller was duly gratified. He took posses- sion of the nice new books and observed that they had already been opened in Mr. Brown's handwriting, 2 each ac- count starting with a balance apparently carried over from the old books. About noon he went forth, as was his habit, to his mid- day repast, leaving Mr. Brown in the office with the old books and with the new. When, an hour later, he returned he found Mr. Brown there and the new books there, but the old books had disappeared, nor did young Mr. Miller ever see them again. So far as the world knows, only two other persons had that pleasure. Some time after Mr. Miller had departed in search of luncheon, in came, for no particular purpose, young Mr. Yost. Mr. Yost was private secretary to Mr. Leland Stan- ford, who was President of the Central Pacific and one of the owners of the Contract and Finance Company. Mr. Yost saw the old books. He saw them in the hands of Uncle Mark Hopkins. And Uncle Mark, with his coat off, was busily at work packing those books into boxes and fastening the boxes with screws. 8 The next day Mr. Brown started for Europe. There- after all trace of the old books was lost ; also all trace of the books of Charles Crocker and Company, the contracting firm to which the Contract and Finance Company was the successor. By some persons the loss was grievously mourned, these being chiefly persons that had certain lawsuits and needed the books for evidence. But their grief availed them noth- 1 Pacific Railroad Commission Report, testimony of Miller, pp. 2880-92. *Ibid., testimony of D. Z. Yost, p. 2717. UNCLE MARK PACKS UP THE BOOKS 131 ing, even when it led them to cause the arrest of the most eminent officers of the Central Pacific and when, in a dirty, common police court, these gentlemen were compelled to declare their ignorance about the books that never were found. According to a current belief in California, these books now repose at the bottom of the River Seine, which is in France; and that seems a very strange place indeed for books to repose in. For about a year young Mr. Miller discharged the duties of secretary to the Contract and Finance Company, being also made secretary to the Western Development Company, another very nice company with much the same owners and exactly the same purposes. Some suspicion then arose that his books and accounts were not in the admirable and apple-pie order to be expected of first-class accountants and really nice companies, and Mr. J. O'B. Gunn, auditor of the Central Pacific, made quiet observation of these matters. On his oral 4 report, young Mr. Miller was arrested and indicted, charged with em- bezzlement. We are not to conclude off hand that he had been corrupted by evil example, which is ever in wait for youth, but only that he had grown careless, maybe, or some- thing of that kind. He was not at once prosecuted, poss*jly because of his youth or good looks. Instead, certain negotiations began, lasting for a month, in which young Mr. Miller was every day in consultation with the highest officers of the Central Pacific, 5 who were also, by a curious coincidence, the high- est officers of the Contract and Finance Company and its sole owners. After a time, Mr. Miller's wife called upon former Judge N. Greene Curtis (who had once defended a man for the * Pacific Railroad Commission Report, testimony of Gunn, p. 3003. 6 Ibid., testimony of Miller, p. 2888. 132 STORIES OF THE GREAT RAILROADS Central Pacific) and engaged him as her husband's coun- sel. To him Mr. Miller delivered all his memoranda and abstracts. The trial of Mr. Miller took place in San Francisco, whither meantime the officers of all the companies here mentioned had been removed. All the witnesses against him were officers and employees of the Central Pacific. 6 It appears that the prosecution was afflicted with a curious languor, resulting perhaps from the climate, which is known to be at times enervating. At the close of the trial, young Mr. Miller was acquitted. From the courtroom former Judge Curtis went straightway to his room in the Cosmo- politan Hotel, took all the abstracts and memoranda that Mr. Miller had given to him, and put them into the grate, where they were presently consumed 7 in a cheerful blaze. These abstracts and memoranda were of the actual cost of the work done by the Contract and Finance Company, and the actual amounts received therefor. 8 Young Mr. Miller, thus happily cleared from blame, dis- appeared from the public view. The next heard of him was as a prosperous farmer and owner of a fine ranch in the Sacramento Valley, and as a buyer of coal lands. 9 As previously he had been an accountant on a moderate salary, followed by a year of idleness and (presumably) heavy legal expenses, this affluence occasioned some remark. Mr. Mil- ler farmed on, nevertheless, and so, by a figure of speech, did the Contract and Finance Company, the Western De- velopment Company and the Central Pacific Company. All this, it will be admitted, is of itself a strange and en- tertaining little narrative. And now to fit it into its true 9 Ibid. 1 Pacific Railroad Commission Report, testimony of Curtis, p. 3033. "'Ibid., testimony of Miller, p. 2880. Ibid., p. 2891. UNCLE MARK PACKS UP THE BOOKS 133 place in Southern Pacific history, where, properly viewed, I am sure you will greatly admire it. The contracting firm of Charles Crocker and Company was composed of Mr. Charles Crocker and, according to his testimony, of nobody else. Previously, he had been a dry goods merchant in the Plaza at Sacramento and then, in 1861, one of the organizers and first directors of the Cen- tral Pacific. He was the contractor that built for that road its first few miles. The dual capacity of director and con- tractor (by which, of course, a man must as director vote contracts to himself as contractor) seems to have aroused criticism among the captious and unsympathetic, and the next few miles were done by many contractors in small bits. When the undesirable persons had been frozen from the enterprise and the four of Sacramento had the thing in their own hands, Mr. Crocker resigned from the directorate, where he was succeeded by his brother, and took the contract for the rest of the road from the thirty-first mile to a point near the state boundary, or one hundred and thirty-eight miles from Sacramento. This contract disappeared with the books that, in 1873, young Mr. Yost saw Mr. Hopkins pack into boxes. So far as can now be ascertained, it must have been of extremely loose terms. No lump sum was named. Mr. Crocker, composing the firm of Charles Crocker and Com- pany, built the railroad, and the Central Pacific Company paid his bills, whatever they were and without question. This seems to have been the substance of the arrangement. It will be admitted to have been most unusual. As the firm composed of one man went along it needed money, which was supplied to it (or to him, as you prefer) by the Central Pacific Railroad Company, consisting of him- self and three others, from the proceeds of bonds that had been granted by the government. 134 STORIES OF THE GREAT RAILROADS He was supplied also with the bonds themselves, and with the company's stock. He said afterwards that for the first eighteen miles he received $250,000 in cash, $50,000 in stock, and $100,000 in bonds. 10 It is interesting to note that for at least eleven of these miles the Central Pacific Company received from the gov- ernment $528,000, which was more than enough to build the whole eighteen. For some of the miles Charles Crocker and Company secured as much as $300,000 or even $400,000" a mile. For excavating earth they, he, or it, received from 40 cents to $1.50 a yard, and for excavating rock as much as $10 a yard. 12 In 1867, the one-man firm completed the one hundred and thirty-eighth mile, and the remainder of the work was trans- ferred to the Contract and Finance Company, of which young Mr. Miller was subsequently the secretary. I said in my last chapter that for a very peculiar reason, Mr. Crocker did not retain the stocks and bonds he received for his work in constructing the railroad. The peculiar reason was that he turned over all these securities, amounting to more than $10,000,000, 13 to his successor, the Contract and Finance Company, which immediately dis- tributed them among its stockholders. And who were they? Messrs. Leland Stanford, C. P. Huntington, Mark Hop- kins, and Charles Crocker. 10 Pacific Railroad Commission Report, testimony of Charles Crocker, p. 3640. 11 Ibid., p. 3645. "Ibid., p. 3649. QUESTION: If I should recall it to your mind, would you re- member that the higher priced excavation was very much larger in number of yards entered on your estimate from which you re- ceived your payments, than the ordinary earth? ANSWER: I do not remember about it. 18 Pacific Railroad Commission Report, p. 3649. UNCLE MARK PACKS UP THE BOOKS 135 It is time we should take a look at this extraordinary concern, for the part it played in the affairs of our railroad, as well as its relations to public interests now, are of vital importance. The Central Pacific Railroad Company was organized under the constitution and laws of California, which for- bid the stock of a railroad company to be issued, except for cash or its equivalent. Not less than ten per cent must be paid for when the railroad is organized, and the rest by in- stallments in cash or its equivalent. Also these laws forbid a railroad to issue bonds in excess of its stock. 14 As fast as the railroad was constructed, it was receiving $48,000 a mile from the government, and it was also autho- rized to issue its own bonds for the like amount, but it could not do this in excess of its stock issue. Observe, therefore, that it was obliged to issue stock be- fore it could issue its bonds, and for the stock issued it was obliged to pay in cash or its equivalent. Now, bills of a contractor for work done in constructing a railroad are to that railroad clearly the equivalent of cash. The company had started with $8,500,000 of capital stock. As the work went on this was increased to $20,000,000 and finally reached $100,000,000, issued from time to time as re- quired. In 1873, the amount issued was $62,608,800. Naturally, the four gentlemen conducting the enterprise desired to get possession of this stock (which carried with it control of the road) and to get it without paying for it. One way to that desirable result was through a contracting agency that would present bills for its work (these bills being the equivalent of cash), accept in payment thereof the stocks and bonds of the company, and subsequently re- turn these securities, less the actual expenses, to the four 14 See section 456 of the Civil Code. 136 STORIES OF THE GREAT RAILROADS gentlemen. The greater its bills the more stock would thus be sent upon the circuit. All that was needed for the per- fection of this device was a good handy pretext for the final distribution of the accumulated securities among the four gentlemen. A firm composed of one person could not very well per- form this function, but to a corporation it was easy, because a corporation can always distribute its assets among its stockholders. If the Central Pacific stock composed the assets of such a corporation and the stockholders among whom they were to be distributed were the four gentlemen, how lovely that would be ! To suppose that these conclusions so obvious to you and me escaped the attention of the four wise gentlemen of Sac- ramento were to wrong their intellectual acumen; only, since Uncle Mark Hopkins' exploit as a book packer, the details of their operations are obscure. Still, you may care to note that in December, 1867, the Contract and Finance Company was organized with a capi- tal of $5,000,000 not one cent of which was ever paid for by three dummy organizers 15 who subsequently trans- ferred their stock to Messrs. Stanford, Huntington, Hop- kins, and Crocker, and that this company received Mr. Crocker's $10,000,000 of securities and properly distributed them, 16 where they would do the most good to Messrs. Stanford, Huntington, Hopkins, and Crocker. The Contract and Finance Company proceeded with the construction work from the one hundred and thirty-eighth mile to the junction with the Union Pacific, fifty-three miles west of Ogden. Of the extravagant expenditures caused by the insane race for mileage with the Union Pacific, we have already 15 Pacific Railroad Commission Report, testimony of William E. Brown, p. 2895. **/&., testimony of Charles Crocker Brown, and others. UNCLE MARK TACKS UP THE BOOKS 137 spoken. How much other unjustified expense appeared on the books will never be known. When the Pacific Railroad Commission tried to ascertain the facts, its expert engineer presented to it a statement that the entire line of the Central Pacific from Sacramento to five miles west of Ogden, 690 miles, cost to construct, $32,589,117.93. Adding the $2,130,000 paid to the Union Pacific for the overlapped parts, this makes the total construction cost $34,719,117.93, or $50,317 a mile. 17 How much of this, again, is real, nobody knows, but if we accept it as veritable, there was to offset it : United States Government bonds $27,500,000.00 Central Pacific bonds practically guaranteed by the government 27,500,000.00 Land grant 18 30,000,000.00 Assistance voted by California counties 1,000,000.00 $86,000,000.00 Less alleged cost of construction 34,719,147.93 And depreciation of currency 19 7,000,000. Balance $44,280,882.( In other words, they built the road for about one-half the government subsidy, and pocketed the rest. Other goodly profits pertained to these matters, and on top of all, the Central Pacific Railroad Company delivered to Charles Crocker and Company, and the Contract and "William E. Brown, Secretary of the Contract and Finance Company, testified (see p. 2897 of the Pacific Railroad Commission Report), that his company got $86,000 a mile for construction. 8 Before the Forty-eighth Congress, Representative Barclay Hen- ley showed that the whole road could have been constructed for its land grant alone. 19 Pacific Railroad Commission Report, testimony of Stanford, p. 2465. 138 STORIES OF THE GREAT RAILROADS Finance Company, $62,000,000 20 of Central Pacific stock, and this treasure trove was divided as assets among the stockholders of the Contract and Finance Company. And who were they? Messrs. Stanford, Huntington, Hopkins and Crocker, who were also the chief owners of the Central Pacific, who never paid a cent for their Contract and Finance stock, and who by this device secured also $62,000,000 of Central Pa- cific stock without paying a cent for that. 21 On this stock, so obtained, were declared in the next seven years dividends amounting to $12,000,000 all obtained from the contributions of the public. When these matters came many years afterwards to be reviewed, Governor Stanford tried to show that when the construction work was done, the Contract and Finance Company owed a great deal of money several million dollars, 22 in fact. This statement led to a remarkable revelation. When William E. Brown, former secretary of the Contract and Finance Company, was asked about the matter, he said that "Up to 1873, when the last division of stock took place. The progress of these operations may be seen readily from the follow- ing table of the capital stock of the Central Pacific Railroad Com- pany: Year Amount 1866 $ 8,580,600 1867 14,923,400 1868 24,679,900 1869 40,168,100 1870 51,079,200 1871 59,644,000 1872 59,644,000 1873 62,608,800 a QUESTION : Then it was substantially, that the builders of the road under the contract should take all the bonds whatever character they were, as you have stated, and the amount of stock to authorize you to issue those bonds under your own first mort- gage? ANSWER: Yes, sir. Pacific Railroad Commission Report, testi- mony of Leland Stanford, p. 2646. 32 1 'bid., Stanford's testimony, p. 2669. UNCLE MARK PACKS UP THE BOOKS 139 at the end of the construction period, the Contract and Finance Company owed (unquestionably to Messrs. Stan- ford, Huntington, Hopkins, and Crocker) $1,636,000, against which it held the notes of the Central Pacific Com- pany for $6,000,000, and that in payment of the $6,000,000 of notes the Central Pacific (owned by the same men) de- livered $7,000,000 of land grant bonds; 23 so that instead of being a debtor when it completed its work, the Contract and Finance Company was a peculiarly happy kind of a creditor. And what became of those $7,000,000 of bonds ex- changed for $6,000,000 of notes held against $1,636,000 of debt? Why, all went by the assets route to the pockets of the same wise and fortunate four, Messrs. Stanford, Hunting- ton, Hopkins and Crocker. 24 Subsequently, all these assets with the $62,000,000 of stock obtained for nothing and all the other perquisites, "melons," good things, grafts, "rake-offs," and clever deals, were merged into one of the most valuable railroad stocks in the world, on which to this day we are paying the co- lossal interest charges. But in estimating the immediate profits of the Big Four we must not, to be sure, overlook the fact that for a part of the time of construction, currency was much depreciated and its depreciation added heavily to the cost of everything 23 Pacific Railroad Commission Report, Brown's testimony, p. '"It is found that Messrs. Stanford, Huntington, Hopkins and Crocker received over $142,000,000 in cash and securities through the Contract and Finance Company, Western Development Com- pany, and Pacific Improvement Company, and dividends of the Central Pacific. In addition to this sum of $142,000,000 they also made large profits in the operation of fifteen or more companies which were directly or remotely sapping the revenues of the Cen- tral Pacific Company." Pacific Railroad Commission Report, p. 143. 140 STORIES OF THE GREAT RAILROADS that was bought. But the real building work was done after the end of the war when currency was rising in value and the first mortgages were gold ! Moreover, to offset the loss on currency were some items usually neglected in these considerations. . Thus, the road was operated as fast as it was built as part of a continental rail and stage line, and from this operation there accumulated, by 1869, above all expense and interest charges, close upon $3,000,000 of net profits. Also, to head off a rival line building eastward to Placer- ville, the wise and happy four built a connecting wagon road from Dutch Flat through the Carson Valley (charged to Central Pacific construction account), and this road gath- ered for them at trifling expense tolls estimated at $3,000,- OOO 25 an enterprise that had the further advantage of ruin- ing the rival railroad so that it fell by its own collapse into the Central Pacific's possession. 26 No sooner was the first transcontinental railroad line opened, the gateway established, and the toll taker at work, than the four thus pleasantly endowed began to establish other gates to take further toll. They had started with next to nothing apiece, and now, after nine years, they shared a stupendous fortune that was, indeed, much more than wealth in hand since it was an infallible and unceasing ma- chine for gathering more and still more wealth. As they constructed the .Central Pacific, it stopped at Sac- ramento, ninety miles east of San Francisco, with which the Sacramento river connected it, as did also the Western Pa- cific, another and earlier railroad project, liberally aided with government grants as an incipient transcontinental route. The main line of the Western Pacific had its western terminus at San Jose, fifty miles south of San Francisco, but 28 By Daniel W. Strong, who was a Dutch Flat pioneer and one of the original founders of the Central Pacific. "Bancroft's "History of California," p. 553. UNCLE MARK PACKS UP THE BOOKS 141 it had a branch to Oakland on San Francisco Bay and oppo- site the city. In 1867 the contractors that had undertaken to build the Western Pacific became "embarrassed," and the Contract and Finance Company completed the road and took all of the stock, issued and unissued, all the bonds and all of the land grants not previously allotted to the first contractors, delivering the whole to the Central Pacific, composed of Messrs. Stanford, Huntington, Hopkins, and Crocker. The land grants were exceedingly rich and the possession of the road thus cheaply secured carried the Central Pacific from Sacramento to San Francisco Bay and gave it an invaluable terminus. 27 Another rival road, the California Pacific, had been pro- jected to build over the Beckwith pass through the Sierras to an Eastern connection. In 1869 it was completing its line from Vallejo to Sacramento by a shorter and better route than the Western Pacific. The Central Pacific tried hard to keep the California Pacific from entering Sacra- mento, and at one time a pitched battle between the armed forces of the two companies was imminent; but while the contestants were waiting for a court decision, the California/I Pacific stole a march and got into the city. 28 This wasj \ in 1870. Being thus defeated, the Central Pacific had recourse to strategy. In 1871, it agreed to buy the California Pacific for $1,579,000. It had previously secured a contract for the 27 The true nature of this transaction is now not likely to be disclosed, but the reason for the first contractors* troubles seems to have aroused some suspicion. In Robinson versus the Cen- tral Pacific, filed in San Francisco in 1876, very damaging allega- tions are made concerning the matter, the substance thereof being that the Central Pacific unfairly obtained $2,000,000 of Western Pacific bonds and about $3,000,000 of other valuable properties. It is certain that the Western Pacific cost the Central Pacific little and was an immensely profitable acquisition. 28 Bancroft's "History of California," Vol. vii. 142 STORIES OF THE GREAT RAILROADS Contract and Finance Company to build and repair certain sections of the California Pacific line. When this work was done, the Contract and Finance Company presented a bill for $1,600,000, which neatly offset the purchase price 28 and left a margin. Some bonds were used as counters in this unique deal, but the substance of it was that the happy four got the California Pacific practically for nothing. The subtle influences, political and business, that were back of these operations were never revealed. The happy four now went through the formality of leasing the California Pacific to themselves for $550,000 a year, afterwards increased to $600,000. The par value of the stock was $12,000,000, having an actual value of less than $3,000,000, secured for practically nothing, and charged up to the public at $550,000 a year. Twenty- four years later the sworn value of this property was $1,404,935 and all that time $550,000 to $600,000 on its account had been extracted annually from the public by the four of Sacramento. In those years the road had paid in rentals alone, $13,600,- 000 almost exactly ten times its value. For all of which the public has paid. Moreover, this rental was charged to operating expenses, the public was required to make the road profitable above such expenses, 30 and freight and pas- senger rates were and are based upon the reasonableness of such profits ! Subsidiary properties gathered with the California Pa- cific, included the San Francisco and North Pacific and the San Francisco and Humboldt Bay Railroads, with a nominal capital of $17,200,000; and having these roads in its possession, the Central held San Francisco and, indeed, all California in its grip, and could charge what it pleased. m lbid., p. 584. "As to the general policy of these leases, see Pacific Railroad Commission. UNCLE MARK PACKS UP THE BOOKS 143 This was always Mr. Huntington's idea, to maintain at whatever cost, an absolute monopoly of the traffic ; to allow the public no chance to escape ; and to control the state through the control of the primal necessity of transporta- tion. For many years he devoted to this object more at- tention than to all other objects together, until he was obsessed by it. Now he looked out upon the field and saw his supremacy might be threatened from two directions. On the north, the Northern Pacific was slowly advancing from St. Paul; on the south, he was menaced afar by the Texas Pacific and others. He determined to fortify both approaches. He saw that from the south, where the easy routes were, he faced most danger. Therefore, as soon as the Central Pacific was completed, he and his three friends organized the Southern Pacific Railroad to build southward and seize the southern gate of California. Here comes in once more our old friend the Contract and Finance Company. The grand secret of making fortunes, Mr. Huntington had discovered was to manipulate evidences of debt. If you could bond a railroad enterprise, then do its work at extravagant or fictitious prices, then take its bonds in payment and its stock as a bonus, you had the public in debt to you and could always make the public pay interest on that debt, to your own great emolument. That is what he meant when he said a few years before his death, "I made my money by going into debt" a neat bit of word-play, since the debt he went into was always debt on which he contrived the public should pay the inter- est to him. To this end, the Contract and Finance Company was a perfect instrument; it was, in fact, even now at work in more than one direction. The Central Pacific owners had made with themselves, as the Contract and Finance Company, a most remarkable con- 144 STORIES OF THE GREAT RAILROADS tract by which the Contract and Finance Company under- took all the Central Pacific's repairs and maintenance, charged 10 per cent profit thereon, and used the Central Pacific's tools, shops, and plants in the work. This, for a simple little piece of money making by-play, seems hard to be excelled. Having the same owners, the Southern Pacific now con- tracted with itself as the Contract and Finance Company for the building of the new line, and again the terms of arrange- ment were most peculiar and profitable. For its immediate uses the Contract and Finance Com- pany received through its owners cash, bonds, coupons, and other valuable things from the Central Pacific's earn- ings and treasury, and paid interest thereon, some times as much as 12 per cent a year. 31 It repeatedly raided the Central Pacific's sinking fund or other surpluses, obtaining once $3,000,000 and once $5,000,000, although these funds did not belong to the Central Pacific, but to the government and the people of the United States. With funds so secured much railroad line was built. On lines so constructed bonds were issued, and stock. Bonds and stock so issued, were delivered to the Contract and Finance Company in payment of construction work done at abnormal prices. Finally, as assets of this company, the bonds and stock were distributed among its stockholders, who were the four happy gentlemen 6f Sacramento. In other words, the earnings of the Central Pacific, se- cured by charges upon the public, built the Southern Pacific, and the Southern Pacific bonds, stock and land grants were "velvet," 32 for the four happy gentlemen of Sacramento. 81 Pacific Railroad Commission Report, testimony of W. E. Brown, p. 2908. "Pacific Railroad Commission Report, pp. 2984, 2665, 2678, and particularly the testimony of Stanford at p. 2665 and of C. F. Crocker at p. 2999. UNCLE MARK PACKS UP THE BOOKS 145 Not a cent of the stock got upon the market ; it all went as fast as the presses issued it, into the coffers of the four. Beautiful ! The Contract and Finance Company did not long survive in these goodly matters. In 1875, its four owners took the very unusual step of disincorporating it, which enabled its affairs to be wound up and its books destroyed. In its stead was organized the Western Development Company same ownership (with the addition of David D. Colton), same purposes, 33 and $5,000,000 of capital, of which not a dollar was paid in. It succeeded to the contracts of the Contract and Finance Company, including the Southern Pacific work. How well it fared on its way through fertile fields we may judge from the fact that on September 4, 1877, two years after it started, it distributed among its stockholders the following assets it had accumulated in its peculiar ministrations : Southern Pacific stock $13,500,000 Southern Pacific bonds 6,300,000 Amador Branch bonds 675,000 Berkeley Branch bonds 100,000 Los Angeles Branch bonds 13,500 Amador Branch stock 674,000 Berkeley Branch stock 100,000 Total for this sitting $21,362,500 83 By Commissioner Littler Is it not true that the Western Development Company is an instrument by which Messrs. Stanford, Huntington, Crocker, and Hopkins performed work and furnished materials to the Central Pacific Railroad Company and that they, as officers of the Central Pacific Railroad Company, furnished the Western Development Company with funds belonging to the Central Pacific Company and charged a profit of 10 per cent on all work done and materials furnished, which profit they appro- priated to their own use? ANSWER: I do not call that a true statement * * * I do not understand that they used the Western Development Company as officers of the Central Pacific but in their individual capacity. Pacific Railroad Commission Report, testimony of F. S. T^outy, p. 2695. Quoted here also as a specimen of the ideas of business ethics that seemed to permeate this interesting company. 146 STORIES OF THE GREAT RAILROADS Fair for a day's work! The contract with the Contract and Finance Company, and later with the Western Development Company, was to construct and equip the whole line of railroad for $40,000 a mile in first mortgage bonds "and the balance in capital stock" whatever that might mean, since the actual cost of construction could not have exceeded $25,000 a mile 84 for most of the distance. For this the fat land grants from the federal govern- ment alone would have more than sufficed, and the rich donations from local sources were chiefly additions to the profits of the four. The state of California gave thirty acres of land at Mission Bay, San Francisco, a very valua- able endowment. The city of San Francisco gave $1,000,- 000; other cities, counties, and towns gave $1,002,000. Congress, at Mr. Huntington's instigation, had bestowed upon the enterprise half the land in a strip forty miles wide along its entire line, or 12,800 acres for every mile con- structed. Much of this land was exceedingly rich, but if it were worth no more than the government's price to settlers, $2.50 an acre, the whole would have been worth $29,824,- 000; while at the excessive rate of $40,000 a mile, the whole line from San Francisco to the southeastern bound- ary of the state, including the branches, would have cost to build only $37,000,000. This was an arrangement that constituted a great triumph of Mr. Huntington's ability in the lobby, but it was to have overlooked-for and bloody consequences. The Western Development Company lasted three years, when it followed the Contract and Finance Company into the limbo of things better forgotten, and was succeeded by 84 In a region of no greater difficulties Receiver Farley, of the St. Paul and Pacific, was at this time building and equipping a railroad on $10,000 a mile. In 1877, Jay Gould told Mr. Huntington that he built a branch of the Union Pacific for $9,500 a mile. UNCLE MARK PACKS UP THE BOOKS 147 the Pacific Improvement Company, same owners (except one), same purposes, same capital, same absence of pay- ments therefor. This company, inheriting the contracts of the Western Development Company, carried the building of the Southern Pacific to the state boundary at the Colo- rado River, and thence across Arizona and New Mexico, where had been organized by the same owners the Southern Pacific Railroad Company of Arizona and the Southern Pacific Railroad Company of New Mexico. The Southern Pacific of Arizona had an authorized capi- tal of $20,000,000 (none of which was paid in 35 ), and bonds of $10,000,000. The Southern Pacific of New Mexico had similarly a capital stock of $10,000,000 (none of which was paid in), and bonds of $5,000,000. The Pacific Improvement Company built for the Arizona road 384.17 miles, and for the New Mexico road 107.25 miles. The contract called for $25,000 a mile in bonds and practically all the stock. 80 When completed, the road was leased by its owners to themselves as the Central Pacific, on extravagant terms from which the Central Pacific made great profits and drove its stock toward par. The Southern Pacific stock, secured for nothing in this deal, is now worth 137. 37 The Pacific Improvement Company likewise seems to have done a prosperous trade in its line. At a meeting held April 11, 1882, as shown w Pacific Railroad Commission Report, testimony of F. S. Douty, p. 2708. "These leases worked both ways for their profit. "They con- structed 1,171 miles of adjunct lines at a cost of $27,216,931.01. On account of that construction, in addition to a small cash payment, they issued bonds to themselves to the amount of $33,722,000 and stock to the amount of $49,005,800, making a total issue of $82,727,- 800, of which $55,531,554, represented inflation. Then as directors of the "Central Pacific they took leases of their own lines for the Central Pacific for $3,490,828.81 per annum, which was at the rate of nearly 13 per cent." Pacific Railroad Commission Report, p. 143. 148 STORIES OF THE GREAT RAILROADS by its minute book, it distributed among its stockholders these securities that it had gathered in its own sweet way : Southern Pacific of Arizona stock $19,994,800 Southern Pacific of Arizona bonds 2,572,000 Southern Pacific of New Mexico stocks 6,688,800 Southern Pacific of New Mexico bonds 4,180,000 Monterey Railroad Company stock 284,000 Monterey Railroad Company bonds 248,000 Total at this sitting $33,967,600 I find also that, in 1894, it transferred to the land depart- ment of the Central Pacific Railroad property worth some- thing like $20,000,000, including more than 125,000 acres of rich land and 125 town sites on the line of the Southern Pacific of California. From which I infer that in the midst of other and exacting cares the thrifty owners had not overlooked the profit that lies in knowing where the sta- tions are to be placed when you lay out a railroad. But to return to earlier history. While the Southern Pacific was reaping bonds and things as it moved eastward, Mr. Henry Villard, in control of the Northern Pacific, was rapidly pushing westward. His main object was Portland, but men easily foresaw that he would wish to build a branch southward toward San Francisco. The Central Pacific undertood to check him by building north a line called the California and Oregon Railroad and by forming an amalgamation called the Northern, both con- structed in the same way by the Western Development Com- pany or by the Pacific Improvement Company, on terms that filled the coffers of the four gentlemen and piled up capitali- zation and interest thereon. I cannot do more than give some bare idea of these opera- tions by citing a few instances from many, for to relate all the myriad sources of profit would fill a great volume. There was one piece of road 103 miles long from Delta, California, to the state line, belonging nominally to the Cali- UNCLE MARK PACKS UP THE BOOKS 149 fornia and Oregon branch of the Central Pacific's happy family and constructed by the Pacific Improvement Com- pany. On this the price charged for construction was $4,- 500,000 in bonds and 50,000 shares of stock, together worth in the market $8,340,000. The actual cost of construction was $3,505,609 ; the net profit, representing also an unneces- sary addition to the debt load that we must pay, was $4,834,391. To own a construction company, a railroad company, and a good reliable printing press, is better than to own a mint. Nothing can limit your fortune but the extent of your greed. In the same manner, these gentlemen organized the South Pacific Coast Railroad Company, with a line eighty miles long, on which the bonded indebtedness was $5,500,000 and the stock $6,000,000. The bonds alone represented almost $70,000 a mile. All of the bonds and all of the stock were taken by the Pacific Improvement Company for building the road, and, in 1886, the Pacific Improvement Company passed along all of these securities to the South- ern Pacific, whose owners had gone through the formality of leasing their property to themselves on an arrangement that left the rental and the interest on the bonds and divi- dends on the stock (if any dividends were paid) all to be dug out of the road by means of freight and passenger rates. Similar processes were followed with the Northern and with the Northern California. The Northern was an ac- cretion of ten smaller roads, most of them with overlapping leases. It managed to pile up a stock issue of $9,182,000, with bonds at the rate of $30,000 a mile for 386 miles, its total mileage. In the end this conglomerate with all its leases was leased to the Southern Pacific and its stock ex- changed for Southern Pacific stock in the hands of the toll taker, and the whole thing dumped on us who pay. 150 STORIES OF THE GREAT RAILROADS Year after year, the interests of these men spread in many directions. They went into banking, politics, legislation, land-owning, navigation, and newspapers and, with particu- larly unfortunate results to the public, they went into street railroads. They increased their investments and power and turned the profits made from one greedy enterprise into power to secure more greedy enterprises and gain more profits and more power. Sometimes they used their power as a bandit uses his pistol and sometimes as a confidence man uses his skill, yet on calm review it appears that at no time were they more than the successful exponents of the legitimatized spirit of their age, nor doing aught that was not sanctioned by the system the age had accepted. Of their greater exploits we shall have to speak at length hereafter, but for your refreshing meanwhile, here is a little example of the bandit or highwayman style of business. We go back first to the stage coach days. When John But- terfield's twenty-one day stage from St. Louis via El Paso- to San Francisco had been well established, the business grew too great for an individual and a company took charge of it. The Civil War drove the stages from the easy southern route to a road across the center of the country, beginning at Omaha. With this change the company was re-organized, and under its new name, Wells Fargo and Company, with Louis McLane of New York as its manager, soon became an institution in the West, operating a great express and banking business as well as stage coaches. When the Cen- tral Pacific was completed, Wells Fargo and Company en- tered into an arrangement to carry on express operations over the railroad. The next year, however, 1870, the Wells Fargo people were dismayed to learn that Messrs. Stanford, Huntington, Hopkins and Crocker, with Mr. Lloyd Tevis, had organized UNCLE MARK PACKS UP THE BOOKS 151 the Pacific Express Company and purposed to compete for the express carrying trade. Competition with the men that owned the railroad and could do what they pleased with rates was no competition at all, but merely a game of stand and deliver. The Pacific Express Company went no farther than ,to print some stationery and open an office, when Wells Fargo and Company surrendered. For a gift of one-third of the capital stock of Wells Fargo and Company, the Pacific Ex- press Company agreed to go out of business. One-third of the Wells Fargo stock was $3,333,333.33, thus acquired for the cost of a bunch of stationery. This seems fairly good business. Afterwards the new stockholders put up one-third of $500,000 to develop the banking end of the Wells Fargo con- cern. Still later, $1,250,000 of Wells Fargo stock was is- sued to the Central and Southern Pacific 38 (Stanford, Huntington, Hopkins, and Crocker) in return for a new traffic arrangement, and the whole great business of the express company passed into the hands of the railroad, where it remained until the beginning of 1910. Then a new organization brought forth fresh melons, more water and more tribute from the nation. These I cite as examples of the great profits. But the thrift of the fortunate gentlemen despised not the day of small things, also. They built for $40,000 a bridge over the Colorado River, and owning it themselves, they leased it to the Southern Pacific, which they controlled, at $12,000 a year, and this they charged into the railroad's operating expenses and made a basis for rates. 88 Pacific Railroad Commission Report, testimony of Lloyd Tevls, p. 3123, 152 STORIES OF THE GREAT RAILROADS They bought the steamer Solano, worth $100,000, 39 and, owning it themselves, they leased it to the Northern Rail- road, which they controlled, at $90,000 a year, and they charged the $90,000 into that railroad's operation expenses and made it likewise a basis for rates. Whenever they executed a neat bit of graft it was always charged either into capital or into operating expenses or into both, and wherever it was charged there it remains, and as you will see in another chapter, we pay for it. All this time at the old original Central Pacific gateway the takings had been goodly and incessant. As soon as the cars began to run over the Sierra Nevada, the surplus earn- ings began to accumulate. At first these seem to have been used to build other lines, but by September, 1873, the busi- ness was so good that, in addition to the money slipped over to side enterprises, there was plainly enough for a dividend. From that time and with trfe exceptions of 1878 and 1879, the dividends ranged from 6 to 10 per cent a year until 1884. Then the dividends stopped. In that year, 1884, the stock was worth 80 and more, and for the first time its owners parted with it. They sold the bulk of their holdings to an English syndicate under a remarkable arrangement that left the original holders still in control of the property. After that the road ceased to be profitable. Only Central Pacific stock was sold to the English. The original holders re- tained their stock in the Southern Pacific, which might now, of course, be deemed to be a rival line to the Central Pacific from whose earnings it had been built. 40 After ten years had passed without dividends the English stockholders sent over Sir Rivers Wilson, subsequently President of the Grand Trunk, to see what could be done 89 Sworn statement of A. N. Towne, General Manager of the Southern Pacific. 40 Congressional Record, 48th Cong., First Session, p. 4821. UNCLE MARK PACKS UP THE BOOKS 153 with the property. To Sir Rivers Wilson a promise was made and faithfully kept that the English stockholders should have one per cent a year until "satisfactory arrange- ments" could be obtained for the "adjustment" of the com- pany's debt to the government, and thereafter two per cent. 41 Adjustment is, I believe, the term in use for such things, but the sense in which it is employed therein cannot be its ordinary signification. 42 Before this arrangement was con- cluded, Wilson is said to have made a report on conditions as he found them, and this report is said to have been known to the officers of the Southern Pacific Railroad Com- pany, and is also said to have contained some extremely plain language of a kind that would have been very inter- esting indeed to the American public if it had made its way into the press. The market price of the stock declined until it reached 7j^. Subsequently it was understood that the English investors had disposed of their holdings at the bottom figures, and in 1899, the public learned that the stock had found its way back to its original holders. I trust that the essence of this transaction is sufficiently clear without further elaboration. But to return to our chronology. tt The^ Southern Pacific Company versus The Board of Railroad Commissioners of California, Defendant's answer, Paragraph 4. "For the attitude of the Company toward this just debt, see Pacific Railroad Commission Report; p. 2398, statement of A. A. Cohen; p. 2544, statement of A. N. Towne; p. 3408, statement of Creed Haymond, p. 3387, statement of J. C. Stubbs; and Governor Pattison's report. 154 STORIES OF THE GREAT RAILROADS Here is a list of the dividends paid before the unfortunate English came into the road : Dividend Da te. Rate. Amount Pa No. 1 September 13, 1873 3 $1,628,265 2 August 4, 1874 5 2,713,775 3 April 1, 1875 6 3,256,530 4 October 1, 1875 4 2,171,020 5 April 3, 1876 4 2,171,020 6 October 2, 1876 4 2,171,020 7 April 2, 1877 4 2,171,020 8 October 1, 1877 4 2,171,020 9 February 1, 1880 3 1,628,265 10 August , 1880 3 1,778,265 11 February , 1881 3 1,778,265 12 August , 1881 3 1,778,265 13 February , 1882 3 1,778,265 14 August , 1882 3 1,778,265 15 February , 1883 3 1,778,265 16 August , 1883 3 1,778,265 17 January 15, 1884 3 1,778,265 $34,308,055 The marvelous career in Congress of Mr. Huntington and the Southern Pacific I must leave to another article, but perhaps we may do well to pause here at 1884 and observe how the four gentlemen had fared. They started in 1861 with a total wealth among them, ac- cording to their sworn statements, of $108,987. In twenty-three years they had won $34,308,055 in divi- dends on their original enterprise, had enjoyed the almost incalculable profits arising from mechanical million-making contrivances such as the Contract and Finance Company and the Western Development Company, and they and their heirs and associates controlled 5,906 miles of railroad with total capital stocks of $219,000,000 and bonds of $235,000,- 000, a total capitalization of $454,000,000. The companies they had founded dominated the affairs of ten states and territories, and over a great part of this region exercised an absolute rule not comparable to any- thing ever known under the guise of free government and UNCLE MARK PACKS UP THE BOOKS 155 to be equaled only by going back to the days of great con- querors like Tamerlane and Alexander. In California it is not too much to say that the will of the railroad company had superseded all law, all govern- ment, all authority, and thereafter the people were in an anomalous condition where an irresponsible and self-created power ruled their affairs. The railroad monopoly had become supreme. No man could win position, distinction, or office, without its sanc- tion; too often, men found that they could not do business nor make a living if they antagonized this great power. The rates it charged for transportation were always arbi- trary, and being perpetuated as "vested rights," remain to this day as curiosities in the history of transportation. The accepted basis of its rate-making was found in the famous quotation : "What the traffic will bear." But it was in reality a dual foundation. What the traffic would bear was one reason for making abnormal rates; what would punish the railroad's enemies or reward its servile friends was another. The control of the highways, as Hannibal and the old Romans knew very well, was a greater power than any government, armies, laws, majori- ties, or constitutions. The four of Sacramento held abso- lute control of the Western highways, and out of it they made vast fortunes and established an empire. Aside from this, if the fortunes made in the way I have described could have remained merely fortunes, segregated and enjoyed by their owners, we could read of them and wonder and pass on. But the truth is that the making of these fortunes, created out of debt and based in reality upon the power to tax the public, was the origin of a great and steadily growing evil, now become more menacing than any problem any nation has ever dealt with. 156 STORIES OF THE GREAT RAILROADS Look back and see. When, in 1880-81, the Southern Pa- cific was completed across New Mexico, and leased to the Central Pacific, Mr. Huntington, always the controlling spirit, saw his way to colossal strides in railroad combina- tions. Tom Scott had failed to build his Texas Pacific to California and was out of the way. No other rival need be feared in the South. Mr. Huntington and his friends organized the Southern Development Company on the lines of the old Contract and Finance Company and for the same purpose. Through this concern, and in other ways, he built and absorbed lines in Texas and Louisiana until he had a rail- road through from San Francisco to New Orleans, with connecting steamships thence to New York. Then he ef- fected consolidations of all the roads owned and leased by the Sacramento Big Four, issued flood after flood of stocks, exchanged all the stock issued for construction into the dividend-paying securities of the amalgamated company, and finally massed the whole into the Southern Pacific Com- pany of Kentucky, with $74,866,463 of preferred and $197,- 849,259 of common stock, paying 7 per cent dividends on the preferred and 6 per cent on the common, and owning besides $415,330,000 of stock in proprietary companies, to say nothing of bonds an exhibit at which the observer may well stand aghast, and to which there is no parallel in the world. For most of these stocks no money was ever paid. They represent no investment. Only clever and successful scheming. On all of them we furnish year by year the profits, col- lected from the living expenses of the masses. In this grand total of dividend-bearing securities is in- cluded all the stocks gathered in so many devious ways by the Contract and Finance Company, the Western Develop- ment Company, and the Pacific Improvement Company, so UNCLE MARK PACKS UP THE BOOKS 157 that not one dollar represented by these transactions is to- day without its direct significance to you and me, for we furnish those dividends. How grave this significance really is, we may judge from the fact that within the last three years we have had the pleasure of paying greatly increased rates to make up in- creased dividends on increased stock. Year after year increased capitalization. Increased rates to support that capitalization. Increased cost of living caused by increased rates. How long can we keep this up? CHAPTER VII. MR. HUNTINGTON WRITES TO FRIEND COLTON. In the White House one day: Mr. C. P. Huntington Mr. President, when you called on me in New York for a subscription for the campaign there did I not draw a check to you for $100,000? The President of the United States You did, Mr. Huntington. Mr. Huntington Then am I not entitled to the appointment I asked of you? The President of the United States You are, Mr. Huntington-, and you shall have it. Unluckily this dialogue is not a bit of imagination nor an excerpt from fiction, but part of an actual conversation. I have no doubt many other similar conversations have oc- curred at the White House and elsewhere. This is the only one I have been able to verify. It is verified by the man that heard it. Suppose the appointment Mr. Huntington desired Irom the President to have been to a federal judgesjiip. Sup- pose the man he choose for the place to have been one of his attorneys and henchmen. Suppose an issue between the people and the railroad to come before this judge. Toward which side would you expect the judge to in- cline ? And then you are to understand that although this in- stance of compulsive power over the government of the nation seems very startling and abnormal, it was of small moment compared with the total power to which the rail- road company attained. ^^^ Beginning in 1862, when Leland Stanford was'jjjji governor of California, the railroad monopoly sfeadily 8e- 15 MR. Ill Ml Nti ION WRITES TO FRIEND COLTON 159 veloped upon new linos what in the end became incompar- ably the ijrcatc.'.t political machine ever known. We shall say far too little if we merely say that this ma- chine dominated the government of California. It was the government and all the branches thereof, not merely direct- ing but performing. Discerning men that wished to have a bill passed, a bill signed, an appointment made, a plan adopted, wasted no time with the puppets that nominally held office. They went directly to Mr. Stanford or Mr. Huntington and asked for what they wanted. This was the custom, even when the thing wanted had nothing to do with any railroad interest, when it might be something philanthropic or for the public good. The real capitol of the state was moved from Sacramento into the office of the Central Pacific in San Francisco. There public policies were shaped, public questions de- cided, public appointments determined; not merely for the state, but often for towns and counties and occasionally, in a historic way, for the nation. The organization that achieved these stupendous results in politics came to be an overshadowing influence in social and business affairs also. For most young men that cher- ished any ambition it held the future in its grasp; it coulc make or unmake. If a young man wished to distinguish himself in politics or in a public career, he had no chance except by close alli- ance with the railroad company; if he sought any nomina- tion, he must seek it through the company's agents. If he was a lawyer, the railroad eompam^xpuld make him distinguished and successful, or it could t January 22, 1878. * * * The World again published today that the C. P. and S. P. t .^[Central Pacific and Southern Pacific] owe fourteen millions float- ing debt, and it hurts us very much, and I don't see how we can carry our floating debt here unless this debt can in some way be transferred; that is the larger portion of it. The World is con- MR. HUNTINGTON WRITES TO FRIEND COLTON 193 trolled by Tom Scott. 22 A. few months ago I could have had it in our interest, by paying its losses, or in other words, paying the bills that they [The World] could not pay, which would be from $2,000 to $5,000 a month. I did not think it wise to do it. * * * February 23, 1878. * * * The Sub. Com. of the R. R. Com. of the House have agreed to report Scott's T. and P. Bills through to San Diego and I am disposed to think the full Com. will report it to the House. It can be stopped but I doubt whether it would be worth the cost. * * * Scott no doubt will promise all the, say $40,000,000, that the act would give him. * * * NEW YORK, May 3, 1878. * * * The Texas and Pacific folks are working hard on their bill, and say they are sure to pass it, but I do not believe it. They offered one M. C one thousand dollars cash down, five thousand when the bill passed, and ten thousand of the bonds when they got them, if he would vote for the bill. NEW YORK, June 30, 1878. I think your letter to McFarland was good. * * * I think in all the world's history never before was such a wild set of dema- gogues honored with the name of Congress. We have been hurt some but some of the worst bills have been defeated, but we can- not stand many such Congresses. NEW YORK, September 30, 1878. * * * I think you are right about Field not sitting in the Gal- latin suit. * * * Albert Gallatin had been a member of the firm of Hunt- ington & Hopkins at Sacramento. He brought suit to pre- vent the Central Pacific from setting aside its sinking fund. Justice Stephen J. Field was of the Supreme Court of the United States. For many years he was actively supported in some quarters for the Democratic nomination for the presidency. The California State Democratic convention of 1884, held at Stockton, considered charges against Justice 12 This newspaper had undergone changes of editorial manage- ment and ownership since the date of this letter. 194 STORIES OF THE GREAT RAILROADS Field based upon his decisions in cases wherein the South- ern Pacific Railroad was interested. As a result of these charges, the convention formally read Justice Field out of the Democratic party. I have used the past tense in describing the political deg- radation of this State of California, but I might as well have written much of it in the present. Forms have changed somewhat and methods; the methods of the railroad com- pany remain the same. Still, the huge political machine works on corrupting and corrupting, or trying to corrupt. Still, the railroad boss operates in every county, and still the head spider sits in his office and spins his evil webs. Since the political revolution of 1910 that put Governor Hiram Johnson at the head of the Republican party, the railroad, for the first time in its history, is blocked in its schemes. But its aims have not changed. This is the influence that brought to naught the work of the reformers in the legislative session of 1909 as graphi- cally described in Mr. Franklin Hichborne's book on that subject. 23 This is the influence that expects to determine who shall be the next governor, who shall fill every office below him, who shall be judges. Finally, this is the influence, concealed and sinister, that stopped the graft prosecution in San Francisco; that en- abled Calhoun, Schmitz and the rest to escape; that de- feated Francis J. Heney at the polls ; and morally this is the influence responsible for the hand that tried to assassinate him. ""Story of the Session of the California Legislature," by^Frank- lin Hichborne, San Francisco; 1909. It is really a most meritorious work and ought to be widely noted. MR. HUNTINGTON WRITES TO FRIEND COLTON 195 SOUTHERN PACIFIC DISBURSEMENTS AT WASHINGTON (WITHOUT ADEQUATE VOUCHERS) FOR "EXPENSES." 1872. Feb. 26. C. P. Hunting- Tan. 13. R. Franchot $ 33.00 ton . 5,000.00 Jan. 18. R. Franchot 13,200.00 Mch. 9. I. E. Gates 2,000.00 Mch. 11. C. P. Hunting- Mch. 12. Jas. H. Storrs. 1,125.35 ton 1,000.00 Mch. 24. [. E. Gates.., 500.00 Mch. 15. R. Franchot... 1,000.00 Mch. 29. I. E. Gates.... 5,000.00 Mch. 23. C. P. Hunting- ton Apr. 23. C. H. Sherrill.. 500.00 May 9. C. H. Sherrill.. 15,000.00 300.00 Apr. 26. C. P. Hunting- May 24. I. E. Gates.... 5,000.00 ton .. 500.00 June 2. C. H. Sherrill... 2,000.00 May 11. C. P. Hunting- fune 4. C. H. Sherrill... 1,000.00 ton 500.00 June 30. C. P. Hunting- May 17. C. P. Hunting- ton 5,000.00 ton 1,000.00 luly 2. I. E. Gates 200.00 May 17. R. Franchot... 5,000.00 Sept. 5. C. P. Hunting- Tune 5. R. Franchot 5,000.00 ton 1,000.00 July 31. C. P. Hunting- Sept. 7. "Legal expenses" 10,440.00 ton 500.00 Sept. 15. C. P. Hunting- Aug. 24. C. P. Hunting- ton 1,000.00 ington 500.00 Sept. 20. C. P. Hunting- Sept. 24. R. Franchot... 19,295.50 ton . 3,000.00 Oct. 2. I. E. Gates 5,000.00 Oct. 5. C. P. Huntington 1,500.00 Nov. 1. I. E. Gates Nov. IS. C. P. Hunting- 500.00 Oct. 15. C. P. Hunttington Oct. 24. C. P. Hunting- 2,000.00 ton 1,000.00 ton . 1,000.00 Nov. 21. I. E. Gates.... 500.00 Oct. 26. H. Hopkins, or- Nov. 29. I. E. Gates.... 4,000.00 der . 5,000. oa Dec. 28. I. E. Gates 200.00 Nov. 1. Leland Stanford 83,418.08 Dec. 31. "Services in Nov. 9. I. E. Gates.., 5,000.00 1872" 13,233.33 TSTov. 16, I. E. Gates.. . 5,000.00 r>>r> 8 11? riotee 2 500 00 Total $ 72,461.83 \Dec. 18. I. E. "Gates.'.' ! s.'ooo.'oo 1874. '' ; Dec. 19. I. E. Gates.. 1,000.00 Tan. 13. R. Franchot $ 500.00 Dec. 26. C. P. Hunting- Jan. 16. I. E. Gates 200.00 ton 2,000.00 Mch. 14. Fisk & Hatch. 12,139.94 Dec. 28. Leland Stan- .' May 14. C. P. Hunting- enn n(\ ford 52,500.00 June 15. Fisk & Hatch. ouu.uu 1,910.00 Total $279.483.43 June 22. C. P. Hunting- 1878. ton June 27. R. Franchot.... July 9. R. Franchot 20,000.00 Jan. 11. C. P. Huntington.$ 3,700.00 Jan. 28. I. E. Gates 150.00 Feb. 14. L. Stanford.... 1,150.00 1,600.00 1,000.00 July 10. I. E. Gates 200.00 Feb. 20. C. P. Hunting- July 11. I. E. Gates.... 200.00 ton . 2,500.00 Sept. 11. C. P. Hunting- Mch. 18. C. P. Htmting- 5,000.00 ton 5,500.00 Oct. 16. I. E. Gates 281.00 Mch. 19. C. P. Hunting- Oct. 23. I. E. Gates 200.00 ton . 4,500.00 Nov. Gen. Dwyer, U. S. Apr. 12. I. E. Gates.. . 1,750.00 Commissioner Dec. 2. "W. A. W. paid by C. P. Huntington... Dec. 29. C. P. Hunting- 1,000.00 Apr. 18. I. E. Gates.. . May 4. James H. Storrs. 4,863.48 May 20. . E. Gates.. . May 25. . E. Gates.. . 200.00 1,000.00 5,000.00 1,500.00 2,000.00 May 27. . E. Gates.. . 5,000.00 ^ une 7. L. Stanford.. . 13,000.00 Total $ 52,844.42 une 22. . E. Gates.. . 2,000.00 1876. une 25. . E. Gates. . . 500.00 Jan. 4. N. T. Smith, for une 28. L. Stanford.. . 111.431.25 amount paid H. Brown. $ 5,000.00 une 29. Joseph H. Bell. 38,500.00 Jan. 24. C. P. Hunting- une 29. C. P. Hunting- ton 2,500.00 99,167.20 196 STORIES OF THE GREAT RAILROADS Mch. 31. I. E. Gates,... Apr. 1. C. P. Hunting- 5,000.00 5,000.00 5,000.00 5,000.00 25,000.00 5,000.00 5,000.00 1,000.00 1,000.00 5,000.00 10,000.00 3,381.45 3,000.00 10,000.00 2,000.00 1,500.00 600.00 10,000.00 15,698.92 500.00 2,500.00 6,300.00 5,000.00 5,000.00 1,000.00 700.00 1,000.00 2,500.00 8,000.00 8,000.00 1,000.00 1,000.00 1,000.00 5,000.00 3,000.00 1,000.00 178,180.37 10,000.00 5,000.00 5,000.00 26,000.00 10,000.00 Aug. 2. A. J. Howell... Aug. 3. James A. Georg Aug. 15. C. P. Hunting ton ... 200.00 ; 300.00 42,855.06 3 1,166.66 1 287.95 200.00 12,000.00 200.00 150.00 1,000.00 3,000.00 1,500.00 75.00 1,200.00 150.00 5,000.00 60.00 2,000.00 3,460.00 200.00 204.00 200.00 250.00 5,000.00 3,290.00 2,000.00 1,000.00 300.00 2,000.00 6,000.00 3,500.00 3,000.00 10,000.00 10,000.00 224.00 1,083.98 500.00 1,500.00 1,000.00 75.00 100.00 500.00 500.00 200.00 10,000.00 2,800.00 10,500.00 100.00 500.00 Apr. 6. C. P. Hunting- Aug. 15. New York Item Aug. 19. T. M. Norwooc Aug. 29. John Boyd Sept. 3. Leland Stanford Sept. 3. A. J. Howell... Sept. 3. J. A. George.. Sept. 4. T. M. Norwood Sept. 4. S. T. Gage Sept. 14. I. E. Gates... Sept. 14. O. M. Bradfon Sept. 23. D. D. Colton. Sept. 23. J. A. George. Sept. 27. I. E. Gates... Sept. 27. J. G. Prentiss. Sept. 28. I. E. Gates... Oct. . D. D. Colton. .. Oct John Boyd Apr. 19. "Attorney" fee. May 4. Anna Franchot.. May 12. I. E. Gates. .. May 15. I. E. Gates. .. May 19. I. E. Gates. .. lune 2. S. C. Pomeroy June 3. I. E. Gates. .. June 19. I. E. Gates. .. June . New York news- papers, Tribune, Times. World and Bulletin July 19. C. H. Sherrill.. July 26. I. E. Gates July 12. S. L. H. Barlow Aug. 18. R. B. Mitchell. Aug. 21. S. W. Kellogg. Sept. 12. Lyman Trumball Sept. . R. Franchot... Oct. 4. C. P. Huntington Oct. 5. C. P. Huntington Oct. 14. C. P. Hunting- Oct. . John Boyd Oct. . J. A. Howell... Oct. . J. A. George... Oct. 3. I. E. Gates.... Oct. 4. D. D. Colton... Oct 5 I E Gates Oct. 17. I. E. Gates Oct. 21. I. E. Gates.... Oct. 23. I. E. Gates Oct. 26. I. E. Gates Oct. 30. I. E. Gates Oct. 10. Legal expenses Nov. 3. D. D. Colton... Nov. 8. D. D. Colton... Nov. 13. I. E. Gates Nov. 14. I. E. Gates Nov. 15. I. E. Gates Nov. 16. C. P. Hunting- ton Oct. 7. I. E. Gates... Oct. 7. J. E. Forney... Oct. 10. I. E. Gates... Oct. 19. I. E. Gates... Oct. 22. I. E. Gates... Oct. 24. C. P. Hunting Oct. 26. I. E. Gates... Oct. 28. I. E. Gates... Nov. 2. John Boyd.... Nov. 2 T. M. Norwood Nov. 11. I. E. Gates... Nov. 13. I. E Gates... Nov. 21. C. H. Sherrill Nov. 21. O. M. Bradford Nov. 22. J. A. George.. Nov. 27, I. E. Gates... Nov. 27. T. M. Norwooc Dec. 2. John Boyd.... Dec. 5. I. E Gates... Dec. 9. I. E. Gates... Dec. 17. I. E. Gates.. Dec. 23. John H. Flagg Dec. 26. 1 E. Gates... Dec 1 I E Gates .... Dec 7 IE Gates Total . , . .$" 1877. Tan. 3. "Legal" expenses.$ Jan 8 I E Gates Tan. 15. "Legal" expenses Feb. 6. Western Devel- opment Company Feb. 19. I. E. Gates,,.. Total $447,630.10 CHAPTER VIII. MRS. COLTON LEARNS ABOUT PHILANTHROPY. On October 8, 1878, General David D. Colton was brought to his home in San Francisco suffering from a peril- ous wound that he had received either in some mysterious accident or from somebody's dagger. Mrs. Colton was then in New York. She was tele- graphed for and hastened homeward in special trains, but could not reach San Francisco until October 14th, five days after her husband's death. General Colton was in several ways remarkable, but chiefly as the only man that Collis P. Huntingdon seemed to like or in whom he placed the least confidence. For two of his partners Huntington entertained undisguised con- tempt, and for the third (one may say) a kind of tolerance ; but he seemed really drawn toward Colton; in his long career almost the solitary instance of human weakness and one that cost him dear. In earlier days in California, Colton had been a rather picturesque figure. He was once the sheriff of Siskiyou County and in that capacity had bravely withstood and quelled a mob. In San Francisco he practiced law, did some work for the multifarious and usually shady enter- prises of the Southern Pacific, organized the form of its plunder that was called the Rocky Mountain Coal and Iron Company, and by his superior cleverness, won Huntington's reluctant regard. Before long he was admitted to the partnership; not, of course, to all of the good things, nor to many of them, but to choice bits that made him a millionaire. Thus when the 197 198 STORIES OF THE GREAT RAILROADS Western Development Company was organized, he received a one-ninth share of that precious concern; and he was president of and held much stock in the Rocky Mountain Coal and Iron, which was then selling to the Central Pacific at $8 a ton coal that was worth $4 or less. General Colton's will left everything to Mrs. Colton, who was appointed sole executrix. She had known almost nothing about his business and she was greatly prostrated by his sudden death; but with confidence she relied upon his late associates, who had been his and her dear friends. As she wrote to Mr. Huntington in the early days of her affliction, "I know that you and Mr. Crocker will advise and take care of the wife of David D. Colton." Particularly to her near neighbor, Charles Crocker, she looked for guid- ance, because the families had been very intimate. When Mr. and Mrs. Crocker went to Europe, Mrs. Colton took the two oldest Crocker boys into her household as if they were her own children. 1 When General Colton died or was killed Mr. Crocker was on his way home from abroad. He spent a few days in New York and conferred there with Mr. Huntington. On the night of his arrival in San Francisco, Mrs. Colton saw with great relief his carriage drive up to his door, and at once sent him a note asking him to come to see her. He excused himself for that night, but visited her the next morning and wept as he dwelt upon General Colton's splen- did qualities, and his own and Mrs. Colton's great loss, by which he seemed to be greatly affected. Meanwhile, Mr. Charles E. Green, General Colton's sec- retary, had prepared for Mrs. Colton an inventory of the estate. It showed possession of the following securities : 2 1 Colton versus Stanford et al., testimony, pp. 2485-90. ' Many of these securities can be traced by reference to the Pacific Railroad Commission Report, testimony of Doughty, p. ,5256. MRS. COLTON LEARNS ABOUT PHILANTHROPY 199 408 shares Rocky Mountain Coal and Iron stock. 10,000 shares Occidental and Oriental Steamship Company stock. 20,000 shares Central Pacific Railroad Company stock. 34,900 shares Southern Pacific stock. 5,555 5/9 shares Western Development Company stock. 749 shares Amador Branch Railroad stock. Ill shares Berkeley Branch Railroad stock. 2,649 shares California Pacific stock. 556 shares Colorado Steam Navigation stock. 650 First Mortgage Southern Pacific bonds, $1,000 each. 100 First Mortgage Southern Pacific bonds, $500 each. 75 First Mortgage Amador Branch bonds. 11 First Mortgage Berkeley Branch bonds. 3 Los Angeles County Bridge bonds. In a few days Mr. Crocker called again, and, as Mrs. Col- ton said afterward, she was impressed with a great change in his manner. Apparently he has mastered his grief for his dead friend and his lips found no more words of condo- lence for the widow. On the contrary, he was stern and severe. 3 He said austerely that General Colton had left his affairs much confused ; that he was in debt to his associates and to the companies with which he had been connected; that many of the securities in his estate had been obtained by means of a dividend of the Western Development Com- pany; 4 that this dividend had been improperly declared by General Colton without warrant, and that all persons shar- ing in that dividend would be obliged to return the securi- ties received from it. "We are going to return our dividends," he concluded, "and as you have got to return yours, you had better do so today before night. Will you?" 5 'Colton versus Stanford et al., testimony, pp. 2485-90. 4 1 take this to be the dividend of September 4, 1877, described in a previous chapter. More than a year seems to have elapsed before the discovery that the securities must be returned and by the way, they never were returned. 6 Colton versus Stanford et al., testimony, p. 2792. 200 STORIES OF THE GREAT RAILROADS Mrs. Colton, being much taken aback, said she would seek advice and decide what to do. Mr. Crocker went on to say that General Colton, a short time before his death, had subscribed for 30,000 shares of a new issue of Southern Pacific stock. This stock, Mr. Crocker said, would be heavily assessed to build the road. 6 Of course, he said, she would not wish to pay the assessments and she had better cancel the subscription at once. She made haste to say that she certainly would, and he went his way. 7 A few days later he returned and his manner was still more forbidding. He said (according to Mrs. Colton) that the Western Development Company was insolvent, heavily in debt, and must have the return of all the securities in- cluded in that improper dividend to which he had before re- ferred; that General Colton owed his late associates $1,000,- 000, for which he had deposited as collateral 20,000 shares of Central Pacific 8 and 20,000 shares of Southern Pacific stock, but that the value of the collateral would not cover the face of the note ; that the 408 shares of Rocky Mountain Coal and Iron in General Colton's effects really belonged to his four associates, being held in trust for them ; and finally, that General Colton proved to be greatly in debt to all the companies. He demanded a settlement of all these claims and told her if she wished she could have them verified by her personal counsel. "I can find no indication anywhere that this stock was ever assessed, and certainly there was not the slightest reason why it should be. As for the building of the road, that, as we have pre- viously seen, was provided out of the earnings and sinking fund of the Central Pacific and out of the Western Development and Pacific Improvement Companies. 'Colton versus Stanford et al., testimony, p. 2797. 8 In 1877 Central Pacific paid 8 per cent dividends. Neither Central Pacific nor Southern Pacific was on the market, both being closely held by Mr. Stanford and his friends. An 8 per cent stock ought to be worth at least 80, at which price General Colton's Central Pacific collateral would be worth $1,600,000 without consid- ering the Southern Pacific stock, which is now worth 137. MRS. COLTON LEARNS ABOUT PHILANTHROPY 201 Now, Mrs. Colton's personal counsel was, of course, her husband's personal counsel, Mr. Samuel M. Wilson, whom Mr. Crocker had highly recommended. Mr. Wilson was also one of the Central Pacific's regular and trusted attor- neys ana, according to subsequent testimony, in receipt of a salary of $12,000 a year from the railroad company. 9 Mrs. Colton had already sought this gentleman's advice. She obediently told Mr. Crocker she would be guided by Mr. Wilson. Mr. Crocker's manner on this visit was so disagreeable and the widow was now so thoroughly alarmed that when he sent word of his next call, she thought it well to have some women friends about her, and thus avoided the dis- cussion of business. Mr. Crocker did not come again, and she never spoke with him thereafter. Mr. Wilson was now presumably investigating General Colton's affairs. After a time, he informed Mrs, Colton that the situation was far worse than Mr. Crocker had pictured it. General Colton was not only heavily in debt to the companies he represented, but his associates charged him with repeated acts of embezzlement. They had told Wilson (he said) that all the securities in the estate would not suffice to pay the General's debts ; that they held enough claims to take from Mrs. Colton 10 everything she had, in- cluding her home ; and they threatened, in a manner "stern and severe and determined and implacable," that unless she made a settlement and surrendered her stocks and bonds they would make public her husband's criminal acts and blacken his name and memory. Mr. Wilson was good enough to say that he did not be- lieve these charges, but the railroad company had all the 9 Colton versus Stanford et al., testimony, p. 6626. 10 Colton versus Stanford et al., testimony, p. 2812. 202 STORIES OF THE GREAT RAILROADS books and records and, therefore, to prove General Colton's innocence would be impossible. 11 Hence the best plan was to make terms with the associates. Mrs. Colton was greatly distressed. Her misery was somewhat lightened when Mr. Wilson suggested that she employ a mediator, who, because of his ability and experience was likely to secure some concession. The helping hand thus in her dark hours extended to the widow proved to be the hand of Mr. Lloyd Tevis, who, Mr. Wilson said, would be just the man. Mr. Tevis is not un- known in these annals, having been the originator of the in- genious plan whereby the Big Four got possession of Wells Fargo & Co., 12 of which branch of the Big Four's activities he was now the president. Mr. Tevis made what he called an investigation and re- ported (according to Mrs. Colton) that General Colton's debt was of great magnitude and the Western Development Company was insolvent, but Messrs. Stanford, Huntington, and Crocker had been induced to make a concession to the widow of their old friend. She must deliver to them all the securities that were in controversy, but 200 of the Southern Pacific bonds might be deposited with Wells Fargo & Co., and from these she might for ten years draw the interest. In other words, they granted her a pension for ten years. Of the rest of the fortune they made a thorough job. They even insisted that 50 shares of Southern Pacific that General Colton had given to his daughter as a wedding present should be returned to them 13 and that Mrs. Colton should surrender uncut interest coupons amounting to $6,000. 11 Ibid., pp. 2523-7. "Pacific Railroad Commission Report, p. 3116. "Colton versus Stanford et al., testimony, p. 2820. MRS. COLTON LEARNS ABOUT PHILANTHROPY 203 The two men in whom she had most confidence, Wilson and Tevis, having thus assured her that no other way could be found from the sorry situation, she was almost per- suaded to surrender. On the morning of August 27, 1879, she still hesitating, word was sent to her that Mr. Hunting- ton was about to return to New York, that he would leave that afternoon at 3 o'clock, 14 and unless she signed the set- tlement before that time the Big Four would make no terms with her. Thus menaced, she brought herself to sign an instrument by which she accepted the terms demanded, and surrendered all her securities. The 200 Southern Pacific bonds were delivered to Wells Fargo & Co., who refused to give her any receipt for them. She also executed a re- lease for $304,060.33 which the Western Development Com- pany had owed to her husband. On their part the Big Four canceled the note for $1,000,- 000 held by them against General Colton, and agreed to keep secret the charges of embezzlement. Mrs. Colton knew very little about business, but she was intelligent, and she felt intuitively that there had been fraud 15 in these transactions although she knew not wherein it lay. One day, some months after she had been impover- ished in this masterly fashion, she was reading a newspaper "As a matter of fact, Mr. Huntington did not leave San Fran- cisco that afternoon nor until September 8th, twelve days later. 18 QUESTION : You signed this paper and yet you say you re- belled against it? ANSWER: Because I saw no justice in it. Q. What was the injustice? A. Robbery. Q. A robbery? How was it robbery? A. It simply had arrived at the point that it was my money or my life. Q. Isn't that a rather strong way of putting it? A. I think not. I was in the condition of a man attacked by a highwayman upon the roadside. Colton versus Stanford et al., cross examination of Mrs. Ellen M. Colton, to be found in the record, p. 2816. 204 STORIES OF THE GREAT RAILROADS and her eyes fell upon an inventory of the estate of Mark Hopkins, recently deceased. She noticed in the list many securities of the kind she had surrendered, and that the value of these as given in the list was very much greater than the prices at which the same securities had been esti- mated in her enforced settlement. This set her to thinking and the more she reviewed her experience, the clearer grew her conviction that she had been wronged. She abandoned Mr. Wilson as her coun- selor and sought other advice. Her new attorney, Mr. G. Frank Smith, set on foot an investigation and obtained therefrom results that greatly astonished him. For example, the schedule of the insolvent Western De- velopment Company that Wilson said he obtained from the Big Four or their agents asserted an indebtedness by the company of $11,910,030.44 as follows: 18 To Charles Crocker . ..$2,219,541.73 To Leland Stanford 1.763,734.85 To Mark Hopkins 4,087,692.10 To C P. Huntington 3,519,701.43 To D. D. Colton 319,360.33 This and no more. No mention was made of the fact that these five men were the sole owners of the company; that not one of them had ever paid in one cent for his stock; that they then owed the company $5,000,000, nor that the company's alleged indebtedness represented only the securities and moneys that had been advanced in their names from the Central Pacific and other funds for its devi- ous and crooked operations, and for which they knew they would shortly be repaid about five-fold. 17 "Colton versus Stanford et al., defendants' exhibit E. "The exact nature of these operations has been sufficiently described in a foregoing chapter, but I may remind the reader here that, according to the testimony before the Pacific Railroad Com- mission, the Southern Pacific was built put of the diverted earnings and sinking fund of the Central Pacific. The Southern Pacific was on through business a parallel line that had the same owners MRS. COLTON LEARNS ABOUT PHILANTHROPY 205 Mr. Smith was further informed that in the list of as- sets in this amazing schedule were most glaring omissions. Thus no mention whatever was made of these items that should have been included : 18 $462,000.00 due from the Northern Railroad and subsequently paid in bonds. 748,000.00 due from the Northern Railroad in other items and a little later paid in bonds. 7,340.32 due from California Pacific stock. 92,640.00 due from the San Pablo & Tulare Railroad. 3,753.00 from the Pacific Improvement Company. 5,766.15 interest due on Northern Railroad bonds. 36,437.03 interest due on San Pablo & Tulare bonds. 4,986.07 interest due on San Francisco, Oakland & Alameda bonds. The schedule also set down as a worthless asset $832,800 due from the Los Angeles & San Diego Railroad ; Mr. Smith was assured that within a year this debt was paid in good bonds and stocks. Another debt of $45,640.53 car- ried in the schedule as a worthless asset had already been paid in gold. The Los Angeles & Independence Railroad was put down as worth $100,000 when $300,000 appeared to have been paid for it, and since its purchase it had re- turned $114,318 in dividends. The Colorado Steam Navi- and owed the government nothing. The money that built it should have gone to pay the Central Pacific's debt to the national treasury. Curious collateral testimony about all this exists in the Colton letters of Mr. Huntington. In the letter of May 8, 1875, Mr. Hunt- ingtpn says : "All the material I buy here is paid for by the Central Pacific. Some of it, like the six coaches sent, I know are for the S. P. (Southern Pacific), but just whether they are to be charged to the S. P. or the Western Development Co. I do not know." In other letters he complains of the enormous floating debt of the Central Pacific that this system was piling up. "Our liabilities (Central Pacific) are getting very large here for a company with such large receipts and with no apparent outlay except interest on bonded debt and operating expenses." In his letter of March 24, 1877, he figures the profits of the Central Pacific at $750,000 a month. These were being used to pay for the building of the Southern Pacific, rendering both stock and bonds of that road "velvet" for the fortunate projectors. "These and many others are to be found in the testimony, pp. 2623-31. 206 STORIES OF THE GREAT RAILROADS gation Company was entered as an asset of $150,000, where- as in the last three years previous to the making of the schedule this company had paid $110,000 in dividends. On the other hand, in the liabilities, an item of indebtedness entered at $298,208.35, should have been $269,415.73, and there were other apparent inaccuracies that might be thought very surprising in a statement emanating from a business enterprise of such magnitude and standing. According to the information gathered by Mr. Smith, many other goodly items were missing from the assets, such as Iowa county bonds, Sioux City & Pacific bonds and the like, and no mention was made of such possessions as the contract to extend the San Pablo & Tulare road forty-six miles at $25,000 a mile in bonds and $40,000 a mile in stock (actual cost of construction less than $20,000 a mile), 19 nor of other contracts and items. It appeared further than none of the other beneficiaries of the Western Development Company's dividend had re- turned any of his stocks and bonds, but on the contrary, twenty-two days after General Colton's death, these men had wound up the Western Development Company (which they controlled) and organized in its place the Pacific Im- provement Company, of which they alone were owners. They then transferred to the new company all of the West- ern Development Company's possessions and contracts, by which device they froze out all the Colton interests. From the operations of the Pacific Improvement Company they derived by the end of 1882 $20,000,000, which they had divided among themselves, although if General Colton had lived he certainly would have had a share of it. Furthermore, the investigation seemed to show that the "Most of this amazing revelation of the inside history of the concern seems to have been obtained from a discharged employee As it was never seriously controverted I am obliged to suppose it to be correct. MRS. COLTON LEARNS ABOUT PHILANTHROPY 207 charge of "embezzlement" was absurd and the claim of debt quite as tenuous. The total debt alleged against Colton was made up of $666,000, his share of the "insolvent" Western Development Company debt; $160,000 he had "embezzled"; $125,000 due to the companies he had managed; and the $1,000,000 note secured by collateral. But it appeared that there had been paid on the $1,000,000 note the sum of $250,000, so that the debt was $750,000 instead of $1,000,000. The embezzlement charge when sifted down had no more excuse than this, that Colton had drawn from the company money without returning vouch- ers. 20 But it appeared that all of the partners had done this ; indeed, the whole concern, when the light was thrown upon it, looked like a riot of perquisites, "melons," "bene- fits," and other good things of the kind. Mark Hopkins had drawn from the Southern Pacific on September 30, 1871, $151,560.59, and no accounting was made of this sum until 1880, two years after his death. Mr. Huntington when in New York drew from the Western Development apparently at his will and never returned any voucher. In three years he had drawn $400,000. Governor Stanford took out $45,638.84 without explanation. Mr. Crocker, without warrant or apparent authority, took from the treasury 500 Southern Pacific bonds to buy the Oakland water front. It seemed a fair contention that if Colton was an embezzler, these men were embezzlers, no less. 21 As for Colton's share of the alleged indebtedness of the alleged insolvent Western Development Company, it ap- 20 There was an allegation that he had deposited for the company $228,618.47 in silver and then obtained credit for his own benefit on a pretense that the deposit was in gold. This was never estab- lished, but even if it were true it was not significant, because such seemed to be the custom. The Central Pacific had done the same thing with $2,000,000 of silver. Colton versus Stanford et al., tes- timony, p. 2741. "Colton versus Stanford et al., testimony, pp. 2638-39. 208 STORIES OF THE GREAT RAILROADS peared from the information that there was no true in- debtedness and the company was not insolvent at all but fat with rich assets that never had been divided. 22 From its organization to Colton's death it had shared among its stock- holders $21,000,000. At Colton's death it had on hand, as the investigation revealed, $22,810,500.43 subject to claims, real and imaginary, of $11,316,497.22. In payment of these debts that did not exist, there seemed to have been taken from Mrs. Colton securities at much less than their real value. Her Southern Pacific bonds, for in- stance, were scheduled in her settlement at 60, while in March of the same year they had sold at 100, and at the time of the settlement were traded in by the Big Four at 94. The Rocky Mountain stock they appraised from her at $16.24 a share, must have been worth about par. 23 And so on. Upon the discovery of these and many other allegations of a like nature, Mr. Smith advised Mrs. Colton to bring suit at once for the annulling of her contract and the return of her securities. Mrs. Colton still clung to a belief in the sincerity of one of the men that had professed so much af- fection for her husband. With the large and unctuous sentiments of Leland Stanford she was unable to reconcile the idea of despoiling the defenseless, and she wished an appeal to be made to his sense of justice. Mr. Smith had other views. For some time he had been attentively considering the sense of justice possessed by these men and had acquired of it a very low estimate. He told Mrs. Colton that an appeal to any of them was quite useless. Nevertheless, she insisted, and on March 11, 1882, "It may be interesting to note that as brought out in the trial the "Nob Hill" palaces of Stanford, Hopkins, and Crocker were built out of the Western Development Company. Colton versus Stanford et al., testimony, p. 8877. 21 Pacific Railroad Commission Report, testimony of Leland Stan- ford, p. 2938. MRS. COLTON LEARNS ABOUT PHILANTHROPY 209 he wrote to Leland Stanford outlining Mrs. Colton's story, her confidence in the goodness and justice of her old friend, and her plea that she be not utterly plundered. Mr. Smith closed with this comment: "Knowing how repugnant uncontested settlements are to your associates, I have acted in the premises contrary to my own belief of any possible advantage that can accrue to her from this or any other amicable overtures on her part." 24 To this letter no answer was returned. The fact did not astonish Mr. Smith and, one may think, need not have astonished Mrs. Colton. Later she recalled an incident that, upon a more suspicious nature, might have acted to pre- vent the writing of such a letter. General Colton's office had been in the railroad company's building, and in a safe in that office were still kept all the securities belonging to the estate. According to her subsequent testimony, 25 Governor Stan- ford came into this office one day and found there Mr. Green, who had been Colton's secretary. The safe was open. Governor Stanford remarked to Mr. Green that he was very anxious about the security of the property in that safe. He said that the art of safe-blowing had been so developed that a safe-blower could open such a safe even in a building where there were watchmen. He thought General Colton's property should be removed to a safer place, and suggested that such a place would be the vault of the railroad com- pany. Mr. Green reported this conversation to the Widow Colton. She testified that she acted at once upon Governor Stanford's suggestion; but the safer place to which she transferred the property was not the railroad company's vault, but a box in a safety deposit company's care. On May 21, 1882, Mrs. Colton's suit was filed in San 24 Colton versus Stanford et al., testimony, pp. 2607-8. 26 1 bid., p. 2905. 210 STORIES OF THE GREAT RAILROADS Francisco. The answer of the defendants 26 was a general denial of the bill of complaint, a definite assertion of Col- ton's embezzlements and defalcations, an astounding reit- eration of the insolvency of the Western Development Com- pany, and a plea that the statements made to Mrs. Colton were made in good faith and on credible information. The defendants demurred to some points in the plaintiff's bill, and Judge Hunt promptly overruled the demurrer. Whereupon counsel for Stanford et al. secured the removal of the case to the Sonoma County Court at Santa Rosa. It came to trial in November, 1883, before Judge Jackson Tem- ple, a jury being waived. Judge Temple was afterwards a member of the California Supreme Court. After the usual manner of things disagreeable to the rail- road company, the fifteen volumes of testimony taken in the case have mysteriously vanished from the court records at Santa Rosa, but I succeeded in finding copies at Sacramento and can unreservedly commend their perusal to anyone that cares to know the true manner in which the railroads of the United States have been conducted, or how. far (under pres- ent conditions) men will go for the sake of money and the power that abides in money. In these respects I knoiv of no _ 26 They did not mention their real defense, which, though inad- missible as a plea in a court of justice, was not without merit, at least from their point of view. It was this : Messrs. Stanford, Huntington, Hopkins, and Crocker had desired to avail themselves of General Colton's superior cunning and cleverness. The secur- ities they bestowed upon him were merely the wages for his ser- vices. When they were deprived of his services they did not purpose to continue the wages. For the most part the securities represented no investment. They were merely manufactured by the Big Four at their convenience and for their profit. All were liens upon the enterprise and carried substantial interest, and the Big Four could see no reason why property manufactured in this way should be enjoyed by General Colton's estate after they had ceased to derive anything from General Colton's wits. The substance of this argument was frankly stated by Mr. Crocker to Mr. Wilson and will be found in the testimony, Ellen M. Colton versus Leland Stanford et al., at p. 2841. MRS. COLTON LEARNS ABOUT PHILANTHROPY 211 other volumes of equally impressive instruction. Whoever reads them will face the primitive human passions made so naked and real before him tliat he will seem to himself to have dipped backward into the jungle. On October 8, 1885, Judge Temple filed his opinion. It cleared General Colton's name from the absurd embezzlement charge, but held on almost all other points for the defend- ants, in some instances adopting the very language of their answer. The chief ground of the decision seemed to be that Mrs. Colton's contract was sound in law, made by her in full knowledge of its terms and basis, and contracts must be upheld (Miles versus McDermott, 31 Cal. 273; Woods versus Carpenter, 11 Otto 143; Le Roi versus Mulli- ken and Moore versus Moore, 56 Cal. 90, if I have the citations right). Also that she was not so much prostrated by her husband's death that she was unable to exercise per- fectly all her mental faculties, that she had very able coun- sel, and by them she was fully informed as to the situation and her rights. In the subsequently filed "Findings of Fact and Conclu- sions of Law," Judge Temple considered seventy-seven points, and on seventy-two of them found for the defend- ants. The case was appealed December 15, 1886, and in Janu- ary, 1890, the Supreme Court handed down a decision sus- taining Judge Temple. For Mrs. Colton, therefore, the net result of her suit was a heavy bill of costs that she must pay. Mr. Huntington had won. He had defeated and crushed the widow of his old friend, and the securities that were the prizes of the long conflict rested in the coffers of the Four of Sacramento. But Mr. Huntington had his own costs to pay. For it was in this case that the Colton letters, printed in a previous chapter, were produced, and the real nature of his Washington operations proved to the world. From this time on those letters were hung about his neck. CHAPTER IX. SPEAKING OF WIDOWS AND ORPHANS. For many years now this colossal institution had been the virtual ruler of the state, setting up this officer and pulling down that, filling places in the government with obedient henchmen, controlling the parties and selecting their candi- dates, holding avenues to distinction and even to success, choosing judges and commissioners, nominating jurors, and with equal facility influencing legislators and witnesses. 1 Men or even communities that conspicuously opposed the machine were made to suffer. As the railroad built exten- sions of its lines it levied tribute upon towns thus brought within its reach and sometimes inflicted very serious injury upon those that refused to make grants of land or of money. For some such offense the city of Stockton was a long time on the company's black list and hindered in its growth. Silveyville was practically annihilated, the new town of Dixon being built, in a spirit of revenge, three and a half miles away. Bakersfield having once incurred the com- pany's displeasure, the town of Kern, three miles off, was developed to crush Bakersfield. It would be easy to multiply the instances that to all ex- cept Calif ornians must seem improbable fiction. The city of Oakland, now one of the fairest and most prosperous in California, was once obliged to fight for its mere existence against the railroad company as against a public enemy. Some 1 Allegations of very flagrant witness-bribing were made in San Francisco, April, 1896, in the case of Louis Schmidt, who confessed he had been bribed by agents of the railroad to testify falsely in the damage suit of Mary Quill. SPEAKING OF WIDOWS AND ORPHANS 213 very extraordinary scenes were witnessed in that contest. A visitor would have thought a civil war was raging. The com- pany fenced off public streets by night and the citizens tore down the fences by day ; the company drove piles across the water front slips and the citizens fought to remove them; the company tried to strangle the town by strangling its ferry service and the citizens underwent strange privations to maintain a semblance of their rights. The power and supremacy of this company were not lim- ited to state nor to municipal affairs. Merchants or ship- pers that supported any plan to secure relief through com- petition found their shipments delayed and their rivals helped with rebates. Lawyers that unduly pressed obnox- ious suits found their practice vanishing. Some men were ruined for their opposition ; some were made rich for their assistance. No one need wonder that to oppose the rail- road came to be regarded as fraught with greater danger than the average man could afford to face. This brings me to the incident that best illustrates the truly autocratic power that these men grasped and the wan- ton spirit in which they used it. One of the triumphs of Mr. Huntington s method of "ex- plaining" things to members of Congress (at a cost of mil- lions of dollars added to the company's capitalization) was a bill passed in 1866 granting to the railroad company in alternate sections 12,800 acres of public land for every mile it should build from San Francisco to a point at the south- eastern corner of the state ; or half the land in a strip forty miles wide along its right of way. The line was laid out and the railroad's lands designated. Subsequently it some- what changed its route and therefore the land to which it was entitled under the act. At that time, and for years afterwards, only a small part of the line had been constructed and there grew up a ques- tion whether the railroad were really entitled to certain parts 214 STORIES OF THE GREAT RAILROADS of the land it claimed in Fresno, Tulare and some other counties. The rulings 2 of four Secretaries of the Interior, an Attorney-General, and a Commissioner of the Federal Land Office, supported the view that the railroad company had no right to this property, but the company continued to claim the land and to sell it. Meantime many settlers had come into the Fresno-Tulare region. 3 Some had secured their titles from the government before the railroad's route was changed. These now found their farms to embrace sections claimed by the company. Many others, coming after the final determination of the line, had taken railroad lands at the company's invitation and under terms set forth by the company's circulars. These speedily had troubles of another sort. The company's circulars, signed by its officers, setting forth the attractions of the Fresno-Tulare region and offer- ing unusual inducements to settlers, had been widely scat- tered over the Middle West. They dealt in an apparent spirit of frankness and truth, describing the lands as of an excellent quality but dry a fault easily remedied by irriga- tion, when the soil would be found to be of surpassing fer- tility. Terms would be remarkably easy. Here are para- graphs from one of the circulars. On page 6 The company invites settlers to go upon their lands before patents are issued or the road is completed, and intends in such cases to sell to them in preference to any other applicant and at a price based upon the value of the land without the improve- ments put upon them by the settlers. 3 The dates of these decisions were as follows : Secretary Browning, July 14, 1868. Secretary Cox, November 2, and November 11, 1869. Secretary Delano, May 9, 1873, and February 26, 1874. Secretary Schurz, August 2, 1878. Attorney-General Devens, July 16, 1878. Commissioner Drummond, January 28, 1874. "About 240 miles southeast of San Francisco. SPEAKING OF WIDOWS AND ORPHANS 215 On page 7 If the settlers desire to buy, the company gives them the first privilege of purchase at a fixed price, which in every case shall only be the value of the land without regard to improvements. On page o The lands are not uniform in price but are offered at various figures from $2.50 upward per acre ; usually land covered with tall timber is held at $5 per acre and that with pine at $10. Most is for sale at $2.50 to $5. In ascertaining the value, any improvement that a settler or other persons may have on the lands will not be taken into consid- eration ; neither will the price be increased in consequence thereof. Settlers are thus assured that in addition to being accorded the first privilege of purchase they will be protected in their improve- ments.* In response to the liberal offers many farmers came from Missouri and Illinois and took up land. They found the country a sandy waste and worthless until, by uniting their efforts and capital, they had constructed an irrigation sys- tem, whereupon the soil became exceedingly fertile. 6 Meanwhile, although they made repeated applications, they were unable to get their titles from the railroad com- pany. The reason why they could not get their titles was because the company had not taken out its patents, and the reason why it had not taken out its patents was because so long as it had no patents on its lands it could not be taxed for them. This was the simple little plan it uniformly pursued and thereby deprived the counties and the State of California of millions of dollars in taxes. 8 * These circulars were subsequently confirmed by letters from agents of the railroad company to individual settlers. B They constructed two inadequate ditches before they got one that carried enough water. It was twenty miles long and was dug chiefly by the voluntary labor of the settlers, most of whom were extremely poor and lived in destitution until the water began to flow around their lands. Many of the settlers, while they worked on the ditch, lived upon corn meal ground in hand coffee mills and upon fish that they caught. None of them understood irrigation and they were obliged to learn by experience. There is extant a very pathetic letter from a woman of education and refinement, Mrs. Mary E. Chambers, a sister of one of these men, giving a vivid account of the hardships the settlers endured in these years. "For explicit testimony on this point, see Pacific Railroad Com- mission Report, p. 146. 216 STORIES OF THE GREAT RAILROADS But in 1877 the company began to take out its patents, and soon afterwards to demand payment of the settlers. Then the settlers learned to their amazement that the land was not to be paid for at $2.50 an acre but at from $25 to $40 an acre, and that all the improvements they had made were counted in the price. Even the irrigation ditch that they had constructed at their own expense and with their own labor became a great factor in the increase. The land was not to be offered to them first ; it was to be thrown on the market for any purchaser. When the settlers found that the company really intended thus to violate its agreement they protested, showing the cir- culars and the promises therein. They offered to pay the company at the stipulated prices, but all protests, offers and arguments were alike without avail; and, the company pre- paring to press its claims, many of the threatened farmers formed a Settlers' League to defend by united action what they believed to be their rights. Four times they had peti- tioned Congress (without result, of course), and now they resorted to the law. A test case was tried in the Federal Court and on December 15, 1879, Judge Lorenzo Sawyer (who afterwards held Leland Stanford to be immune from disagreeable questions) rendered a decision upholding the railroad company in all its contentions. From this decision the perplexed settlers prepared to appeal to the United States Supreme Court. Meantime the railroad company had begun to sell the set- tlers' lands and four or five men moved into the region and built houses under the railroad company's warrant. In June, 1879, a band of men came by night to the place of Perry C. Phillips, a purchaser from the railroad, removed the inmates and all the contents to a place of safety, and burned the house to the ground. 7 After this the company found great difficulty in selling any of the lands. ? It is denied that the Settlers' League had any connection with this affair. SPEAKING OF WIDOWS AND ORPHANS 217 What went on in the minds of the railroad managers is only to be surmised, but from subsequent events the con- clusion seems reasonable that after so many years of auto- cratic rule they were greatly nettled by this active and so far successful opposition. The settlers believed that, fol- lowing the usual custom, both sides should now halt to await the Supreme Court's decision. As to this the rail- road company had another opinion. Ignoring the pending litigation, it sharked up from the north two hardy men to whom it promised land without charge if they would succeed in breaking the settlers' position. One of these men, Walter J. Crow, was reputed to be among the best rifle and revolver shots in the state, and the settlers thought they knew the purpose for which he was employed. The antecedents of the other, M. D. Hartt, are not so well known. Hartt and Crow went into the region, and soon after, with other men that had obtained land from the rail- road, they exhibited this notice, which they said they had received : Tulare County, April 24, 1880. You are hereby ordered to leave the country. BY ORDER OF THE LEAGUE. The Settlers* League did not send out these notices and had no knowledge of them. At the same time reports were sent abroad that bands of armed and masked men were riding up and down the district making threats and com- mitting outrages, although the residents were not aware of such matters. 'Next, the railroad company went into the Federal Court, secured writs of ejectment, placed them in the hands of A. W. Poole, United States Marshal of the district, and demanded that he serve them at once, remove the settlers, and put Hartt and Crow in possession. 218 STORIES OF THE GREAT RAILROADS The marshal, of course, was obliged to comply, and on Monday, May 10, 1880, he went to Hanford, Tulare Coun- ty, 8 the trading town that had grown uo near the settlers' lands. Major T. J. McQuiddy, president and leader of the Set- tlers' League, upon which he had always urged moderation and patience, learned that night of the marshal's arrival and understood well enough his errand. With the secretary of the league Major McQuiddy drew up the following ad- dress : To the United States Marshal: Sir: We understand that you hold writs of ejectment issued against settlers of Tulare and Fresno counties, for the purpose of putting the Southern Pacific Railroad Company in possession of our lands, upon which we entered in good faith and have by our own patient industry transformed from a desert into valuable and productive homes. We are aware that the United States District Court has decided that our lands belong to said Railroad under patent issued by the United States Government. We hereby notify you that we have had no chance to present our equity in the case nor shall we be able to do so as quickly as our opponents can complete their process for a so-called legal ejectment, and we have therefore determined that we will not leave our homes unless forced to do so by a superior force. In other words, it will require an army of 1,000 good soldiers against the local force that we can rally for self-defense, and we further expect the moral support of the good, law-abiding citizens of the United States sufficient to resist all force that can be brought to bear to perpetuate such an outrage. Three cases have been appealed to the United States Supreme Court and we are determined to submit to no ejectment until said cases are decided. We present the following facts . First These lands were never granted to the Southern Pacific Railroid Company. 'It is now in Kings County. SPEAKING OF WIDOWS AND ORPHANS 219 Second We have certain equities that must be respected and shall be respected. Third The patents they hold to our lands were acquired by misrepresentation and fraud, and we, as American citizens, cannot and will not respect them without investigation by our government. Fourth The Southern Pacific Railroad Company have not complied with their contract both with our people and with our government, and therefore for these several reasons we are in duty bound to ask you to desist. BY AUTHORITY OF THE LEAGUE. Early the next morning before this could be delivered to him, the marshal hired a buggy and accompanied by W. H. Clark, the railroad's grader or appraiser of lands, he drove three miles northeast to the nearest of the farms covered by the writs of ejectment the farm of W. B. Braden, a member of the League. In another buggy close behind came Hartt and Crow, heavily armed with revolvers, rifles and shotguns, the shot- guns being loaded with small bullets or slugs instead of shot. It happened that on this day the League was having a picnic some miles away; whether this fact influenced the action of the railroad company and its traveling batteries I do not know. Braden was at the picnic ; no one was in the little cottage. The marshal entered, carried out all the household goods, piled them in the road, and formally de- clared Hartt to be in possession of the premises. 9 This was about nine o'clock in the morning. The mar- shal and Clark, closely followed by Hartt and Crow, drove to the next place, the farm of one Brewer, over the border of Fresno County, and about three and a half miles from Braden's. They encountered on the road a settler named J. H. Storer, an old friend of Marshal Poole's, and Poole "Four loaded cartridges were left on Braden s doorstep, prob- ably as an indication of what would be the result of any resistance on his part 220 STORIES OF THE GREAT RAILROADS reined in for a time while the two talked. Storer said the settlers hoped for a compromise with the railroad company and he would try to arrange one. When they drove on, Clark, t-he grader, reproved the marshal for talking with Storer because Storer was the partner of Brewer, whom they had come to dispossess. About ten o'clock they arrived at Brewer's place. He was harrowing in his field. Both buggies drove into the yard, past the house, and about two hundred yards west into the field. At this moment there appeared about fifteen of the settlers in a group, some mounted, some on foot, advancing toward them. The settlers carried no visible arms ; among them all were only five small pocket pistols. Marshal Poole descended from his buggy and went forward, saluting them courteously. The foremost of the settlers addressed him quietly, asking the marshal not to serve any writs until the case then pending in the Supreme Court should be decided. He also handed to the marshal the address that Major Mc- Quiddy had drawn up. Marshal Poole read the document and said his duty was to serve the writs then and there. The settlers replied with- out vehemence that they would not allow him to serve them. They now closed about the marshal and demanded that he give up his revolver and surrender to them, whereupon he would be conducted in safety to a station whence he could leave the county. He said he would yield to force and go away but he would not give up his revolver, although he promised not to use it. Two of the settlers, Archibald McGregor and John E. Henderson, were then told off to guard the marshal and Clark to the railroad station at Kingsburg. All this Hartt and Crow watched narrowly from the other buggy about seventy-five feet away. As the confer- ence with the marshal ended, Hartt reached down and seized a rifle. SPEAKING OF WIDOWS AND ORPHANS 221 "Let's shoot," said he. Without shifting his watchful gaze from the group of settlers, Crow put a hand upon his companion's arm. "Not yet," said he, "it isn't time." James Harris, from the group about the marshal, rode up to Hartt and Crow and cried : "Give up your arms !" He was within a few feet of the buggy. Crow laid his hands upon a shotgun before him. He raised it deliberate- ly; he fired it into Harris' face. Henderson spun around at the sound and whipped from his pocket a small caliber revolver. He caught a glimpse of the body of Harris slipping to the ground. He spurred forward, trying to fire his revolver at Crow. The hammer clicked on the cartridge but the arm was not discharged. Hartt started to descend from the buggy. As he leaned over the wheel Henderson's revolver worked at last and the bullet struck Hartt in the abdomen. 10 At the same in- stant Crow, from his raised gun, shot Henderson dead. Crow leaped to the ground with a revolver in one hand and carrying other weapons. He was firing rapidly into the group of settlers. Iver Kneutson was shot dead before he could draw his revolver. Daniel Kelly fell from his horse with three bullets through his body. Archibald Mc- Gregor, who was armed with only a penknife, was shot twice through the breast. As he ran screaming toward a pool of water, Crow at one hundred and seventy paces shot him in the back. He fell over and lay still. Crow fired his shotgun and Edward Haymaker, also unarmed, fell, struck in the head. 10 Hartt stated before his death that he had been sitting in the buggy with his feet on the dashboard and was in that position when he was shot. The autopsy disproved this assertion for the bullet entered at the upper boundary of the abdomen and traversed the whole abdominal cavity downward, showing that he had been shot from a pistol held above and almost parallel with his body. 222 STORIES OF THE GREAT RAILROADS All this happened, as it seemed, in an instant. A stupe- faction had fallen upon the spectators ; they could but stand and stare. J. M. Patterson awoke first. He bounded for- ward crying, "This has gone far enough! It must stop!" One or two ineffectual shots were fired. As they rang out, Major McQuiddy, who all the morning had been trying to overtake the marshal, hurried upon the scene and took charge of the disorganized settlers. Crow still stood there, weapons in hand, menacing the crowd. McQuiddy spoke rapidly to the marshal, protest- ing against any further action. As the two advanced, Crow suddenly doubled forward and dodged past the corner of the barn toward a field of standing wheat. "Don't let that man escape !" shouted McQuiddy, and as Crow disappeared into the tall grain some one just who is not likely ever to be known followed upon his trail. McQuiddy now turned to the wounded and ordered them to be carried to Brewer's house while messengers rode for surgeons. The bodies of Harris, Henderson and Kneutson were placed upon the porch; they were dead. Within the house Kelly, McGregor and Hartt were moaning and twitching with agony. Two doctors were brought from the village and found that all were mortally hurt except Hay- maker. 11 This made six persons done to death that morning on the Southern Pacific's corruptly obtained and wrongly held grant from the public domain. Very soon there was another. Crow, dodging through the wheat, was making for the house of one Haas, his brother-in-law, and likewise an opponent of the settlers. As he ran he came to the irrigation ditch and turned off along its course; a ditch tender working below saw him running. At a mile and a half from Brewer's there was a bridge where the road crossed the ditch. Major McQuiddy had 11 McGregor and Kelly died before morning and Hartt on the 12th. SPEAKING OF WIDOWS AND ORPHANS 223 sent men on horseback to try to catch Crow. These were watching for him at the bridge. Haas and his hired man drove up from the other direction in a wagon containing'six guns and a supply of ammunition. "Where's Crow?" asked Haas, seeing the roup by the bridge. At that instant a cry arose, for Crow broke into sight along the ditch. He stopped, dodged back, and whipped up his rifle, aiming it at George Hackett. Before he could fire, a shot rang behind him. He swayed, turned a little and pitched over upon his face dead. He had been shot through the chest. The moment the news of that morning's work reached Hanford, the railroad company announced that its telegraph office there had been closed and the operator driven away by the League, and that owing to the armed insurrection in progress all trains, passenger and freight, had been an- nulled. At Goshen, the other nearby station, no telegrams were received except for the railroad company. By these means the company secured control of the news and the first reports described a bloody and unprovoked at- tack by desperadoes on the authority of the United States. In San Francisco five eminent railroad officers, including Charles Crocker and W. W. Stowe, at that time the South- ern Pacific's political manager for California, hastened to newspaper offices and explained the innocence of the com- pany and the depravity of the ruffians that had defied the Federal authority. Later the effect of these communications was somewhat marred by the appearance in San Francisco of Walter Leach, the Hanford telegraph operator, and his statement that he had been removed and his office closed not bv the League, but by the railroad company. The sheriff also sent word that there was no disturbance and no reason why trains should not run. Furthermore, in- dependent reporters, notably one for the Visalia Delta, got 224 STORIES OF THE GREAT RAILROADS to the scene and sent out unvarnished reports. Yet it is not to be denied that a certain impression was created by the railroad company's tainted news, that this impression still persists, and that to this day the affair is far from clear in many minds to which it should be no mystery. The funeral of the slaughtered settlers on the 12th was very impressive. All business and work were suspended in the region and in a procession of vehicles more than two miles long, a thousand farmers followed the hearses to the cemetery. McGregor and Kelly were single, but Harris and Henderson had each a wife and a child, and Kneutson left a wife and nine children. All of these were presently evicted from their homes. There was no further disturbance. The farmers were disheartened by the deaths of their comrades and by the obviously resistless power of the railroad, against which no rights, no law, no protest, and no appeal could prevail. On May 26th five of them went to San Francisco to make what terms they could with this supreme power. As soon as they alighted in the city they were arrested and thrown into jail, charged with conspiracy and resisting a Federal officer. Not one of them had been anywhere near the massacre. Subsequently they were released, but other arrests were made, many indictments found, and John J. Doyle, W. H. Patterson, Purcell Prior, William B. Braden and Courtney Talbot were* tried before Judge Lorenzo Sawyer, who prac- tically ordered the jury to convict. The jury refused to convict of conspiracy but found the prisoners guilty of re- sisting the marshal. They were sentenced to five months' imprisonment each and were sent to jail. A^ foi the land, the railroad company won that hand- somely, foi after the terrible work of that May day the appeals of the three test cases were abandoned by the dis- couraged and penniless settlers and Judge Sawyer's deci- sion stooa. Years afterward the same issue was raised SPEAKING OF WIDOWS AND ORPHANS 225 again in another county of the state, and, being carried to the Supreme Court, the court ruled against the rail- road and upheld the principle for which the settlers had con- tended, 12 so that their position must have been as legally sound as it was morally just. But the land for which they had contended was none the less lost to them and became a part of that total on which you and I have the pleasure of paying interest charges, for it was all swept into the capitalization. Other additions thereto occasioned by this episode were not great: some- thing for legal expenses, something for newspaper articles, something for political dirty-work men, something for Hartt and Crow, and a few other similar items. That was all, because the funerals of the farmers killed were paid for by friends and neighbors and cost the company literally nothing. No doubt these necessary expenses would have been borne by the orphaned and dispossessed families of the deceased if the railroad company had left them any- thing to pay with. This is the battle of Mussel Slough, to which you may have heard some reference. It is all over now; the South- ern Pacific is triumphant. But for years the settlers of Tulare County held memorial services on each anniversary of that bloody day at Brewer's Farm. They remembered, though the rest of the world and the railroad company speed- ily forgot. 13 "Southern Pacific Company versus Groeck, 74 Fed. 385, 183 U. S. 690. In the case of Boyd versus Brinckin, decided by the California Supreme Court a few months after the massacre the same principle was involved and' was upheld by the unanimous decision of the Court, Chief Justice Sharpstein writing the opinion. 13 The authorities for this chapter are the statements of sur- vivors of the massacre; the statements of eyewitnesses published at the time; the accounts printed by the San Francisco Chronicle, Alta California, Bulletin, Call, and Examiner, and particularly the detailed reports in the Visalia Delta; the rare pamphlet entitled "The Struggle of the Mussel Slough Settlers;" testimony given at the trials; and the account printed in the Atlas of Kings County. CHAPTER X. WHAT THE LAW DOES FOR ITS. In the grip of the great power of the Southern Pacific Railroad, the people of California learned that they had small advantage from those wonderful gifts of nature wherewith their state ran over. One resource after another was discovered and developed, gave forth its promise of prosperity, and was incorporated into the money-making machine of the railroad monopoly, or asphyxiated by its high rates. The richness of the land was for the railroad company and not for the producers. Orange growers found that while they could raise the best and cheapest of all oranges and in unequaled abun- dance, the freight charges absorbed the profits of their toil. California wines attained a just celebrity ; but if they were to be shipped by rail, the freight rates barred them from general use and defeated the wine growers. Wonderful crops of deciduous fruits, peaches, plums, apples, cherries and pears, sometimes rotted on the trees; no man could afford to ship them to market. This rich adobe soil, surpassingly fertile, was found to produce such wheat as never before had been seen; stalks six feet high, with large, firm berries, a prodigious yield; but when vast areas had been sown in wheat, the farmers discovered that at the freight rates exacted by the railroad monopoly no profit lay in wheat growing. All the world was 226 WHAT THE LAW DOES FOR US 227 eager for California wheat; vessels came from Liverpool around Cape Horn to get it, and for the carriage of a few miles from the farms to the seaport the railroad charged so much that nothing remained to the farmer. Here lay the world's vineyard, orchard and granary ; what Swinburne calls God's three chief gifts to man, his "bread and oil and wine," showered upon it in overmeasure, and the railroad monopoly took the tilth of all for its own cof- fers. This great state, seven hundred and seventy miles long and about two hundred and fifty miles wide, timbered, watered with so much gold that even now over eighteen million dollars' worth is taken yearly from its soil; with silver, platinum, petroleum, and other mineral wealth ; with fertile soil; with the advantage of a singularly delectable climate; with so much variety of products seems to have been endowed with every good thing that nature knows, and beyond any other region of earth. One might think that all the natural forces had intelligently combined to see how much they could do here for man and his life ; and, to crown their work, had attracted a population of the best fiber the American race had produced. And yet the population of this splendid state in 1900, thir- ty-one years after the completing of the transcontinental railroad, was only 1,485,053. This is the showing of its growth by the United States census : 1850 92,597 1860 379,994 1870 560,247 1880 864,694 1890 1 ,208, 1 30 1900 1,485,053 From 1890 to 1900 only 277,000 increase. Is not that significant ? 228 STORIES OF THE GREAT RAILROADS COMPARATIVE AREAS AND POPULATIONS. Area in Square Miles Population California . . 158,360 1 485,053 France 207,054 38,961,945 208,830 63,886,000 147,655 49,732,952 Italy . 110,550 32,475,253 Be'tHum . 11,373 7,074,910 Massachusetts 8,315 2,805,346 7,815 1,883,669 Illinois 56,650 4,821,550 The true garden spot of the world, and after forty years of railroad domination it had in 1910, 2,377,549 inhabitants in an area greater than Ohio, Illinois, Indiana, Massachu- setts and New Jersey together; more than forty per cent larger than Italy with about one-fifteenth of Italy's popula- tion! So that to this day, after the traveler has appre- hended something of the unmatched resources of the coun- try, the greatest of all its wonders is its sparsely populated areas. The same lawless power that perverted the government and seized the courts has throttled California's development and deprived its people of the products of their industry. Men have sown, and this power, cunningly adjusting its rates for that purpose, has year after year taken the harvest. You say: For this abnormal condition there must have been a remedy. This nation of ours is ruled by law and majorities. It must have been possible to subdue or to regulate this railroad. The fault must have been with the people. No no fault with the people. The people were all right. The fault lay in the system. The choice offered to the peo- ple was between nominal rule by the Republican party and nominal rule by the Democratic party. When they wearied of railroad tyranny under the name of a Republican admin- istration, they revolted and introduced railroad tyranny un- WHAT THE LAW DOES FOR US 229 / der the name of a Democratic administration. The monop- oly controlled the Democratic administration as easily as it had controlled the Republican. It was a power too great to be withstood and made great by the money of the commu- nity that it now oppressed. But how about the law? How about the blessed thing called regulation? How about the government supervision of corporations? That is the very thing I want most to tell you about. Come, now, you that think you can deal with this problem by regulation. Come and have a good look at this exhibit. It will not give you cheer but it ought to furnish unlimited instruction. Law? There was nothing but law; and constitutions; and provisions; and orders; and amendments; and fresh statutes; and then more law; all aimed and shaped to regu- late, restrict and control this monster, and the monster never gave a hoot for all of them. Every step of its progress had been marked by the violation of some law or some article of the holy constitution, and it strode calmly and cheerfully over all, never minding in the least. For instance : There was an article in the Constitution of the State of California that expressly forbade a certain kind of lease between railroad companies. So the monopoly made something like a dozen leases of that variety. There was a section of the penal code that forbade an interchange of stock between railroad companies. So the monopoly pro- ceeded to interchange the stock of its subsidiary railroad companies. There was an article in the state constitution providing that the state railroad commissioners should have the power to fix passenger and freight rates. And when on one famous occasion these commissioners undertook to ex- ercise this power, the monopoly brushed the commissioners out of its way and continued to make its own rates in its old fashion on its old basis. 230 STORIES OF THE GREAT RAILROADS And what was that basis ? All the traffic would bear. Some of these incidents should be told in detail. 1. Thus Section 20 of Article XII of the Constitution of California contains this provision: And whenever a railroad corporation shall for the purpose of competing with any other common carrier lower its rates for transportation of passengers or freight from one point to another, such railroad rate shall not be again raised or increased from such standard without the consent of the governmental authority in which shall be vested the power to regulate fares and freights. For many years the oppressed and defrauded merchants of San Francisco held to the belief that the one sure remedy for their troubles was in competition. If they could only get another railroad, competition would compel the South- ern-Central-Pacific oligarchy to reduce rates and practice decency. Many times their hopes of competition had been raised from many sources, but always to be disappointed. The new line was seized, controlled or absorbed by the oligarchy, or headed off if it was approaching from the East. At last the merchants formed their own company and built their own line from San Francisco Bay down to rich San Joaquin Valley, 200 miles and more. At once the new line made rates much lower than the Southern Pacific's tariff, and the Southern Pacific was obliged to meet the reductions. Beautiful proof of the vir- tue of competition as a cure-all ! But the Atchison, Topeka & Santa Fe which had acquired the old Atlantic & Pa- cific (a land grant railroad across Colorado and New Mex- ico) now extended its line westward, secured an entrance to California and appeared on the scene to offer the grand- est promise of a perfect competition. If the Santa Fe could be brought to San Francisco there would be a compet- ing outlet to the Atlantic. So the merchants sold their San Joaquin Valley line to the Santa Fe and amidst great rejoicing the Santa Fe entered San Francisco early in 1900. WHAT THE LAW DOES FOR US 231 Immediately, the Santa Fe and the Southern Pacific re- stored the rates in the San Joaquin Valley generally to the basis that had prevailed before the merchants' road was built, and the people of San Francisco discovered too late that the addition of a new line to their facilities made no difference in their situation, for the simple reason that the Southern Pacific owned $17,000,000 of stock in the Santa Fe and the two roads had a close traffic and trackage ar- rangement. Two roads with but a single thought; two tar- iffs that gouged as one. Among the passenger rates that had been reduced by the merchants' road competition was the passenger rate from San Francisco to Fresno. This had been $5.90; it was cut to $3.75. When the merchants' road was sold, the old rate of $5.90 to Fresno was restored. This was in March, 1900. Mr. E. B. Edson brought suit to test under the con- stitution the legality of the restored rate, and the State Board of Railroad Commissioners joined him. In the Supe- rior Court Judge George H. Bahrs gave judgment for Ed- son and the commissioners. The Southern Pacific appealed, and on May 23, 1901, the Supreme Court reversed Judge Bahrs and remanded the case for a new trial. 1 On the retrial in the lower court in July, 1904, Judge Frank H. Kerrigan decided in favor of the railroad com- pany, holding that the rate had never been reduced. The ground for this decision is worth noting. It seems that when the Southern Pacific reduced the rate to Fresno to $3.75, it issued a new form of ticket good only for the day of issue. The old style of ticket, price $5.90, and good for six months, it still kept on sale. Nobody ever wanted or bought the old style of ticket at $5.90, but it could be bought if desired. Hence, in Judge Kerrigan's opinion, there had been no reduction of rates. 1 Edson et al. versus Southern Pacific Company, 133 Cal., 25. 232 STORIES OF THE GREAT RAILROADS Edson and the commissioners now appealed. Chief Jus- tice Beatty wrote the decision of the Supreme Court, which entirely upheld the railroad company, and affirmed the valid- ity of the $5.90 charge not because the rate had not been lowered, but because it "had not been lowered for the pur- pose of competition within the proper construction of the constitution." Judge McFarland, an associate judge of the Supreme Court and previously a Southern Pacific attorney, concurred with Chief Justice Beatty, but added an even stronger opinion of his own, in which he fiercely attacked Section 20 of Article XII of the constitution, speaking of it as containing "a drastic and ruinous penalty." One might think that on such grounds any law anywhere could be upset at any time. Incidentally, it may be interesting to note that Judge Bahrs was retired to private life at the end of his term and Judge Kerrigan was elevated to the Appellate Court. 2. Among the choice presents the four gentlemen of Sac- ramento gathered from the United States was a land grant for building a railroad from Roseville, eighteen miles north of Sacramento, to Portland, Oregon. This grant was of every alternate twenty square miles (ten on each side of the track) conditioned upon the building of the road the entire distance. The Congenial Four built only as far as Red- ding, 152 miles, but they took possession of the land grant for the entire projected line of the road. It was immensely valuable land, comprising some of the best timber on the continent. In 1882 the time limit for completing th^ road had long expired so that, except for the line from Sacramento to Redding, the grant was forfeited. To reclaim it an act of Congress was necessary. Every at- tempt to pass such an act and to return to the public the land justly belonging thereto was defeated. The four gen- tlemen had no more right to the land than they had to the Washington monument, but they held it nevertheless, and reaped millions from it. WHAT THE LAW DOES FOR US 233 In the election of 1882, Mr. Barclay Henley, a young at- torney of Santa Rosa, who had studied the land grant ques- tion, was nominated for Congress on a platform demanding that the forfeited land grants should be returned to the pub- lic domain. On this issue he was elected and promptly in- troduced bills 2 for the reclamation of the forfeited grants of the Roseville-Portland line, for the reclamation of the forfeited land grants of the Northern Pacific colossal grabs that have somehow escaped the attention they deserve and some other bills having similar objects. The Congenial Four bitterly fought the bill that sought to make them dis- gorge, bringing down Judge Dillon and General Roger A. Pryor from New York to argue in their behalf before the Public Lands Committee of the House, and rilling the lob- bies with their hired men. But Mr. Henley had absorbed the whole subject and he made of it so clean and masterly an expression that he car- ried the House with him. After a time, the only active opposition he encountered was from the late Thomas B. Reed, of Maine, sometime Speaker of the House. When the vote came all the bills were passed by large majorities. They went next to the Senate. There they were promptly buried, nor could any argument or appeal ever resurrect them. The four congenial gentlemen remained in posses- sion of the land to which they were not entitled, and it is today reflected in the capitalization of the Southern Pacific railroad that the public pays exorbitant freight and pas- senger rates to support, This must be a cheerful thought to all of us. First we are cheated of millions upon millions of acres of our lands, rich in those natural resources we are now so anxious to con- 2 For the particularly interesting debate on the first of these bills, see Congressional Record Forty-eighth Congress, First Ses- sion, pp. 4814-22. The pleas made in behalf of the railroad are a revelation to anyone that will dig them out 234 STORIES OF THE GREAT RAILROADS serve; next we pay freight rates on the value of the land that has been stolen from us ; then as the value of this land increases with the increase of population, it becomes addi- tional capital on which to base additional rates to lay addi- tional burdens upon the ultimate consumers, 85 per cent of whom are poor or very poor. The finite mind seems in- capable of a grander concept. 3. But the land grab story has still a sequel not less delectable. It shows how even the best of movements for the public benefit may easily be twisted into further advan- tages for the fortunate and further burdens for the people at the bottom. About fifteen years ago the need of conservation began to be forced, very tardily, upon our attention by the obvi- ous fact that we should shortly be without timber as with- out public lands. Congress, therefore, set apart regions a's inalienable forest reserves for the nation. An honest man in the Senate, looking over the project, saw that while its main features were admirable, it contained one defect, eas- ily remedied. It did not provide for the cases of men that had settled upon the land now sequestered for public pur- poses. That is to say, in the middle of a reserve a settler might be tilling a farm, and by the establishing of a forest reserve about him might find himself utterly cut off from communication with the rest of the world, whereby his farm would be made valueless. This senator, therefore, intrc iced a measure providing that any dwellers on the land taken for forest reserves should have the right to exchange their farms for an equal amount of public land elsewhere. This just and reasonabh amendment fell into the hands of an eminent friend of the Interests in the Senate and another in the house. They changed the words "dwellers on" to "holders of" and, at the last minute before the end of the session, it was rushed through the Senate, giving no chance for amendment. WHAT THE LAW DOES FOR US 2 V 35 The railroad companies immediately took advantage of this provision. They gave up fifty millions of acres of worthless barrens in Nevada and Arizona where nothing ever grew, or ever would grow, but cactus and sagebrush, and received in exchange choice timber lands in Oregon, Northern California and Washington, nor could any pro- test or outcry avail to check this monstrous fraud. Only by a narrow margin did they fail of getting those invaluable coal deposits in Alaska that are now the subject of national controversy. They had planned to grab all such lands, but found they were stopped by the fact that the homestead law did not extend to Alaska. Their newspapers in all parts of the country then began to demand amend- ment of the law so that Alaska should be thrown open to homestead entry. When the agitation had proceeded long enough, a bill to this effect was introduced in Congress and slated for immediate passage. One man, Judge Joseph H. Call, of Los Angeles, well known as an opponent of cor- poration knavery, discovered what was afoot and hastily warned a group of honest Congressmen. By these the bill was so amended as to exclude the railroads from the benefit of the extension. Meantime, those choicest timber lands in California, Ore- gon and Washington, before referred to, had been obligingly withheld from entry. When the schemers found that they were beaten off from Alaska, the timber tract was as opportunely restored to entry and the railroad companies filed for and grabbed it all about fifty million acres. I suggest that the next Conservation Conference in this coun- try devote itself to this little fact. 4. But to return to the experiences of California. And here I come upon the main story I desire to tell because it illustrates so sweetly just how much effect rate regulation, supervision, restriction, Hepburn bills, commerce courts, Strenuous gentlemen, and the like agencies, can have upon 236 STORIES OF THE GREAT RAILROADS railroad companies when the railroad companies do not care to observe such trifles. Also something else. It illustrates and shows us pre- cisely how and to what extent you and I and all of us pay for these fortunes; pay for them once when they are made and then the interest on that, and the interest on that, many times over, until the dollar we paid forty years ago for Mr. Huntington's "explanations" to Congressmen has become two dollars that we pay year after year; until all the wealth that was stolen, filched, and conveyed from any one of these enterprises in the palmy days of its looting, is the basis of a bill annually presented to us and for which we must dig up the money. If the looting were done when it was done and we were rid of it thereafter, the case could not be so bad. But every dollar of loot in any railroad enterprise, all the bribe money and "legal expenses," the jobs in the construction accounts and the swindles in the interlacing leases, become, all of them, just so many additions to the capital account on which interest must be paid through the rates that come home to us all. With this little preface, necessary to make clear the true meaning of the characters and incidents we shall introduce, we are now ready for our story. About thirty years ago this idea of curing evils by regu- lating them laid strong hold upon the people of California, and in the brave new constitution of 1879, to which we have before referred, they determined to deal once and for all with the railroad monopoly question. So in Section 20 of Article XII, they gave to the Board of Railroad Commis- sioners every conceivable power "to establish rates of charge for the transportation of passengers and freight by railroad and other transportation companies," to supervise and control such companies, and to enforce its will upon them. For failure to obey the commissioners' rulings, WHAT THE LAW DOES FOR US 237 severe penalties were provided, the companies to pay heavy fines and their officers to be punished with fine and impris- onment. The section concludes with this explicit state- ment: In all controversies, civil and criminal, the rates of fares and freight established by said commission shall be deemed conclusively just and reasonable. The force of regulation could no farther go. Even the most fervid regulationist has never suggested anything approaching this achievement. Some years afterwards, the state legislature, finding that for some reason blessed regulation did not produce the ex- pected good things, tried to strengthen the commission's hands with the majesty of statutes, enacting that whenever the commission determined upon a rate it should file the new tariff schedule with the railroad company affected, and that twenty days after the new rate should go into effect and become the law of the land. Although it possessed these unequalled and ample powers, the commission never did a blessed thing but make reports and draw its several salaries; it was armed with thunder bolts and used only goose quills. Mr. Huntington wrote once to General Colton: "I notice you are looking after the state railroad commisisoners. I think it is time." 8 Whether this "looking after" had any relation to the pre- vailing inertia, the reader can surmise as well as I. But it appears that in 1894 there was one of the periodical revolts against the Southern Pacific, which had so long been the constituted authority and government of the state, and this treasonable and unruly spirit, seizing upon the Demo- cratic party, found expression in the following resolution that the Democratic State Convention of that year em- bodied in its party platform: Resolved, That the charges for the transportation of freight in 4 Letter of March 7, 1877. See foregoing chapter. 238 STORIES OF THE GREAT RAILROADS California by the Southern Pacific Company of Kentucky 4 and its leased lines, should be subjected to an average reduction of not less than twenty-five per cent, and we pledge our nominees for Rail- road Commissioner to make this reduction. You must recall the marvelous and perfect political or- ganization of the Central Pacific before you can comprehend the force of the revolt that produced this resolution. The truth is the grain growers were threatened with ruin. Some of them were supporting the burden of heavy mortgages while from their abundant crops the railroad was filching most of the profits. They were, therefore, in the mood of men not to be trifled with. No doubt the passage of that resolution was a treasonable act that the railroad's political department could easily have prevented. A few years before, it would have done so, but it had learned that regulative laws and constitutional pro- visions were really ineffective; and besides, there was the memory of that bloody May day at Brewer's Farm. The country had made so much fuss about the killing of a few farmers; "The Massacre at Mussel Slough" it was univer- sally called, and the Southern Pacific the murderer of those men. It was not nice for professed philanthropists and art connoisseurs. Even the subsidized editors always gagged a little about Mussel Slough. Evidently there was a point of endurance beyond which men could not be driven with entire safety to the drivers. Wisdom and experience indicated that no harm could come from such a resolution nor from a campaign conducted on these lines; it was only a useful and desirable vent for public clamor that otherwise might have worse results. So the convention nominate^ its candidates on this plat- form, and the party went into the campaign with at last the similitude of an issue to fight for. The state that year was 4 The various consolidations of the Central Pacific, Southern Pacific, and a score of other lines had been merged into a company bearing this name incorporated in Kentucky, March 17, 1884. WHAT THE LAW DOES FOR US 239 in one of its moods for a change from the machine that had a Republican name to the machine that had a Democratic name, and two of the three Democratic candidates for railroad commissioner were elected, constituting a majority of the Board. In August, 1895, seven months after taking office, the commissioners reached (one would think with sufficient de- liberation) the important matter of freight rates, and on September 12th and 13th adopted two resolutions, the first declaring a reduction in grain rates of not twenty-five but eight per cent, and the other expressing an opinion that all rates should be reduced, and at some time the commission- ers would get to work and reduce them perhaps when the robins should nest again. To this lame and impotent conclusion came the revolt of the grain growers and the valorous resolve of the Demo- cratic State Convention. But you should wait a little ; the best is yet to come. This is a very famous case and tested to the utmost the whole power of the regulative theory. If there ever were in the United States railroad rates that ought to be reduced, they were the grain rates in California; and if there ever could be anywhere a force able by law and constitution to reduce such rates, it was the California Board of Railroad Commis- sioners. Whatever rates that Board might decide upon (said the constitution of the state) should be valid and "in all con- troversies, civil or criminal, the rates of fares and freights established by said commission" should "be deemed con- clusively just and reasonable." Note what happened. The railroad company went straightway before Judge Joseph McKenna, then of the United States Circuit Court, now of the United States Supreme Court, and on October 14th obtained a temporary injunction restraining the com- 240 STORIES OF THE GREAT RAILROADS mission from carrying out or enforcing the reduction it had declared. 5 Of course. The United States Circuit Court takes prece- dence over authorities constituted by the state. Soon after, the case came up again on a motion to con- tinue the injunction and the issue was joined. There was a grand array of counsel W. F. Herrin, successor of "Bill" Stowe as chief solicitor and political manager for the South- ern Pacific, former Judge John Garber, E. A. Pillsbury, and others for the distressed railroad company; Attorney-Gen- eral Fitzgerald, former Judge R. Y. Hayne, and others for the commissioners. The case lasted for more than a year. The plea of the company was that it was too poor to afford any reduction of rates and that the action of the com- missioners, unless prevented by the court, would so injure the company and decrease its revenues that it would amount to the confiscation of property expressly prohibited by the Constitution of the United States of America. Please note this. You see now we are coming down to fundamentals. Rates could not be reduced because under existing conditions the Constitution of the United States practically forbade them to be reduced. To show the extreme poverty of the company were ad- duced many figures. First, there was the capitalization of the company and of its constituent companies, with their bonded debt. Then there was a computation showing that for the last eighteen months the whole company (which included lines in Ore- gon, Arizona, New Mexico, and elsewhere) had been oper- ated at a loss on this capitalization. Then there was a list of certain constituent lines of the Southern Pacific, to- wit: the Oregon & California, the Central Pacific, the California Pacific, the Northern Railway, the Northern California "The title is the Southern Pacific Company versus The Board of Railroad Commissioners of the State of California. Number of the case, 12, 127. WHAT THE LAW DOES FOR US 241 Railway, the South Pacific Coast Railway, and the Southern Pacific of California; after which the bill of the company avers as follows : Fifth, That none of said corporations, other than the said California Pacific Railroad Company and the said Northern Railway Company, have for more than one year last past received or been entitled to receive any profit or net income whatsoever above their actual expenses or any compensation for the use of their equipment out of the funds payable to them by your orator under the terms of said leases or otherwise, nor have any of said corporations paid, or been able to pay, any dividends to their stockholders. This is dull legal verbiage, but I want to put it all in be- cause it is necessary if we are to determine about the legal control of these corporations. "Under the terms of said leases/' says Mr. Word Spinner of the company's plea. What leases ? Why the leases of the constituent companies one to an- other. Each of these constituent companies was made up of many other smaller companies, each leased in turn to a larger company, until there was a grand collection of leases. Thus the California Pacific mentioned in this plea was a constituent company leased to the Southern Pacific, and the California Pacific was itself an aggregation of smaller roads covered with leases. First, there was the old Marysville & Benicia, organized under the act of 1851, which was leased to the San Francisco & Marysville of 1857, which was leased to the Sacramento & San Francisco, which was leased to the Old California Pacific, which was leased to some other road, which was leased to the present California Pacific. The commissioners agreed that most of these leases were clearly illegal and invalid, and that the whole Southern Pa- cific conglomerate was an outlaw and pirate. Section 20, Article XII, of the Constitution of California, declares that no railroad company, nor other carrier, shall 242 STORIES OF THE GREAT RAILROADS combine nor make any contract with any other company "by which combination or contract the earnings of the one doing the carrying are to be shared by the other not doing the car- rying." Which was, of course, precisely the situation created by most of these leases. Law? Well, as I said before, there is no end of law. Law on all sides of us steadily violated by this corporation. Nothing but law. As, for instance, Section 560 of the penal code of California, reads as follows : "Every director of any stock corporation who concurs in any vote or act of the directors of such corporation, or any of them, by which it is intended either" (And then fol- lows a list of prohibited acts, ending with this) : Fifth To receive from any other stock corporation, in exchange for the shares, notes, bonds, or other evidences of debt of their own corporation, shares of the capital stock of such corporation or notes, bonds or other evidence of debt issued by such corporation, is guilty of misdemeanor. And before a committee of Congress in 1894, testifying, Mr. Huntington, President of the Southern Pacific, ex- plicitly admitted that the Southern Pacific Railway of Cali- fornia, of which he was also President, had done this iden- tical thing thus forbidden by the statute, although the law that he thus calmly admitted he had violated had never been enforced upon him. 6 Why do we have laws if they can thus be set aside at one man's will ? But about these leases of the subordinate roads. The Southern Pacific argued that it could not afford to reduce the grain rate because all its roads, except only two, the California Pacific and the Northern, it was operating at a loss, and that the small profits on these were needed for re- pairs and betterments. "The Southern Pacific Company versus The Board of Railroad Commissioners. Argument of former Judge Hayne, p. 214. WHAT THE LAW DOES FOR US 243 Then please observe. A. All of these roads were owned by the same persons, who were also the owners of the Southern Pacific, so that when they made one of these leases, they leased their own property to themselves. B. The rental so paid by one road to another became a part of the operating expense of the larger road. C. These rentals were repeated several times and were usually at excessive rates. D. The final road that embodied all the small roads had to make enough to pay all the rentals (to its own owners, of course) and a profit besides, and when this profit was two and a half per cent, the point was raised that it was a profit to small to justify any reduction in rates. 7 The process may be illustrated thus. Let us suppose one of these roads to be composed of four subordinate roads successively leased. The first is one hundred miles long. It is leased for one hundred thousand dollars a year to the second company, which builds fifty miles and leases itself and the 'first road to a third company for two hundred thousand dollars a year. The third company adds fifty miles and leases itself and its constituents to a fourth company for four hundred thousand dollars a year. All these leases are, in reality, held by the same persons. It is evident that, in the end, they have two hundred miles of track on which the leases they hold are an exorbitant charge upon the oper- ation of the road to be paid to themselves. 8 '"They own the California Pacific; they lease it to themselves at $600,000 a year; then they add the $600,000 to operating ex- penses and show a deficit of $54,000 a year." Judge Hayne's ar- gument, p. 577. 'The California Pacific, with a total value of $1,404,935, was leased for $600,000 a year. The annual rentals of some of the other lines was almost as much as the whole value of the prop- erty leased and there was a fiction accepted by many persons that should have known better, that above these monstrous rentals there must still be profit else the road was operated at a o 10 co ^ CM ^' S5 s ( & u B d ui o 3) i E ; i d E 3 tf S o 10* . ~ s fe ON -H 5g S o co (Sui suBd 400 -UI03) CM" o Th IO O t> \O 10 O 10 v-4 J I $43 . U P^ c d M VO" 428, S S M ' **9 WHAT THE LAW DOES FOR US 247 On all this huge volume of water, the public was required to pay the rates that furnished the interest, and the company could not afford to make a reduction of eight per cent in the grain rates that were throttling the farmer. How much of actual annual reduction in income would be produced by this reduction? How much would the com- pany lose if it allowed the new schedule to go into effect? At the most $100,000 a year. Let's look into that. One hundred thousand dollars a year. At five per cent, the annual interest on the water on the capitalization of only one line, the South Pacific Coast, would be more than five times this amount. The annual interest on the water in the capitalization of the California Pacific alone would pay the grain rate reduction more than six times. It was to support this fictitious capitalization that the grain rates must be kept up and the farmers must pay and the bread eaters must pay and all the world must pay for this gross and swollen capitalization, $10,000,000 in one line, and $80,000,000 in another, and $19,000,000 in another, all demanding interest on the bonds and dividends on the stocks. And these bonds and stocks created for the profit of the owners of the road, neatly concealed by the leases and other devices, represented in the main nothing but the greed of the owners and the fraud of their methods. This was why the freight rates were high, the farmers were poor, and the cost of living increased. In that chain of cause and effect, there was not a flaw. Five per cent on the $19,357,458 of fictitious capitaliza- tion in the Northern Railway is $967,872.90; five per cent on the actual value of the Northern Railway is $172,277.10. Under the existing conditions, the Northern Railway must earn $968,000 a year; if it were capitalized for its real value, it need earn only $173,000, and it could reduce its grain rates and all other rates much more than eight per 248 STORIES OF THE GREAT RAILROADS cent and still make its dividends. What the people of California and the people elsewhere were paying for was not a reasonable profit on an investment, but an unreason- able profit on a scheme of fraud ; and as a matter of fact the only confiscation involved in the proposed reduction was the confiscation of a piece of the apparatus of a gigantic shell game. Take some of this capitalization on which the railroad company demanded "a reasonable profit," and see its sub- stance. Into that capitalization was charged, for instance, the $2,- 840,000 10 that the Central Pacific paid to the Union Pacific for the overlapping lines when the two roads were engaged in their insane race for mileage. Twenty-five years had passed since that strange exhibition of frenzied competition. On this $2,840,000 at six per cent for twenty-five years, the interest would be $4,260,000, making with the principal, $7,- 100,000." On this again the annual interest is $426,000, and the commission asked for only $100,000 a year reduc- tion in freight rates. In those early days of the Central Pacific, there was spent at Washington and Sacramento $6,532,329 for corruption disguised as "legal expenses," and this went into the capi- talization on which the farmers must pay and the bread eat- ers must pay and all the world must pay. At six per cent interest for twenty-five years this would amount to $9,798,- 493.50. If that sum were applied to reducing the debt of the company, the annual saving in interest would be $587,- 10 Pacific Railroad Commission Report, p. 3039. 11 Mr. W. F. Herrin, chief counsel for the railroad, said in his argument, at p. 112: "The money expended by these people legi- timately and honestly for the speedy construction of this road can- not be ignored. There is no equity on the part of the State of California to insist on striking out and eliminating a single dollar that was actually expended in the construction of the road. It was a legitimate investment." WHAT THE LAW DOES FOR US 249 909.61 and the commission asked for only $100,000 from the railroad. 12 Again : Before the Pacific Railroad Commission, 13 E. H. Miller, Jr., secretary of the company, gave a tabulation showing that from 1873 to 1884 (when the road was sold to the unfortunate English investors and the profits were suppressed) the dividends paid on Central Pacific stock amounted to $34,308,055. The net earnings of the road from its completion to December 31, 1886, amounted to $59,276,387.54. In the first seven years ending with 1876 the owners had received $18,000,000 in dividends besides the enormous outside profits in bonds, land grants, construc- tion graft, other graft, expense accounts, and leases. If from 1870 to 1876 they had been content to take one- third of the net income for their emoluments, each of them would have received $222,000 a year for each of those years ; and if they had applied the remaining two-thirds of the net earnings to the reducing of the company's debt, they would have canceled $12,000,000 of that debt. On $12,000,000 for twenty years the interest at six per cent is $14,400,000, which would be the saving effected by 1896. The annual saving in interest charge would be $720,- 000 if for the first seven years of its existence the owners of the road had been content with $222,000 a year each from the net profits of its operations. A careful man can always sustain life on $222,000 a year. And then $720,000 a year of saved interest charges ! All the farmers asked was that $100,000 a year should be dropped from the incalculable loot. Instead of being content with $222,000 a year for seven years, the Congenial Four of Sacramento grabbed off in that 12 Mr. Herrin in his argument (p. 139) declared that the opera- tion of the roads would be discontinued if the reduction were en- forced. 18 See report, p. 2547. 250 STORIES OF THE GREAT RAILROADS time and divided $18,000,000 of profits (from the road's operation alone), and then made of their monstrous profits and of the debt they would not pay a basis for charging ex- tortionate rates, and next, in court, a basis for defending those rates. It seems hard to go in imagination beyond this triumph of impudence. Or to take another illustration: If down to 1884 the owners had been content to divide among themselves yearly one-third of the net profits and to apply the rest to pay the road's just debts, they would by that time have shared $11,- 436,018 from the road's operations alone and would have saved for the road to 1884, $22,877,037. By the time the grain rate suit was brought this would be $39,339,901, on which the annual interest would have been $2,360,394. And all the farmers asked was that $100,000 a year should be taken from the load that they bore. And again : From the testimony taken before the Pacific Railroad Commission it appeared that the $62,000,000 of is- sued capital stock of the Central Pacific Railroad Company was divided among the four gentlemen as a free gift, and the four gentlemen paid not a cent of it, and that this $62,- 000,000 was part of the capitalization on which interest must be paid by means of charges levied upon the public. 14 And it appeared that all the bonds fraudulently taken from the government at the mountain rate, $48,000 a mile when the actual construction was on level ground, all these were in the account and must be paid for by charges levied upon the public. And it appeared that all the bonds fraudulently taken from the government at the foothill rate, $32,000 15 a mile, when the actual construction was on level ground, all these "See pages 2646, 2670, and 2377, testimony of Leland Stan- ford and Edward H. Miller, Jr. 18 Pacific Railroad Commission Report, p. 3662. WHAT THE LAW DOES FOR US 251 \vere in the account and must be paid for by charges levied upon the public. And it appeared that all the money fraudulently taken by the Contract and Finance Company (owned by the same owners) on excessive and extravagant charges for construc- tion and repairs all that was in the capitalization and must be paid for year after year by charges levied upon the public. And it appeared that the manipulation by which at the end of the construction period 16 the Central Pacific owed the Contract and Finance $3,500,000 and took for that debt the Central Pacific's notes for $5,700,000 and subsequently received in payment for these notes $7,000,000 of land grant bonds, that all this graft also was in the capitalization and must be paid for by the charges levied upon the public. 17 And it appeared that the grafting contract 18 by which the Contract and Finance undertook to make repairs on the Central Pacific, and furnish its supplies and thereby raked off $2,000,000 a year extra profits that all this was in the capitalization and must be paid for year after year by charges levied upon the public. And it appeared that all the graft secured under the aliases of the Western Development Company and the Pa- cific Improvement Company, all the excessive bond issues, fraudulent construction charges, and magnified costs, all these were included in the capitalization and must be paid for year after year by charges levied upon the public. And it appeared that when the Western Development Company and the Pacific Improvement Company raided the sinking fund of the Central Pacific Company, 10 that here 18 Ibid., p. 2682, testimony of W. E. Brown. "Judge Hayne's argument, p. 509. 18 Pacific Railroad Commission Report, p. 3227, testimony of Lewis M. Clements. 19 Ibid., testimony of C. P. Huntington, p. 32; testimony of Leland Stanford, p. 2665. In the present case, Judge Hayne's argu- ment at p. 512. 252 STORIES OF THE GREAT RAILROADS were items of cost that went into the capitalization and must be paid for year after year through charges levied upon the public. And it appeared that when suits were brought that threatened in a painful way the reputations of the gentle- men involved in these operations and they bought back at 400 and 500 and 1,700 the stock they quoted at 80, these ex- penditures also went into the capitalization. And when the directors of the company hired writers, newspapers, and magazines to praise them and their work, or to favor legis- lation in behalf of the Central Pacific, these expenditures also went into the capitalization. And it appeared that the real purpose of the Contract and Finance Company and the Western Development Com- pany, and the Pacific Improvement Company, and all the other aliases and disguises of these gentlemen was to effect exactly this result, to transform the expenditure into a fixed charge upon the public f that should endure for the profit of the four gentlemen ; and that all these charges could be paid only in transportation rates; and that because of all these accumulated charges and' piled-up accretions of fraud, the grain rates must be exacted and the farmers must pay and the bread eaters must pay and all the world must pay. And it appeared that there was no end to these charges. That whenever the great power that gripped and held in its fist the State of California extended in any way its opera- tions or acquired additional lines or bought a steamship or built a branch or spent money for legislation or made an improvement or paid a rebate or made an illegal lease or straightened its corkscrew track, it piled up more capitali- zation, which meant more interest and dividends to be met, which meant more charges to be paid by the public. And it appeared that when the Central Pacific defrauded the nation by building a crooked road, the public paid charges on the crookedness ; and when these crooked places WHAT THE LAW DOES FOR US 253 were made straight the public paid charges for making them straight. Whatever the railroad company did produced more capitalization, and all the capitalization produced in- terest and dividends to be met, and all the interest and divi- dends meant charges levied upon the public. And at the other end of this infallible mill stood the owners issuing the excessive securities, and adding the proceeds to their huge hoards. Many of these matters were set forth with great force and skill by the attorneys for the railroad commission. The railroad company, by its learned counsel, excepted to certain features of the commissioners' answer, and by order of the court they were stricken out. One of the excised sections contained some of the extraordinary revelations of the tax statement before referred to. In another place, Paragraph IX of the commissioners' answer, occurs this significant passage : That it is notoriously true that for many years last past the complainant has expended large sums of money in the employment of politicians and others to improperly influence various branches of the Federal and State Government and to obtain for themselves [itself] advantages to which it was not entitled; and to induce action on the part of various branches of the public service for the sake of its own private advancement and for that of its officers, and that a large part of the sums claimed by it as operating expenses are for such unlawful expenditures. From this the court ordered to be stricken out the words that "it is notoriously true." Judge McKenna's decision was filed November 30, 1896. In his accompanying opinion he confined himself chiefly to the constitutional aspects of the case and to precedent and previous decisions. He found that for the year 1894 the Pacific System of the Southern Pacific had been operated at a loss of $276,262.70, that the company could not afford to make the reduction of rates ordered by the commissioners, and that the reduction would be such confiscation of prop- 254 STORIES OF THE GREAT RAILROADS erty as was prohibited by the Constitution of the United States. The clause of the California Constitution uphold- ing rates to be promulgated by the commissioners he de- clared to be null and void 20 for similar reasons, and he therefore continued the injunction and knocked out the proposed reduction. In this view Judge McKenna was in accord with the decisions of the Supreme and other courts, for the fact seems to be that under the Constitution and the system of business that we have adopted, no other decision is possible. Capital is capital; capital is entitled to just and reasonable profits ; courts cannot inquire minutely as to the methods by which capitalization is piled up; and once having saddled ourselves with this burden, we must continue to bear it so long as the securities exist. It only remains to say that in 1898 a new Board of Rail- road Commissioners was elected ; that on April 24, 1899, this new board rescinded the grain reduction resolution enjoined by Judge McKenna ; and on May 19th the railroad company graciously consented that the case be dismissed. Which ended the last attempt of the grain growers to utilize Regu- lation's artful aid in their behalf. They submitted to their fate, and after a time most of the wheat fields were put to other purposes. But if we really desire to learn just why the cost of living has increased so heavily upon us, and just why it threatens to become, before long, an insupportable condition, our in- vestigation need go no further than this. The history of the Southern Pacific is not very different from the history of other railroads in the United States. Who pays the vast interest charges on the nine billion dol- lars of fictitious capitalisation that these railroads have piled up? "The Southern Pacific Company versus The Board of Rail- road Commissioners. Judge McKenna's decision, p. 2. CHAPTER XL THE STORY OF THE HARBOR FIGHT. "The railroads of today ought not to be judged by the past." So say the railroad attorneys, presidents, and champions, sitting pleasantly at meat. So dutifully echoes that part of the periodical press owned or controlled by the railroad in- terests. I doubt not all of us would be glad to accept and to fol- low the injunction if only we could; but to separate the rail- road of today from its past is like separating the living tree from its root. The railroad company of today is an accretion of railroad companies of the past ; the railroad management of today is an inheritance from the railroad management of the past; the railroad capitalization of today has been built upon years of devious policy; the railroad rates of today reflect forty years of scheming and looting. If the railroad companies would cease to operate their political departments in the manner of 1878 and 1884; if they would cease to build fictitious capital on the fictitious capital of previous years ; if they could avoid as a basis of rates the necessity of getting interest and dividends on this fictitious capital, we could possibly afford to forget the past and its records. We must look back to the past because we are paying for the past. Three times a day the past comes to our tables and collects its toll. The manner of this collection we shall now, if you please, proceed to see, and also to see how utterly futile and absurd 255 256 STORIES OF THE GREAT RAILROADS are, and must be, all attempts to deal with the American railroad problem by doctoring symptoms with legal reme- dies, even when these are most justly grounded and ably en- forced. You remember, no doubt, the $27,500,000 of subsidy bonds that the United States government issued and be- stowed upon Messrs. Stanford, Huntington, Hopkins, and Crocker, to facilitate the building of the Central Pacific. These bonds were to fall due thirty years after the com- pletion of the road. The road was completed in 1869-70. The bonds became due in 1900. Originally, the government stipulated that the railroad company should pay the semi-annual interest on these bonds, and the principal when due. The company refused to pay the semi-annual interest and got from the Supreme Court a decision that it need not pay this interest until it paid the principal. This obliged the United States to advance the semi-annual interest from the treasury, which amount was charged against the company. In 1887 the Pacific Railroad Commission was appointed to investigate the condition of the company and discover what use it had made of its resources and income, a reason- able inquiry in view of its repeated statements that it was too poor to pay the interest it owed, and would be too poor to pay the principal. After listening to much astounding testimony of a nature extremely damaging to the company, the commission made two reports. The majority dealt lightly with the offenses that had been revealed. Governor Pattison, the minority member, returned a stinging indictment of Messrs. Stan- ford, Huntington, Hopkins, and Crocker, and urged the gov- ernment to forfeit the company's charter for fraud and dis- honesty. Nothing was done on either report. THE STORY OF THE HARBOR FIGHT 257 In 1896, the time for payment being close at hand, the debt to the government was apparently more than $60,000,- 000, and the company's attorneys and representatives made no secret of its intention to default on this debt. Public sentiment demanded that some arrangement should be made. Mr. Huntington was still hovering about Con- gress with his agents and lobbyists. 1 He prepared a bill that provided for the refunding of the debt into bonds bear- ing two per cent interest and payable at a period estimated at eighty years from date. This bill was slated for passage by the Republican ma- chine to which Mr. Huntington had always contributed liberally. Everybody knew that the bill was to be jammed through and Mr. Huntington was greatly pleased with the prospect. He had reason to be pleased. The bill settled all differ- ences with the government, and put off the day of payment so far that it probably would never come. Mr. Huntington's pleasure was of short life. It was presently upset by two men. At the request of Mr. William Randolph Hearst, Mr. Ambrose Bierce went to Washington, and every day for one year he wrote an article exposing the rotten features of Mr. Huntington's bill. These articles were extraordinary examples of invective and bitter sarcasm. They were addressed to the dishonest nature of the bill and to the real reasons why the machine had slated it for passage. When Mr. Bierce began his cam- paign, few persons imagined that the bill could be stopped. *The Washington correspondence of the Chicago^ Evening Post, April 22, 1896, contains this passage : 'The most pitiable and at the same time the most disgusting spectacle that now offends the national capital is the Huntington lobby. The list of paid lobbyists and attorneys now numbers twenty-eight, and their brazen at- tempts to influence Congress to pass the Pacific Railroad Re- funding Bill have become the disgrace of the session." 258 STORIES OF THE GREAT RAILROADS After a time the skill and steady persistence of the attack began to draw wide attention. With six months of inces- sant firing, Mr. Bierce had the railroad forces frightened and wavering; and before the end of the year, he had them whipped. The bill was withdrawn and killed, and in 1898 Congress adopted an amendment to the general deficiency bill, providing for the collection of the Pacific Railroad sub- sidy debts, principal and interest. This may be held to be as wonderful a victory as was ever achieved by one man's pen, and, also, one of the most re- markable tributes to the power of persistent publicity. What it meant for California may be judged from the fact that when news was received of the death of Mr. Hunting- ton's bill the governor proclaimed a public holiday, and in the name of the state sent a telegram of thanks to Mr. Hearst. But it was a victory destined to have far more memorable results than these. At once the railroad company aban- doned all hope of cheating the government, and resorted to a vast and difficult feat of financiering that it might provide for the payment of the accumulated debt. For months the eyes of the financial world were fixed wonderingly upon this slack wire adventure, which was regarded in some quar- ters as fraught with peril, in others as "a clever and in- genious contrivance," and on all sides as a new chapter in high finance. The substance of it was this : The amount due to the government, less deductions, was $58,800,000. . For this the company gave twenty notes of equal amounts, payable semi-annually over a period of ten years, bearing interest at three per cent and secured by an equal amount of bonds. This meant, of course, an increase of capital. The ac- crued interest, $30,700,000, had been due to the government. Instead of paying it to the government, the Big Four had THE STORY OF THE HARBOR FIGHT 259 wrongfully paid the money to themselves in dividends. They now funded the accumulated debt for us to pay. There was next prepared a new issue of Southern Pacific stock and a new issue of four per cent collateral bonds. Next an assessment of $2 a share was ordered on the old Central Pacific common. But to offset this assessment, the new collateral bonds were presented free to the stockholders to the amount of $16,819,000. Then the stockholders received, share for share, $67,275,- 500 of the new Southern Pacific stock on which six per cent dividends were to be paid a fine, dividend-paying stock ex- change for a stock that for years had been inert and un- profitable. Next a new Central Pacific Railway Company was organ- ized in Utah to succeed the old, and the original part of the Millionaire Mill passed from public view forever. The $16,819,000 of collateral bonds and the $67,275,500 of new stock made $84,094,500 of securities which must be provided for from the earnings. Nominally, the total in- crease in the capitalization was $47,579,000, being the capi- talized interest on the government debt, and the collateral bonds; but the total paper capitalization was now $114,794,- 500, and all of it became interest or dividend bearing, whereas much of it had previously been of small value. A total of $114,794,500, on which interest must be paid. We are paying it. Thus: Annual dividends on the stock, 6 per cent $4,036,530 Collateral bonds, $16,819,000, at 4 per cent 672,760 Capitalized interest on government subsidy 1,200,000 Total annual charge on us $5,909,290 We have been paying this for thirteen years. So far, we have paid upon this account $76,820,770. 260 STORIES OF THE GREAT RAILROADS Then this is the way our account stands to date : Debt of the railroad to the government $58,800,000 We have paid because of the refunding of that debt 76,820,770 We are out so far $18,020,770 In thirty years we shall have paid close upon $180,000,- 000, which is three times the amount of the debt, and shall then be losers to the amount of $120,000,000. It would have been enormously cheaper to give Mr. Hunt- ington a cancellation of the debt. Cheaper in freight rates; cheaper, therefore, in the daily living expenses of the people. But since this debt and the annual charges that we must pay on it are directly and solely the results of the operations (before described) of Messrs. Stanford, Huntington, Hop- kins, and Crocker, and of nothing else, kindly observe the impudence of the men that urge us to forget railroad his- tory. We might very well answer that we will forget railroad history when the railroads cease to make us pay for that history. But the floating of the gigantic refunding scheme had an- other result besides the levying of additional tribute upon us. Mr. Stanford was dead, Mr. Hopkins was dead, Mr. Crocker v/as dead. Mr. Huntington, who had been steering and directing the new operations died (before they were completed) in August, 1900. Some confusion followed in the public mind, with many stories of sales, purchases, and reorganizations. When this mist cleared away, men saw that the Great Millionaire Mill had passed into a new ownership. For years the many properties of the original Big Four of Sacramento had been undergoing consolidation. For all the millions upon millions of fictitious stock issued and gathered to themselves as they had gone along, for all the THE STORY OF THE HARBOR FIGHT 261 fictitious capitalization in all the long list of subsidiary line.. and branches, being company within company until the human mind wearied and failed to follow the ramifications for all this there had been issued stock in the Southern Pacific Company, of Kentucky, the final consolidated con- cern. Great blocks of this were now acquired from the heirs of the Big Four and through the exigencies of the refund- ing operations, and when the situation finally cleared there appeared as the real owners of the old Central Pacific, the Southern Pacific, the unknowable convolutions thereof, the Pacific Mail, the Morgan steamships, the Union Pacific, the whole bewildering aggregation with all its load of fictitious capital, buttressed with lordly gifts from the public domain, rich with spoils, incomparably the grandest source of riches ever known in human history of the whole, incalculable thing, the real owners appeared as the colossal Standard Oil interests, with the late E. H. Harriman as their represen- tative. In the end it was the Standard Oil group that had financed the "clever and ingenious" refunding deal and had thereby seized the control of the Mill, and it is to the Stand- ard Oil group that we pay our $5,900,000 of annual tribute to that deal, and all the other tribute on all the other deals back to the days of the Contract and Finance Company, John Miller, and the books at the bottom of the river Seine. Is not that sweet? Yes, we should love to forget the past if the past would only let us. But when, on $200,000,000 of fictitious stock created by the "Contract and Finance Company and its suc- cessors, we furnish such dividends that the price of that stock goes up to 137, the manner in which we are to win forgetfulness of the past ought to be very carefully ex- plained to us. 262 STORIES OF THE GREAT RAILROADS So much for the business side of forgetting. Suppose we turn now to the political side and see how that looks. We found that, in the old days, this company was wont to maintain a great and elaborate political machine covering every corner of the state and working with perfect pre- cision to fill all offices with persons chosen by the company. We found that this machine cost much money and the cost thereof was and is assessed upon us, who continue year after year to pay. Always to pay. We found that the company divided the state into dis- tricts, each with its boss; and the districts into counties, each with its boss; and that the county bosses reported to the district bosses, who reported to the chief boss, who was the company's chief counsel and attorney in San Fran- cisco. Then come down to these days of ours, if you will. Who is Mr. Walter F. Parker? He is the Southern Pacific leader for the southern district of California. And who report to him ? The county bosses in that district. And to whom does Mr. Parker report? To William F. Herrin, chief counsel of the Southern Pacific at San Francisco. Same old frame work, evidently. How does the thing work today? Like this: In California the governor's term of office is four years. A new governor was to be elected in 1906. Mr. James N. Gillett was then a member of Congress for California. Five months before the election, Mr. E. H. Harriman gave a dinner in Washington to men influential in politics and business. At that dinner Mr. Gillett was chosen to be the next governor of California, Mr. Harriman announcing in a few, well-chosen words Gillett's selection by the railroad company. To ratify this choice, the State Republican Convention was called at Santa Cruz. All the railroad bosses from THE STORY OF THE HARBOR FIGHT 263 great to small had received the necessary word about Mr. Harriman's action, and proceeded at once to secure Gillett delegations from the counties. In Los Angeles County, which sent a large delegation, Mr. Walter Parker himself directed operations. He sat on an upper floor of the build- ing in which the county convention was held, and a staff of messengers ran continually between his desk and his leaders on the floor. Not a move was made without his word; the delegates were marionettes; he sat above them and pulled the strings. Likewise in San Francisco, which had a large delegation, Mr. Herrin took personal charge and operated with no less success, although upon a basis more primitive. According to a confession of Mr. Abe Ruef, the convicted boodler of San Francisco, Mr. Herrin paid him $14,000 for the control of the delegation. Simple, neat, effective. Of late years California has been growing more and more restless under the iron sway of the Southern Pacific. Even with the active co-operation of Mr. Ruef, former Mayor Schmitz, and their gang, Mr. Harriman did not find it per- fectly easy to nominate the man he had chosen. Many persons, including some long inured to conditions, resented that Washington banquet performance. They felt that it marked the limit of railroad arrogance on one side, and of the state's subjugation on the other, and they did not like it. Hence the Southern Pacific managers at Santa Cruz were put to rather unusual methods to fulfill Mr. Harriman's wishes. That is to say, they auctioned the other offices for Gillett support. In this way. If a man had ambition to be a judge, and they knew he was all right and sound on the railroad's supremacy, they said to him: "How many votes for Gillett can you swing?" 264 STORIES OF THE GREAT RAILROADS Perhaps the ambitious one replied that he could swing fifteen. They reported this to his rival, started a competi- tive bidding, and the man that undertook to deliver the greatest number of Gillett votes got the place on the ticket. Thus do we vindicate the purity of our institutions and the grandeur of representative government. Mr. Gillett was nominated. I have on my desk as I write 2 a little picture of a happy family group, being in fact a little dinner party at Santa Cruz just after the nom- ination. The gentlemen in the photograph have been din- ing, and with pleasure I note that they seem to have been dining well. Gentlemen of a happy aspect, well dressed, contented, and congenial, no doubt; a pleasant occasion. That handsome gentleman in the center with his hand affectionately on the shoulder of the gentleman seated be- fore him, is Mr. Gillett, afterward Governor of California, and nominated to that high place by Mr. Harriman, as aforesaid. The gentleman in front of him upon whom he leans so trustingly, is Mr. Abe Ruef, sometime boss and boodler of San Francisco, now convicted of the dirtiest of political crimes and serving his sentence. Yes, that is Mr. Ruef ; Mr. Gillett's hand is on Mr. Ruef 's shoulder. At Mr. Gillett's left stands Mr. Walter F. Parker, to whom several times, and, we must fear, rather unpleas- antly, we have alluded in these chronicles. Mr. Parker is a gentleman of the most distinguished consideration. When Mr. Frank Flint, lately United States Senator from California, was publicly congratulated upon his election, he said, with touching simplicity: "I owe it all to Walter Parker." Still farther to Mr. Gillett's left stands Judge F. H. Kerrigan, quite at ease, with his hands in his pockets. When Judge Kerrigan was a judge of the Superior Court, 8 See page 369. THE STORY OF THE HARBOR FIGHT 265 he decided the crucial Fresno rate case in the way related in a foregoing chapter. He is now a judge of the Appellate Court, having found promotion. Judge Bahrs, who de- cided the case the other way, found no promotion, but was retired to private life. Just back of Judge Kerrigan's left shoulder is Congress- man Knowland. Next to Mr. Ruef and Mr. Gillett at their right is Mr. George Hatton, a friend of Mr. Parker and of the Southern Pacific. Next to him is Judge McKinley, and at the end is Judge Henshaw, of the Supreme Court. Thus we may see the judiciary, statesmanship, commerce, transportation, blackmail and boodle, all pleasantly com- mingled and meeting on equal terms under the genial aus- pices of the Southern Pacific Railroad. Nothing is lacking to the picture except in the background the figure of Collis Potter Huntington in an attitude of benediction. Mr. Gillett's name was, in the cant phrase, "submitted to the voters" of California, who nominally elected him gov- ernor. As a matter of fact, there was not much choice. The railroad company played the usual tricks, stimulated the partisan frenzy, befogged the issue, subsidized editors, flooded the state with its hired newspapers, made unthink- ing people believe that somehow the security of the country depended upon Gillett's election, created the impression that by voting for Gillett a man was "supporting the President," did some other things not necessary to specify here and won. Not by much margin, incidentally. The number of people it can fool with this kind of rot is steadily diminishing. From this chapter of history we may learn how foolish a noise we make when we talk about any new basis of judgment for one railroad, at least. This railroad is doing in politics exactly the things that it did forty-eight years 266 STORIES OF THE GREAT RAILROADS ago and forty years ago and twenty years ago and ten years ago and all times between. Observant persons in California do not need to be told this any more than they need to be told their own names. They know it. 'But elsewhere has grown up among us a strange kind of sentimental softness in regard to railroad rascality, and a willingness to accept the gold bricks of repentance and reform whenever they are offered by a railroad president with a smug face and an indurated conscience. These little incidents may show how much credence belongs to such protestations when you hear them urged in behalf of the Southern Pacific. In California every fight to purify conditions, to reform a municipality, to stop graft, to proceed in honesty and decency, is a fight against the Southern Pacific, and that is as true of the heroic struggles of Mr. Heney, in San Francisco as of the fight for better conditions in other communities. In Los Angeles the fight centered at first around the con- trol of the harbor, and was fought in the open, without disguise, the citizens on one side and the Southern Pacific on the other. Los Angeles lies a little back from the coast. Its natural harbor is San Pedro, familiar to all readers of Dana's im- mortal "Two Years." San Pedro is south of the city. The Southern Pacific owned the harbor of Santa Monica, fif- teen miles north of San Pedro and from the city lying about west. Neither harbor was (as it lay) in any condition to ac- commodate a large deep-sea traffic ; both needed breakwaters and other improvements. Readers of Dana will recall his vivid descriptions of the perils of his San Pedro, the road- stead open to the terrible southeasters, the sudden rising of the gale, and the swift flight of the vessel to sea until THE STORY OF THE HARBOR FIGHT 267 the storm should pass. This had not much changed in 1871 when Congress appropriated money to improve the harbor. The work went on for several years, and as the improve- ments were made the commerce of the port increased. Then Los Angeles entered upon its period of rapid growth, and the need of a commodious and safe harbor was apparent. The people of Los Angeles wished this to be at San Pedro. At first the railroad company seemed not to care. Then its officers bought real estate at Santa Monica 3 and, in 1890, Mr. Huntington declared that Los Angeles must have its harbor at Santa Monica, or not at all. There began now a contest that lasted eight years. Los Angeles appeared regularly before Congress asking for an appropriation for San Pedro ; Mr. Huntington, through his lobbyists and Congressmen, as regularly defeated the proj- ect. All that was needed at San Pedro now was a break- water, which could be built at no great expense. Mr. Huntington invariably knocked out the breakwater. Meantime, army engineers had examined both harbors and reported convincingly in favor of San Pedro and against Santa Monica. Mr. Huntington was stronger than the engineers. In the face of their report, he had a bill introduced and favorably considered to appropriate $3,000,- 000 for his Santa Monica scheme. He could not quite get this passed, but he could always defeat San Pedro. In 1894 he came to Los Angeles, strode into the rooms of the Chamber of Commerce, and requested a conference. Members were summoned by telephone. When they ar- rived he told them they were making "a big mistake" to support San Pedro, that it was not to his advantage to have San Pedro selected, and, anyway, they could never get Congress to give money for their scheme. The announce- ments seemed to make little impression on his hearers. Mr. Huntington said: 1 "The Free Harbor Contest," by Charles Dwight Willard, p. 80. 268 STORIES OF THE GREAT RAILROADS "Well, I don't know for sure that I can get this money for Santa Monica; I think I can. But ," bringing down his first with an explosive slam, "I know damned well that you shall never get a cent for that other place."* The voice of ultimate government, you see. He knew. Not less interesting than the decree of this ruler is the fact that his listeners, the smug business men and reformers of Los Angeles, agreed not to let it be known to the pop- ulace. It might "increase the growing bitterness." When you are fighting for your life against a power like this there must be no bitterness on your side. The issue came soon after before the Senate Commerce Committee. Mr. Huntington was there, demanding $4,000,- 000 for his Santa Monica. The Los Angeles people asked for a small sum for San Pedro. The St. Louis Globe-Democrat's Washington correspon- dence of those days contains this paragraph : The harbor contest at Los Angeles waxes warmer. C. P. Huntington was seen going the rounds of the hotels to-day and, although it was Sunday, he made no halt in buttonholing senators. Four days ago there was a decided majority in the Commerce Committee in favor of following the wishes of the two senators from California, 5 but since the arrival of Mr. Huntington at the capital it is now a matter of great doubt where the majority will be found. There is serious speculation in the minds of many people as to the means Mr. Huntington may have used to bring about this change. Possibly the speculation would have gained additional zest from a perusal of Mr. Huntington's letters to "Friend Colton." 6 Mr. John P. Jones was a member of the Senate Com- merce Committee and an ardent champion of Santa Mon- 4 "The Free Harbor Contest," p. 107. "One of these, Stephen M. White, a Democrat, was a Los An- geles man and a champion of San Pedro. "See the letters of Huntington to Colton, foregoing. THE STORY OF THE HARBOR FIGHT 269 ica. I believe we have previously encountered the name of John P. Jones. 7 The committee voted to postpone a decision about the two bills until it could go to Los Angeles and inspect both harbors. This put the matter over for two years, or until 1896. Meanwhile, the people of Los Angeles had formed a Free Harbor League to fight for San Pedro. The long delay wore out the enthusiasm. In 1896 somebody sug- gested that probably Mr. Huntington was no less tired of fighting. A friend undertook to sound him and returned with the statement that Mr. Huntington willingly agreed to a cessation of hostilities for the rest of that session of Congress, neither side to make a move. The next thing the people of Los Angeles knew Mr. Binger Hermann, then a Representative from Oregon and a member of the House Commerce Committee, and since with other claims to fame, had put into the River and Har- bor bill two items, one of $392,000 for work on the inner harbor of San Pedro, and one of $3,098,000 to complete Santa Monica. At this the people of Los Angeles arose in wrath, and m the clamor of their protest the committee knocked out both items. By "the people of Los Angeles" I mean, and have meant, the majority. As soon as the railroad company announced its choice of Santa Monica, there had sprung up at once two factions in the city, the same factions that ever since have continued to struggle for itj possession. On one side were the railroad's attorneys friends, and admirers and, 'About this time the New York World took the trouble to i : n 1 out who owned Santa Monica. It discovered that the property ad- joining the exclusive water front owned by the Southern Pacific was divided in eight holdings. Of this, John P. Jones and A. B. de Baker held three. All the rest of the^ land was in the name of Frank H. Davis, representing C P. Huntington. 270 STORIES OF THE GREAT RAILROADS of course, the wealthy and respectable element, all lined up with Mr. Huntington for Santa Monica. On the other, the masses of the people, the labor unions, merchants with- out social aspirations, and others of that order, fought for San Pedro. Santa Monica had the advantage in the influence of its supporters; San Pedro had the numbers. Mass meetings were held by each side and resolutions passed, the San Pedro people meeting out of doors and the Santa Monicans in Illinois Hall. Both parties circu- lated petitions to Congress. Presently, the cause of Mr. Huntington, his friends, lackeys, and social peers, was deeply hurt by the discovery that the names on their peti- tion were largely fraudulant. Thereafter, San Pedro had all the advantage. The issue came April 16, 1896, before the Senate Com- mittee on Commerce, when delegations representing both sides were heard. 8 Mr. Huntington had a majority of the Committee. Nine 9 voted to restore to the River and Harbor bill the $3,098,000 appropriation for Santa Monica; six opposed it. When the bill reached the Senate floor, Senator White forced through an amendment that a board of five engi- neers should determine whether the $3,098,000 should be expended at Santa Monica or at San Pedro. In conference Mr. Binger Hermann bitterly fought this provision, which was hung up for many days, but Congressman James G. Maguire, of San Francisco, threatened that unless the item were allowed to stand, he would expose on the floor of the 8 Among the champions of Santa Monica on this occasion was former Senator Cornelius Cole, whose name we encountered in the Colton letters. 'Frye, of Maine; Gorman, of Maryland; Elkins, of West Vir- ginia; Jones, of Nevada; Quay, of Pennsylvania; Murphy, of New York; McMillan, of Michigan; McBride, of Oregon; Squire, of Washington. THE STORY OF THE HARBOR FIGHT 271 House the whole Huntington game, and the thing went through. Great rejoicing in Los Angeles. The board of five engineers decided in favor of San Pedro. More rejoicing in Los Angeles. But here came strange developments. The matter now rested in the hands of General Russell A. Alger, Secretary of War. General Alger was an old friend and business associate of Mr. Huntington, who had given heavily to the Repub- lican campaign fund. General Alger's first achievement was to hold up the ap- propriation nine months, so that the Board of Engineers could not begin its work. The Board's report .was made in March, 1897, and work should have been begun four months later. Month after month went by, but the War Department did nothing about San Pedro. Los Angeles people bitterly complained. They repeatedly called General Alger's attention to the delay, and had in return bland, empty promises of immediate action. They began to understand that the real intention was to stop the work until the matter could be thrown back into Congress, and Santa Monica be substituted. Former Congressman McLachlan, of Los Angeles, pro- tested once more to Alger, and received the startling infor- mation that the Board's report was defective and must be carefully studied before action could be taken. Another month went by with no sign of action. Mr. McLachlan again called General Alger's attention to the de- lay. This time General Alger lost his temper, declined to answer any questions, and declared that he would adver- tise for bids when he got ready. Senator White now introduced a resolution, calling upon the Secretary of War for information about the delayed 272 STORIES OF THE GREAT RAILROADS work at San Pedro. General Alger furnished in reply sev- eral reasons, all denounced as flimsy or baseless, and the Senate responded in a curt resolution directing the Secre- tary of War to begin work at once. This resolution the Secretary of War calmly ignored. Los Angeles people, after a time, called his attention to it. He remarked blithely that it meant nothing to him be- cause it has not been passed by the House. Then some kind friends took him aside and told him that if he persisted in that view, the Senate, when it reassem- bled, would attend to his case in a way that would surprise him. General Alger intimated that he did not care. By this time people in Los Angeles were deeply stirred. They united in a petition to President McKinley, reciting the facts. He referred it to Attorney General McKenna. Mr. McKenna rendered an opinion that there was no legal reason why work should not begin at once at San Pedro. General Alger let the opinion lie a month- on his desk with- out deigning to notice it. The Free Harbor League and the people of all South- ern California seeing how Mr. Huntington had outwitted them, and that he had every prospect of defeating them at last, began a desperate campaign against Alger, trying chiefly to induce the President to force his Secretary of War to act or to force him out of office. After three months of this, Alger was driven to the point of saying that he could not begin the work because there was no direct appropriation, and he must wait until Con- gress should vote again. The people pointed out that even if this were true he could advertise for bids and make a start. General Alger said he had no money to advertise with. All the Los Angeles and San Francisco papers tele- graphed offers to print the advertisements for nothing, and THE STORY OF THE HARBOR FIGHT 273 the Los Angeles Chamber of Commerce guaranteed that it would pay all advertising bills. General Alger said this would not be dignified and got up some question that he said must be referred to the Judge- Advocate General. The Judge-Advocate General promptly decided that the question was without substance, and that anyway, there was $50,000 available for advertising. Meantime, Mr. McKenna had ceased to be Attorney-Gen- eral, being succeeded by Mr. Griggs. General Alger now referred to Mr. Griggs the identical question that previ- ously had been referred to and decided by Mr. McKenna. At this the whole State of California broke into fierce and bitter complaint. It was directed at President Mc- Kinley, and at last it evoked from him a positive order that the Secretary of War should begin work. He had wasted two years and one month. The contract was now let, the breakwater constructed, and the harbor completed. Its value to Los Angeles is not yet obtainable, because the Southern Pacific barricades it with some of the most extortionate rates known on this or any other continent. But the inevitable result of the railroad company's policy will be a municipal railroad to the harbor and the beginning of Los Angeles as a great seaport. Such are the latter day operations of the Southern Pa- cific in national affairs. And here is a sample of its record in regard to municipah'ties. By 1905 most of the valuable franchises in Los Angeles had been seized by the allied Interests, of which the South- ern Pacific was the chief and commander. One was left, being the chance to build a railroad along the river bank in the city limits. On March 26, 1906, the mayor was out of town, and one Summerland, president of the City Council, was acting 274 STORIES OF THE GREAT RAILROADS mayor. The Council was in regular weekly session. At 4 :30 P. M., when all routine business had been disposed of and most of the spectators had departed, an ordinance was introduced, granting to one E. W. Gilmore, "and his as- signs," a franchise for a railroad on the west bank of the river from the south city limits to Alesio Street, a distance of about three miles. This was put on passage at once. Mr. Charles D. Wil- lard, representing the Municipal League, perceived what was on foot and vehemently protested. He went upon the floor of the Council and appealed to an honest alderman to vote against the grab. A representative of the city at- torney's office joined him in strenuous objection. Never- theless, the ordinance was jammed through. Outside waited a carriage to take a messenger with the ordinance to Summerland's house, where he was prepared to sign it. But first the signature of the City Clerk was nec- essary. An underling dashed downstairs to the City Clerk's office, put the ordinance under City Clerk Lelande's nose, and asked him to sign it, giving the impression jthat it was merely routine legislation. Lelande demurred, looked over the document, and re- fused to sign. Without his signature, Summerland could do nothing, and the ordinance was hung up. The next day the discovery was made that because of a technical irregularity in the passing of the ordinance, it must needs be passed again, and a special meeting of the Council was called for the next day, Wednesday, March 28th, when the iniquity went through by a vote of 6 to 1. What happened next will be found related in the follow- ing affidavit, which covers the whole story; STATE OF CALIFORNIA, 1 COUNTY OF Los ANGELES. H. J. LeLande, being duly sworn, deposes and says : The facts in relation to the attempted passage of what has THE STORY OF THE HARBOR FIGHT 275 become generally known as the Gilmore river bed franchise are as follows: Late in the afternoon, about 6:30 P. M., of the date when this franchise was first presented to the Council, Mr. Wilde, my chief deputy, came into my private office and placed this franchise on my desk before me, stating that "the boys upstairs were in a hurry for this," and asked me to sign it. This franchise consisted of several typewritten pages. Mr. Wilde turned it over to the last page, which contained the space for the signature of the mayor and myself, and asked me to sign it, as "the boys were upstairs waiting for it," and I asked what it was. Mr. Wilde replied, "A franchise for a spur track." I told Mr. Wilde that I would sign it in a few minutes as I was busily engaged writing a letter. Mr. Wilde left my private office, and shortly after his departure W. R. Hervey came into my private office and asked if I had signed the ordinance that Mr. Wilde brought in, and I stated that I had not; and he said that Mr. Gilmore was going away that evening and would like to have me sign it at once, as they wished to have it published in the morning. After Mr. Hervey had made this statement I looked at the document for the first time, and then informed Mr. Hervey that I would wait and allow this to go through in the usual manner as I did not see any necessity for haste, or words to that effect. Mr. Hervey urged me as a personal favor to him and to Mr. Gilmore to sign it at once, and I again informed him that I saw no necessity to hurry this matter, and he stated that he would see that I signed it and left the office, apparently angry. Very shortly after Mr. Hervey left the office, Mr. Gilmore came in and said that he was going to leave town that night and wanted to get this fixed up and published in the morning, and pleaded with me to sign it at once. I made the same reply to Mr. Gilmore that I made to Mr. Hervey, that "I would allow the ordinance to take its usual course." After I had made this statement, Mr. Gilmore continued to plead with me to sign the ordinance, which I refused to do. Just before I started for home I was called up on the telephone and informed that Mr. Summerland was waiting upstairs for me to bring that ordinance. I answered "All right," but had no intention of bringing it up. I took my hat and left for home. And shortly after I had finished my dinner, Mr. Gilmore called at my residence and again pleaded with me to sign the ordinance that night, and again said that this was a matter of great importance 276 STORIES OF THE GREAT RAILROADS to him and he was desirous of having the matter completed before he left the city, and offered me his political influence if I would sign it. He made the statement that I would never regret signing it. Then, shortly a'fter the departure of Mr. Gilmore from my residence, I came back to the office and Mr. W. F. Parker called me up by 'phone that night and wanted to know if I was going to be at my office for a few minutes. I stated that I was, and he said he was coming over. Shortly after receh^ng the message, Mr. Parker came to my office and asked to see the ordinance, which I allowed him to do, and he made the statement that he didn't know whom it was for, and that he was glad I hadn't signed it, and asked me not to sign it until he had found out more about it. I told him that I had not intended to sign it until the following day anyway. The minute clerk had prepared his minutes, showing that the council had adopted the ordinance by a vote of six to one, Summerland being acting mayor in McAleer's absence, and Mr. Smith being absent. My attention was called to the fact that Councilman Houghton first voted "No" and finally changed his vote to "Yes," other business having been transacted in the interim, and at the time that Councilman Houghton changed his vote to "Yes" the chairman then announced that the ordinance had been adopted; so when the members of the Council found that we had, on Tuesday, recorded the ordinance as having been lost they met again on the next day, Wednesday, and passed the ordinance by a vote of six to one. I will furnish an exact copy of the minutes showing the above statement to be correct. About three o'clock on Wednesday, the day the ordinance was passed, Mr. Parker called me up by 'phone and asked me if I would step down to his office. I informed him that I was quite busy and would prefer having him come to my office in the city clerk's office. He said he thought it was best for him not to come there, but would meet me at the Hotel Alexandria buffet. I replied that I would meet him there after five o'clock. I left the office about five o'clock and went to the Alexandria buffet and there met Mr. Parker in one of the little cushion places there. He opened the conversation and said, "I suppose you know what I want to see you about?" I answered that "I believe I do," or words to that effect. One of the first questions asked me by Parker was "How MUCH WILL YOU TAKE TO SIGN THAT ORDINANCE RIGHT AWAY?" Or WOrds to that effect. I remember this distinctly because I was surprised that THE STORY OF THE HARBOR FIGHT 277 he would make such a statement. After which he said, "I CAN GET YOU A THOUSAND DOLLARS IF YOU SIGN THAT ORDINANCE TO-DAY AND TAKE IT TO SuMMERLAND." My answer was that "I did not want any of that kind of money." He also made the statement that MONEY WAS BEING SPENT AND I MIGHT AS WELL GET SOME OF IT. He said that my power was not executive, that my duty was simply ministerial, and that I might as well get the money and sign it and get it out of my hands as quickly as possible. I said that I was going to hold it until Mayor McAleer came back. He said that it didn't make any difference to him, that I was overlooking a chance to get some of the money, or words to that effect; whereupon I returned to the office. At the time Parker and I had the conversation in the Alexandria buffet he told me that he had found out that this was for Mr. Huntington. He made this last statement as to his having found out that it was for the Huntington interests in connection with his statement that money was being used. Various other people called me up, some before this conversation with Mr. Parker, and some after, but no officials, and urged me to sign it and get it out of my hands quick, or words to that effect. I went back to my office and stayed there until about 6:30 o'clock. In the mean time I had several calls, and I went home and stayed at home until about 8:15 o'clock, when I left home to keep from being further disturbed. Wednesday, about four o'clock, Charley McKeag was the man that sent a telegram at my request to McAleer, who was then out of the city, to return as quickly as possible. I kept the ordinance in my safe until Mayor McAleer returned. After McAleer's return, then, to get it to the mayor, I, of course, certified it, so that he might sign it or veto it. No previous legal notice of any kind was given to the public of the intention to pass this ordinance, and no competitive bids were asked for. (Seal) (Signed) H. J. LELANDE. Subscribed and sworn to before me this 22d day of November, 1909. (Signed) GEO. S. WELCH. Notary Public in and for the County of Los Angeles, State of California. On his return, Mayor McAleer vetoed the ordinance in 278 STORIES OF THE GREAT RAILROADS a message so virulent that one of the aldermen moved that the "insult be returned with the rest of it, unread." The intention was to pass the ordinance over his veto, but the people of Los Angeles, whose wrath had been ris- ing from the first news of the steal, were now in a state of dangerous excitement. Among the most orderly and law- abiding of people, they had been wrought out of their usual self-command by the audacity of the franchise grabbers, and if the councilmen had persisted in defying public opin- ion some remarkable scenes might have followed. But the aldermen took fright and abandoned the ordinance. Such is the modern method of the Southern Pacific in politics. And here is its modern method in business : The great steamers Mongolia and Manchuria, of the Pa- cific Mail, in every way magnificent specimens of marine architecture, were built at Newport News for the Atlantic Transport Line, under the belief that Congress would pass the ship subsidy. When this hope failed, the two steamers were sold to the Oregon Short Line, a possession of the Southern Pa- cific Railroad system. That is to say, they were bought with the money of the Oregon Short Line. In point of fact (according to the sworn testimony of a high officer of the company), their purchase stood in the name of Mr. E. H. Harriman, by whom they were leased to the Pacific Mail, and who col- lected from the Pacific Mail their rental, which was $30,000 a month for each steamer. In other words, Mr. Harriman, representing the Standard Oil interests, controlled the Oregon Short Line and also controlled the Pacific Mail. He used his control of the Oregon Short Line to buy the steamers with the Oregon Short Line's money (in his name), and then used his con- THE STORY OF THE HARBOR FIGHT 279 trol of the Pacific Mail to lease the property thus secured for his own benefit. 10 That is the way the thing is done now. For all of it at all times we must pay. To what extent we have already paid may be gathered from a table with which we may well conclude our reflec- tions on this edifying subject. It does not show the total production of the Great Millionaire Mill; probably no human mind could trace, formulate, and accurately state what that production has been. It shows only a part of the wealth that, without return of any kind, we have freely bestowed upon this unparalleled institution. CENTRAL PACIFIC Government land grant, minimum $ 30,000,000 Unearned dividends on stock 34,000,000 Capitalized interest on subsidy bonds 30,700,000 Common stock (representing no investment) 67,275,500 Bonus on bonds 16,819,000 $178,794,500 SOUTHERN PACIFIC Government land grant, minimum $ 40,000,000 Donations by California councils 1,002,000 Mission Bay, donated by the state, estimated value at the time 9,500,000 Capital stock (representing no investment) 160,000,000 Dividends thereon 30,400,000 $240,902,000 SOUTHERN PACIFIC COMPANY OF KENTUCKY Government land grant acquired with Morgan pur- chase $ 13,000,000 Surplus capitalized (see report 1903) 100,081,022 Stock acquired under early leases 76,000,000 $189,081,022 Grand Total $608,777,522 10 See "In the Matter of the Consolidation and Combination of Carriers. Relations between Such Carriers and Community of In- terest therein," etc. Before the Interstate Commerce Commission, at San Francisco, January 29, 30 and 31, 1907. This whole edifying story of the Harriman performance is described in the testimony of R. P. Schwerin at pp. 113, 115, 156, 158, etc. At the New York hearing there were introduced the minutes of the meeting of the Oregon Short Line's Executive Committee of March 26, 1903, at which this deal was ratified. 280 STORIES OF THE GREAT RAILROADS Of this colossal sum only an inconsiderable fraction can be held to represent any kind of investment, and the greater part is to this day drawing interest and dividends from the consuming public. Reflected in the cost of living. CHAPTER XII. THE STORY OF THE LEMON RATE. And now for us, the people, who pay for all this gigantic fortune building, for fraudulent contract and political ma- chine, watered stock and dishonest lease; who paid for all yesterday and pay for it today and will pay for it tomor- row, many times over. Where do we come in? In 1887, Governor Pattison, at the close of the long, patient, judicial inquiry by the Pacific Railroad Commis- sion, of which he was chairman, delivered his opinion that the inflated part of the Central Pacific's capital amounted to a tax of $3,000,000 a year 1 upon the shippers of the country. We have seen the means by which the inflation was achieved, the multifold tricks, swindles, and fraudulent de- vices. This is what such things cost us in 1887 above any fair compensation for any service performed. In the eighteen years from the completing of the Central Pacific to the Commission's report in 1887, the four men of Sacramento had taken from the shippers of the country on this account alone $54,000,000 through the forms of illegitimate toll referred to by Governor Pattison, and above any fair compensation for any service performed. In this total the work of the Contract and Fiance Com- pany as producer of fictitious capital has some place. But we are to remember that, aside from this and from all other sources of sudden wealth in Governor Pattison's cal- 1 Pacific Railroad Commission, Minority Report, p. 146. 281 282 STORIES OF THE GREAT RAILROADS culations, there was ever the staggering accretion of a thou- sand other operations and a thousand extravagances and excesses of power. To the one item of interest-bearing capital that Governor Pattison had in mind we must add many industrious efforts under the names of the Western Development Company, the Pacific Improvement Company, the coal and iron companies, the bridge companies, street railroad companies and countless other aliases and masks behind which these men rode the highways. All these left behind their proportionate share of burden on the public. SQ did the interwoven leases, the money paid to prevent disclosure, the money spent to defeat Mrs. Colton, the money spent in shooting at the settlers of Mussel Slough, the money spent to bribe legislatures and subsidize editors, the money spent to maintain the vast political machine in California, and the money spent to defend the illegal land grants. All this stupendous sum was piled up, aside from Gov- ernor Pattison's total. Every year the interest on it was being paid by the shippers, and Governor Pattison estimated that the small part of this tribute due to the brigandage of the old Central Pacific and the Contract and Finance Com- pany was $3,000,000 a year paid by the shippers. The shippers, of course, merely passed it along, with in- terest, to the consumers. You and me. So there is where we came in twenty-five years ago; to the tune of $3,000,000 a year cast into only a part of the Millionaire Mill. Even then, and even for that small part, the tribute was beyond any justification and wholly arbitrary. If the railroad had been built with a fair degree of hon- esty and had been so managed, or if it had represented only legitimate investment, it could have paid from the begin- ning 6 per cent interest, discharged all its obligations to the government, and saved in eighteen years $54,000,000 to shippers over the Central Pacific alone. THE STORY OF THE LEMON RATE 283 At the same time, the Four of Sacramento would have owned 2,495 miles of railroad absolutely free from debt and every cent of their investment would have been repaid to them. This is not a surmise but a simple mathematical demon- stration. If the enterprise had been fairly honest, the stock- holders would have realized by 1887 for every dollar of their stock $1.07 in dividends, $1.11 from the land sales, and would have had $4 worth of interest in the property; so that in eighteen years each dollar would have yielded $6.18 by the methods of approximate honesty. To the householders of America there would have been saved $54,000,000 of dishonest tolls plus interest and prof- its thereon. Those $54,000,000 were the exact measure of the differ- ence to us between honest and dishonest methods. The profit of dishonest methods for eighteen years was $54,000,- 000, on the Central Pacific alone. Twenty-five years have passed since Governor Pattison reached this conclusion. If the traffic had remained as it was in 1887, and there had been no other tribute exactions, we should have paid so far $129,000,000 in excessive charges because of crooked accounts and fraudulent contracts; on the Central Pacific alone. The traffic has greatly increased; the operations have been repeated, extended, improved, and multiplied; more watered stocks and baseless bonds have been prodigally heaped upon the property, with more corruption, more bills for purchased legislation, more expenses of the California political machine, more payments to Abe Ruef and his kind, more expenses incurred by the W. F. Herrms and their staffs of politicians, more deals, more dishonest leases, more hired editors, more crooked bosses. For all these we are paying year after year, just as we 284 STORIES OF THE GREAT RAILROADS pay for the original Contract and Finance Company crook- edness. So that if Governor Pattison could come back now and repeat his inquiry, he would find the annual charge that in 1887 was $3,000,000 for the Central Pacific alone is now become for the Southern Pacific system a charge many times that sum. If the American householder, puzzling over the 60 per cent increase of his living expenses in fifteen years, wants a solution of his problem, let him for a time contemplate these facts. Let him also remember that they are merely typical of the general railroad condition and need only to be multiplied into the number of "systems" to furnish much of the stupendous sum represented in the augmented cost of living. For in ten years the railroad capitalization of this country, now eighteen and one-half billion dollars, has in- creased seven billion dollars being in effect a National debt, the interest of which is levied upon us as tribute. How do we pay this tribute? Let us see. On January 1, 1909, the transcontinental railroad lines increased the freight rates 18 per cent on east-bound traffic and a little more on west-bound traffic. Conservative authorities in California estimated that this increase of rates meant an increase of $10,000,000 a year in the living expenses of the people of California. California has probably 400,000 families. This means an average increase of $25 a family. Accomplished by merely one increase of rates. By reason of this same increase of rates the market value of Southern Pacific securities rose nearly $100,000,000. By reason of this increase of market values the estate of the late E. H. Harriman, at first appraised at $149,000,000, was found on examination to be worth $220,000,000. Twenty-five dollars taken yearly from each family in California; $71,000,000 piled upon the private fortune at THE STORY OF THE LEMON RATE 285 the other end. From the householder to the vault of the railroad magnate a million pumps pumping dollars. What do you get for this tax laid three times a day upon the living of your household? It is your money, the rail- road company takes it from you and adds it to the great fortunes. What do you get? Let us look into that next. Whoever will consider carefully and impartially the sub- ject of freight rates in America will be drawn to the con- clusion that the so-called science or system of making these rates consists merely of discerning how much can be ex- tracted from any community without inciting it to resis- tance, and from any branch of traffic without destroying it. Simply this and nothing more. Now you will not believe this until I prove it to you, be- cause you have long been accustomed to hear foolish chat- ter about the enormous difficulties of rate making and be- cause, naturally, you have assumed that in making rates there is considered the cost of the service, the amount of investment and the interest thereon, with taxes, insurance, and other expenses, and what would constitute a just and reasonable profit. I think it would be difficult to instance any railroad rate in America made on any such basis. In America railroad rates are made under the pressure of an inexorable necessity created by fictitious capitalization and fraudulent expenditures. The necessity is to wring from every transaction the last obtainable cent. Justice has and can have no place in the consideration. What the traf- fic will bear is the one standard and that means, plainly translated, what the shipper can be forced to pay. At first thought this sounds unfair and partisan. It is neither. It is only a cold statement of facts. It seems unfair because we like to think there is reason in all things. About other things I do not pretend to say, but about rate 286 STORIES OF THE GREAT RAILROADS making I know there is no reason other than the reason I have mentioned. The next time you read any profound observations by one railroad lackey or another on the intri- cate and wonderful science of rate making and the awe with which we should regard it, you might recall some plain facts I shall now give you. They may help to a just esti- mate of the railroad lackey and also cheer your expense ac- count with some delicious humor of a certain kind. Here we go, then, taking at random and merely as sam- ples. On a carload of coffee, San Francisco to New York, 3,240 miles the freight rate is $180. From San Francisco to Phoenix, Arizona, a distance of 900 miles and over the same line, the freight rate for the same car is $240. From Pacific Coast points (San Francisco, Los Angeles, et cetera) to Phoenix, Arizona, the freight rate on sugar is $1 a hundred pounds in carload lots. From the same points to Memphis, Tennessee, about 1,200 miles farther, the freight rate on sugar is 60 cents a hundred pounds. From San Francisco to Cheyenne, Wyoming, 1,270 miles, the rate is 55 cents. California produces most excellent raisins, but the people of the eastern states cannot generally avail themselves of this abundant product because the freight rate to the At- lantic Coast is $1.10 a hundred pounds. Yet, asphaltum is hauled from the Pacific to the Atlantic Coast for only 55 cents a hundred pounds. The raisin traffic will bear $1.10 and the asphaltum traffic will bear only one-half of that. Cotton goes from Dallas, Texas, to China, 7,500 miles, by way of Seattle for $1.35 a hundred pounds. Of the 7,500 miles in this haul 2,500 are by rail. For hauling the same cotton from Dallas to New Orleans, 567 miles, the rate is 60 cents a hundred pounds or nearly one-half the cost of the 7,500 mile haul to China, 2,500 miles of which are by rail. THE STORY OF THE LEMON RATE 287 Not long ago an American captain was in Hankow, China, loading pig iron for Los Angeles. The Chinese merchant with whom he dealt, being both intelligent and curious, desired to know what was the cost of carrying iron so far. The captain said the freight rate was $6 a ton. "How much of that does the steamer get?" asked the merchant. "Four dollars a ton." "Then the iron must travel a long distance by railroad," said the merchant. "No," said the captain, "a very short distance only twenty-two miles from San Pedro harbor to Los Angeles." "Show it to me on your map," said the merchant, exuding incredulity. The map was produced and the merchant studied it care- fully, following with his finger the steamer's route from Hankow down the river 700 miles to the ocean, then across 5,000 miles of ocean to San Pedro. With this he compared the almost imperceptible distance from San Pedro to Los Angeles. His conclusion was that the captain was lying; the thing was manifestly impossible. Waybills and receipts made no impression upon him. Either the captain was a monstrous and malicious liar, or the American people were crazy. Politeness and probability forbade him to accuse an entire nation of lunacy ; hence the fault lay with the captain. But the captain was not lying; he was telling the truth. The traffic between Los Angeles and San Pedro, the harbor of Los Angeles, is indispensable; therefore it can bear a great deal. You can ship some kinds of freight from an American port to a European port and back for the cost of moving the same freight from a ship in San Pedro harfror to Los Angeles, twenty-two miles. The freight rate on iron from San Pedro to Los Angeles is $2 a ton; on other commodities it ranges from $2.20 to $3 a ton. In addition, there is a wharfage charge of 50 cents a ton. Well I told you. 288 STORIES OF THE GREAT RAILROADS You see, the traffic will bear these charges; hence they are levied. There is no other reason for them nor for any other charges that the Southern Pacific makes any- where. It gouges and grabs what it can because it needs every obtainable cent to pay the interest and dividends on the securities piled up by the Contract and Finance Com- pany and all the other historic devices the nature of which I have explained in the foregoing chapters. The Los An- geles merchants must have their freight from San Pedro. There is no other way to obtain it. Hence the traffic will bear these charges, which are promptly passed to the people. How long the people will bear them I have no skill to predict. San Pedro is the harbor of Los Angeles and within the city limits. San Diego is 126 miles from Los Angeles. The rates from Los Angeles to San Diego are about the same as the rates from one end of Los Angeles to the other. The San Diego traffic will not bear quite so much as the Los Angeles traffic. On some kinds of freight, and including wharfage, the rate is $3.50 a ton from a ship in San Pedro harbor twenty- two miles across Los Angeles, and it is $7.50 a ton from Antwerp to San Pedro 16,000 miles or thereabouts. The present railroad freight rates from Sacramento, Cali- fornia, to Reno, Nevada, are higher than the freight rates in the old days of mining, before the railroad was built, when all freight must be dragged over the mountains by mule and ox teams. 2 This, I suppose, is one of the "bene- fits" conferred by the Big Four upon the country. You can ship certain kinds of freight from Liverpool to San Francisco by way of New Orleans for no more than 2 Before the Interstate Commerce Commission. Traffic Bureau of the Merchants Exchange versus Southern Pacific Company et al. Docket No. 2839. Brief for complaint, pp. 100-18. THE STORY OF THE LEMON RATE 289 you must pay on the same freight if your shipment orig- inates at New Orleans instead of Liverpool. 3 Does not all this seem strange? Yet, the Southern Pacific, it must be confessed, has no monopoly of such monstrosities. At the mines in West Virginia soft coal is worth $1 a ton. When it has been transported to the city of Wash- ington, 400 miles, it sells for $3.50 a ton. At Scranton, Pennsylvania, a car is loaded with anthracite coal worth less than $2 a ton. The next morning it is in New York and worth $6 a ton. Apparently, the cost of transporting ceal 100 miles is greater than the cost of mining it. In California coal is now so dear that for the poor it must seem like a luxury ; and yet there are in the mountains in Colorado, New Mexico, and Utah, and in the North Pa- cific states, great coal deposits that might afford a cheap supply if reasonable freight rates could be had. As they cannot, coal is regularly brought to San Francisco from Australia. Every person that consumes anything contributes to the freight rates, and everywhere these rates are made in this arbitrary and extortionate manner. The natural course of trade is continually being distorted, blockaded, and bedev- iled to give more profits to the railroads, to provide them with longer hauls, or a chance for bigger rates. Commu- nities are not allowed to trade where they can find the best terms, but only where they will yield the best pickings for the railroads. A town*forty miles from St. Paul and 400 miles from Chicago was compelled to go to Chicago for its supplies because the railroads made the rates from Chicago to that town, 400 miles, equal to or less than the rates from St. Paul to that town, forty miles. There is an impression adroitly spread by railroad press 1 See 162 U. S., 197. 290 STORIES OF THE GREAT RAILROADS agents and railroad newspapers that all these conditions have passed away and the railroads have reformed their practices. As a matter of fact, there has been no essential change. The unjust rates continue year in and year out to collect our tolls. Some of the least defensible of these extortions are prac- ticed in California and help materially to gather the means for the dividends and interest on the securities we have been considering. For example, I call attention to extracts from the South- ern Pacific's freight tariffs showing rates from San Fran- cisco and from Los Angeles. If you are unfamiliar with railroad rates, I may be allowed to explain that the prac- tice is to charge less for freight in carload lots than for freight in smaller quantities. This occasions the division into rates for carload and rates for less than carload. Bear- ing this in mind, study the table on the next page. I will now recite for your entertainment a little chapter of history showing that these abuses are not only flagrant and intolerable but firmly rooted. C. P. Huntington died in 1900. At that time one of the American railroad executives most talked about for sagacity, energy, skill, knowledge, and results was Mr. Charles M. Hays. Mr. Hays was selected to take the place of Mr. Hunting- ton as head of the great Southern Pacific system. He re- mained less than a year when, to the amazement of the rail- road world, he suddenly resigned. Everybody knew there must have been some trouble and all railroad men knew that the trouble was not with Mr. Hays. Almost at once he was snapped up by the Grand Trunk, of which vast and extending system he is now the chief commander. THE STORY OF THE LEMON RATE 291 00 VOOO 00 \oo ss s s SS o oio o o s oo o t OIO OMO Class C Rate per Ton %* NO* \OiO VOIO vovo 10 10 VOVO VOVO txrt VO^J- txin vO^t W Class B Rate ffi H per Ton OvCM CTWO 00 tx txO Ovtx IX 100 txO OVO CvTl- OCM SS ^ 1 ft- tx, 10 tx.10 txvo votx VOVO txtx votx * tXLO 00 VO txin i i EH J Class A Rate 010 oio VOCM 00 0-5 OIO 00 O 2 OIO 0>0 voS 0. oio 00 O VOVC c^ W W u per Ton tx 00 00 C7v 00 00 rOO rr>o VO 00 ^o 1< V* W 5th Class Rate 00 00 ro o o CM ON 00 CM 00 00 00 00 8 go 00 ?g 00 w W per Ton 000 S 00\ OOv ON- ss 2~ tx ooo ^2 000 3 Is 4th Class Rate VOIO voio voio vovo V0lx VO* tx,tx \2vO vo'4 V00 tx,\o VOIO 1 o vt- K O 3d Class Rate M a u a per 100 Ibs. & ^ < 1 w 2d Class Rate per 100 Ibs. \OOO txCM KS CM 00 txvo ss 00 tx votx OVOV ge tx vo^ txtx VOOO txin 1 3 O * 3 1st Class Rate per 100 Ibs. Ov^ Otx 00 VO ,00. VOJO 00 00 ON Z2 0000 vou, oio ooio txvo .0 M s u & B fe Miles