The States which form the northern border of the United States westward
from the Great Lakes to the Pacific coast include an area several times
larger than France and could contain ten Englands and still have room
to spare. The distance from the head of the Great Lakes at Duluth to the
Pacific coast in the State of Washington is greater than the distance
from London to Petrograd or the distance from Paris to Constantinople,
and three times the distance from Washington, D.C., to Chicago.
Fifty years ago these States, with the single exception of Wisconsin,
were practically a wilderness in which only the Indian and buffalo gave
evidences of life and activity. No railroads penetrated the forests
or the mountain ranges. Far southward some progress in the march of
civilization had been made; the Union Pacific had linked the West with
the East before the eighth decade of the century began, and the Northern
Pacific project was being painfully pushed through the intermediate tier
of States during the seventies. But the material resources of the Great
Northwest had still to be discovered.
When the Northern Pacific Railway failed in 1873, the crash involved a
little railroad known as the St. Paul and Pacific, running out of St.
Paul for a couple of hundred miles westward, with a branch to the north
joining the Northern Pacific at Brainerd, Minnesota. The St. Paul and
Pacific had been acquired in the interest of the Northern Pacific some
years earlier but was now regarded as a property so worthless that
its owners would be glad to get rid of it, if only they could find a
purchaser rash enough to take it over.
During the three years following the panic of 1873 the crops of
Minnesota were practically eaten up by the grasshoppers, and poverty
reigned among the farmers. At that time a short, stocky man with long
hair, one blind eye, and the reputation of being the greatest talker
in town, kept a coal and wood store in St. Paul. His name was James J.
Hill. For years he had been a familiar figure, sitting in his old chair
in front of his store and discoursing on current events. This man was
not only an interesting talker; he was a visionary, a dreamer--and
one of his dreams was to buy the St. Paul and Pacific Railroad and to
transform it into a real railway line. Nearly twenty years had passed
since he had drifted in, an eighteen-year-old Scotch-Irish boy from
Ontario, and had begun work in a steamship office on the levee at St.
Paul. Now, in 1876, he was thirty-eight years old and a town character.
And the town felt that it had his measure. He had already tried
a variety of occupations, and at this time was agent for lines of
steamboats on the Mississippi and the Red River. Everybody knew him
and liked him, but no one took him very seriously. The idea of his
controlling the St. Paul and Pacific was even amusing.
Now the most promising part of the St. Paul and Pacific when it failed
in 1873 was the line from St. Paul to Breckenridge on the Red River.
Hill was the Mississippi steamboat agent at one end; at the other, an
old Hudson Bay trader, Norman W. Kittson, ran two little old stern-wheel
steamboats from Breckenridge to Winnipeg. A large part of the freight
that Hill and Kittson handled was for the Hudson's Bay Company. It
came up the Mississippi, went across on the St. Paul and Pacific to
Breckenridge, and then down the Red River on Kittson's steamboats until
it was received at Fort Garry, Winnipeg, by Donald Alexander Smith, then
commissioner for the Hudson's Bay Company.
Smith, who became afterwards Lord Strathcona and High Commissioner for
Canada in England, was a tall, lean, urbane Scotchman with a soft manner
and a long red beard. In 1876 he was fifty-six years old, with a life of
strange, wild adventure behind him. He had gone when little more than a
boy to Labrador to take charge of a station of the Hudson's Bay Company.
Among the northern Indians he stayed for thirteen years. In the sixties
he was practically king over all the savage territory of the company
along the waters entering Hudson Bay. By the seventies he was a man of
means and he had some influence in the new Dominion of Canada.
It would be a great advantage to Smith to have a good railroad from St.
Paul to Winnipeg as the Red River boats were frozen up in the winter
and the service on the St. Paul and Pacific, under the receiver, was
impossible. So Smith listened with favor to Hill's project of getting
hold of the St. Paul and Pacific and making a real railroad out of it.
And whenever Smith went to Montreal he talked the matter over with his
cousin George Stephen--later Lord Mount Stephen--who was the head of
the Bank of Montreal. In 1877 Stephen and Richard B. Angus, the general
manager of the Bank, went to Chicago on business. While there, they had
two weeks' time on their hands, and tossed a penny to decide whether
to run down to St. Louis or up to St. Paul. The penny sent them to St.
Paul. "I am glad of that," said Stephen; "it will give us a chance
to see the prairies and look over that St. Paul and Pacific road that
Donald Smith is always talking about."
When they arrived in St. Paul, James J. Hill took them over the line
to Breckenridge. The country had been scoured by the grasshoppers and
looked like the top of an old rusty stove. But Stephen was a broad-minded
man, wise enough to know that the pest of grasshoppers could not last
forever. He was greatly impressed with the ultimate possibilities of the
soil and, under the hypnotic influence of Hill's eloquence, became quite
enthusiastic over the scheme for getting hold of the railroad; but, as
it would evidently involve millions, he didn't see how it could be done.
The road had originally been financed by bonds sold largely in Holland,
and to do anything at all it was necessary to get in touch with these
Dutch bondholders. In 1877 Stephen went over to Amsterdam and secured an
option on the bonds at thirty cents on the dollar--less than the accrued
interest which was due and unpaid on them. He then came back to America,
conferred with John S. Kennedy at New York, who represented both Dutch
and American bondholders, and brought Kennedy into the combination.
In the spring of 1878 the St. Paul and Pacific was taken over. People
still smiled at Hill and wondered how he had induced a hard-headed bank
president like Stephen to put up the money. Nobody in St. Paul believed
in the future of the road. Even the syndicate's attorneys, when offered
a choice between taking $25,000 in cash or $500,000 of the new road's
stock for their services, preferred the cash. Had they taken the stock
and held it for thirty years, they would have had, in principal and
interest, some $30,000,000.
To the surprise of everybody, including Hill and his friends, the
grasshoppers suddenly disappeared in the early summer of 1877 and never
came back. That summer saw the biggest wheat crop that had ever been
harvested in Minnesota. "Hill's Folly," as it was afterwards called,
with its thirty locomotives and few hundred cars, was feverish with
success. Hill worked every possible source to get extra cars and went
all the way to New York to buy a lot of discarded passenger coaches
from the Harlem Railroad. By the end of the season it was evident to
everybody that the St. Paul and Pacific was going to have a career and
that "Jim" Hill's dream was coming true.
Immediately the fortunate owners began to plan for the future. They had
acquired the road at an initial cost of only $280,000 in cash. In the
following year they advanced money for the completion of the unfinished
section, as necessary to obtain the benefit of a generous grant of land
from the State. Then, in 1879, having acquired full possession of the
property, and having several millions of dollars in profits, they issued
bonds for further developments. This gave them sufficient basis to
enlarge their scheme greatly, and in the formation of the St. Paul,
Minneapolis and Manitoba Railroad, they created $15,000,000 of stock,
which was divided equitably among Hill, Stephen, Angus, Smith, Kennedy,
and Kittson. This stock was all "water," but the railroad prospered so
extraordinarily in the succeeding few years that by 1882 the stock was
worth $140 a share. And in 1883 they issued to themselves $10,000,000
of six per cent bonds for $1,000,000--a further division of $9,000,000,
coming out of nothing but good will, earning power, and future
prospects.
The decade from 1880 to 1890 witnessed a steady growth of the system
formed in 1879 under the name of the St. Paul, Minneapolis and Manitoba.
The 600 odd miles which it embraced when Hill and his coterie made their
big stock division had grown in 1890 to 2775 miles. It then consisted of
a main line reaching from St. Paul and Minneapolis across Minnesota and
the northern part of North Dakota, far into Montana, with a second main
line from Duluth across Minnesota to a junction with the St. Paul line
in North Dakota, besides numerous branches reaching points of importance
in both these States.
But the development of the Hill properties had by no means reached its
limit at this time. Hill's dream had been to construct a through line
across the northern tier of States and Territories to the Pacific, and
this plan had been constantly in his mind while he was building up
the system in Manitoba. The original line running up into Manitoba and
reaching Winnipeg was all very well as a start. It had paid so well that
the original group of men had become millionaires almost overnight. But
Hill meant to show the public that, after all, the early success was
only an incident and merely a stepping-stone to the really great thing.
Practical railroad men everywhere ridiculed the idea of a railroad
running across the far northern country, climbing mountain ranges,
traversing hundreds of streams and extending for great stretches through
absolutely wild and uninhabited regions. Especially did they deem it
absurd to attempt such an undertaking without government aid, subsidies,
or grants of land, pointing to the experience of such roads as the
Union Pacific, Northern Pacific, and Santa Fe. All these had received
financial assistance and large land grants, and yet all had gone through
long periods of financial vicissitude before they had become profitable
and stable enterprises.
But Hill was more farseeing than his critics. In 1889, the name of the
company was changed to the Great Northern Railway, and under this title
the extension to the coast was rapidly carried forward and was opened in
the panic year of 1893. When all the other transcontinental lines
went into bankruptcy, Hill's road not only kept out of the courts but
actually earned and paid annual dividends of five per cent on its stock.
The five years from 1896 to 1901 were years of uninterrupted prosperity
for the Great Northern Railroad. Each year its credit rose; each year
it grew to be more of a force in the Western railway situation. In these
years the control of the property had somewhat changed and a few of the
original promoters had died or had withdrawn. But Hill, Lord Strathcona,
Lord Mount Stephen, and John S. Kennedy of the original group, all held
their large interests, and Hill in particular had added to his holdings
as the years had gone by.
The secret of Hill's striking success with his Western extension was the
method by which the line was constructed. Hill had a theory that it was
far better to go around mountains and avoid grades than to climb them or
to bore through them; it was always better to find the route which would
make long hauls easy and economical. He thus built his road with the
idea of keeping down the operating costs and of showing a larger margin
of profit than the others. From the very start the Great Northern was
noted for its low ratio of operating expenses and its comparatively long
trains and heavy trainloads. It was by this method that it really made
its money.
By the year 1901 the Great Northern Railway absolutely controlled its
own territory. But it was still handicapped by lack of an independent
entrance into Chicago, as its eastern lines terminated at Duluth and
St. Paul. At the western end also, the situation was unsatisfactory.
It seemed important for the Great Northern to control a line of its own
into Portland, Oregon, because the Northern Pacific Railroad, which, as
we have seen, had been reorganized several years before by the
Morgan interests, had been rapidly extending its lines in Oregon and
Washington. Hill and his associates, therefore, had been quietly buying
a substantial interest in the Northern Pacific property and thus, in the
course of time, had come into closer relations with the Morgan group in
New York. Soon afterward, under Hill's influence, the Northern Pacific
began the construction of further extensions in Oregon and reached into
territory that the Harriman interests in the Union Pacific Railroad
had regarded as their own. This move created much friction between the
Harriman and Hill groups, and in order to forestall danger Harriman
in turn began quietly accumulating an interest in the Northern Pacific
property by purchases in the open market.
The story of the battle royal between the Hill and Harriman interests
will be told in a subsequent chapter. It is not necessary to repeat the
history of the famous corner of 1901 nor of the compromise effected by
the formation of the Northern Securities Company. The final result
of this contest was the complete harmonizing of the Western railroad
situation, so far as the Hill and the Harriman interests were concerned.
In the succeeding years the Great Northern system penetrated to the
heart of Manitoba and constructed lines through British Columbia to
Nelson and Vancouver. It built other branches to Spokane, Washington,
and Helena and Butte, Montana. Moreover by the discovery of extensive
ore deposits on the lines of the company in northern Minnesota and by
subsequent purchases of other mines, the Great Northern acquired control
of about sixty-five thousand acres and hundreds of millions of tons
of iron ore. All the properties so controlled were leased on a very
profitable basis to the United States Steel Corporation. The Great
Northern Railroad itself did not retain control of the ore lands
but, through a trusteeship, gave a beneficial interest in them to its
stockholders in the shape of a special dividend.
The profits under this lease promised to be very large in the course
of time, but the Steel Corporation had the option to cancel after
a five-year period, and in 1912, as the result of a United States
Government suit for the dissolution of the Steel Corporation, the
lease was canceled. Since that time the trustees of the ore lands have
executed other leases, and the Great Northern ore certificates are
bringing in a substantial return to their owners.
The three Hill lines--the Great Northern, the Northern Pacific, and
the Chicago, Burlington and Quincy--have been unusually profitable.
The Great Northern and the Northern Pacific have steadily paid liberal
dividends to their stockholders on increasing amounts of capital stock;
and the Burlington, whose whole stock is owned by these two roads,
has also handed over liberal profits year by year, at the same time
accumulating an earned surplus of more than one hundred million dollars
and spending an almost equal amount of profits on the improvement and
maintenance of the property. The Burlington today controls the Colorado
Southern, which extends southward from the Burlington lines in Wyoming,
passing through Denver, Pueblo, Fort Worth, and other points southward
to the Gulf.