"Before introducing a friend to a distinguished stranger, it is
advisable to give him some account of the person whose acquaintance he
is about to make; and so, fellow-traveler, whom I introduce to the New
York and Erie Railroad, it may be well to prefix here a brief sketch of
the history and present condition of this, the Lion of Railways. True,
he is yet in an unfinished state, but you will find that what there
is of him is complete, and of wondrous organization and activity. His
magnificent head and front repose in grandeur on the shores of the
Hudson; his iron lungs puff vigorously among the Highland fastnesses of
Rockland; his capacious maw fares sumptuously on the dairies of Orange
and the game and cattle of Broome; his lumbar region is built upon
the timber of Chemung, and the tuft of his royal extremity floats
triumphantly on the waters of Lake Erie."
This exultant, characteristically American, description appeared in
Harper's "Guide-Book of the New York and Erie Railroad", published in
1851, soon after the opening of the main line of more than four hundred
and sixty miles from Piermont on the Hudson to Dunkirk on Lake Erie.
That this railroad, which after nearly twenty years of struggle and
of financial vicissitudes had finally linked the Great Lakes with the
Atlantic coast, was looked upon as a property of wonderful character
and limitless future is indicated in all the railroad literature of that
time. Appleton's "Illustrated Handbook of American Travel", published
in 1857, devotes several pages to a description of this remarkable
achievement in railroad extension and among other things says:
"This great route claims a special admiration for the grandeur of the
enterprise which conceived and executed it, for the vast contribution it
has made to the facilities of travel, and for the multiplied and
various landscape beauties which it has made so readily and pleasantly
accessible. It traverses the southern portion of the Empire State in
its entire length from east to west, passing through countless towns and
villages, over many rivers, through rugged mountain passes now, and anon
amidst broad and fertile valleys and plains. In addition it has many
branches, connecting its stations with other routes in all directions,
and opening new stores of pictorial pleasures.... An interesting feature
of this road is its own telegraph, which runs by the side of the road
and has its operator in nearly every station house. This telegraph has
a double wire, enabling the company to transact the public, as well
as their own private business. Daily trains leave for the west on this
route, with connections by boat from the foot of Duane Street, morning,
noon, and night."
The Erie Railroad system was foreshadowed in the time of Queen Anne,
when the Colony of New York appropriated the sum of five hundred dollars
to John Smith and other persons for the purpose of constructing a public
road connecting the port of New York with the West in the vicinity of
the Great Lakes. The appropriation was coupled with the condition that
within two years the beneficiaries should have constructed a road wide
enough for two carriages to pass, from Nyack on the Hudson River to
Sterling Iron Works, a distance of about thirty miles; and that they
should cut away the limbs of trees over the track in order to allow the
carriages to pass. In this way began the internal improvement system
of the State of New York, which after the lapse of more than a century
resulted in opening the Erie Canal and in projecting a railroad system
connecting New York and the valley of the Hudson with Lake Erie.
After the opening of the Erie Canal in 1825, the Legislature of New York
directed a survey of a state road which was to be constructed at public
expense through the southern tier of counties from the Hudson River to
Lake Erie. The unfavorable profile exhibited in the survey apparently
caused the project to be abandoned. But the idea still held sway over
the minds of many people; and the great benefits brought to the Mohawk
Valley and surrounding country by the Erie Canal led the southern
counties to demand a transportation route which would work similar
wonders in that region. This growing sentiment finally persuaded the
Legislature to charter in April, 1832, the New York and Erie Railroad
Company, and to give it authority to construct a line and to regulate
its own charges for transportation.
During the following summer a survey of the route was made by Colonel De
Witt Clinton, Jr., and in 1834 a second survey was made of the whole of
the proposed route. When the probable cost was estimated, many opponents
arose who declaimed the undertaking was "chimerical, impractical, and
useless." The road, they declared, could never be built and, if built,
would never be used; the southern counties were mountainous, sterile,
and worthless, and afforded no products requiring a market; and, in any
case, these counties should find their natural outlet in the valley of
the Mohawk. This antagonism was successfully opposed, however, and the
construction of the road was begun in 1836.
The panic of 1837 interfered with the work, but in 1838 the state
Legislature came forward with a construction loan of three million
dollars, and the first section of line, extending from Piermont on the
Hudson to Goshen, was put into operation in September, 1841. In the
following year the company became financially embarrassed and was placed
in the hands of receivers. This catastrophe delayed further progress for
years, and it was not until 1846 that sufficient new capital was raised
to go on with the work. The original estimate of the cost for building
the entire line of 485 miles had been three million dollars, but already
the road had cost over six millions and only a small portion had been
finished. The final estimate now rose to fifteen millions, and, although
some money was raised from time to time and new sections were built,
there was no certainty that the entire road would ever be completed.
Ultimately the State of New York canceled its claim against the
property, new subscriptions of some millions were secured, and more
money was raised by mortgaging the finished sections.
Finally, in 1851, after eighteen years of effort, the line was opened to
Lake Erie. In addition there had been added various feeders or branches,
giving the road an entry into Scranton, Pennsylvania, and into Geneva
and Buffalo, New York. It had its terminus on Lake Erie at Dunkirk
and its eastern terminus at Piermont, near Nyack on the Hudson, about
twenty-five miles by boat from New York City.
The financial condition of the Erie at this time manifested the
beginning of that general policy of improvidence and recklessness
which afterward, for nearly a generation and a half, made the company
a speculative football in some of the most disreputable games of Wall
Street stock-jobbers. For though the original estimate had been three
millions and the highest estimate of the cost during construction had
been fifteen million dollars, the company, in 1851, started its career
with capital obligations of no less than twenty-six millions--a very
large sum for those days.
The fact that these initial obligations constituted a heavy burden
became apparent when the Erie began operations. They made necessary such
high freight rates that shippers held indignation meetings and again and
again made appeals for legislative relief. Although much money had been
raised after 1849 for improvements, the condition of the Erie steadily
grew worse. It soon became notorious for many accidents due to
carelessness in running trains and to the breaking of the brittle iron
rails.
But in spite of these drawbacks the business of the Erie grew. In 1852
it acquired the Ramapo and Paterson and the Paterson and Hudson River
railroads and in this way it obtained a more direct connection with New
York City. It changed the tracks of its new railroads to the six-foot
gage, which the Erie had adopted from the start and which it persisted
in maintaining for many years despite the world-wide practice of
establishing a standard width of four feet eight and one-half inches.
The most conspicuous figure in the history of the Erie Railroad system
in these early days was Daniel Drew. From 1851, when the main line was
opened, until 1868, this man was a director and, for the larger part of
the time, treasurer. Born in 1797, he had driven cattle when a boy from
his native town of Carmel in Putnam County to the New York City market
and, for some years later, he had been proprietor of the Bull's Head
Tavern. Shrewd, unscrupulous, illiterate, good-natured, and sometimes
generous, he was in many ways unlike his great adversary in the railroad
world, Commodore Vanderbilt. Drew affected a pious and sanctimonious
attitude in all his dealings, while Vanderbilt had a more frank and open
nature and usually made no pretensions to righteousness.
For many years following 1851, Drew, who owned or controlled nearly
one-half the stock of the Erie, appeared to think that his office of
treasurer carried with it the right to manipulate the stock of the
road at any time it might help his pocketbook to do so. He frequently
advanced money which the road could not obtain elsewhere, always taking
full security and excessive commissions. This practice gave him the
name of "speculative director," and by the time his great contests
with Commodore Vanderbilt broke out, he was reputed to be worth many
millions, most of which he had acquired by juggling in Wall Street with
Erie securities.
The entire period in the affairs of the Erie system from the ascendancy
of Daniel Drew in 1851 to the end of the Civil War witnessed an endless
succession of stock-market exploits both large and small. In the
spring of 1866, however, Drew found an opportunity to achieve a real
masterpiece in manipulation. The stock of the Erie road was then selling
at about 95 and the company was in pressing need of funds. The treasurer
came to the rescue as usual and made the necessary advances on adequate
security. The company had in its treasury a considerable amount of
unissued stock and had also the legal right to issue bonds to the extent
of $3,000,000 which could be converted into stock. Drew took these bonds
and the unissued stock as security for a loan of $3,500,000.
It so happened, naturally, that Drew was soon heavily short of Erie
stock in Wall Street. The market was buoyant; speculation was rampant;
and the outside public, the delight and prey of Wall Street gamblers,
were as usual drawn in by the fascination of acquiring wealth without
labor. All this time our friend, Daniel Drew, was quietly selling Erie
stock and closing contracts for the future delivery of the certificates;
and he was doing this at rising prices. As the days went by, his grave,
desponding manner grew more and more apparent. Erie stock continued to
rise. In the loan market its scarcity became greater hour by hour.
The rumor began to spread that "Uncle Daniel" was cornered. His large
obligations for future delivery must be met. Where was the Erie stock
to come from? The stock continued to soar, and Treasurer Drew seemed to
become more and more depressed.
Then the blow fell. Drew laid his hands on the collateral which he held
for his loan to the Erie. In the twinkling of an eye his $3,000,000 in
Erie bonds was converted into Erie stock, which he proceeded to dump
in Wall Street. Erie quotations fell from 90 to 50. Every one at
last realized the trap--but not before Daniel Drew had pocketed a few
millions in profits.
By this time Drew had come to be looked upon as a stock operator to be
both admired and feared, and this incident took its place in Wall
Street history as a brilliant coup side by side with Vanderbilt's Harlem
Railroad and other celebrated exploits. It was soon followed, however,
by much more sensational events. We have seen that the portentous figure
of Vanderbilt was just at this time looming up in the railroad world,
and Vanderbilt had his own theory of the management and financing of
railroads. It was inevitable that he should clash with Drew. He was a
few years older than Drew, and the two men, as we have seen, had much
in common. Both were well on in life before they had transferred their
activities to steam railroads. When finally, in 1868, they crossed
swords in connection with the two railroad systems extending through
New York State, both were more than seventy years old and had been
successful in the acquisition of millions by methods of their own
invention. They were no doubt equally unscrupulous, but, while Drew
was by nature a pessimist and "bearish," Vanderbilt, in the Wall Street
vernacular, was always a "bull."
Having obtained control of the New York Central, the Hudson River, and
the Harlem railroads, Commodore Vanderbilt now decided in the summer of
1867 to go after the Erie, of which Drew was nominally in possession,
although no one knew when he owned a majority of the stock or when he
was temporarily short of it. Usually he loaded up as the annual election
of officers approached and liquidated shortly thereafter. Besides
Vanderbilt there was another interest at this time trying for the
control of the Erie. This interest consisted of certain Wall Street
speculators and certain Boston capitalists who proclaimed themselves
railroad reformers. These so-called reformers were as unscrupulous and
crafty as either of the other men, and they really represented nothing
but an attempt to raid the Erie treasury in the interest of a bankrupt
New England corporation known as the Boston, Hartford and Erie Railroad.
As was well said, the name of this latter road was "synonymous with
bankruptcy, litigation, fraud, and failure."
The Erie Railroad control was always nominally for sale, and, as the
annual election approached, a majority of stockholders stood ready to
sell their votes to the highest bidder. Commodore Vanderbilt cleverly
secured the cooperation of the "reformer" element, corralling their
proxies, and thus he appeared to be in a position to oust the Drew
interests without difficulty. On the Sunday preceding the election the
Commodore saw Drew and amicably explained to him the trap he had laid,
and showed him clearly that there was no way out of the situation. Upon
this disclosure, Treasurer Drew at once faced about and agreed to join
hands with Vanderbilt in giving the market for the stock the strong
upward twist it had lacked before that hour. Jointly they would make so
much money that neither side would lose anything. "Uncle Daniel" went
away apparently satisfied and contented with the compromise.
But the Commodore had not finished. A few hours later he took the
Boston adventurers into his confidence and explained that he proposed
to continue Drew in the directorate. The Boston men were puzzled and
confused by this sudden change of front. Later, all parties met
at Drew's house, and Vanderbilt brought the Boston men to terms by
proposing a plan to Drew whereby they would be entirely left out. This
ruse succeeded and a written agreement to the advantage of all, but at
the expense of the outside stockholders and of the general public, was
then drawn up.
This, however, was only the beginning of the fight. Vanderbilt was now
in the Erie as a joint owner, but he had stretched out his hands to
control the road and he meant to succeed. In February of 1868, Frank
Work, the single representative of Vanderbilt on the Erie board, applied
for an injunction against Treasurer Drew and his brother directors
to restrain them from the repayment of the $3,500,000 borrowed by the
railroad from Drew in 1866, and to restrain Drew from taking any legal
steps toward compelling a settlement. Judge Barnard granted a temporary
injunction, and two days later Vanderbilt's attorney petitioned for the
removal from office of Treasurer Drew. The papers presented in the case
exposed a new fountain of Erie stock which had up to that time been
entirely overlooked.
A recently enacted law of the State of New York--probably fathered by
Drew--authorized any railroad company to create and issue its own stock
in exchange for the stock of any other railroad under lease to it. Upon
the basis of this law Drew and his close satellites had secretly secured
ownership of a worthless piece of road connecting with the Erie and
known as the Buffalo, Bradford and Pittsburgh. Then, as their personal
needs in the stock-market or at elections demanded, they had supplied
themselves with new Erie stock by leasing the worthless road to the Erie
and then exchanging Erie stock for the worthless stock of the leased
line. The cost of the line to Drew and his friends, as financiers, was
about $250,000. They then issued, as proprietors, $2,000,000 in bonds
of the road, payable to one of themselves as trustee. This person then
shifted his character, became counsel for both sides, and drew up a
contract leasing the line to the Erie for 499 years, the Erie agreeing
to guarantee the bonds in consideration. These men then reappeared as
directors of the Erie and ratified the lease. After that it was a simple
matter to divide the loot. The Erie was thus saddled with a $2,000,000
mortgage at seven per cent in addition to a further issue of capital
stock.
Following the first injunction another was now issued restraining
Drew and the Erie board from making any further issues of stock, by
conversion of bonds or otherwise, and also forbidding the Erie to
guarantee any further issues of bonds. An additional injunction forbade
Drew from having any transactions in Erie stock or fulfilling any
contracts until he had returned to the treasury the shares involved
in his loan transaction of 1866 and in the purchase of the worthless
Buffalo, Bradford and Pittsburgh road.
Matters now looked forbidding for Treasurer Drew. Instead of being
allowed to manufacture fresh Erie stock certificates at his own will, as
had been his habit for fifteen years, he was to be cornered by a legal
writ and forced to work his own ruin. But notwithstanding the apparently
desperate situation it was quite evident that Drew's nerves were not
seriously affected. Although he seemed rushing on destruction, he
continued day after day to put out more short stock, all in the face of
a steadily rising market. His plans, apparently, were carefully matured,
and he said that if the Commodore wanted the stock of his road he would
let him have all he desired--at the proper price.
As usual the Erie treasury was short of funds, and as usual "Uncle
Daniel" stood ready to advance all the money required--that is, on
proper security. There was but one kind of security to offer and that
was convertible bonds. No stock could be issued by the company for less
than par, but convertible bonds could be disposed of by the directors
at any price. A secret meeting of the executive committee was held,
at which it was voted to issue immediately and to offer for sale
$10,000,000 in convertible bonds at 72 1/2. Drew's broker at once became
the purchaser of $5,000,000 worth. In ten minutes after the meeting
had adjourned, the bonds had been issued, their conversion into stock
demanded and made, and certificates for 50,000 shares of stock deposited
in a broker's safe, subject to Drew's order.
A few days later came the injunction, and Erie stock began to soar
in the markets, in response to which "Uncle Daniel," who had been
industriously selling his many thousands of new shares, now determined
to bring up the reserves and let the eager buyers have the other five
millions; but before the bonds could be converted the injunction had
been served. The date for the return of the writ was Tuesday the 10th
of March; but the Erie ring needed less time than this and decided on
Monday the 9th as the day to defeat the corner.
Saturday and Sunday were busy days for Drew and his friends. All his
brokers had been enjoined, so a dummy was made the nominal purchaser of
the bonds. This dummy then made his formal demand for the conversion of
the bonds and was refused. All this was done upon affidavit, as it was
the plan of Drew to get from some judge a writ of mandamus to compel
the Erie Railroad to convert the bonds. The stock certificates for
which they were to be exchanged were signed in blank and made ready for
delivery.
Drew had agreed to sell 50,000 shares of stock at 80 to the firms of
which Jay Gould and James Fisk, Jr., were members; they were also Erie
directors. On Monday morning, the 9th of March, the certificates, filled
out in the names of these firms, were handed by the secretary to an
employee who was directed to carry them from the office of the company
in West Street to the transfer clerk in Pine Street. The messenger
left, but in a moment or two returned to report to the apparently
amazed secretary that Fisk had met him outside the door, had taken the
certificates away from him, and "had run away with them." It was true.
The stock certificates had been "stolen" and were beyond the control
of an injunction. The stock certificates next appeared in every part of
Wall Street.
On the same day the Erie representatives applied to Judge Gilbert of
Brooklyn for an injunction on the ground that certain persons, including
Judge Barnard, had entered into a conspiracy to speculate in Erie stock
and to use the process of the courts to aid the speculation. To the
amazement of everybody, Judge Gilbert issued an injunction restraining
all parties to all the other suits from further proceedings; in one
paragraph ordering the Erie directors to continue in the discharge of
their duties--in direct defiance of the injunction of one judge--and in
the next paragraph forbidding the directors to desist in the conversion
of bonds--in direct defiance of another judge. The Drew interests were
now enjoined in every direction. One judge had forbidden them to move,
and another judge had ordered them not to stand still.
It was a strategic position which Drew and his agents could not have
improved upon, and while matters stood this way the 50,000 shares of
Erie stock had been flung on the market. Vanderbilt, who was ignorant of
this situation, bought the new stock as eagerly as the old. Then, when
the facts came out, the quotations dropped with a thud. Uncle Daniel was
victorious; the attempted corner had been a failure; and the Commodore
was holding the bag.
Further dramatic events followed. The Erie directors learned that
process for contempt had been issued and that their only chance of
escape from jail lay in immediate flight. So, stuffing all that was
worth while of the Erie Railroad into their pockets, they made off under
cover of darkness to Jersey City. One man carried with him in a hackney
coach over $6,000,000 in greenbacks. Two of the directors lingered and
were arrested; but a majority collected at the Erie station in Jersey
City and there, free from interference, went on with the transaction of
business. Without disturbance they were able to count their expenses and
divide the profits.
Vanderbilt was now loaded up with reams of Erie stock at high costs,
and the load was a severe strain on him. He dared not sell for fear of
causing a financial collapse. Drew had taken away about seven million
dollars of his money and an artificial stringency had been created in
Wall Street by this exodus of most of its available cash. But Vanderbilt
weathered the storm and, as his generally optimistic attitude inspired
confidence, the sky began to clear.
But this stock-market battle did not end the war. New injunctions flew
in all directions. Osgood, son-in-law of Vanderbilt, was appointed
receiver of the 100,000 shares of illegally issued stock and was
immediately enjoined from acting by another judge. Then Peter B.
Sweeney, of the Tammany ring, was appointed in his stead without notice
to the other side. There was nothing for a receiver to do, as every
dollar he was to "receive" was known to be in New Jersey and beyond his
reach. Nevertheless he was subsequently allowed a fee of $150,000 by
Judge Barnard for his services!
While the legal battle was going on neither Drew nor Vanderbilt was
idle. A plot was arranged for bringing the Erie directors over by force,
but this failed. In the meanwhile the Erie directors persuaded the New
Jersey Legislature to rush through a bill making the Erie Railway a New
Jersey corporation. This move, however, was intended merely to meet an
emergency. It was the intention of the Erie interests to do their real
work with the Legislature at Albany. This was also the intention of the
Vanderbilt interests. Consequently, during the subsequent session, the
grafters in that body were wooed by both sides. When the Legislature
convened, a bill was promptly introduced making legal the recent
issue of Erie stock, regulating the power to issue convertible bonds,
providing for the guaranty of the bonds of the Boston, Hartford and
Erie, and forbidding the consolidation of the Central and the Erie under
the control of Cornelius Vanderbilt. But evidently the Commodore's purse
was open wider than "Uncle Daniel's," for this bill was defeated by a
decisive vote.
Now Jay Gould appeared upon the scene. He left Jersey City with half
a million of the Erie's money in his pocket and arrived in Albany
immediately after the defeat of this bill. On his arrival he was
arrested on a writ issued against him for contempt of court and was held
in bail of half a million dollars for his appearance in New York a few
days later. He appeared before Judge Barnard in New York and was put
in the charge of a sheriff. But the sheriff was served with a writ of
habeas corpus, and Gould was again brought before the court. Then in
some mysterious way the hearing was deferred and Gould returned to
Albany, taking the officer as a traveling companion.
After reaching his destination Gould became so ill that he could not
return to New York, though he managed to go to the Capitol in a driving
snowstorm. Here he became rapidly convalescent, as did also many members
of the Legislature. Members, indeed, who had been too sick or too feeble
to attend the legislative sessions during this cold winter suddenly
found their health returning and flocked to Albany on the fastest
trains. Gould stayed in Albany until April, and by this time a
remarkable change had come over the mentality of a majority of the
legislators. On the 13th of April a bill was presented in the Senate
which met the approval of the Erie interests and which Judge Barnard
afterwards designated as a bill for legalizing counterfeit money. This
bill, which was passed after due debate, legalized the issues of Erie
bonds and stocks which had been put out by Drew; it provided for the
guaranty of the bonds of connecting roads as desired by Drew; and it
forbade all possible contracts for consolidation or division of receipts
between the Erie and the Vanderbilt roads, a provision also desired by
Drew. In fact it was the same bill in different form that had been voted
down so decisively a short time before.
But the real tug of war was to get the bill through the lower House.
Fabulous stories were told of money which would be expended and the
market quotations for votes never soared so high. Then, at the critical
moment, Vanderbilt surrendered, made a secret deal with his foe, and
withdrew his opposition to the bill. The anger of the disappointed
grafters and vote-sellers knew no bounds, and they immediately set
to work passing other bills which they felt would annoy or injure
Vanderbilt, with the hope that he would still be induced to give them
what they regarded as their rightful spoils.
The details of this settlement between Drew and Vanderbilt were not
announced until some months afterward. By the terms agreed on Vanderbilt
was relieved of 50,000 shares of Erie stock at 70, payable partly in
cash and partly in bonds guaranteed by the Erie, and received $1,000,000
in cash for an option given the Erie Railroad to purchase his remaining
50,000 shares at 70 within four months, besides about $430,000 to
compensate his friends who had worked so heroically for him. This total
sum of nearly $5,000,000 no doubt represented part of the "slush fund"
which Drew expected that the company would have to give up to the
venal legislators, and it was therefore no hardship to hand it over to
Vanderbilt instead.
As a part of the general settlement the Boston interests were relieved
of their $5,000,000 of largely worthless bonds of the Boston,
Hartford and Erie Railroad, for which they received $4,000,000 of Erie
securities. Thus in all about $9,000,000 in cash or securities was drawn
out of the Erie treasury in final settlement of this great stock-market
manipulation. And this does not include the pickings of Gould and Fisk
and the smaller fry, of which there is no official record. But that
these gentlemen did not go empty-handed there is not the shadow of a
doubt!
The sensational stock-market deal between the Drew and Vanderbilt
interests was but a truce, however, and did not settle the troubles of
the Erie. Jay Gould was now becoming a dominating factor and in October
of 1868 was chosen president. The various stock-market struggles that
ensued from the ascendency of Jay Gould to the receivership of the Erie
in 1875 is a long and intricate tale. Suffice it to say that the events
were generally similar to those already recounted--stock-market corners,
over-issues of bonds and stocks, injunctions, court orders, arrests,
legislative bribes. Less than a week after his election Jay Gould
frankly announced that the company had just issued $10,000,000 of
convertible bonds and that a third of these had already been converted
into stock. He further announced that the company now had $60,000,000 of
common stock outstanding, whereas the public had understood that it was
only $45,000,000.
During the few years that followed, the poor Erie was systematically
looted. Millions were wasted in New York real-estate speculation, and
the company's money was used in the erection of the Grand Opera House on
Twenty-third Street, to which the executive offices of the Erie Railroad
were moved. Finally the new ring, comprising as leading spirits Jay
Gould and James Fisk, Jr., eliminated Daniel Drew and left him high and
dry without a cent, through a new stock corner. About this time the road
was financially on its last legs, and Jay Gould was appointed receiver.
This started further litigation which dragged on for several years
until, in 1874, Gould was turned out by General Daniel E. Sickles in
combination with the English shareholders. The new interests, when they
finally got control, elected an entirely new management and made H. J.
Jewett, a practical railroad man, president. But the Erie was already
bankrupt, and not much could be done toward saving the situation. In
May, 1875, the road confessed inability to meet its obligations, and
Jewett was appointed receiver.
It was three years from the date of the receivership before the Erie
property was taken out of the hands of the courts. In April, 1878, a
new company, the New York, Lake Erie and Western Railroad, took over
the property; Jewett was elected its president, and a new chapter in the
history of the property began.
Had the reorganization of the Erie been drastic enough, the road might
not so soon have fallen into financial difficulties again, for it owned
valuable coal lands in Eastern Pennsylvania and rapidly increased its
earnings in this region. Moreover the extension of the system westward
should have increased its earning capacity. Up to this time the Erie had
no Chicago connection and was at an obvious disadvantage compared with
its competitors. It improved this situation in 1881 by acquiring the
New York, Pennsylvania and Ohio, and the franchise of the Chicago and
Atlantic Railway. Two years later it obtained control of the Cincinnati,
Hamilton and Dayton and found itself in a position in which it could
compete for through traffic with the Pennsylvania and the New York
Central.
But in carrying through these extensive plans, the Erie again became
involved in financial difficulties; the sensational Grant and Ward
failure in Wall Street in 1884 was a severe blow to the company's
credit, as this firm was at that time doing important financing for the
Erie. The English security holders stepped to the front again, demanded
President Jewett's resignation, and elected John King in his stead.
In 1885 and 1886 a financial readjustment took place, but the company
continued to carry the bulk of the heavy load of obligations which had
been created during the years of the Drew and Gould managements. It was
surely an evidence of the inherent worth of the property that during
the half dozen or more years following, the Erie succeeded in struggling
along in the face of all its financial and other handicaps and at the
same time showed substantial growth in the volume of its business. The
company was kept above water until 1893 without again appealing to the
courts; but by that time the indebtedness had once more mounted, and in
July of that year Erie receivers were appointed for the fourth time in
its history.
The name of Pierpont Morgan is closely identified with the story of the
railroad during this latest reorganization period. Morgan's firm came
to the front in 1894, with the powerful backing of the large English
interests, and proposed a plan which involved heavy sacrifices by many
of the security holders but which was designed to insure the permanent
future of the property. The plan was vigorously opposed, however, by
Edward H. Harriman, August Belmont, and other powerful interests, and it
was not until August, 1896, that a final compromise was effected and a
reorganization was carried through. But at last the Erie was taken out
of receivership, and an entirely new company, intelligently designed and
having ample working capital for future development, was formed with E.
B. Thomas at its head. This new president, like Daniel Willard of
the Baltimore and Ohio and many of the modern railroad leaders, was a
practical railroad man who had worked up from the ranks and who had no
large financial interest or banking connections to divert his attention
from the real business of management. Under Thomas, who remained at the
head of affairs from 1896 to 1900, the Erie made substantial progress.
The system was solidified and its territory was more uniformly and
systematically developed. In 1898, the Erie secured control of the
New York, Susquehanna and Western system, gaining thereby an important
branch to Wilkesbarre; and in 1901 it purchased jointly with the Lehigh
Valley Railroad the stock of the Pennsylvania Coal Company of which
the Erie later became sole owner. The real achievement of the Thomas
administration was the development of the property as a heavy carrier of
anthracite coal. On the financial side during this period the credit of
the House of Morgan, intelligent administration, and modern methods did
much to improve the reputation of the Erie and enable it to live down
its bad inheritance.
In 1901 Frederick D. Underwood succeeded Thomas. Like his predecessor,
Underwood represented the modern type of railroad president--a
hard-working, eminently practical big business manager of great
executive talent. Underwood's idea was to make the Erie a great
freight-carrying system by developing its tonnage and its freight
capacity in every way possible. Consequently he favored opening up the
property more extensively in the soft coal fields of Ohio and Indiana,
reconstructing roadbeds, laying extra tracks, and eliminating grades and
curves.
The history of the Erie Railroad ever since 1901 has been a record of
progress. During these years the system has been practically rebuilt.
It now has a double track from New York to Chicago; it has extensive
mileage in the soft coal regions of Ohio and Indiana, and its soft coal
tonnage today far overtops its tonnage of anthracite coal; its train
load averages far higher than that of the New York Central or of any
other Eastern trunk lines except the Pennsylvania; its steep grades
throughout New York State have been for the most part eliminated, and
many short cuts for freight traffic have been built.
In carrying through these extensive developments in fifteen years the
Erie has spent hundreds of millions of dollars. More money indeed
has been used legitimately for improvement and development since the
reorganization of 1896 than during the previous sixty years of its
existence. Of course this outlay has meant that the Erie has had to
create new mortgages and borrow many millions; but a large part of
the expenditure for improvement has come directly from earnings. The
Underwood administration has been conservative in paying dividends and
the stockholders grumble. But the Erie is at last coming into its own.
Instead of being a speculative football and a hopelessly bankrupt road,
as it was for nearly forty years, it is now in the forefront of the
great trunk lines of the eastern section of the United States. It is no
longer, what it was called for many years, the "scarlet woman of Wall
Street," but is a respectable member of the American railroad family.