In the year 1856 a small single-track railroad was opened from Richmond
to Danville, Virginia. This enterprise, like many others in ante-bellum
days, was carried out largely with funds supplied by the State. As long
afterwards as 1867, three-fifths of the stock was owned by the State of
Virginia, but soon after this time the State disposed of its investment
to a railroad company operating a line in North Carolina from Goldsboro
westward to Greensboro, and projected southward to Charlotte. In modern
times, this little road, like the Richmond and Danville, has become an
integral part of the Southern Railway system, but in those days it was
controlled, curiously enough, by the Pennsylvania Railroad Company.
After 1867 the new owners of the Richmond and Danville began
aggressively to extend their lines. By leasing the North Carolina
Railroad, a small property forming a link with the Greensboro line, they
created a through route from Richmond to Charlotte. By 1874 they had
built the road southward to Atlanta, Georgia, and had thus formed
the first continuous route from Richmond to that city. Because of the
extreme disorder and depression in the South during the years after the
Civil War the line did not prosper and was sold under foreclosure
about 1875. But the company was reorganized in 1878 and acquired the
Charlotte, Columbia and Augusta, thus extending its lines into the heart
of South Carolina and tapping a rich territory. During these early years
the Pennsylvania Railroad interests, which still held control, supplied
the funds necessary for making improvements.
At the same time that the Richmond and Danville was linking up
the commercial centers of the southern Atlantic seaboard, another
system--known as the East Tennessee, Virginia and Georgia--was being
built up in the Appalachian Mountains to the west. This property and its
predecessors had to some extent been state-owned enterprises at first,
but in 1870 the Pennsylvania Railroad interests acquired control. A
holding company called the Southern Railway Securities Company was now
formed for the purpose of controlling all the Pennsylvania Railroad
interests south of Washington. Besides the properties mentioned,
this Securities Company soon obtained several other Atlantic seaboard
properties extending from Richmond to Charleston, and also the Memphis
and Charleston Railroad, running from Memphis to Chattanooga.
Thus at this early day a considerable railroad system had been welded
together in the South, reaching many points of importance and forming
direct connection at Washington with the northern properties of the
Pennsylvania system. Had this experiment been successful, we would
perhaps today reckon the great Southern Railway system as part of the
Pennsylvania group. But the outcome was disappointing; the roads did not
prosper; and soon the poorer sections began to default. The Pennsylvania
then disposed of its interests and left the roads to shift for
themselves.
The East Tennessee was the best of these minor lines, and in 1877
it began to acquire others extending through the South. Soon it had
penetrated the heart of Alabama, reaching what is today known as the
Birmingham district. Additional extensions were made to Macon and Rome,
Georgia, and on the north an alliance was arranged with the Norfolk and
Western, while with a view to securing some of the business of the West,
a connection was constructed at Kentucky-Tennessee state line. Such was
the condition of the East Tennessee property by the end of 1881. In the
meantime the Richmond and Danville had practically stood still.
About this time a definite revival set in throughout the South as the
long-drawn-out period of depression following the war came to an end.
Railroad activity revived, and both the East Tennessee, Virginia and
Georgia and the Richmond and Danville roads passed into the hands of new
and more aggressive interests. The new owners constructed the Georgia
Pacific, which ultimately stretched across Alabama and Mississippi.
To finance this enterprise and to consolidate their interests, a new
holding company--the Richmond and West Point Terminal Railway and
Warehouse Company--was formed in 1881 with large powers and authority
to acquire the stocks and bonds of railroad properties in many Southern
States. In addition to the properties already named, the Virginia
Midland Railway was now acquired, and by 1883 the entire system had been
merged under this organization. The company also secured the control of
a line of steamboats running from West Point, Virginia, to Baltimore,
and made close traffic arrangements with the Clyde line of steamers
running between New York and Philadelphia and all important Southern
points.
The personality at the head of the Richmond and West Point Terminal
Railway and Warehouse Company was Calvin S. Brice, a man who had become
increasingly prominent in railway affairs in the Southern States. Brice
was something of a genius at combination and by 1883 had linked together
and solidified the various properties in a very efficient manner.
Nevertheless the competitive conditions of the time, combined with
the necessarily more or less crude and hazardous methods adopted in
financing and capitalizing the enterprise, prevented the credit of
the organization from reaching a sound and secure level. The Tennessee
properties especially proved an encumbrance, and they were almost
immediately threatened with bankruptcy. Brice therefore decided to
reorganize these subsidiary lines, and a new company called the East
Tennessee, Virginia and Georgia Railway took over this section of the
system in 1886.
In the meanwhile the Richmond and Danville properties, which were
themselves becoming burdened with an ever growing debt, gave the Brice
interests constant trouble. A large amount of the stock of the Richmond
and Danville, as well as most of its bond issues, remained still
outstanding in the hands of the public. Consequently the only way
in which Brice and his friends could save the Richmond and Danville
property from completely breaking up was to merge it more closely with
the holding company in some way. But the credit and standing of the
holding company itself were anything but high, for in addition to paying
no dividends it had piled up a heavy floating debt of its own and had a
poor reputation in Wall Street.
The situation thus becoming acute, the management carried through a
remarkable stock-juggling plan. Instead of merging the Richmond and
Danville directly into the West Point Terminal Company, the directors
secretly decided to turn the Terminal Company assets over to the
Richmond and Danville without apprising the stockholders of the Terminal
Company. In conformity with this plan, early in 1886 the Richmond and
Danville leased the Virginia Midland, the Western North Carolina, and
the Charlotte, Columbia and Augusta railroads, and later in the year the
Columbia and Greenville and certain other small lines. At about the
same time the Richmond and Danville obtained in some unknown way large
amounts of the Terminal Company stock, a portion of which it now
issued in exchange for stocks and bonds of certain of these subsidiary
companies which it had leased. Having carried through these transfers,
the Richmond and Danville then threw the remainder of its Terminal
Company stock on the market, where it was bought by investors who knew
nothing about these secret transactions.
The Terminal Company was now left high and dry so far as the Richmond
and Danville was concerned. But at this juncture a surprising thing
happened. The management of the Terminal Company, in its turn, began to
buy shares of Richmond and Danville stock and in a short time regained
its former control. This shifting of power exactly reversed the
situation which had previously existed, when the Terminal Company itself
had been controlled by the Danville Company. These changes were followed
by a further move on the part of the Brice and Thomas interests,
which now formed a syndicate and turned over to the Terminal Company a
majority of the stock of the East Tennessee Company for $4,000,000 in
cash and a large amount of new Terminal Company stock.
When these transactions had been accomplished, the Terminal Company
found itself once more securely in control of the entire system, and the
Brice and Thomas interests had incidentally very considerably increased
their fortunes and also their hold on the general situation. From this
time, the Terminal Company went aggressively forward in an ambitious
plan for further expansion. By acquiring control of the Central Railroad
and Banking Company of Georgia, the Terminal management was involved
with new financial interests which immediately sought to control the
system and to eliminate the Brice and Thomas group. The consequent
internal contest was adjusted, however, in May, 1888, by electing as
president John H. Inman, a man who had been identified with the Central
Railroad of Georgia system.
The Richmond Terminal system now put in motion further plans for
expansion. In 1890 it acquired a system of lines extending south from
Cincinnati to Vicksburg and Shreveport, known as the Queen and Crescent
route, and in the meantime made a close alliance with the Atlantic Coast
Line system. By the end of 1891 the Richmond Terminal system embraced
over 8500 miles of railroad, while the Louisville and Nashville, the
next largest system in the Southern States, had only about 2400 miles.
But as 1891 opened, the vast Richmond Terminal system was perilously
near financial collapse. Notwithstanding the great value of many of
the lines, its physical condition was poor; the liabilities and
capitalization were enormous; and much of the mileage was distinctly
unprofitable. About this time many disquieting facts began to leak out:
during the previous year the Richmond and Danville had been operated at
a large loss, and this fact had been concealed by deceptive entries on
the books; the dividends, paid on the Central Railroad of Georgia stock
had not been earned for some years; and the East Tennessee properties
were hardly paying their way.
Various investigating committees were now appointed, and finally a
committee headed by Frederic P. Olcott of New York took charge and
worked out a complete plan of reorganization. The scheme, however, met
with strenuous opposition, and thus matters dragged on into the panic
period of 1893, when the entire system went into bankruptcy and into
the hands of receivers. The various sections were operated separately
or jointly by receivers during this unsettled period, and it looked for
some time as though an effective reorganization which would prevent
the properties from entirely disintegrating could not be successfully
accomplished.
In the dark days of 1893, after Olcott and the Central Trust Company had
failed to effect a reorganization of the Richmond Terminal system, a new
interest came to the rescue, represented by the firm of J. P. Morgan and
Company, whose growing reputation was due to the unusual personality
of J. P. Morgan himself. He was essentially an organizer. The railroad
properties which had become more or less identified with the Morgan
interests had for the most part prospered. It was felt that Morgan's
banking-house was the only one in Wall Street which might be equal to
the task. The proposal was made to him; he did not invite it. In fact,
it is said that for some time he was much opposed to taking hold of this
disintegrated and broken-down system of railroads operating largely in
poor and unprogressive sections, populated for the most part by negroes.
Said Morgan, "Niggers are lazy, ignorant, and unprogressive; railroad
traffic is created only by industrious, intelligent, and ambitious
people."
After months of discussion, however, Morgan finally agreed to undertake
the task, and out of the previous chaos there emerged the Southern
Railway Company, which has been closely identified with Morgan's
name ever since. Probably of the many railroad systems which Morgan
reorganized from 1894 down to the time of his death, no system has
become more distinctly a Morgan property than the Southern Railway
Company.
The plan of reorganization whereby this great aggregation of loosely
controlled and poorly managed Southern railroads was welded together
into an efficient whole was a very drastic one in its effect on the old
security holders. Debts were slashed down everywhere, assessments
were levied, and old worthless stock issues were wiped out. Valueless
sections of mileage were lopped off, and an effort was immediately made
to strengthen those of real or promising value. Millions of dollars
of new capital were spent in rebuilding the main lines; terminals
of adequate scope were constructed in all centers of population; and
alliances were made with connecting links with a view to building up
through traffic from the North and the West.
The first ten years of the Southern Railway system under the Morgan
control were practically years of rebuilding and construction. While
after ten years of work the main system still radiated through most
of the territory already occupied in a crude way in 1894, yet it had
acquired a large number of feeders and smaller railroads in other
sections. The Mobile and Ohio, operating with its branches about one
thousand miles from Mobile to St. Louis, Missouri; the Georgia Southern
and Florida, furnishing an important connection from the main system
to various points in the State of Florida; the Alabama Great Southern,
operating in and near the Birmingham district of Alabama--all these
properties were molded into the system during these years. The system
was then rounded out toward the North and consolidated through joint
control, with the Louisville and Nashville, of the Chicago, Indianapolis
and Louisville Railroad, which operated lines northward into Ohio
and Illinois and on to Chicago. Thus, with the lines of the Queen and
Crescent route running southward from Cincinnati to New Orleans, the
system secured a direct through line from its various southern points to
the shores of the Great Lakes.
In addition to these developments, the management of the Southern
Railway system arranged direct connection with Washington through the
joint acquisition with other lines of the Richmond, Fredericksburg and
Potomac; it made traffic arrangements with the Pennsylvania and the
Baltimore and Ohio systems to Baltimore, Philadelphia, and New York; and
it also developed close alliances with the coastwise steamships plying
northward from various Southern points.
In the reorganization of 1894 the Central of Georgia Railway system
was cut off and separately reorganized, although it remained under the
control of Morgan for a number of years. Finally in 1907 Morgan sold
his Georgia properties to Charles W. Morse. They subsequently passed to
Edward H. Harriman, who afterwards merged them into the Illinois Central
system, under which control they have since remained.
As compared with the old Richmond Terminal aggregation with its
broken-down rails and roadbed, poor equipment, and miserable service,
the modern Southern Railway system shows startling changes. The Southern
States have grown enormously in population and wealth during the last
generation; the industrial activities of the South at the present time
are elements of large importance to the country as a whole. Cities have
vastly increased in population; new towns and manufacturing districts
have been built up; and at the present there is scarcely a mile of
unprofitable railroad in the entire 9000 miles under operation. In
recent years large soft coal deposits have been discovered and developed
on many of the branch lines, and today the coal tonnage of the Southern
Railway is exceeding the relatively unstable lumber tonnage of two or
three decades ago.