It is only when one reads such a book as Francis Parkman's "Oregon
Trail" that one fully realizes the vast transformation which has taken
place within little more than half a century in the great Northwestern
territory beyond the Mississippi and the Missouri. In that fascinating
history we read of the romantic and thrilling experiences of Parkman and
his companions in their summer journey across the plains of Nebraska and
through the mountain ranges of Wyoming, Montana, and Oregon. We read of
their hairbreadth escapes from the Indians; their chase of the buffalo
and other wild animals of the far Western country; of the wearisome
weeks that they spent in crossing the deserts where absolute loneliness
reigned; and finally of their arrival, after months of hardship, in the
vast Oregon country, which with its great natural resources, splendid
climate, and large extent has come to be known in these modern days as
the Empire of the Northwest.
It was to penetrate and bring this great virgin region within reach of
the East that the Northern Pacific Railroad Company was chartered by
Congress in 1864, just prior to the closing of the Civil War. During
this same period the Union Pacific route was being surveyed, and the
first ground was broken in December, 1863, for the line which was later
to connect Omaha with San Francisco.
Like the Union Pacific charter, that of the Northern Pacific also
contained an extensive land grant. From the modern viewpoint, such
land grants look colossal, but in those days the general opening up and
development of the Western country had progressed to so slight an extent
that the significance of giving away millions of acres of the public
lands to encourage a precarious railroad enterprise was then no more
than the passing over to capitalists today of exclusive rights in
extensive tracts of territory in Brazil and the other South American
Republics. Even these great opportunities to acquire almost an empire
of fertile lands or rich forests were not as a rule looked upon as
attractive enough to tempt capital into the wilderness. The old saying
that capital is the most timid thing in the world and does not like
pioneering is strongly emphasized by such instances as this, and no
doubt in 1864 the enormous grants of free land made by Congress did not
appear especially attractive to the man who had money to invest.
Whatever the public attitude may have been, the Act of Congress of July
2, 1864, creating the Northern Pacific Railroad, gave that Company the
right to construct a line from some point on Lake Superior, either in
Minnesota or in Wisconsin, westward and north of latitude 45 degrees,
to or near Portland, Oregon. The land grant consisted of forty alternate
sections of public land for each mile within the Territories penetrated
and twenty alternate sections within the States through which the
railroad might pass.
The hazardous character of this undertaking will be realized when it is
remembered that at this time no railroad had yet penetrated the Rocky
Mountains; that the entire railroad system of the United States was less
than 40,000 miles; and that west of the Mississippi there was no mileage
worth mentioning. It was still less than a generation since Parkman and
his companions had made their four months' journey from St. Louis to
the mouth of the Columbia River, and between the fringe of civilization
along the Pacific slope and the region about Chicago and St. Louis lay
almost a third of the continent uninhabited, undeveloped, and unknown.
The scheme languished for several years until finally, in 1869, the
firm of Jay Cooke and Company of Philadelphia undertook to raise the
necessary capital.
The story of the Northern Pacific for the next few years was closely
bound up with that of Jay Cooke, who was one of the most conspicuous
characters of his time in the financial world. He was a man of
commanding personality, great energy, unusual resourcefulness, and with
a large personal following. He had built his reputation through his
great success in financing United States government loans during the
Civil War. He now undertook to raise more than one hundred million
dollars to carry through the Northern Pacific enterprise. He achieved
remarkable success for a time and within three years had built over five
hundred miles of the main line to the Pacific coast. But the outbreak of
the Franco-Prussian War and the consequent financial stringency abroad,
the difficulty of marketing bonds on an uncompleted enterprise, combined
with the poor showing made by those sections of the line completed and
in operation, brought matters to a crisis, and in September, 1873, Jay
Cooke and Company were obliged to close their doors. The affairs of the
railroad were so closely involved with those of the banking firm that,
although strenuous efforts were adopted to save the railroad, its
revenues were inadequate. As a result, in April, 1874, General Lewis
Cass was appointed receiver.
The uncompleted property was operated for some years thereafter under
the protection of the courts and no plan of reorganization was devised
until 1879. During the receivership only a moderate amount of additional
mileage was constructed, and it was not until many years had passed that
the system penetrated the mountains and reached the Pacific coast. But
when the new company took possession in 1879, aggressive building
was resumed, and for a time it looked as though the project would be
promptly finished. However, in 1882, the company still had about one
thousand miles to construct in order to complete its main artery. At
this time financial difficulties appeared, and the days of stress
were tided over only by the help of a syndicate and the Oregon and
Transcontinental Company.
With the formation of the Oregon and Transcontinental Company begins
the regime of Henry Villard, the dominating factor in Northern Pacific
affairs for many years afterward. Some years before, Villard, who had
long been interested in Western railroad enterprises and who had become
prominent through his activities in connection with the Kansas and
Pacific Railway, had succeeded in forming the Oregon Railway and
Navigation Company as a combination of steamboat lines operating on the
Willamette and Columbia rivers in Oregon, with an ocean line connecting
Portland and San Francisco. A connecting railroad line, which had been
built to Walla Walla in southeastern Washington, penetrated a portion of
the territory through which the Northern Pacific was projected. In 1880
a contract was arranged between the two companies whereby the Oregon
Railway and Navigation Company, in order to share in the traffic,
undertook to construct a line eastward to meet the Northern Pacific
line at the mouth of the Snake River. This arrangement would allow the
Northern Pacific to run its trains into Portland and would obviate the
necessity of constructing its own road into that city.
In spite of this arrangement, Villard feared that the Northern Pacific
Company might decide, after all, to build its own line to Portland as
soon as it was able to finance the project. It was for the purpose of
preventing this move that he formed the Oregon and Transcontinental
Company, a holding corporation which promptly acquired, in the open
market and by private purchases, a dominating interest in the Northern
Pacific Railroad. At the same time Villard placed the control of
the Oregon Railroad and Navigation Company in the hands of the new
Transcontinental.
Villard thus came to control the entire Northern Pacific system and,
backed by the Deutsche Bank of Berlin and other German and Dutch
interests, at once began an aggressive policy of expansion and
development. The business of the system developed rapidly. The main line
through to the Pacific coast was now in operation, and the entire system
amounted to about 2300 miles of road. But Villard followed a financial
policy which was not sound and paid dividends without justification.
In a short time the company consequently found itself financially
embarrassed.
As a result of financial losses in 1884, Villard was obliged to retire
from active control of the properties. But in 1887 he once more got
possession of the Northern Pacific with German capital and succeeded in
arranging a lease of the Oregon Short Line, which had been developed
by the Union Pacific interests, embracing a cross-country road from its
main lines in Wyoming northward into Oregon and Washington. At the same
time the interest of the Transcontinental Company in the Oregon Railway
and Navigation Company was linked with the Oregon Short Line Company.
These transactions, however, still left the Transcontinental Company
in control of the situation, as it retained its majority ownership of
Northern Pacific Railroad stock.
For the next few years the Northern Pacific did not follow a policy
of rapid expansion. Other trunk lines, such as the Union Pacific, Rock
Island, Santa Fe, Burlington, and North Western, were all growing and
keeping pace with the rapid settlement of the West; but the Northern
Pacific in these years simply rested content with its position as a
single track transcontinental route having but few branches. Its
only important extension was made by acquiring the Wisconsin Central
Railroad, which gave the company a line between St. Paul and Chicago and
a valuable and important entrance into the latter city. It was
expected that, with this accession, the affairs of the company would be
permanently established on a sound basis, but the overliberal policy of
paying out practically all the surplus in dividends was continued in the
face of large increases in fixed charges.
Early in 1892 it began to be rumored that the Northern Pacific was not
in so easy a financial position as had been assumed. The stockholders
took alarm; and the committee which was appointed to investigate the
situation discovered a deplorable state of affairs. As a result of the
severe criticism of Villard's policy, steps were at once taken to oust
him from control, but without success until June, 1893. Two months
later, receivers were appointed who discovered that the company
was insolvent and had no funds to pay quickly maturing obligations.
Receivers were appointed also for most of the branch lines, including
the Wisconsin Central system. The Oregon Short Line, which was tied
through guarantees with the Union Pacific although leased to the
Northern Pacific, was involved in the general crash but was later
separately reorganized.
To rehabilitate the Northern Pacific Railroad effectively was a
difficult problem. Its debt was enormous; its roadbed and rolling stock
had been neglected; and, as a result of the recent crash, its valuable
feeders on both east and west, the Wisconsin Central and the Oregon
properties, were removed from its control. Besides these adverse
conditions, competition of a serious nature was looming up. James J.
Hill had for many years been quietly developing the Great Northern
Railway. This great system he had financed in an extremely conservative
manner; he had extended it through territory where construction costs
were low; and he had secured control of branches and feeders which might
have come under the sway of the Northern Pacific had that company been
more farsighted. Hill had operated his road from the beginning at
very low cost; he had kept its credit high; and even in the period
of financial depression he had reported large profits and had paid
substantial dividends on his stock. With such a competitor in the field,
it really looked for a while as though the Northern Pacific could have
no future whatever.
Finally, in May, 1895, a plan sponsored by Edward D. Adams, representing
New York interests and those of the Deutsche Bank of Berlin, proposed a
practical merger with the Great Northern Railroad Company: the old stock
and bondholders were to make all the sacrifices and to supply all the
new capital, and the Great Northern was then to be presented with half
the stock of the new company, in consideration for which it was to
guarantee the new Northern Pacific bonds. The situation was somewhat
similar to that which existed in New York State as early as 1868 when
Commodore Vanderbilt had achieved his great reputation as a wizard at
railroading by acquiring the Harlem and Hudson River railroads and by
forcing the New York Central lines to terms. James J. Hill had become a
modern wizard, and the only hope for the Northern Pacific seemed to be
to lay the road at his feet and ask him to do with it what he had done
with the Great Northern--make it a "gold mine."
This plan, however, met with too much opposition and was abandoned.
During the following year a new plan, backed by both the American and
the German interests, secured the strong cooperation and endorsement of
J. P. Morgan and Company. This was the first instance of Morgan's entry
into railroad reorganization in the West. During the previous few
years he had been increasing his reputation as a reorganizer of Eastern
railroad properties, and by this time he had successfully organized or
was rehabilitating the Erie, the Reading, the Baltimore and Ohio, the
Southern, and the Hocking Valley systems. But he had kept clear of the
far Western field and had definitely refused to reorganize the Union
Pacific on the ground that its territory was too sparsely settled and
that there was little hope for its future, especially as its partial
control by the United States Government made any reorganization
extremely difficult. The new plan for the Northern Pacific was carried
out with no regard to the Hill interests: the old stockholders were
heavily assessed; all bondholders were forced to make sacrifices;
the Wisconsin Central lines were entirely eliminated and separately
reorganized; and the Oregon lines were dissociated from the Northern
Pacific and afterwards returned to the control of the new Union Pacific.
While the new Northern Pacific as reorganized in 1898 came directly
under Morgan's control and was immediately classed as a Morgan property,
it did not remain exclusively such for very long. In the promotion and
development of the Great Northern system, Hill had hitherto maintained
an independent position so far as banking alliances were concerned, but
he now began to develop closer relations with the Morgans and
became heavily interested in the First National Bank of New York,
an institution which for many years had been more or less directly
identified with the Morgan interests. On more than one occasion
thereafter the banking firm of J. P. Morgan and Company acted as
financial agent for the Great Northern.
Soon after the reorganization of the Northern Pacific, it became known
that Hill had acquired an important interest in the property, and as
time went on this interest was substantially increased. Within a year or
two the Northern Pacific began to be classed as one of the Hill lines.
With a substantial Hill representation on the board of directors and a
managerial policy which was clearly inspired by Hill, the company now
entered upon a new stage in its career.
The outstanding dramatic event in the story of the modern Northern
Pacific was the famous corner which occurred in the spring of 1901 as a
result of a contest between the Hill and the Harriman interests for the
control of the property. The details of this operation, which sent the
price of Northern Pacific stock up to $1000 a share and precipitated a
stock-market panic, form part of the story of the Harriman lines. The
contest resulted in the formation of the Northern Securities Company, a
corporation of $400,000,000 capital, devised as a holding company under
the joint control of the Hill and Harriman interests, for the purpose of
retaining a majority of the stocks of the Northern Pacific and the Great
Northern.
The Hill interests, jointly with the Morgan control of the Northern
Pacific, had been quietly accumulating stock in the Chicago, Burlington
and Quincy Railroad, and Harriman felt that there was grave danger to
the Union Pacific in this move, as the Burlington had already penetrated
into the Union Pacific territory and might at any time start to build
through to the coast its own line parallel to the Union Pacific.
Harriman consequently began to buy up Northern Pacific stock in the open
market and thus, together with the efforts of the Hill and Morgan people
to retain and strengthen their control, brought about the corner.
The Northern Securities Company was designed to harmonize all interests
and to keep the control of the Burlington property jointly in the hands
of Harriman and Hill. But as the result of a suit under the Sherman
Anti-Trust Act, this combination was declared illegal, and in 1904 the
company was dissolved. The final outcome of the situation was that the
Northern Pacific, sharing with the Great Northern the joint control
of the Burlington lines, was left indisputably in the hands of the
Hill-Morgan group, where it has ever since remained. These three great
railroad systems, the Northern Pacific, the Great Northern, and the
Chicago, Burlington and Quincy, constituting nearly twenty thousand
miles of railroad, have been known ever since as Hill lines.
Since the dramatic days of the Harriman-Hill contest the history of the
Northern Pacific system has been simply a striking reflection of the
growth in population and wealth of the great Northwest. The States
through which it operates have grown with astounding rapidity during
the past two decades; small cities have spread into great centers of
manufacture and trade; hundreds of smaller towns have sprung up; natural
resources of untold value have been developed. In the meanwhile the
Northern Pacific has forged ahead in its earnings and profits, and the
stock of the road has come to be known as one of the highest class of
investment issues. Although new competition appeared, in both the local
and the through business of the company--notably by the extension of the
St. Paul system largely through Northern Pacific territory to the Puget
Sound region--the superior modern business management of James J. Hill,
backed by the strong resources of the Morgan banking interests, made the
Northern Pacific one of the standard railroad systems of America.